Tate & Lyle is facing a new threat to its Splenda artificial sweetener in the shape of a Paraguayan shrub called Stevia.

Coca-Cola yesterday revealed that it was collaborating with Cargill, the privately-held US agricultural giant, to develop a rival zero-calorie sweetener derived from the plant. It is already widely used in Latin America and the Far East.

Last week, Coke filed 24 patent applications for the product, dubbed Rebiana.

The deal, which was signed two and a half years ago, will give Coke the exclusive rights to develop and sell Rebiana in beverages, while Cargill will secure the food rights.

Background

• Coca-Cola unveils new challenge to Splenda

• US failure leaves sour taste for Tate & Lyle

• Tate & Lyle shares plunge on profits gloom

• Tate & Lyle shock as Splenda sours profits

• Tate & Lyle close to selling its European starch unit

Sugar comment: Sour taste

Market value has tumbled at T&L and shareholders will need some suger to keep them sweet

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• Tate & Lyle company information

• Tate & Lyle share price chart

• Tate & Lyle forecast

A spokesman for the US drinks giant declined to say how much the companies were spending on the project, but said Coke had been exploring Stevia’s potential as an artifical sweetener for up to 12 years.

She said that the product itself and the production process would be “completely natural” – a big draw for increasingly health-conscious consumers.

The news is a fresh blow to Splenda, Tate & Lyle’s flagship product, which generates 20 per cent of group profits.

Sales of Splenda, which has been criticised for leaving an aftertaste when added to fizzy drinks, have failed to match expectations, especially in the US.

Splenda, also known as Sucralose, has achieved strong sales in low-calorie food and still beverages in the States, but has achieved a much slower uptake in colas such as Diet Coke.

Coke and Cargill’s decision to develop Rebiana reflects increased competition in the rapidly expanding $1.5 billion market for artificial sweeteners.

However, the companies acknowledge that they will face regulatory hurdles.

Although Stevia is popular in countries such as Brazil, Japan and China, it was banned in the US and EU after a 1985 study linked Stevia to liver problems.

Some European food safety officials have identified concerns that the plant could cause fertility problems in men.

The companies aim to market Stevia first in countries where the plant is not banned, such as Japan and Argentina, and Cargill seeks to help regulatory approval in the US by funding more scientific studies.

Graham Jones, analyst at Panmure Gordon, said Rebiana was unlikely to be an imminent problem for Splenda because it would take a “couple of years” before the product is granted approval by America’s Food and Drug Administration.

He pointed out that the FDA took almost 20 years to approve the use of Sucralose in the States.

Tate & Lyle is already fighting legal battles against Chinese companies which have been accused of breaking its patents on the product by illegally manufacturing Sucralose for export to the US.

Coca-Cola currently uses NutraSweet, a rival to Splenda manufactured by the Chicago company of the same name, to sweeten its US fizzy drinks.

Splenda was launched in 1999 and has taken the top slot in the artificial sweeteners market despite slow progress in the US fizzy drinks sector.

According to market research firm IRI, Splenda sold $212 million in 2006 in the US – easily the world’s biggest market – while Equal sold only $48.7 million.

However, Tate & Lyle’s US marketing partner on Splenda, McNeil Nutritionals, has also been locked in a legal battle with Merisant, the makers of Equal, over its claim that Splenda is “made from sugar so it tastes like sugar”.

Merisant says the claim is misleading and is seeking hundreds of millions of dollars in damages.

Sweet rivalry

—Stevia plant extracts are 300 times sweeter than sugar

—For centuries, the GuaranÍ tribes of Paraguay and Brazil have used Stevia as a sweetener in medicinal teas

—The active ingredient was isolated in 1931 and gained widespread use in Japan, where it now accounts for 40 per cent of the sweetener market

—Stevia was banned in the US in 1985 following a study that linked it to liver damage

—Splenda or sucralose, 600 times sweeter than sugar, was approved by the Food and Drug Administration in the US in 1998

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