Food & Beverage Perspectives
Organic ingredient supply chain considerations

Developing Organic Products: Supply, Cost and Regulatory Breakdown

The rampant growth of organic market certainly opens opportunities for food and beverage brands, but also poses challenges for the manufacturers who supply many of the ingredients that go into these products.

Organic products were once only found at specialty retailers like Whole Foods or in a single aisle at a traditional supermarket, but they have experienced explosive growth over the last decade because of the clean label movement. Today, consumers can find organic products in most aisles of a grocery store, at C-stores, and even at some dollar stores.

According to the Organic Trade Association (OTA), organic food and beverage makes up the majority of organic product sales. The trend has given rise to leading brands developing organic offerings, and several private label organic brands coming into existence like Simple Truth, O Organics and Simply Organic. Of course, there is still an abundance of smaller brands with organic offerings, though several of them have been acquired by major players.

The rampant growth of this market certainly opens opportunities for food and beverage brands, but also poses challenges for the manufacturers who supply many of the ingredients that go into these products. There are two key considerations we bring up to clients who want to develop an organic product—supply and cost—but there are regulatory considerations as well. The following is a breakdown of the top three supply chain considerations for developing organic food or beverage products.

Supply and Demand

Although organic products are increasingly popular, the demand is not yet high enough for manufacturers to produce substantial amounts of many of the ingredients needed to make them. Instead, ingredients are made to order, which causes longer lead times and can slow down your launch timeline. There are also ingredients where there are no organic options available.

The plant-based trend has expanded and we’ve received an increase in requests for organic, non-dairy, plant-derived proteins. However, the supply of these products doesn’t always meet demand. For instance, we worked with a customer who was launching a beverage that required a significant amount of brown rice protein. We considered organic and conventional options, but because of the immaturity of the supply chain, we weren’t able to source it in the amount needed. We found a solution for conventional brown rice protein, but it wasn’t an easy ingredient to source. Organic botanical extracts are another ingredient in high demand and low supply. In the past, these ingredients were primarily used for teas, but botanicals in beverages like sparkling waters, smoothies and juices are starting to trend, so there is certainly room for manufacturers to expand their organic offerings here as well.

Ingredients that do not have an organic alternative are the most problematic. A finished product must contain at least 95 percent organic-certified ingredients by weight to obtain the USDA Organic seal. The remaining 5 percent of the ingredients must be organic compliant or fall within the allowable synthetic ingredients listed by the National Organic Program (NOP). Common ingredients like citric acid, vitamins, minerals, juice concentrates, purees, and botanical extracts are technically allowed to be part of the 5 percent non-organic portion, but their usage level affects the organic calculations. Additionally, to make the 100 percent organic claim, a product must only contain ingredients that are certified 100 percent.

Cost

It’s always important to let clients know that cost will be higher for organic ingredients versus non-organic ingredients. While organic ingredients always will be pricier than their conventional counterparts, some ingredients, such as vanilla extract, have a much more severe price point on the organic version. There is a vanilla shortage and prices have surged, so organic vanilla can be cost prohibitive.

Colors that are exempt from certification (or “natural colors”) that are derived from sources like vegetables, minerals or animals are another example of an already pricey ingredient that can be especially cost-prohibitive when they’re also organic. Brands have the option of using non-organic certified natural colors if they’re organic compliant, but the usage rate could affect whether a product meets the USDA requirements for a product being organic certified.

Regulatory

Sourcing can be a challenge because some organic ingredients can be hard to find domestically. You might be able to find the organic ingredient you’re looking for from non-domestic sources, but some countries have a different standard for what constitutes organic. Therefore, non-domestic ingredients need to be fully vetted with proper documentation to ensure they are organic compliant in the United States. This is a crucial step because you don’t want to start formulating with an ingredient only to find out it won’t meet the USDA’s organic certification requirements.

Consumers will continue to seek better-for-you options in the future, and awareness about organic products will proliferate. Grandview Market Research reported the organic food and beverage market is expected to skyrocket, reaching US$320 billion globally by 2025. I expect there will be more demand for ingredients like plant-based proteins, botanical extracts and other novel ingredients within the functional beverage category, and manufacturers will be challenged with filling requests for these types of ingredients.

As always, feel free to email me at [email protected] to continue the conversation about developing organic products or anything else.

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