Murray Hunter Essential Oils

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Essential OilsMurray Hunter

Transcript of Murray Hunter Essential Oils

  • ESSENTIAL OILS: ART, AGRICULTURE,

    SCIENCE, INDUSTRY AND

    ENTREPRENEURSHIP (A FOCUS ON

    THE ASIA-PACIFIC REGION)

  • ESSENTIAL OILS: ART, AGRICULTURE,

    SCIENCE, INDUSTRY AND

    ENTREPRENEURSHIP (A FOCUS ON

    THE ASIA-PACIFIC REGION)

    MURRAY HUNTER SME UNIT

    University Malaysia Perlis

    Nova Science Publishers, Inc.

    New York

  • Copyright 2009 by Nova Science Publishers, Inc.

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    AMERICAN BAR ASSOCIATION AND A COMMITTEE OF PUBLISHERS.

    LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA

    Hunter, Murray.

    Essential oils art, agriculture, science, industry and entrepreneurship (a focus on the Asia-Pacific

    region) / Murray Hunter.

    p. cm.

    Includes index.

    ISBN 978-1-60741-865-8 (hardcover)

    1. Essences and essential oils industry--Pacific Area. 2. Essences and essential oils--Pacific

    Area. I. Title.

    HD9999.E783P32 2009

    338.4'7661806095--dc22

    2009025482

    Published by Nova Science Publishers, Inc. New York

  • In memory

    of

    my grandfather

    Leonard David Hunter

    (1911-1973)

    A self-made chemist

    A pioneer of essential oil based products

    in Australia

    A great entrepreneur and mentor to all

  • Murray Hunter vi

    Contents Library of Congress Cataloging-in-Publication Data ........................................................ iv

    Preface ............................................................................................................................. xiii Acknowledgements ............................................................................................................ 1 Introduction: The Development Issues ............................................................................... 3

    Introduction .................................................................................................................... 3 The Size of the Essential Oil Industry ............................................................................ 4 Definitions of Essential Oils and Other Natural Aromatic Extracts .............................. 9 Product Strategy Choices ............................................................................................. 11 The Development Issues............................................................................................... 13

    Global Warming, the Food and Financial Crisis .............................................................. 13 Market Turbulence .......................................................................................................... 15 Wild Collection and Threatened Plant Species ................................................................. 15 Bargaining Power of Producers ....................................................................................... 21 The Regulatory Environment............................................................................................ 22 The Rural Crisis .............................................................................................................. 24 Templating of Natural Aromatic Molecules ...................................................................... 24 Research ......................................................................................................................... 26 Sustainability ................................................................................................................... 27 Factors leading to Success and Failure ......................................................................... 28

    Planning and Opportunity Assessment ............................................................................. 29 Management and Organisational Issues ........................................................................... 29 Financial Issues ............................................................................................................... 31 Technical Issues .............................................................................................................. 31 Land Issues...................................................................................................................... 32 Marketing Issues.............................................................................................................. 32 Strategic Environmental Issues ........................................................................................ 33 Issues of Fate and Nature ................................................................................................ 33 References .................................................................................................................... 39

    The Nature of the Industry ............................................................................................... 43 Introduction .................................................................................................................. 43 The Flavour and Fragrance Industry ............................................................................ 43 Components of the Flavour and Fragrance Industry .................................................... 45 Essential Oil and Other Natural Product Producers ..................................................... 45 Wild Collection for Essential Oil Production ............................................................... 49 Small Holder Essential Oil Production ......................................................................... 49 Local Collectors ........................................................................................................... 52 Plantation Production of Essential Oils ........................................................................ 53 By-Product Production of Essential Oils ...................................................................... 53 Produce Brokers and Agents ........................................................................................ 56 Research Institutions and Universities ......................................................................... 57 Governments ................................................................................................................ 57 Producers of Animal Extracts ....................................................................................... 58 Essential Oil Producer Associations ............................................................................. 58 Chemical Feed-stock Manufacturers ............................................................................ 59 Aroma Chemical Manufacturers .................................................................................. 62 Specialty Fine/Aroma Chemical Manufacturers .......................................................... 63

  • Introduction: The Development Issues vii

    Trader/Exporter............................................................................................................... 64 International Trader ........................................................................................................ 64 Flavour and Fragrance Houses ..................................................................................... 65 Flavour and Fragrance House Subsidiaries .................................................................. 67 Flavour and Fragrance House Agent ............................................................................ 68 National Regulatory Systems ....................................................................................... 68 Standards Associations ................................................................................................. 69 End Product Manufacturers .......................................................................................... 69 Wholesalers and Retailers ............................................................................................ 71 Consumers and Derived Industry Demand ................................................................... 71 Essential Oils in the Cosmetic Industry ........................................................................ 72 Essential Oils in the Pharmaceutical Industry .............................................................. 73 Essentials Oils and the Aromatherapy Industry ........................................................... 74 Essential Oils as Intermediates in the Production of other Compounds ...................... 75 Essential Oils in the Organic Agro-chemical Industry ................................................. 77 The Value-Chain for Essential Oils .............................................................................. 78 References .................................................................................................................... 79

    The Phyto-chemistry of Essential Oils ........................................................................... 107 Introduction ................................................................................................................ 107 The Plant Metabolism ................................................................................................ 108

    Carbohydrates ................................................................................................................ 110 Lipids ............................................................................................................................. 111 Amino Acids ................................................................................................................... 111 Nucleotides ..................................................................................................................... 112 The Metabolic Pathways ............................................................................................ 114

    Secondary Metabolites and Plant Defence Systems .......................................................... 117 Aromatic Compounds Found in Plants ....................................................................... 118 Some Important Aromatic Chemicals ........................................................................ 128

    Terpene Hydrocarbons ................................................................................................... 128 Phenols .......................................................................................................................... 131 Alcohols ......................................................................................................................... 132 Aldehydes ....................................................................................................................... 136 Lactones ......................................................................................................................... 148 Nitrogen Compounds ...................................................................................................... 149 Sulphur Compounds........................................................................................................ 150 Other Groups ................................................................................................................. 151 The Analysis of Essential Oils ................................................................................... 152

    Chromatography ............................................................................................................ 155 Gas Chromatography-Mass Spectrometry (GC-MS) ........................................................ 158 Other Methods of Analysis .............................................................................................. 158 Multidimensional Chromatography ................................................................................. 159 Gas Chromatograph and GC- Mass Spectrometry Headspace Analysis ........................... 160 Thin Layer Chromatography ........................................................................................... 160 Infrared (IR) Spectroscopy .............................................................................................. 161 Nuclear Magnetic Resonance (NMR) .............................................................................. 161 Atomic Absorption Spectroscopy ..................................................................................... 162 Ultra-Violet (UV) Spectroscopy ...................................................................................... 164 Electronic Nose (E-Nose) ................................................................................................ 164 References .................................................................................................................. 165

  • Murray Hunter viii

    Developing Essential Oils .............................................................................................. 215 Introduction ................................................................................................................ 215 Exploring the Potential of Essential Oil Production ................................................... 216 The Level of Commitment ......................................................................................... 217 Challenges and Failure ............................................................................................... 220 Risk and Uncertainty .................................................................................................. 223 Some General Success Characteristics ....................................................................... 226 Strategy....................................................................................................................... 226

    The Essential Oil development Process ........................................................................... 231 References .................................................................................................................. 233

    The Screening and Regulatory Process .......................................................................... 235 Introduction ................................................................................................................ 235 Opportunities for Essential Oil Development ............................................................ 236 The Screening Process ................................................................................................ 238 Sources of Potential Plant Opportunity Identification ................................................ 240

    Bio-Prospecting .............................................................................................................. 240 Desktop Studies .............................................................................................................. 241 Screening for Development Potential ......................................................................... 241 The Characteristics and Classification of Essential Oils ............................................ 245 Evaluating the Characteristic Strengths and Weaknesses of Essential Oils .............. 247 The Regulatory Environment ..................................................................................... 249

    The European Market ..................................................................................................... 250 Food Additives and Flavour Materials ............................................................................ 250 The European Chemicals Agency (EHCA) ....................................................................... 251 Biocidal Products Directive ............................................................................................ 255 Scientific Committee on Consumer Products (SCCP) ...................................................... 259 The United States ............................................................................................................ 262 Flavours and Food Additives .......................................................................................... 262 Fragrance Ingredients and Cosmetics ............................................................................. 263 Pesticides and Biocidal Products .................................................................................... 265 FDA Globalization Act of 2008 ....................................................................................... 265 Japan ............................................................................................................................. 266 Food Additives and Flavours .......................................................................................... 266 Fragrance Ingredients and Cosmetics ............................................................................. 266 The Agricultural Chemicals Regulation Law ................................................................... 269 The Chemical Substances Control Law ........................................................................... 269 Australia and New Zealand ............................................................................................. 269 Food Standards Australia New Zealand (FSANZ)............................................................ 269 The National Industrial Chemicals Assessment Scheme (NICNAS) ................................... 271 The National Registration Scheme Australian Pesticides and Veterinary Medicines

    Authority ........................................................................................................................ 272 The ASEAN Region ......................................................................................................... 272 Indonesia ........................................................................................................................ 273 Malaysia ........................................................................................................................ 274 Thailand ......................................................................................................................... 274 Vietnam .......................................................................................................................... 276 The Philippines ............................................................................................................... 277 Consequences for Screening by the International Regulatory Framework ........................ 279 References .................................................................................................................. 280

    The Development Planning Process ............................................................................... 289

  • Introduction: The Development Issues ix

    Introduction ................................................................................................................ 289 Environmental Analysis ............................................................................................. 290

    1. Rivalry Among Competitors ........................................................................................ 291 2. The Threat of New Entrants ........................................................................................ 292 3. Bargaining Power over Suppliers ................................................................................ 292 4. Bargaining Power over Buyers.................................................................................... 293 5. Substitutes .................................................................................................................. 294 Factoring in the Dynamic Evolution of the Industry .................................................. 295 Collating the Information into a Picture ..................................................................... 297 Developing a Basic Strategy ...................................................................................... 300 Essential Oil Trade Price Fluctuations ....................................................................... 307 Totally New Essential Oils ......................................................................................... 310 The Basic Principal Strategies of Essential Oil Development ................................... 311

    Overall Cost Leadership ................................................................................................. 311 Differentiation ................................................................................................................ 312 Focus ............................................................................................................................. 312 Market Analysis ......................................................................................................... 314 Supply Chain .............................................................................................................. 318 Selection of Basic Market Strategies .......................................................................... 318 Planning Field and Technical Development ............................................................... 320 References .................................................................................................................. 329

    The Field Development Process ..................................................................................... 332 Introduction ................................................................................................................ 332 An Agricultural Enterprise as a System ..................................................................... 332 Climate Change .......................................................................................................... 336 Project Preparation and Early Work ........................................................................... 338 Climate and Moisture ................................................................................................. 339 Plant Aromatic Material Composition and Pathways ................................................. 343 Selection and Acquisition of Genetic Material for Planting ...................................... 347

    Seed Collection ............................................................................................................... 350 Improvement of Genetic Material through Recurrent Selection ........................................ 352 Land Selection ................................................................................................................ 353 The Socio-Economic Environment................................................................................... 355 Overall Land Topography-Ecology ................................................................................. 356 Altitude........................................................................................................................... 359 Soil ................................................................................................................................. 360 Infrastructure ................................................................................................................. 365 Potential Crop Cycles ..................................................................................................... 365 Procurement ................................................................................................................... 366 Economics ...................................................................................................................... 366 Environmental Assessment .............................................................................................. 366 Local and Governing Laws ............................................................................................. 366 Farm Design .................................................................................................................. 368 Propagation and Planting Material Development ....................................................... 368

    Vegetative Propagation .................................................................................................. 375 Cuttings .......................................................................................................................... 376 Budding and Grafting ..................................................................................................... 377 Micro-propagation and Tissue Culture............................................................................ 377 Fertilisers ....................................................................................................................... 383

  • Murray Hunter x

    Pest and Disease Control ................................................................................................ 383 Weed Control ................................................................................................................. 384 Field Development Preparation and Planting .......................................................... 384

    Fire Breaks..................................................................................................................... 388 Planting ......................................................................................................................... 389 Plant Populations and Spacings ...................................................................................... 390 Determining the Optimum Cultivation Parameters through Research and Demonstration

    Plots ............................................................................................................................... 391 Crop Field Maintenance ............................................................................................. 394

    Fertilisers ....................................................................................................................... 395 Weed Control ................................................................................................................. 399 Pest and Disease Control ................................................................................................ 407 The Level of Farm Mechanisation ............................................................................. 413 The Size of Farm Machinery ...................................................................................... 418 Harvesting .................................................................................................................. 422 Selection and Design of Extraction System ............................................................... 426

    Distillation Effluent ........................................................................................................ 436 Potential By-Products from the Distillation Process ........................................................ 436 Storage Facilities ........................................................................................................ 437 Good Agricultural Practice (GAP) ............................................................................. 439 Financial Modelling, Feasibility and Evaluation ........................................................ 442 References .................................................................................................................. 448

    The Organic Production of Essential Oils ...................................................................... 460 Introduction ................................................................................................................ 460 Basic Organic Farming Concepts and Practices ......................................................... 470 Crop Rotation ............................................................................................................. 472 Cover Crops and Green Manures ............................................................................... 472 Animal Manures ......................................................................................................... 475 Intercropping .............................................................................................................. 476 Composting ................................................................................................................ 480 Mulching .................................................................................................................... 484 Crop Diversity ............................................................................................................ 486 Natural Fertilizers, Minerals and Supplements .......................................................... 487 Insect and Disease Control ......................................................................................... 490

    Biorational Pesticides ..................................................................................................... 496 Particle Film Barriers .................................................................................................... 497 Insecticidal Soaps and Plant Oils .................................................................................... 497 Botanical Pesticides........................................................................................................ 498 Weed Control ............................................................................................................. 501 Tillage......................................................................................................................... 504 Farmscaping ............................................................................................................... 505 Planning and Site Selection ........................................................................................ 505 Certification ................................................................................................................ 507 Integrity and Record Keeping .................................................................................... 509 Organic Farming in the Asia-Pacific Region ............................................................. 509 Conclusion .................................................................................................................. 510 References .................................................................................................................. 511

    The Application of Essential Oils................................................................................... 524

  • Introduction: The Development Issues xi

    Introduction ................................................................................................................ 524 The Classification of Odours ...................................................................................... 525

    The Floral Family........................................................................................................... 528 The Woody Family .......................................................................................................... 529 The Animalic Family....................................................................................................... 530 The Balsamic Family ...................................................................................................... 530 The Agrestic Family ........................................................................................................ 531 The Coniferous Family ................................................................................................... 531 The Marine Family ......................................................................................................... 531 The Aldehydic Family ..................................................................................................... 532 The Medicated Family .................................................................................................... 532 The Fruity Family ........................................................................................................... 532 The Citrus Family ........................................................................................................... 533 The Green Family ........................................................................................................... 533 The Mint Family ............................................................................................................. 534 The Spicy Family ............................................................................................................ 534 The Herbaceous Family .................................................................................................. 535 The Classification of Flavours.................................................................................... 538 The Structure of a Fragrance ...................................................................................... 541 New Products and Fragrance Development ............................................................... 544

    Flavours ......................................................................................................................... 552 The New Product Development Process .................................................................... 556 Types of New Products .............................................................................................. 561

    Product Life Cycles ........................................................................................................ 565 Ideation ....................................................................................................................... 568 Idea Screening and Opportunity Identification .......................................................... 570

    Concept Generation ........................................................................................................ 575 The Development and Launch Process ............................................................................ 590 Manufacturing Plant Design ........................................................................................... 590 A Case Example of Developing an In-cistern Blue Block Production System (Toilet

    Blue Water Block) ............................................................................................................. 592 The Development of the Molding Process ........................................................................ 593 The Development of the Extrusion Process ............................................................... 597 The Final Aspects of the Development and Launch ................................................... 600

    Intellectual Property ....................................................................................................... 600 Cosmetics and Personal Care Products ...................................................................... 606 The Case for Natural Fragrances ................................................................................ 614

    Natural Fragrances as Multifunctional Ingredients ......................................................... 624 The Future Prospects of Supply....................................................................................... 624 Natural Perfumery ...................................................................................................... 626

    Aromatherapy ................................................................................................................. 626 Household Products .................................................................................................... 634

    Laundry Products ........................................................................................................... 634 Pine Oil Disinfectants ..................................................................................................... 638 Insecticides and Repellents ......................................................................................... 639 Mosquito and Incense Coils ............................................................................................ 642 Air Fresheners ................................................................................................................ 642 Orange Oil and d-Limonene Cleaners ............................................................................. 643 Agricultural Chemicals ............................................................................................... 644

    Essential Oil Based Fungicides/Insecticides .................................................................... 646

  • Murray Hunter xii

    Natural Anti-Stress Preparations from Betaines and Essential Oils ................................. 647 Essential Oils in Soap Bases ........................................................................................... 647 Plant Extracts: Pyrethrums ............................................................................................. 649 White Oils ...................................................................................................................... 649 Herbicides ...................................................................................................................... 650 Pharmaceutical Products ............................................................................................ 650 Natural Isolates and Aroma Chemicals ...................................................................... 653 Distribution Strategies ................................................................................................ 657

    Agro-Tourism ................................................................................................................. 661 Fairtrade ........................................................................................................................ 663 Niche Products for Niche Markets................................................................................... 665 Good Manufacturing Practice (GMP) ........................................................................ 666 Hazard Analysis and Critical Control Points (HACCP) ............................................. 671 Standards .................................................................................................................... 672

    Organic and Ecological Product Certification ................................................................ 674 Halal and Kosher Certifications ...................................................................................... 678 Environmental Compliance ............................................................................................. 683 Occupational Health and Safety (OSHA) ......................................................................... 683 The Holistic and Focused Enterprise .......................................................................... 686 References .................................................................................................................. 690

    Enterprise Viability and New Crop Potential ................................................................. 704 Introduction A Re-look at Opportunity and Personal Goals .................................. 704 Wild Collection .......................................................................................................... 707 Subsistence Farming................................................................................................... 708 Cooperatives ............................................................................................................... 710 Community Development Projects ............................................................................. 712 Small to Medium Family Farms ................................................................................. 714 Large Scale Farm/Plantation ...................................................................................... 715 Producing Essential Oils as a By-Product .................................................................. 715 New Essential Oil Crops ............................................................................................ 719 Some Interesting Crops .............................................................................................. 727 References .................................................................................................................. 749

  • PREFACE

    The essential oil industry is under threat from numerous issues at present. Rising

    agricultural input costs, particularly petrochemical based fertilizers and fuels are squeezing

    farmers profit margins. Rising food prices and the increasing value of housing and industrial

    land prices is creating competition for land, particularly around populated areas. Adverse

    weather conditions and changing climate are creating both short and long term problems.

    Poor crop yields are occurring much more regularly than before because of unusually heavy

    rain, hail, floods, heat-waves and cold snaps. Climate change is affecting long term yields due

    to increasing plant stress caused by warmer temperatures. As many temperate areas are

    becoming drought affected, crop cultivation is becoming more difficult as irrigated water is

    becoming extremely scarce. This is threatening the very survival of many enterprises and

    industries in their present locations.

    Industry change through takeovers is increasing buyer concentration, making it more

    difficult for small firms to survive in the industry. Technology change requires continuous

    learning and development of new techniques which change the way products are

    manufactured. Increasing consumer scrutiny, changes in taste and increasing sophistication in

    developing markets are creating shorter product lifecycles, requiring companies to spend

    more on product development. Last but not least, a rapidly tightening regional regulatory

    environment is increasing the costs of introducing new materials and products into the

    marketplace.

    However, notwithstanding the threats and challenges mentioned above, opportunities still

    exist in the essential oil industry. In fact, the issues mentioned above can increase the

    propensity of opportunities to evolve inside the industry, if one knows where to look and how

    to evaluate their potential.

    The essential oil industry is far from being monolithic. It can be seen more as a group of

    overlapping segments of other industries, which are related by the nature of the product

    natural aromatic compounds. Its agricultural component would include the collection of

    biomass from the wild, the cultivation of selected flora in the field or the collection of by-

    products from other activities like timber logging or citrus fruit production. Manufacturers in

    the essential oil industry use essential oils and other natural aromatic materials to produce a

    number of value added products which include flavours and fragrances, fine fragrance,

    cosmetics, household, pharmaceutical, agro-chemical and aromatherapy products. These

    products are promoted, marketed, sold, transferred, shipped and consumed through various

  • Murray Hunter xiv

    levels of the supply and value chains. Finally, the public sector component plays a role in

    both research and regulation at a local, national and international level, both on policy and

    specific issues.

    Yet with all the attention that has been given to essential oils in the past, the reality must

    be stated essential oil production will never become a major crop or contributor to any

    agricultural economy. It is a niche industry, an alternative crop to any mainstream agricultural

    portfolio in any country. Also, in the flavour and fragrance, cosmetic, household product,

    pharmaceutical (although nearly 70% of pharmaceuticalactive compounds have been

    synthesized from the inspiration of natural compounds), and agro-chemical industries,

    essential oils in an aggregate sense only play a minor part in the composition and formulary

    of products in those industries. Only in aromatherapy are essential oils the main ingredient in

    product formulatory. This scenario will never change. The importance of essential oils lies in

    the role they play in linking industries, which makes their economic contribution substantial

    as ingredients in flavours and fragrances, as ingredients in cosmetics and household products,

    and as starting materials of prime active ingredients in pharmaceuticals and agro-chemicals

    like pesticides and fungicides. There is no doubt however that essential oils lead to great

    passion and take on a major role in the branding of many products.

    This leads to another point. There is a vast amount of misleading and wrong information

    about essential oils and the industry. This can be widely found in media articles, the internet,

    papers presented to conferences and even books. There are a number of consultants around

    that base their advice on sometime misinformed premises and old industry paradigms. Some

    of the organizations involved in the essential oil industry, particularly those representing

    traders, sometimes appear to be contributing to industry mythology and have encouraged an

    elitist approach to those considered outsiders to the industry.

    Many people who are attracted to some part of the essential oil industry, whether

    production or application is based on passion, emotion and infatuation, rather than business

    logic and sense. This can be a dangerous and delusional footing.

    The failure rate of those setting up essential oil production ventures is outstandingly high.

    It is also sad that many of these failures involve community groups, led by some consultants

    advice. For far too long essential oil markets been analysed on an economic basis, rather than

    a niche entrepreneurial opportunity.

    Although business failure rates have been high among producers, a number of success

    stories exist. These are usually about companies producing cosmetics and aromatherapy

    ranges utilizing essential oils. Many new aromatherapy, cosmetic and agro-chemical pesticide

    and fungicide products are being launched onto market. A number of companies within a

    short space of time have grown into international suppliers of essential oil based products.

    These companies have been at the innovative forefronts of their respective industries.

    Thus innovation would appear a prerequisite of success, especially with changing

    consumer tastes, lifestyles and product expectations. This certainly supports the argument that

    the essential oil industry should be viewed in the entrepreneurial paradigm to see if more

    sense and understanding can be gained which is what this book will try to do.

    With the term technology taken simply to mean a way or means to do something, then

    new technology means a new way or means to do something. In that light, it is certainly worth

    examining how things are done at farm level to produce essential oils, i.e., propagation,

    planting, crop maintenance, harvesting and extraction. Becoming competitive and developing

    a source of competitive advantage in essential oil production may have more to do with new

  • Preface xv

    technology introduction than with labour cost advantages. Many methods of propagation,

    planting, maintenance, harvesting and extraction have been developed with knowledge built

    more upon learning from trial and error on the part of entrepreneurial farmers than taking

    stock solutions off a shelf somewhere. Through the observation of operational essential oil

    ventures, successful technology would appear in many cases to be homegrown solutions in

    response to specific farm level problems. Add to that the rapid growth of biotechnology and

    the emphasis on the molecular level with nano-technology - technology issues are going to

    continue in their importance. An entrepreneurial approach may help to understand and

    manage this.

    There have been many books written on essential oils which have placed the word art in

    their titles. This has been in recognition of the creativity needed to construct a fragrance or

    perfume, sometimes paralleled with the artist or the musician. However the concept of art can

    be extended to the business of essential oils. Business commentators now tend to call business

    an art, rather than a science. In business there are many ways to achieve an end or objective

    and a multiplicity of strategies that can be used in any particular situation. The metaphor of

    the art of strategy is maybe more applicable. Agriculture can also be an art form in that there

    are also a number of ways to achieve an end. If we view landscapes, which are part of an eco-

    system as art, then utilizing the land in a sustainable way may also be considered an art form.

    Sustainable solutions to agricultural problems would seem to be much more important than

    before. Hopefully this book will provide the reader some insights into the art of essential oils

    in the wider, rather than the narrower sense.

    The development of essential oils and related products requires some knowledge in

    botany, natural product and phyto-chemistry, analytical chemistry, agronomy,

    thermodynamics and chemical engineering, agricultural and mechanical engineering,

    economics, supply chain management, accounting, finance, organization, marketing, new

    product development, cosmetic, household product, and pesticide chemistry, farm and

    industrial management, human resource and project management. In addition skills in the

    areas of opportunity identification and evaluation, strategy selection, development and

    enactment are required. An ability to negotiate and present ideas to various stakeholders is

    also important. Thus developing essential oils or an essential oil related product requires a

    true multi-disciplinary approach. The entrepreneur in this industry must be a jack of all

    trades to understand and find solutions to the issues he or she will encounter. It is through

    inter-disciplinary thinking that new products will come to the market.

    At the product level where changing consumer tastes, expectations and lifestyles

    influence what is required, coupled with more distribution channel avenues and a dramatic

    increase in new regulation around the world, new product forms, branding linkages,

    organizational form, and channel utilization requires new knowledge to be applied. These

    changes require new thinking in the industry and this may not be based on the same

    conventional thinking of the past. This would seem to be of advantage to small companies,

    where the larger multinationals have tended to follow and take ideas onboard, once someone

    else has proven them successful.

    I have been lucky and privileged to have had the opportunity to be involved in as so

    many aspects of the essential oil industry as I have. Discovering new compounds in plants

    was an exciting time, requiring a massive and focused effort with only a remote chance of

    finding something that may be commercially interesting. Domesticating plants from the wild

    presented a number of challenges as well researching the ability of selected aromatic crops in

  • Murray Hunter xvi

    adapting to different geographical locations and climates. There was great excitement about

    designing and developing harvest and distillation systems, especially when they are fully

    commissioned in working condition. As equally challenging was designing suitable field

    drainage and irrigation infrastructures for farms that can handle the quantity of water falling

    during a tropical storm without carrying away the top soil or able to irrigate a field during the

    dry months. One of the most important and satisfying challenges of late with the high cost of

    diesel was designing and commissioning alternative fuel systems to power steam generation

    for a distillation operation in a sustainable way. Learning how to construct a fragrance,

    responding to fragrance brief and having my creation selected by a customer always brought a

    great sense of pride and satisfaction. Developing new products for consumer markets through

    the process of nurturing the concept, finding the materials, evaluating packaging concepts and

    designing the method of production, and finally turning it into the reality was at the envelope

    of excitement and satisfaction. The sell in and the drama of waiting for the consumer to give

    their approval on the product through their purchases is something no one forgets. Traveling,

    meeting people, attending conferences, visiting markets and walking around a farm are all

    fulfilling activities for those involved in essential oils.

    Having been in and around the essential oil and allied industries for many years and

    knowing many of the legendary people within it encouraged me to write about the industry. I

    recognize that this book will bring some criticisms from some quarters, but if criticism is

    feared and prevents ideas being put forward, then there will be no advance in knowledge.

    This book reflects much of these experiences and it is written as I understand the issues

    sometimes as a layman and sometimes as an expert, but always within the theme of being a

    jack of all trades, with an attempt to inject interdisciplinary insights into issues and

    challenges that development, production, marketing and management bring forward. As such,

    this book has attempted to look at product, market, industry and technical issues involved to

    assist the reader in their situation overcome their specific barriers to entry, so that they can

    create something of value to the industry a trait that is needed to survive in any sustainable

    way in business today. Hopefully this book helps the reader make sense of things.

    I hope that students undertaking subjects like business and entrepreneurship, agriculture,

    bio-systems engineering and chemistry are able to benefit from this book. I hope that this

    book can assist farmers and potential farmers make decisions about what aromatic crops they

    invest in. I hope this book provides some insights to researchers in the natural product

    chemistry and agronomic areas. I also hope this book can assist those wishing to develop

    aromatherapy, cosmetic, household, pharmaceutical and agro-chemical pesticide and

    herbicide products. I hope this book can assist the reader understand the industry better, the

    business involved, the challenges that it brings and develop ideas to help solve some of these

    problems.

    The structure and content of this book is as follows:

    Chapter One introduces the definitions relevant to crude products produced by the

    industry. The size of the market is calculated and apportioned between each product/market

    segment. The rest of the introduction sets the background of the industry and discusses some

    of the contemporary problems and issues associated with it.

    Chapter Two discusses the structure and interrelationships of the industry. This is

    undertaken more from a macro point of view so that concepts like derived demand and the

    influence of synthetic materials can be understood by the reader. This chapter also looks at

  • Preface xvii

    world essential oil production centres and the various types of essential oil production. The

    role of essential oils and flavour and fragrance materials in the market typology of consumer

    products is also introduced. Finally the chapter looks at the essential oil value chain.

    Chapter Three takes a closer look at essential oil production in the South-East Asia-

    Pacific region, focusing on Australia, New Zealand and South-East Asia. Recent international

    published research undertaken in each country is also outlined.

    Chapter Four and Five are two technical chapters which introduce phyto-chemistry and

    the theory behind the extraction of essential oils. These are important technical areas where

    any potential practitioner should have some understanding of the basic principals. Chapter

    Four explains the role of essential oils in plants as secondary metabolites. The various classes

    of essential oils are explained with a number of examples of natural aroma chemicals found in

    plants. Chapter Four also introduces the basic methods of essential oil analysis. Chapter Five

    explains the basic theories of distillation, solvent and CO2 extraction and the traditional

    method of enfluerage.

    The next three chapters (Six, Seven and Eight) are concerned directly with the concepts

    of screening potential essential oils for viability to develop commercially and create a

    development plan. Chapter Six specifically looks at the issues involved in developing a new

    crop to a farmer or potential farmer, emphasizing what specific information is required to

    make decisions. The chapter also introduces the concept of risk and challenges. The potential

    reasons for success and failure are outlined, as well as showing the range of possible

    development strategies for a project to pursue. Finally this chapter looks at potential products

    that can be developed for different levels in the value chain, with corresponding potential

    entry strategies.

    Chapter Seven is primarily concerned with the screening and evaluation process and

    discusses the regulatory environment in detail. Chapter Eight returns to an industry analysis

    to assist in the development of a strategic plan, using a number of tools. This chapter

    integrates both the business and technical aspects of the project together so that a

    comprehensive overall operational plan can be created.

    Chapter Nine is concerned with the field issues of essential oil development. Agriculture

    is first introduced as a system and the issue of climate change and the potential consequences

    are discussed. The chapter then outlines the project preparation phase, the selection of genetic

    material, seed collection, the improvement of genetic material, land selection, propagation

    and planting, field development, crop maintenance, harvesting and extraction. The chapter

    finishes off with a discussion about Good Agriculture Practice (GAP) and financial modeling

    of the project.

    Chapter Ten examines the organic production of essential oils. The size and growth of the

    organic industry is examined and the various continuum of farming are discussed. The rest of

    the chapter looks at the basic organic farming concepts and practices including crop rotation,

    cover crops and green manures, animal manures, intercropping, composting, mulching, crop

    diversity, natural fertilizers, minerals and supplements, insect and disease control, weed

    control, tillage and farmscaping. The planning and site selection issues are looked at before

    briefly examining the certification process and extent of organic farming in the Asia-Pacific

    region.

    Chapter Eleven looks at the application of essential oils. The chapter begins with an

    overview of the classification of odours and flavours. The structure of a fragrance and the

    development of perfumes are described. The process of developing flavours is briefly

  • Murray Hunter xviii

    discussed. The chapter then goes into the new product development process in detail,

    exploring the concepts of a systems approach to product development, creativity, innovation

    and opportunity required in ideation, the development of the product concept and prototype,

    market and product planning, the development of the formulation and manufacturing system

    and the eventual product launch. The chapter then looks at each product/industry segment

    utilizing essential oils including cosmetic and personal care products, natural perfumery,

    household products, agricultural products, pharmaceuticals and natural aroma chemicals and

    other isolates. The next part of the chapter examines potential distribution strategies, Good

    Manufacturing Practice (GMP), HACCP, Standards, Occupational Health and Safety

    (OSHA), environmental compliance and certification schemes. Finally the concept of the

    holistic and focused enterprise is introduced.

    Chapter Twelve integrates enterprise viability with new crop potential, arguing that the

    type of production organisation will influence what type of crop is viable to select. The

    concept of opportunity within the framework of personal goals is re-examined. The remainder

    of this chapter and book looks at criteria to examine new essential oils and finishes with a

    number of mini-monographs on plants of interest to the author.

    Most books tell the reader how to cultivate essential oil crops. This book attempts to help

    the reader select what crops to develop.

    I would have liked to elaborate and explore a number of issues in more detail than I had,

    but size of the manuscript led to making choices and my own research into these issues is still

    in its infancy. These issues include exploring alternative energy sources for extraction of

    natural materials from plants, including solar distillation, boiler design and fabrication, the

    modification of existing farm equipment to perform new roles particularly in the harvesting

    area, the development of low cost micro-propagation facilities, and the utilization of enzymes

    in agronomy, extraction and transformations. I hope sometime in the future further

    contributions can be made by the writer.

    I hope this book leads to a better understanding of the issues involved in developing new

    essential oil ventures. Certainly I have tried to emphasize the need for innovation at both the

    technical and business model level to assist in creating product differentiation for the

    potential practitioner.

    Please note the author has not followed strict botanical nomenclature where names

    familiar to the industry have been used. For any incorrect and misleading material in this

    book I do sincerely apologize and welcome correction. I also apologize for any grammatical

    errors in the manuscript.

    Murray Hunter

    Hat Yai

    Songkhla

    Thailand

    10th

    February 2009

  • ACKNOWLEDGEMENTS

    Life is often considered a journey, where knowledge, experience and insights are gained

    through where you are, what you are doing and who you meet up with. I have been lucky to

    have a long fulfilling journey, which has made it possible to complete this book.

    I was born into an entrepreneurial family in Melbourne Australia late in 1958. My

    grandfather, Mr. Len Hunter Senior was a self made chemist, inventor and entrepreneur

    extraordinaire. He invented the product Pine O Clean, a pine oil based disinfectant in the

    1930s and was given an exemption to import American pine oil during the Second World

    War to supply the US troops stationed in Australia at the time. Len sold Pine O Clean,

    along with Oxford Shoe Polish to Reckitt and Colman in 1956 for the sum of One Million

    Pounds. This was an extremely large figure at the time for the family and part of this money

    was invested to form Hunters Products Pty Ltd, which manufactured household cleaning,

    personal care, gardening, pool care and institutional products up until the 1980s when again

    the company, a household name in Australian cleaning, was sold again to Reckitt-Benkaiser.

    During the height of the family era, the household division of the group was run by my

    father Mr. Alan Hunter, who had great influence upon me. My father took me under his wing,

    always taking me to the factory during the weekends and in latter years during my teens to

    sales calls all over the country. It was with my father I first came into contact with top

    executives and even owners of companies like Dragoco, Drom, Monsanto, ICI, Haarman &

    Reimer, Kao, The Andrew Jergens Company, Kiwi and many others. This was a period of

    great excitement for me, which opened up many different aspects of the industry.

    Two of the people I very fondly remember from that time were Mr. Eric Floyd, the

    Southern Sales Manager of Dragoco and Mr. Hans de Jong, the Victorian Sales Manager of

    Haarman & Reimer. Both of them gave me very firm ideas about essential oils and

    fragrances.

    With Hunters household division going to Reckitt-Benkaiser I went out on my own

    forming a company called New Approach Products Pty Ltd in Melbourne during 1988. This

    company manufactured toilet cleaners, soaps, garden insecticide and air fresheners. In seeking

    to create greater competitive advantage for our air freshener range, mainly sold under generic

    supermarket brands, the concept of blending our own fragrances came to mind and we were

    in the flavour and fragrance business. At that time I met with Mr. Brian Brennan of Brennan

    Aromatics and developed a close relationship with him as a shareholder of his company. It

    was with Brian I picked up some of the practicalities of creating fragrances.

    It was around the same time that my interest of producing essential oils developed. I

    learnt a lot from Fred Bienvenu of the Ovens Research Station, Victorian Department of

  • Murray Hunter 2

    Agriculture during our time together developing Polygonum odoratum as a new essential oil

    crop. I also thank Professor Glywn Jones of the Department of Food and Nutrition, Deakin

    University, Geelong, Victoria for inviting me to join their research group on basil oils at the

    time.

    During the early 1990s, not only did I see South East Asia as a potential market, but a

    source of essential oils. It was Dr. Erich Lassak who encouraged me to be bold in introducing

    new crops to South East Asia. John Reece took me under his wing and we travelled all over

    Australia and South East Asia together visiting plantations, attending conferences and trying

    to set up projects in Malaysia. I also thank the late Djohan Napati, President of PT Djsula

    Wangi in Jakarta for opening up his plantations and business to me. I also thank the Late Mr.

    Karim Yaacob for the time we spent together travelling around Malaysia looking at potential

    new essential oil crops.

    I would like to greatly thank Tan Sri Dr. Yusof, the former Director General of the

    Malaysian Agricultural Research and Development Institute (MARDI) and Tan Sri Dr.

    Hamid Bin Pawan Teh, the former Chief Minister of Perlis (now President of the Malaysian

    Senate) for giving me an opportunity to develop a tea tree plantation in the Northern part of

    Malaysia during the early 1990s. I also remember the time Mr. Mansor Puteh and myself

    spent on convincing people to try tea tree as a serious crop in Malaysia. I am also indebted to

    other members of the team including Mr. Malik and Tunku Kassim of MARDI and Mr.

    Hasnan Abdul Kudus of the Perlis State Economic Development Corporation.

    Other people I would like to thank for ideas and insights are Professor Chia Hock Hwa, a

    former director of Kao Singapore, Mr Steven S. F. Yeow also of Singapore, and Professor

    Zuriati Zakaria of the Faculty of Science, Universiti Kebangsaan Malaysia for her suggestions

    on Chapter Four. My UniMAP colleagues Professor Mohd. Nor Bin Ahmed and Associate

    Professor Mahmad Bin Jaafar, who both made always great contributions to my thoughts. Mr.

    Jim Gobert of Unifect Foods, Sydney for his ideas about the industry and Mr. Anas Ahmad

    Nasarudin of Marditech Corporation Sdn. Bhd. for his assistance over the years. Thank you

    to Mr. Stuart Mason Parker of the Faculty of Law, Prince of Songkla University, Hat Yai,

    Thailand for reading parts of the manuscript. Associate Professor Mohariff Bin Shariffs help

    on writing style was invaluable in helping me working through parts of this monograph. I

    would also like to thank my wife Kittirat Yothangrong for what she taught me about herbs,

    the soil and sustainable farming, which had a big influence on chapter 10.

    I would like to thank the Vice Chancellor of University Malaysia Perlis Brig. General

    Professor Dato Dr. Kamaruddin Hussin, who had faith in me to become an academic and

    supported my activities and writing this book. Finally, thanks to Ms. Suraya Binti Mat Ros,

    my secretary, who ran the SME Unit while I spent countless weeks and months writing this

    manuscript.

  • Introduction: The Development Issues 3

    Chapter 1

    INTRODUCTION: THE DEVELOPMENT ISSUES

    Chapter one presents a basic introduction to the issues of essential oil development. The

    chapter begins with a discussion about the difficulties of estimating the aggregate farm-gate

    value of global essential oil production. The various types of natural aromatic materials are

    defined. The chapter then goes onto a discussion of some of the major issues facing essential

    oils, including global warming, the food, rural and financial crisis, market turbulence, wild

    collection and threatened plant species, the bargaining power of producers, the regulatory

    environment, and the templating of natural molecules for synthesis rather than for cultivation

    and extraction. The chapter then turns to outlining the factors that contribute to success or

    failure in essential oil development and the importance of making accurate project

    assumptions and estimates. These include planning and opportunity issues, management and

    organizational issues, financial issues, technical issues, marketing issues, fate and nature.

    Finally, a model outlining the potential strategic success factors is presented.

    INTRODUCTION

    Good Essential oil cultivation is based on a knowledge intensive production system. The

    essential oil sector within any countrys agricultural base will never become a major industry

    in value terms, but it is one of the most complex ones. Although the essential oil industry is

    very small in aggregate terms, its influence stretches far beyond the agricultural sector.

    Essential oils are materials used in a number of dynamic consumer and niche industrial

    markets. The industry is undergoing rapid structural transformation from a craft orientated

    base to a modern multi-national orientated industry with very sophisticated supply chains.

    Essential oil usage has also widened into a number of smaller fragmented applications, which

    include natural perfumery, aromatherapy and bio-active agricultural chemicals. Both

    production geography and operational practices are changing, influenced by a number of

    factors that will be explained in this chapter.

    Today, new essential oil based ventures usually start in one of two major ways. The first

    case is where private entrepreneurs find and respond to market opportunities. Their responses

    to these opportunities can be quite complex and very different from traditional producers.

    Private entrepreneurs may not be satisfied just producing a crude oil. They may involve

    themselves in the higher value product/market activities along the supply chain. The second

    case is where the government through an agency may initiate research and development of an

    essential oil crop for the purposes of disseminating technology, planting stock, operational

    methods and market connections to local farmers to exploit. A variation on this could be a

    community development project funded by an NGO. In both cases, the initiator will promote

    the formation of farmer alliances and/or cooperatives to improve the chances of success.

    Unfortunately, many community projects fail to develop their full potential or even

    collapse. This occurs for a number of reasons. Reasons outside the farmers control include

  • Murray Hunter 4

    competition, weather and collapses in prices. Other causes of failure may develop because of

    structural faults, i.e., issues not properly considered when the project was conceptualised.

    These may include failure to continue production in a sustainable manner once external

    assistance has ceased, reliance on external people for motivation with no local champion to

    continue momentum in the farmer group, failure in dealing adequately with external

    competition, or failure to maintain collaborative links with other stakeholders such as

    research institutions. Reasons for failure within farmers control include poor management or

    diverging objectives and agendas by stakeholders.

    Agriculture is traditionally considered an activity undertaken within a static system that is

    very slow and resistant to change. The reality is that agriculture is in a state of flux and

    transformation like many other industries. Agriculture is transforming itself from a

    commodity driven to a consumer and market driven activity. A recent World Bank report on

    agricultural innovation identified six areas of change that will drive agriculture in the coming

    decades. The report cites;

    1. That future development will rely on market and not production orientated

    approaches to the agricultural sector,

    2. Changes in production methods are now rapid and unpredictable, due to changing

    technologies and ease of technology transfer,

    3. Agricultural supply chains are now very dynamic, where there is a greater propensity

    to create direct producer- retailer or producer-user relationships,

    4. The private sector is the driving force of new knowledge and technology into the

    sector,

    5. Information and communications technologies are having profound affects upon

    communities taking advantage of knowledge generated in other places, technology

    transfer and producer-customer relationships, and

    6. Agricultural venture development is being increasingly undertaken with globalised,

    rather than local orientations [1].

    This implies that selecting essential oil crops can be better undertaken through a market

    driven crop selection process, based on product development and customer driven

    management, rather than a commodity approach.

    THE SIZE OF THE ESSENTIAL OIL INDUSTRY

    Any accurate assessment of the aggregate size of the international essential oil industry is

    extremely difficult. World production of essential oils is very fragmented, much of it in

    tropical equatorial regions that are not easily accessible to transport. Communications

    infrastructure is weak or even non-existent. A large quantity of essential oils are produced at

    subsistence level and collected from farms by individuals who sell the oil onto wholesalers.

    Producers are remote from the major towns and cities of Government administrations, where

    organization is poor. Language is yet another barrier to communication, where all the above

    factors combined hinder any accurate measurement of essential oil production.

  • Introduction: The Development Issues 5

    The difficulty in measuring essential oil production is further complicated by the

    differing statistical classification systems various countries use to tabulate production. The

    harmonized system of customs codes only identifies around half a dozen individual essential

    oils. Where essential oils are small, production figures may be grouped together with other

    miscellaneous activities, thus not showing up directly in statistics. Essential oil production

    will most likely be aggregated with herb and other natural product production.

    Accurate counting is also difficult because of the unstable nature of production, where

    production figures may differ greatly from year to year. This occurs from poor weather,

    natural disasters, insurgencies, wars, and other national disturbances, crop disease and

    droughts, which only make the accounting of aggregate supply figures more difficult.

    Essential oil traders hold stocks and can distort the market through the selling of their

    inventories in times of shortage and buying up extra product in times of production surpluses.

    Most agreements between producers and traders at farm-gate level are confidential and

    undisclosed.

    Doubt exists whether essential oil sales through the internet are statistically recorded.

    Most oils sold and sent through the postal system are high value/low volume oils, which will

    only have nominal values attached to customs forms. For example, one kilogram of rose Otto

    may be sold for a few thousand US Dollars, but the nominal value recorded may only be a

    few US Dollars.

    Finally, currency values will also distort production values due to fluctuating exchange

    rates and parities between different producing countries. As most essential oil production

    occurs outside of the United States, currency conversions have to be made, where the final

    figure will be greatly influenced by the exchange rate at the time. For example, if aggregate

    essential oil farm-gate production in Australia is valued at AUD 25.0 million in June 2008 at

    an exchange rate of 1.04, Australian aggregate farm-gate production would be valued at USD

    24 million at that time. However if the conversion was made at the end of November 2008 at

    a rate of 1.55, Australian aggregate farm-gate production would be valued at USD 16.20

    million, almost one-third less than June in the same year, even though physical production is

    the same.

    The authors estimate of the farm-gate aggregate value (in USD) of World essential oil

    production was USD 1,480 in 2008. Essential oil usage can be divided into a) flavour and

    fragrance, b) aromatherapy, c) pharmaceutical, d) intermediates, e) agrochemicals and f)

    cosmetics. This is shown in Figure 1.1. Aggregate essential oil production is increasing, but

    each sector is growing at different rates. Aggregate growth is around 8-10.0% per annum.

    Even with major consumer product manufacturers espousing natural products in their

    marketing campaigns, the use of essential oils in fragrance compounds, as a percentage of the

    formula, has declined over the last several decades [2]. This is partly the result of US

    manufacturers being allowed to call synthetic aroma chemicals nature identical, if they are

    chemically the same to those found in nature. This is a factor preventing more essential oil

    usage in flavour formulations. However, there is still growth in the aggregate volume of

    essential oils supplied to the flavour and fragrance sector because of overall growth in

    worldwide demand for perfumed and flavoured products.

  • Murray Hunter 6

    Cosmetics,

    USD 90 M, 6%

    Agrochemicals,

    USD 150 M, 10%

    Intermediates, USD

    120 M, 8%

    Pharmaceuticals,

    USD 220 M 15%

    Aromatherapy

    USD 250 M 17%

    Flavour &

    Fragrance, USD

    650 M, 44%

    Figure 1.1. Estimate of the World Farm-gate Value of Essential Oil Production (USD) in 2008.

    The aromatherapy market had enjoyed rapid growth until it stalled in the beginning of the

    1990s. Aromatherapy has become much more closely aligned with cosmetics, natural

    perfumery and other traditional medicines, which has brought this sector into growth again.

    Some cosmetic categories, including cosmoceuticals and organic products are enjoying very

    high growth rates. Some pharmaceutical products now fit into cosmetic categories, as

    pharmaceutical and cosmetic companies regularly compete against each other. It is now much

    harder to distinguish the differences between many cosmetics and pharmaceuticals as both

    types of products provide the same consumer benefits. Another sector enjoying very high

    growth is the agricultural chemical market, where new companies are developing fungicides,

    pesticides and herbicides using essential oils as active ingredients.

    Although the essential oil production is increasing, the growth of individual oils may bare

    little relationship to the overall trend. Within a given year some essential oils will drastically

    decline in production because of adverse weather conditions, natural disasters or political

    events, only to return to production levels a season or two later. Other essential oils will

    slowly decline in production over a long number of years because of the availability of

    cheaper substitutes, the exhaustion of supply from wild collection and restriction of use

    through increasing regulation.

    As supply patterns change and materials become unavailable, users are forced to make

    compensatory changes to the oils they use, thereby changing demand patterns. Shortages will

    force users to switch to substitutes. When a shortage is overcome users may be very hesitant

    to return to the original oil, due to the effort involved in changing back product formulations.

    Demand also changes as the relative prices of substitutes move in relation to each other.

    Verlet pointed out that production tends to cluster in areas because of three basic reasons.

    Firstly some production centres have a long history of production with a supportive social

    structure. This is the case in Morocco, Turkey and Egypt in the production of rose, jasmine

  • Introduction: The Development Issues 7

    and cumin oils. Secondly, large multi-national companies have intervened and promoted the

    development of an industry. This was the case with patchouli production in Brazil. Thirdly,

    production serves a large domestic market, which enables it to sustain itself. This is the case

    of some essential oil production in China, India and the US [3].

    A large number of essential oils are produced by a) small-holder farmers usually at a

    subsistence level, b) the gathering and processing of wild plants by subsistence farmers, c)

    small scale plantations, and d) large scale plantations. Other essential oils are produced as by-

    products of other primary products. Examples include eucalyptus and pine oils from the

    timber industry, and citrus oils from the processing of fruit juices in the citrus industry. Other

    small farms and plantations may incorporate activities like agro-tourism into their sites to

    improve profitability [4]. Long periods of low prices can bring volatility to the global

    industry, encouraging countries like China, India and Vietnam to increase production at the

    expense of less competitive countries like Tanzania, Ivory Coast and Madagascar.

    Some companies may move up the supply chain and scale down their farm operations to

    focus on higher value products. For example, Thursday Plantations in Northern NSW ceased

    tea tree production to focus on agro-tourism and the marketing of tea tree oil based personal

    care products. Today Thursday Plantation became a major buyer of tea tree oil and now sells

    their products in over 40 countries [5].

    Differing sources of competitive advantage underlie production in different regions,

    which enables industry viability.

    Countries like Brazil, China, India and Indonesia have large domestic markets. Their

    competitive position is supported by a low production cost regime based on low cost labour

    and/or high levels of mechanization to make them efficient. These countries control more

    than half the worlds production in some of the oils they produce. Long established logistic

    and trading infrastructure assists in maintaining a strong market position.

    Producers in countries with a small domestic market are forced to focus on exports.

    Production is limited to a small number of oils. Small existing industries develop with

    financial and research support. Effective research allows them to develop optimum methods

    of production to develop market competitiveness. These industries are usually located in ideal

    physical and climatic conditions for the chosen crops.

    Some producing countries have been able to maintain their position as a preferred

    producer by producing exceptional quality oils. These oils become benchmarks in the

    Flavour & Fragrance industry, such as Haiti Vetiver or Comoros Basil. This is reinforced long

    term links with major trading companies or International flavour & fragrance houses.

    Many distinct trends are occurring at the same time in the essential oil industry supply

    chain. Ownership and management of flavour and fragrance houses is becoming very

    concentrated. This has changed the craft or