In the US, it wasn't too long ago where the only places to find the zero calorie natural sweetener, stevia, was on health food store shelves. That has all changed when bottling behemoths Coca-Cola (KO) and PepsiCo (PEP), battling it out for a healthier, non-artificial alternative to sweeten their beverages without losing flavor, entered the stevia market.
Today, Coca-Cola and PepsiCo products sweetened with stevia can be found in every supermarket with an ever expanding product line from beverages to sweetener blends for baking. It is important to understand that the global sweetener market is a $56 billion dollar industry comprising of two main segments, 80% caloric (nutritive) with sugar and high fructose corn syrup leading the way, the other 20% are non- caloric (non-nutritive) sweeteners, such as aspartame, Splenda, and stevia. Nutritive sweeteners are expected to grow in-line with yearly population expansion of 1.1%, while non-nutritive sweeteners are projected to grow at 5% a year between 2008 and 2015. Artificial sweeteners such as aspartame and Splenda have dominated the non-nutritive sweetener market, but according to the August 2011 report by the market research firm Mintel, the trend is turning toward natural sweeteners. Mintel estimated the global market for stevia sweeteners reached $500 million by mid-2011, and food consultant Zenith International expects the global market for stevia-derived products to reach $825 million by 2014, Coca-Cola, and PepsiCo have taken notice and have invested years of research and millions of dollars to find new ways to lower the calorie content in their brands without affecting the taste. They found stevia may just be the answer.
While stevia rebaudiana (Bertoni), or just stevia, refers to the entire plant, it is important for an investor to understand that it is not actually the stevia plant itself that has approval for use as a sugar substitute, but rather only certain highly refined stevia preparations: steviol glycosides found in the leaves, one of which, Rebaudioside A (Reb A), happens to be 250 to 450 times sweeter than sucrose. Reb A can be isolated and purified from the leaves of the stevia plant. As the giant bottlers have realized the potential market for Reb A in the U.S. appears to be considerable. In 2008, the FDA gave rebaudiosidea Generally Recognized As Safe (GRAS) for its use as a general-purpose sweetener.
Coca-Cola, the Atlanta based beverage giant, recently added a Reb A (Truvia) blend to its Sprite and Nestea beverages in France, reducing the caloric intake by 30%. Coca-Cola and Cargill Inc., after 4 years of research, have filed 24 US patents relating to stevia, and in 2008 the FDA approved Truvia, a Reb A sweetener developed jointly by the two companies. Coca-Cola has added Truvia to over 30 products around the world including Diet Coke in Japan where stevia boasts roughly 40% of the sweetener market. Cargill has marketed Truvia to consumers in sugar packs and is now the number 2 sweetener behind Splenda.
Not to be left behind, PepsiCo, headquartered in Purchase NY, developed its competing stevia-based product, PureVia, jointly with Chicago based Merisant's subsidiary, The Whole Earth Sweetener Company. PureVia, which was designed to go head to head with Truvia, can now be found in such beverages as zero calorie Sobe Lifewater, and Trop50, Tropicana's fruit juice beverages with 50% less sugar and calories. PureVia is also on grocery shelves competing with Truvia for the sugar substitute market.
Clearly, both Coca -Cola and PepsiCo have listened to consumer demands for a healthier alternative, more and more of their reduced or zero calorie products are showing up on grocery shelves naturally sweetened with Reb A. However, there is one caveat in the deck, neither Coca-Cola, PepsiCo, or their partners, at this time are the actual growers of Stevia. And for the stevia market to grow it will require reliable producers who can develop quality plants with high Reb A. At this time most of the Stevia is grown in parts of South America, China, and Vietnam. Costs, consistency in taste, and reliable supply line have all been a challenge to the stevia industry. There are a few micro companies in the states addressing these challenges.
Stevia First Corp. (STVF.OB), a micro-cap development stage company based in California's agricultural rich central valley,has designs to be the first vertically-integrated stevia enterprise in the U.S. developing stevia seeds and tissue propagation high in REB A.With their R&D operational, and having acquired acres of fertile farm land, Stevia First Corp. is closer to their goal to grow, process, and sell stevia using an agri-bio business model, which includes drawing on the rich talent pool of UC Davis,local farmers, agronomists, agricultural innovators, and equipment suppliers in what is sometimes referred to as the agricultural "Silicon Valley", Central Valley.
What makes this Yuba City Company, Stevia First, with a market cap of $15.7 million, an attractive investment? The stevia industry at this time has not been able to keep up with the demand. Costs, consistency in taste, and reliable supply line have all been a challenge to the stevia industry. Stevia First seems to be addressing those concerns, according to the company, as they are crossbreeding high grade stevia seeds and seedlings that yield disease-resistant plants with leafs that have a higher content of the better-tasting steviol glycosides, Reb A. In their latest 10K filing the company noted: "developing a variety of stevia leaf with significantly higher Reb A content would allow for larger volumes of high-grade stevia extract with lower raw material (leaf) costs. Furthermore, the higher the Reb A content of a raw stevia leaf, the less costly the downstream processing activities required to increase its purity. Our focus will be to develop varieties of stevia with high sugar content in general, or high Total Stevia Glycosides ("TSG"), and in particular, high Reb A content. TSG and Reb A content increase as the plant matures, concentrating over time with sunlight. However, TSG declines when the plant flowers. Delaying flowering is key to allowing the plants to achieve higher RebA content in the leaf and giving them more time to produce leaves prior to harvesting."
Stevia First recently leased planting acreage three times larger than the average farm in CA.If they can develop a strain high in REB A and cultivate the plants on their farm much larger than the other companies growing stevia whether in the US or Asia, Stevia First might just be a company that could be sweet for both users and investors.
However, in order to be able to meet its goals, a company has to have the funds to survive until they can generate sales. On January 31, 2012, Stevia First completed a private placement of convertible debentures for net proceeds of $250,000 and aggregate proceeds of $1,250,000 in connection with the February Subscription Agreement for the issuance of 625,000 shares of common stock and convertible debentures with an aggregate principal amount of $625,000.Earlier this year the company saw its stock soar from a low of $0.69 on March 6th, to a yearly high of $3.28 on March 29th, only to come back down by the end of day's trading to $1.45. While earlier this year the stock did shoot up to $3.27 per share, for the last month the stock has been trading between $0.26 and $0.47. One must remember Stevia First is a development stage company and has not generated any revenue to date. So what merited this company to rise to over $3.00 a share earlier this year? Though investors jumped the gun, they probably were not incorrect on their assumption that Stevia First Corp. had a good chance to run toward higher profits. The business model from the seed, to production, to sale, all under their control, gives them a leg up in actually producing quality stevia. Thus, Stevia First Corp. seems to be a good long-term bet to be one of the companies that will be producing product and perhaps profits in the future.
S&W Seed Company (SANW), a high yield alfalfa seed company has stepped into the stevia production business with its August 8th announcement of its commercial harvest of stevia from its 118 acre field in Chowchilla, California. This is the second year that the stevia leaf will have been produced from the Chowchilla farmland. Mark Grewal, chief executive officer of S&W Seed Company, commented, "Our stevia program continues to make progress. This is the second harvest from the same stevia plants which reaffirms our belief that, unlike China, the California climate is suited for harvests on a multiple year basis. Additionally, we continue to gain valuable insight as our agronomists experiment with various planting and harvesting techniques. As we pioneer commercial stevia production in California, we are heartened by overcoming the various challenges that arise. The developmental knowledge and experience gained should serve S&W well into the future."
S&W Seed stock is up YTD just over 10% thanks in part to their run up from early February to mid April where it saw its yearly high of $6.69 per share before receding back down and trading in the $5.00 to $6.00 dollar range, till August 1st when the stock closed for the first time since Feb 7th below $5.00 per share. This $26.8 million dollar market cap company may be worth a second look. They, like Stevia First, are producing Stevia in the Central Valley of California and have full control over their production; but unlike Stevia First, the company has only dedicated 118 acres to the production of stevia. Until S&W Seed invests more acreage to stevia, their stock may not rise much higher than their yearly high.
Stevia in the US is relatively new, but it benefits from what appears to be a widespread belief that consumers are increasingly demanding healthier and more nutritious food and beverage products.Growing consumer preferences for all-natural products, together with increasing rates of obesity and diabetes, have created significant demand for an all-natural, zero-calorie sweetener alternative. Clearly, with Coco-Cola, and PepsiCo on board, stevia products are rising on the supermarket shelves, and sweet gains might be made by investing not only in the giant beverage companies but in the young startup companies that are developing a foothold in the growing stevia market.