Natural and organic foods and beverages now enjoy mainstream success. However, their ingredient systems involve multiple layers of accountability and regulatory issues—and similar concerns follow all the way from bench to shelf.
A 2011 poll revealed that more than 44% of U.S. consumers said knowing a product is “natural” or contains “all-natural” ingredients has a “very high” influence on their food and beverage choices. According to the Organic Trade Association, the organic industry continues to see exciting growth, even through tough economic times.
The U.S. organic and natural foods industry grew by almost 10% in 2012, exceeding $31 billion in sales. And, according to the Natural Food Merchandiser’s 2012 Market Overview, natural and organic products (including dietary supplements) raked in nearly $91 billion, while almost 70% of retailers reported an increase in natural and organic product sales from 2010. Considering that the total in 1980 didn’t even hit $2 billion, it’s clear this retail sector is solidly mainstream.
Because of this growing demand for natural and organic food, gone are the days of having to make an extra stop at a specialty market to pick up organic almond milk. conventional grocery and discount stores, such as Walmart, Costco, Super Target, Kroger and Safeway, now are among the largest organic retailers in North America. This exciting and fast-paced growth of organic and natural products in mainstream markets has given smaller companies the opportunity to grace the shelves of national chains.
Even with the booming success of the industry, many natural and organic companies have growing pains when it comes to bringing their products to the masses. Since launching the natural food company, Peas of Mind, eight years ago, this author experienced firsthand the increasing awareness consumers have about natural and organic products and the expansion of these industries.
For makers of such foods and beverages, ingredient challenges loom at multiple steps in the process. Unlike conventional products, sourcing ingredient systems involves multiple layers of accountability and regulatory issues—and similar concerns follow all the way from bench to shelf.

Conditional Challenge

The primary goal at Peas of Mind is to create food that tastes as if it was made in “mom’s kitchen,” but using strictly all-natural or organic ingredients. During the early years, the company easily achieved this by making small batches by hand and by purchasing ingredients, such as recently harvested broccoli and carrots, straight from the farm.
After Peas of Mind outgrew its first facility, it contracted with a co-packer where products were made in much larger quantities on automated equipment. Although this was efficient and cost-effective, the company had to ensure that each bite still had the signature taste—and adhered to ingredient parameters, as well. Peas of Mind successfully adapted this co-manufacturing process for its first two product lines. But, when it came to a third product line, Peas of Pie, growing pains surfaced.
Peas of Pie is the kid-friendly, all-natural version of a classic pizza, containing broccoli and carrots stealthily kneaded into the dough. It has 50% less fat than leading frozen brands and contains 1.5 servings of vegetables in every pie. The pie was created in the test kitchen (a.k.a., mom’s kitchen) with simple ingredients. But, when it came time to bring the product to the co-packer to recreate, it was discovered that some of the methods did not readily transfer to a large-scale processing.
Due to the shift to a commercial pizza press to shape each crust, and after multiple test runs, it was determined that the formula would need the addition of a dough conditioner in order to work with the factory’s production line. This dough conditioner, known as L-cysteine, is a non-essential amino acid. Although it could be considered chemically natural, it commonly is derived from human hair and duck feathers. 
L-cysteine would help dough withstand the pizza press without breaking and help speed up the entire process. However, because it would be perceived as a “strange” ingredient for Peas of Mind products, it was decided to find a new way to manufacture the crusts as efficiently as a pizza press—but without involving heavy machinery that requires a dough conditioner.
After much research, a dough manufacturer was found that shared its values about food. They mass-produce dough, but shape each crust by hand (as part of the company’s mission, they refuse to shape with a machine). Once the dough is shaped, they automate the process with a tunnel oven and packaging system. This process allows Peas of Mind’s crusts to be made quickly and in large quantities, without necessitating a change in ingredients or altering technique—which would impact the all-natural, “homemade” formula.

Sweet and Square

Clairesquares LLC began making its handcrafted, Irish-style sweet treats seven years ago in small batches in San Francisco. Owner/creator Claire Keane notes that, as demand for the all-natural caramel squares grew, her greatest challenge was keeping up with production volumes while maintaining the same ingredients and formulation process. 
“We have a unique but slow caramel-cooking process that we didn’t want to change, due to the taste and texture of our caramel. We are only able to make 20lb of caramel per shift using the machinery,” says Keane. 
In order to keep up, Keane first doubled shifts instead of reworking the techniques or formula. Eventually, Keane was faced with reworking her methods to keep up with demand. Determined to keep the formula and techniques in place, Keane “focused on which employee worked best on each stage of production and had them be the principal employee to run that station.”
So far, Keane is fortunate, in that she’s able to continue to increase volume without altering the recipe that got her there. But, she and many processors like her can eventually run into the conundrum of having to alter the ingredients in the original recipe, in order to better serve their customers. For some processors, this can force some tough decisions.
Grand Prairie Foods Inc. has met similar stresses. The company produces a number of heat-and-eat products, particularly for the hospitality industry, and recently introduced its Start Healthy line of nutritious, low-fat, high-fiber healthy breakfast sandwiches and entrees. 
“Because our Start Healthy products require specialty ingredients, there is a longer lead time from manufacturers of those ingredients,” explains Kurt Laudenback, company president. “Managing the supply chain to keep up with demand can be a significant challenge. Getting a steady supply of materials is especially an issue when you need to keep raw materials as fresh as possible. A specific hurdle we encountered was that we have an ‘all-natural’ claim with Start Healthy. We learned that even miniscule ingredients, such as vitamins, are usually chemically produced and, for our needs, must be derived from natural sources. It required due diligence to assure that, if we were going to make a claim on the box, we needed to cover the spectrum of ingredients, large and small, to back up that claim.”
One snack maker quietly shifted from using organic dried fruits in his formulations to using all-natural versions. It was both a matter of cost, as well as supply. While the designation of all-natural has no true legal definition (See sidebar “Naturally Speaking”), the new ingredients were of the highest quality, and he discovered that amazingly few comments resulted from the change.

Sweet Success

Natural and organic food companies often face obstacles when searching for the right co-packers for their products. Neil Gottlieb, founder of Three Twins Ice Cream Co., discovered this early in his company’s development. 
Three Twins prides itself on quality organic ingredients, sustainable business practices and “never cutting corners.” Gottlieb decided to open his own manufacturing plant, due to the difficulty in finding a co-packer who could produce a quality, certified-organic product that was up to his standards. Three Twins manufactures its product on a continuous system, making about 200 gallons per hour. Production volume has doubled each year since opening—a tough job for a certified-organic brand that produces the only fair trade, organic ice cream in the country.
Because of these designations, sourcing is more difficult and requires more planning as the volume of production increases. 
“While organic ingredients are widely available, they aren’t always available in the quantities you need them,” says Gottlieb. The company recently encountered this when an ingredient in its Caramel Truffle Swirl variety could “not be found in organic form domestically.” Gottlieb was forced to reformulate the recipe with a different ingredient that was both organic and made in the U.S., and was able to do so just in time for the product’s release.
Tropical Traders Specialty Foods LLC’s Royal Hawaiian Honey is a raw, organic and single-sourced honey from Hawaii. 
“The biggest challenge when producing raw honey is to keep the temperature low during processing,” says Rebecca Krones, owner. “Most honey packers will heat the honey to high temperatures and pressure-filter it to slow the natural crystallization process. This method enables a production facility to fill thousands of jars quickly.” 
While such a technique is time-efficient and cost-effective, Krones explains, “This process destroys delicate enzymes honey contains naturally and what consumers of raw honey are seeking.”
Krones also couldn’t find a co-packer to process raw honey to her specifications; so, she, too, built her own manufacturing plant. As demand for the product grew, she purchased automated machinery and larger tanks to accommodate the increase in production. 
To keep temperatures low for maintaining the integrity of the enzymes, Krones packs honey in small batches to ensure it is “100% raw from the hive to the bottle.” 
This requires more time and effort on her part but must be done to stay true to Royal Hawaiian Honey’s mission and the demands of her consumers.

Meatless Everyday

A huge sector within the natural and organic industry is that of vegetarian and vegan food products. According to a Harris Interactive Inc. poll, 5% of the U.S. population classifies their diets as vegetarian, while 17% of the population now eats vegetarian meals for more than half of their weekly meals. This natural niche is growing rapidly, and Turtle Island Foods Inc.’s Tofurky, the leading brand of meat-alternative products, has benefited from this growth since its inception in 1980.
Seth Tibbott, company founder, explains that Tofurky uses a co-packer for its pizza and other frozen products, but makes all of its holiday roasts and refrigerated products in-house. The formula for its popular Tofurky Roast, Tibbott explains, has not changed in 16 years, but the manufacturing technique is constantly evolving to support the strong demand. 
Tofurky began by engineering a product that never had existed before: taking a mixture of plant-based ingredients and turning them into a meat-like protein. This meant developers had to create a completely new technique, as well, innovating and adapting equipment from the meat industry to meet specific, meatless needs.
With GMOs the current white-hot topic both within and outside the natural and organic industry, Tofurky’s non-GMO designation raised issues of sourcing GMO-free ingredients. 
“It is easy today to find GMO-free suppliers for major ingredients, like soy, but the minor ingredients are harder to source, and some suppliers are reluctant to give you in-depth information on these,” says Tibbott.
As Peas of Mind tackles similar trials sourcing GMO-free ingredients for its products, it’s important to source solutions, as well as ingredients. Key to this is the action of performing due diligence and research with all ingredient suppliers; digging deeper concerning their sources; and encouraging them to reformulate their ingredients and products as GMO-free, or otherwise conforming to the needs of organic and all-natural product manufacturers.
Natural and organic food companies must innovate to continue to meet the rising demand of this retail sector. Creative solutions and flexibility are necessary to find the sweet spot between industry standards and homegrown methods. As the industry expands and small companies attempt to move from their local markets to mass production, there are inevitably going to be growing pains.

Launching Organic

Muir glen organic sauce

“The percentage of new food and non-alcohol beverage products making ‘natural’ or ‘organic’ claims has dropped quite a bit from where they were as recently as 2008,” says Tom Vierhile, innovation insights director for Datamonitor Consumer. 

Although consumers profess confusion about terms like “natural,” “organic” and newly trendy “local,” according to the “FMI Shopping for Health 2012” survey, three in four shoppers in the U.S. believe all three label claims indicate a healthy product. Concern seems to be shifting from specific claims, like “natural” and “organic,” toward avoiding products that appear to be too processed. The “Shopping for Health” survey found that 49% of U.S. consumers say they are buying less in the way of processed foods. “Part of the reason for this may be economics, as the Great Recession of 2008 and 2009 encouraged consumers to trade down to what are perceived to be cheaper, non-organic foods. Confusion over just what the different terms mean is also muddying the waters. ‘Organic’ is a claim that is regulated by the government, but ‘natural’ is not regulated and can mean anything the marketer wants it to mean. Still, the percentage of products making either of these claims is down fairly significantly over the past few years, though organic food claims did rebound slightly in 2012.”
What appears to be a response to this is the release of more new products touting the use of “real” ingredients, like “real fruit.” An example is Unilever PLC’s Fruttare frozen novelty line, made with real fruit and juice. Another tactic is to use more “whole food” ingredients. Examples include Nabisco Brands Inc.’s Triscuit brand of biscuits, with recently added extensions containing ingredients like brown rice, red beans and sweet potato. Some food and beverage makers are beginning to let these wholesome ingredients do the talking (and signaling), rather than rely on claims like “natural” or “organic.”
Percentage of new U.S. food products making a “natural” claim, per Datamonitor Consumer’s Product Launch Analytics:
2012 = 18.1%
2011 = 24.1%
2010 = 28.3%
2009 = 30.4%
2008 = 29.9%
Percentage of new U.S. non-alcohol beverage products making a “natural” claim, per Datamonitor Consumer’s Product Launch Analytics:
2012 = 31.4%
2011 = 39.0%
2010 = 43.7%
2009 = 45.5%
2008 = 42.8%
Percentage of U.S. food products making an “organic” claim, per Datamonitor Consumer’s Product Launch Analytics:
2012 = 10.2%
2011 = 9.8%
2010 = 10.9%
2009 = 11.8%
2008 = 15.2%
Percentage of new U.S. non-alcohol beverage products making an “organic” claim, per Datamonitor Consumer’s Product Launch Analytics:
2012 = 13.0%
2011 = 13.5%
2010 = 15.3%
2009 = 20.6%
2008 = 18.9%

Naturally Speaking

organic valley milk“Natural,” “all-natural” and “100% natural” claims in the labeling of food, beverage and supplement products continue to be the subject of great debate in regulatory and legal arenas. In the face of pleas from citizen groups, trade organizations, industry companies and even federal courts, the FDA steadfastly has declined to formalize a definition of the term “natural.” Despite the proliferation of class action lawsuits over “natural,” “100% natural” and “all-natural” claims, FDA has exercised enforcement over “natural” claims sparingly.
The last warning letter issued by FDA that addressed use of the terms “natural” or “all-natural” was dated November 16, 2011. In that letter, FDA referred back to an informal definition derived from the discussion in the Final Rule issued for nutrient content claims in 1993, which provides that “FDA considers use of the term ‘natural’ on a food label to be truthful and non-misleading when ‘nothing artificial or synthetic…has been included in, or has been added to, a food that would not normally be expected to be in food.’ [58 FR 2302, 2407, January 6, 1993].” While industry continues to clamor for a formal definition, there is no indication from FDA that it intends to clarify the issue any time soon.
This lack of a formal definition of “natural” has been a major contributing factor to the large volume of class action lawsuits filed in California and other jurisdictions over “natural” claims. By contrast, there has very little civil litigation over use of the term “organic,” a term that is specifically defined by the U.S. Department of Agriculture (USDA). While litigation over labeling claims has increased across the board, litigation over “natural” or “all-natural” claims has been the most pervasive and received the most attention.
The bases for plaintiff lawsuits asserting improper “natural” claims have been far-ranging, with companies marketing products containing HFCS, chemical preservatives, alkalized cocoa and even citric acid all becoming targets of class action lawsuits over “natural” claims. More recently, and despite the defeat of Proposition 37 in California which would have mandated specific labeling for products containing genetically-modified organisms (GMOs), companies touting products with GMOs as “all-natural” have been hit with class actions suits.
Recently, the USDA issued a new Draft Guidance regarding the classification of materials as synthetic or nonsynthetic on the National List created for use pursuant to the National Organic Program. Of interest to the “natural” debate is USDA’s reference to “natural” as a synonym for “nonsynthetic.”
Will inclusion or exclusion of ingredients on the National List carry over to areas outside of USDA regulation, such as class action litigation? Only time will tell, but one thing is certain: Until a more formal definition is developed by FDA, expect class action lawyers to continue to flood the courts with lawsuits over “natural” and “all-natural” claims.
Justin J. Prochnow is a shareholder in the Denver office of the international law firm of Greenberg Traurig LLP. His practice concentrates on regulatory and legal issues affecting the food and beverage, dietary supplement and cosmetic industries. He can be reached at 303-572-6562 or