History And Ancient Trade Of Herbal Medicines Economics Essay

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Herbal medicines or Herbalism is a traditional or folk medicine practices based on plants and plant extracts. [3]. These medicines are sold as tablets, capsules, powder, teas, extracts, and dried or fresh plants. Herbal medicines is a most important part of all the alternative medicine systems including Ayurvedas, Chinese traditional medicines, Siddha, Homeopathy, Naturopathy and Native American and African medicines. [4].

WHO estimates that almost 80 % of the world population especially in developing world used herbal medicines for various aspects of primary health care. [5]. Herbal drugs fills the vacuum that is growing day by day due to ever increasing costs of conventional medications and poverty ridden developing world, most of them lives on less than U.S $10/- per day[6]. Contrary to conventional medicines, herbal medicines can be manufactured from plants and plant extracts which can be easily procured therefore much cost effective than conventional pharmaceutics thus providing an alternative means of medical treatments for almost three quarters of the world population.

India and China are the two main exporters of herbal medicines in the world accounting for almost 15% of share of world herbal market. (China-13.5% and india-2.5%) [7]. According to WHO estimates, the present demand for medicinal plants is approximately US $80 billion a year and by the year 2050 it would raise to US $5 trillion[8]. These estimates indicate huge potential for growth in this sector of economy which is still unorganized due to various reasons even unidentified.

The competition faced by the herbal drugs is stiff and ever increasing from both conventional and recently developed modalities of treatment. The economics has grown from the Adam smith’s simple definition of economics of “science of wealth” to a more complex definition of marginal economics as proposed by Lionel Robbins in 1932 which says “marginal economics applies the principal and method of economics to analyze problems faced by management of a business, or other types of organizations and to help find solution that advance the best interest of such organization”. [9, 10]

History and ancient trade of herbal medicines

People have been using herbs growing around them for treatment of illnesses since pre historic times. One of the oldest evidence came from the “Ã-tzi Ice Man” lying frozen in Swiss Alps for almost 5300 years. He was found possessing two pieces of Birch bracket fungus, which he might be using to treat the whip worm infestation from which he was suffering [11].

In ancient world, probably the first documented evidence of herb use for medical purpose comes from Sumerians who used plants like caraway, thyme and laurel. Indian system of medicine, Ayurvedas, dates back to 1900 BC. [12]. Charaka and especially Sushruta described 700 medical plants in his book Sushrua Samhita. [13]. Siddha was another system of medicine which was developing in the same period in southern India (tamilnadu) [14]. Ancient Egyptian medicine also dates back to more than 1000 BC; they were expert in the use of garlic, opium, and mint and indigo among other herbs [15, 16]. Written documentation of Chinese medicine started with a mythological person known as Shennong, who according to mythology have tasted hundreds of medical herbs and poisonous plants and given his knowledge to farmers. The Shennong Bencao Jing (Shennon emperor’s classic of material medica) is considered first Chinese manual of pharmacology dating back to 1 century C.E. and contains 252 herbal prescription for various diseases [17]. Huangdi Neijing also called as yellow emperor’s inner cannon consists 81 treatises of Chinese herbal medicines in question and answers format between mythological yellow emperor and his physician Qibo[18]. The ancient Greeks and Romans also made great strides in the field of medicine and herbalism as preserved in the writing of great scientists like Hippocrates and Galan. De Materia Medica was the first European medical treatises on the use of medical plants written in Greek period. In first century AD, Dioscorides wrote a comprehensive book compiling more than 500 medical plants [19, 20]. Trading was flourishing in the ancient world with Sumerians were trading with Indus valley civilization (seals with inscribed Indus valley script found at excavation at sumeria) and people with southern part of India were braving seas to trade spices and other commodities including medical herbs with far away Greeks and later Romans.

In the medieval Europe, the monasteries have taken over the herbal medical science; they provided the medical knowledge and raw materials for the treatment of simple ailments. In contrast to the European world which was going through dark ages, the Arab world was bearing the torch of medicine, they built universities and first hospitals which were then known as Bimaristan .Al-dinawari and ibn al-baitar supplemented the earlier knowledge of materia medica [21,22] .Avicenna’s cannon’s of medicine (1025AD) was considered first pharmacopeia, he also introduced clinical trials, randomized control trials and efficacy testing [23]. One of the great reasons for the exploding growth of medical science in Arab world was their strategic location, which was almost the center of the known world and well connected to all important trade routes. One such route was silk route which connected china with rest of the world across the Thar desert. These trade routes gave the Arab physician means to get many rare plants and knowledge about medical science, which was supplemented with their own experience and thus producing some major advancement in the field of medicine.

Whereas in modern era two important events were marked, the first was the dominance of the English and publication of scientific knowledge including materia media of herbal medicine in English, the first to be published was the anonymous Grete Herball of 1526[24]. The other was the slow decline of the herbal and plant derived medicines and rise of chemical based therapeutics. This all started with “The Black death of Europe” when all the traditional medicines proved to be useless, so the scientists started exploring other fields for treating the ever increasing disease [25].

Need of herbal medicine in modern times

After losing ground for almost three centuries the herbal drug are again gaining their market. Herbal drugs are now emerging as the Need of the day. Since the industry has developed from manual to mechanize to specialized format, the pace of Research and Development in drug industry has increased many folds in the recent past, but this has severely compromised the quality as well as the cost at which a drug is being produced. According to an estimate it took almost US $ 1.2 billion to bring a drug to market, with 10 yrs of effective patent time, but in the race of earning maximum profits and to earn large market share, many pharmaceutical companies are rapidly introducing new products in their product line through little R&D and exploiting the patent knowledge of other companies. These competitive practices by the pharmaceutical firms resulted deep impact on the health of many people along with indicating the lack of corporate social responsibility among them [26]. The increasing cost of modern medicines further creates an opportunity for the herbal medicine to grab the market again, especially in the developing world. Adverse drug reaction and side effects of conventional medicines are another reason for need of less reactive and side effect free herbal drugs. However, not only these serious ADRs causes distress to the patient and make them to take more medicines to counter these ADRs but also increase the sickness leaves and bed occupancy rate in the hospitals , indirectly effecting the net productivity of the system in general and country in particular.

As most of the drugs of herbal origin are produced by local community or small scale industries, it helps revive recession hit economy and increases the employment opportunities at grass root levels, and hence increasing the opportunities from autonomy of local economy, which is especially true in the case of tribal and backward regions of developing countries of Asia and Africa [27, 28].

One of the most important and upcoming concern regarding modern pharmaceutical agents is the damage they cause to the environment both physical and biological. One of the dreaded examples of this concern is the death of the vultures due to over use of drug diclofenac sodium in the farm animals [29]. Pharmaceuticals not only damage the environment after use but even during the production, a lot of toxic liquids and gases produced as pollutants during manufacturing, processing, finishing and so on resulting air and water pollutions. Decontamination of these pollutants may further increase the indirect costs, a system has to pay for the manufacture of a product. Not only it damages the aquatic flora and fauna but also increases the incidence of drug resistance in human beings[30,31,32,33]. On the other hand, being biodegradable the herbal products do not give rise to any serious environmental concern.

Basic economics of herbal drugs

The success of any product at a given market is grossly governed by two simple factors namely demand and supply. Demand is the mother of production, and depends on desire to buy the product, ability to pay and willingness to pay by the consumer[34]. Unfortunately, the economics of herbal drug is not as simple as in case of the conventional pharmaceutical agents. Due to lack of a global standardization of various parameters, method for testing and production has enhanced the complexity in understanding the economics of herbal drugs many folds. Further economical, political and socio-cultural differences, lack of appropriate legal framework regarding the herbal products and different pattern of consumption across the world has become a biggest challenge while dealing this growing industry.

As the demand and supply law does not always holds true, the relationship become even more complex when the product is of inferior quality as in the case of the herbal drugs which are still considered to be below par then the conventional synthetic medicine. According to Robert Gissen(1837-1970), a British statistician, the inferior quality product always remains the secondary choice of the consumer. As the consumer grows and his buying power increases then they tend to shift from the lower quality to higher quality and in a way costlier products.

To hold on to the existing consumers and to make inroads into the market share of conventional drugs, the herbal medicine companies have to understand the consumer demand and preferences. The feedback data from the market research should be used to make futuristic planning and assessment of the areas requiring immediate attention and can be considered for a planned and thorough research and development work. Market research can increasingly contribute to the herbal medicine industry in securing competitive edge and the market space.

The market of herbal drug comprises of local, domestic, international and global stages. Value chain analysis shows the important players in different market systems.

Local market: Cultivator – Informal workshops – factories – subcontractor – contractor – wholesale market – retailers (local chemists and hospital pharmacies).

Domestic market: Cultivator – informal workshop – factories – subcontractor – contractor – wholesale market – middle men – retailers.

International market: Cultivator – local factories – subcontractor – contractor – large factories – series of middlemen – international retailer.

Global market: R&D through technical collaboration- global Cultivator – global sourcing – production sharing- global marketing [35].

However, it is not just the market players that influence the market economy of an industry but also the other related industries which combine to form the “meta market”. Meta market is defined as the cluster of complementary product and services that are closely related in the mind of the consumer but are spread across a diverse set of the industries [36]. These Meta market in case of the herbal industry are the related industries like pharmaceutical companies, raw material dealers, transportation companies, packaging industry, advertising companies, clinics and hospitals. The Meta market theory implies to the important fact that for the development of herbal industries as a whole other related industries must also have strong footing in the market. The economic development of an herbal drug is influenced by the economic condition of the domestic market as well as the global market (which includes the Meta market). The growth of domestic and global market in turn is also influenced by the each and every sector of economy including herbal drug industry. Interdependency of the market is also visible in “production sharing” in which different components of the same product are manufactured by different companies having best expertise, knowledge and price competitiveness. Production sharing, a term introduced by Drucker, refer to the practice of carrying out different stages of manufacturing of a product in several countries [37]. For example to manufacture and market a novel herbal drug, different stages of production can be shared by industries having competitive advantage in their respective fields like research, packaging, advertising etc., thereby cutting the cost and providing the best quality product to the consumer. Further, in order to achieve global recognition and up beat the conventional medicines, the herbal products must be required to be more consumer oriented, branded, innovative, present in various varieties, capable of curing minor to major diseases, must be appropriately priced as per the purchasing power of target group (penetration pricing), properly advertise and position in market, best in quality etc. Appropriate market plan based on product life cycle and market mix that is product, price, place, promotion can also help the industry to achieve competitive advantage over pharmaceutical industry.

Market trends and global scenario

Overall market is distributed evenly over all the continents. However the major trade centers are located at New York, Singapore, Rotterdam, Hamburg and London. The developing countries are playing the role of main exporters, India and China being most prominent whereas most developed countries especially the Europe and northern America are the main importers of the herbal products [38].

The main driving force for the market has two important factors, the first one being low cost and the other is the inability of the conventional medicine to cure the chronic diseases specially the diseases dealing with pain. From common cold to stroke, the herbal medicine is being used for almost every illness known to mankind [39].

Globally the collective market of herbal products is almost $ 85 billion of which $45 billion (25 lakh thousand Indian rupees) is alone the share of herbal pharmaceutics [40, 41]. Herbal pharmaceuticals are further divided into Medicinal and Aromatic plants, Medicinal and Vegetable Saps and Extracts, and Vegetable Alkaloids are having sufficient potential for high growth in future.

Asia is having almost 30 % of the market share in the global herbal market, with china leading its way globally, many of its companies have been manufacturing herbal drugs and earning huge profits, some even registered 40 %growth in financial year 2008[42].

India is second largest exporter of herbal medicines, and her market trade has passed the figure of $1.1 billion in the year 2004-05[43, 44]. The growth potential and economic prospects of the herbal market can be made out from the seriousness of the effort of the govt of India, which apart from the launching many schemes for developing the herbal medicine industry, has also created an department for alternative medicines, AYUSH, under the ministry of health[45].

Two other countries in Asia which are registering high growth in this sector are Indonesia whose market $ 970 million in 2009 as against $440 million in 2008 and Malaysia which clicked 15 %growth in herbal medicine sector and the market stands at 9 billion Malaysian rupees[46,47,48].

In South America, Brazil and Argentina has become the dominant player of herbal market, with Brazil’s herbal market growing more than 15% since 2008[49].

European countries are the biggest importers of herbal medical product. Germany is by far the leader in herbal industry in Europe having a share of almost 30 % followed by France [41].

United States of America posted a growth of 1%which may be seen as good in its recession hit economy. The market stands at $ 4.8 billion despite the slowdown [41]. Herbal medicines under the law are sold as food supplements rather than medicines in America. The people are tuning to herbalism mainly to stay healthy and for primary prevention of diseases. It is also being used for chronic ailments like back pain and joint pain. There is huge potential for growth in the herbal market in USA, as almost 38 % of adults and 11.8 % of children had used herbal medicines at least ones in their life [50].

There is a growing demand for the herbal medicines all over the world particularly in the developed countries. The conventional treatment is ineffective or less effective in many diseases; this is where the herbal medicine is scoring the points. The companies are investing huge amount of capital for the development of the drugs treating chronic and resistant diseases which include cancer, liver ailments, anti-aging drugs and also in manufacturing novel food supplements [51].

With the growth of mass media and easily available sources of knowledge, especially internet, and increasing cost of medical checkups, the common masses are now relying more on disease prevention and self medication giving further boost to the herbal industry.

Herbal drug as an industry

Sustained growth shown by the herbal industries is attracting good amount of investments. Many pharmaceutical companies are now diversifying and herbal medicine is becoming one of their core areas of the investment.

India and China are the two important centers of herbal drug manufacturing industries. India has a vast resource of raw materials and her traditional medicine practitioners uses approximately 7000 species of medicinal plants [52]. The major herbal plants being exported by India are fruit of amla (embelica officinalis), roots of milathi (glycyrrhiza glabra) and seeds of Asoka (saraca indica) [53]. Dabur India limited (Ghaziabad), the Himalaya drug corporation (Bangalore), Hamdard laboratories (Delhi) and Zandu pharmaceutical work ltd. (Mumbai) are the top Indian herbal medicine companies [53]. On the other hand, China also has huge resource potential with at least 5000 medical plants of different variety in use [54]. Ginkgo biloba is one of the top most plants being exported and Talsy pharmaceutical is one of the important company manufacturing herbal medicines in china [55].

Most of the herbal products are exported to the developed countries in the west. According to a survey Omega 3 (37.4 %), glucosamine (19.9 %) and Echinacea (19.9 %) are the three top most grossing herbal drugs in USA [56]. Similarly Ginkgo biloba has been in high demands in many European and American countries [55].

There has been a greater tendency of the conventional pharmaceutical companies to explore the herbal drug option, not only to expand their market share in profit making industry but also to boost the new drug discovery and allied research by gaining the knowledge in the herbal medicine system [57]. Companies are now patenting their products and making profit by either marketing the product themselves or selling it to other major players. Words like acquisition, outsourcing and joint venture are becoming common in the global herbal market. Companies like Ranbaxy were among the first to announce the induction of herbal drugs in their product list [58]. Pfizer announce the joint venture with a British herbal company for the manufacture and marketing of an anti-fat pill as early as 1998[59]. But the watershed point in this trend came when leading British herbal drug company, potter’s herbal medicine, was acquired by the Swiss pharmaceutical giant Galenica limited in a whooping $970 million deal [60]. This trend again gained momentum when Danish medical tycoon, Erik Sprunk-Janser bought the exclusive rights to 25 herbal products from traditional Arabic medicine system [61]. Overall the professional approach of the more experienced pharmaceutical industries brought two important gains in herbal medicine market, first they gave the herbal drugs more exposure to diverse medicinal markets and increased the coverage by much needed advertisements and secondly the provided capital for research and standardization of the herbal preparation.

The annual turnover of major system of medicine in India, namely Ayurvedas, Siddhas and Unani, is estimated to be more than one billion dollars [62]. The gap between the demand and supply is ever increasing and is expected to rise from the present value of 2 lakh tons to 4 lakh tons in five year time [63]. This supply and demand gap creates fertile ground for the setup of manufacturing industries including small and medium manufacturing units. On one hand, the increase of units would create employment; on the other hand it will help in growth of allied industries including cultivation, processing, packaging and transportation.

This huge investment potential should be boosted by some concrete steps on the part of the government. One such step that is needed is the policy making and introducing laws in relation to the manufacture and standardization of the herbal drugs. Indian government has taken many steps in the development of herbal market, creating a full-fledged department of AYUSH for dealing in the herbal and traditional medicines, enforcing laws for proper manufacturing, testing and prescribing the herbal drugs. Many entrepreneur developing programs to motivate and assist them in the form of loan and additional knowledge for setting up of small scale industries are a few to count on [64].

Rate limiting steps in the development of herbal industry

With all the euphoria around the herbal industry, there are some grey areas which are holding back its growth. One of the most important negative feedback has come from the most unexpected quarters, which is the risk and the side effects associated with herbal drugs. The Ayurvedic drugs are being increasing criticized for the use of heavy metals including lead, arsenic and thallium well above the safety limits, in their prescription, which may be leading to heavy metal poisoning [65,66]. Some of the herbal plants like Saint John’s wart have been implicated for some very serious side effects. There is also growing concern about the drug interaction that may be there with other medications, synthetic as well as natural. Saint Johns’ Wart and ginkgo biloba are classical examples of such drug interactions, Saint John’s Wart is found to be interfering in the functioning of drugs like warfarine, estrogen preparation and theophylline [67]. Similarly ginkgo balboa is found to be interacting with paracetamol, aspirin and warfarin [68, 69]. Microbial contamination and adulteration with harmful substances also increases the suspicion there by producing hysteria among general population [70,71].

To overcome these constrains guidelines have been formulated for proper standardization and manufacture of these drugs. Some of the points included are

1) Scientific cultivation and proper identification of the medicinal plants by qualified botanists,

2) Processing the medicinal plants and their extracts in a scientific manner,

3) Isolation of the active chemical principal and characterizing its properties,

4) Proper pharmacological studies and preclinical and clinical trials before introducing the drugs into the market and post marketing surveillance,

5) Proper documentation of the research. [72]

However in order to ensure the growth and development of herbal industry, formulation of an international and national policy and laws regulating the use, prescription and manufacturing of herbal drugs are also required. Today only a few countries have such laws in place. Government would further help this industry through, tax rebates, low health insurance etc in developing a potential product.

Regulation and policy regarding herbal medicines [73,74,75]

The legal status of the herbal medicines varies from country to country. It is regarded as an established medicine in some countries but in others it is still considered as food. So the policy and regulation of the herbal medicines are required-

To facilitate the integration of traditional medicine into national health care systems;

To promote the rational use of traditional medicine through the development of technical guidelines and international standards in the field of herbal medicine and acupuncture;

To act as a clearing house for the dissemination of information on various forms of traditional medicine.

As it was recognised that a huge chunk of the population still relies on the traditional medicines for their primary health care needs, WHO as the parent body started taking steps to integrate the traditional and herbal medicinal system to the conventional system. The initial step came with Alma ata declaration in 1978, which recommended inclusion of proven traditional medicines into national drug policy and regulatory measures. The policy of the WHO regarding traditional medicine was presented in the Director- General’s report on Traditional Medicine and Modern Health Care to the Forty-fourth World Health Assembly 1991, which stated that “WHO collaborated with its Member States in the review of national policies, legislation and decisions on the nature and extent of the use of traditional medicine in their health systems.” Herbal medicines have been included in the International Conference on Drug Regulatory Authorities (ICDRA) since the Fourth Conference in 1986. A WHO consultation in Munich, Germany, June 1991, drafted Guidelines for the Assessment of Herbal Medicines which was adopted for general use by the Sixth ICDRA in Ottawa, October 1991. These guidelines define basic criteria for the evaluation of quality, safety and efficacy of herbal medicines to assist national regulatory authorities, scientific organizations, and manufacturers to undertake an assessment of the documentation, of submissions and/or the dossiers in respect of such products legal status:


India has almost 291,000 traditional medical practitioners has a well framed legal system. The traditional medicines are regulated by the Drugs and Cosmetics Act of 1940 and the Drugs and Cosmetics Rules of 1945. No products derived from traditional systems may be manufactured without a licence from the State Drug Control Authorities. Patent and proprietary medicines derived from the traditional systems must contain ingredients which are mentioned in the standard books and Pharmacopoeias of that medical system.

A drug is defined as being safe if it causes no known or potential harm to users. There are three categories of safety that need to be considered:


Category 1: safety established by use over long time

Category 2: safe under specific conditions of use (such herbal medicines should preferably be covered by well-established documentation)

Category 3: herbal medicines of uncertain safety (the safety data required for this class of drugs will be identical to that of any new substance) [75].


Traditional Chinese medicine (TCM) has a long history of more than 4 000 years. The Chinese Materia Medica is one of the most extensive sources of literature on medicinal plants. With regard to their legal status, herbal medicines in China are considered as medicinal products with special requirements for marketing, for example a quality dossier, safety and efficacy evaluation, and special labelling. New drugs have to be examined and approved according to the guidelines provided by the Drug Administration Law, which also grant an approval number to the new drug. After that the final product is marketed. The Drug Administration Law of the People’s Republic of China was enacted on 20 September 1984, which encourages the simultaneous development of both traditional and modern medicine. The drug manufacturing enterprise, Article 5 states that “It should be staffed with an adequate number of pharmacists or technical personnel with a title equivalent to or higher than associate engineer and skilled workers adaptable to the scale of drug production”. Article 31 states “The sale of medicinal plant materials newly discovered or introduced from abroad is not allowed unless it is approved by the health bureau of the province, autonomous region or municipality” “A new drug will be approved for clinical use and a licence issued by the Ministry of Public Health, if the clinical trial or clinical verification has been completed and an appraisal of its efficacy has been made.

Owning to “Pursuant to Articles 21 and 22 of the Drug Administration Law”, on 1 July 1985, the new TCM drugs are classified under five categories:

Category 1

Artificial imitations of TCM herbs;

Newly discovered medicinal plants and their preparations;

Single active principle extracted from TCM plants material and their preparations.

Category 2

Chinese medicinal herbal injections;

Parts of TCM medicinal plants newly employed as a remedy and their preparations;

Non-single components extracted from TCM and natural plants and their preparations;

TCM materials obtained by artificial techniques in vivo and their preparations.

Category 3

New TCM preparations;

Combined preparations of TCM and modern medicine in which TCM medicine is the main component;

Cultivated material which traditionally is imported.

Category 4

New dosage forms or new routes of administration of TCM drug;

Materials introduced from other parts of the country and those for cultivation instead of harvesting in

The wild.

Category 5

TCM products with new and additional indications.


The Directorate of Traditional Drug Control was established under the Directorate General of Drugs and Food Control of the Ministry of Health in 1975. Since than the government has set many guidelines for traditional medicines regarding:

Production, distribution and labelling of traditional drugs;

Procedure for registration of traditional drugs and imported crude drugs;

Licensing of traditional drugs and imported traditional drugs; and

Control requirements, such as for a production code, labelling and advertisement

Traditional drugs foreign origins are not permitted to be imported into Indonesia, except in special cases when a licence was granted. The Directorate General of Drugs and Food Control has published the “Indonesian Farmacopea” and six volumes of the “Materia Medika Indonesia”. These publications discuss the formal requirements for crude herbal drugs and give further information about local name, section microscopic drawing, crude drug powder and a crude drug colour picture.


The share of herbal medical drugs is almost equal to 10% of the whole pharmaceutical industry in Germany in 1989. According to a study conducted by Allensbach Institute

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