Author: Trevor Yahn-Grode Published: 7/27/2020 New Frontier Data
While the potential of the North American hemp fiber industry is massive, many of the most talked-about applications remain years away from becoming practical realities. Currently, the North American fiber market is characterized by a lack of processing facilities, a lack of raw fiber supply, expensive products, dubious access to capital, and a lack of consumer education about hemp’s non-ingestible applications.
Lack of Processing Facilities
Though more are in construction for the next harvest season, there are currently no more than 10 operational hemp fiber decortication facilities in North America. The barriers to erecting a fiber processing facility are significant, with decortication machines alone costing between $900,000-$5 million apiece. Decortication is not the only step in the fiber processing value chain, however. Once decorticated, hurd must be cleaned and sorted, while fiber requires extensive wet processing capabilities which can cost tens of millions of dollars to install.
Furthermore, all of that assumes a sufficient supply of raw hemp to sustain a processing facility. Even a small facility capable of processing 1.5 tons an hour, for example, would annually require no less than 6 million lbs. of stalks to be profitable. Likewise, due to the logistical difficulty of transporting raw hemp stalks, a fiber processor can only afford to use hemp grown within 75-100 miles of their decortication facility. That means that decortication facilities are likelier to spring up only in areas of the country already producing a significant amount of hemp.
Lack of Raw Fiber Supply
Often described as a “chicken-or-egg” situation, the lack of processing facilities is accompanied by a lack of acreage being dedicated to hemp fiber cultivars. While it is possible to process the leftover stalks from CBD or grain production, fiber production is much more economical and viable when utilizing fiber-specific cultivars. This is because fiber cultivars can produce much longer strands of fiber, which are stronger and have more valuable market applications than do short fibers, and because the amount of fiber yielded by these cultivars is significantly higher than either CBD or grain cultivars.
Hemp fiber, while still significantly more profitable than corn or soy farming, pales in comparison to the potential returns of a CBD crop. Farmers are reluctant to risk growing a new crop in an unproven industry without the promises of CBD’s profitability. Until there is a network of established fiber processing facilities which can guarantee prices to farmers, fiber acreage will continue to be insufficient to meet demand.
One of the most important factors currently restricting the Hemp fiber market is its high price relative to synthetic or other natural fibers. Most hemp fiber used in manufacturing in North America currently comes instead from Europe, with the U.S. importing more than 100 million pounds since 2015. Already at a disadvantage because of its relatively small scale, the cost of shipping low-density hemp fiber and hurd across the Atlantic has further eroded hemp’s attractiveness as a raw material. While scaling domestic production will eventually relieve prices, until there is a consistent domestic supply of quality hemp fiber in North America, manufacturers will have little incentive to utilize it in their products.
Access to Capital
Due to the 81-year-long U.S. prohibition of hemp cultivation, all existing hemp fiber processing facilities were decommissioned, and now the entire supply chain must be rebuilt from scratch. Fiber processing facilities require significant amounts of capital to build infrastructure and contract acreage. Full-scale hemp fiber processing plants – such as HempFlax’s Romanian facility – can cost upwards of USD$15 million to get off the ground, and may take years to become profitable.
Amid the COVID-19 global pandemic, where access to capital has become scarcer, the North American hemp fiber market is at serious risk of delayed development. With no track record of sales or credit, fiber processors will need to secure large amounts of capital from private investors to stay solvent.
Considering these facts, the North American hemp fiber market is likely to develop piecemeal as the capacity and quality of the fiber supply chain slowly ramps up. All hemp fiber processing facilities are not created equal, and just because a facility is capable of decorticating hemp into fiber and hurd does not mean that it can achieve the quality standards necessary for more advanced products. As such, different hemp fiber products will become viable at different times as the amount and quality of hemp fiber being processed increases.
The first wave of hemp fiber products likely to take hold in the market are those which require the least amount of processing. While fiber processors work towards increasing scale and creating new markets for emp fiber, they will need dependable markets to offload the fiber and hurd which they process. The lowest-hanging fruits for those processors include the following products:
- Animal Bedding
- Animal Litter
- Mulch & Biochar
- Wood Substitutes
- Plastics Additives
One example of a first-wave product that has already gained a foothold in the market is HempWood: A Kentucky-based company manufactures wood substitutes for use in construction and home renovation. Unlike other hemp-based construction materials, HempWood does not require decorticated materials to manufacture, opting instead to press whole, un-decorticated Hemp stalks together with a soy binder to imitate the properties of traditional lumber.
Products that require superior scale or quality will have to wait until the hemp fiber supply chain becomes more robust. Once a network of decortication facilities has been established, it will become easier for processors to ramp up acreage and focus on achieving quality standards.
Hemp paper products – even if they remain a small specialty niche – will require tens of millions of pounds of hemp annually, especially if pulp and paper giant Georgia Pacific continues with its plans to launch a line of sanitary products made from hemp. Construction materials – such as hempcrete and particleboard – will need time to be thoroughly tested and adopted into building codes, but once are they can be manufactured cheaply and easily almost anywhere. Such products include:
- Paper & Pulp
- Nonwoven Geotextiles/Matting
- Nonwoven Insulation
- Fiberglass substitutes
Since both wave-1 and wave-2 products have such low processing requirements, they are likely to develop into commodity products dominated by regional processors.
The third wave of hemp fiber products represents a fully matured industry. Those are products which require highly specialized manufacturing processes, along with large, continuously available amounts of hemp fiber to produce. Unlike wave-1 and wave-2 products, wave-3 products are unlikely to develop as commodities, and will instead be dominated by highly specialized, niche companies. Such products include:
- Industrial and Consumer Textiles
- Automotive Components
The potential of hemp as a natural fiber remains significant, but due to the economics of fiber processing it is unlikely that the industry will emerge as quickly as has the CBD industry. In order for the hemp fiber supply chain to reach the scale and quality necessary for major manufacturing applications, the industry will need to secure large amounts of capital for infrastructure, develop relationships with established manufacturers to utilize hemp in their products, and find ways to increase the price competitiveness of hemp relative to other natural or synthetic fibers.