As Consumers Demand 'Natural,' Stevia Set to Become Blockbuster Product

Peter Pham
  JUN 05, 2013 12:22 PM

And as the stevia market grows, so will the profits of companies who invest in it, including, possibly, Coke and PepsiCo.

 


With the introduction of a reformulated Sprite, Coca-Cola (NYSE:KO) is taking a risk with one of its important brands to find new ways to retain customers more sensitive than ever about the adverse health effects of sugar and sweeteners. Artificial sweeteners make up a significant portion of the soft drink market, and both Coke's and PepsiCo’s (NYSE:PEP) last earnings reports revealed stagnant growth in major markets while emerging market growth is still proceeding apace.  The need to find ways to stimulate demand in the US and Europe is becoming acute, and the drive toward higher perceived food quality is one vector to turn around shrinking margins.

Stevia, unlike aspartame, saccharin, or sucralose is an extract from a plant, and therefore carries the connotation of being natural, which is becoming more and more important in today’s food and beverage market.  Ben & Jerry’s, a division of Unilever (NYSE:UL), made headlines recently with its pledge to eschew the use of GMO foods in its ice cream’s supply chain by 2015. 

The new Sprite formulation is a direct consequence of stevia being approved for use in the EU in 2011.  Pepsi has a reduced-sugar variant that it has introduced into Australia: Pepsi Next. While in the US, Pepsi Next relies on more common sweeteners like aspartame, in Australia, it uses stevia. PepsiCo appears to be using Australia as a test market while Coke is working the UK.

From a health perspective, stevia is metabolized both in the liver and the colon and its relative sweetness is similar to that of the other artificial sweeteners.  The metabolic process in the liver relative to aspartame, which produces methanol, is far milder and therefore is less taxing overall. 

Much of the criticism that has been thrown at stevia has been the same for all sugar substitutes, namely, that it tricks the body into expecting sugar and promoting higher blood insulin levels.  But, the real issue is the general overload of the liver and the development of metabolic syndrome and insulin resistance by a non-ketogenic diet, which the ingestion of aspartame does nothing to avoid. 

So, the search for a sweetener that is easier on the liver and has fewer side effects is the goal, and this is why stevia is now garnering attention.  The problem with it is the cost of production.  Its naturalness is also its market inhibition.  The steviol glycosides that make up what we call stevia have to be extracted from the leaves, isolated, and purified. The process is slow, inefficient, and expensive.  Moreover, like all plants, the conditions under which it grew affect the quality of the end product.  No one would mistake Colombian coffee for Jamaican Blue Mountain or Vietnamese Central Highlands.  That variability has held back stevia as a truly mass product. 

Because of this, those that find a better way to produce stevia reliably and consistently will reap serious benefits in this expanding market.  Coke, through its relationship with Cargill, recently invested in Swiss firm Evolva (SWX:EVE), which is working on a fermentation process to produce the relevant steviol glycosides.  That gives it an advantage over Pepsi even though, at present, both have stevia-as-alternative-sweetener brands on the market: Truvia (Coke) and PureVia (Pepsi).

For investors who are interested in more risk, there is a startup firm called Stevia First Corp (OTCMKTS:STVF). The company has its own fermentation process that has reached the pilot project stage for production readiness, according to a recent press release.   Moreover, it is working on methods to improve farming procedures, including pelletizing the seeds for direct planting, characterizing and optimizing the growth of stevia in California, and research into how growth conditions affect the array of steviol glycosides produced. 

Direct fermentation of simple sugars such as dextrose to produce stevia would be a game-changer for the economics of the product.  As a marketable commodity, stevia is in the early stages of its lifecycle, and awareness of it as an alternative to other artificial sweeteners is still growing.  A Google Trends search bears this out.  What's notable is that people are very interested in knowing the side effects first before making the switch.  This makes it clear that there is a strong health argument for future stevia demand which I feel gives it the potential for being a blockbuster product.

(See also: Healthy Foods That Aren't)
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