Tate & Lyle has been forced to close its UK citric acid operations in the face of intense competition from Chinese imports and oversupply in the world market.
In the year to 31 March 2006, Tate & Lyle's UK citric acid business at Selby (i.e. excluding astaxanthin) returned sales of £26m and an operating loss of £2m.
Citric acid is the most widely used acidulant and preservative in the world, and is used in numerous food and drink applications.
It is produced by mould fermentation of sugar solutions and by extraction from lemon juice, lime juice and pineapple canning residue.
Closure of the Tate & Lyle site in Yorkshire will affect approximately 100 jobs, and the company has now entered a 90-day consultation process with employees.
"The decision to begin this consultation process was a difficult one to take and we are grateful for the commitment and dedication of our colleagues at the Selby plant over the years," said Stanley Musesengwa, Tate & Lyle's chief operating officer.
"This consultation follows a thorough review of the long term prospects of our UK citric acid business. Despite the best efforts of the team at Tate & Lyle to reduce costs, continuing pricing pressures mean that our UK citric acid business can no longer compete viably in an increasingly difficult market."
In addition to pricing pressures, production of citric acid at Selby has been adversely affected by changes to the EU sugar regime (which became effective from 1 July 2006), which increased substrate costs.
Tate & Lyle said that it would continue to serve customers from existing inventory and operations in the US, Brazil and Colombia.
Chinese producers have had an enormous effect on the global ingredients market. The Chinese have managed to undercut, out-produce and quickly replicate quality levels across numerous manufacturing domains, and also enjoy an advantage in lower labour costs.
Western firms, under pressure from retailers, have increasingly switched to new, cheaper supplies in order to cut raw material costs. Chinese suppliers tend to sell their citric acid at the lowest price possible, regardless of cost calculations, in order to bring in hard currency.
This has made it extremely hard for European suppliers to compete. In 2004 for example, DSM was forced to lay off staff at its Citrique Belge unit, as part of a restructuring move designed to enhance the competitiveness of its citric acid production activities.