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Aromatic fusion

By Lu Chang, Li Yingqing and Guo Anfei (China Daily)

08:53, April 26, 2012

Top: A cabbage rose production base in Yunnan. The southwestern province exported $105 million worth of natural oils and fragrances of synthetic chemicals in 2010. Above: Fragrance manufacturers need to upgrade techniques to meet market demand. Photos Provided to China Daily

Tough times, thin margins prompt Chinese fragrance makers to embark on value-adding trail

What is common with Chanel, Coty and Davidoff? Nothing, one would tend to say, as they have different fragrances and positioning. But very few know that some essential ingredients that make up most of the famous perfume brands come from Yunnan, in China. Though the province is still home to many aromatic treasures, it seems to be fast losing its edge in the global markets as rampant price wars among domestic suppliers and failure to embrace modern manufacturing techniques are fast eroding the profit margins of companies.

Situated in the southwestern subtropical zone of China, Yunnan is home to more than 400 species of natural spices. The annual output of geranium oil - an essential ingredient for perfumes - in Yunnan is about 120 tons and accounts for half of the global trade, according to information provided by the provincial agriculture department.
In 2010, Yunnan's fragrance manufacturers exported $105 million (80 million euros) worth of natural oils and fragrances of synthetic chemicals, up 20 percent from a year earlier. This accounted for more than half of the $239 million revenue earned by the province's flavor and fragrance industry, a 15 percent growth over the previous year, according to the China Association of Fragrance Flavor and Cosmetic Industry. Most of these exports were to destinations like the United States, Europe, India and the Middle East.

Zhou Yong, general manager at Yunnan MeiJie Industrial Trade Co Ltd, says his company has supplied aromatic raw materials, through traders, to many French fashion houses such as Chanel and L'Oreal.

"It requires many different fragrances to make a perfume, but ingredients such as geranium oil and michelia oil from Yunnan are essential ingredients," he says. "You may find them in other places in the world, but the aroma is not as good as the flowers in Yunnan and it is also difficult to replicate it with synthetic chemicals. So technically speaking nearly every French perfume house uses raw materials from Yunnan."

Though the short-term numbers look impressive, considering that exports are increasing and growth is stable, experts express concern that in the long run the prospects are not that rosy as lack of deep processing skills may hinder the further development of the fragrance industry in Yunnan.

Feng Rui, director of the China Association of Fragrance Flavor and Cosmetic Industry, says Yunnan's fragrance industry has seen a steady growth in line with the fast development of the cosmetic, healthcare and pharmaceutical industries, the key industries that use natural oil, fragrance extracts and synthetic chemicals. Industry growth may slow down if local fragrance makers are unable to develop their own skills to meet the demands from key consumers.

"Profit margins for local fragrance makers have been shrinking rapidly and are currently only about 10 percent of the total revenue," Feng says.

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