A brief review of the sugar substitute industry

Historical review: the three stages of global sugar substitution history

Phase 1.0, the fructose syrup substitution phase, benefited from technological upgrades that overturned the original sweetness-to-price ratio. In front of the huge cost advantage, Coca-Cola and PepsiCo replaced all the cane sugar in their own products with fructose glucose syrup in the early 1980s. After the industry leaders turned the corner, the remaining food and beverage companies followed suit. Within just a few years of the two opinion leaders, Coca-Cola and PepsiCo, raising the flag for sugar, U.S. consumption of fructose glucose syrup surpassed that of cane sugar.

Phase 2.0, the non-sugar-raising sweetener substitution phase, technological upgrades made mass production possible, coupled with the rise of health needs related to sugar reduction, the world entered the sugar alcohol substitution phase in the early 21st century. After the safety of sugar alcohol products have been certified by the food safety of various countries, the world through technological transformation and process upgrading, the industrialization of xylitol, sorbitol and other products to achieve mass production. In 1984, Wrigley launched its first sugar-free chewing gum, "Ida", in the U.S., and it grew to more than $3 billion in annual sales in 2009. Subsequently, the substitution of sugar by sugar alcohol sweeteners continued to intensify, catalyzed by the introduction of sugar tax policies in more than 20 countries, including Mexico and the United Kingdom.

Phase 3.0, the iterative upgrade stage within the sugar substitute, health needs have been upgraded one after another, with the continuous progress of production process optimization, the era of iterative upgrade of sugar substitute has arrived. In 2018, with the burgeoning demand of Chinese consumers for health upgrade and the National Nutrition Plan 2017-2030 issued at the national level, Yuanqi Forest Sparkling Water was launched on the market with "0 sugar, 0 fat, 0 calories" and quickly led to the popularity of Erythritol. As soon as Yuanqi Forest Sparkling Water was launched, it gained the hearts of people with "0 sugar, 0 fat, 0 calories" and quickly led to erythritol becoming an explosive product. According to the prospectus of Sanyuan Biologicals, the yield of the leading enterprise Bowling Green was about 40.5%+ in 2009, and the comprehensive yield of Erythritol of Sanyuan Biologicals is about 47.85%-49.50% in 2018-2020, which will lead to the release of capacity for the vigorous development of downstream demand market.

The necessary conditions for sugar substitution: demand + sweet price ratio drive, policy + opinion leaders catalyst

Demand upgrade is a necessary factor for each stage of the change of the trend, sweet price ratio is an important factor in the choice of varieties within the trend, the policy is the amplifier of the change of the trend, and the opinion leaders stand on the flag is the gas pedal of the breakthrough of varieties.

Global sweetener production scale exceeds 10 million tons, and the proportion of non-glycemic sweeteners is only 10%

Sweeteners can be divided into glycemic sweeteners and non-glycemic sweeteners according to whether they cause changes in blood sugar, among which starch sugar and non-glycemic sweeteners in glycemic sweeteners are alternatives to traditional raw sugar and can be collectively called sugar substitutes. Given their blood sugar-friendly health properties, non-glycemic sweeteners have been gradually recognized and consumed by the public in recent years. They can be divided into artificial sweeteners and natural sweeteners based on whether they exist in nature or not. Among them, natural sweeteners are more in line with the contemporary pursuit of health and quality needs, overlapping with the continuous iterative upgrade of industrial mass production, is entering a period of rapid development.

Sugar substitute manufacturing is positioned in the midstream of the industry chain, and its profitability should not be underestimated

The sugar substitute manufacturing industry is positioned in the midstream, taking over the agricultural and consumer and medical industries. The upstream of the sugar substitute industry chain is mainly for agricultural enterprises with corn deep processing business, and the downstream is mainly for consumer enterprises with brand name. The upstream is mainly subject to fluctuations in agricultural prices, while the downstream is mainly subject to changes in consumer demand. From the perspective of ROE, the sugar substitute manufacturing industry is highly profitable. Upstream corn deep processing business ROE is about 5-15%, downstream brand side ROE is more differentiated, Coca-Cola ROE more than 40%, Yizi international ROE in the upper and lower 15%, the midstream sugar substitute manufacturing end of the epidemic + shipping + exchange rate multiple black swan impact, pure sugar substitute leading enterprises steady state ROE is generally in the 20-50% left.

Cost split: raw material cost depends on the industry, production efficiency is determined by the company's production level

The most important factor that determines the industrial preparation method of sugar substitute is the production cost. The main preparation methods of sugar substitutes are chemical synthesis, physical extraction and fermentation methods. From the laboratory point of view, most natural sweeteners are suitable for all three preparation methods, except for artificial sweeteners, which can only be produced by chemical synthesis. The most important factor that determines the industrial preparation method is the production cost. Erythritol, for example, has a low content in natural vegetables and fruits, physical extraction is not economical, and chemical synthesis will produce toxic by-products glycol, which affects the production efficiency, so finally fermentation has become the mainstream preparation method. At present, the most varieties of sugar substitutes are industrially produced by chemical synthesis method in the market. At this stage, the mainstream sugar alcohols except erythritol are prepared and produced by the chemical synthesis method, and their production lines are switchable to some extent due to the high similarity of the preparation steps.

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