Stevia to the rescue of Cola Makers?

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Bloomberg
Matthew Craze and Duane D. Stanford
November 28, 2008

A leaf the Guarani Indians of Paraguay's jungles used to sweeten drinks for centuries may help Coca-Cola Co. and PepsiCo Inc. revive flagging sales in the $320 billion-a-year global soft-drink industry.

The Food and Drug Administration is poised to act on allowing a zero-calorie sweetener derived from the stevia plant grown in Paraguay and China. Approval may allow the world's two largest soda makers to reverse three years of U.S. soft-drink sales declines with beverages containing the natural extract, according to Mariann Montagne, an analyst at Minneapolis-based Thrivent Asset Management.

"They are really desperate for something to pick up colas," said Montagne, whose firm owns Coca-Cola and PepsiCo among the $70 billion it oversees. "There is definitely a need, and people will respond if they have this natural sweetener."

The two companies lost a quarter of their market value this year, falling about 8 percentage points more than the Standard & Poor's 500 Consumer Staples Index, as the world economy slowed. Massimo D'Amore, chief of PepsiCo's beverage division, said Nov. 20 the company will use a compound made from stevia as an alternative to higher-calorie or artificial sweeteners in some drinks as soon as the government gives "the green light."

Merisant Co., the closely held maker of Equal and Canderel artificial sweeteners, is working with Purchase, New York-based PepsiCo to obtain FDA clearance for rebaudioside A, a compound derived from stevia that's at least 200 times sweeter than sugar. Cargill Inc., Atlanta-based Coca-Cola's partner, filed an application for the same compound about the same time in May.

The U.S. agency generally tries to complete such reviews in six months, spokesman Michael Herndon said, indicating a decision could come within days.

'Gold Standard'

"This is going to be the gold standard of sweeteners," Paul Block, 51, chief executive officer of Chicago-based Merisant said in a Nov. 5 interview. "We can ultimately match the taste and texture of sugar. We're almost there now."

Pepsico rose 3.2 percent today to $56.70 and Coca-Cola increased 3.3 percent to $46.87 in New York Stock Exchange composite trading. The S&P consumer staples index gained 1.3 percent.

Some consumers avoid drinks containing sugar, while others shun diet soda out of health concerns. Proponents say the new stevia extract lacks the bitter aftertaste of older products using the leaf. The ingredient may be used in baked goods and chewing gum as well as soda, according to the FDA applications.

The agency now allows less-refined stevia sweeteners only as dietary supplements in the U.S. because it lacks evidence to declare it would be safe as a food ingredient. Interest by PepsiCo and Coca-Cola has created a rush by companies including Merck KGaA, a Darmstadt, Germany-based chemical maker, to increase plantings or build refineries in Africa and South America.

Rebaudioside A is already used in the U.S. in tabletop sweeteners produced by Merisant and Cargill, the second-largest closely held U.S. company.

'Holy Grail'

"Once we have a breakthrough in a natural, low-calorie sweetener that can be used in colas, we have a reason to talk about this category growing again," PepsiCo CEO Indra Nooyi, 53, said in an Oct. 14 conference call.

"Perhaps the Holy Grail is a natural non-nutritive zero- calorie sweetener. We have one," Coca-Cola Chief Financial Officer Gary Fayard, 56, said about the extract during a Sept. 3 conference.

PepsiCo's SoBe Life Water, sweetened with rebaudioside A, sells in Lima for about 4 soles ($1.30) for a 591 milliliter bottle (20 ounces). A 350-milliliter can of sugary Coca-Cola sells for 2 soles.

The stevia extract's concentrated nature may eventually put its cost in the range of sugar, said David Bishop, chief operating officer of GLG Life Tech Corp. of Vancouver, which is providing most of Cargill's supply from China. The product's "natural" label will justify a higher price, he said.

Bitter Loss

Stevia was described as the world's "sweetest" plant in a New York Times article in 1932.

After Japanese businessmen took cuttings home nearly four decades ago, the partially refined leaf became a household product. It's found in up to 40 percent of zero- or low-calorie sweeteners in the country, according to Cargill.

Stevia sweeteners start to lose their bitter aftertaste when they contain more than 80 percent of rebaudioside A extract, according to Bishop. Cargill spent five years refining the taste of its compound, said business director Zanna McFerson. Like Merisant's, it's 97 percent pure, McFerson said.

Ricardo Torres, a 46-year-old business-academy director in Lima, tried PepsiCo's orange-tangerine flavored SoBe containing the new extract after seeing ads. He said the beverage was less bitter than the coffee his mother sweetens with stevia.

'Very Refreshing'

"It had a gentle and pleasant flavor that was very refreshing," Torres said. "I drink it as a substitute for soft drinks and bottled water, as it doesn't have sugar."

Most of the 40,000 tons of stevia leaves produced annually come from China, according to Gustavo Rodriguez of Paraguay's Ministry of Industry and Commerce. His country is the No. 2 grower, supplying about 1,400 tons.

The government plans to give free stevia cuttings to farmers to deter the planting of marijuana, said Paraguayan Agriculture Minister Candido Vera.

Simeona Costa, 55, a vendor who peddles stevia leaves on the street in Asuncion, says supplies are running out as local users compete with exporters.

"The warehouses are empty," she said. "The foreigners are taking it all away."