Market Playground: 2013 Could be a Good year for Growers, Producers, Investors
By Glen S. Woods
Stevia, the zero calorie natural sugar substitute, continues to grow in popularity. According to Packaged Facts of the U.S, the 2011 world stevia market, retail and wholesale, was somewhere between $800 million and $2 billion. While that is a spread of $1.2 billion, if one realizes that in 2008 stevia sales were a mere $20 million, taking the lower estimate of $800 million, that is quite a rise in sales. The rise can be attributed to stevia entering the lucrative mainstream U.S. market in December 2008, when the U.S. Food and Drug Administration (FDA) approved the use of stevia as a zero calorie sugar substitute. Three years later the EU followed suit approving stevia, and within a year Europe surpassed China to become the third largest market for stevia behind the U.S. and Japan. Countries approving the use of stevia continue to grow as last November Health Canada approved the sweet extract, with India and Thailand expected to follow with approvals soon.
Stevia is clearly a growing commodity; according to The World Health Organization it could eventually replace 20% to 30% of all dietary sweeteners. Considering that the total global sweetener market in 2010 was estimated to be $58.3 billion, stevia has the possibility of one day being an $11.6 billion to $17.4 billion market. It is no wonder that food and beverage manufacturers are developing and testing a number of new zero calorie and low calorie products utilizing stevia. However, manufacturers and producers have also been leery of moving too fast in bringing stevia products to market. Most of the stevia today is grown on small farms in China, and developing a consistent supply line with quality stevia at a low price has been a concern to food and beverage manufacturers and stevia producers. However, there are companies that are growing new strains of stevia and developing new methods of extracting the sweet steviol glycosides that could address the concerns of the market.
Below are companies of various sizes and risk tolerances that are positioning to be major suppliers of stevia, and might also sweeten investors’ wallets.
It is difficult to discuss stevia without including PureCircle Ltd. (LON:PURE, PINK:PCRTF), the world’s leading producer and marketer of stevia. PureCircle does not grow its own product, but has contracts with growers around the world, including South America, Africa, Asia, and recently the United States. Through its contracted farmers PureCircle has implemented a leaf breeding program with a goal to improve the quality and yield of the sweet steviol glycosides in the stevia leaves so the company can extract as much quality compound as possible. In doing so the company continues to develop a diverse variety of stevia plants that are bred to be the best suited for the various growing regions. In August PureCircle announced it received a Notice of Allowance from the U.S. Patent and Trademark Office for its patent application for a new high-yield variety of stevia, grown by PureCircle in several global markets, including Paraguay and Kenya.
Last year PureCircle made inroads in the U.S. market when it contracted with the S&W Seed Company (NASDAQ:SANW), a successful alfalfa grower in California’s Imperial Valley, to grow stevia for the company. Securing a grower in the U.S. was a wise move for PureCircle especially since it gives them a foothold in California’s central valley, one of the most fertile growing regions in the world; plus it opens the door to other growers in the state who wish to add stevia to their plant line. According to Grover Wickersham, S&W Seed’s chairman, “California’s famous for being able to grow pretty much anything as well or better than any other place in the world. We may not be able to compete with all the things that they make in China, but one area where California does compete, really effectively, is agriculture.”
In 2012 S&W Seed Company (SANW) harvested its first commercial crop of stevia on its 114-acre field in Chowchilla, and has planted a second generation field of approximately 150 additional acres using a selection of varieties that the company believes may have characteristics superior to those of the first generation. S&W Seed (SANW) is positioning itself to be a major grower in California as the company continues to add acreage to its already 11,000 acres, recently leasing another 114 acres in Calipatria in the Imperial Valley. The added acreage is needed to meet the company goal of 10 million pounds of seeds annually. The company expects its stevia revenue to grow in fiscal 2013 and fiscal 2014, but to remain a small portion of its total revenue for the foreseeable future.
S&W Seed, which has a market cap of $70.62 million, announced revenues in the second quarter of $13.7 million, up 189% from $4.7 million in the comparable period of the previous year. S&W Seed is a growing company, and with its entry into the stevia market, I believe over time it will only enhance the company’s bottom line. The stock closed on Wednesday February 27th at $8.77 per share, just shy of its 52-week high. However, the company has been aggressive recently as seen with its 54% growth on its core seed and crop revenues plus acquiring Imperial Valley Seeds last October, which in part helped the company’s rise in revenue. I like S&W Seed Company (SANW), and how the company continues to grow, and I wouldn’t be surprised to see the stock continue to rise.