Sugar and Stevia May Be the Perfect Blend for Consumers, Companies, and Investors --- Market Playground
By Henry Kawabe
With the consumer climate for healthier food and beverage products, will zero calorie natural sweeteners take a bite out of sugar’s sales? Judging by the major beverage companies offering zero calorie natural sweetener alternatives (like stevia) to their beverage line, stevia may be more than nibbling at the door of the sugar industry. If the large food and beverage producers have bet correctly, stevia may not just take a big chunk of the zero calorie beverage market, it may be solidifying its’ long-term presence in the food additive market. The Coca-Cola Company (NYSE:KO), PepsiCo Inc. (NYSE:PEP), and Kraft Foods Inc. (NASDAQ:KFT) have each developed products featuring steviol glycoside rebaudioside A (Reb A), the sweet extract from the leaves of the stevia plant. Even the caloric-based sweetener companies have been developing stevia products. Ingredion Inc. (NYSE:INGR), one of the world’s largest corn refiners– including high fructose corn syrup– introduced Enliten, a stevia based sweetener, as did Imperial Sugar Company (NASDAQ:IPSU) when it teamed up with the British company, PureCircle Limited (LON:PURE), to create a sugar and stevia blend called Steviacane.
As pertaining to sweetened beverages, until recently there were relatively two choices: full calorie products or zero calorie products. Those two choices have ignored a large segment of the population — people who want to cut their sugar consumption down but not lose taste or texture. The food and beverage industry have understood this and have attempted over the years, with little success, to address the issue. Now there is a third alternative developing: blending. According to James Kempland, vice president of marketing for Sweet Green Fields, LLC (SGF), the first U.S. company to commercialize and patent the extraction of high purity Reb-A, “Blending all-natural stevia extracts with other forms of sugar, such as fructose or sucrose, helps to create excellent-tasting products. Food and beverage manufacturers who target this mid-calorie (market) have been successful.” Kempland foresees the mid-calorie products as the future of beverages. “By blending stevia and sugar or high-fructose corn syrup, consumers get an all-natural, great tasting and ‘good-for-you’ product that also has fewer calories.”
PepsiCo, along with The Whole Earth Sweetener Company, developed their stevia product, PureVia, and it can be found in the popular Tropicana juice blend, Trop50, which boasts 50% less sugar. Coca-Cola and Cargill’s Truvia, Wisdom Natural Brands’ SweetLeaf, and Imperial Sugar Company’s Steviacane now have sugar and stevia blends stating anywhere from 33% to 75% fewer calories, yet maintaining the sugar taste, texture, and browning when used in baking.
Considering the global sweetener market is a $56 billion dollar industry, it’s no wonder why the major multinational food and beverage companies are investing heavily in stevia-based products. According to the August 2011 report by the market research firm Mintel, the global market for stevia sweeteners by mid-2011 reached $500 million and is expected to reach $825 million by 2014.
Coca-Cola, along with the privately held Cargill Inc., marketers of food and agricultural products, jointly produce Truvia which can already be found in over 30 Coca-Cola products around the world, including Coca-Cola’s own Sprite and Nestea brands, Kraft Foods’ Crystal Lite, and Odwalla sugar free smoothies. Already, Truvia is showing up in products other than beverages, such as Tillamook light yogurt and Nimble Bars by Santa Barbara based Balance Bar Company. Ice cream makers are also getting into the act: Iskream, the small boutique Connecticut ice cream maker, features stevia in their products, as does the 40 degree below zero Dippin Dots.
With all these major food producers clamoring for more stevia, an issue that may slow down the forward momentum could be quality of product and a continuous supply chain. Almost all the stevia today is grown outside the US, with China dominating the market, while smaller farms in Vietnam, Indonesia, and South America are also harvesting stevia. The reliability factor in both harvest and quality of the sweetness (Reb A) has been in question, and that can be one of the major factors in slowing stevia from expanding rapidly in products found in the US. However, there are some micro cap companies in the states that are making an effort to grow quality stevia products for the marketplace. A central California based company has entered the stevia market in what may be a big way.
Stevia First Corp. (OTC:STVF), a micro-cap development stage company from Yuba City, California, recently leased 1000 acres dedicated to growing stevia in one of the nation’s most productive and fertile growing regions, the central valley of California. To put the size of 1000 acres in perspective, NYC’s Central Park is 843 acres. With their R&D operational, Stevia First plans to be the first vertically-integrated stevia enterprise in the U.S., developing stevia seeds and tissue propagation high in REB A. According to the company, they are crossbreeding high grade stevia seeds and seedlings that yield disease-resistant plants with leaves that contain more of the better-tasting steviol glycosides, Reb A. In their latest 10K filing the company noted: “developing a variety of stevia leaf with significantly higher Reb A content would allow for larger volumes of high-grade stevia extract with lower raw material (leaf) costs.” The one thing that seems certain is that there is a growing need for more quality stevia to be produced. The sweetening agents in stevia are found in the leaves. They are comprised of steviol glycosides, one of which– Rebaudioside A (Reb A) — happens to be 250 to 450 times sweeter than sucrose and has been determined to be the sweetest and best tasting of the stevio glycosides.
The food and beverage giants already have a hold on most of the diet drink market, so adding stevia probably won’t raise their bottom line, just shuffle the deck sideways. But the big profits just might be in the non-beverage diet food market, chocolate, baked goods, candy, jellies, and preserves, just to name a few. There are millions of people chomping at the bit for a sugar free or low calorie great tasting desert, and a Reb A blend might just be the answer. According to the World Diabetes Foundation, 285 million people worldwide live with diabetes, and they estimate that the numbers will grow to 438 million by 2030. According to the website, Diabetics Health: “Not only is stevia useful as a sweetener, it also has many health benefits as well. Rather than raise blood sugar, like most other natural sweeteners, stevia actually lowers it. Research from the Journal of Phytomedicine shows that stevia helps control blood glucose and promotes insulin creation”.
Clearly, consumers have becoming aware of the dangers of too much sugar in their diets. Recently CBS’s 60 Minutes aired a story on Dr. Robert Lustig, a pediatric endocrinologist from the University of California, San Francisco, and his war against sugar. According to Dr. Lustig, sugar– more than any other substance– is to blame for the obesity epidemic, type II diabetes, hypertension, and heart disease.“The American lifestyle is killing us. And seventy-five percent of it is preventable.” So how can an investor profit from such news? Given that the US weight loss market is a $60.9 billion market, if stevia and stevia sugar blended products can indeed replace some, or all of the sugars in beverages and food products, investing in the giant corporations that have added and continue to add stevia to their product line should only benefit their bottom line. However, for a more risky investment that might just bring in larger financial gains, one might want to look at the micro companies that are developing and growing a stevia plant that is higher in Reb A, such as Stevia First Corporation (OTC:STVF).
Investors must perform their own risk assessment and determine if the higher upside potential in STVF offsets the risks associated with investment in a small capitalization company with no current revenue and trades on the less liquid OTCBB markets rather than the larger exchanges that have more liquidity and less share price manipulation. KO, PEP, KFT, INGR, SGF and others not mentioned will likely benefit from their increased exposure to the mid-calorie market, and they are most likely the safest bet for exposure to this revolution in the world’s changing diet. However, with this lower level of risk also comes a smaller upside potential due to already high market capitalizations of over a $1 billion for each of these except for SGF’s $135 million which could offer comparable upside potential also seen in STVF.