Executive Summary

What the report is about
This report examines prospects for five medicinal herbs (valerian, arnica, skullcap, echinacea and goldenseal) and finds that the biggest challenge facing the Australian industry lies not in the cultivation but rather the commercialisation of the herbs. Local growers have found it difficult to generate appropriate returns due a small domestic market for raw ingredients and strong competition from established suppliers in North America and Europe.

Who is the report targeted at?
The report is primarily targeted at providing information to growers, but it should also be of interest to raw material processors and policy makers.

Background
The medicinal herbs industry has undergone significant changes in the last five years. The ever increasing push of medicinal herbs into mass market distribution through the dietary supplements category is providing consumers with ever increasing access and the ability to self medicate. Market intelligence collected from leading markets such as the US, Germany, UK, France as well as Australia show a very similar trend – the consumption of medicinal herbs will continue to grow especially in varieties providing relief against age-related ailments such as arthritis, prostate health, digestive health, osteoporosis, menopause, mental clarity, energy level, heart disease and ocular health. The relatively relaxed regulations governing the sale of dietary supplements in Australia and other western countries means manufacturers will continue to use dietary supplements as the channel to promote new industry growth.

Objectives
Against the background of a growing market for medicinal herbs, this project aims to identify and confirm market opportunities for five selected medicinal herbs in Australia and other leading western markets and then examine issues involved in growing these crops in Australia.

Methods used
The report is based on data and information available to Australian Business Ltd through its networks and on interviews with a rage of industry representatives in Australia.

Key Findings
The medicinal herb industry globally continues to experience strong growth as consumers increasingly prefer to use natural remedies to treat common ailments. Herbs like echinacea, valerian, skullcap and goldenseal are forecast to enjoy continued strong growth largely due to their ability to provide relief against common ailments such as colds and flu, mild insomnia, stress, PMS, tension, nervousness and upset stomach. The demand for arnica is expected to remain niche in the medium to long term largely due to its limited application to only treat bruises and sprains. However, the price for arnica plant materials is expected to remain strong largely due to supply scarcity. The potential application of the nominated herbs (with the exception of valerian) is largely confined to the herbal medicines and dietary supplements. Valerian has some flavouring properties and is used in food and beverage manufacturing but the herb is more known for its application as a mild sedative.

The supply of raw medicinal herbs globally is highly competitive and organised. There is a diverse range of countries supplying raw plant materials and extracts. In Australia, growers are increasingly finding it difficult to compete against cheaper imports. Processors and manufacturers are increasingly preferring to source imported raw materials due to better supply consistency, quality and price. The unpredictability of supply and demand coupled with significant price fluctuation has led to diminishing local grower interest in the cultivation of medicinal herbs. Interviews with leading industry stakeholders showed the Australian medicinal herbs industry is predominantly confined to ‘hobby farmers’ with no more than 1-2 acres dedicated to medicinal herbs. Medicinal herbs cultivation in Australia could be hard to measure as there is very little consistency in production volume with growers continuously rotating between other horticultural crops to yield best returns.

The high risk nature associated with medicinal herb cultivation means most local growers prefer to only cultivate herb varieties with the quickest growing cycle to minimise risk exposure. Discussion with growers and leading local research authorities showed that herbs such as Echinacea. pallida, Echinacea purpurea, Echinacea angustifolia, skullcap, valerian and goldenseal can be successfully grown in Australia but production levels remain negligible largely due to strong global competition and significant price fluctuation. In addition, some herbs like E. angustifolia and goldenseal may require long term commitment prior to growers generating any returns. The cultivation of arnica remains a challenge in Australia as it is native to mountainous regions of Europe.

According to industry stakeholders, herbs that will generate the highest possible return for growers are E. purpurea, skullcap and goldenseal. Based on current international pricing for dry plant material E. purpurea A$40-45/kg, skullcap A$42/kg and goldenseal A$140-200/kg (as of April 2005) it appears attractive for Australian growers to supply these herbs. Despite current high prices, the unpredictability of international prices will make it difficult to secure grower interest. For example, when Australian growers were supplying skullcap 3-4 years ago at a cost base of A$22/kg for dry plant material, growers from North America were supplying at A$16/kg. When domestic production of skullcap ceased, prices have been gradually rising to its current level of A$42/kg.

Implications of the report’s findings
To date, Australian growers have not been able to generate a profitable return from cultivating medicinal herbs. The information collected in this report questions whether Australia has a competitive advantage in supplying medicinal herbs especially when European and North American suppliers can compete on quality, supply consistency and price.

If growers are to achieve required returns from supplying medicinal herbs they need to have a better understanding of the needs of processors. Better communication and involvement of processors at grower level will help them to understand domestic production capabilities and build confidence in sourcing from domestic growers.

The recommended cultivation of E. Purpurea, skullcap and goldenseal will require the support of domestic processors and manufacturers to develop much needed critical mass.

The infancy and fragmentation of the industry means that limited available resources should be invested in industry development initiatives. Appropriate support infrastructure is needed to help growers spread risks and investment associated with growing medicinal herbs in Australia. The areas needing attention by industry include:   Better co-ordination and co-operation across industry stakeholders including growers, government, processors and manufacturers;   Better access and retention of true botanicals, cultivars, knowledge and technical expertise;   Improving transparency and flow of information between industry stakeholders;   Improving quality and consistency of delivery;   Developing critical mass/volume to provide sufficient scale;   Better access to market information;   Developing a quality assurance system to guarantee product authenticity, integrity and safety; and   Developing a commercial model/template that the industry can adopt.

An unbiased organisation, such as an industry association, is needed to play a cocoordinating/ facilitating role in actioning the suggested recommendations. The development of a successful medicinal herb cultivation industry in Australia needs inputs and participation not just from growers but from all the other stakeholders along the supply chain. It is the “inclusion and engagement” process that will create confidence among processors to source locally over foreign suppliers.

If the industry is to have a future, growers need to concentrate on high value herbs such as E. purpurea, skullcap and goldenseal. More importantly, there needs to be greater emphasis on commercialisation and the need for a working partnership between growers and processors to ensure a market exists when herbs are harvested.

Whilst there is potential to supply overseas markets, the industry needs to focus on domestic opportunities and, more importantly, work with local processors to formulate herb products that meet the needs of the end-users (ie. customers).

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Last updated: June 2006
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