Which trends offer opportunities or pose threats on the European market of natural ingredients for cosmetics?

Demand for natural ingredients for cosmetics is on the rise in Europe. Environmental issues are growing in importance, making sustainability, ethical sourcing and their related labelling schemes more prominent. Changes in consumer behaviour and lifestyles are also creating openings for natural ingredients. Although these trends are creating opportunities for natural ingredients, regulations and political uncertainty pose major challenges for companies seeking access to the European market.

1. Sustainability integration

Sustainability has gone from a trend to an integral part of the cosmetics industry. Companies now integrate sustainability into raw material sourcing, product formulations, production processes, packaging, distribution and marketing, as well as product end-of-life considerations. Increasing consumer demand for ethical products is a key driver behind this.

Almost all large cosmetics companies have implemented sustainability programmes, many having ambitious targets to reduce their environmental impacts and become more resource efficient. In June 2020, L’Oréal launched its new sustainability plan called ‘L’Oréal for the future’. In the plan, the cosmetics company has set sustainability targets until 2030. These include the following:

• All of L’Oréal’s sites will have achieved carbon neutrality by improving energy efficiency and using 100% renewable energy by 2025.
• 100% of the plastics used in L’Oréal products’ packaging will be from either recycled or bio-based sources by 2030.
• L’Oréal will reduce all of its greenhouse gas emissions by 50% per finished product by 2030, compared to 2016.

Another example is Unilever’s Sustainable Living Plan, which aims to reduce the company’s environmental impact by half by 2030.

Cosmetic companies also want to develop products that have been produced with environmentally sustainable and responsible practices with a low environmental impact as well as providing social benefits, which opens yet more opportunities. When suppliers can demonstrate their natural ingredients comply with buyer requirements in these areas, there are good possibilities for partnerships. For example, Neal Yard’s Remedies’ Project Frankincense is a conservation programme for cultivating 1000 Boswellia sacra seedlings each year for ten years in Oman. This is to reverse Oman’s declining population of Boswewellia sacra trees from which frankincense essential oil is produced due to excessive overharvesting, livestock grazing and insect infestation.

The social sustainability aspect of cosmetic products is also becoming important. More and more cosmetics companies are putting social sustainability at the front of their agenda. In December 2019, the Swiss fragrance and flavour company Firmenich signed the United Nations (UN) Global Compact Action Platform for Decent Work in Global Supply Chains. The platform covers areas such as communication, transparency, engagement of partners and suppliers, leadership, collaboration with other stakeholders, accountability and reporting on progress.

As sustainability becomes mainstream, it will gain even more importance in the market, creating opportunities for ingredient suppliers which can comply with sustainability requirements to work with cosmetics companies and raw material suppliers. Ways to capitalize on these opportunities include acquiring certification showing you meet environmental and social standards. Examples include meeting UNCTAD Biotrade Principles, Fairtrade International, Fair for Life and FairWild standards.

Lush is a UK personal care company that is implementing many responsible sourcing projects. Its fair trade cocoa butter project involves sourcing from Sierra Leone. It is sourced from a company supplier who’s been investing to help restore Sierra Leone's Gola rainforest by opening farmer field schools that teach regenerative agriculture and by supporting local farmers. This support provided includes access to education, helping obtain certification such as Fair Trade and/or organic certifications, and market access.

Figure 1: Logos of environmental and social standards

Source: Various

2. Ethical Sourcing’s growing importance

The cosmetics industry applies greater scrutiny to raw materials supply chains nowadays, especially those from agroforestry. Ethical sourcing is now prominent, as most large cosmetics companies, chemical and ingredient businesses engage in such practices. As consumer knowledge and awareness of ingredients and environmental issues grows companies are under pressure to provide greater transparency of ingredient supply chains, as well as production methods.

The main regulations and standards concerning ethical sourcing are based on the 2010 Nagoya Protocol on access and benefit sharing (ABS), which aims to ensure that companies share the benefits from the use of genetic resources and traditional knowledge with their providers. The importance of ABS has grown in Europe since the EU adopted its own ABS Regulation.

Pressure from consumer groups, nongovernmental organisations (NGOs) and government are forcing business to incorporate ethical sourcing in their business practices. Cosmetic companies in turn put pressure on their suppliers to commit to sustainable and responsible business processes.

For example, Swedish-Danish ingredients company AAK, Europe’s leading producer of shea butter, asks its suppliers to commit to the company’s code of conduct for suppliers of raw materials. The code integrates principles of the UN’s Global Compact (UNGC) and the UN’s Guiding Principles on Business and Human Rights as well as the Core Conventions of the International Labour Organisation (ILO). AAK’s suppliers must maintain documentation showing their compliance with the requirements of the code, with failure to do so resulting in the termination of their business relationship. These kinds of initiatives are expected to become much more common in the coming years.

In January 2020, German personal care company Beiersdorf joined AAK’s Sustainability Partner Program in Burkina Faso and Ghana. The partnership will last for five years and aims to improve production and collection practices of shea butter through training programmes. Natural ingredient suppliers should be aware of this trend and be prepared to provide traceability and information on the origin of their raw materials.

Some natural ingredient suppliers from developing countries are quite successful in ethical sourcing. Brazilian company Beraca is one of the largest producers and exporters of natural ingredients from the Amazon rainforest, which has invested in ethical sourcing projects working with indigenous communities. A member of the Union for Ethical BioTrade (UEBT), Beraca has also adopted various sustainability schemes for its raw materials. Beraca established a partnership with German chemicals company Clariant, which is actively looking for partners that practise ethical sourcing of raw materials. In addition to Beraca, Clariant has also partnered with South Korean company Biospectrum, which specialises in natural extracts from plants from Jeju Island, and Martina Berto, a cosmetics company from Indonesia.

Ethical sourcing is likely to become even more important in the cosmetics industry in the coming years. Recent technologies, such as blockchain, present a potential solution to improving traceability and enable faster responses from supply chain actors. According to Ethical Corporation, traceability and environmental concerns remain as key issues for 30 percent of organisations in the coming years. Suppliers in developing countries involved in ethical sourcing are likely to find good business opportunities.

3. Ethical certification growing

The number of ethical labelling schemes for cosmetics and personal care products is rising. This is part of a wider trend of growing sustainability certification schemes and labels for consumer products. This creates a problem for natural ingredient suppliers, which have to decide which schemes and standards to adopt, and how many.

Natural and organic standards

Natural and organic certifications are currently the most established in the cosmetics industry. The number of such standards has increased from about five in 2005 to more than 30 in 2020. COSMOS and NaTrue are the two most important standards in Europe. For example, when asked about the need for organic certification, a European buyer of avocado oil stated “organic is becoming more and more important” in the cosmetics industry.

The COSMOS standard was developed by some of the leading certification agencies for natural and organic cosmetics: EcoCert, Soil Association, ICEA, BDiH and Cosmebio. The standard was introduced in 2010 in an attempt to harmonise the separate standards of those agencies. The second version of the standard was published in 2013. Since January 2017, any new products requesting certification would have to meet COSMOS standard requirements. COSMOS also has a certification scheme for raw materials and ingredients.

Figure 2: Cosmos Standard

Source: Cosmos

NATRUE was launched in December 2007 by some of the pioneers in the natural cosmetics industry. Their declared goal is to safeguard the highest possible standards for natural cosmetics and their ingredients. In partnership with the German Cosmetic, Toiletry, Perfumery and Detergent Association (IKW), the first version of the NATRUE standard was introduced in May 2008. In 2009 the first products were independently certified to requirements of the NATRUE label criteria scheme for natural and organic cosmetics.

Figure 3: NATRUE

Source: NATRUE

There are about 25 other natural and organic cosmetics standards in Europe, including Nature & Progrès, CCPB, Organic Farmers & Growers and Demeter. Most of these are adopted on a national basis, however compared to COSMOS and NATRUE their adoption rates are low.

Sustainability schemes and other standards

A number of other sustainability standards and schemes are emerging for cosmetics and personal care products. Some like Fairtrade, Rainforest Alliance and Vegan Society have crossed over from the food industry. Others like Nordic Swan and EU Eco-Flower represent environmentally friendly products.

A new development is the growing number of single ingredient standards. The Roundtable for Sustainable Palm Oil (RSPO) is well established, developed by a nongovernmental organisation that champions the use of sustainable palm oil and regulates its supply chain. The Initiative for Responsible Carnauba is working to ensure responsible production of Carnauba, which is indigenous to Brazil. The Responsible Mica Initiative was introduced in February 2017, targeting child labour and working conditions in the Indian mica supply chain.

One important development for natural ingredients from developing countries is the certification of the Union for Ethical BioTrade, which requires practices that respect biodiversity and reduce biodiversity loss. Natura and Weleda were the first adopters of the standard in 2018.

Fairtrade International provides the most popular certification scheme for fair-trade products, which may contain ingredients sugar, honey, green tea and cocoa certified fair trade. Other fair-trade schemes include Fair for Life, Ecocert and Fair Wild. The fair-trade standard is popular in developing countries as it is mainly designed for trade to developed countries. The Peruvian Candela is an example of a Latin America company which has various certifications for its cosmetics ingredients, including amazon nut oil, sacha inchi oil, aguaja oil and copaiba oil.

Natural ingredient suppliers in developing countries should be mindful of the ethical labelling trend. Adopting one or more standards may open opportunities of market access. Suppliers of natural ingredients should focus on organic standards as well as certification schemes which include social and environmental elements, such as the ones mentioned. Downsides of adopting these standards include possible high certification costs and additional paperwork and bureaucracy.

The ethical labelling trend is likely to become more important in the foreseeable future, providing opportunities for ingredient suppliers that adopt these standards. Expect buyers to request ingredient certification from suppliers in developing countries, which may not have market access when they do not.

Figure 4: Emerging ethical labels in the cosmetics industry

Source: Ecovia Intelligence

4. Ageing population in Europe and millennials shaping consumer behaviour

Demand for natural ingredients for cosmetics and related products is being affected by socio-demographic changes in Europe. Europe’s ageing population is increasing the demand for natural ingredients with active properties, such as anti-ageing. On the other hand, younger generations are seeking more sustainable and environmentally friendly products.

The increase in life expectancy is making consumers more health conscious, so they tend to shop for more natural and wellness products. Health promotion and disease prevention have also become key parts of consumers’ lifestyles. Cosmetic companies are therefore launching product lines for specific consumer segments, such as anti-ageing products. Many personal care companies have developed anti-ageing skin care product lines. For example, L’Oréal launched a certified line of organic anti-ageing skin care products under the La Provençale Bio brand in 2018.

Skincare products, such as creams, serums, eye creams and face masks have gained popularity. Anti-wrinkle, anti-pigmentation and anti-stretch mark products are becoming important product segments. Many of these products contain various natural ingredients, such as liquorice, pomegranate and mulberry. Shea butter, baobab oil, mango butter, aloe vera and other ingredients are also known for their anti-ageing properties.

Suppliers of natural ingredients for cosmetics in developing countries should focus on ingredients that can be used in anti-ageing products. Most importantly, ingredients can only be exported to Europe when they comply with the legal requirements for natural ingredients for cosmetics and the EU cosmetics legislation, including the criteria for substantiation of claims.

According to feedback from the industry, the increasing demand for anti-ageing products is expected to continue in the near future.

Figure 5: Population Pyramid in Germany

Source: Visual Capitalist

The millennial generation, born between the early 1980s and the mid 1990s, and the Generation-Z consumers (born from the mid 1990s onwards) are becoming increasingly influential. Compared to previous generations, these consumers favour natural and organic products. They are also more concerned about their impact on the environment and tend to choose cosmetics that have sustainable, natural, organic, vegan and other eco-friendly claims. A 2018 survey found that 76% of consumers want brands to ensure safe ingredients, while 65% also expect that a brand will disclose ingredient sources in a transparent way and another 54% are concerned about environmental impact.

More recent studies have found that Generation-Z consumers in the UK are 1.4 times likely to pay a premium for eco-friendly products. Another report finds that 45 percent of Generation-Z plan to prioritise sustainability over price. 

These socio-demographic trends suggest that demand for natural ingredients trend is likely to grow in the future. A growing consumer base will look for natural ingredients in cosmetics and personal care products. Demand for natural ingredients from developing countries is also expected, providing opportunities for suppliers from these countries.

Suppliers of natural ingredients from developing countries should seek to adopt sustainability schemes, such as organic and fair trade. This improves credibility and competitiveness of natural ingredients in the European market. Expect European buyers to require more transparency and traceability from suppliers of raw materials. Suppliers of natural ingredients from developing countries should communicate with buyers on what they are doing in terms of traceability of their raw materials.

5. The rising power of the informed consumer

Consumers are now better informed than ever about their purchasing decisions in cosmetics and personal care products. Media reports are raising consumer awareness of issues such as climate change, plastic pollution, use of pesticides and chemicals, child labour, working conditions and others. Consumers are seeking information online and are questioning businesses about their products to check if they meet their ethical and environmental beliefs.

One manifestation of this trend is the surge in demand for natural and organic cosmetics. These are products made from natural ingredients that avoid synthetic chemicals, such as petrochemicals and parabens. In 2019, Ecovia Intelligence valued the European natural cosmetics market at €3.9 billion, expecting it to grow in the coming years. Consumers are buying natural and organic products because they perceive them as being safer for human health and the environment.

Figure 6: Clean beauty trend

Source: Bare Escentuals

Another aspect of the ethical trend in cosmetics is the growing consumer demand for clean beauty products. Consumers are seeking cosmetics and personal care products that are free from synthetic ingredients, including parabens, phthalates, aluminium salts, sodium lauryl sulphate (SLS), sodium laureth sulphate (SLES) and mineral oils. The clean beauty trend started in the United States and is moving to Europe, with many small independent brands launching clean products. According to industry experts the clean beauty trend is here to stay, particularly post-COVID-19.

Natural ingredient suppliers should be aware of cosmetics ingredients with associated health risks and how to position their ingredients as natural and clean.

Suppliers should also learn about the many ways natural ingredients can be used as substitutes to synthetic chemicals, as well as how they can be used as feedstock instead of processed ingredients. Suppliers can share this information with potential buyers to encourage them to switch to natural ingredients.

As European consumers become more informed, they will ask more questions about cosmetic products. This is likely to generate more demand for natural products and natural ingredients. Opportunities for natural ingredient suppliers in developing countries are expected to grow.

6. Mobile apps and technology trends

We live in a digital age. Mobile technology has enabled consumers to be better informed when buying products. The internet has also made raw materials more accessible to cosmetics companies, while also increasing competition among suppliers. For natural ingredient suppliers in developing countries this presents potential opportunities.

The growing use of mobile devices has broadened consumer access to information. Consumers are demanding greater transparency from businesses about products they sell, including cosmetics ingredients, production methods, labels and standards. Several mobile apps and tools now exist to help consumers make more environmentally friendly choices. The EWG Healthy Living App and the ThinkDirty app are two examples.

Millennials and Generation-Z consumers are usually the largest users of these apps. This trend is therefore expected to be more popular in the future as they age. Suppliers of natural ingredients in developing countries can learn about such mobile apps and contentious ingredients more easily, which may help them access the European market.

Figure 7: EWG Healthy Living app

Source: EWG

Online platforms connecting ingredient suppliers with the makers of finished products is another technology-related development. Connature and Neat Wholesale are online platforms giving raw material suppliers in developing countries access to a global market of cosmetics companies. On the other hand, they increase competition, which may force raw material prices down.

Online platforms for raw materials are expected to be more common in the future. However, the growing demand for transparency and traceability may stop them from replacing traditional ways of sourcing in the near future. For now, online platforms can be used to trade smaller quantities of raw materials.

7. Increasing popularity of food-based ingredients in personal care products

The use of exotic food-based ingredients in personal care product formulations is increasing. Exotic ingredients offer something new to personal care formulators and consumers. Compared to synthetic ingredients, food ingredients also give the impression that the products are healthier and cleaner. Cosmetic manufactures also use exotic ingredients in marketing stories for their products, for example on packaging and in advertising.

Exotic food ingredients are used in personal care products as botanical extracts, essential oils, vegetable butters, waxes and their derivatives. Examples of popular exotic food ingredients include avocado, baobab, mango, marula, moringa, açai, goji berry and papaya. Some personal care companies have launched individual product ranges based on specific exotic food ingredients. For example, Laboratories Klorane has a hair care line based on mango ingredients.

This trend presents an opportunity to exporters of natural ingredients in developing countries. According to an importer in France, exotic oils are fashionable in Europe. However, the feedback from the industry is also that the trend often shifts from one exotic ingredient to another, which affects the price of raw materials.

Thus, exporters of natural ingredients in developing countries should take advantage of this trend. Exotic food ingredients from developing countries offer European personal care formulators a wide range of beneficial properties, as well as an opportunity to create an interesting marketing story.

Figure 8: Mango butter

Source: svf74/ Adobe Stock

8. COVID-19 impacts the European personal care sector

The coronavirus pandemic has significantly affected the European cosmetics market. Apart from affecting sales of finished products, it has disrupted the flow of raw materials. Lockdowns in various parts of the world have disrupted supply chains of natural ingredients leading to increased freight costs and delays. One European buyer of natural ingredients for cosmetics commented “logistically it has been very difficult”, with another commenting that they have experienced “delay of shipment”. Some natural personal care companies have stated COVID-19 has mainly affected their business through delays in the delivery of raw materials.

Some personal care companies that source directly from growers have been less affected. A German natural cosmetics company stated that they have not suffered raw material shortages because they “work directly with small farmers and producers that have not been as affected as larger exporters.“ Personal care companies that use locally sourced ingredients have also not been affected by raw material shortages.

The COVID-19 pandemic has exposed the fragility of ingredient supply chains and has highlighted the need to diversify their source bases. It is likely that cosmetics companies will seek more control over their supply chains in the future.

This is also a potential threat to exporters of natural ingredients in developing countries, as European cosmetics companies will want to source ingredients like essential oils locally. On the other hand, cosmetics companies will want to diversify their source base and look for new suppliers. African companies could benefit from this, as they are physically closer than those in Latin America, and parts of Asia.

Buyers are also likely to request more information on natural ingredients, as transparency is becoming more important for raw material supply chains.

9. Brexit and trade uncertainty

Brexit – Britain’s exit from the European Union – poses a threat to supply chains of raw materials and finished products. Britain has officially left the EU, the EU Single Market and Customs Union with EU law no longer applying to Britain. However, on 30 December 2020 Britain reached a Trade and Cooperation Agreement with the EU that came into force on 1 May 2021.

The Cosmetic, Toiletry & Perfumery Association (CTPA) in the United Kingdom has created a Post-Brexit Trade: Great Britain, Northern Ireland and the European Union document. This guide provides information on what is necessary to continue to trade effectively between Britain/Northern Ireland and the EU. It helps businesses navigate obstacles to trade and identify potential opportunities.

The UK has the third-largest market for cosmetics in Europe; however most of the products are made in Europe. Brexit has caused disruption to supply chains. A recent study by the London School of Economics and Political Science found that three in five UK companies claim Brexit has disrupted their business with border delays, bureaucracy and costs affecting trade.

The most common factors reported by companies related to issues at the border with the EU with 37 percent reporting delays, 36 percent reporting additional customs and administration costs and 22 percent reporting regulatory checks. Natural ingredient suppliers may want to focus on the EU market as it is likelier to make business easier until trade certainty resumes in the UK.

10. Upclycled ingredients increasing in popularity

The cosmetics industry is increasingly using food by-products as upcycled ingredients, a trend expected to continue. This creates opportunities for exporters of natural ingredients.

Food by-products are already established as a source of natural ingredients. For example, palm kernel oil has been used in cosmetics and personal care products for many years. However, in recent years the cosmetic industry has started using more upcycled food by-products as raw materials.

For example, the French company Laboratoires Expanscience has developed an active eye care ingredient from damaged avocadoes. In 2018, Dr. Craft launched a range of natural hair colours in the UK using waste blackcurrant pulp to make sustainable hair colours. The company received the 2019 Sustainable Beauty Award in recognition for this innovation

High consumer demand for natural personal care products is a driver behind this. Sustainability is another driver, with L’Oréal and Unilever committing to using more sustainable raw materials in their products. Innovation is a third driver, with several cosmetic companies investing in Research & Development to use food side streams.

The global COVID-19 pandemic is another driver. Travel restrictions and transportation delays are encouraging companies to use local raw materials. This is having a big impact on the supply of natural ingredients. One European buyer of natural ingredients commented, “We have had problems. There are shortages. Delays in delivery. And transportation costs have increased.”

The cosmetics industry is expected to use more upcycled ingredients in the future, creating opportunities for exporters of natural ingredients from developing countries. Many raw materials already come from developing countries. For example, Neal’s Yard Remedies, a leading organic personal care brand in the UK, uses an anti-ageing ingredient from a spent resin of frankincense. This is a by-product from the production process of frankincense essential oils in Oman.

Raw materials, such as seeds, peels, flowers, fruit and other foods can be used as upcycled ingredients in personal care products. These materials are often neglected by the food industry and usually end up in waste streams. Waste raw materials can be used for production of extracts, exfoliants, fragrances, colourants and active ingredients.

Exporters in developing countries can tap into this trend, as personal care manufacturers are looking at more sustainable ingredients. However, often using upcycled ingredients requires close partnership with personal care companies and/or ingredient buyers.

This study has been carried out on behalf of CBI by Ecovia Intelligence.

Please review our market information disclaimer.