Sweet science

By Bette Flagler, February 21, 2008 @ 11:29 am

Photograph by Mark Hamilton

Our kiwifruit industry was built by combining the Chinese gooseberry with Kiwi know-how. Now a New Zealand company is returning the favour, working with Chinese growers to raise the plants needed for its natural, healthy sweetener. But they need to step carefully, reports Bette Flagler—Big Sugar is watching 

High in the hills of southern China, Garth Smith drives for two hours along a recently formed road. Until now, the village where he is headed was accessible only by horseback; he’s never been on a road like this, he says, the hills, the curves, the ruts and ridges. Far from the pressing crowds and polluted cities of fast-growing China, this is a poor agricultural area where farmers survive by growing rice, citrus and ginger. And increasingly, thanks to Smith and his company BioVittoria, luo han guo.

Luo han guo is nothing new in China. The fruit, from a perennial vine in the same family as cucumbers and melons, has been grown for hundreds of years. While it’s not at all tasty in its natural state, it is used dried as a traditional Chinese medicine for conditions as varied as throat irritations, heatstroke and constipation. Within the fruit is a compound called mogroside and in those varieties with a high concentration of a particular variation of that compound—mogroside V—the plant’s virus resistance is markedly higher. That’s certainly good news for the vines but it is also good news for the growing population of westerners concerned about the amount of sugar—and artificial sweeteners—in their diets. Not only is extracted mogroside V about 200 times sweeter than sugar, it is also non-caloric, natural and organically produced, making it just the thing that fat, wealthy and increasingly health-conscious populations want.

Think for a moment about all the places sugar is found; besides the obvious foods that aren’t meant to be healthy (desserts, sweets and carbonated beverages), sugar is a prominent ingredient in many cereals, juices and dairy products. The biggest markets are, of course, Europe and the US, because of their large population bases and their healthy living, good nutrition, food-is-bad-for-you campaigns. Add to that the affluence of those places—happy to pay more for a healthier ingredient—and you have markets bursting at the seams.

Opportunities to commercialise a product that has an underlying demand in a very large market, and without much competition, don’t come along very often. And having full control of the supply chain makes BioVittoria—and its product PureLo—even more unusual.

Smith’s journey to China’s crazy roads began in 2002 when he left HortResearch after 30 years of service, openly frustrated at the amount of time it was taking to commercialise science. During his tenure, he conducted research on the physiology of kiwifruit and was witness to that fruit’s transition from cottage industry to big business.

In 1985, his work took him to China to look at plants growing in wild conditions. While there, he visited the southern city of Guilin where he met Lan Fusheng, an expert in kiwifruit and luo han guo. Fusheng, who served as the director of research at the Chinese Academy of Sciences’ Guangxi Institute of Botany from 1990 to 1999, paid a return visit and the two established a collegial relationship with multiple trips between their countries over the years.

Meanwhile, American-born Stephen LeFebvre was working in the sales and marketing of nutraceutical products on the east coast of the US. He had a number of friends in New Zealand and was attracted to the place. He was becoming increasingly frustrated with the team at his company; Brent Ogilvie, then the New Zealand Consul and trade commissioner to New York, invited LeFebvre to speak at a biotech and nutraceutical conference in Auckland where Smith also happened to be speaking. It was mid-2003 and the pair hit it off immediately.

Smith says he’s always wanted to see science commercialised and not left in a dusty library book; LeFebvre identified a lack of market intelligence as one of New Zealand’s biggest problems in taking its IP global. Combining Smith’s science background and LeFebvre’s US experience, the pair formed Biovitorria as a product development and marketing company in September 2003. When they began looking for a candidate to take forward, Smith’s connections with Fusheng—and Fusheng’s with luo han—proved the perfect fit.

Lou han is a fully-protected National Treasure in China and can’t be taken out of the country, but the team was undeterred. Instead, they added the cog that aligns BioVittoria with the way LeFebvre sees business developing. No longer simply about money, he says, business requires a conscious responsibility about how you go about your work. BioVittoria, he says, is committed to responsible business in real life rather than just talking about it.

A good part of that real life exists on those hills in southern China, and that’s where Biovitorria could have the greatest impact. Like kiwifruit, luo han guo is a tough fruit to manage—too hot or too cold and it won’t flower; too much water or too little has the same disastrous effect. Once the plant does flower, it remains difficult: each morning, male plants need to be picked and female flowers hand-pollinated. As the day wears on, the pollen dries out and loses its viability. The vines are grown on structures like kiwifruit and need to be trained. Not everyone can grow it, says Smith, but those who can might earn five to six times more than they can from other crops.

“The entire economic systems of some countries are based on sugar and, all of a sudden, here comes something to challenge that. “Just the idea puts a lot of people into fear,” says Stephen LeFebvre”

Over 90 percent of luo han guo is produced in the mountains of Guangxi, near the city of Guilin where Smith has lived since 2004 (LeFebvre moved to New Zealand in 2005). Using the kiwifruit growers’ model, BioVittoria established the PureLo Luo Han Association in cooperation with growers, universities and central government. “One thing we’ve implemented as part of our strategy is to spend a lot of time training farmers and putting resources back into training activity,” says Smith. “Quality always starts at the farm … if you get that right, it will flow through the whole system.”

Currently, the cooperative has 2,000 growers, each tending a small orchard of two or three mo (equivalent to about one-fifteenth of a hectare). As the skill base increases, so will the size of the plantings and, as the production level increases from the current ten to 15 tonnes per year to the 200 to 500 tonnes the company expects to need, so will the number of farmers.

Growers use the company’s high mogroside V, IP-protected rootstock, and are paid a set price regardless of market fluctuations. Building loyalty with farmers and ensuring a stable supply of fruit are paramount to the company’s success, and technical staff (there are 28 employees) regularly visit the farmers for training. The company relies on heads of villages to point out potentially good growers and also on feedback from growers to learn about problems and concerns. Farmers are spread throughout six growing regions within a 600-mile radius of the company’s collection and processing site near Guilin. It’s a very good network, says Smith, with successful farmers sharing their techniques with others. It’s very much like the system that makes the kiwifruit industry successful.

Smith’s scientific background and experience with the ups and downs of the kiwifruit industry complement LeFebvre’s sales and marketing background and Fusheng’s political and scientific connections in China. They were clear about the kind of company they wanted to build: a sustainable one that worked alongside the indigenous people and didn’t always focus on the bottom line. But at the same time, they knew they needed good financial governance; David Thorrold, now the company’s chief executive, filled that gap.

Thorrold was working at Beattie Rickman as a consultant to businesses at Waikato Innovation Park, where BioVittoria is housed. He pitched the company to a number of investors, but success came with Endeavour iCap. Thorrold had previously worked with Endeavour chairman Neville Jordan, and when partner Stuart McKenzie attended the opening of Waikato Innovation Park, he asked the guy sitting next to him what he did. His neighbour turned out to be Smith. That was in 2004; by July 2005 the relationship was getting serious, and by January 2006 the first round of investment had been made in collaboration with government VIF funding.

Lan Fusheng and Garth Smith check the progress of luo han. It’s tricky to grow but it can earn Guangxi farmers six times more than other crops

BioVittoria’s intimate connection with China scared off many investors. This is Endeavour’s first experience in China and so far, McKenzie says, it’s been positive.

While it might be the standard approach for New Zealand companies to go for niches, McKenzie says in order to build a good business that can go to scale globally we ought to be going for niches that are about to explode. He was impressed by the massive potential demand for PureLo and the lack of competition in the market, but also realistic about the amount of detail that BioVittoria needed to get right in order for the company to work. Large multinationals like the idea of PureLo and are confident customers will too, says McKenzie, but they want to be assured the company can deliver.

Having reliable supply chains in place gives confidence to customers and getting PureLo certified by an independent panel of experts as a GRAS (generally regarded as safe) food ingredient in June last year allowed it to be sold in the US. BioVittoria is in the process of gaining FDA confirmation of the GRAS certification but PureLo is now being tested and evaluated by hundreds of food manufacturers, says Thorrold, and products containing PureLo include tabletop sweeteners and cereal produced by a well-known manufacturer.

Sugar is under enormous pressure from the medical community but the sweetener world is different from that of other foods, says McKenzie. Not only is it competitive, but the sugar lobby is both strong and litigious. For the past two years, for example, lawsuits filed by competitors of Splenda (another non-caloric sweetener made by a Johnson & Johnson subsidiary) have been moseying through the courts. Splenda leads customers to believe it’s a natural sugar product, say the plaintiffs, but it goes through so many chemical processes on the way to its final form that very little about it is natural.

The entire economic systems of some countries are based on sugar and, all of a sudden, here comes something down the road that can challenge that, says LeFebvre. “We would never compete [completely] with sugar because we simply can’t make that much. But just the idea puts a lot of people into fear.”

So far, it’s been a good effort for a little company, says McKenzie, which just goes to show that if you have the right product at the right time you can get airtime. Production capability is small but developing and the company aims to reach larger volumes in a responsible way. It has an obligation, says Thorrold, not to overheat and transfer its risk to farmers.

Really successful companies, says McKenzie, have a big brother/little brother relationship. When a big brother comes alongside, not only does it help through its purchasing power, but the discussions a large food company can have are very different from those a company the size of BioVittoria can have—and that can be transformational.

For BioVittoria, that Big Brother is the massive Firmenich SA, a Swiss flavour and fragrance house with annual turnover of $3 billion. In late 2007, the two companies struck a strategic partnership and Firmenich will use PureLo in the products it offers to customers worldwide. It’s a strategic deal that Thorrold says gives BioVittoria market access, credibility and an all-important validation.

With its strategic partner, big customers offshore and production in China, there’s no need to have many people in New Zealand, but with ownership retained here the returns come to Kiwi shareholders. That doesn’t mean the Chinese growers are just working to fill offshore pockets; in 2007, BioVittoria created the non-profit PureLo.

Foundation; a portion of the revenue from fruit purchases will go to support education, health and community projects.

Whether PureLo proves a fix for obesity or an inspiration for a new breed of New Zealand companies is unknown. Regardless, Chinese farmers are benefiting and that has not gone unnoticed. In 2005, Smith was given a ‘Friendship Award’—China’s highest award for foreign experts who make outstanding contributions to its economic and social progress. In February, the company was honoured at the Spring Festival Banquet for expanding employment and improving the standard of living in rural areas, and in the same month back home in New Zealand the company took home not only the Entrepreneur and Innovation trophy at this year’s New Zealand–China Trade Association Awards, but also the Supreme Award.

NZCTA chairman Stuart Ferguson says the selection committee was impressed that the startup company was able to progress the development of its venture in such an ordered and structured way.

It’s a good thing that Smith thrives on challenge. Building a business in a completely different culture is tough. While the colourful fields and terraces may leave him breathless, there are times when the place still catches him out. Like the morning he was a bit tired and went to the local shop to get some rice noodles and, he says, accidentally asked for a plate of horse shit. “I knew I had made a mistake when everyone in the shop stopped in stunned silence.”