Cargill Makes A Big Investment In The Future Of Stevia

Includes: IFF, KO, RPBC, STVF
by: Glen S. Woods

In what could be a major change in the method that companies use to extract the sweet steviol glycosides in the stevia plant, U.S.-based Cargill and the Swiss company, Evolva Holdings Sa (EVE.SW), have agreed to join together to develop fermentation-derived steviol glycosides, which will enable the production of better tasting and less expensive stevia products. Stevia is the fastest growing natural zero-calorie sugar substitute on the market. The total global sweetener market is estimated to be over $58 billion a year, and the global stevia market in 2011 reached between $800 million and $2 billion.

Cargill, the international producer and marketer of food, agricultural, and industrial products is one of the leading stevia manufacturers, and together with the Coca-Cola Company (NYSE:KO) developed the stevia product Truvia, which can be found in Coke's stevia-based products. The announced agreement, in which Cargill will invest approximately $5.3 million in Evolva, could have ramifications throughout the stevia growing and producing world, as the fermentation method seeks to move stevia from the more expensive and labor-intensive farm-based production, to a less costly, less labor intensive, more reliable, and better tasting product via the fermentation process.


To date, stevia is grown mostly on small farms in China and rural regions spread out around the globe. Even the largest stevia producers, like Cargill, Merisant, or PureCircle (PURE:LON), have had to rely on a supply line that was considered at times unreliable and varied in quality and taste, not to mention that up to 70% of the cost of producing stevia comes from leaf production. However, now that Cargill has thrown its weight behind Evolva's fermentation-based process, it very well could make farm production for developing stevia on an industrial scale somewhat obsolete, except for perhaps organic production.

Evolva has succeeded in creating the key sweet individual components of stevia via fermentation with yeast, using low-cost plant sugars as starting material. This allows the production of the individual components of stevia to be developed to make entirely new blends in any required volume possible. It also opens up the possibility for food and drinks manufacturers to fine-tune their products to local tastes. Evolva will be the first company to adapt a fermentation-based method to produce a range of steviol glycosides, using sustainable, low-cost, carbohydrate feedstocks, which can be produced anywhere around the world regardless of weather or soil conditions.

Evolva, a $185 million market cap biosynthetic pharmaceutical company that develops key components in food ingredients such as saffron, vanilla, and stevia through its fermentation-based platform, saw its stock rise 15% on the news of the agreement. Cargill will be responsible for commercialization with its vast manufacturing and commercial expertise in bulk sweeteners and food ingredients, which includes stevia. Additionally, Evolva stands to receive up to $7.5 million in milestone payments and has the right to a 45% participation in the final business. Evolva has been developing and researching its stevia fermentation process on a pilot-scale at its Copenhagen site, with expectations of its production by 2015.

This agreement to develop a fermentation-based stevia product should sound the alarm with the major competitors like Tate & Lyle (TATE.L), which spent years developing its stevia product, TASTEVA, or PepsiCo (NYSE:PEP), which partnered with the giant Merisant Company in developing Purevia to go head to head with Cargill's Truvia. Cargill and Coke may now have an advantage in cost, taste, and supply reliability over its competitors. To stay competitive these companies, such as Pepsi, Merisant, PureCircle, and Tate & Lyle, may have to either buy product from Cargill or develop its own fermentation-based technology. That's where a small company in the central valley of California might just have become a relevant player in the stevia business.

Evolva is not the only company developing a fermentation-based process for extracting steviol glycosides. Last August, Stevia First Corp (OTCQB:STVF) of Yuba City, CA, announced it had entered into an exclusive and worldwide intellectual property license with the Vineland Research and Innovation Centre of Ontario, Canada, which encompassed compositions and methods for producing steviol and steviol glycosides through a fermentation-based production. Since the announcement, STVF has been researching and developing what it intends to be an industrial size microbial-based fermentation process to produce steviol and steviol glycosides.

The licensing also included the research at Agriculture and Agri-Food Canada, where its researchers were able to map the biochemical pathways in the sweet steviol glycosides in order to better control the characteristics and the biochemical pathways that are in the stevia leaves. The process, like Evolva's process, does not require the entire stevia plant to produce the sweet extracts. It converts low-cost plant materials into sweet steviol glycosides through controlled fermentation methods, which should allow STVF to bypass or significantly diminish the need for stevia leaf production. And like Evolva's process, STVF's fermentation process should be able to develop less expensive extracts derived from the numerous steviol glycosides creating a sweet product while removing the lingering aftertaste far more successfully and accurately than cross breeding the actual stevia plants, and at a lower cost.

Though the company is focusing heavily on its fermentation method it also is developing and growing stevia plants via seeds in the ground on its central valley farm acreage in Yuba City. On February 25, STVF updated its year end interim results on the company's current ongoing field trials. The results demonstrated a 100% plant survival rate, and an approximate 20% increase in growth due to mulch vs. conventional bedding. STVF's report was able to demonstrate regional suitability for growing stevia as a perennial crop, as opposed to an annual crop that would require yearly replanting.

STVF is a small development-stage agricultural company; it has a market cap of $24.65 million. The company's stock is up over 10% year to date, closing on Friday, March 8, at $0.46 per share. The company's goal appears to be to "leapfrog" over the current technologies and to utilize modern methods in both its farm-based stevia production and its fermentation method, making stevia production more flavorful, reliable and economical. According to the company's recent SEC filings, if the research and development efforts are successful, the first revenues on sales of its California stevia extracts could occur in 2014.


There is another company developing the sweet product from the stevia plant, but in a different method - as a sweetness enhancer. INTERNATIONAL FOOD AND FRAGRANCE INC. (NYSE:IFF), based in NY, NY, is one of the leaders in the food flavoring and fragrance business and is testing a single component, derived from rebaudioside C (Reb C) of the stevia plant, RP44, as a possible sweetness enhancer. In 2010 IFF entered into an agreement with Redpoint Bio (OTCPK:RPBC), the company that developed the flavor enhancer RP44. IFF will develop, manufacture, and commercialize RP44 in virtually all food and beverage product categories. Reb C does not possess either a sweet or bitter taste, but it has the characteristics of a sweetness enhancer. Tests have been able to demonstrate that using RP44 the company was able to reduce the sugar content by up to 25% while maintaining the regular flavor.

Interestingly, IFF is also in partnership with Evolva and is in the pre-production phase of developing a natural vanillin flavor produced through Evolva's fermentation process. IFF is a $6.03 billion market cap company, and its stock is up over year 30% year to date; its stock closed on Friday March 8, at $73.77 per share. IFF declared a quarterly dividend of $0.34 per share, payable on May 1, to shareholders of record on April 10. The company reported fourth-quarter net income of $68.12 million, or $0.83 per share on revenues of $680.56 million, up from $24.4 million or $0.30 per share on revenues of $644.38 million in the previous year's fourth quarter. According to Zacks, on February 13, four investment analysts have rated the stock with a buy rating, six have given a hold rating, and one has issued an underweight rating. The stock currently has an average rating of overweight and an average target price of $76.40. IFF is a global company: Over 75% of its 2011 sales were generated outside the U.S. and 45% were generated in the emerging markets.


Evidence continues to mount that the sugar people consume has been a contributing factor in the epidemic of type 2 diabetes. A new epidemiological study, conducted at Stanford University, UC Davis and UC San Francisco, and published February 27, in PLOS ONE, suggests sugar may also have a direct, independent link to type 2 diabetes. There is a definite need for a natural zero-calorie sugar substitute, and stevia appears to be the answer.

Cargill's agreement with Evolva to develop the fermentation process to develop a more stable pipeline of quality stevia extract at a lower cost may put other methods of extracting stevia at a cost disadvantage. Interestingly, this agreement may actually help a company like STVF more so than the two participant companies in the agreement. There are two main reasons the agreement should help STVF: It gives credibility to the fermentation process that Stevia First Corp. has been developing, and other stevia producers or major beverage bottlers will need to look for another company that can produce a high-quality stevia extract at a lower cost. Companies like PepsiCo or PureCircle, to compete with Cargill or Coke, would need to either develop a less expensive method of producing high-quality stevia extracts or will need to either partner up or buyout another company that is producing a reliable high-quality stevia at a low cost.

While small, conventional stevia-growing farms will probably find a market, as will companies that are synthesizing stevia extracts through flavor enhancers, fermentation appears to be the method of the future. That puts Stevia First in a very favorable position as a vertically integrated company, or as a company that one of the larger stevia producers or major beverage bottlers may look to buy out. And though Stevia First is a developmental company and a risky investment, the rewards may have just turned more favorable.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.