Flavor and Fragrance Industry Reshapes Market Landscape

Changing consumer preferences combined with tightening global regulations

Recently, S&P Global Commodity Insights' "Flavors and Fragrances Market Report" indicated that the global consumption of flavors and fragrances is expected to achieve a compound annual growth rate of 3% from 2024 to 2029, supported primarily by stable end-market demand in food and beverages, personal care products, and cleaning agents. Market representatives from BASF and International Flavors & Fragrances (IFF) stated that consumers’ pursuit of sustainability and healthy living, along with increasingly stringent global regulations, are reshaping the flavors and fragrances market landscape.

Low-carbon innovation leads the industry

Wayne Ashton, Senior Vice President of IFF’s Home Care and Personal Care business, noted that consumers are increasingly favoring daily products containing natural, traceable ingredients, clean-label solutions, and multi-functional sensory experiences. Plant-based functional nutrition, health-oriented personal care products, and eco-friendly household cleaning solutions will be key drivers of mid-term growth.

In particular, low-carbon innovation is leading the development of the flavors and fragrances industry. BASF's fragrance raw materials business revealed that consumers have an urgent demand for reduced carbon emissions. The company has launched a biomass-balanced product line and low-carbon improved products such as L-menthol, while ensuring responsible sourcing through its Supplier Code of Conduct to reduce carbon emissions.

IFF uses agricultural by-products such as cocoa shells and citrus peels as raw materials, reducing environmental impact while enhancing product stability. Its Cure platform provides alternative solutions for raw material shortages caused by climate change, covering critical ingredients like cocoa and vanilla.

BASF also stated that trends toward clean labeling and growing awareness of health and wellness are driving demand for natural ingredients in the flavor industry, making bio-based ingredients highly popular. BASF’s Isobionics brand produces natural fragrance raw materials via fermentation technology, freeing production from the climatic and geographical constraints of traditional agriculture. BASF explained that fermentation allows complete control over the production process, unaffected by weather conditions, ensuring consistent high-quality ingredient output. Unlike plant-derived sources that yield complex mixtures, fermentation produces high-purity molecules, enabling precise flavor targeting and utilizing renewable feedstocks such as corn sugar.

IFF employs enzyme-catalyzed biotechnology to develop bio-based polymers from plant sugars, replacing traditional petroleum-based synthetic materials.

Both companies noted that although biotechnology faces challenges related to scaling up production and consumer acceptance, it offers significant advantages in improving product purity and ensuring supply stability.

Digital technologies accelerate innovation

Beyond low-carbon practices and biotechnology, artificial intelligence (AI)-driven formulation and predictive modeling are accelerating flavors and fragrances product development and enhancing precision.

Ashton stated that AI is rapidly transforming IFF’s innovation processes and influencing how solutions are designed, produced, and delivered. For example, the ScentChat system uses semantic AI to convert consumer olfactory feedback into real-time formulation recommendations, while digital twin technology has shortened fragrance development cycles by 40%.

BASF said close collaboration with customers drives its product and process innovations. BASF offers customized solutions and introduces new natural fragrance ingredients and selective fragrances. Its virtual innovation ecosystem enables collaborative development of novel fragrance raw materials across the value chain through molecular digital screening, with successful examples including several new fragrances compliant with strict regulatory requirements.

Tightening global regulations

BASF stated that the regulatory environment is becoming increasingly stringent, with faster timelines for new standards and stricter classification criteria. Ingredients that have been safely used for decades are facing reclassification more frequently, posing challenges to the flavors and fragrances industry.

IFF noted that Europe’s REACH regulation has added disclosure requirements for 26 new allergens, and CLP classification standards are tightening; California Proposition 65 in the United States has strengthened oversight of consumer goods; China and ASEAN member states are also tightening regulations on cosmetic and food ingredients. BASF emphasized its active participation in policy-making initiatives such as the EU Clean Industry Agreement, advocating for science-based risk assessment systems. IFF addresses regulatory challenges through raw material traceability systems and lifecycle assessments.

With ESG disclosure requirements such as the EU’s CSRD taking effect, flavors and fragrances companies urgently need to establish carbon data management systems covering their entire value chain. The integration of digital tools and bio-manufacturing technologies may give rise to a new generation of “carbon-neutral fragrances,” guiding the industry toward net-zero goals.