ESSENTIAL OILS

Essential oils are a type of oil obtained from plants that evaporates readily when distilled or otherwise extracted. They are found in the leaves, stems, roots, flowers or seeds of over 1,500 species of plant. They generally consist of a complex mixture of compounds, with around 150 to 200 essential oils commonly traded around the world. Major producers are USA, Europe and, to an increasing extent in recent decades, China, Brazil, India, Egypt and South-east Asia.¹⁶³

Essential oils are used:

a) for flavouring, for instance in confectionery, beverages and processed goods;

b) as fragrances in, for instance, oral and bodycare products and perfumes;

c) in therapeutic applications, as pharmaceuticals, in health care and, more recently, aromatherapy; and

d) as insect repellents ¹⁶⁴

In Australia (1995 figures), the essential oils industry is based on 12 commercial crops being grown by approximately 150 growers, with a wholesale value of the processed product about $6 million.¹⁶⁵ Traditionally the Australian essential oil industry comprised eucalyptus and tea tree oil production. Essential oils are now also derived from an array of introduced species such as fennel, lavender, peppermint and spearmint.

There is a small industry in Victoria based on the production of essential oils. Some are produced in other States, but distributed in Victoria.¹⁶⁶ Oils are produced from a variety of plants, supplying niche aromatherapy and naturopathy markets.¹⁶⁷ The main species grown, Melaleuca alternifolia, does not occur naturally in Victoria and is not currently grown in the State. The main essential oil produced in Victoria is eucalyptus oil.

Tea Tree Oil

Tea tree oil is now considered a mainstream agricultural product, with Australia the major producer in the world. More than 80 per cent of the Australian crop is exported. The oil is extracted by steam distillation and its antiseptic and antifungal properties have led to its use for health-care and cosmetic applications. Several species are used, but the major productive species is Melaleuca alternifolia). The industry originally was based on natural stands of plants, but plantations were established in the 1980s when demand exceeded bush production capacity - production from bush stands was about 12 tonnes per year, with plantation-based production increasing this to around 200 tonnes in 1996-97. Plantation-based production has created other issues to be dealt with, such as agronomy and weed and insect control.¹⁶⁸

Overseas production of tea tree oil is currently low, but in recent years plantings have been established in China, Fiji, India, Indonesia, New Zealand, Thailand, USA, Vietnam and Zimbabwe. Potential competitive effects on oil prices are considered a significant threat to the Australian industry.¹⁶⁹ Recent Australian research has shown, however, that very large gains in oil yield can be had simply by obtaining seed from selected natural populations and developing seed orchards to promote their use.¹⁷⁰

Eucalyptus Oil

Eucalyptus oil is used for industrial and medicinal purposes around the world - for food flavouring, in confectionery, detergent, aerosol, soap, chest rub, nasal and cough drops, inhalant, hand cleaner, perfume and as a solvent. ¹⁷¹ The oil is extracted by steam distillation and either marketed as pure oil sold direct to the consumer (about one-third of total oil production, mostly in Australia and Asia), or used as a component of other products (with the largest markets being in Europe and North America). The crude oil generated by the grower is generally sold to an oil refiner for distilling and distribution.¹⁷²

The industry started in eastern Victoria in 1852, using leaves from native eucalypt stands. Export commenced in 1865. Until the 1950s Australia was the largest world supplier, producing approximately 1,000 tonnes and supplying 70 per cent of the world's market in 1976-77. Overseas competition and low, fluctuating world prices have since eroded this position. Other major producers are China, Spain, Portugal, South Africa and Chile. ¹⁷³

Worldwide, the production of eucalyptus oil is now about 3,000 tonnes a year. The Committee was surprised to discover that, while eucalypts are indigenous to Australia, more than half of the world production of eucalyptus oil comes from China.¹⁷⁴ Indeed Australian production is currently only about 120 tonnes.¹⁷⁵

The raw material to produce trees is available, the soils and climate are suitable, the oil is easily produced, there are currently stable world demand and prices, and Australia has a history of production and trade extending over 140 years.¹⁷⁶

Yet the farmgate value of eucalyptus oil (in 1991) was less than $1.5 million, and little value adding is done in Australia. The retail value of the Australian crop, if simply sold in small bottles, would exceed $5 million. ¹⁷⁷

The main Australian trade is now in import and export (with Australian oils mixed with lower-quality imports to upgrade them for export). The blue mallee (Eucalyptus polybractea) is the main commercial species produced in Australia (it yields a high cineole oil used for medicinal uses), although a range of species have been used in the past (according to end-use demand for their different oil compositions).¹⁷⁸ Blue gum (Eucalyptus globulus) is the main species used overseas, a factor of oil production often being a by-product of plantation wood lots of this species.

Victorian Industry

Victoria and New South Wales are the main production areas in Australia. Oil-producing species found in Victoria include:

a) broad-leaf peppermint (Eucalyptus dives) - widespread in areas of medium-rainfall southern temperate Australia, in low, open forests and woodlands; produces high-grade oil;

b) narrow-leaf peppermint (Eucalyptus radiata) - similar distribution to broad-leaf peppermint; also grown in African countries;

c) blue mallee (Eucalyptus polybractea) - grows in flatter Mallee sites; produces high-quality, cineole-type oil; not readily grown in competitor countries; and

d) blue gum (Eucalyptus globulus) - widespread in higher-rainfall temperate south-east Australia; one of the main species grown overseas; can provide wood and pulp as well; oil is not high grade. ¹⁷⁹

Victorian production is centred in the box-ironbark forests and woodlands of central Victoria, utilising blue mallee (Eucalyptus polybractea) as well as green mallee (Eucalyptus viridis) and some bull mallee (Eucalyptus behriana). These have a mallee form, that is they are multi-stemmed. The branches are mechanically cut close to the ground, with the oil then extracted by forcing steam through the leaf, and then separated by skimming off from the resultant mixture. A by-product is leaf residue that is sold for garden mulch.¹⁸⁰

A total of 2,950 hectares of public land is currently used for harvesting, of which, given a two-to-four-year cutting cycle, about 1,000 hectares is harvested each year. Over 2,000 hectares of this area are located in the Inglewood/Wedderburn area. Other areas used are at Bendigo, St Arnaud and Rushworth. Oil production from these areas in 1995-96 was 20,915 kilograms.¹⁸¹

In recent years, several small eucalyptus oil enterprises in north-central Victoria have expanded operation and the construction of a modern distillery at Bendigo has been mooted.¹⁸² There are three main distillers operating in Victoria, all in the Inglewood district (others exist but have found it uneconomic to operate). The Committee had the opportunity to visit the largest of these, the Kingower Distillery, as well as a smaller tourist-orientated operation at Wedderburn.

Industry Strengths

Advantages of the Australian industry are seen to be:

a) the diversity of species producing high quality oil (and untapped genetic resources);

b) a sound technological base; and

c) an international reputation for high-quality oil. ¹⁸³

Technical advance has been slow, but mechanical harvesting technologies have been introduced and portable distillation plants developed.¹⁸⁴ Current research and development involving breeding and vegetative propagation of high-yielding trees has brought oil yields up to 5 per cent, a doubling of past yields.¹⁸⁵

In recent years, however, many hectares of oil-producing mallee eucalypts have been planted in Western Australia and this may undermine the potential of a plantation-based industry in Victoria.¹⁸⁶ When in Adelaide, the Committee spoke to researchers with the South Australian Department of Primary Industries and Resources¹⁸⁷ and learnt of their research into distillation methods which, when combined with improved cultivars and harvesting methods, are envisaged to reduce the cost of producing eucalyptus oil in Australia significantly.

Industry Challenges and Opportunities

Factors which may be limiting Australia's industry are:

a) lack of coordination and cooperation within the Australian industry;

b) higher labour costs than overseas competitors;

c) a long period with little research and development;

d) low and uncertain prices;

e) failure, or lack of potential, to use other parts of the plant for wood and fibre; and

f) regulatory requirements for health and medical use.¹⁸⁸

There are now virtually no remaining areas of natural bush suitable for modern production methods - straight-row plantations assist mechanical harvesting and pest and weed control. The reluctance of public land managers to permit major modification of the native stands, as well as relatively high labour costs of using unmodified natural stands, have led to the industry increasing plantation production and technology. ¹⁸⁹

Some believe that the sector is likely to remain marginal:

At this stage of the industry's development it is not feasible to set up a viable operation if land and all equipment has to be purchased. ... The key to success is the market price. If it remains at its present level it will be impossible to produce oil in Australia at competitive prices. ¹⁹⁰

However:

If land and some standard items of agricultural equipment are already owned, and the cost of establishment of trees is covered by some other project, eg trees planted for desalinisation, a profitable operation might eventually be possible.¹⁹¹

Others have a contrary view, with researchers in South Australia actively pursuing strategies of improving distillation methods, cultivars and harvesting methods.

According to the output of an essential oils industry planning workshop, the future of the Australian industry will depend on:

maximising oil yield per dollar input by, for example, introducing high quality and high yielding lines, and by improving the demand for ... oil through a combination of well targeted marketing strategies and by meeting or modifying overseas requirements for registration as an over-the -counter medicine.¹⁹²

Other Australian Essential Oils

Australia is the dominant producer of Boronia oil - obtained from the brown boronia (Boronia megastigma). The industry was originally based on wild pick in Western Australia, but now is mostly plantation-based in Tasmania and produced in a vertically integrated operation. Farm-gate price is around $2,500 per kilogram (1995).¹⁹³

While $2,500 per kilogram is a significantly higher return than the farm-gate price of eucalyptus oil (at $7 per kilogram), the world market for boronia oil is very small and the cost of production very high.

The mountain pepper (Tasmannia lanceolata) is also being considered for essential oil production. Its main use to date is as chewing gum in Japan. As a bushfood plant, and one found and grown in Victoria, synergies of production are possible. Lack of registration as a foodstuff is the major current constraint to its further development.¹⁹⁴