US demand for flavours and fragrances is forecast to grow 4.6% per annum to US$5bn in 2005, "as gains will be driven by the use of higher flavour and fragrance loadings to enhance the sensory appeal of fortified foods," according to a study by the Freedonia Group.

Consolidation in the major customer base continues to create an intensely competitive environment, with large multinational endusers leveraging their purchasing power to apply pressure on suppliers for price reduction, the report says. "Flavour blends will remain the largest segment of the flavours and fragrances market, with 36% of the total demand in 2005. However, fragrance blends are expected to post faster gains and nearly overtake flavour blends by 2005, due to strong growth in skin care cosmeceuticals and other cosmetic and toiletry applications".

Essential oils will record the fastest growth, with advances of 5.3% per year to US$700m in 2005. The study maintains that the increases will be driven by customer preferences for natural ingredients in food and beverages. "While the overall pricing environment is expected to remain weak, downward pressures, which are particularly strong on less expensive flavour and fragrance materials used in industrial sectors, will have less impact on essential oils which are used in fine fragrance applications," the report says, adding that volatility in the supply and pricing of some essential oils is pushing endusers to develop substitutes for these products.

Alternative beverages, including soy-based, nutraceutical, energy and other New Age drinks, represent the fastest growth market for flavours, spurred by the constant quest for new and innovative flavours, "and the need for elevated flavour levels to mask the unpleasant taste of botanical and other additives."

By Aaron Priel, just-food.com correspondent