The North American Market for Natural Products

By: Kerry Hughes and Josef Brinckmann ITC Consultants Date: 26th September 2011

What Looks More Healthy?

or

Overview-Key Trend: Super Foods

According to Nativas (a marketer of Super Food Products) President, Zach Adelma:

[The] appetite for international food combined with the growing trend for healthier organic options is fueling the popularity of organic 'power foods' from around the world

Overview-Key Trend: Super Foods

By reintroducing ancient, natural foods to the western world, Navitas Naturals is expanding the functional food category and providing options with more bio-available essential nutrients, vitamins and minerals than most supplements and chemical extracts."

Market Brief Structure

Sections:

1. Market overview 2. Product descriptions 3. Market access 4. Prices 5. Distribution channels 6. Supplier qualifications 7. Packaging and labelling 8. Sales promotion 9. Market prospects for exporters

1. Market Overview - The economy and the

natural foods market
Key Trends Predicted by Food Flavor and Ingredient Outlook 2011 Report:
Flavors from Around the Globe- ethnic foods and flavors, providing interest without taxing smaller food budgets Sustainability- greater use of natural, organic, local and antibiotic- and hormone-free ingredients & these are connected to more holistic lifestyle Wellness Overhaul- food will get more attention as the foundation of health & Better integrated into lifestyle with wellness Plethora of Produce- vegetables will move into the center of the plate and meals more focused on vegetables Flavor & Ingredient Crossovers- crossover of sweet and savory in recipes Satisfying Sweets- Agave syrup, due to its low-glycemic appeal, will continue to grow in popularity, as well as extracts made from Stevia leaf. Superfruits, such as blueberries and pomegranates, will grow in popularity

1. Market Overview - The economy and the

natural foods market

American consumers are more engaged than ever in managing their health through food in hopes of curing what ails them or preventing ailments to which they are susceptible, says Kimberly Egan, CEO of CCD. Many of these curative foods have roots in ancient times, and have been consumed by cultures around the world for centuries.

1. Market Overview - Market Channels

Dietary/Herbal Supplement
In the US - Regulated by FDA as a subset of food products. FDA Notification required. In Canada, these products are called Natural Health Products (NHPs) and regulated as drugs requirement pre-marketing authorization.

Food & Functional Foods (Superfoods fit here)

Regulated as Foods by FDA, or by Health Canada - Need to satisfy safety regulations of Foods. No Official Definition of Functional Foods or Super Foods on either market

Cosmetics & Body Care

In US- Federal Food, Drug & Cosmetic Act (FD&C Act) and Fair Packaging and Labeling Act. There are non-drug cosmetics and drug cosmetics. In Canada-Health Canadas Cosmetic Program (through various acts).

1. Market Overview - Market Channels

Botanical Drugs
In US- some of the top-selling herbal products are OTC drug products (e.g. psyllium- and senna- based laxative drugs) sold mainly in pharmacies. And a wide range of herbal homoeopathic drug products are sold in health and natural foods stores placed right alongside herbal dietary supplement products. In Canada- botanical drugs (herbal medicines) require product license application and pre-marketing authorization under the Natural Health Product regulations.

Pet Foods
In US- regulated similar to other animal feeds-no premarket approval needed, but need to be safe. In Canada- there is the Specified Risk Materials (SRM) list.

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3. Market Access - sanitary & safety regulations

GACPs (Good Agricultural & Collection Practices) not legislatively mandated but buyers may inspect and qualify harvest sites according to a specific GACP Standard. GMPs (Good Manufacturing Practices) GMP compliance is mandatory with different sets of GMPs for different types of products (e.g. cosmetic, dietary supplement, food or homoeopathic drug) Bioterrorism Act requires registration of foreign facilities and prior notice of imports to FDA Phytosanitary Certificates required by USDA for shipments of plants and plant parts. Food Color Certification Natural colors of plant origin are exempt.

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3. Market Access what about new ingredients?

Dietary Supplement if the substance was not in U.S. commerce prior to 15 October 1994, a New Dietary Ingredient (NDI) submission to FDA is necessary. Drug if the substance is not already classified by FDA as Generally Recognized as Safe and Effective (GRASE), a New Drug Application (NDA) would be necessary. Food if the substance is not already classified by FDA as Generally Recognized As Safe (GRAS), it needs to be affirmed as GRAS for its specific intended use as a food.

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3. Market Access - Quality Requirements

Supplier Qualifications Under GMP rules, buyers can purchase only from
qualified suppliers. The QC Unit should be responsible for qualifying suppliers.

Specifications Under GMP rules, specifications are required to test identity,

composition, quality and purity. Dietary supplement and food products can have food-grade specifications. Pharmacopoeial quality standards are voluntary for dietary supplements but mandatory for herbs used as actives of drug products.

Monographs There are FCC and NF monographs available for food quality
standards and USP monographs for both dietary supplement and drug quality specifications.

Canadas NHP Compendium of Monographs Quality standards

accepted for NHP active ingredients include BP, PhEur and USP monographs.

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3. Market Access - Emerging Ecological and

Social Certifications / Labels
Fair Trade (including FLO Fairtrade, FWF FairWild, and IMO Fair for Life Fair Trade Certified) Organic (NOP or Demeter) Rainforest Alliance Whole Trade Guarantee (Whole Foods Market)

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5. Distribution Channels - Understanding Supply

Chains
Direct-to-Consumer:
Producer Consumer

Direct:
Producer Manufacturer Retailer

Less Direct:
Producer Processor Manufacturer Distributor Retailer

Indirect:
Producer Processor Exporter/Port Importer/Port Distributor Contract Manufacturer Retail Consumer

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5. Distribution Channels - Successful models for

foreign natural ingredient suppliers in the US market
Difficult to succeed in the US market without maintaining a strong presence inside the US, including sales, marketing, warehousing, technical support, etc Without own warehousing or sales/marketing operation, still possible to succeed through strategic relationships with well-positioned US company. For example, by granting the American company exclusive rights to distribute and market your brand of natural products to the US market. This could occur under your brand, or co-branded or under their established brand.

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5. Distribution Channels - Succeeding in the

Supply chain- Finding the right partner or adding value

Increasing Sales, or Increasing Margin Consider that Finding the right partner and investing in this relationship may be a more valuable use of time

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8. Sales Promotion natural ingredients

Supply Side West
Las Vegas, NV 10-11 October 2011

engredea Ingredients & Innovation

Anaheim, CA 9-11 March 2012

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8. Sales Promotion finished products

Natural Products Expo West

Anaheim, CA 9-11 March 2012

Natural Products Association Marketplace

Las Vegas, NV 15-16 June 2012

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9. Market prospects for exporters

Identified by Market Brief 2011
1. Stable prospect for herbal medicines/dietary supplements Growth has now slowed considerably market maturation, and increase in regulations and enforcement. Dietary supplements in the US have proven to be recession-proof, as the older baby boomer generation have favored them as a way to stay healthy compared to prescription drugs and preventable medical procedures particularly true for supplements that have been found to be effective for specific gender- and age-related conditions

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9. Market prospects for exporters

Identified by Market Brief 2011
2. Growing Prospect for Super Foods Super foods are particularly popular among the younger generations (those 18-29 in the US) Group with a some discretionary income Remained the most optimistic about the future of the economy throughout the recession More likely than other generations to say they like to try out new foods and drinks

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9. Market prospects for exporters

Identified by Market Brief 2011
3. Growing prospect for interesting oils Top sellers in the US and Canadian market is DHA and other omega-3 fatty acids Among the Peruvian natural products, sacha inchi is showing the most potential in this area, however, issues around source, stability and pricing have not yet been well established it may be possible to reposition sacha inchi oil with a qualified health claim if product can be shown to meet the specified omega-3 fatty acids content requirements for the allowed claim.

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9. Market prospects for exporters

Identified by Market Brief 2011
4. Growing prospect for sustainable & ethnical Certifications, such as Fair Trade, combined with organic High area of market growth (especially for Fair Trade coffee, chocolate, cosmetic (cocoa butter), ice cream, spice and tea brands). Fair Trade (& other Social Certifications) also provide opportunities for producers, guarantees of higher prices or premiums in the market, along with good working conditions for farmers or farm workers in the supply chain and long-term relationship building with caring buyers in the U.S.

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Peruvian / South American Botanicals with High Interest

Camu Camu a juice, super food, functional food and dietary supplement (for its Vitamin C content, antioxidants, and anti-inflammatory properties), and perhaps in cosmetics (the seed oil or fruit pulp extract), or as a natural color or flavor Cupuau juice, super food, functional food and dietary supplement (for its antioxidants), and perhaps in cosmetics (the fruit pulp extract), or as a natural flavor Lucuma juice, super food (for its nutritive content, including fiber, vitamins and minerals), functional food and dietary supplement (for its antioxidants), and perhaps in cosmetics (the fruit pulp extract), or as a natural flavor Sacha Inchi super food (as the nut), functional food and dietary supplement (for its omega-3 fatty acid content), and perhaps in cosmetics (the oil) Maca super food (as a powder), functional food (in various potential forms), and will continue to have a market for its dietary supplement use Chia super food (as the seeds or oil), functional food and dietary supplement (for its omega-3 fatty acid content), and perhaps in cosmetics (the oil)

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Key Concluding Thoughts

Exciting time for Botanicals on North American Market, as Consumers interested in exotic new foods & flavors, increasing healthy attitudes However, also stricter scrutiny by consumers and government: safety requirements, sustainable and eco-social demands, and stronger evidence needed to support claimed benefits To reach market, will have to score well in all these areas, and prove efficacy through clinical research