Emergence of the Herb Industry
By Desmond Jolly, agricultural economist, Department of Agricultural and Resource Economics, UC Davis
A 30-day supply of Your Life antioxidants currently sells for $12.29. At the same Long's drug store in Davis, California, a 50-count softgel packet of Saw Palmetto was priced at $11.29, while the same number of Goldenseal softgels cost $10.99. St. John's Wort, frequently in the news recently, was priced at $19.99.
Clearly, medicinal herbs have arrived in terms of being a meaningful area of economic activity. No longer on the fringe of mainstream American culture, the touted prophylactic and therapeutic benefits of botanical herbs have engendered significant investments by mainstream pharmaceutical companies positioning themselves for what is expected to be a major area of economic opportunity.
Blumenthal points to the existence of many small, medium, and large scale businesses. However, there is an accelerating trend towards consolidation as companies search for market power and industry dominance. Thus, there was a great deal of activity in the area of mergers, acquisitions, and new entries during 1998.
The Herbal Product Market
A recent consumer survey conducted by Harvard-based researchers indicated the herbal products market may be as much as $5.1 billion. The estimate is based on a telephone survey of 2,055 randomly chosen adults in the U.S. population. The study's results were published in the November 1998 issue of the Journal of the American Medical Association. Other estimates are somewhat lower than those derived from this study, but there is little question that it is the fastest growing segment of the dietary supplement industry.
In an industry overview article by Peggy Brevoort published in HerbalGram (No. 44, Fall 1998 ), the market was estimated at $3.7 billion as of July 1998 and allocated amongst various market channels. The market has virtually doubled since 1994, a 4-year period.
Behind the Boom
A number of factors are responsible for the booming growth of herbal demand, beginning with a growing concern for health that has been increasing for at least three decades. Additionally, alternative medicine has steadily gained in credibility as concerns over traditional synthetic drugs have increased, and as research validates the efficacy of many herbal products in the treatment of various health conditions. Notable among these have been studies indicating the therapeutic benefits of St. John's Wort in the management of depression.
Advertising campaigns based on large budgets of up to $1,000,000 are no longer exceptional. And the brand names of major pharmaceutical or food supplement companies have added to consumer comfort with herbal products.
What Are Consumers Buying?
Brevoort's HerbalGram article draws on a number of sources to show the pattern of consumer usage for various herbal products. For example, when aggregated into a relatively small number of functional categories, the data shows that the herb associated with managing mild to moderate depression, St. John's Wort, grew by 490 percent in 1998. By comparison, herbs having purported therapeutic effects on brain function, mainly Gingko and Gotu Kola, grew by 52 percent, vs. 47 percent for calmative herbs (Kava Kava, Valerian, Chamomile and Skullcap). Herbs targeting the immune system and colds and flus, such as Echinacea and Goldenseal, grew by 9 percent, and men's herbs (Saw Palmetto and Pygeum) grew by 23 percent.
The data in Table 1 dramatizes the explosive growth of the market. As Table 1 indicates, increases in sales in the 52 weeks ending July 12, 1998, range from 26 percent, noteworthy in itself, to 2801 percent for St. John's Wort.
Table 1. Top Selling Herbs - Mass Market (FDM)* 52 weeks - July 12, 1998
Reprinted by permission from HerbalGram No. 44, by the American Botanical Council, P.O. Box 144345-4345, Austin, TX, USA. Ph. 512-926-4900. Fax: 512-926-2345. E-mail:custserv@herbalgram.org. Web site:http://www.herbalgram.org
Unresolved Issues
As the herbal products industry evolves from cottage industry to industrial status, several issues have emerged as potentially problematic. One set of issues involves protocols for demonstrating and validating efficacy and safety. Herbal products have historically been produced and used as whole products rather than isolated active ingredients. The isolation and standardization of dosages for efficacy and safety could pose a meaningful challenge, particularly as some products may be effective because they have several active ingredients acting synergistically.
According to Brevoort, validating methods for Gingko Biloba, Echinacea, and Panax Ginseng are near completion, and work is underway on St. John's Wort. Depletion of natural sources of supply could pose another challenge to the sustainability of genetic diversity, as harvesting may significantly outstrip replacement supplies. Further, ethnobotany combined with commercialization could result in the exploitation of indigenous peoples along with their natural resources.
Additionally, while the entry of the pharmaceutical giants into the herbal industry brings with it major opportunities for research, product development, advertising and marketing, it may challenge the viability and sustainability of smaller-scale operations. As processors become larger, they will undoubtedly prefer to make alliances with suppliers that can meet their demands for large supplies of standardized product. Smaller producers may need to develop horizontal alliances, perhaps in the form of producer or marketing cooperatives and associations.
References
1. Blumenthal, Mark. "Harvard Study Estimates Consumers Spend $5.1 Billion on Herbal Products." HerbalGram No. 45 (Winter 1999): 68.
2. Brevoort, Peggy. "The Booming U.S. Botanical Market: A New Overview." HerbalGram No. 44 (Fall 1998): 33-46.