By Len Monheit
As I spoke about last week, the North American nutraceutical marketplace has several touchpoints with the realities of global economics. International issues have a direct and frequently significant impact on our industry, and in no position on the value chain is this more significant than in the raw materials area. Weather and other forces can have an immediate and material impact on raw materials, and many of the ingredients used for both food and supplement applications actually have their foundation as commodities, trading at a market-based âcommodityâ price at somewhere along the proprietary extractâs evolution into a nutraceutical. This market-traded price and principle makes it all the more baffling that brokers and traders frequently offer raw materials at below a theoretically calculated price. This math âchallengeâ facing the marketplace is a real cause for concern, made more challenging by the absence of analytical methods to substantiate what the fundamental math would tell you â if it sounds too good to be true â it likely is.
Loren Israelsen has, on several occasions, made a presentation going through some of the economics of production, establishing that the amount of âactiveâ in bottles at a certain price-point on shelves must be negligible or certainly insignificant. In those presentations he also describes the variability in market pricing (you can get product for anywhere from $1-$30 per bottle appearing exactly the same) as a barrier to market stability and credibility. If consumers are faced with a choice that wide, either theyâre fundamentally confused, or theyâll go with what they perceive to be best value, and once again, in the absence of analytical support, enforcement and self-regulation, this would often direct them to lower-active, less efficacious products and âdiscountâ brands.
Recent dialogue with many in the ingredient community indicates a continued frustration at purchasers buying on âcentsâ rather than âsenseâ. One ingredient company I spoke to at SupplySide West commented to me that even though their Quality Control had failed almost one third of incoming lots of a particular raw material that was already in North American warehouses, none of the failed material ever got shipped back to its origin.
Perplexing? Not really. You see, less scrupulous companies quickly snapped up the inferior material and have placed it on the North American market where consumers even now are buying finished products containing questionable inputs.
Letâs take a different look at this issue, this time with one product in particular - bilberry, with background information courtesy of a European ingredient manufacturer:
- Bilberry fruits on the bulk market costs approximately â¬3.30 per kg. In $'s ~ $4.62 per kg. One needs 100 kg bilberry fruit to make 1 kg bilberry 25 so $462 per kg.
- Assume minimal cost of manufacturing (plant, energy, solvents, laboratory, labor and other costs) ~ $100 per kg
- Total Production Cost ~ $562 per kg (without margin, reseller commission, logistic costs etc.)
- Companies in North America apparently are buying bilberry at $450 and below.
Is something wrong with this picture?
The company goes on to describe material it has evaluated over recent months, including, as one would expect, a correlation between price and anthocyanoside levels, and in fact, serious questions about the lower priced material as to whether the material actually contains any bilberry at all.
The statement above is slightly complicated by another fundamental industry challenge. In the absence of validated and accepted methods, one can argue that different labs might obtain different results, essentially blurring that part of the issue from a QC standpoint. One would hope that companies with decades of experience with the ingredient would have some analytical expertise, but the issue of analytical methods remains an Achilles heel when it comes to proving that some ingredients are not what they claim.
Specifically, our European company observed âthe anthocyanoside levels were often only in the range of 2-10%. In addition frequently only one anthocyanoside peak was present - symptomatic of the extract being made from another fruit such as cherry or elderberry. Bilberry fruit should have around 15 different peaks.â
Letâs go back to the economic argument above for a minute. Letâs say a company challenged the production cost, saying that through labor and an innovative production technology, they had been able to produce bilberry 25% anthocyanosides at a 30% lower price. (which theoretically they would have to do if the above numbers are correct and profit is to be made.) Or letâs say the company had located an extremely high active component therefore lowering actual raw material cost. (and it would have to be significantly different from the native profile to seriously impact overall cost.) In either case, theoretically, ingredient cost would be reduced.
One problem though. If the technology has that dramatic an effect, or the material is that abnormally active, would that then not constitute a significant change in the profile and characteristics, even phytoactivity and potentially safety of the ingredient? Could one then not argue that an NDI should be filed or additional safety studies (or at least bioequivalence) should be conducted?
These remain fundamental issues and challenges facing the ingredient community. All too often, they are the challenges faced only by the ingredient community. There are signals that there is change afoot â changes in relationships, expectations, analytical support and other factors â changes overdue.
Returning to the economic argument for a second, I cannot help but wonder whether the calculation, publication and communication of a theoretical practical minimum price for commodity-based (not commodity) ingredients might not be a useful tool in quickly identifying the most obvious âtoo good to be trueâ infractions in our marketplace. In a more cynical moment, I have to accept that for some buyers it wouldnât make any difference. For consumers, however, thatâs another issue, and proving that the lowest theoretical cost to consumers is well above some finished product pricing might be an interesting, productive and credibility building exercise.