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Essential oils have always been used by the fragrance, food and pharmaceutical industries and also by paint, pesticide, mining and petroleum industries. Of late, interest in it has surged because of the new-found popularity of aromatherapy, which believes peculiar aromas of these oils have curative effects

A concentrated, hydrophobic liquid containing volatile aroma compounds obtained from plants is referred to as essential oil. It is so-called to indicate that the oil is the fragrant essence of the plant from which it is extracted. It is generally extracted by distillation, though other methods like expression and solvent extraction are also used. Technically speaking, oils obtained through the process of solvent extraction are known by different names like oleoresins, concretes and absolutes, depending on the solvent used for extraction and the plants from which these are obtained. For instance, oils obtained from spices are generally called spice oil. This piece will not differentiate between these terms, but will instead explore the existing scenario and the opportunities this industry has for new and existing entrepreneurs.

Major oils from India
Lemon grass	Cinnamon
Jasmine	Mint
Ajowan	Angelica
Artemisia	Caraway
Celery seed	Citronella
Coriander	Corn mint
Cumin	Eucalyptus

Common sources
According to industry sources, more than 3,000 essential oils are known. Out of these, some 300 are used for commercial purposes on a regular basis. These are obtained mostly from agricultural plants, some from wild plants that may be seasonal or perennial. Oil can be extracted from any part of plants—from leaves, flowers, fruits, roots etc. Whatever the source of essential oils, they have complex compositions, containing alcohol, aldehydes, ketones, phenols, esters, ethers and turpenes in varying proportions.

In India 75 essential oils are in use on regular basis, says Vishnu Das Ranga, director of Nesso (Naturals and Essential Oils Private Limited), a Mysore-based company dealing in essential oils, floral absolutes and incense sticks. Nesso produces some 12 types of essential oils like patchouli oil, eucalyptus oil, mint oil and floral absolutes. The most commonly used essential oils are, however, lemon grass oil, peppermint oil, patchouli oil, clove oil, rose oil, lavender oil, geranium oil, mint oil, vetiver oil, jasmine oil, rosemary oil, clove oil, cinnamon oil, citronella oil, eucalyptus oil and palmarosa oil.

India is a major player in the field of essential oils (including oleoresins, spice oils, concretes and absolutes), and different oils have different leaders. Nesso, for instance, says Ranga, is one of the leading companies in floral absolutes. India is the dominant supplier when it comes to oleoresins —herbs and spice extracts—supplying around 80% of the world’s requirements. Demand in oleoresins has kept on rising on the back of the new trend to use more natural products.

There is competitive pricing in the market. There is not much of scope for new players [in the traditional segment]. New players should focus on organic [essential oils] products and use biotechnology effectively to get a foothold. - Vishnu Das Ranga Director, Nesso

Uses
Essential oils are used quite extensively in the fragrance and cosmetic industry, flavoring and food industry and pharmaceutical industry. It is also used in paints, in the manufacturing sector, mining and house cleaning products. According to a report by the National Research Development Corporation (NRDC), the total demand for essential oil is roughly split between the fragrance industry (60%), flavor industry (20%), and pharmaceutical industry (20%).

Essential oils have been in use for thousands of years. They have been the primary source of perfumes in the ancient civilizations of Egypt, India, Greece and Rome. There is, in fact, historical proof that there were machines for obtaining essential oils from plants in Mesopotamia 5,000 years ago. While the Romans associated essential oils with wealth and success, in India ayurveda recommended essential oil massage as a health treatment.

Aromatherapy has started becoming popular in recent times and essential oils are used extensively in spas. Several chemical substances identified in essential oils have been found to possess anti-bacterial, anti-fungal and anti-parasitic properties. Demand for essential oils in the form of oleoresins have kept on increasing in developed countries (and even in developing ones), along with the tendency of food retail chains to introduce spicy snacks with distinctive tastes of chillies, onions and ginger in their food items without actually handling these.

Economics of essential oils
The economics working behind essential oils has three components. First, the cultivation of herbs and plants used to extract essential oils; second, the actual process of extraction of the oils; and, third, the marketing and actual sale of these oils.

Different plants have different oil content and they differ in their sales also. For example, according to the National Institute for Chemical Pharmaceutical Research and Development, Romania, world production of coriander oil in 2003 was estimated at £6 million and the essential oil content of dried coriander is 0.15% to 1.7%. In contrast, market for lavender oil was estimated at £5 million and the essential oil content of the two types of lavender varies between 0.55% and 1.5%.

There is major emphasis laid on the cultivation aspect as the subsequent yield of essential oils depend entirely on the quality of cultivation. According to a report of the NRDC published in the early years of this decade, the cost of cultivation of herbs in developing countries per hectare comes to around US$ 500 to 1,000. In comparison, revenue per hectare is estimated at around $3,000 to 6,000. This demonstrates how beneficial the essential oils business can prove. Ranga, however, says it is virtually impossible to reach a figure for the whole sector. Different crops have entirely different cycles and products are also sold at varying prices. These oils have rates varying from Rs 200 to Rs 2.25 lakh for a kilogram, he says.

Users

Major users

Cosmetic and toiletry industry (fragrance & perfume industry)

Flavor & food industry

Pharmaceutical industry

Other users

Aromatherapy

Paint industry

Mining

House cleaning products

There is no set pattern of procuring crops either. Manufacturers can have contract farming in place to fulfill requirement, but for some herbs they rely on wholesale market supply, according to Ranga. He adds, “For some others, backward integration of farms also exists. Most of the distillation units are located at places where these plants are grown.” It is easy, therefore, to perceive there is no single leader across the sector. Some may be producing more of rose oil or sandalwood oil, while others may focus on lemongrass oil or mint oil and yet some others on vetiver oil or eucalyptus oil.

“Even mint is of four different kinds and eucalyptus of two kinds,” Ranga says.

According to Ranga, “It is difficult to reach an overall figure for production and sale.” This explains why statistics are hardly available for the industry as such.

As far as economics of extraction of essential oils from plants is concerned, it depends a lot on the set-up, capacity and design of distillation units. With some precautions, the same distillation unit can be used for extracting essential oils from different plants.

According to a study conducted by the global market research firm Frost and Sullivan in 2006, the rise in consumer demand for natural food products, coupled with the associated need for flavoring compounds from natural sources, have provided a major boost to the essential oils and oleoresins market. Frost and Sullivan estimated that the market size of Europe and the US for essential oils would grow to 666 million by 2009, with the actual volume consumed by the two in 2009 being 105,800 tons.

According to the United Nation’s COMTRADE database, global imports of essential oils stood at $2 billion in 2005. As listed by them, the top ten import markets in 2005 were the USA ($391 million), France ($199 million), the UK ($175 million), Japan ($152 million), Germany ($117 million), Switzerland ($103 million), Ireland ($75 million), China ($65 million), Singapore ($61 million) and Spain ($61 million). The fastest-growing markets, based on import spending between 2000 and 2005 include Vietnam (14% per annum), Poland (35%), Nigeria (16%), Turkey (25%), South Africa (14%), Indonesia (14%), Saudi Arabia (14%), India (19%), Spain (13%), Singapore (35%), Switzerland (14%), and Japan (13%).

Prices of essential oils
Essential oils	Price (Rs./kg)
Ajowan	450-550
Angelica Root	25,000-30,000
Basil	600-675
Ginger	3,800-4,200
Lemongrass	550-650
Palmarosa	800-925
Betel leaf	28,000-32,000
Pine	80-100
Davana	40,000-45,000
Valerian root	40,000-45,000
Turmeric	700-800
Sandalwood	60,000-65000
Vetivert oil	27000-32,000
Cardamom	8,500-9,500
Eucalyptus	400-600
Source: Journal of Essential Oils Association of India.

While India is a major exporter of many essential oils; it also imports from several countries. Figures from the Nahva Seva Port, Mumbai between December 2008 and March 2009 show India to have imported a number of essential oils from countries like the US, Brazil, the UK, China and Indonesia. It imported aromatic chemicals worth over Rs 6 crore from the US during this period through this port alone. At the same time, India also exported essential oils to several countries, including to the US, the UK, China, Argentina and other European countries.

Future
A study conducted over a decade ago in 1996-97 had estimated the demand for essential oils for the year at 14,900 tons. The growth rates it estimated then were for domestic and export markets at 9 and 25% respectively. The demand and supply gap was then projected at 8,000 tons. Since then the number of players have swelled not just in India, but overseas also. Ranga says it is difficult to guess at the actual produce and supply. What is perceived, however, is that there is a good demand for essential oils.

“There is intense competition in the market now,” says Ranga. “Pricing is very competitive and the scope for new players in the market is not quite bright.” However, he points out that the new entrants have plenty of opportunities in the organic oil segment. Demand for organic products is rising these days, he says. Though no special certification is required for setting up distillation units for producing essential oils, an organic certification will definitely be advantageous. If someone still wants to pursue the traditional segment of the business, one must adopt new biotechnology innovations to make a mark. Ranga believes entrepreneurs more willing to adopt and accommodate new technologies will emerge leaders in the long run.

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