Suppliers Feel Pressures Created by New GMPs, Economic Downturn



From a sales and growth standpoint, 2008 on the whole proved to be another good year for nutritional raw material manufacturers and ingredient supply companies serving the U.S. nutrition industry, as Nutrition Business Journal explores in our upcoming Raw Material & Ingredient Supply issue (which publishes later this month). According to NBJ estimates, total raw material and ingredient sales to the U.S. nutrition industry grew 11% to $8.6 billion last year. In comparison, U.S. consumer sales of NBJ-tracked nutrition industry products—dietary supplements, functional foods and beverages, natural & organic foods and beverages, and natural & organic personal care (N&OPC) and household goods—grew 9% to $104 billion in 2008. Despite the recession, last year’s U.S. nutrition industry RMIS growth was only slightly off the 11.4% expansion the sector experienced in 2007. Higher ingredient prices—which spiked in 2008 due to numerous factors, including rising transportation and input costs, the falling value of the U.S. dollar, increased global demand for corn and other crops in emerging economies, and tightened supply from China—helped to fuel ingredient sales dollar growth within the U.S. nutrition industry last year.

Growth aside, the business landscape continues to change for nutritional raw material & ingredient supply (RMIS) companies. Hoping to prevent safety catastrophes such as the ones that brought down many Chinese milk producers last year and the Peanut Corporation of America this year, finished product companies are scrutinizing their ingredient suppliers more than ever on quality, traceability and, in the case of dietary supplements and functional ingredients, proven efficacy. As a result, those ingredient suppliers who want to keep their customers and avoid triggering a public safety crisis must increasingly invest in costly quality-control measures, including analytical testing and third-party certification. At the same time, raw material manufacturers and ingredient suppliers are seeing their input costs rise while facing price pressures and, in many cases, reduced or delayed purchase orders from their finished product customers, who must do everything possible to wait out the continued economic downturn. The consequence is a squeeze on margins that many suppliers say represents one of the greatest current challenges to their businesses.

Despite dealing with the competing pressures of ensuring quality while maintaining competitive prices in a faltering economy, many of the RMIS companies serving the U.S. nutrition industry continue to fare surprisingly well. Fortitech, a global nutrient premix manufacturer, is one such company. “We are fortunate because we can fortify all food and beverage applications, so we are not pigeon-holed into one area,” said Fortitech Communications Manager Patrick Morris, who noted that the company is expecting to log “high single-digit growth” in 2009. “We are also global, which helps tremendously,” Morris added. “Consumers in emerging markets, such as Russia and India, are creating demand for fortified products, which impacts our growth.”

Many supply companies Nutrition Business Journal interviewed for this issue said they believe the economy and the rollout of new supplement good manufacturing practices (GMPs) are exerting positive influences on the overall RMIS sector in that they are forcing a growing number of finished product companies to prioritize ingredient quality, traceability and proven efficacy. This, many say, will ultimately give a leg up to responsible, science-focused suppliers and help weed out companies willing to cut corners to keep ingredient prices down. “The economy has added to the ever-growing emphasis on clinically supported products,” said Harold Fox, sales director for National Enzyme Co. (NEC), a supplier and contract manufacturer of nutritional enzyme products. “Companies cannot afford to invest in a product that will not succeed. Scientific support adds value to the product, which in turn increases the likelihood for product success. In my opinion, this is a positive impact, even though we have noticed a slowdown in the number of new product launches from many of our smaller customers.”

NBJ’s 2009 Raw Material & Ingredient Supply issue includes a breakdown of RMIS sales and pricing trends by product category, discussion of the main issues affecting nutritional raw material manufacturers and ingredient suppliers, and much more. To order a copy of the issue, subscribe to NBJ or download a free 32-page sample issue, go to NBJ’s subscriber page.

Related NBJ links:
Melamine-Tainted Milk Highlights Safety Issues in China's Supply Chain
How Can Ingredient Suppliers Land Deals with Nutrition MLMs?
Pet Nutrition Market Spells Opportunity for Suppliers Focused on Quality, Science
Can Your Suppliers Kill You?

Related Functional Ingredients Magazine links:

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