The essential oils sector is charaterised by the extraction of volatile fragrance components from plants, where the plant oils are extracted through distillation at yields of 0.01-2%. The essential oils industry is suited to both the formal large scale farming operations and small scale operations within rural communities in need of economic upliftment. This sector is characterised by:

 

§         High turnover and profit margin

§         Prices are quoted in US dollars

§         The product does not perish

§         It is appealing for farmers who want to diversify and spread their risk

§         A number of the crops are perennial, lasting on average five years, thus reducing the labour component each year, while the annual crops, in general, produce high value oils.

§         The final product is high in value but low in volume and thus can be transported easily

§         It is produced on the farm at the place of cultivation thus making essential oil production an attractive option for rural communities.

§         The distribution chain is characterised by long-term relationships between reliable suppliers and loyal buyers

 

The current essential oils market in the Cacadu District is very limited, the growth of this market is slow and the lack of efficient baseline data limits the potential for development in the area. However, since the essential oils market is largely an untapped market for this region there is huge growth potential for this sector.

 

There are over 300 plants that can produce essential oils, because of the infancy stages of the essential oil industry in the CDM the most suitable essential oils for this region are still being assessed and studied. The various types of essential oil extracts that are currently being grown and are considered for this area consist of: 

The Rose Geranium is currently the main plant that is being grown in Cacadu; however this is only on a small scale. The beneficial qualities of this plant include antidepressant, anti-haemorrhagic, anti-inflammatory, antiseptic, astringent, cicatrisant, deodorant, diuretic, fungicidal, haemostatic, stimulant (adrenal cortex), styptic, tonic and vermifuge. Lavender functions as an antibacterial, antidepressant, antifungal, anti-inflammatory, antiseptic, antiviral, deodorant and insect repellent.

 

Buchu produces very high value products and is indigenous to South Africa, however the natural stock is extremely depleted which has created a significant demand. In CDM buchu will need to be cultivated under irrigation, where the most suitable area is the Langkloof area, which has the fynbos vegetation. Buchu is widely used for its many remedies such as: for the treatment of kidney and urinary tract diseases; applied to bruises and rheumatic pains; to relieve stomach complaints; used against fever, tiredness and congestion of the chest; to strengthen the body; for high blood pressure; gout and inflammation of the bladder.

 

There are currently no essential oils factories located in the CDM due to the early stages of development for this region. There is still a need to provide testing about which other plants are suitable for the area and which would generate the most profits from production.

 

As can be seen below, the essential oils industry is primarily used in four overarching industries: Flavour, Personal Care, Pharmaceutical and Industrial Industries, where these industries are further divided into subcomponents.  The biggest essential oils industry usage in South Africa is that of the soft drinks industry, as a flavourant for certain beverages. The essential oils buyer value chain is represented below:

 

 (Source: Essential Oils Incubator, SEDA, 2009)

  

The South African essential oils industry is in its infancy. Sales mostly occur in the export market, whereas local sales are taking place on a smaller scale. At present the South African essential oils industry exports mainly to developed countries i.e. Europe, USA and Japan. Quality control is essential in the industry and this has ensured high standards within the industry.

 

The worldwide demand for organic based essential oils far exceeds current supply, and South Africa’s share of these world exports is minimal. The production process is experiencing a move to organic production processes as these are favoured by the market. There is a growing demand for all natural fragrances, with an emphasis on environmentally friendly products; this relies on utilising organic ingredients that are produced in a sustainable manner and packaged using “eco-friendly” materials.

 

There remains great opportunity for indigenous oils that could be developed and marketed in South Africa; these include Buchu, Lippia, Artemisia, Rose Geranium, Wild Dagga and Cape Rosemary.

 

The global trends in the world essential oils market are summarized below:

•          The worldwide annual market value for products using essential oils is valued at US$ 300 billion

•          The global essential oils market is currently valued at US$ 16 - 18 billion

•          The “fine” essential oil market is valued at US$ 2 billion, with oils having an annual production from 50 kilograms to 200 tons

•          The major exporter of essential oils are:

§         European Union, 52% of world exports (1998)

§         United States of America, 13%

•          Most important developing countries: China, Indonesia, India, Brazil

•          Developed countries are the major importers

§         European Union 44%

§         United States 38%

The South African Trends in the essential oils market is summarized below:

•          In 2007 SA exported:

§         250 tons of essential oils to the value of approximately R 250 million

§         Citrus and Eucalyptus values at more than R 150 million

•          In 2007 SA imported:

§      500 tons of essential oils valued at R350 million

The key buyer of essential oils is the perfume industry. This market has seen a drop in sales internationally.  

 

 

The South African Essential Oils Producers Association (SAEOPA) is an association that is actively involved in community-based production of essential oils for sale into the pharmaceuticals and cosmetics markets.

 

The large number of plant species that are available to produce essential oils is significant, therefore the climatic conditions and land suited to each plant depends on the specific plant. The Cacadu District has only recently tested several of the plant species in order to determine the suitability of the area for specific plants.

 

The most appropriate plants for the Kou-Kamma region are plants such as Rosemary, Lavender and Rose Geranium as they are suitable for the fynbos biome.

·         Kou-Kamma Local Municipality (especially Joubertina): along R62 in the Langkloof region between Kareedouw and Misgund

·         Ndlambe Local Municipality:

·         Kouga Local Municipality

·         Makana Municipality

 

 

 

The following infrastructure is required:

•          Suitable Land: no less than 4 ha for the plantation

•          Access to water resources, particularly underground water aquifers for irrigation purposes

•          Electricity

 

The still should be situated no further than 30km from the harvesting of plants, as the oils lose quality the further they are transported for distillation.

Due to high capital costs, a communal distillery would be the best opportunity for local farmers to access high costing machinery and equipment at a rental rate. Capital equipment such as the tractors, planters and ploughs should be rented out in order to save costs.

Cultivation and Harvesting: Unskilled labour, and some semi-skilled agricultural workers to operate the machinery. These skills are available within the geographical areas identified. One staff member is adequate to attend to 1ha of harvesting.

Expected Return on Investment 

The expected return in 2009 for the Rose Geranium cultivated every few months on 1 hectare creates oil sales of R57, 600, and hence 5ha generates R288, 000 in oil sales. Roman Chamomile planted on 1 ha produces R64, 000 in oil sales, consequently after 5 ha R320, 000 is generated in oil sales. The table below outlines the total revenue of Rose Geranium and Roman Chamomile for 5 hectares each.

 

 

The capital and operating costs are listed as Annexure 1 and 2.

 

The key constraints identified are:

•          Sensory measurement is very subjective, unsure whether buyers assessments are honest

•          Different buyers value products differently

•          Sector experiences price fluctuations and exchange rate volatility

•          There is a lack of appropriate technical knowledge and a lack of scientifically tested baseline data

•          Nobody can confidently confirm the suitability of the area’s biodiversity for such production and thus the selection of species types needs to be further researched

•          Significant capital costs involved

•          Essential to get genetically correct seedlings

•          Marketing of essential oils is limited

•          Difficult to compete on an international scale in terms of price, quality and reputation as the sector is still in its infancy.

•          There is potential for small, emerging farmers to enter the sector

•          New industry which means all the latest and best technologies can be incorporated

•          Leveraging potential production from other African countries

•          Can respond to global consumer trends and increased demand for specific types of essential oils

•          Potential for value adding in the local market

 

Useful Contacts:

Department of Forestry and Wood Science – University of Stellenbosch

Ferreira,G. Development of a business model for the organic essential oils industry, 2007

Personal interview with SAEPO, 2010

Small Enterprise Development Agency, Presentation on Essential Oils Incubator, 2009

Trade and Invest SA, Get Involved with Essential Oils Cluster, 2008

University of the Free State, Development framework and business plan towards utilization of indigenous products in the Cacadu District Municipality, 2006

 

§         All information contained within this profile was accurate at time of publishing.

§         The information contained within this report is intended only as an industry profile and does not assume to take the place of information contained within a business plan, pre-feasibility study or feasibility study.

§         The Cacadu District and service providers are not liable for any damages caused by the use of the information contained within this report.

§         The purpose of this profile is to both promote the area for investment and inform investors of relevant issues. It is advised that investors, who wish to pursue an investment within Cacadu DM, should use this profile as a basis to conduct further research.

 

 

The following costs incurred and income received is based on a case example; which outlines the potential budget for an essential oils enterprise. This functions to provide investors with broad categories of costs experienced, however further research in terms of feasibility studies and business plans will need to be carried out in order to determine the relevant costs and income according to the specific enterprise entered into.

The table below indicates the capital costs for 2009. In order to establish a profitable essential oils farm, the minimum size of the farm should be 4 hectares, with 1 staff member tending to 1 hectare.

 

*Based on rental from possible service station

** Depends on size of transportation loads and size of farm

The table below outlines the 2009 operating expenses for a processing factory.

*depends on kms travelled