Table of contents
The European food ingredients market comprises businesses that produce, distribute and trade different kinds of food ingredients. As such, we have segmented the market into: (i) milled products & baking ingredients, (ii) protein & dairy ingredients, (iii) food additives, (iv) spices & sauces and (v) mixed.
The broader food ingredients market remains fragmented. While there are leading generalists, such as International Flavors & Fragrances (US), Cargill (US) and DSM-Ferminich, the market is also characterised by a long tail of smaller, local champions. The European market is expected to consolidate going forward, with acquisitive drivers mostly relate to product portfolio expansion, acquiring innovative technologies and strengthening market positions.
Overall investor interest has been limited, with ~30% of assets receiving financial backing (as of June 2023). The protein & dairy ingredients segment has received the most interest from sponsors, with ~50% of identified players being investor-backed. The alternative protein niche segment presents a high risk-reward ratio for investors, as a significant amount of capital is needed to develop alternative proteins, with most still being in their infancy. However, the upside in the case of successful product development is substantial. PE-led interest in the broader food ingredients market stems from the market's underlying demand increase, backed by a growing global population and the non-cyclical nature of the food production end-market.
ESG topics primarily relate to environmental and social issues. From an environmental perspective, the broader agriculture industry accounts for ~17% of global greenhouse emissions and uses significant amounts of energy and water. To limit their impact, incumbents focus on using sustainable raw materials and limiting food waste throughout the production process. Social issues primarily revolve around working conditions throughout the supply chain. A large part of the ingredients is sourced from Asia, where working conditions are generally lower than in Europe. To ensure compliance, larger incumbents require mandatory audits for their suppliers, aside from unannounced visits to their sourcing partners to check if working conditions are met.
Statista (May 2023; i) estimated that the global food market reached ~€8.0tn revenue in 2022 and forecasts it to grow to ~€12.53tn by 2028 (+7.8% CAGR 2022-2028)
Technavio (December 2022) estimated that the global functional food ingredients market generated ~$116.3bn in sales in 2022 and expects it to reach ~$164.4bn by 2027 (+7.2% CAGR 2022-2027)
The European sauces & spices market is forecasted to reach ~€41.9bn revenue in 2023, with the expectation to grow to ~€55.2bn by 2028 (+5.7% CAGR 2023-2028; Statista, May 2023; ii)
Ongoing consumer health awareness favouring avoidance (e.g. 'free-from'), moderation (e.g. light), organic (e.g. biological) and functional (e.g. fibre, protein) food will continue to drive demand for (novel) food ingredients (CBI, June 2023; FI Global, December 2022)
Twofold demand push from shifting consumer preference towards convenience – in the form of ready-to-eat, packaged foods and food/groceries delivery to support busy lifestyles – drives demand for enzymes and preservatives to ensure product durability and longevity and the surge in ethnic foods (e.g. Mexican, Asian) leading to increased demand for spices (CBI, April 2023; Deloitte, July 2020)
The underlying growth in global population, which is expected to reach ~9.7bn people by 2050 (+0.7% CAGR 2022-2050), will continue to drive consumer demand for food and, subsequently, food ingredients (interview by Gain.pro; United Nations, June 2023)
Ongoing supply-side pressure in the form of decreasing availability of arable land as well as seasonality and cyclicality of harvest cycles, translating into bottom-line margin pressure and decreased supply certainty (Corbion, March 2023, Tate & Lyle, July 2022; United Nations, October 2019)
Continuously evolving global food safety standards and laws require ongoing R&D and safety control investments to ensure compliance (Food Safety News, May 2022; Charles River, April 2021)
The unstable geopolitical climate (e.g. wars and trade barriers) significantly disrupts global food supply chains. To illustrate, in the 2020/2021 season, Russia and Ukraine accounted for ~19.1% of the global cereals trade (Brookings, June 2022). Additionally, trade barriers (e.g. India's restriction on flour exports) decrease global trade activity (Food Ingredients First, July 2022)
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