Organic foods have become an integral sector in the food industry’s ongoing strategy to crack the growing health and wellness market. Large retailers such as Target and Wal-Mart have announced that organic foods are a new core focus, while the 200 new products in Safeway’s “O” brand racked up first year sales of $162 million, according to chairman and chief executive officer Steven Burd. New offerings by consumer-branded food companies such as Kellogg’s and Bertolli have recently reached the market, and new organic entries in the food market arrive on shelves every week.
Yet, organic food sales at retail still only represent 3% of total retail sales in 2006, according to the Organic Trade Association’s (OTA) “2007 Manufacturer Survey.” If so, why is there such excitement about organic foods? This same survey noted that sales grew 22.1% in 2006—a very impressive number compared to the relatively anemic overall growth of retail food sales. Organic sales have notched 20% increases since 1990, and growth shows no signs of slowing. “These preliminary findings verify organic product sales to be a shining star in the marketplace, and we expect strong growth in 2007 as well,” says Caren Wilcox, OTA’s executive director.
This continued strong consumer demand has created unique opportunities for consumer-branded companies and retailers to develop new branded organic products, but it has also created unique challenges for formulators. New organic ingredients are coming to market, but the use of synthetic and non-organic ingredients is limited. Therefore, the product formulator must work with sometimes severe restrictions in ingredient choices. An understanding of the organic supply chain and the unique regulatory environment for organics is critical for supply security and success for organic products in the marketplace.
A Process-based SystemOrganic is a processed-based system, which means that organic materials must be derived from crops that are grown according to strict agricultural practices. These practices do not allow the use of synthetic pesticides, herbicides or fertilizers for a period of three years; prohibit the use of genetically modified crops; and do not allow the use of sewage sludge on crops. In addition, the farm and the individual crop in production must be certified by a USDA-accredited certifier as using an acceptable organic handling plan.
Processed foods have additional restrictions. They must be manufactured in a certified facility; must not use prohibited processes such as irradiation; and the ingredients must be certified organic or be specifically allowed for use in organic foods. These substances are listed on the so-called “National List of Allowed Substances” in organic.
Labeling RegulationsThere are essentially four product labeling schemes in organic, according to the USDA:
It is critical for formulators to keep these restrictions in mind, as sourcing and ordering “organic” ingredients is more complex than ordering conventional ingredients using an ingredient specification as a guide.
Agricultural vs. Non-agriculturalSubstances used in organic are divided into agricultural materials and non-agricultural (processed) ingredients. These materials are treated separately in the regulations.
Agricultural materials are defined in the regulations as: “Any agricultural commodity or product, whether raw or processed, including any commodity or product derived from livestock that is marketed in the U.S. for human or livestock consumption.” In other words, agricultural commodities such as corn, wheat, milk and meat are agricultural materials. If these products are commercially available, they must be used to formulate organic products. Only those items listed in 7CFR206.606 as non-organic agricultural materials not commercially available as organic may be used in organic foods as of June 9, 2007. This is a recent change in the regulation that must be noted by product developers. Prior to this date, determination of commercial availability of non-organic agricultural materials was performed by the certifier. Substances that are deemed to not be commercially available as organic must be petitioned to the National Organic Standards Board (NOSB) and then must be added to the list by the USDA before they may be used. Recently, many new substances such as natural colors, fish oil and fructo-oligosaccharides were proposed as additions to the list in order to meet the deadline.
Non-agricultural substances are defined in the regulation as: "A substance that is not a product of agriculture, such as a mineral or a bacterial culture that is used as an ingredient in an agricultural product. For the purposes of this part, a non-agricultural ingredient also includes any substance, such as gums, citric acid or pectin, that is extracted from, isolated from or a fraction of an agricultural product, so that the identity of the agricultural product is unrecognizable in the extract, isolate or fraction.”
These substances, which include natural flavorings, are listed on 7CFR205.605 as natural and synthetic substances allowed for use in organic foods. These non-organic ingredients must meet the criteria that they are derived from crops that have been grown organically, so they must be from non-GMO crops and crops that have not used sewage sludge. All ingredients in a multi-ingredient formulation must be on the National List; therefore, carriers, flow agents and other processing aids must also comply with the organic regulations. These ingredient mixtures are often described as “organic-compatible” or “organic-compliant.” It should be noted that when these materials become available in organic form, the organic form must be used. Many organic starches and gums, for example, are available in certified organic form, so they must be used in the product formulation as organic.
Supply IssuesGiven the strict certification and regulations in an extremely competitive marketplace, it is imperative for product formulators to plan ahead when sourcing organic materials. “Organic sourcing is very different from conventional materials because it requires 12 to 18 months’ advance planning to avoid spot buying on the open market,” notes Bill Wolf of Wolf Demotte and Associates, an organic consultancy that is experienced with organic supply security and regulatory issues.
Most organic commodities are purchased under contracts for growing and production. This is due to the competitive supply environment and long lag period (three years) in converting conventional land to organic production. Because of the growth in the market, some products such as dairy products and meats have been in extremely short supply, as they are also dependent on the availability of organic feed for the animals. The dairy supply is expected to ease as more organic farms come on-line, but processed dairy products like butter and cheese will lag behind the milk availability, as these are secondary markets to fluid milk.
Other agricultural crops, such as yellow corn, have been affected by the burgeoning market for biodiesel. Farmers are getting more money to grow corn for biodiesel and thus have been less willing to switch to organic production. Both organic and conventional corn prices have risen rapidly in the last year as a result.
Product developers should be aware of supply issues when developing new products. For example, organic peach salsa may be a great product concept, but the product may go out-of-stock or experience skyrocketing costs if a crop failure of organic peaches occurs. It often pays to diversify commodity supply from other hemispheres with some crops in order to hedge against such an occurrence.
International IssuesIngredients may be sourced from many different countries, but it should be noted that the U.S., Europe, Japan and, most recently, Canada, have their own and often conflicting regulations. It is imperative to make sure that the ingredients that are sourced are certified by a USDA-accredited certifier (www. ams. usda.gov/nop/CertifyingAgents/Accredited. html) as compliant with the U.S. National Organic Program (NOP). Organic ingredients sourced from developing countries (such as China and India) should be scrutinized closely as well. Due to extensive environmental pollution, some ingredients may contain unacceptably high levels of residual or banned pesticides or heavy metals.
Food marketers should be aware that products developed for international markets or for export are subject to potentially conflicting regulations. “There are different compliance requirements to sell into each market, so you need to be aware of which markets the product may be sold into,” Wolf states.
Sourcing TipsThis is a summary of some tips for product developers to help navigate the organic supply chain and help with organic sourcing:
ResourcesMost of the larger ingredient suppliers are becoming familiar with the issues involved in formulating organic products, so feel free to ask questions and use them as resources. Many of the existing ingredient sourcing manuals, such as the Food Master (www.foodmaster.com), provide separate listings of organic ingredients. Be sure to verify that the ingredients listed are NOP-compliant or compliant with the specific international regulations if marketing outside the U.S.
The Organic Pages Online (www.theorganic pages.com/topo/index.html) is a free resource provided by OTA. It is designed to provide users with a quick, easy way to find certified organic products, producers, ingredients, supplies and services offered by OTA members, as well as items of interest to the entire organic community. Food formulators should bookmark this as a favorite website, since it a valuable resource for all types of suppliers affiliated with the organic industry.
A new website announced in May 2007 by the OTA is How to Go Organic (www.howtogoorganic.com). It is a great resource to help farmers and processors wanting to convert to organic. It has a collection of resources in a user-friendly format to help with the transition to organic.
The Organic Materials Review Institute (OMRI) is a non-profit organization that reviews brand name products for compliance with organic production and processing. They provide a searchable list of materials allowed in organic crop production, livestock production and processing (http://omri.org/ OMRI_datatable.htm). Suppliers of ingredients may contact them to obtain a product listing. Products listed by OMRI may carry an “OMRI-listed” seal, giving assurance that the product is compliant with organic production.
There are also public resources about organics that deserve to be reviewed. The National Organic Program is an excellent compilation of resources and news about the organic regulations (www.ams.usda.gov/nop).
The Organic Foods Production Act of 1990 authorized the Secretary of Agriculture to appoint a 15-member National Organic Standards Board (NOSB). The board's main mission is to assist the secretary in developing standards for substances to be used in organic production. The NOSB also advises the secretary on other aspects of implementing the national organic program. The NOSB reviews petitions for substances to be added to the National List or for non-organic agricultural materials to be added to 7CFR205.606. In addition, they publish all pending issues before the board and solicit public comment (www.ams.usda.gov/nosb). It is important to remember that NOSB recommendations are not official regulatory policy until adopted by the USDA.