The U.S.

Market for Natural Products

Foro Perunatura 2011

By: Kerry Hughes and Josef Brinckmann ITC Consultants Date: 29 September 2011

ITC Market Brief 2011

This presentation is based on a 2011 ITC study entitled: THE NORTH AMERICAN MARKET FOR NATURAL PRODUCTS with Highlights on Selected Andean and African Products The study is a revision and update of a 2003 ITC study entitled: THE UNITED STATES MARKET FOR NATURAL INGREDIENTS USED IN DIETARY SUPPLEMENTS AND COSMETICS with Highlights on Selected Andean Products

Market Overview Key Trends for 2012

Continuing acceptance of exotic foods and flavors Dietary supplements appear to be recession proof especially those that have proven to be effective for age-related conditions Omega-3 essential fatty acids fish and vegetable sources Functional foods and beverages including so-called super foods, super fruits, and beauty foods

Market Overview Key Trends for 2012

Natural products free of undesirable components: antibioticand hormone-free, gluten-free, GMO-free, high-fructose-cornsyrup-free Natural sweeteners - agave nectar, due to its low-glycemic appeal; extracts of stevia leaf and of super fruits Sustainability brands: organic, fairtrade and local Truly natural cosmetics

Market Overview Product Types

Dietary Supplements / Herbal Supplements
Regulated as a subset of food products. FDA Notification required within 30days of marketing. Substantiation file required to support claim statements. Eligible for certain Authorized Health Claims, Qualified Health Claims, Nutrient Content Claims, and/or Structure / Function Claims. Supplement Facts box..

Foods with Health Claims / Functional Foods

Regulated as food products; marketed as Functional Foods or Super Foods. Some may be eligible for certain Authorized Health Claims, Qualified Health Claims, and/or Nutrient Content Claims. Nutrition Facts box.

Botanical Drugs (OTC and Rx)

Includes both conventional botanical drug (e.g. Capsicum Oleoresin) and herbal homoeopathic drug products. Sold in natural food stores and pharmacies. Eligible for Disease Claims and/or Structure / Function Claims. Drug Facts box.

Market Overview Product Types

Natural Cosmetics & Body Care
Includes non-drug cosmetics and drug cosmetics. Non-drug cosmetic products are eligible for Cleansing, Beautifying and Promoting Attractiveness claims. If disease claims are made (Cocoa Butter for temporary relief of hemorrhoidal discomfort), then it is a drug cosmetic labeled according to FDA monograph with Drug Facts box.

Natural Pet Foods

Regulated similar to other animal feeds-no premarket approval needed.

Market Overview Product Types

One Botanical Ingredient Can Have Different Market Channels

It is possible that a single botanical (processed in different forms) could find several different avenues into the U.S. market. For example flaxseed oil (a.k.a. linseed oil) (fatty oil from ripe seeds of Linum usitatissimum), could be used in most market channels (including as a component of dietary supplements, functional foods, pet foods, and cosmetics & body care products).

One Botanical Ingredient Can Have Different Market Channels

Peru is a producer and exporter of Organic and Fair Trade Certified Cocoa Butter (fat obtained from the seed of Theobroma cacao), which, in the U.S., is permissible for use as a component of: food products (e.g. in chocolate bars or ice cream); dietary supplement products (e.g. in energy bars or protein bars); non-drug cosmetic products (e.g. in skin moisturizing creams and lotions); and OTC botanical drug products (e.g. as an active ingredient of hemorrhoidal drug products and/or as an active ingredient of lip or skin protectant drug products).

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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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Market Access Quality and Safety

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 GMPs, dietary supplement GMPs, food GMPs or homoeopathic drug GMPs).

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Market Access Quality and Safety

Bioterrorism Act of 2002 requires registration of foreign facilities and prior notice to FDA of imports into the U.S. FDA Food Safety Modernization Act (FSMA) of 2011 1. requires U.S. importers to perform supplier verification activities to ensure imported food is safe; 2. authorizes FDA to refuse admission to imported food if the foreign facility or country refuses to allow an FDA inspection; 3. authorizes FDA to require certification, based on risk criteria, that the imported food is in compliance with food safety requirements; 4. provides an incentive for importers to take additional food safety measures by directing FDA to establish a voluntary program through which imports may receive expedited review of their shipments if the importer has taken certain measures to assure the safety of the food.

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Market Access - Quality Requirements

Supplier Qualifications Under GMP rules, buyers can purchase only from
qualified suppliers. The importers Quality Control (QC) Unit is responsible for qualifying suppliers. Under FSMA, the importer must perform supplier verification activities.

Specifications Under GMP rules, specifications are required to test

identity, composition, quality and purity. Dietary supplement and food product ingredients can have food-grade specifications. Pharmacopoeial quality standards are voluntary for dietary supplements but mandatory for botanical drug products.

Monographs There are FCC and NF monographs available for food

quality standards and USP monographs for both dietary supplement and botanical drug quality specifications.

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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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Packaging and Labeling: what about bilingual labels?

Product label text must be in English except in the Commonwealth of Puerto Rico where the labeling may be presented in Spanish language (or in bilingual labeling) or in other U.S. territories where the predominant language is one other than English. Bilingual labels are permitted in the U.S. market so long as all of the required elements are provided in both languages (e.g. in both English and Spanish).

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Example of Acceptable Bilingual Nutrition Facts Labeling

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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 partnering with a well-established American company to distribute and market your brand of natural products to the US market. This could occur under your brand, or co-branded or under your US partners established brand.

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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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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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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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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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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 the product can be shown to meet the specified omega-3 fatty acids content requirements for the allowed label claim.

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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 / Latin 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

There is still high interest, opportunity and growth in the North American natural products market. However, it is no longer enough to merely be a supplier of a natural ingredient or finished product. Stricter scrutiny by consumers and government demand compliance with new safety requirements, stronger evidence to support claimed benefits, as well as sustainability and eco-social expectations. To reach the market effectively will require suppliers to score well in all of these areas; safe and effective / natural and sustainable.