Understanding the Global Essential Oils industry

Essential oils are the concentrated form of natural oils that are obtained from a single species of plant. They are primarily extracted from the parts of the plants including the plant roots, fruits, stems, flowers, leaves, or bark. It can be extracted from two common processes namely distillation and expression. This extract is highly potent and contains the ‘essence’ of the parent plant. The essence covers both the fragrance as well as the medicinal properties of the parent plant. Commercially, essential oils exist as either essential oils blend or as a single essential oil.

Uses and Benefits

The essential oil market growth is largely dependent on applications pivoted on the healing properties of the oils. An increasing inclination towards therapeutic treatments like aromatherapy for improving ailments of the immune system, skin issue, insomnia, respiratory diseases, and digestion problems, has promoted its usage fourfold. It is also used in cosmetic formulations like soaps, anti aging creams, perfumes, hair care products like anti-hair-fall formulations, anti-dandruff formulations etc. Additionally, it is used for manufacturing insecticidal, bactericidal, fungicidal, antiparasitic, and virucidal formulations. Essential oils also continue to remain important in the preparation of confectionery food, food preservation, distilled alcoholic beverages, and soft drinks.

Global Essential Oil Industry: The Market Dynamics

The global essential oils market trends suggest that it is projected to observe an upward growth trend of 8-9 percent, amounting to nearly $ 11.67 billion by 2022. The global essential oil market is highly fragmented on the basis of product type, application, and region. Let us delve deeper into the market dynamics of each of these segments.

Market Segmentation By Product

When we consider market segmentation by product, we have some of the most popular and widely used essential oils like orange, lemon, eucalyptus, corn mint, peppermint, citronella, lime, cloverleaf, and spearmint. However, three of these essential oils have more market share when compared to others.

Orange: The orange oil market is primarily driven by the food industry, followed by the cosmetics and home care industries. The orange oil production costs are entirely dependent on the availability of orange peels. The demand is expected to be met by growing sustainable agriculture techniques for cultivation of oranges.
Eucalyptus oil: It is steadily witnessing a significant growth because of its medicinal properties that help in addressing coughs, sinuses and respiratory infections. Products like ointments, liniments cough drops, lozenges, toothpaste, and mouthwashes have boosted its market demand.
Lemon Oil: The key market promoters for lemon oil include products like soaps, shampoos, face washes, and scrubs. Its utility as a flavoring agent, handwash, disinfectant, dish wash, and room freshener is also contributing to industry growth.

Market Segmentation By Application

Based on applications the essential oils market is segmented into food & beverages, medical, cleaning & home, spa & relaxation, cosmetics, perfumes & fragrances, and dental industries.

Food and Beverage: The application segment is currently spearheaded by the food and beverage industry because of the highly nutritive properties and a number of health benefits associated with essential oil consumption.

Spa and Relaxation: The second leading segment in the applications is the spa & relaxation. It is anticipated as the fastest growing segment in the essential oils market. Aromatherapy accounting for the most commonly adopted method in this sector.

Market Segmentation By Region

Currently, North America constitutes the largest market share for essential oils industry. The APAC, especially Japan, India, China, and South Korea, is projected to have the highest CAGR in the coming few years. The main driver in the APAC region is the growing spa & relaxation trends. The European market led by U.K, Italy, France, and Germany may witness an accelerated growth in the next few years due to the growing presence of many cosmetics manufacturers

Here are some of the major growth constraints that are identified in the global essential oils industry.

High Production Costs

The cost of the essential oils fluctuates with the changing costs of raw materials. Furthermore, when the production takes place at a small scale, the handling cost and quality check substantially increase the production cost.

Labor Costs

Collecting and processing the raw material for essential oils is a labor-intensive task as it is primarily supplied by the developing nations. This increases the labor cost for essential oils production.

Supply Chain Risks

When developing countries are involved in the essential oils production, their inability to invest more in the manufacturing process leads to quality issues and loss of crop yields that affect the supply chain as a whole.

Seasonality

Since essential oils are directly derived from plants, their supply is entirely influenced by the seasonality of the crop. The climatic factors like El Nino effect, also directly impact the crop production of the plant species.

Although the essential oils industry is projected to expand its market shares in the coming years, some challenges like storage and transportation issues are likely to add on to the cost structure and affect the profitability of the market.