Tea Tree Oil Five Year RD&E Plan 2013

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Tea Tree Oil Five Year RD&E Plan 2013 - 2018

JANUARY 2014 RIRDC Publication No. 13/085

Tea Tree Oil Five Year RD&E Plan 2013 - 2018

By: Michael Clarke

January 2014

RIRDC Publication No. 13/085 RIRDC Project No. PRJ-007750

ISBN 978-1-74254-578-3 ISSN 1440-6845

Tea Tree Oil Five Year R&D Plan 2013-2018 Publication No. 13/085

The information contained in this publication is intended for general use to assist public knowledge and discussion and to help rural industries to be productive, profitable and sustainable. You must not rely on any information contained in this publication without taking specialist advice relevant to your particular circumstances.

While reasonable care has been taken in preparing this publication to ensure that information is true and correct, the Commonwealth of Australia gives no assurance as to the accuracy of any information in this publication.

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The Commonwealth of Australia does not necessarily endorse the views in this publication.

This publication is copyright. Apart from any use as permitted under the Copyright Act 1968, all other rights are reserved. However, wide dissemination is encouraged. Requests and inquiries concerning reproduction and rights should be addressed to RIRDC Communications on phone 02 6271 4100.

Researcher Contact Details

Michael Clarke AgEconPlus Pty Ltd 44 Barons Crescent Hunters Hill NSW 2110

Email: [email protected]

In submitting this report, the researcher has agreed to RIRDC publishing this material in its edited form.

RIRDC Contact Details

Rural Industries Research and Development Corporation Level 2, 15 National Circuit Phone: 02 6271 4100 BARTON ACT 2600 Fax: 02 6271 4199 PO Box 4776 Email: [email protected]. KINGSTON ACT 2604 Web: http://www.rirdc.gov.au

Electronically published by RIRDC in January 2014 Print-on-demand by Union Offset Printing, Canberra at www.rirdc.gov.au or phone 1300 634 313

Foreword

Five year research, development and extension (RD&E) plans are developed for each of RIRDC’s major programs. This 2013 – 2018 RD&E Plan is the third plan for the Tea Tree Oil Program. Each reflects the priorities of the Australian Tea Tree Oil Industry at their time of development and this plan builds on their achievements.

The RIRDC and industry funded Tea Tree Oil breeding program, which has been operating since the early 1990s, has generated seed with a yield improvement of close to 100%. Additional efficiencies have been achieved in harvesting, distillation and storage. A number of these improvements are also a direct result of RD&E funded by the RIRDC Tea Tree Oil Program.

The Tea Tree Industry does not have a statutory RD&E levy but has always shown a strong commitment to the RD&E program. Since 2009 industry has funded approximately half of the total Tea Tree Oil RD&E expenditure.

The 2013 – 2018 Plan identifies four key objectives for the RD&E investments to be made on behalf of the industry and Australian Government. Associated with each objective is a set of strategies to be followed in pursuing each objective and a set of performance indicators to give guidance as to how the program can be assessed as it progresses. An indicative share of RD&E budget has also been proposed for each plan objective in order to guide investment priorities.

This Plan has been prepared in consultation with RIRDC’s Tea Tree Oil RD&E Advisory Committee and the Australian Tea Tree Industry Association.

This Plan aims to assist the industry to build and develop its future.

Craig Burns Managing Director Rural Industries Research and Development Corporation

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Snapshot of the Five Year Plan

Industry Vision

The Tea Tree Oil Industry’s Vision is to be the industry that: • Values RD&E and whole of industry marketing • Provides a clear path to market which engenders growth • Achieves sustainable and profitable growth across all parts of the supply chain • Is strong, well-resourced and united • Measures success as ‘a bottle of tea tree oil in every Australian home’ • Delivers 80% of its product to profitable export markets • Is positioned as the premium preferred and quality assured supplier to both domestic and overseas consumers.

The RD&E Program 2013 – 2018 is focused on providing outputs that work toward the industry realising this vision.

RD&E Program Goal

To support the continued development of a profitable and environmentally sustainable Australian Tea Tree Oil Industry that has established international leadership in marketing, value adding, product reliability and production.

Objectives

The following objectives drive RD&E investment in the 2013 – 2018 RD&E program (indicative target investment levels as a proportion of total investment are shown) 1. Market access through regulatory response, product efficacy and safety research and its communication (35%) 2. Production systems that lower cost and increase productivity including the tea tree breeding program (35%) 3. Proof of concept innovative uses for tea tree oil (15%) 4. Communication and industry capacity building (15%).

Contents

Foreword ...... iii

Snapshot of the Five Year Plan ...... iv

1. Introduction ...... 1 Purpose of the RD&E Plan ...... 1 Preparation of the RD&E Plan ...... 2 Alignment with Government and RIRDC Priorities ...... 3

2. Industry and RIRDC Commitment ...... 4

3. R&D Priority Setting Considerations ...... 6 Overarching Consideration ...... 6 Consultation Findings ...... 6 Workshop Findings ...... 8

4. RD&E Program 2013 - 2018 ...... 9 Industry Vision ...... 9 RD&E Program Goal ...... 9 Objectives ...... 9 Strategies ...... 10 Key Performance Indicators ...... 10 Objective 1: Market Access through Regulatory Response, Product Efficacy and Safety Research and its Communication...... 10 Objective 2: Production Systems that Lower Cost and Increase Productivity (including the Tea Tree Breeding Program) ...... 13 Objective 3: Demonstrating Proof of Concept for Innovative TTO Uses ...... 15 Objective 4: Communication and Industry Capacity Building ...... 17

5. Proposed Budget ...... 19

6. Communication/Adoption /Commercial Opportunities ...... 20

References ...... 22

Appendices ...... 23 Appendix 1: Economic Analysis of Funding Models to Support TTO Industry R&D . 23 Appendix 2: Workshop Invitees ...... 28 Appendix 3: Workshop Group Reports ...... 29 Appendix 4: Tea Tree Oil Industry Profile ...... 34 Appendix 5: Key Challenges for the Tea Tree Oil Industry (SWOT) ...... 39 Appendix 6: Research Directions ...... 43

Tables

Table 1.1 Priorities Hierarchy in which the RIRDC Tea Tree Oil Program Fits ...... 3

Table 5.1 Tea Tree Oil RD&E Program Proposed Budget 2013 – 2018 ...... 19

Table A1.1 RIRDC TTO R&D Program Funding 2012-13 ($) ...... 23

Table A1.2 Grower ‘Voluntary’ Levy Contributions ...... 24

Table A1.3 Revenue Raised by a Statutory Levy ...... 25

Table A1.4 Comparison of Program Funding Statutory Levy and Current Arrangements ($) ...... 26

Table A1.5 Comparison of Program Funding – Three Models ($) ...... 27

Table A2.1 Workshop Invitees ...... 28

Table A3.1 Workshop Priorities ...... 29

Table A5.1 Tea Tree Oil Industry SWOT Analysis ...... 40

Table A6.1 TTO R&D Projects Funded Since 2006 ...... 45

Table A6.2 ATTIA Assessment of the Value of Program Projects published since July 2006 ...... 49

Figures

Figure 2.1 RIRDC Tea Tree Oil Research Budget and Industry Contribution 1991 – 2012 ...... 5

Figure 3.1 Future R&D Priorities – Relative to Expenditure 2006 to 2012 ...... 7

Figure A4.1 Tea Tree Oil Production 2001 to 2010 (2011 is projected) ...... 36

Figure A4.2 Tea Tree Oil Farm Gate Value ($/kg) ...... 37

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1. Introduction

This is the third Five Year Research, Development and Extension (RD&E) Plan for the Rural Industries Research and Development Corporation (RIRDC) Tea Tree Oil (TTO) Program. The first plan covered the period 1998-2003 and was used to guide the program up until August 2005. The second plan covered the period 2006-2011 and was replaced by this document in June 2013.

This plan builds on the previous plans with a focus on the areas of RD&E that are of greatest potential value to the tea tree oil industry.

The plan was prepared in consultation with the RIRDC Tea Tree Oil RD&E Advisory Committee and the Australian Tea Tree Industry Association (ATTIA). ATTIA is the peak body representing the Australian tea tree oil industry.

The tea tree oil industry does not have a statutory levy. Growers and product manufacturers have made voluntary financial contributions to RD&E and the balance of the TTO program has been funded from RIRDC’s Core Allocation. Recommendations are detailed within this plan for a new approach to program funding (Appendix 1).

Purpose of the RD&E Plan

The Five Year RD&E Plan 2013 – 2018 has five main purposes: • To present the rationale and context for R&D required in the tea tree oil industry • To indicate the specific role that RIRDC funded RD&E will play in expanding the knowledge base of the industry, and improving its profitability and sustainability • To outline the broad priorities that RIRDC and industry will pursue through its investment in the program over the next five years • To take account of national research priorities, Ministerial guidance and RIRDC policies expressed through the RIRDC Corporate Plan 2012 – 2017 (RIRDC 2012) • To encourage collaboration and coordination for tea tree industry RD&E including new joint investment.

Preparation of the RD&E Plan

The RD&E plan was developed through review of previous investments and literature, identification of R&D gaps and priorities, consultation and a workshop.

Specific tasks and their timing were: • Finalisation of project scope with the RIRDC Tea Tree Oil RD&E Advisory Committee and ATTIA (September 2012). • Review of relevant literature including the Tea Tree Oil Industry Strategic Plan 2012 – 2016 (ATTIA 2012), the Tea Tree Oil Industry Export Development Plan (ATTIA 2012a), the RIRDC Tea Tree Oil R&D Plan 2006-11 (RIRDC 2006) and an Economic Evaluation of investment in the Tea Tree Oil Program 2006-11 (Chudleigh and Simpson 2010). (December 2012). • Industry survey and program review to identify current plan performance and future R&D priorities (January and February 2013). • Workshop briefing paper preparation and distribution (February 2013). • Workshop at the NSW Department of Primary Industries (DPI) Offices Wollongbar to develop a vision for the industry, identify R&D priorities and future funding preferences (28 February 2013) • Finalisation of the RD&E Plan 2013 – 2018 and other RIRDC reporting requirements (June 2013).

Alignment with Government and RIRDC Priorities

The Tea Tree Oil R&D Plan 2013 – 2018 dovetails with national research priorities and the RIRDC Corporate Plan 2013 – 2018:

Table 1.1 Priorities Hierarchy in which the RIRDC Tea Tree Oil Program Fits

Priority Relevant ‘Fit’

National Research An Environmentally Sustainable Australia Priorities Promoting and Maintaining Good Health Frontier Technologies for Building and Transforming Australian Industries Rural R&D Priority Productivity and Adding Value: Improving the productivity and profitability of existing industries and supporting the development of viable new industries. Supply Chains and Markets: Better understand and respond to domestic and international market and consumer requirements and improve the flow of such information through the whole supply chain, including to consumers. Supporting priority: Improve the skills to undertake research and apply its findings RIRDC Corporate Goal 2 Increase profit and productivity in rural industries.

RIRDC Strategies 2.1 Manage demand driven RD&E that meets industry needs.

2.2 Facilitate investments that deliver economic, social, environmental benefits for rural industries.

2.3 Adopt a life-cycle approach to investment in new, developing, maturing and established industries. RIRDC Program Tea Tree Oil

Source: RIRDC Corporate Plan 2013 – 2018

2. Industry and RIRDC Commitment

The TTO program is presently funded through RIRDC’s core allocation provided by the Australian Government.

The program is managed within RIRDC by a Senior Research Manager and a Program Coordinator with input from an RD&E Advisory Committee. The RD&E Advisory Committee includes TTO growers, distillers, product manufacturers and marketers who are ATTIA members. Their input, along with input from the broader industry has been secured in order to develop the RD&E plan. RD&E projects funded by the program need to be consistent with the plan.

Industry has always shown a strong commitment to the RD&E program. Since 2009 industry has funded approximately half of total TTO RD&E expenditure (see Figure 2.1). In the 2012-13 financial year industry commitments to the program included: • Seed sales from the tea tree breeding program - $74,800 • Contributions from manufacturers and new product developers - $75,800 • ATTIA grower levies - $27,500.

Figure 2.1 RIRDC Tea Tree Oil Research Budget and Industry Contribution 1991 – 2012

R&D Expenditure Industry Contribution 700,000 600,000 500,000 400,000 300,000 200,000 100,000 - 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: AgEconPlus analysis of RIRDC data

Consistent with its Corporate Plan 2012 – 2017, RIRDC’s life-cycle approach to RD&E funding requires industries such as TTO (‘Maturing phase 3’) to ‘take a greater lead on RD&E needs and build RD&E contribution to matching dollar for dollar’ (RIRDC 2012 page 23).

An economic analysis of funding models to support sustainable TTO industry RD&E is provided in Appendix 1. It is important that the proposed model deliver funding equity and that the program not just rely on the ‘willing few’.

3. R&D Priority Setting Considerations

Overarching Consideration

The following overarching comments relevant to RD&E priority setting were provided by ATTIA members: • An agreed industry vision and leadership is needed to drive the next stage of industry’s maturation. • There is a healthy debate within industry about whether it is better to invest a larger share of research funds in Regulatory Risk Management or New Use R&D • Care is needed that with New Use R&D to ensure that it only goes as far as ‘proof of concept’ and does not stray into funding private commercial returns. • The grower voluntary levy should be encouraged and should deliver more grower based research. • Increasing TTO demand is a high priority for growers and the industry would benefit from securing a new manufactured use for TTO. • Export market research is important but can be funded by other sources (e.g. ATTIA and AUSTRADE) • The 2006-11 RD&E plan remains relevant to the industry situation in 2013.

Consultation Findings

New Plan Relative to Expenditure 2006 to 2012

ATTIA members were asked whether the RIRDC TTO Program should spend more or less of its total budget on its four current research objectives and whether they could nominate any new areas requiring research that the Program was not addressing.

Priorities for 2013 – 2018 relative to expenditure for the period 2006 to 2012 are shown in Figure 3.1.

Figure 3.1 Future R&D Priorities – Relative to Expenditure 2006 to 2012

32.5 32 31.5 31 30.5 30 29.5 29 Production Regulatory Innovative Communication to Systems to Regimes and Applications for Increase TTO Maintain Market Barriers Tea Tree Oil Understanding Competativeness

Industry stakeholders indicated a preference for no change to Communication, less investment in New Use R&D and more investment in Production Efficiency and Regulatory Risk Management.

Most Pressing RD&E Need

Survey respondents identified the most pressing needs for the Australian TTO industry as being: • Retention of support for the tree breeding program • Access to new chemicals and pesticides • Reduction in the cost of production • Regulatory risk management including capacity to respond to threats with science as they emerge • Communication of science to major overseas manufacturers and their subsequent support for Australian TTO • A ‘big picture’ strategy to drive industry development and demand

The current plan is a useful template for the new document.

Workshop Findings

A well-attended workshop was held at the Wollongbar Primary Industries Institute 28 February 2013. A list of invitees is provided as Appendix 2. The workshop reviewed a discussion paper and used this material to develop: • An industry vision statement • Prioritised research themes • Suggested research projects • Funding and funding sources

Workshop outputs are included as Appendix 3.

4. RD&E Program 2013 - 2018

The RD&E Program 2013 – 2018 details Industry Vision, R&D Program Goal, Objectives, Strategies and Key Performance Indicators (KPIs).

Industry Vision

The Tea Tree Oil Industry’s Vision is to be the industry that: • Values RD&E and whole of industry marketing • Provides a clear path to market which engenders growth • Achieves sustainable and profitable growth across all parts of the supply chain • Is strong, well-resourced and united • Is positioned as the premium preferred and quality assured supplier to both domestic and overseas consumers

The RD&E Program 2013 – 2018 is focused on providing outputs that work toward the industry realising this vision.

RD&E Program Goal

Objectives

Four objectives drive the 2013 – 2018 RD&E program: 1. Market access through regulatory response, product efficacy and safety research and its communication 2. Production systems that lower cost and increase productivity (including the tea tree breeding program) 3. Proof of concept innovative uses for TTO 4. Communication and industry capacity building

Strategies

Strategies indicate specific research areas that will contribute to achieving the four objectives. Strategies have been defined as a level that gives research providers guidance on where RIRDC is intending to target its investments over the period 2013 – 2018 and are intended to contribute to the longer term planning requirements of those providers. Strategies will be complemented with more specific research priorities published annually that provide more detailed guidance about the project areas that RIRDC is seeking to fund in the coming year.

Key Performance Indicators

KPIs are provided to assess whether the research strategies have contributed to the RD&E objectives. Where possible, performance indicators have been linked to benchmarks for previous tea tree oil industry performance. KPIs are SMART – that is they are Specific, Measurable, Achievable, Realistic and Time bound.

Objective 1: Market Access through Regulatory Response, Product Efficacy and Safety Research and its Communication

Background

Regulatory barriers restricting market access are the Australian TTO industry’s greatest threat. Regulatory approval is lacking or restrictive in many market destinations. Of most immediate concern is the EU where the SCCP dossier provided by the RD&E program in 2007 may require augmentation with expensive clinical studies.

In 2013 the RIRDC TTO RD&E program will engage a European regulatory consultant to gauge the industry’s needs and will provide advice on whether it is appropriate to resubmit the existing SCCP dossier or whether new studies are required. New studies may need to address: 1. Skin absorption of TTO and provide evidence on whether component chemistry ends up in vital organs 2. Evidence that 100% TTO, when used topically, produces no adverse effects 3. Skin sensitivity – trial work successfully completed but a larger sample may be required

4. Methyl eugenol– confirmation of presence/absence and quantity in Australian TTO.

It is important that no further restrictions be placed on TTO in European markets – Europe is an important source of sales and other nations including the US and Australia appear to take their lead from the EU.

The Australian TTO industry’s market leadership position is built on supplying oils of superior quality at an appropriate price. To maintain this position and discourage the purchase of low cost adulterated and possibly ineffective TTO from other suppliers, the Australian industry must continue to invest in product safety, efficacy and quality RD&E. In 2013 the RIRDC TTO RD&E program will invest in a project to facilitate identification of adulterated oil (the chiral project).

Safety, efficacy and quality research only has value if it is communicated to regulators and product purchasers. This objective only has relevance if information generated is in a form capable of being and is delivered to relevant decision markers.

Strategies • Make appropriate regulatory risk management investments in light of European regulatory consultant recommendations. • Monitor regulatory developments in the EU (e.g. REACH 2007), US and Australia. Determine what is necessary to keep dossiers up to date and respond early and comprehensively to regulatory threats. • Make studies available to regulatory authorities including via the ATTIA website. • Invest to ensure the TTO industry’s Code of Practice / Quality Assurance is sufficiently robust to be credible in international markets. • Research a marketing strategy for the TTO industry to provide industry with priorities for market development. • Address safety, efficacy and quality issues through appropriate RD&E projects as they emerge from consumers and buyers over the life of the plan. • Research low cost options to communicate the COP/QA systems use to TTO purchasers and the existence of technologies to detect adulterated oil

Key Performance Indicators • There is no loss in market access over the life of the current RD&E plan. • The industry is in a position of being able to respond to regulatory framework change as they occur (measured through the quality of an up to date product safety dossier). • Australian TTO industry’s competitive edge maintained in international markets through assurance of product safety, efficacy and quality.

Suggested Budget • Suggested expenditure is $145,000 per annum. This investment is around 35% of the total proposed RD&E investment budget of $410,000 (see Table 5.1 in Chapter 5).

Objective 2: Production Systems that Lower Cost and Increase Productivity (including the Tea Tree Breeding Program)

Background

Tea tree breeding is the standout success of the TTO RD&E program. It has increased both grower yield and industry profitability. It has helped maintain the competitiveness of Australian TTO growers. The TTO breeding program is modernising through mapping of the tea tree genome and research to identify quality markers. The breeding program was established in 1993 and is half funded by seed sales with the balance provided by RIRDC.

While tea tree yield has boomed through the breeding program the industry now needs its growing systems and agronomy to catch up. For example plant spacings that were appropriate twenty years ago when oil yield was 100 kg/ha may not be appropriate in 2013 when yield is up to 350 kg/ha. Furthermore, there is a need to supplement the industry’s current pest and disease control chemistry. Reducing cost of production is one of the most pressing R&D needs. Current investments in biochar research will generate important agronomic knowledge and it is critical that these research outputs are incorporated into industry practice.

Strategies • Continue to complete independent reviews of the breeding program and ensure review findings are implemented. • Make certain that plant selections meet commercial requirements and that the breeding program embraces appropriate molecular technologies. • Consider the scope for introducing an exclusive tea tree line e.g. methyl eugenol free. • Keep the breeding program focussed on a limited number of key attributes – too many attributes impedes genetic progress. • Secure additional chemicals that are more selective and less harsh on the environment for use on tea tree. Support minor use permit applications and field trials where these are required by the APVMA. Minor use permits for pesticides, herbicides and fungicides are a priority. • Research tea tree row spacing for high yielding tea tree stands.

• Irrigation water will continue to be in short supply and expensive. Support research to enhance the tea tree industry’s water use efficiency. • Support research to fill industry knowledge gaps in relation to soil fertility and soil structure. • While the industry has invested in some plant nutrition work, there is a need for RD&E to address optimal nutrition mix - what volume and combination of N, P, boron, etc. Understand other factors that determine optimal plant nutrition. • Myrtle rust – is proving to be less significant to the TTO industry than first envisaged. Consequently it is appropriate to limit investment in this area unless there is a change in impact status. • Investigate tea tree stand ‘die back’ in the Dimbulah area of the Atherton Tablelands. • Examine energy use efficiency in steam distillation to ensure savings in production cost as energy prices increase over time.

Key Performance Indicators • Australian TTO industry’s competitive edge maintained through plant breeding that incorporates molecular technologies. • Yield on newly established TTO crops in 2018 to be at least 25% higher than new stands established in 2013 (i.e. targeting 400 kg /ha of TTO) with appropriate stand durability and commercial quality attributes. • Growing system RD&E supports the breeding plan KPI of an average oil yield of 400kg/ha on new plantations established in 2018. • Growing system RD&E assists with containing cost of production increases (measured through a grower survey in 2013 and again in 2018 as the end of the plan period).

Suggested Budget • Production systems that lower cost and increase productivity (including the breeding program) will require a total annual budget (RIRDC plus seed sales) of $145,000 per annum.

Objective 3: Demonstrating Proof of Concept for Innovative TTO Uses

Background

The TTO industry is in effect a niche raw material supplier to the cosmetic product and healthcare industry. To grow the industry, new uses for TTO must be found. Typically when a new use comes on line it increases demand by no more than 5 to 10 tonnes (total production is 500 tonnes). A new use is needed annually to keep supply and demand in balance.

The anti-bacterial, anti-viral and anti-inflammatory qualities of TTO are now well established through research. It is important to regularly remind the market of these attributes. It is also important to take the outputs of research and work with new product developers to create new TTO uses.

Most ATTIA members surveyed as part of plan preparation agreed that the biggest research breakthrough the plan could deliver would be a new end use for TTO that creates strong demand and a good price for specifically Australian grown oil. Attention also needs to be given to attracting a greater range of new product developers to TTO so that the industry is not relying on just a few.

In synopsis the status of new product development appears to be: • Move away from cosmetics – market is mature and volumes of TTO used are small • Agricultural uses are prospective – including both animal health and plant health markets • Potential Cancer treatments are promising but the complex chemical composition of TTO, resultant difficulties with IP protection and delivery systems mean that treatments are a long way off and costs of clinical trials are beyond this RD&E program’s capacity. • Biofilms – are relevant to human health, animal health and industrial applications. Initial work was encouraging and additional investment may be prudent. • There is a range of ‘low tech’ / low value uses for tea tree products that may be worth exploring in greater detail including mulches, cogeneration and carbon sinks.

The nature of RIRDC funding means that RD&E investments can only be made at the ‘proof of concept’ stage as outputs need to generate ‘public goods’ rather than private commercial gain.

Strategies • Invest in demonstrating proof of concept for innovative TTO uses using the principles articulated by industry in the above background statement. • Communicate R&D results to product makers. • Work with industry to identify additional new product developers e.g. funding industry attendance at trade fairs and conferences and support industry production of appropriate communication tools (e.g. ATTIA website).

Key Performance Indicators • The RIRDC RD&E program supports the development of three innovative new TTO uses between 2013 and 2018. • Two new manufacturers are identified who are prepared to contribute to RD&E funding. • Guidelines suggesting TTO based product formulations are produced and disseminated.

Suggested Budget • An annual investment of $60,000 or 15% of the RD&E annual budget is proposed. This includes matching contributions from product manufacturers.

Objective 4: Communication and Industry Capacity Building

Background

ATTIA members report that having a jointly funded communication project with RIRDC has greatly improved the Australian TTO industry. The Industry Development Officer (IDO) has worked to develop trust, broken down industry factions, improved communication, developed the Code of Practice and addressed ‘bad press’ received by industry. The project is responsible for website development and upgrade, QA and research communication. A compendium of research achievements is due for publication by RIRDC in 2013.

Skills development and retention is an issue across all rural industries and is increasingly problematic as the ‘baby boomer’ generation retire and State Governments are forced to cut public funding to DPIs. The TTO industry relies on a small and hardworking leadership group. The UWA TTO Research Group is likely to be disbanded as they do not have any current projects and there is no levy money available to fund them. The NSW DPI district agronomist with tea tree knowledge is due to retire and won’t be replaced. Industry advice is that there is a good private agronomist within the district.

Strategies • Rollover the current ATTIA delivered communication project and review project funding. Current funding is $60,000 per annum, half of which is paid by the RIRDC RD&E Program. • Ensure the communication project delivers an appropriate website upgrade, newsletters and other forms of extension material. • Scope the need for supplementary communication projects including additional materials for growers demonstrating returns from RD&E levies and an Industry Stocktake to support funding and policy development. • Develop a capacity building and replacement plan for the TTO industry. • A small sum be set aside each year for industry leadership training and the occasional funding of a research scholarship.

Key Performance Indicators • An upgraded ATTIA website • Regular newsletters and communications publications • An effective and internationally recognised COP/QA system • The TTO industry retains sufficient leadership and research capacity through 2018 and beyond.

Suggested Budget • An annual investment of $60,000 or 15% of the RD&E annual budget is suggested.

5. Proposed Budget

The budget shown in Table 5.1 is based on realistic revenue projects developed in Appendix 1. It includes an allowance for RIRDC as well as industry funding (seed sales, voluntary ATTIA levy and project specific contributions from product manufacturers).

Table 5.1 Tea Tree Oil RD&E Program Proposed Budget 2013 – 2018

RD&E Theme Percentage of Annual RD&E Total Budget Expenditure Market access through regulatory response, product efficacy and safety research and its 35% 145,000 communication Production systems that lower cost and increase productivity (including the tea tree 35% 145,000 breeding program) Proof of concept innovative uses for TTO 15% 60,000 Communication and industry capacity building 15% 60,000 Total 100% 412,500

6. Communication/Adoption/ Commercial Opportunities

Purpose and objectives

The Tea Tree Oil program will be communicated and its outputs adopted through the Communication objective of this plan.

Target audience and communication tools

The target audiences for program outputs, and the primary communication tools through which they will be reached, are: 1. Tea tree oil growers (who are mostly early or mainstream adopters) – ATTIA communications (newsletters and website) and RIRDC publications including media releases and research reports. 2. Parliamentarians (who are early adopters) – briefings on any specific issues as appropriate. 3. Agencies of government – state and Commonwealth (who are mostly early or mainstream adopters) – RIRDC media releases and research reports.

Expected key messages from program outputs

The key messages from the Sub-program are expected to include: 1. How to reduce production cost. 2. New market opportunities for TTO. 3. What the program has done to retain market access for TTO products.

Industry networks

To ensure that program outputs are communicated to industry stakeholders, information will be provided to peak bodies such as ATTIA and bodies that are regional or state based.

Major industry events

Programs outputs will be communicated through a range of industry events including annual conferences, the ATTIA AGM and various project specific workshops.

Key influencers

The tea tree oil industry has found that the IDO is very effective in communicating program outputs and this is expected to continue through the life of the new plan.

Key Media / Websites

ATTIA’s and RIRDC’s website will be the key portals for the program.

Commercialisation and IP

Research projects and project outputs will be managed consistent with RIRDC’s commercialisation and intellectual policy policies.

References

ATTIA (2012) Five Year Strategic Plan 2012 - 2016

ATTIA (2012a) Export Development 2012 - 2014

Chudleigh, P and Simpson, S (2010) Economic Evaluation of Investment in the Tea Tree Oil R&D Program https://rirdc.infoservices.com.au/items/10-212

RIRDC (various) Tea Tree Oil Completed Projects and Research in Progress

RIRDC (2006) RIRDC Tea Tree Oil R&D Plan 2006 – 2011.

RIRDC (2008a) RIRDC Evaluation Framework, Version 1.0 May 2008.

RIRDC (2012) RIRDC Corporate Plan 2012-2017

Appendices Appendix 1: Economic Analysis of Funding Models to Support TTO Industry R&D

The purpose of this appendix is to record the results of an economic analysis of potential industry funding models to support Tea Tree Oil RD&E. Consistent with its Corporate Plan 2012 – 2017, RIRDC’s life-cycle approach to RD&E funding requires industries such as TTO (‘maturing phase 3’) to move toward matching dollar for dollar funding for research (RIRDC 2012, Figure 3 page 23).

Current Contributions to R&D Funding made by Industry

At the present time the RIRDC TTO R&D program is typically funded as per the 2012- 13 financial year.

Table A1.1 RIRDC TTO R&D Program Funding 2012-13 ($) Funding Source Funds Provided Industry ‘Tea Tree Varieties for a Competitive Market’ - sale of seed from the 75,000 breeding program Project specific allocations from manufacturers of TTO products 70,000 ATTIA membership levy voluntary contributions – TTO grower funds 30,000 Government RIRDC Core allocations 235,000 DAFF Clean Energy Futures, ‘Action on the Ground’ project* 75,000 Total $485,000 * Industry contributions have also been made to this DAFF Project but are included in the $30,000 shown for ATTIA membership levy voluntary contributions NB: Research grants from the ARC or possible funding from AUSTRADE to support export market research are in addition to these totals

Total funding under the RIRDC TTO R&D Program is $485,000 of which approximately $175,000 is sourced from industry. In addition to the industry funding shown in the table, additional resources have been pledged by TTO growers for Myrtle Rust research ($12,500 per annum for three years).

From the table it can be seen that manufacturers that use TTO contribute to research on a project specific basis and growers contribute through the ATTIA membership levy. The ATTIA membership covers an estimated 80% of all Australian TTO production and growers who are members of ATTIA must pay a levy to fund the industry association’s activities and RD&E. The membership levy was established in 2009 and up to and including 2012 was struck at $0.15/kg of TTO sold. In 2013 the grower levy will increase to $0.20/kg of TTO sold. Half the revenue raised from the grower levy is used to cover ATTIA activities including the Industry Development Officer, Board meeting

expenses, an AGM, audit and other administration expenses. The other half of the levy funds RD&E through the RIRDC TTO Program.

The approximate basis for grower contributions to RIRDC managed RD&E is shown in Table A1.2.

Table A1.2 Grower ‘Voluntary’ Levy Contributions Option ATTIA Levy rate Levy Farm GVP Levy Member for Income Gate (Farm gate % of TTO (kg) RD&E for Price price X total GVP ($/kg)* RD&E ($/kg) production) Voluntary levy - old (2012), capturing 80% of production 400,000 0.075 $30,000 32.50 $16,250,000 0.18% Voluntary levy – new 2013, capturing 80% of production 400,000 0.100 $40,000 32.50 $16,250,000 0.25% * Levy rate is half that struck by ATTIA i.e. represents only the proportion available for RD&E

Grower ‘voluntary’ levies raised on a unit of production basis do not include ‘one off’ projects, such as myrtle rust control. One off projects are funded through direct requests made to growers by the Industry Development Officer.

Feasibility of a Statutory Funding Levy

A statutory levy would need to raise significantly more income than is currently achieved with a voluntary levy. A statutory levy would need to be supported by a formal vote, be backed by an overwhelming majority of the industry, be informed by a comprehensive business case and be collected by DAFF’s Levy Revenue Service (LRS). LRS collect statutory levies on a full cost recovery basis.

An estimate of RD&E income raised by a statutory levy is summarised in Table A1.3.

Table A1.3 Revenue Raised by a Statutory Levy Assumption Quantum Explanation and Comment Industry production 500,000 kg Estimate for total industry. Unlike the current ‘voluntary’ levy all growers, including those who are not ATTIA members, must pay the levy. Suggested levy rate $0.20/kg Consultant assumption assuming ATTIA levy drops from $0.20/kg to $0.10 and the total burden on growers becomes $0.30 ($0.10/kg for ATTIA + 0.20/kg for RD&E) Gross revenue raised $100,000 pa Industry production multiplied by suggested levy rate. NB There is a cap on matching payments and Govt will fund a maximum of 0.005% of GVP. Consequently $81,250 is the ‘real’ amount. Levy receipts as a 0.62% Gross levy receipts divided by percentage of GVP estimated GVP of $16.25 million. Cost of levy $25,000 and Total cost charged by LRS depends on collection (i.e. $50,000 pa collection difficulty. In 2006-07 an payments to the (say $35,000) estimate of $25,000 was provided by LRS) LRS who has since moved to full cost recovery. However, a simple collection system based on between 10 and 20 collection points (TTO trader exporters) may mean that the cost is closer to the original estimate of $25,000. Net receipts after $65,000 Gross receipts less cost of collection. levy collection costs

With a levy in place, and consistent with RIRDC’s life-cycle approach to RD&E funding, RIRDC would shift the TTO industry off funding from Core Allocations ($235,000 per annum) and onto receipt of Matching Payments from the Australian Government. Core allocations would then be available to meet other RIRDC funding priorities.

Under RIRDC’s establishing legislation, the PIERD Act 1989, the Australian Government will provide matching RD&E funds up to a maximum of 0.005% of the industry’s Gross Value of Production (GVP). With an Estimated GVP of $16.25 million (500,000 kg at an average farm gate price of $32.50) the maximum available to the TTO industry through Matching Payments would be $81,250 per annum.

A summary of the industry’s possible position after moving to a statutory levy is summarised in Table A1.4.

Table A1.4 Comparison of Program Funding Statutory Levy and Current Arrangements ($) Funding Source Current Statutory Arrangements Funding Industry ‘Tea Tree Varieties for a Competitive Market’ - 75,000 75,000 sale of seed Project specific allocations from manufacturers 70,000 0 of TTO products ATTIA voluntary contributions 30,000 0 Statutory Levy 0 65,000 Government RIRDC Core allocations 235,000 0 Matching Payments (0.5% GVP) 0 81,250 DAFF Clean Energy Futures, ‘Action on the 75,000 75,000 Ground’ project Total $485,000 $296,250

A statutory levy, under the assumptions described by AgEconPlus, results in a net loss in RD&E funds for the TTO industry. TTO Industry GVP would have to climb from $16.25 million to $50 million before Australian Government Matching Payments would offset the loss of RIRDC Core Allocations.

An Alternative Approach for RIRDC and Industry Consideration

A possible compromise on RD&E funding that RIRDC and the TTO industry may be prepared to consider would involve: • Retention of ATTIA’s voluntary levy on growers (0.10/kg for RD&E) with a gradual ramping up of the rate to 0.20/kg for RD&E by 2018. By 2018 this would raise $80,000 pa compared to $65,000 with a statutory levy net of LRS payments.

• At the same time as ATTIA is increasing the rate ensure an increasing share of industry growers become ATTIA members.

• RIRDC and ATTIA encourage ongoing support from the manufacturers of TTO products. The industry is mature and has shown a willingness to contribute to RD&E along the supply chain and current project commitments might be met by Government Matching funding.

• ATTIA make a case to RIRDC for some ongoing support for the TTO Industry from Core Allocations. The case would be based on the regional significance of the industry, its increasing maturity and demonstrated willingness to contribute its own funds and the nature of the statutory funding model for small industries where LRS requires between a third and a half of all revenue collected.

A comparison of this alternative approach alongside current and statutory funding models is shown in Table A1.5.

Table A1.5 Comparison of Program Funding – Three Models ($) Funding Source Current Statutory Matching Arrangement Funding Voluntary s Industry ‘Tea Tree Varieties Competitive 75,000 16,000 75,000 Market’ - sale of seed Project specific allocations 70,000 0 50,000 manufacturers of products ATTIA voluntary contributions 30,000 0 75,000 Statutory Levy 0 65,000 0 Government RIRDC Core allocations 235,000 0 120,000 Matching Payments (0.005% GVP) 0 81,250 81,250 Total $410,000 $162,250 $401,250

Appendix 2: Workshop Invitees

The following individuals were invited to the 28 February 2013 RD&E Planning workshop.

Table A2.1 Workshop Invitees Name Affiliation Pat Bolster TTO Advisory Committee Steen Jorsal TTO Advisory Committee Reg Lehmann TTO Advisory Committee Richard Davis TTO Advisory Committee Italo Pellizer TTO Advisory Committee Rob Dyason TTO Advisory Committee Phillip Butlin ATTIA Board Thomas Cassegrain ATTIA Board Michael Flanagan ATTIA Board John Seccombe ATTIA Board Leigh Hicks ATTIA Board Glenn Donnelly Industry leader Tony Dougherty Industry leader Luigi Vedelago Industry leader Jerome Chopard Industry leader Paul Bolster Industry leader Tony Larkman Industry leader John Fergeus Industry leader Alison Saunders RIRDC Krisha Marr RIRDC Michael Clarke RIRDC

Appendix 3: Workshop Group Reports

Workshop Positions on Discussion Paper Themes

Table A3.1 Workshop Priorities Discussion Paper Theme Table 1 Table 2 Table 3 Tea tree breeding program that is best √ √ practice Growing systems RD&E to reduce √ √ production cost Regulatory risk management to √ √ √ sustain market access Product safety and efficacy √ Proof of concept innovative uses for √ TTO Communication √ √ Tea tree breeding program that is best √ practice Others? Distillation Adulteration of Marketing efficiency TTO strategy Extension plan

TABLE 1

VISION • An industry that values R&D (& E) AND marketing at a high level • Sustainable growth at 20%p.a. in both market expansion, production and professional farmers • Clear path to market to empower growth

R&D THEMES

• Market access through regulatory response, product efficacy and safety and communication to markets

• Production systems looking at:

 Herbicides, pesticides and fungicides - No harvest time, nutrition - Less traditional breeding emphasis

 Distillation

 Support / extension

• Communication (internal)

• Capacity Building

PROJECTS

• Comprehensive safety, regulatory package  Engage regulation monitoring service(s) or consultants

• Herbicide, fungicide, etc

• Distillation efficiencies

• Capacity building  a plan to plan

TABLE 2

VISION VISION – FARM • Strong well-resourced industry • Premium pure Australian Tea Tree Oil – well positioned

VISION – SUPPLY CHAIN • Preferred QA supplier of TTO to the world - 80% export, 20% domestic

THEMES AND PROJECTS

1. Productivity – Tea Tree Breeding Program (TTBP) and Systems *60% **42%

2. Market Barriers – Regulatory and Consumer Perception *10% **30%

3. Communication – Grower and Consumer/Manufacturer *10% **9%

4. Innovative Uses – Marketing and Proof of Concept *10% **10%

5. Challenges from Foreign Competition – Adulteration and lower quality oil (QA) *10% **9%

* Based on $350,000 **Based on $500,000

FUNDING GROWERS $200,000 TTBP $75,000 (Theme 1+3+5) Levy $80,000 Donations (eg myrtle rust) $50,000 MANUFACTURERS $50,000 (Themes 4+2) RIRDC $250,000 ------TOTAL $500,000

FUNDING SOURCES $500,000 = 3.1% farm gate GVP for R&D ($16 million) 50% of RIRDC = 1.55% of farm gate for R&D Growers: 1.25% = 40c on 500mt/50c on 400mt Manufacturers: 0.30%

TABLE 3

VISION • To make Australian growers profitable over the long term • Focus on profitability over industry size • Initial phase based around getting a bottle of TTO into every home in Australia • Provides the base – media articles, social media chatter to assist snagging of interest (as occurred 20 years ago)

THEMES • “CLUB-ING” To pool resources and spread risk for projects/a bottle in every home program Marketing strategy - need better promotion of how to use TTO at home

• LOW COST OF PRODUCTION Increase funding to breeding program NOT aimed at increased production so much as (a) increasing profitability and (b) breeding an exclusive line, e.g. methyl eugenol (ME) free

• METLYL EUGENOL PROJECT Chemical/natural treatment to produce ME free TTO for the cosmetic industry

• FERTILISING FOR SUSTAINABILITY AND YIELD ENHANCEMENT

FUTURE FUNDING • EUROPE Need to use RIRDC funds to support the proposed work program but more funds required • Ensure manufacturers maximise R&D deductions, i.e. 120% provides ability to increase size of contribution • Healthcare industries (which is TTO) fund R & D from between 3% to 8% of revenue

Appendix 4: Tea Tree Oil Industry Profile

Tea Tree Oil Production

Tea tree is a traditional Aboriginal medicine. Tea tree oil has been produced and marketed by Australians of European origin since the 1920s. Initially TTO production was based on wild harvest and simple wood fired distillation operations. Production is now sourced from cultivated plantations of Melaleuca alternifolia and distillation is via sophisticated steam injection.

Plantations can be established over a range of climatic and agronomic conditions and annual TTO production is dependent on the interplay of climatic factors, oil prices and fertiliser practices. Tea tree is tolerant of coastal acid sulphate soils and may also be grown on inland cropping country. Sound prices and reasonable gross margins mean that TTO is able to compete for land with other agricultural enterprises. Tea tree is established as a perennial, harvested at a height of between two and five metres and stands are maintained for an average of fifteen years. Stands are replaced on thinning and the availability of improved tree stock.

Over time there have been significant improvements in tree stock and harvesting methods which have allowed growers to establish larger and more efficient plantations. The RIRDC funded TTO breeding program operating since the early 1990s has generated seed with a yield improvement of close to 100%. Additional efficiencies have been achieved in harvesting, distillation and storage. A number of these improvements are the direct result of RD&E funded by the RIRDC Tea Tree Oil Program.

Product Forms and Uses

TTO is extracted by steam distillation from the mechanically harvested aboveground portion of the plant. Steam distillation results in a relatively pure oil that generally does not require further refinement. The major parameters of the oil are described in the international standard ISO 4730-2004.

TTO is sold in pure form and has potential for use in various human health, animal health and industrial purposes. It retails as either single ingredient pure oil or in small quantities added to a wide range of personal health care, cosmetic and animal care products. TTO has anti-bacterial, anti-fungal, anti-viral and anti-inflammatory properties. A combination of active ingredients in the oil appears to prevent microbes developing resistance to it. Research has been completed on TTO anti-cancer properties and for agricultural and industrial uses such as control of parasites on animals, horticultural fungicides and electronic circuit boards. TTO is acceptable for use in industries that require ‘natural’ or even ‘organic’ product.

When compared to other agricultural commodities that are used for either food or fibre, TTO is unique. In effect TTO is a raw material for cosmetic and health related industries. Current markets are predominantly cosmetic use related where only very

mild efficacy claims can be made and in the absence of expensive clinical trials, TTO product penetration into health care markets is limited.

Location and Structure

Tea tree is predominantly cultivated in the coastal region of northern NSW and the Atherton Tablelands of Queensland. The industry supply chain includes growers, growers who are distillers, distillers, wholesalers, brokers, trader / exporters, manufacturers, retailers and end users. Key points in the supply chain relevant to the potential collection of levies include growers (approximately 100) and trader / exporters (between 10 and 20). Some 80% of growers outsource distillation and distilleries range in size from those who produce 0.5 tonne to 100 tonne per annum. Most Australian TTO output is sold overseas and the supply chain post export remains somewhat opaque and multi-linked. For example product may be shipped to South East Asia for packing and exported to Europe or the United States or imported back into Australia for resale.

Industry Size

Production Area and Yield

In 2010 there was an estimated 3,500 ha of cultivated tea tree producing around 500 tonnes of oil (see Figure A4.1 below). Production area and output has stabilised at this level following rapid production growth at the beginning of the century followed by exit of large Managed Investment Scheme (MIS) operations.

Figure A4.1 Tea Tree Oil Production 2001 to 2010 (2011 is projected)

Source ATTIA 2012

Prices – Farm Gate

In February 2009 farm gate prices reached almost $60 kg as buyers reacted to a perceived supply shortage following the exit of MIS producers. Post the 2007 Global Financial Crisis (GFC) prices have generally remained within a band of between $30 and $35 kg (Figure A4.2 below).

Figure A4.2 Tea Tree Oil Farm Gate Value ($/kg)

Source ATTIA 2012

Industry Gross Value of Production

Australian TTO Industry Gross Value of Production (GVP) is presently estimated at $16.25 million per annum. This estimate is based on an annual production of 500,000 kg and an average farm gate price of $32.50/kg.

Markets and Market Trends

About 90% of Australian TTO is exported, principally to North America and the European Union (EU). It is assumed that most of the oil exported into these markets is sold in pure form and used in households for its anti-bacterial, anti-fungal, anti-viral and anti-inflammatory properties. An ATTIA initiated project will generate ABS data on export volumes, prices and destinations from February 2013.

The market for tea tree oil in the cosmetic and personal health care areas is maturing with the oil no longer being sought for its novelty value (RIRDC 2006). To address this maturation the industry has invested through the RD&E program in demonstrating product efficacy and safety in existing applications and in establishing new TTO uses.

TTO marketing is based on its clean, green, natural and pure qualities. The industry supports Australian marketing efforts through a Code of Practice (COP) / Quality Assurance (QA) scheme with global acceptance of the COP and third party auditing as

its ultimate goals. A credible COP will help differentiate pure Australian oil from adulterated TTO originating in low cost countries. The ‘Pure Australian’ TTO logo has been registered as a trademark in key Australian export markets including the EU, US, China, Japan and UK.

Because TTO is used in both cosmetic and personal health care areas it rightly attracts the attention of regulatory authorities. To maintain market access in the EU the industry has needed to invest in product purity, safety and efficacy research. The need for more of this research to maintain access to the EU, and other important export destinations that take their lead from Europe, is needed between 2013 and 2018.

Tea Tree Industry Outlook

Supply and demand appears to have reached a profitable equilibrium in the TTO industry barring major MIS style investments in supply or game shifting breakthroughs in demand such as broad scale application of TTO in animal or human health. Legislation limiting the taxation benefit of MIS schemes is in place so Australian supply surges are relatively unlikely. A major breakthrough in demand in either human or animal health is a possibility.

Internationally, plantations have long been established in South Africa, Zimbabwe, Kenya, Indonesia and China. No concrete data is available on production from these sites. Industry estimates that they account for around 20% of total production. Of more concern than overseas plantation grown TTO is the adulteration of oil with low cost synthetic materials. Adulterated product can sell for half the cost of pure Australian tea tree oil ($15/kg), may include potentially harmful compounds, be ineffective and undermine the image of pure Australian TTO when consumers discover it doesn’t work. Marketing and research investment is needed to address this threat.

Appendix 5: Key Challenges for the Tea Tree Oil Industry (SWOT)

Table A5.1 sets out the SWOT analysis for the TTO industry garnered from the previous RIRDC R&D Plan, ATTIA’s Strategic Plan and industry consultation. The industry SWOT analysis has a strong emphasis on ‘researchable’ issues and is divided into: • Production – growing TTO • Post-harvest – distillation, efficacy, product safety and quality assurance (QA) • Markets – product information and market access • Industry building – communication, capacity building, extension and industry analysis.

Table A5.1 Tea Tree Oil Industry SWOT Analysis STRENGTHS WEAKNESSES Production Production • Breeding program and higher • Information on crop agronomy, water yielding seed use and control of pests is limited • Genetic resources are still largely (ATTIA 2012) Australian owned • Industry is experiencing input cost • Robust crop with an abundance of pressure suitable land • Can be grown on low value acid Post-harvest sulphate soils • Only a small volume of TTO is needed to meet many market applications (e.g. Post-harvest use in shampoos) • Australian TTO has a COP / QA • COP not recognised in overseas system in place that is supported by markets and quality control is growers and manufacturers inadequate • Oil extraction is clean, the product • Regulatory approval is lacking or is non-perishable and high value restrictive in many market destinations making it ideal for export for TTO (ATTIA 2012) • Continuity of supply assured, with • No education campaign for end users extra supply available within 18 to • Limited registration by the TGA and 24 months APVMA restricts use

Markets Markets • Oil is versatile with a wide range of • Multinational manufacturers are not value add. It is a pure, natural, clean TTO aware and green product • No clear concept of available or • Proven capacity to fight certain potential markets (ATTIA 2012) microorganisms - 1000+ papers • No data on prices for oil resold OS at demonstrating medicinal properties the wholesaler, manufacturer or retailer • TTO goes into high value products levels (ATTIA 2012) with capacity to pay e.g. cosmetics • TTO has lost its prestige and novelty • Growing market for tea tree trash as value due to increased supply a mulch • Information on formulation is limited • ATTIA has a sound understanding (i.e. what products TTO can be made of production, supply, sales, stocks into) and price at industry level • Systems in place for collection of Industry building export data from 2011 via the ABS • Ongoing need for industry leadership (covers an estimated 90% of sales) training and succession management • The industry is fragmented with differing agendas

Industry building • Communication within the industry is • Established and representative peak not always good industry body • Established research infrastructure and program OPPORTUNITIES THREATS Production Production • Continue to replant with high • IP protection to stop ‘leakage’ of yielding seed from the breeding improved genetics to overseas program competitors • Become a low cost producer • Production of TTO in low cost labour through R&D countries • Public funding for advisory services, Post-harvest R&D and extension is shrinking • Enhanced oil quality grading (ATTIA 2012) • Improved and new product formulations Post-harvest • Some comparative alternatives have Markets higher effectiveness for specific • Reduce cost of production to open ailments; TTO is a generalist rather up new markets than a specialist product • Invest in R&D to address presence/absence of methyl eugenol Markets in TTO • EU REACH legislation 2007 – a • Capitalise on interest in natural, comprehensive set of controls on clean green,’ scientifically backed chemicals that have the potential to products impact human health and the environment Industry building • Pure TTO may face regulatory • Improve consultation to increase challenges support for promotion, quality • Increasing availability of synthetic and standards and R&D. alternative natural ingredients • To succeed in achieving alternative (synthetics may be single molecule and funding support e.g. ARC, Clean more easily meet regulatory restrictions Energy Futures, Austrade • Low cost blends of OS product with synthetic oils that undercut pure Australian TTO prices

Industry building • ‘Bad press’ which deters consumers and manufacturers (ATTIA IDO has been effective in addressing negative publicity)

Key RD&E challenges revealed by the SWOT include: • Cost of production – keep low to ensure profitability and discourage counterfeiters

• Market development – create new uses and retain existing markets • Regulation – understand trends, current and emerging threats to TTO use and develop capacity to respond

• Communication and Industry Building

Appendix 6: Research Directions

To guide the direction of the 2013 – 2018 plan, the following analysis of the previous two TTO R&D plans was undertaken. Key parts of the analysis were prepared with input from RIRDC and ATTIA.

Performance Review of the 1998-2003 R&D Plan

Between 1998 and 2005 there were twenty four projects funded under the TTO R&D program. Projects addressed two objectives ‘Safety, Efficacy and Product Development’ and ‘Sustainable Production Systems’.

Objective 1: Safety, Efficacy and Product Development

Safety, Efficacy and Product Development projects included TTO use in human medicine in relation to: • Antibiotic resistant Golden Staph (2 projects) • Treatment of the common bacteria Pseudomonas areaeruginosa (1 project) • Anti-inflammatories and anti-itch uses (3 projects) • Anti-fungal preparations (2 projects) • Anti-viral use (1 project) • Topical antiseptic (1 project) • Skin sensitivity and immune response testing (3 projects) • Oral micro-organisms (1 project) • Cold sores (1 project) • Vaginal infections (1 project) • Compilation of the relevant TTO literature (1 project) • Wound care (1 project) • Review of TTO toxicity, safety and mutagenicity (2 projects)

Other projects addressed under this objective included: • Evaluation of TTO as an insecticide for vegetables (1 project)

Objective 2: Sustainable Production Systems

Three projects were funded in the first year of the first TTO R&D plan: • Breeding and cloning tea tree for greater profitability • Development of DNA markers for tea tree • Plant nutritional survey of the Australian tea tree industry

Aside from the first year of the first program, project activity between 1998 and 2005 was focussed on the use of TTO in human medicine.

Performance Review of the 2006-2011 R&D Plan

The goal and objectives of the 2006 – 2012 TTO R&D Plan are set out below.

Goal

To support the continued development of a profitable and environmentally sustainable Australian TTO industry that has established international leadership in marketing, value adding, product reliability and production.

Objectives

Objectives that drove investments in the 2006 – 2012 R&D Program along with supporting strategies were: 1. Enhancing production systems to maintain the competitiveness of Australian growers – breed high yielding tea tree varieties; protect the IP of Australian bred varieties; support the industry’s code of practice and brand to maintain Australia’s international reputation; support development of co-products such as mulch; and develop industry capital including enforcing the standard and training to support the code of practice. 2. Identify regulatory regimes and market barriers, and enhance the ability of industry to meet safety standards – identify and prioritise regulations relevant to traditional medicines, cosmetics, biocides, industrial and agricultural uses; fund R&D aimed at removing barriers; undertake generic safety / toxicology studies; and disseminate generic safety data to manufacturers to ensure appropriate handling. 3. Demonstrating proof of concept/efficacy for innovative applications of TTO – identify and support relevant projects, encourage manufacturers to use research findings on innovative use; and prepare and disseminate guidelines for new product formulations. 4. Fostering communication that increases understanding and thereby greater use of TTO – a database of TTO uses; research summaries and a ‘dossier of use’; educated on research outputs; develop a plan to communicate research results.

Most program investments addressed Objective 3 – new uses and innovative applications.

Projects Funded Under the Current Plan

Projects funded under the current plan allocated by Plan objective are shown in Table 4.1

Table A6.1 TTO R&D Projects Funded Since 2006 Project Title and Objectives Start Finish Researcher Number Year Year Enhancing production systems to maintain the competitiveness of Australian growers DAN-199A Breeding and cloning tea tree for 2006 2007 Trevor greater profitability Olesen, NSW DPI PRJ-000500 Improved tea tree varieties for a 2006 2010 Trevor competitive market Olesen, NSW DPI PRJ-003689 Highly improved tea tree varieties 2009 2014 Trevor to maximise profit – highly Olesen, NSW improved seed, maintain DPI established seed orchards, investigate insect resistant and frost tolerant varieties PRJ-005771 Improving the sustainability of 2010 2012 Peter plant protection in tea tree oil Entwistle production systems – pyrgo beetle North East control, broadleaf herbicides, Agricultural Services myrtle rust fungicide, risk of chemical residues, APVMA permits PRJ-000820 Diagnostic tools for quality 2006 2007 William enhancement in Australian Foley, ANU essential oil industry PRJ-002803 Genetic tools for improving tea 2008 2010 William tree oils Foley, ANU PRJ-005801 Genetic markers for yield 2011 2012 William improvement in tea tree Foley, ANU Identify regulatory regimes and market barriers, and enhance the ability of industry to meet safety standards CTM-1A Communication of the Tea Tree 2007 2007 Coretext Oil Safety Dossier Communicati on DAN-241A Quality assurance for tea tree 2005 2006 Ian oil safety investigative samples Southwell NSW DPI ISO-2A p-Cymene and organic 2006 2006 Ian peroxides, indicators of Southwell oxidation in tea tree oil NSW DPI

MSO-56-55 Review of the SCCP Safety 2006 2006 Philippe Dossier for Tea Tree Oil Masson EVIC France MSO-67-22 Review of the SCCP Safety 2006 2006 Howard Dossier for Tea Tree Oil Maibach Uni California, San Francisco MOT-1A Literature Review for Tea Tree 2005 2006 Jesper Bo Oil for SCCP Nielsen, Mercalli Overseas Trading Enterprise. UQ-124A In-vitro human skin penetration 2005 2006 Sheree of topically applied tea tree oil Cross, Uni of Qld UWA-89A Compilation of toxicity data for 2005 2005 Thomas tea tree oil components Riley, Uni WA GUI-1A Skin sensitisation: local lymph 2006 2007 Patricia (PRJ-819) node assay – assess the contact Bolster allergenic potential of TTO to support data request by SCCP USC-9A Stability testing of TTO – to 2006 2007 David Leach, determine changes in safety of Southern TTO as it ages. Data required for Cross Uni SCCP CIN-1A Preparation of a SCCP 2006 2007 John Issa, (PRJ-734) submission for TTO – European Cintox P/L SCCP had concluded that there was insufficient information available on TTO safety and stability SCF-1A Allergy to TTO: qualitative 2006 2007 Susi (PRJ-767) aspects and risk assessment – Freeman, patch testing Skin & Cancer Foundation Demonstrating proof of concept/efficacy for innovative applications of TTO PRJ-000451 Effects of TTO on biofilm 2005 2008 Christine formation – biofilms are Carson, Uni problematic everywhere from WA sewage treatment to colonoscopes PRJ-000822 Pilot study of TTO in the 2005 2008 Christine decolonisation of MRSA Carson, Uni positive wounds – ability to WA

eliminate MRSA, capacity to speed wound healing PRJ-000795 Fabrication of electronic 2006 2008 Mohan materials from Australian Jacob, James essential oils Cook PRJ-000002 Use of tea tree oil against 2006 2010 Lex Turner, buffalo flies in cattle – low QDAFF chemical, organic friendly solution (not effective) PRJ-000005 Effects of TTO on microbial 2007 2009 Kate adhesion – establishing efficacy Hammer Uni and new modes of antimicrobial WA action for TTO PRJ-002403 Microbial adaptation and 2008 2010 Christine tolerance to TTO – will TTO Carson, Uni work in partnership with WA antibiotics to increase their effectiveness PRJ-000009 Anti-cancer activity of TTO – 2007 2008 Thomas Riley, test on mice and investigate the Uni WA mechanism by which it works (stage 1) PRJ-002395 Anti-cancer activity of TTO – test 2009 2011 Thomas Riley, on mice and investigate the Uni WA mechanism by which it works (stage 2) PRJ-002334 Tea tree oil for control of sheep 2008 2010 Peter James, ectoparasites – sheep lice, fly QDAFF strike, provide data to support product registration for organic and conventional systems PRJ-003529 Can tea tree oil prevent the 2009 2011 Kate development of antibiotic Hammer Uni resistance? – staph and E. coli WA PRJ-005131 Anti-tumour mechanisms of 2009 2015 Manfred action and prophylactic activity of Beilharz, Uni tea tree oil – skin penetration WA capacity, anti-tumour efficacy, safety and side effects PRJ-003939 Use of tea tree oil handwash 2009 2011 Thomas Riley, products to remove bacterial Uni WA spores from hands – is TTO effective, how does it compare to other products UWA-100A Tea tree oil to prevent 2006 2008 Thomas Riley, staphylococcal infections in Uni WA dialysis patients – stage 1

PRJ-000459 Tea tree oil to prevent 2010 2012 Thomas Riley, staphylococcal infections in Uni WA dialysis patients – clinical data, dialysis catheters PRJ-006245 In vitro activity and clinical 2011 2013 Kate efficacy of tea tree oil products Hammer Uni against acne – compare to WA conventional treatments, develop formulations, test clinical efficacy Fostering communication that increases understanding and thereby greater use of TTO PRJ-004221 Tea tree oil communication 2009 2012 Tony project – QA system, web site, Larkman, research dossier ATTIA Source: RIRDC Research in Progress Reports 2012, 2011, 2010, 2009, 2008 and 2007 as well as Chudleigh and Simpson 2010

Industry’s Assessment of the Value of the Program Projects published since July 2006

From the perspective of the Tea Tree Oil industry, ATTIA members assessed the value of a selection of projects whose final report was published during the life of the previous plan (Table 4.2). The assessment of the project to the tea tree oil industry included the benefits that have already accrued plus those that are likely to flow to the industry in the future. For each project, ATTIA members assessed benefits as either: high (H), medium (M) or low (L). A summary of comments made by ATTIA members is also provided.

Table A6.2 ATTIA Assessment of the Value of Program Projects published since July 2006 Project Name Web link to Report Rank Comments (Press ‘Ctrl + click’)

Controlling Fly Strike https://rirdc.infoservices. H • Commercialisation is being and Lice in Sheep with com.au/items/10-190 progressed by IP owner Tea Tree Oil • Has the potential to create a useful new market for TTO Genetic Tools for https://rirdc.infoservices. M • Will generate markers for TTO Improving Tea Tree com.au/items/10-189 quality in longer term. Oils Improved Tea Tree https://rirdc.infoservices. H • The breeding program is the Varieties for a com.au/items/10-188 standout TTO R&D success Competitive Market (breeding) Use of Tea Tree Oil https://rirdc.infoservices. L • Project was poorly executed Against Buffalo Flies in com.au/items/10-148 • Concept has potential Cattle Anti-Cancer Activity of https://rirdc.infoservices. H • Positive research outcome for Tea Tree Oil com.au/items/10-060 mesothelioma and melanoma • Pharmaceutical companies can’t secure IP so won’t invest. • TTO has multiple active compounds that appear to work in combination • Further research required (currently beyond RIRDC scope) The Role of Tea Tree https://rirdc.infoservices. H • TTO value now well established, Oil in the com.au/items/10-006 no need for further R&D on Decolonisation of antiseptics MRSA Positive Wounds Effects of Tea Tree Oil https://rirdc.infoservices. M • Encouraging but needs follow up on Biofilm Formation com.au/items/08-140 work by the R&D program Antiviral Activity of https://rirdc.infoservices. M • Encouraging but now needs Tea Tree Oil (in Vitro com.au/items/05-130 funding from a major and in Vivo) (Aug 05) pharmaceutical company Tea Tree/Hydrogel https://rirdc.infoservices. • Useful research with application to Dressings for Use in com.au/items/05-114 the care of burns Wound Care

(European) Scientific Committee on Consumer Products (SCCP) Dossier The Effectiveness https://rirdc.infoservices.co H • In addition to these published and Safety of m.au/items/07-143 reports there were an additional Australian Tea Tree eight projects were completed Oil • This body of work was essential in p-Cymene and https://rirdc.infoservices.co H organic peroxides, m.au/items/06-112 order to retain access to the EU indicators of • TTO product manufacturers found oxidation in tea tree this R&D very useful oil (Sept 06) • Additional investment in meeting Quality assurance for https://rirdc.infoservices.co M the requirements of regulatory tea tree oil safety m.au/items/06-026 regimes will be required as part of investigative samples (Feb 06) the new plan Published and https://rirdc.infoservices.co M Unpublished Tea m.au/items/05-151 Tree Oil Literature (Sept 05)

Lessons Learned from Review of Research Directions

The following lessons are relevant to setting directions for the tea tree oil RD&E plan 2013 – 2018: • The tree breeding program is highly valued • Non-breeding production research has been limited to a nutrition survey and a plant protection project • The work on the SCCP dossier is valued and there is recognition that further research is needed • Product safety and efficacy has addressed oxidisation, toxicity, skin sensitivity, allergic reactions and methyl eugenol content • Early research has focussed on the use of TTO in human medicine • More recent research has addressed agricultural uses and a single industrial use for TTO • Much is now known about the antiseptic properties of TTO and further work is not required • Commercialisation of some innovative TTO uses is constrained by inability to secure IP protection • There is opportunity to develop innovative TTO uses through communication of existing research.

Tea Tree Oil Five Year RD&E Plan 2013 - 2018 By Michael Clarke Pub. No. 13/085

This is the third Five Year Research, Development and Extension (RD&E) Plan for the Rural Industries Research and Development Corporation Tea Tree Oil Program. The first plan covered the period 1998-2003 and was used to guide the program up until August 2005. The second plan covered the period 2006-2011 and was replaced by this document in June 2013.

This plan builds on the previous plans with a focus on the areas of RD&E that are of greatest potential value to the tea tree oil industry. The plan was prepared in consultation with the RIRDC Tea Tree Oil RD&E Advisory Committee and the Australian Tea Tree Industry Association.

RIRDC is a partnership between government and industry to invest in R&D for more productive and sustainable rural industries. We invest in new and emerging rural industries, a suite of established rural industries and national rural issues.

Most of the information we produce can be downloaded for free or purchased from our website .

RIRDC books can also be purchased by phoning 1300 634 313 for a local call fee.

Phone: 02 6271 4100 Fax: 02 6271 4199 Bookshop: 1300 634 313 Email: [email protected] Postal Address: PO Box 4776, Kingston ACT 2604 Street Address: Level 2, 15 National Circuit, Barton ACT 2600