The botanical supply chain and its discontents
That was the message of experts who spoke this week at the American Herbal Products Association Regulatory Congress during a session titled "Tariffs, treaties and temperatures: world events and the botanical supply chain."
The spotlight is on China as the country seeks a more stable relationship with the United States and other key Western trading partners. This is especially true as it strives to “bounce back” economically after its zero Covid policy, said Anna Ashton, founder of Ashton Analytics.
China is also on a better footing under the Biden administration than the country was during the president’s predecessor, but the issues between the United States and China remain heightened, and a mutual distrust has deepened, she added.
“These dynamics, coupled with ideological differences, make the stability that has been achieved pretty fragile, and they pose long term obstacles to cooperative political and commercial relationships,” Ashton said. “Western companies do continue to source from and partner with Chinese counterparts, of course, often without complication, but legal, regulatory and political developments in the U.S. and allied nations, as well as in China, continue to generate new questions and uncertainties and make China business relations difficult to navigate.”
For example, macro geopolitical volatility is particularly of concern due to the potential for a crisis in the Taiwan Strait or the South China Sea. Also, tariffs, blacklists and other tools are making it more complicated to do business with Chinese partners. Additionally, there have been ongoing efforts to reduce U.S. reliance on China for products. This has been underway since the early months of the Trump administration and were accelerated considering the vulnerabilities revealed by the pandemic, Ashton explained.
In May, the Biden administration announced provisional plans to exponentially increase tariffs on select Chinese imports, including electric vehicles, lithium ion batteries, solar panels and critical mineral supplies. There is also a raft of new technology export control rules, including products from the U.S. market. Importers must prove the products or supply chains were not in any way affiliated with suspected Chinese forced labor.
“U.S. and Western policymakers are seeking to reduce dependence on China for ingredients like for foods, medicines and more, and in many cases, China's role in these supply chains is either near monopolistic or irrefutably monopolistic,” Ashton said. “Over 90% of vitamin C production and manufacturing for the US market… 70% to 75% of dietary ingredients were sourced from China.”
Though many Chinese herbal, pharmaceutical and medicinal ingredients manufacturers seek to adhere to high standards and to the standards of the markets that they are trying to export to, inspections sometimes are not adequate. There have been cases where the inspectors work for the local government, and local government is in turn a part owner of a particular company, which “of course casts doubt on how reliable the results of the inspections are,” she noted.
“Over the past few decades, there's also been issues with economic adulteration when manufacturers replace expensive ingredients with cheaper ones,” Ashton said. “It's been the focus of numerous scandals affecting consumers in China and beyond, and such adulteration of products can happen as early in the supply chain as the manufacturing of the raw ingredients, which makes it hard to detect.”
Indian botanicals
Another major force in the global botanical supply chain is India, which has faced challenges with regard to exchange rates between the rupee and the U.S. dollar. In the last four years, the rupee has been devalued by approximately 10%, which means products are going to cost more to import into India, according to Verdure Sciences founder and CEO Ajay Patel.
“India is a pretty large importer of things like oil and gas, amongst other things, and as a result of the war between Ukraine and Russia, and India being a huge importer of oil, the local cost of commodities has risen dramatically,” he said.
The trucking industry locally has also gone through a lot of changes as well. While the infrastructure in India is improving, there are still ways to go with respect to having better capabilities for moving goods within the country. It once took about four weeks to move goods from India to the United States. It now takes anywhere from six to eight weeks, heavily disrupting the supply chain, Patel said.
The economic concerns are only exacerbated by the realities of climate change, and botanicals are heavily reliant on the climate. This is also made challenging as botanicals are trending and becoming more and more popular.
“And as we speak, the monsoons are ongoing in India, typically between the months of June and September,” he said. “And this year they have been extremely disruptive—lots of flooding. Most of these botanicals are harvested after the monsoons, and so it would be interesting to see what this year's weather brings.”
There are multiple regions in India where turmeric grows, however, last year climate had a significant impact on the crop. There was about a 30% to 40% reduction in turmeric which led to a spike in prices. This year’s monsoons are not boding well for turmeric either.
One of the other challenges for the crop is whether there is quality, traceability and transparency in the supply chain.
“With turmeric, we've had our fair share of challenges with respect to adulteration—with synthetic curcumin and high levels of lead adulteration with dyes,” Patel said. “This is very common with respect to the dyes and the metals in the spice world as it relates to turmeric.”
“On the dietary supplement side, the synthetic curcumin adulteration is more common,” he added. “And so we need to ensure that we have tight supply chains.”
A partial solution is fostering strategic collaborations, especially with farmers and co-investing with supply chain partners, he said.
International agreements
Fixing elements of the botanical supply chain might be improved by U.S. support of environmental treaties, starting with the 1993 Convention on Biological Diversity (CBD).
Almost two decades later, this treaty was followed by the adoption of the Nagoya Protocol, which outlined access to genetic resources and the fair and equitable sharing of benefits arising from their use.
“The world came together to discuss the Convention on Biological Diversity and the sustainable use of the components of it,” said Thomas Brendler, director of the Southern African Botanical Products Association (SABPA). “Unfortunately, the U.S. signed the CBD but never ratified or became party to it, and it never signed or became party to the Nagoya Protocol.”
Countries of origin where medicinal herbs and botanicals are being sourced have mostly ratified and implemented the Nagoya Protocol, which means bioprospecting and export of commodities are regulated. There are access benefit sharing arrangements in place with traditional knowledge holders as well. South Africa and Brazil may have the most advanced legislation regarding these treaties, but their laws have also created a “lot of red tape that hampers business,” Brendler said.
“[These countries have] started to rethink biodiversity-based economies and started to reassess the tools that have been put out by CBD and Nagoya and other international treaties in the past," he added.