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Chapter 9. The future: assessment of the problems and prospects for improved benzoin production and marketing in Lao PDR

9.1 Supply

If benzoin production in Lao PDR is to prosper the supply of benzoin must be assured. If present levels of sales are to be maintained the supply must be maintained. If demand is judged to be buoyant or increasing, and efforts are made to increase sales, the supply must be able to keep pace with it. The supply of benzoin is dependent on two factors: the availability of suitable trees to tap (and their productivity) and the willingness of people to tap them.

Unlike some other natural gums or resins which are collected from mature, wild trees, and whose supply is therefore at risk from tree loss through logging, removal for fuelwood, etc, the availability of Styrax tonkinensis is dependent on the agricultural practices of the hill farmers. Not just in terms of the total number of trees potentially available for tapping, but on whether they will reach an age at which they can be tapped. The decreasing length of the shifting cultivation cycle means that there may be fewer trees being tapped now than in the past and that those which are being tapped are yielding less.

Adding to this concern over the supply base is the attitude of the people to tapping the trees. Each family sets priorities for their activities on the land according to their subsistence needs and their desire for cash income. If there are more profitable or less demanding activities than tapping styrax trees, then those alternatives may be undertaken. Even in a largely agrarian society standards of living are improving and social attitudes are changing slowly. The task of tapping is arduous work and keeping livestock or tending alternative crops which give quicker returns becomes increasingly attractive as the economic returns of benzoin are perceived to be marginal. Village surveys have documented the lack of interest in collecting benzoin in some villages (e. g. Soydara et al., 1997) and the Oudomxai area seems to have been particularly hard hit by disaffected farmers.

Improvements to the road infrastructure mean that perishable goods can reach potential markets more quickly. Non-traditional employment and cash-earning opportunities are also beginning to appear. Increasing liberalization of the economy is attracting foreign investment and leading to the development of manufacturing and service industries such as tourism, and this encourages some drift of population away from the rural areas towards urban centers. All of these factors add to the danger of a decline in production and shortage of benzoin if steps are not taken to address the problem.

9.2 Price and the collector

The difficulties for the collector in knowing whether it is going to be profitable for him to tap and collect benzoin, and the uncertainty this creates in the supply base, have been discussed in Chapter 8, section 8.3.1. It is difficult to know how to resolve the problem. The exporter is unable to secure long-term orders from his customers and can give no orders to his agents until he receives them himself. The time he receives these is close to the harvesting season and the agent is therefore unable to know in advance how much benzoin he needs to buy from the village traders or collectors and what he is able to offer them as a fair price in order to secure the required amounts. In a free market system, if the agent’s first offer to the village trader or collector is not considered adequate, then the latter will withhold the benzoin that he has until a better price is agreed. The collector’s success in obtaining a better price depends on the pressure on the agent to secure supplies. Government intervention in the form of setting a fixed minimum price is not a sensible option.

9.3 Quality aspects

The problems caused by repeated handling of the benzoin in going from collector to exporter and the other factors which influence quality have already been discussed. These problems, and those of discoloration and the compacting of small pieces of benzoin or dust into lumps, are no worse than the same problems experienced by exporters of comparable grades of Sumatra benzoin in Indonesia and Singapore.

Leaving aside the question of raising quality by using improved tapping methods and/or superior planting stock, the following aspects need to be considered as more immediate options for achieving improvements:

1) Can means be found to minimize the size degradation which occurs so that a greater proportion of the benzoin collected is retained in its original form? If this can be done, then more value will accrue to the exporter and, if some of this added value is passed on, to the collector also. This assumes that importers and extractors would be willing to purchase a greater proportion of their requirements as the higher-priced top grades.

2) Is a more effective method of cleaning possible which would give a purer product?

3) Are changes possible in the conditions under which benzoin is stored which would reduce discoloration and compacting?

4) Are alternative forms of packaging possible which would preserve quality either during storage or during shipment on export?

9.3.1 Minimization of size degradation

A reduction in the number of middlemen in the marketing chain might have some beneficial effect in terms of a reduction of handling which the benzoin receives, but the distances involved in its transportation, and the terrain over which it has to be carried, would remain essentially the same. Some means of packing and protecting the benzoin during its transportation seems, therefore, to be the main solution to the problem of attrition. However, it is not easy to identify suitable materials - or a design - which would achieve this. Whatever was chosen would need to be lightweight so as not to add to the burden of carrying the benzoin on foot and, for the same reasons, it should not be bulky. The materials would almost certainly need to be natural ones, rather than manufactured, and available locally. Alternate layers of dried grass and benzoin might be one possibility, but this would cause problems in assessing the weight of the benzoin for payment purposes and it might prove difficult to separate the two at the cleaning and sorting stage.

9.3.2 Improved cleaning

Except for some of the large volume gums which have centralized cleaning operations, and where very large throughputs are being handled, cleaning and sorting of other types of natural gums and resins in preparation for export is invariably done by hand, in much the same way as for benzoin. Mechanical means would not be appropriate for benzoin, because it is too fragile. Apart from the obvious advice to minimize repetitive handling during cleaning, there are no changes which can be advocated to improve the present methods of cleaning.

9.3.3 Improved storage and packaging

Four factors typically contribute to the deterioration of natural products in storage: light, heat, air and moisture. The presence of light and air can cause oxidation or other chemical changes, and if this occurs, the process is accelerated by elevated temperatures. No information is available in the literature to know whether such changes occur with benzoin but there is a fair probability that they do. If this were the case, then the greater surface area offered by the dust and siftings would make this grade the most vulnerable to degradation.

Storage in the dark is the simplest action which can be taken to minimize benzoin deterioration, and this is largely achieved in some storage facilities in Vientiane. Storage in air-tight plastic bins with lids, rather than bamboo baskets with open tops, might be advantageous but this would need to be the subject of monitoring tests before recommending it.

Action has already been taken by some exporters to reduce temperatures during storage by the use of air conditioning and this appears to have had the desired effect of reducing compacting. Further reductions in temperature might be possible by increased air conditioning but may not be cost-effective. Storage below ground (i.e. in a cellar) is another possibility but it is not possible to predict the benefits in terms of a reduction in temperature or, more importantly, the benefits in terms of improved benzoin quality and price.

Exclusion of air needs a more technological solution. Air-sensitive materials can either be stored under an inert gas such as nitrogen or stored under vacuum. The latter would be the cheapest option and an investigation of the effectiveness of vacuum packing in raising benzoin quality is to be carried out. Whether vacuum packing could easily be done on bulk material in storage is open to question. Its use in packing benzoin for shipment overseas is equally untested and would represent a radical departure from normal practice. The practicalities of its use and the benefits to be gained, if any, need to be properly assessed before making any decision on its adoption.

9.4 Substitutes

Most natural flavours and fragrances can be imitated to a greater or lesser degree by synthetics. In some cases, where the characteristic flavour or fragrance is due to the presence of one specific chemical, then the synthetic nature-identical chemical may successfully compete with the natural material. The driving force for wanting to use the synthetic compound is the greater security of supply which it offers, the more consistent quality and the cheaper price. Synthetic vanillin is an example of a nature-identical chemical which is used to some extent to imitate natural vanilla. The use of vanilla to pass Sumatra benzoin off as Siam benzoin has already been referred to.

In most cases, however, a fragrance is a complex mixture of compounds which is difficult to imitate perfectly. A synthetic base mixture can usually be made and if the end-use does not require a perfect match with the natural then this may be a suitable substitute. A benzoin base containing vanillin, cinnamaldehyde and other constituents approaches the odour of natural benzoin but does not have its completeness. Offering a cheaper alternative to natural benzoin is not the only reason for a flavour or fragrance compounder to consider synthetic substitutes. The conditions in which the flavour or fragrance material is used in the end-product may demand something which the natural material cannot offer e.g. stability in acid or alkaline media, or some degree of water solubility.

For a particular end-use, the ultimate selection criterion for the flavour or fragrance compounder is the budget set by the customer/end-user. The compounder will use natural benzoin or a substitute, or a mixture of the two, according to which one best meets the needs of the customer in terms of organoleptic and functional requirements, and cost. The same criteria determine whether Siam benzoin or Sumatra benzoin is used for a particular application.

Siam benzoin will therefore continue to be used in those products where its relatively high cost can be borne and it meets the other criteria. The threat from substitutes is not believed to be any greater now or in the foreseeable future than it has been for some time. A decision to switch to a new formulation (e.g. from a natural ingredient to a substitute) is not taken lightly by a manufacturer. It entails much cost and, in the case of benzoin, there would only be a switch to greater use of substitutes if there were to be an unacceptable increase in the price of Siam benzoin or a shortness in its supply. Equally, however, if such a switch were made, then a return to the previous levels of consumption of natural benzoin if circumstances improved is not something which could be taken for granted. The shortages of gum arabic following the severe Sahelian droughts of 1973/74 resulted in major reformulation by end-users who switched to alternatives, and these market losses were not fully recovered afterwards.

9.4.1 Benzoin

Benzoin (2-Hydroxy-2-phenylacetophenone, also called 2-hydroxy-1, 2-diphenylethanone) is a specific, synthetic chemical bearing the same name as the natural product. The name for the synthetic product is italicized here to distinguish if from the natural product. Synthetic benzoin is described as a yellowish-white, crystalline solid with a “vanilla, medicinal taste” or with a “very faint, sweet, nondescript odour”. It is used as an intermediate in chemical synthesis but is also reported to be used as a food additive. Use levels are given below (Burdock, 1995):

Baked goods

14.50 ppm

Frozen dairy

2.97 ppm

Soft candy

5.99 ppm

Gelatin, pudding

5.82 ppm

Non-alcoholic beverages

5.82 ppm

Alcoholic beverages

5.67 ppm

Chewing gum

9.60 ppm

The above use levels are around 10-20 times lower than those cited earlier for benzoin resin.

However, there is obvious confusion in the literature on this compound. All sources agree on its chemical name, molecular formula, and physical and chemical properties, but one source (Radian Corp., 1991) mistakenly refers to it as a balsamic resin from Styrax species (i.e. confuses it with genuine benzoin resin), while another (Arctander, 1962) explicitly states that its confusion with natural benzoin, once made, tends to be repeated over many decades. It is therefore not at all clear whether the reputed uses of benzoin (2-hydroxy-2-phenylacetophenone) are genuine or should be attributed, instead, to natural benzoin.

The general view in the flavour and fragrance industry is that 2-hydroxy-2-phenylacetophenone has no relevance to gum benzoin and poses no threat as a substitute to the use of Siam benzoin.

9.4.2 Oliffac® products

International Flavors and Fragrances (IFF), the largest manufacturer of flavours and fragrances in the world, produces two benzoin substitutes: Benzoin Oliffac 63® and Benzoin Oliffac 999®.

Benzoin Oliffac 63 is described as “a cost-effective substitute for the sweet, vanilla, resinous, benzoin complex so valuable for many fragrance types”. Its use level in products is stated to be up to 5%. Benzoin Oliffac 999 is described as an “excellent economical substitute for benzoin resinoid products to which it is similar in odour performance”; it is a “characteristic balsamic, vanilla, resinous complex”. Its use level is also put at up to 5%. It is not known what the consumption, or trend in consumption, of these two products is.

9.5. Demand

9.5.1 Competition with other producers

Lao PDR is in something of a unique position in that it is virtually the only producer of Siam benzoin. Viet Nam may produce small amounts but most of what appears in international trade is likely to be of Lao origin. The same is true for exports of benzoin from Bangkok. Lao PDR is therefore not competing with other producing countries for a greater share of the Siam benzoin market.

If Siam and Sumatra benzoins satisfied completely separate markets then there would be no competition between these two either. This is not entirely the case, and there is some overlap between the two, although Siam benzoin is used primarily in perfumery and fine fragrance applications, rather than the large volume flavour and fragrance markets. The flavour market in particular is price-driven and uses the cheaper Sumatra benzoin in preference to Siam benzoin. Beyond this it is not possible to quantify the breakdown of Siam benzoin’s end-uses any more precisely. Siam benzoin also finds some pharmaceutical use but, again, the available data do not enable this to be quantified.

Blends are sometimes used and substitutes are also available as cheaper options for the end-user who wants a benzoin-like aroma.

9.5.2 Demand and demand trends

Much is known qualitatively and quantitatively about the geographical destinations of benzoin in international trade, but the vast majority of this is Sumatra benzoin. Siam benzoin is not separated in the trade statistics from Sumatra benzoin and this has meant that its inclusion in some of the data has had to be deduced indirectly by calculation of unit values.

Europe, and France in particular, is known from Lao exporters to be the most important market for Lao benzoin, but, again, the supporting evidence from trade statistics has had to rely on assumptions about the likely identity of imported natural gums and resins from Lao PDR and Viet Nam. Germany appears to be the second most important destination in Europe but there is some disagreement between published import statistics and the estimate by at least one German importer of benzoin on the magnitude of this trade. If all of the European imports from Lao PDR under the natural gums and resins classification are taken as being benzoin, then they still represent an under-recording of actual imports if the Lao export statistics are correct. Since 1991 (to 1995), Lao exports of benzoin have averaged 41 tonnes per year, while recorded imports into the EU from Lao PDR (of what is presumed to be benzoin) averaged only 18 tonnes per year for the same period. Inclusion of Viet Nam in the calculation only raises this figure to 21 tonnes.

An alternative explanation is that there are significant markets for Lao benzoin outside Europe (such as China) or significant quantities are entering Europe from other intermediate destinations. Trade with China is known to occur but is impossible to quantify, and it is not known how much of it is captured in the Lao export statistics. Exporters in Vientiane do not appear to be directly involved in such trade themselves.

All these difficulties make it equally problematic to identify the underlying origins of any trends which are indicated by the data and knowing, in any case, whether the trends are genuine. The Lao export data show a general upward trend from 1988 to 1995 while European imports are very erratic.

9.5.3 Quality and demand

The suggestion that raising quality would automatically generate increased sales of benzoin is not supported by evidence that this would be the case. Indeed, there is no evidence that Lao benzoin is perceived to have a quality problem by European importers. Lao exporters assert that their customers were generally quite happy with their supplies apart from the occasional instance of compacted benzoin. Claims of dirty or adulterated shipments have never been made and there has been no indication that orders have been lost because of inferior quality or that orders would have been gained by improvements in quality. In terms of colour and cleanliness, Siam benzoin is no different in appearance to Sumatra almonds.

While the importance of quality should not be diminished, therefore, its improvement is not in itself the simple solution to increased sales of benzoin.

9.5.4 The search for new markets

Supply and demand of Siam benzoin appear to be broadly in balance. Unsold stocks of the lower grades from one year’s harvest are usually sold the next year and there is no steady accumulation of stockpiles which become ever greater year by year. That is not to say that efforts should not be made to reduce them because they represent a loss in value and cash flow - and also mean that the exporter incurs added storage costs. There is some cause for optimism that extractors in Singapore and Indonesia who have not previously purchased benzoin directly from Lao PDR are prepared to do so and that these purchases could include the lower grades.

Unless new end-use applications for benzoin are opened up as a food additive by the submission of toxicological data formally confirming its safety in foods - an unlikely scenario in the case of Siam benzoin - the best means of developing new markets would appear to lie in targeting fragrance industries in countries other than France, the traditional destination for Lao benzoin. To avoid simply gaining new geographical markets at the expense of some of the French market, these new ones should, ideally, be those which are largely insulated from the French fragrance industry. However, this is not easy to do. The clearest business trend in recent years, in whatever industry one likes to think of, has been that of mergers and acquisitions, and there has been a shrinkage in the number of separate companies involved in a particular sector. This is true in the fragrance industry and means that there are far fewer companies to whom one might turn to as independent users of a raw material than in the past. It means, too, that fragrance compounders in Southeast Asia, India, South America and elsewhere are more likely to be subsidiaries of multinational companies who import their requirements from regional headquarters. India has an indigenous fragrance industry and might have been considered a prime target for Lao exporters. However, the market is not as sophisticated as the European market and low-cost raw materials are used wherever possible. In other instances, Indian subsidiaries of the large, multinational fragrance companies probably draw on supplies from outside India but within the business group.

China is a potentially huge market, although not likely to be as lucrative as other Western markets. China’s large and growing fragrance industry could well be targeted as a market for Lao benzoin, and the possibilities of long-term contracts explored.

9.6 Value-added processing

One option for strengthening the industry in Lao PDR and gaining increased value is that of undertaking some form of processing within the country. There are two possibilities: production of benzoin extract and block benzoin. In neither case, however, are there grounds for believing that this would be a sensible option to take.

In the case of benzoin extract, there are at least three reasons for not recommending it. First, and most important, the extractors in Indonesia and Singapore have an established, world-wide customer base which it would be extremely difficult to break into, particularly by a producer with no previous experience and track record of this type of operation. There must be compelling reasons for customers to switch from a tried and trusted supplier to a new one: most importantly, a significantly cheaper price, or a better or more consistent quality (combined with reliability of supply). It is unlikely that either of these could be attained.

Second, without importing Sumatra benzoin to use as a raw material, only Siam benzoin extract could be produced. Potential customers who use both types would therefore still have to purchase Sumatra extract from their existing supplier and this would make it illogical to switch to a new one for supplies of Siam extract.

Third, the small scale on which extraction would necessarily be carried out would mean that the unit cost of production (requiring imported equipment and materials, such as steel vessels, a filter press, evaporator and alcohol) would be high, and the equipment would lay idle for most of the year.

Production of block benzoin is not recommended either. If Siam benzoin were to be used in its manufacture, it would be a novel departure, since block benzoin conventionally contains Sumatra benzoin. Mixing intrinsically high quality Siam benzoin with lower quality materials would represent a devaluation of it. In any case, low quality benzoin of the type used as the supporting matrix in the manufacture of block benzoin is not available in Lao PDR as it is in Indonesia or Singapore. Indigenous sources of damar are available in Lao PDR but this does not sway the argument in favor of producing block benzoin.

9.7 Institutional weaknesses in Lao PDR

9.7.1 Statistics

Although benzoin has a relatively small monetary value compared to some other Lao exports, it does offer a source of income to one of the poorest and most disadvantaged groups in the country. It therefore has a socioeconomic value which extends beyond its dollar value. Benzoin production undoubtedly has the potential to contribute more to the resolution of the shifting cultivation problem but analysis and assessment of the industry aimed at improving it are hampered by the lack of reliable statistical information:

1) How much benzoin is produced and where (at the provincial and district levels)? - from which one could identify more accurately and easily the centers of production.

2) What has been the trend in production year-by-year (nationally and at the provincial and district levels)? - knowledge of this would enable village surveys to be better targeted at places which show a pronounced upward or downward trend to discover the reasons.

3) What is the FOB value of exports of benzoin from Lao PDR and what are their destinations? - past and existing geographical markets can then be precisely identified, as well as possible targets for more active marketing.

The acquisition of production data for benzoin is already taking place in some instances, but at best only at the provincial level. It is unclear where the responsibility for acquiring production data lies - with the Department of Agriculture & Forestry or the Department of Trade. There is no centralization and checking of the data in Vientiane. Customs data also remain largely inaccessible. The limited resources available to address these problems in terms of skilled manpower, computer hardware, etc., are recognized but the rewards in addressing it will be high, and not restricted to benzoin.

9.7.2 Market information

Market information is the lifeblood of exporters and traders. It is essential to know the end-uses of benzoin; the countries which have such end-use industries but which are not yet exporting targets; which other companies in those countries import benzoin, in addition to those already being traded with; and how those companies can be contacted. Without such information, an exporter’s chances of expanding its customer base and increasing sales are severely limited. Some of the benzoin exporters in Vientiane have a very limited knowledge base. They have their established importers in France but they are hindered in their efforts to seek new customers elsewhere by the lack of reference information or a national institution which they can turn to for advice.

Information specifically on benzoin is not easy to come by, but simple resources such as foreign trade and telephone Yellow Pages directories are valuable sources of company information and can be consulted under headings such as Gums, Resins, Fragrance manufacturers, etc. Such sources proved to be useful in identifying benzoin importers in Singapore. In some cases, local telephone Yellow Pages are more useful than attempting to gain nationwide coverage - Hamburg in Germany is an important European destination for many commodities and several leading gums and resins importers are located there. Other European countries besides France and Germany could be targeted, as well as Japan and the United States, if information on potential customers were available.

The Department of Export Promotion (DEP) in Vientiane has responsibility for promoting Lao exports and should be the institution which exporters can turn to for information and advice. The DEP has sent representatives to several international trade fairs in the region but these have concerned such things as handicrafts, textiles and furniture. Benzoin has never been included in any promotion. The DEP should adopt a higher profile, making itself better known to exporters in terms of the services it can provide and become more proactive.

The need for market information is also relevant to the producer (collector), although in this case, it is mainly price information that is wanted. One means of communicating such information to a wide audience is radio, specifically through Lao National Radio. In mid 1997, the Radio II schedules included a daily half-hour programme for farmers and a weekly half-hour programme devoted to agriculture and forestry. Lao National Radio was interested in making benzoin the subject of one of the weekly programmes. Such a programme could include interviews with different players in the business such as collectors and exporters. It would be an opportunity to popularize benzoin and to inform those people already engaged in or interested in its collection, of the efforts being made to promote it and find ways of improving economic returns to all parties.

9.7.3 Human resource development

If measures are taken to strengthen the aspects of the industry highlighted above, they will only be effective if the individuals involved are equipped with the necessary knowledge, expertise and understanding to be able to assess and appreciate the problems, see ways of addressing them, and take action to resolve them.

The burden of responsibility to maximize the human-resource potential does not rest solely with government institutions. The exporters themselves have an important role to play and if they are to take advantage of improved facilities and better accessibility to trade and market information then they, too, will need to be equipped to do so. This will obviously include relatively simple measures such as instruction in how to use such facilities but may extend to developing business skills or improving standards of English, which will be essential if new, international markets are to be explored. Human resource development along these lines can yield benefits not just for benzoin, but in other areas through the wider business community.

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