Fragrances have a wide range of applications, and although their usage is minimal, they are crucial to product quality. Fragrances are organic compounds that can be perceived by smell or taste, primarily used to blend into flavorings for enhancing food aroma or directly as food additives. Flavorings are mixtures of fragrances and corresponding excipients with specific aromas or flavors. Fragrances and flavorings are not direct consumer products but are used as supplementary raw materials in other products. They are widely used in food, tobacco, daily chemicals, pharmaceuticals, feed, cosmetics, textiles, and leather industries. Although the quantity used is small, they play an important role in product quality.

Fragrances can be categorized into natural fragrances, synthetic fragrances, and more. Natural fragrances come from natural sources, aligning with health concepts and offering rich product flavors. However, they are limited in quantity due to natural conditions and are relatively expensive. Synthetic fragrances are derived from chemical raw materials or synthesized through chemical means, with a wide range of raw material sources and product varieties, but they have a single-layered flavor and need to be combined and blended.

The definition of natural fragrances varies across countries, with the industry usually following U.S. standards. In China and the European Union, traditionally defined natural fragrances have strict restrictions on raw material sources and processing methods. However, except for certain large-scale cultivated varieties, most natural plants in nature that meet these restrictive conditions are niche products with low yields or price fluctuations due to weather, resulting in limited market coverage. Therefore, the current market mainly uses high-end natural fragrances that meet U.S. standards, especially for food, and the industry generally considers them as natural fragrances.

Fragrances are mostly used directly for producing flavorings, with a few used directly in the food and daily chemical industries. Upstream in the industry, natural fragrances come mainly from nature, with upstream industries including the cultivation of natural fragrance plants and primary processing, while synthetic fragrances come mainly from chemical industries. Downstream, fragrances are mostly used directly in flavoring production, with a few used directly as food additives and in the daily chemical industry. The downstream industries for flavorings include food, daily chemicals, tobacco, and other chemical industries, with a relatively fragmented overall downstream consumption field.

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The production of the fragrance and flavoring industry is steadily increasing, with an expected output of 400,000 tons of flavorings and 250,000 tons of fragrances by 2025, with a 5-year CAGR of 3% and 2%, respectively. The “14th Five-Year Development Plan for the Fragrance and Flavoring Industry” states: “In 2020, the domestic production of flavorings was approximately 317,000 tons, with sales of about 24 billion RMB; the production of fragrances was about 218,000 tons, with sales of about 16.8 billion RMB. Driven by changes in the downstream market, the production of traditional products will be stabilized, while expanding the increment of new products, and continuing to increase the proportion of flavoring products. By 2025, the production of flavorings will reach 400,000 tons, and fragrances will reach 250,000 tons.”

The downstream food and daily chemical industries are maintaining steady growth. 1) Food industry: Edible fragrances and flavorings can impart aroma to food materials, correct unpleasant odors in food, supplement insufficient food aroma, and stabilize and enhance inherent food aroma. China’s food industry revenue has shown a steady growth trend over the past five years. In 2022, agricultural and sideline products reached 5,850.3 billion RMB, an increase of 6%; food manufacturing reached 2,254.2 billion RMB, an increase of 5.9%; alcohol, beverage, and tea reached 1,694.7 billion RMB, an increase of 4.9%. 2) Daily chemical industry: The market scale is continuously expanding, reaching 692.7 billion RMB in 2021, with a 3-year CAGR of 9%, indicating a promising industry outlook.

Fragrance Plants

Since the 21st century, fragrance plants have become increasingly popular in China, rapidly moving towards industrialization. Taiwan, China, is particularly active, with the Taiwan Herb Family Business Alliance promoting the vigorous development of the natural fragrance industry. Provinces and cities such as Shanghai, Beijing, Shenzhen, Guangdong, Yunnan, Shandong, Fujian, Jiangxi, Zhejiang, Anhui, Hunan, Hubei, and Hainan are closely following suit by building bases, establishing fragrance botanical gardens, and publishing books on fragrance plants, creating a thriving scene.

The Ili River Valley in Xinjiang is rich in fragrance plants, supplying natural fragrances and their products to domestic and international markets. Anhui is determined to develop its fragrance industry from northwest to southern Anhui. Beijing has established the Miyun Purple Sea Fragrant Dike Herb Art Manor, where China Agricultural University conducts teaching internships. Fujian has collaborated with neighboring provinces to establish tens of thousands of hectares of pure Camphor, Gardenia, and other fragrance plant bases. The French Aroma Family established the Oufang Biotechnology (Shanghai) Co., Ltd. in Shanghai, producing a series of “Oufang Guoxiang” branded products for the market over the past decade. The global market for natural fragrances is booming, with the natural fragrance industry rising rapidly and the establishment of fragrance enterprise clusters, leading to an increasing demand for natural fragrance products. Therefore, the popularization of fragrance plant knowledge and the training of fragrance plant professionals need to be strengthened. As there is social demand, people will strive to meet it. In the spring of 2004, some fragrance plant enthusiasts and leading natural fragrance enterprises across the country established the China Natural Fragrance Industry Alliance, a cultural and creative academic group with widespread public participation and an interest community of natural fragrance enterprises. This alliance brought together experts and scholars to gather information, conduct research on natural fragrance enterprises and fragrance botanical gardens nationwide, and began to establish the study of fragrance plant resources in China and globally with the support of numerous agricultural and forestry colleges and research institutions.

Plant Essential Oils

In the natural fragrance industry, plant essential oils have always played an important role in the utilization of fragrance plants. The ancient Egyptians were the first to use essential oils by soaking freshly picked flower petals in fat to extract the fragrant liquid. Essential oils are mainly found in the roots, wood, leaves, flowers, or fruit tissues of plants, containing many beneficial components for the human body, such as vitamins, hormones, yeast, and bactericidal liquids, which are unmatched by synthetic essential oils. China has caught up with Western developed countries in essential oil extraction methods. Essential oils are mixtures of aromatic compounds found in plants, extracted through distillation or chemical solvents. The main extraction methods include:

Steam Distillation: A common extraction method where plants are heated in a distillation still, forming an immiscible system of essential oil and water. The mixture is condensed and separated to obtain essential oil and aromatic water. This method is simple, low-cost, and commonly used for plants like basil, lavender, and eucalyptus.

Chemical Solvent Extraction: A physical process using low-boiling, volatile solvents like carbon disulfide or tetrachloride to extract fragrance components. This method retains the original aroma of plant fragrances and is often used for flower oils like jasmine, rose, and osmanthus.

Fat Absorption Method (Enfleurage): A traditional method using fat to absorb essential oils from flowers, resulting in high-quality aromatic products. It involves placing flower petals between layers of fat-coated glass plates, which absorb the volatile oils. The fat is then scraped off and used or processed to obtain essential oil.

Cold Compression (Expression): Used for extracting essential oils stored in fruit peels, like citrus fruits. The process involves mechanically compressing the peels to release the essential oil, which is then separated and purified.

CO₂ Extraction: Uses high-pressure liquid CO2 to dissolve essential oils from plant tissues, resulting in high-quality oils without oxidation or thermal decomposition. This method is highly efficient but requires significant investment.

Hydrodiffusion: Similar to steam distillation but with steam passing from top to bottom through the plant material, leading to faster extraction and higher oil quality.

Ultrasonic Extraction: Uses ultrasonic waves to enhance extraction efficiency and preserve the activity of extracted substances.

Other methods include microwave extraction, enzyme extraction, and microcapsule two-phase extraction.

Fragrance and Flavoring Industry Competition

Chinese fragrance and flavoring companies are relatively independent, while overseas leading companies have a high degree of integration, often involving both fragrance and flavoring businesses. These companies develop unique fragrances and flavorings, with deep technical and formulation expertise. Chinese companies have not yet integrated the industrial chain, making it difficult to achieve technological breakthroughs and optimize profit levels from the fragrance end. Compared to international leaders, Chinese companies’ main disadvantages lie in product formulation and downstream pricing power. Brand image and product uniqueness primarily determine downstream pricing power, which relies on innovation in fragrances or flavor formulations. Without vertical integration, product innovation possibilities are limited, leading to lower downstream pricing power. Chinese fragrance and flavoring companies have a relatively dispersed competitive landscape, with specific business segments and significant product differentiation. For example, NHU focuses on citral and linalool, key raw materials for vitamins, while Boton Fragrance specializes in savory flavorings for food. Overall, Chinese fragrance and flavoring companies have their specialized areas, avoiding direct confrontation with international leaders.

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Fragrance and Flavoring Products

Fragrances are substances that can be smelled or tasted, directly used as food additives. Flavorings are mixtures of various fragrance raw materials, solvents, and other excipients with specific flavors, playing a crucial role in the quality of end products. After years of development, the variety of Chinese fragrances and flavorings has increased significantly, with various products being widely used in food, beverages, pharmaceuticals, and daily chemicals.

According to the “2023-2027 In-Depth Market Research and Investment Strategy Recommendations Report on the Fragrance and Flavor Industry” released by the New Thinking Industry Research Center, in recent years, China’s rapid economic and social development and the continuous improvement of residents’ living standards have led to higher quality requirements for food and daily necessities, promoting rapid growth in the fragrance and flavor market. As Chinese residents increasingly demand higher living quality, products like fragrances and perfumes that enhance consumer temperament are seeing a gradual increase in market penetration. As important raw materials, the demand for fragrances and flavors is steadily rising. Against this backdrop, China’s fragrance and flavor market is gradually expanding. Data from the China Association of Fragrance, Flavor, and Cosmetic Industries shows that in 2022, the market size for fragrances and flavors in China was 49.9 billion RMB, with a compound annual growth rate of 12.06% from 2016 to 2022.

Currently, the market concentration for fragrances and flavors in China is relatively low, with intense competition among enterprises. The major fragrance and flavor companies in China include Zhonghua Petrochemical, NHU, Asia Flavor & Fragrance, Huabao Flavors & Fragrances, Apple Flavor & Fragrance, Baihua Flavors & Fragrances, and Jiameng Bio. As China’s fragrance and flavor market continues to develop, competition among enterprises is intensifying. Large companies are constantly enhancing their independent research and development capabilities, optimizing production technology, and developing new product varieties to capture market share. Meanwhile, the survival space for small and medium-sized enterprises is gradually being squeezed, and market concentration is expected to gradually increase in the future.

According to industry analysts at New Thinking, with the rising consumption capacity of Chinese residents and increasing safety awareness, the demand for natural fragrances and flavors is steadily growing. Due to their safety and reliability, natural fragrances and flavors are widely used in high-end cosmetics, food, pharmaceuticals, and other fields, and are likely to become mainstream products in China’s fragrance and flavor market in the future.