The Danger Behind Rocketing Prices For Seaweed Raw Materials in The Carrageenan Industry



The farm-gate price of raw, dried cottonii seaweed has almost doubled in price over the past year. Cottonii seaweed is the major source of kappa carrageenan which is an ingredient in many meat, dairy, confectionary and personal care products. The high price and limited availability of cottonii raw material has caused some carrageenan factories to close for periods of time and several manufacturers report that they are losing money on kappa carrageenan.



As of early April 2008 the price at farm level hit almost IDR 8000/kg, in Bulukumba, South Sulawesi (MC 35%, DC2-3%). In January 2008 the price hit IDR 6200/kg . This price was 65% above the price of January 2007. The trend toward increasing dried cottonii seaweed prices is happening not only in South Sulawesi but also in seaweed growing areas throughout Indonesia, the Philippines and East Malaysia.



Price increase reflect a growing shortage of supply versus demand. Seasonal factors such as the timing of monsoons are thought to be one factor limiting demand and commercial factors effecting farmers, especially in the southern Philippines may be another factor.. These factors all together could possibly decrease the volume of seaweed production. Meanwhile demand has been increasing due to carrageenan market growth especially in China. This has led to a proliferation of new traders.



With increasing prices it is easy to understand that the farmers are getting excited with the seaweed farming business and many are expecting that the price will continue go rise. Many farmers do not realize that rocketing prices are not always a good sign, especially when it is accompanied by a decline in product quality that seems to be taken for granted by many of the new-comer traders. They are willing to pay high prices for low-quality products including young plants with high moisture and a high level of contaminants.



The combination of low volume, high price and poor quality can be recipe for disaster in the carrageenan industry. Makassar-based exporters, admit that they have difficulties in fulfilling their current contracted orders



Another concern about the increasing price on farm gate end, comes from a Danish processor. They point out that if the cottonii price continues to increase the supply chains could collapse. Kappa carrageenan will be replaced by other competing gums or product lines that contain carrageenan will be dropped.



The world’s largest producer of kappa carrageenan based in Cebu, Philippines asserts that Indonesia’s cottonii quality is getting worse over time. The decrease in seaweed’s quality has been marked by low gel strength - which was decreased by as much as 20% . Also the raw material has a darker color. It has been postulated that the cause of seaweed low gel strength is that the plants have been harvested when the plant tissue is immature. As one senior industry buyer pointed out “it is almost like a law in this industry that quality declines as prices rise”.



Quality issues and the cost-price squeeze forced on processors and end users is impairing development of the Indonesia carrageenan industry. For example factories that were beginning to produce semi-refined carrageenan have reverted to selling raw dried cottonii or cottonii “chips”.



Seaplant.net trade data analyses indicated that as of 2006 Indonesia had become the world’s leading producer of cottonii with production contributing to exports on the order of 100,000 dry tons. Philippine production was estimated to be as low as about 50-60,000 dry tons of raw cottonii produced in support of exports. Net US dollar values for 2006 exports were almost equal for Indonesia and the Philippines at close to 60 million US dollars. The difference is that Philippine exports ere almost entirely of carrageenan while Indonesian exports were of almost entirely raw dried seaweed.



Indonesia is leaving a lot of money on the table by exporting raw seaweeds instead of finished goods. Indonesia has significant comparative advantage as a producer of cottonii and other tropical seaweeds but there is some homework to do in order to energize the Indonesian seaweed sector and drive it toward its true potential. Seaplant.net estimates indicate that Indonesia could double – or even triple – cottonii seaweed production over the next decade to reach a level of as many as 300,000 tons of raw dried seaweed. The value of the industry could be doubled again by adding value to this seaweed. It will be a real shame if poor quality and high prices cause the industry to collapse just as it was gaining strength.



There is no such the “one and only” in the carrageenan business. The industry’s need for kappa carrageenan can always be satisfied with other more cost effective products. The rocketing farm-gate price for cottonii may not be a good sign at all. The Indonesian seaweed rocket may be about to self destruct instead of reaching its proper destination.

(sourced from: HARGA RUMPUT LAUT MEROKET, BERPOTENSI “BUNUH PETANI - by Dina Saragih, www.jasuda.net)