Stevia companies hit the sweet spot
The market for the sugar alternative could be worth billions.
The steviol glycoside that is the main ingredient in what we know as stevia is Rebaudioside A. Reb-A has limited use as a sweetener on its own because of the associated bitterness. This is why we have seen soft drinks from Coke (KO) and Pepsi (PEP) use stevia in conjunction with sugar in so-called 'reduced calorie' offerings.
But we know all this. So, what's changed? According to the Wall Street Journal, Coke's research efforts with PureCircle have paid off with the isolation of what they are calling Reb-X, which Coke wants to use in a forthcoming version of its flagship product. This could result in huge demand for stevia, as one of the current drawbacks is Reb-A's poor taste profile in cola formulations. For both Coke and Pepsi, bringing a zero or near-zero calorie stevia cola to market would help performance in the U.S. and Europe, where unit sales and margins have been flat to negative in recent quarters.
PureCircle and Coke have begun GRAS -- Generally Regarded as Safe -- regulatory approval with the FDA for Reb-X. But they are not the only ones making progress in this area. Stevia First Corp (STVF) is confident that the fermentation process behind its 'Beyond Reb-A' program will convert lower value compounds into higher value glycosides like Reb-X and Reb-D, concentrating them in the final leaf extraction product.
Early stages of research have concentrated on producing more Reb-A by altering growing conditions. The latest research by Stevia First and Evolva, which Coke has invested in through its joint venture with Cargill, is now focused on using fermentation to convert the current leftover steviol glycosides into the commercially valuable forms. This type of production process is crucial to meeting future demand. Stevia has the promise of explosive growth, but without improved production methods that raise both quantity and quality, the current lofty WHO projection -- 20% of a $58 billion sweetener market -- will not be realized.
In addition to its fermentation research, Stevia First is working on growing the stevia plant in the Central Valley of California, as 90% of current growth is in China and there is a need to spread the geographic risk. The company is already confident enough to begin GRAS registration of its future products through an arrangement with GRAS Associates (Steviafirst.com). To support all of this, the company recently announced a $1.25 million equity sale at $0.34 per share, which explains the current weakness of the stock.
At this point Coke looks to have the upper hand in cutting-edge research into stevia with its partnerships and market share of its PureVia product, while Pepsi has been lagging. Startups like Stevia First have great promise catering to a market with poor infrastructure and huge growth potential.
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John Stumpf acknowledges that growth has been slow, but he says he's still optimistic.
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