Team:ITESM-Guadalajara/Market

THE MARKET

According to Bioprocessing Technology this product had been used in several industries since 1990. These industries include food, drugs, cosmetics, agriculture, health care and waste treatment. In GIA´s (Global Industry Analysis) report “Chitin & Chitosan: A Global Strategic Business Report“, it’s argued that the Chitosan global market has a value of 20 billion USD, being Europe, the United States and Japan the places where it is mainly produced, sold and consumed (Pennsylvania State University, 1987), (Global Industry Analysts , 2012)

The global market for Chitosan was estimated at 13.7 thousand metric tons for 2010, with a positive projected of 21.4 thousand metric tons expected by 2015. The Asia-Pacific region (including Japan) was the leading Chitosan producer with an estimated 7.8 thousand metric tons in 2010 and a projected 12 thousand metric tons by 2015. The US represented the second biggest producer of Chitosan, with an estimated market size of 3.6 thousand metric tons in 2010 (Global Industry Analysts , 2012).

Chitosan degree of deacetylation (DDA) has often been cited as an important parameter that determines many physiochemical and biological properties of Chitosan such as crystallinity, hydrophilicity, degradataion and cell response. Molecular weight is another important feature, and it decreases if DDA increases. According to the deacetylation grade and presence of other minerals, Chitosan is categorized in three types: low purity, medium purity and high purity or medical grade (Global Industry Analysts , 2012).

Low purity Chitosan is used as floculant for water treatment industrial processes, as pesticide for agriculture, as pulp for paper and a component for industrial processes in photography products and textiles. Medium purity Chitosan is used for the same purposes as low purity Chitosan, but it also has applications in protein precipitation, encapsulating agent (for food and some pharmaceuticals) and aqueous thickener. Finally, high purity Chitosan is ideal for wound healing and hemostasis, bio surgery and ophthalmology, scaffold and cell therapy, and drug delivery and vaccines (Global Industry Analysts , 2012).

According to Global Industry Analysts in “Chitin & Chitosan: A Global Strategic Business Report,” the market size in US is 17% for high purity Chitosan and 75% for low and medium purity Chitosan (Global Industry Analysts , 2012).

Economic of production

Production of Chitosan is almost 30 years old. Professor George A.F. Roberts, in his article: Thirty years of progress in chitin and chitosan, exposes an analysis of how the production process of this natural fiber has been changing and improving as years go by. The conventional industrial process that has been used for 3 decades consists in using particular chemical substances to treat chitin (Roberts, 2008).

Traditionally, HCl and NaOH are important supplies for the demineralization and the deproteinization processes that chitin undergoes to become Chitosan. Each liter of these substances has an average cost of 5 MXN (.38 USD) and 200 MXN (15 USD) respectively. According to Professor Roberts, industrial plants usually produce close to 500 tons of Chitosan at an average cost of 11.50 USD (149.5 MXN), assuming raw material (shellfish waste) is available at a very low or even cero cost. This calculation does not include transportation costs and it is suggested by the author that considering them would double the price (23 USD/300 MXN). Additionally, eliminating HCL and NaOH decreases production costs in any plant, given that regulations in many countries require companies to treat the water derived from its operations (Roberts, 2008).

Taking chemicals out of the equation would lower costs of production considerably. Biophrame proposed biological process requires molasses and whey (milk serum), which are both wastes from other industrial processes and sold for 2.5 MXN/0.19 USD per Kg and 0.39 MXN/0.03 USD per Lt, respectively. The industrial waste produced from this biological process would be high amounts of protein, biomase and calcium, which are both biodegradable and can even be treated and sold. Developing an enzyme-based method for converting chitin in Chitosan has obvious attractions such as environmental friendliness, lower chemical costs, higher molecular weight, quality and standardization (Roberts, 2008).

Latin America and Mexico

The data on Chitosan production and consumption for Latin America is inaccurate due to the size of the market. In Latin America, Chitosan is used mainly for water treatment and research purposes. Regulations for its use in cosmetics and foods are still ambiguous. Out of the total world production, only 462 tons are produced outside the US, Canada, Japan, Europe and Asia Pacific, which is 3.36% of world production.

Nowadays Latin America consumes 530 tons of Chitosan per year and most of it is imported form producer countries. The biggest part of the product is sold by big companies such Sigma Aldrich and produced by companies such as KitoZyme, a Belgium based company famous supplier of fungi-derived high purity Chitosan. Prices in nonproducing countries increase due to import tax fees and transport costs. Nevertheless, industry is calculated to be growing at 18% per year (Instituto Nacional de Estadística y Geografía, 2014), (Instituto Nacional de Estadística y Geografía, 2014), (Sigma-Aldrich ).

Mexico is the second biggest economy in terms of GDP, which is 1.2 Billion USD. The country represents about 22% of total Latin America’s GDP (5655 Billion USD). If we assume that Mexico’s weight in Latin American economy is 22%, we can infer that Mexico consumes about 22% of the total 530 tons of Chitosan per year, which is 106 tons per year (Instituto Nacional de Estadística y Geografía, 2014), (Instituto Nacional de Estadística y Geografía, 2014).

In order to identify the size of both markets, our team created a sample of Latin-American customers who had requested Chitosan through online stores such as Alibaba.com, Quiminet.com and Amazon.com. Out of 234 observations, 34% where Mexican customers, whose requests went from 0.009 kg to 24000 kg per year. Also, out of all the requests, 26% demanded medium-low purity Chitosan and 6% demanded high purity Chitosan. The smallest order was posted by a Mexican student and the biggest one was posted by the general director of a water treatment plant. This proportion is similar to the US medium-low and high purity market, which is 75% and 17% respectively (Quiminet.com, 2014).

Taking into account that Mexico’s Chitosan consumption is near 106 tons per year, the medium low category consumption is 27.56 tons (27,560 kg) per year, and the high purity market is 6.36 tons (6,360 kg) per year (Quiminet.com, 2014).

http://www.quiminet.com/centro-negocios/se-requiere/8030847700117.htm

Medium and low purity Chitosan (75-85% deacetylated/Medium molecular weight)

Our process is designed to produce 50 kg per month, making a total of 600 kg per year of medium purity Chitosan during the first phase. That means we would be entering the market with 2.17% of market share, serving as supplier of medium purity Chitosan for the water treatment industry, dietary supplements industry, cosmetics industry, the agrochemicals industry, pulp and paper industry, textile industry and photography products. Our process will consume the waste of the shrimp industry and the dairy industry (Zhao, Park, & Muzzarelli, 2010).

Market structure in Mexico and rivalry among competitors is defined by the following forces (see figure 21):

• High threat of new entrants: medium and low purity Chitosan has several suppliers in Mexico and Latin America. The characteristics of this Chitosan are not hard to attain (unlike high purity chitosan) through chemical processes. Moreover, it is being used right now with commercial purposes and not only for research purposes, which means the market is much more mature than high purity Chitosan.
• Low bargaining power of buyers: although it is much more available than high purity Chitosan, distribution channels are blurry. Non-corporate customers looking for Chitosan have to rely on suppliers on the Internet and have their shipments customized from other countries. Moreover, Chitosan is much more commercialized as dietary supplements and it’s generally mixed with other substances when sold. Corporate customers have less troubles restocking Chitosan but generally require big amounts of the product, from 500 to 1000 kg.
• Medium threat of substitute products or services: some Chitosan applications can be substituted with other medical excipients, other pesticides, chemical flocculants and antibacterial.
• Low bargaining power of suppliers: there are few shrimp suppliers who can supply a ton per month of waste, but they are happy to lower the cost on waste elimination. Moreover our process is designed to work with any crustaceous shell waste.

High Purity Chitosan (Degree of acetylation: ≤90 %)

Our process is designed to produce 25kg per month of high purity Chitosan, making a total of 300kg per year during a second phase. That means we would be entering the market with 4.71% of market share, serving as supplier of high purity Chitosan for research purposes like cell therapy, tissue engineering, wound dressings, implant coatings and therapeutic agent delivery systems. Our process will consume the waste of the shrimp industry and the dairy industry (Zhang, et al., 2010).

Market structure in Mexico and rivalry among competitors is defined by the following forces:

• Low threat of new entrants: high tech knowledge and facilities are not easily available in Mexico. Biological processes can be patented and protected for 10 years.
• Low bargaining power of buyers: Chitosan is not easily available and distributors enjoy high margins on this product due to the few options customers have on hand.
• Medium threat of substitute products or services: some Chitosan applications can be substituted with other medical excipients, other pesticides, chemical flocculants and antibacterial.
• Low bargaining power of suppliers: there are few shrimp suppliers who can supply a ton per month of waste, but they are happy to lower the cost on waste elimination. Moreover our process is designed to work with any crustaceous shell waste.

The biggest competitor is giant distributor Sigma Aldrich, who markets low, medium and high purity Chitosan from suppliers all over the world through its online store. However, Sigma Aldrich runs out of stock frequently and has long wait periods for its customers.