Price Increases on Natural Products ** Sorta Longish

[Guest guest]

Hi y'all,

 

Below is a modified version of a post I sent to another News Group a

few days ago. There are some professional opinions in this post .. but

overall its factual information .. easy to prove.

 

After retiring from 30 years in the U.S. Army I went to work for a Defense

Contractor overseas and had to stay on top of international prices for the

supplies we purchased to fulfill that contract. After 6 years in

that position (in 1994) I resigned and opened my own company in Turkey .. my

focus was on consulting to foreign companies who wished to do business in

Turkey .. and international trading of commodities (including Essential

Oils). I learned that success in all of these jobs depended on spending as

much time on research as it did on final actions based on that

research. Today, I still spend as much time keeping up with

international market prices of Essential Oils as I do serving my customers

and managing my company in Maryland .. but as of last summer I do this from

Tennessee .. not Turkey. ;-)

 

One person wrote that some major distributors were gouging .. and they were

not wrong .. though its not the major cause of price increases.

 

Another wrote that the demand for bio-fuels was a factor .. they were not

wrong .. though production of bio-fuels is more responsible for the rising

cost of food stuffs than for the cost essential oils. We have yet to see

the real truths that will come out of the rush to convert to bio-fuels.

 

Another wrote that it was a combination of weather and rise in fuel costs

and decline in the value of the dollar .. and she was right on .. in fact,

she was closer to the whole truth than anyone else .. thank you Marge.

;-)

 

I want to expand this a bit because this subject has generated a lot of

discussion lately and it is likely to generate even more so maybe folks need

more information. ;-)

 

Essential Oils must be viewed as just another commodity, bulk prices are

fixed and driven by supply and demand. Increase in demand can usually be

calculated to a degree that producers can forecast future needs but supply

is driven by variables that can't be controlled .. weather and other natural

phenomena are in this category. Floods, draught, wild fires, typhoons,

increased transportation costs, devaluation of the US Dollar .. and

political decisions .. as well as the general overall impact of climate

change have had a negative impact on some Aromatic and Food crops during the

2007 crop year.

 

Also .. most EO are produced in Third World or Emerging Market countries,

which are being pushed by activists and Western nations to increase the

standard of living of their people .. thus, higher wages for the tedious

labor required to harvest most aromatics. This is but one of the many areas

where we can't have it both ways.

 

A while back I reported that prices on Patchouli had increased around 68%

and were still moving .. change that to 120% now .. but leave in the " still

moving " part. I reported that the price of Haitian Vetiver had increased

by 78% .. change that to over 150% from last year .. and also still moving.

 

Rose Otto went up around 90% due to a 35% reduction in crop yield in both

Turkey and Bulgaria and there is NONE to be purchased in Turkey now as it

was all sold to the highest bidders .. mostly to European perfumeries.

Corsican Helichrysum italicum is up over 100% and that too is due to a

shortage .. Mysore Sandalwood up around 60% .. there are also other

oils that have increased considerably. I wrote that prices were still

volatile and it was my opinion that in SOME cases this was due to farmers

and distillers holding back some products .. I believe that I was right then

... its neither illegal or immoral to do this .. US farmers do it with their

grain crops. That is not the case now .. products are now out of the hands

of the producers and in the hands of international brokers who are grinning

like Cheshire Cats while at the same time wearing long faces because they

can't get their hands on another 100 or 200 kilos of product.

 

Prices of some aromatics not in short supply have also increased ..

Lavenders from France and Bulgaria are up around 20% .. US Clary Sage

increased around 15%.

 

I could go on and discuss each Essential Oil .. but I'll stop there for now.

;-)

 

I keep a record of what I have paid for EO since 1995 .. it helps me to stay

on top of international market trends .. at least from a historical

perspective. Watching the market is a time consuming job .. almost as

difficult as watching the stock market except we can let our money ride if

we're in a good mutual fund and in time we will probably make up our losses

... not true in the EO market. This year I have sold pounds and kilos of

various EO for X price and when I purchased more days later I paid far more

than I sold them for. A seller of EO can normally do well by keeping a low

profit margin on a high volume of sales but that is becoming difficult to do

now. Today .. if we calculate the price of our EO sales based ONLY on our

purchase price we are doomed to fail .. we must pay attention to replacement

costs and that is a variable that is difficult to forecast during this

volatile market period. Who would have thought that all of the Origanum's

would have gone up over 115% in the last 3 months? I have sold hundreds of

kilos of Origanum for half of what it would cost me to replace them now.

 

For end users .. in the midst of all this bad news is some good news .. some

EO prices have declined. But that good news is often problematic for those

of us who sell in bulk as well as in retail sizes. A few weeks ago, I did

an exhaustive analysis of my prices .. converted kilos to pounds to ounces

to milligrams to get as close to my costs as possible and I found that I

could drop prices on quite a few of the EO I offered .. the price changes

were posted to my web site. Today I find that there are at least a dozen

oil prices on that site that are BELOW my replacement costs .. the market is

still volatile.

 

I believe that this volatility in prices isn't all based on supply and

demand. Prices are increasing on some EO that are NOT in short supply.

Even considering the continued high costs of fuel and weakening of the US

Dollar overseas .. all of the increases can not be justified .. some of it

is gouging .. middle men are following the trends that were established

based on shortages of other EO.

 

In the short term, if one is operating on a low profit margin .. as I am ..

they must raise some prices. Don't count on a decline in prices of most EO

until late May or so and even then many prices will not go down because all

aromatics are not harvested and distilled in the summer.

 

My forecast: Prior to the 2008 harvest and distillation the brokers will be

trying to forecast conditions for the summer crops and if they look good

they will get rid of the products in their hands .. if the conditions look

bad they will raise their prices .. if they are uncertain .. prices will

remain the same.

 

Waiting and doing without an EO is a luxury that many end users can afford

but sellers like me (and maybe you) can't afford to do this.

 

You should take a look at your per milliliter cost for EO and then look at

products you make like Aromatherapy blends, perfumes, cosmetics and soaps ..

they are likely to be costing you more to produce now.

 

I'm not yet ready to put my updated web site on line and some of the prices

shown on my wholesale link are now less than my replacement costs ..

accordingly, I am not pushing sales of some oils in pounds or kilos now and

in some cases I am refusing to do it for new customers. For some oils I

barely break even on an 8 oz sale and I am having to depend on sales of 4 oz

sizes or less to stay in business. ;-)

 

Folks who are serious about selling EO for a fair price and making a fair

profit know that this business is not one where you can get by putting in a

40 hour week .. if you one spends less than 80-100 hours a week on their

business they might wind up with no more than an expensive hobby.

 

Those who purchase in bulk must be aware of standard prices today .. there

are no bargains out there and if we see one that looks too good to be true

... odds are it isn't true. There are no free lunches in this business .. but

there are overpriced lunches if one considers what they are getting for

their money. If a seller has not raised their prices on Rose Otto from

Turkey or Bulgaria or Patchouli from Indonesia .. or Vetiver from Haiti ..

Helichrysum italicum from Corsica .. Lavender from France or Bulgaria .. and

so on .. then I believe that one of the following four conditions exist.

 

(1) They are not good business persons .. they are not paying attention to

what they are doing .. they are losing money and they will have difficulty

staying in business.

 

(2) Their profit margin was already too high .. high enough before to allow

them to absorb the increased costs and they are smart enough to realize that

raising prices even more during a period of economic uncertainty is not a

wise move.

 

(3) They are knowingly or unknowingly selling an adulterated product.

 

(4) They might be selling a pure product but the quality will not be high

because the Origin of the product is NOT what they claim it to be .. the oil

is from an Origin that produces lower quality cheaper oils!

 

There are maybe? pure, certainly cheap, certainly lower quality oils

available on the market .. Origin is an important consideration when

purchasing EO. Folks decide for themselves if they must accept lower

standards on EO or food products or whatever they pay their money for .. but

they should do their best to be informed consumers .. if not they will spend

a lot and get less bang for their buck.

 

Y'all keep smiling. :-) Butch

 

http://www.AV-AT.com <http://www.av-at.com/> ... Wholesale/Retail GC Tested

EO, Tested Hydrosols, Rose Products and other nice things shipped from

our store/warehouse in Downtown Friendsville, MD. Pop: 597

 

 

 

[Guest guest]

Thanks Butch for the info. As the " ole staying " goes.

You get what you pay for. I am a research person by

nature, never settle for the surface info. Always

climb up to the " Food Chain " .

Janis Tett