Richard Ldavis

G.R.Davis Pty. Ltd. Warriewod, Australia

INTRODUCTION

Tea tree oil is not a new crop in that it was first discovered by Arthur Penfold in the 1920s (Penfold 1925) and commercial production started soon after.

The oil was sold as pure oil and also in products such as in disinfectants and tooth paste. The oil and products were sold mainly, but not exclusively, on the Australian market.

In the 1950's there was a swing away from natural products towards synthetic preparations, and the demand for tea tree oil fell. The oil was still produced and used as before to a limited extent, but was also used to enhance nutmeg oil and as a source of terpinen-4-ol.

The industry maintained a five to fifteen tonnes per annum production rate until the 1980's by when there was a swing back to natural products. It was at this stage that the tea tree oil industry started to develop into a substantial industry. It is because of the very small production in the previous years, the rapid establishment of plantations and the marketing of a wide range of new tea tree products in the early 1980's, that the marketing of tea tree oil can be regarded as marketing a new product.

STAGES OF DEVELOPMENT

There are normally three stages in the production and marketing of new agricultural products. As soon as it becomes apparent that the product can be grown and marketed, there is a rush to produce it (stage 1). This is often followed by over production, where the demand does not increase as rapidly as production (stage 2). The third stage is that the less efficient and the overcapitalised producers fail and production and demand eventually reach an equilibrium. The price of the oil is then no longer set by supply and demand, but by the lower level of cost of production, distribution etc. including profit margin.

At this stage (early 1997), the industry may be near the end of stage 1. Production has increased greatly. Markets have also increased, but, considering the vast area planted, they might not expand at the same rate as production. Therefore the market trend will be towards lower prices, unless some large scale new uses for the oil are found. If the market does develop at a rate sufficient to absorb the greatly increased production, prices will not fall. The average price for tea tree oil on world markets and estimates of annual production over the last 15 years is shown (Figure 1).

Price __ Production

Figure 1 Estimates of tea tree oil average price (in Australian Dollars) and production (in tonnes per annum)

Price __ Production

Figure 1 Estimates of tea tree oil average price (in Australian Dollars) and production (in tonnes per annum)

The industry was fortunate in that, in the early years of the new development, one company took a very large proportion of the oil produced. This company has now reduced its intake substantially. The steady growth of the market is encouraging, but the growth in production is such that overproduction is likely. Even a small excess of oil on the market will have a depressing effect on price.

In order to avoid a downward price trend it is necessary to attain a reasonable balance between supply and demand. The desirable and positive way is to increase sales of the oil, with concomitant change in plantation establishment.

MARKETING ADVANTAGES

In recent years tea tree oil sales have increased in sympathy with the increased popularity of natural products. If synthetic products are developed which are very effective in the field now serviced by tea tree oil, the trend might be away from tea tree oil, unless it can be demonstrated that this oil is effective as well as natural. To do this, hard scientific evidence is required. Fortunately, considerable R & D effort is at present being expended to demonstrate the value of the oil.

The history of new products generally is such that unless, after the initial euphoria, they are perceived to be more effective than competing products, they will fade from the market.

Tea tree oil has a number of natural advantages, only some of which are being used by the industry. It has a wide range of uses, mostly antiseptic. It has been demonstrated that the oil is effective in controlling a number of the common human pathogens. Consequently, in the early stages of its revival it was promoted as a "cure all". While the oil has a good claim to this description, the market is limited for such products. To cover the whole range of its useful capacity, the oil must also be sold for specific purposes where scientific clinical evidence of its efficacy can be given. The market today, except for a small section, is too sophisticated to believe in the "cure all" product.

One of the strengths of tea tree oil is that it is not a narrow single purpose product. Research is showing that different chemotypes of the oil are effective against different pathogens. With considerable variation within the Melaleuca-terpinen-4-ol type oil there is scope for producing oils suitable for a number of purposes, thus broadening the potential market for this oil.

SOURCE SPECIES

The industry in general has endeavoured to reduce the genetic potential for tea tree oil by trying to restrict its production to one species, even though at least three species and possibly more, have oil that is almost identical. Even within the one species most commonly grown, limits on the composition of suitable oil, particularly the cineole content, have been advocated, unfortunately successfully, without any scientific evidence to support the limits. This is contrary to the general concept of maintenance of genetic diversity, and eventually must have an impact on good market practice. At this stage of the industry's development it would be inadvisable to restrict genetic potential.

The advantages of working with a genetically variable natural product include the potential for both intra and inter-specific breeding. If the market trend for tea tree oil is to be upwards, a broadening of the range of products is required, and this may be achieved by the development of some specific purpose products.

There are few, if any, major agricultural crops today that have not been substantially modified and improved by selection or breeding. If tea tree oil is to fulfil its potential and so increase its market, selection and breeding will occur. As researchers identify which chemotype of the oil is most effective against a particular pathogen, market development of the chemotype will occur. Chemical modification of the oil is one possible method, but in this age of the veneration of nature, producing a natural oil which does the job is better for marketing purposes. To rule out the opportunity of interspecific breeding by confining tea tree oil to one species would be to limit the industry's potential.

QUALITY OILS

The market for tea tree oil at present has a healthy upward trend, but this will be harder to maintain as the oil displaces other products now being sold. The manufacturers so affected will offer improved products against which tea tree will have to compete. It is therefore essential to keep a positive approach to marketing tea tree oil. Its virtues should be emphasised, yet there is now in the industry an active campaign to rule out top quality oil if it has more than a very small percentage of cineole.

Cineole probably enhances the activity of the oil against certain micro-organisms (Southwell et al. 1993), possibly by increasing the oil's capacity to penetrate tissue to reach lesions on which it is acting. Contrary to previous reports, recent scientific evidence suggests that cineole has no significant skin irritant properties. For example Southwell states:

In conjunction with the Skin and Cancer Foundation in Darlinghurst in Sydney, we began investigations into the skin reactions of cineole and tea tree oil. Cineole, under the synonym eucalyptol, had previously been tested on both human and animal subjects and found to cause neither irritation nor sensitisation (Opdyke 1975). Our studies confirmed this finding (Southwell 1996).

Also, further studies show:

There is no evidence to support the current industry misconception that tea tree oils with ultra low levels of 1,8-cineole are superior to oils with higher levels of cineole. Standards specifying a minimum level for terpinen-4-ol and a maximum level for cineole have been interpreted wrongly to mean that terpinen-4-ol and cineole concentrations must be maximised and minimised respectively. Cineole, in concentrations above 15%, is undesirable because of the concomitant decrease in terpinen-4-ol, the active ingredient. However, recent investigations have confirmed that cineole in concentrations up to 15% is not detrimental to the oil, as it is neither a skin irritant nor an antagonist to the activity of the oil (Southwell et al. 1996).

As well as the references listed, one has only to consider that there is more than 10 times as much eucalyptus oil as tea tree oil sold in the world, most of which has at least 10 times as much cineole, yet eucalyptus oil is not a skin irritant.

Preliminary work has indicated that some natural tea tree oils of higher cineole content, but still within the ISO Standard, are more effective against certain pathogens. The possibility that antifungal and anti-helminthic activity may be enhanced by cineole has been reported by Southwell et al. (1996). If this proves correct, the proponents of very low cineole oils will have painted themselves into a corner.

If the market trend for tea tree oil is to continue upwards, the industry must cease to promote the fear campaign which specifies that one of the main compounds of the oil is dangerous. Such a proposal could be taken up by non tea tree oil competitors to the great disadvantage of the industry.

MARKET OUTLETS

The major outlet for tea tree oil to date is the cosmetic field, as a general disinfectant, and as pure oil for first aid use. Although further development of these markets will occur, expansion is limited because of the difficulty of obtaining regulatory approval to make claims for the efficacy of the oil. Success in this endeavour, which must eventually be achieved, will open new markets for the oil. Registration in various FDA monographs, therapeutic goods registers and pharmacopoeias must be obtained to allow markets to be fully developed. This long and costly process is under way and its outcome will have a substantial effect on market trends.

Nevertheless, to be able to sell oil and make claims in the "pharmaceutical" field will not result in a great increase in markets, unless the oil can be shown to be not only efficacious but at least as good, and preferably better than other products. While the oils' "natural" status is highly regarded in the cosmetic field, the main criterion in the medical field is that the oil must be effective.

STANDARDS

In order to sell pure oil in most countries it is necessary that the oil is in accordance with an authoritative standard. Physical constants for the oil were established in the British Pharmaceutical Codex 1949. Because of the physical standard range, this BPC standard confined tea tree oil to the low cineole form of Melaleuca of the terpinen-4-ol type. That is, oil containing not more than about 15% cineole, and the market accepted oil sold on this standard for many years. An Australian Standard was established in 1967 (K175). This standard also established physical constants only, and these were close to the BPC standard. The Australian Standard was revised in 1985 (AS 2782) and the physical constant range altered slightly to accommodate oil from M. alternifolia outside the previous range. This enabled the inclusion of natural high quality M. alternifolia oil which the previous standard had ruled out. AS 2782 brought in chemical composition for the first time by stipulating a maximum cineole and a minimum terpinen-4-ol content. The standard also increased its definition to include oils from other species of Melaleuca, provided the oil conformed to the rest of the standard. This was done because the chemical composition of the oil of some of the species is almost indistinguishable from that of M. alternifolia. A further review of the standard in 1995 stipulated limits to a number of compounds in the oil and this same standard has been published by the International Standards Organisation as ISO 4730E (International Standards Organisation 1996). It has also become the Australian Standard. Tea tree oil is marketed in accordance with these standards. While the standards effectively specify the oil, they are also sufficiently broad to allow development of special purpose types of oil.

VALUE ADDED PRODUCTS

While initially the oil was used in the pure form or as a 50% or stronger solution, it was soon recognised that oil in quite low concentration was a very effective antiseptic. This gave rise to a wide range of products containing tea tree oil, and means that a lot of tea tree oil is sold as a minor, though usually the active ingredient of the product. Because of the effectiveness of the oil in low concentration there is good scope for value adding, which is more profitable than selling the oil in the pure form (see Chapters 11 and 12).

Tea tree products available on the market include neat oil, 15% solutions, shampoos, liquid and bar soaps, bath oil, handcreams, antiseptic creams, mouthwashes, toothpastes acne products, tinea creams and powders, vaginitis creams and douches, burn creams and various other health and veterinary care products.

GRADES OF OIL

Any oil which is in accordance with the standards should be sold as good quality Australian tea tree oil. To specify grades within the standard is counter-productive as the instinctive reaction of the buyer is that if there are grades within the standard, some oil within the standard must be inferior.

When specific purpose oils are developed, they will need to be labelled as such, but in the meantime the industry would be ill-advised to downgrade, even by inference, oil which meets the standard. To keep the market on an upward trend, the industry as a whole needs to promote Australian Tea Tree Oil; the essential oil of Melaleuca terpinen-4-ol type. To infer that there are lower grades of this oil, an inevitable consequence of stating that there are superior grades, is a bad marketing principle, particularly as there is no credible evidence to show that any oil that conforms with the standard is superior to any other oil that conforms.

To claim that only some ISO standard tea tree oil is pharmaceutical grade is a bad market strategy. Buyers who do not need the oil to be pharmaceutical grade will demand a lower price for non pharmaceutical grade, whereas all oil within the standard is pharmaceutical grade and should be promoted as such.

COMPETITION

The price of tea tree oil on world markets is one of the great challenges confronting the industry. At present, the price is adequate to sustain current methods of production. However, with production increasing rapidly, market expansion needs to keep pace with the rapid increase in planting or prices will fall.

The more successful the industry is in promoting tea tree oil and its products, the more countries will attempt to produce oil to share the market. Thus, even a substantial increase in use of the oil world wide will not necessarily absorb the whole Australian production. In fact, at this stage (early 1997) this is not just a theoretical possibility as production outside Australia is established and growing. Australia, however, has advantages that should ensure pre-eminence on the world market. No other country can claim "country of origin status" and the fact that production methods are so well developed and researched means that Australian-produced oil should remain superior. There is a tendency at present for some sellers to try to increase their market share by denigrating the oil of other producers. It is very unlikely that any substandard oil is offered abroad. If so, market forces will rapidly eliminate this from the market.

If some countries develop large production capacities, the market trend, in terms of price of oil, will almost certainly be downwards. However, a substantial price reduction would result in an upward market trend in volume of oil sold, as one of the restrictions on market expansion at present is the high price of this essential oil.

Some countries have maintained pre-eminence, or even exclusive production of an essential oil, due to peculiar soil or climate conditions or closely guarded plant varieties (e.g. French lavender oil). This is not the case with tea tree oil. Oil is already available from other countries, and seed has been widely distributed. The strategy of establishing a higher standard for a national oil that other countries cannot meet has already been frustrated, at least for the immediate future. There is no sense in setting a higher, i.e. tighter or more restrictive standard, if competing countries can meet it. This is simply counter productive. It again emphasises the futility of offering grades of oil within the standard. If competitors can meet the top grade, then all other grades will be accepted as inferior, and, it is bad marketing if any ISO standard oil is offered as other than finest quality. In any case, it is fundamentally wrong and bad marketing practice to offer grades of a product unless it is quite apparent that there is a difference in quality or efficacy between the grades.

However Australia in particular does have the opportunity to produce unique quality oils.

PRODUCT RESEARCH

The industry is fortunate in that a great amount of research into this essential oil has been, and is still, being carried out. There are already indications that different pathogens are susceptible to tea tree oils of different composition. It is therefore likely that natural oils with the most effective composition for particular purposes can be developed by blending, selection or breeding. The potential for breeding to obtain most effective oils for specific purposes is heavily in Australia's favour. The vast resource of ISO Standard tea tree oil-bearing trees in species other than M. alternifolia gives Australia a great advantage in developing specific purpose oils. Research is well under way to capitalize on this advantage.

In 1997 Australia has to recognise that despite discovering and developing tea tree oil, it now, and particularly in the future, has to compete with other countries, particularly the low cost tropical countries. It must be appreciated also that there is no level playing field here. Many of the Asian countries have a cost structure which will allow them to produce tea tree oil at a fraction of our production cost. Furthermore, they might well receive funding from Australia, as well as other developed nations, to help them.

In order to maintain a prominent place in the market, a country must supply the oil at lower cost or higher quality, or provide unique products containing the oil. To compete solely on cost is almost impossible, but it might not be necessary to meet the lowest price if other factors are in that country's favour, although the price cannot afford to be much above the lowest priced good quality oil. Therefore the industry must concentrate on supplying a fairly competitive product, giving excellent service, and ultimately supplying unique specific purpose oils not easily matched by other countries. The market trend not only in degree, but also in direction, will depend on the ability of the industry to achieve these objects. Current R & D in areas of tea tree breeding, agronomy, weed and insect control, quality control, factors effecting oil yield and quality, bioactivity, clinical trials, toxicity, sensitization and product formulation and development will play a big part in meeting these goals. These topics are covered in other chapters in this book. The industry must continue research into:

1. Development of superior plant stock showing increased growth rate (possibly hybrid vigour) and higher yield of oil. This work is already well advanced.

2. Finding the oil composition most effective against specific pathogens.

3. Developing strains which will produce oil of the required type.

4. Development of more useful products containing tea tree oil.

5. Obtain regulatory approval for tea tree oil and products.

Specific purpose oils might also be produced by modification of oils, either by blending with oils from other species or other genera, or by chemical processes. In the case of chemical modification or blending with other genera the oil might then not qualify to be sold as tea tree oil, but could still be an outlet for tea tree oil in value added products. If these objectives are achieved, the market trend will be upward. However, the tea tree oil industry, if it is to consolidate its position on the world market, and thereby attain an upward sales trend, must reverse its present trend of contracting from a broad composition oil to a very narrow composition oil. It must promote all tea tree oil which conforms to the Australian and International Standards as a fine product. It should be mutually supportive and realise that future competition will be from many countries. It must use its great advantage in the diversity of species available to develop superior plant stock exhibiting increased growth rate, increased yield of oil, and specific strains which will be most effective against specific pathogens. Following this path, which is not available to all countries, together with the development of more useful tea tree products which have regulatory approval, will result in a continuing upward trend in the sale of tea tree oil.

REFERENCES

International Standards Organization (1996) Oil of Melaleuca, terpinen-4-ol type (Tea Tree Oil).

International Standard ISO 4730:1996(E), International Standards Organization, Geneva, 8pp. Opdyke, D.L.J. (1975) Fragrance raw materials monographs (eucalyptol), Food and Cosmetics

Toxicology., 13, 105-106. Penfold, A.R. (1925) The essential oils of Melaleuca linariifolia (Smith) and M. alternifolia (Cheel).

J. Proc. Roy. Soc. NSW., 59, 306-325. Southwell, I.A. (1996) Tea tree oil, skin irritancy and bioactivity. Australasian Aromatherapy Conference,

Sydney, March—April 1996, Sec. 4, 11pp. Southwell, I.A., Hayes, A.J., Markham, J. and Leach, D.N. (1993) The search for optimally bioactive

Australian tea tree oil. Acta Horticulture, 344, 256-265. Southwell, I.A., Markham, J. and Mann, C. (1996) Is cineole detrimental to tea tree oil? Perfumer &. Flavourist, 21, 7-10.

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