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Stevia, derived from the leaves of the plant, is South American in origin and can be used as used a natural sweetener with no calories. The leaf contains sweet chemicals known as steviol glycosides and high purity extract (known as Rebaudioside A), which can be as much as 400 times sweeter than an equivalent weight of sugar. Below, I will discuss the market potential of stevia and how it could impact companies operating in this space.

Latest industry developments

The market recently saw a change in technology that companies use to produce stevia extract. Cargill and Swiss company Evolva Holdings (EVE) have reached agreement to develop fermentation-based steviol glycosides, which will promote better flavors and lower costs in stevia products. Cargill, one of the leading stevia manufacturers in the world today, has teamed up with Coca-Cola (KO) to produce the stevia based product Truvia, which is currently being used by Coke. Under this agreement, Cargill will invest roughly $5 million in Evolva.

Presently, stevia is grown mainly on small Chinese farms in China and other rural regions across the globe. Even the large stevia producers like Cargill and Merisant have used a supply chain, which could, at times, be unreliable and provide uneven flavor and quality. The fermentation-based process, used by both Stevia First and Evolva, does not need the stevia plant in its entirety, and therefore uses cost-effective plant materials to produce sweet steviol glycosides through controlled fermentation, which reduces the requirement for stevia leaf. This Cargill involvement adds credibility to the fermentation process that Stevia First has the worldwide exclusive license for, and could develop into an interesting story, since STVF holds the IP rights necessary for the fermentation process to work. The likes of PepsiCo (PEP) or PureCircle would have to develop cheaper methods of producing high-quality stevia extracts through partnering with or acquiring stevia companies that meet their requirements.

According to the Washington Post, Coca-Cola recently replaced Sprite in the United Kingdom with a stevia based version that has 30% fewer calories than the original. This move was prompted by a push from the government to fight obesity. "It is no surprise that today's report indicates that levels of obesity continue to rise, with a startling 65% of men and 58% of women now overweight or obese in England. The obesity epidemic is getting worse by the day and steadily spiraling out of control," says Graham Rowan, chairman of the Obesity Management Association in the U.K.

Stevia First (OTC:STVF) is an early stage agri-bio business focused on the cultivation and production of stevia, which has great potential for use in the food and beverage industry. The company's goal is to establish a first of its kind American stevia enterprise that is vertically integrated. It will utilize the expert technology available in the Central Valley in California, which is regarded as a top quality productive and innovative agricultural region for fermentation-based production, advanced plant breeding techniques and state of the art harvesting. The company is attempting to maintain the quality of stevia from the plant to the point of sale and distinguish it from overseas high cost enterprises by establishing reliable and high quality supplies of North American stevia products.

Stevia First recently provided details about research and development plans with the objective of improving steviol glycosides and the process of production which could take it to a leadership position in the industry. Stevia obtained FDA GRAS approval in the USA in 2008, and has subsequently gained considerable acceptance in the market. Most companies have concentrated on "Reb A," a steviol, which has a good taste profile and is available in abundance in the stevia leaf. However, many of them have found that even highly-purified Reb A contains flavors that may be off-putting for consumers. Research has established other steviol glycosides and could provide opportunities for better acceptance as well as scope for improvements in production efficiencies. Stevia First has already started efforts to understand the newer steviol glycosides to develop processes to produce the best with microbial fermentation. The use of licensed processes by the company has the potential to greatly reduce the need for stevia leaf production, which accounts for more than 70% of the cost of producing traditional stevia extracts.

Stevia First has also communicated the commencement of feasibility studies to develop new methods of extraction for steviol glycoside to produce improved economies of scale. Stevia First has the goal of leapfrogging the present technologies used overseas by using modern technology for the extraction of natural products. These have the effect of enabling stevia leaf extraction with greater reliability at lower cost and show better compliance with food safety and environmental standards in the U.S. and California.

Conclusion

While Stevia First is concentrating on fermentation processes, it also is developing stevia plants from seeds in the ground on its acreage in Yuba City. Earlier this year, the company reported its interim results on the ongoing field trials. The results showed a 100% plant survival rate, and roughly 20% increase in growth using mulch instead of conventional bedding. The report also demonstrated the potential for growing stevia as a perennial crop, rather than as an annual crop requiring replanting every year. Though Stevia First is a development stage company and a high-risk investment, the approach to the industry and the business model go some way towards mitigating this risk. There is huge market potential for stevia. Investors interested in gaining exposure in this space should consider buying Cola-Cola, PepsiCo and Stevia First. All of these companies could benefit immensely if stevia begins to replace other commercially manufactured sweeteners like high fructose corn syrup.

Source: Next Generation Of Sweetener Market Players