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Annual Ingredients Market Overview

As the healthy-foods business continues to grow into mainstream markets, Functional Foods & Nutraceuticals, in conjunction with sister publication Nutrition Business Journal (NBJ), assesses the state of the market across a wide range of ingredients

Vitamins and Minerals
Vitamins grew 3.9 per cent to $7.2 billion in consumer sales in 2005, or about one-third of total supplements sales of $21.3 billion, according to NBJ research. Multivitamins accounted for 58 per cent of the vitamin total, continuing to grow share from 50 per cent in 1999, after single letters, notably C and E, started declining in 2000. A mature category, multivitamins have kept growing, albeit at fairly modest annual rates of 3-6 per cent from 1999-2004 (except in 2003, after positive coverage in the Journal of the American Medical Association led to 11 per cent growth).

But even multivitamins, tried-and true and the consumer's default supplement choice, have not been immune to the withering hand of government review.

In May 2006, the expert panel of the NIH's State-of-the-Science Conference on Multivitamin/Mineral Supplements (MVMs) and Chronic Disease Prevention concluded data were insufficient to make a firm recommendation for or against multivitamin and multimineral use in the general population for chronic disease. Industry associations responded promptly, but it remains to be seen whether the panel's pronouncement will dent consumer spending.

Negative press has also had an effect on raw materials supplies — prices have levelled out, but at a far lower level than before the negative press.

Vitamin C suffered a monthly average decline of eight per cent during 2005, but weathered the 2005-06 winter with some gain in sales
As is typically the case when one vitamin gets a drubbing, sales of letter vitamins overall were affected. Vitamin C, for example, suffered a monthly average decline of eight per cent during 2005 — widely ascribed to the vitamin E effect — but weathered the 2005-06 winter with some gain in sales.

Vitamin D: One shining light in vitamins was vitamin D, the subject of a series of positive studies, including a JAMA article in November 2005, followed by a University of California, San Diego, study that found high doses of vitamin D may reduce the risk of breast, ovary, colon and other common cancers by up to 50 per cent.

Following 12 consecutive months of decline in market analyst IRI's scanned data on vitamin A and D sales, sales were flat in November 2005, but gained 19 per cent in December 2005, and up 11 per cent in January 2006. Pharmavite reported that its vitamin D sales rose 20-25 per cent in 2005, and that there were indications it would trend far higher than that.

Vitamin E: An abrupt decline in consumer demand for vitamin E in the US posed challenges throughout 2005, with IRI recording a 40 per cent drop in supplements sales in the 52 weeks to February 2006. Major supplier Cognis recorded an 18 per cent drop in revenues in the nutrient.

The free fall was triggered by negative findings in a meta-analysis by Johns Hopkins University researchers, as well as the HOPE-TOO study, leaving an excess of vitamin E in warehouses. Although vitamin E prices have now levelled out, they are still lower than before the studies attracted the bad press.

The vitamin E studies were associated with alpha-tocopherol but have affected all vitamin E sales, not to mention completely unrelated supplements.

There may, however, be a silver lining. At an estimated $15-20 million, raw material sales in the US of tocotrienols represent a much smaller market than tocopherols but may have better growth prospects. "Consumers are now looking for a full-spectrum vitamin E, one that has both mixed tocopherols and mixed tocotrienols — all the eight forms of vitamin E as found in nature and diet," says WH Leong, vice president of Carotech, which claims to have about 70 per cent of the total tocotrienol market in the US. This is not the first time an isolated, single constituent has failed in studies and been supplanted by more natural, full-spectrum products. The 1996 Alpha-Tocopherol, Beta-Carotene lung cancer prevention study in Finland and the Beta-Carotene and Retinol Efficacy Trial study provided evidence that taking a single form of beta-carotene rather than a multi-carotenoid might increase cancer risk among smokers.

In Europe, the vitamin E supply market remains constrained by a 2004 law banning vitamin E supplies derived from GM sources. As most natural-source vitamin E contains GM traces, this has been problematic, but supply has been increasing as the likes of ADM and Cognis bring new GM-free supply online. In addition, the global vitamin E supplements market has not been affected as dramatically by bad press as it has in North America.

Calcium: The bone-health mineral is off its high of $1.05 billion in sales from 2003, at the height of the coral calcium craze. For one, coral calcium's fortunes went down as exaggerated claims came to light. For two, calcium took a hit when a controversial study seemed to show that the combination of calcium with vitamin D did not prevent elderly people from getting second fractures. The study did show the combination worked significantly well in women over age 60 (calcium's primary target), and particularly in the group of women who actually took the supplements a minimum four out of five days over the seven years. These two vital points were largely lost on mainstream media headline writers.

Food as a calcium delivery system may be responsible for the drop in supplements sales
Some mainstream health advisory boards recommend consumers receive calcium only from diet (and not supplements), but which can include foods fortified with extra doses of calcium. Functional foods marketers and manufacturers have taken notice, introducing a new suite of calcium-fortified chocolate chews. Some observers postulate that the slowdown in calcium supplements sales is due in part to increased diversity of calcium-fortified food delivery systems.

"In food it has become a more visible part of the total packaging and marketing scheme," says Al Faraldo, vice president of sales for Delavau, a vertically integrated company that supplies custom granulations and finished product to the supplements and food industries. Better consumer education, combined with the ageing baby boomer demographic, is helping to drive calcium sales, he says.

Herbal products grew to $4.41 billion in 2005, an increase of only 2.1 per cent compared to 3.4 per cent in 2004, but still positive compared to two years of decline in 2002 and 2003, when sales were down -2.3 per cent. Mass retail channels hogged the bad news with sales down -4 per cent, paced by a familiar decline in singles echinacea (-8 per cent) and ginkgo (-11 per cent), but gains in combinations and a welcome three per cent mass market gain in St. John's wort after six years of double-digit declines.

Demand is rising for botanical ingredients in cosmetics, functional foods and pet products
The segment's foundation herbs have mostly stabilised, a view confirmed by NBJ data. Of the top dollar volume herbal singles (excluding mangosteen and noni), garlic gained 5.7 per cent, saw palmetto 2.5 per cent (after recovering from an eight per cent loss in 2004), ginseng 2.6 per cent, and milk thistle 23 per cent. Of the top seven in volume, only echinacea was flat and ginkgo biloba the sole loser at -3.8 per cent.

Mushroom products gained 16 per cent, thanks to more effective branding by more companies, while green foods and spirulina did well with 18 per cent and 21 per cent growth, respectively.

"I have no reason to think it's not a good business to be in," Michael McGuffin, president of the American Herbal Products Association told The Natural Foods Merchandiser. "Tens of millions of Americans use herbs; millions and millions of people have used herbs for hundreds and hundreds of years. These products have continuity in our culture, and they're not going away."

From the raw-material and supply sector, sales of herbs are about the same as they were 10 years ago, at $386 million. But that is quite a bit off the herbal heyday of 1999, when botanicals were at $614 million in annual sales.

Overall, green tea was the star botanical of the past year, notching growth of 84.42 per cent
Overall, green tea was the star botanical of the past year, notching growth of 84.42 per cent. Others that bucked the trend include cranberry (18.85 per cent), ginger (11.27 per cent), and milk thistle (6.78 per cent).

Although volumes remain relatively low, demand is rising for botanical ingredients in cosmetics, functional foods and pet products.

While there has been a decline in some of the traditional bestsellers, newer ingredients are on the up. Hot herbal products include aloe vera, lycii berry (wolf berry), wild jujube, blue-green algae, and magnolia bark for sleep and relaxation, as well as Rhodia rosea and yucca. Oregano oil is being promoted as an immune-system stimulator and germ and virus killer, in addition to offering powerful antioxidant properties. Other ingredients registering with consumers include turmeric, up 59 per cent, for inflammation and cinnamon for blood-glucose management. Known for their antioxidant and anti-inflammatory properties, the interest in turmeric and curcuminoids may be attributed to several factors, including an expanding body of science on their health benefits. Antioxidant, anti-inflammatory, antimicrobial and immune system-supporting roles of curcuminoids are well documented in scientific literature in in vitro, pre-clinical and clinical studies. The role of curcuminoids as a cancer-preventive agent is also documented, and the National Cancer Institute is conducting studies with curcumin in this area.

A phase 1 study of curcumin for the chemoprevention of colon cancer has been completed. In addition, published animal model studies from UCLA in California using Sabinsa's branded Curcumin C3 Complex ingredient found a beneficial role for curcuminoids in Alzheimer's disease models. "At Sabinsa, the product has always featured in the top five in sales and remains one of our most significant products," says Lakshmi Prakash, director of technical sales.

Cinnamon extracts could be at the beginning of a growth curve, thanks to their potential in insulin resistance, weight loss and sports nutrition
While there's a long way to go before consumers associate cinnamon with blood-glucose management rather than doughnuts and apple pie, cinnamon extracts could be at the beginning of a growth curve thanks to their potential in insulin resistance, weight loss and sports nutrition. Integrity Nutraceuticals has completed its first few double-blind, placebo-controlled clinical trials for Cinnulin PF. Conducted on pre-diabetic subjects, one study showed a statistically significant decrease in fasting blood glucose levels, improvements in insulin sensitivity, reduction in fat and increase in lean body mass. "In obesity there is usually a link to insulin resistance of pre-diabetes," says Gus Romero, sales manager for Integrity Nutraceuticals. "Cinnulin PF has the potential to help a lot of people in that category, but they don't realise it yet."

Impending implementation of good manufacturing practices in the US has been good news for major suppliers who can assure consistent quality in botanical extracts and raw materials. In addition, heightened attention to marketing and development of innovative products has fuelled growth for some suppliers.

No discussion on botanicals would be complete without mentioning the sea change in the weight-loss supplements market since ephedra was banned in the US. The question on everyone's minds is, what will take the place of ephedra? At this point, it may be hoodia (Hoodia gordonii), an appetite suppressant derived from a South African desert plant. The media has taken a friendly approach thus far, with a 60 Minutes broadcast extolling the botanical's benefits. The two major exporters of the plant are Stella Labs, which markets a pure powder, and Phytopharm, which has a patent on a hoodia extract. Phytopharm has granted exclusive global rights to its hoodia extract to Unilever, the consumer packaged goods conglomerate. Unilever spokesman Trevor Gorin told NBJ, "The research into Hoodia gordonii is at an early stage, and the extract is nowhere near being put into a finished product."

Green tea
Green tea extracts have been on a roller-coaster ride, enjoying a sudden surge in demand after ephedra was banned from the US weight-loss and energy market in 2004. Companies rushed into green tea extract as a base formulation ingredient in weight-loss products for its clinically demonstrated thermogenic activity and positive safety profile.

This surge in demand created an influx of supply from China and a subsequent price slide, down as much as 40 per cent in the past year. But with reformulation in the weight-loss category now over, sales are being driven by the functional beverages, foods and personal-care categories rather than supplements.

As the popularity of green tea has soared, less-expensive and lower-quality green tea extracts have entered the market, produced using cheaper extraction methods, including harsher solvents. More liberal pesticide use has become an issue as less discriminating growers cultivate volume.

Fruit-extract sales are growing following promotional activities by a range of berry trade associations and positive research on dark-pigmented fruits related to urinary-tract, gastric and oral health.

The stellar performers were mangosteen juice, up 70 per cent, and goji, a?ai and noni juices, which NBJ defines collectively as liquid botanicals, being taken primarily for efficacy rather than refreshment.

Competition in the mangosteen world is pitched. Pure Fruit Technologies is seeking to differentiate its mangosteen from competitors by citing studies done by Covance Laboratories showing Mango-Xan has higher antioxidant ORAC values and greater xanthose content. Clinical studies are on the agenda as well, according to Wayne Geilman, director of product technologies and food science. "We're planning on getting some more studies going," he says.

Cranberry and blueberry fruits are benefiting from a programme of government and private-sector research

Cranberry and blueberry fruits are benefiting from a programme of government and private-sector research. Pomegranate is the latest hot superfruit not only for its antioxidant capacity but also its antimicrobial activity, while blackberry, elderberry, raspberry, cherry and strawberry also are gaining in popularity.

One new and upcoming ingredient is coffeeberry — another classic waste-stream superfruit. Sourced exclusively by VDF-Nutraceuticals in Illinois, the coffeeberry is a mild-tasting, antioxidant-rich whole coffee fruit (without bean) with research pointing to benefits on blood-glucose and healthy lipid levels. Its uniqueness is predicated on its worldwide patent on the process that dries the fruit almost immediately after harvest in order to combat mycotoxins that begin to grow quickly on crops in the heat of coffee-growing regions.

"It took five years to develop the process," says Kit Kats, technical sales director at VDF-Nutraceuticals. "The berry is unique because it's applicable in many markets — the granules into tea, powder in baked applications, the extract for nutraceuticals or cosmetics because it's so high in antioxidant levels. And obviously the coffee energy is suitable for the energy market."

Prices have increased significantly for European bilberry, which is used in products to improve visual acuity. Bilberry is currently popular in Japanese beverages.

Demand for products based on healthy fruit is strongest in beverages, and companies that produce fruit smoothies and 'pure' fruit drinks are seeing strong growth. Some analysts suggest we are at the beginning of a period in which fruit products might be about to rival dairy products as drivers of innovation and sales. Cranberry is one of the few herbal ingredients that continues to grow. Besides urinary-tract health, studies have linked cranberry to ulcer prevention, cholesterol reduction and more. The category has also benefited from the marketing efforts of Ocean Spray to highlight cranberry's inherent health benefits.

Cranberry seed oil with omega-3 and omega-6 fatty acids is also emerging as an ingredient for food applications. Cranberry ingredients for nutrition were estimated to grow by 50 per cent in Europe and 15-20 per cent in the US last year. Sales in Europe have been particularly strong due to the approval of a health claim in France in 2004 for urinary-tract health. It's the only fruit in the world to have a health claim associated with it.

Carotenoid Antioxidants
With the exception of alpha-tocopherol, antioxidants have been on the rise. Antioxidants in the carotenoid family — lutein, lycopene, astaxanthin and more latterly zeaxanthin — remain highly popular. It is notable that newer carotenoids such as lutein and lycopene that were not in the market five or six years ago are now becoming fairly substantial categories.

Lutein: Until the end of the 1990s, lutein was mainly used in chicken feed to colour yolks. Its more recent application in eye health has been responsible for most of its recent growth. One industry insider pegs the lutein ingredient market for human nutrition at $75-90 million globally, with North America representing around 85 per cent of that. IRI estimates lutein supplements sales in mainstream outlets for the year ended February 2006 at nearly $10 million, an 11.41 per cent increase on the previous period.

Good news for lutein is that consumer awareness is running at a high 67 per cent of the general population. Like fish oil, lutein has benefited from a stream of positive science as well as intensive consumer education programmes from the likes of Cognis and Kemin.

Kemin has tracked some 400 peer-reviewed publications in the past 10 years focusing mostly on lutein's effect on age-related macular degeneration (AMD) but also on heart health and cancer. The Veterans LAST study in particular attracted considerable attention globally both in the consumer and scientific press.

Because AMD is a condition of ageing, lutein is being promoted for skin health, which should have broader age appeal, and the gathering science is attracting more interest from the food and beverage industry. For now, however, only a few mass-market foods have incorporated lutein and most still ends up in supplements. Earlier this year the FDA denied a qualified health claim filed in 2004 by Cognis Nutrition & Health for lutein esters' role in reduced risk of AMD and cataracts. The company was disappointed, claiming, "The FDA's evaluation of the science discounted review papers, animal studies and epidemiological studies and focused on the clinical studies using standards similar to those used to evaluate pharmaceuticals, not nutritional ingredients."

However, research is continuing. The National Eye Institute, a division of the National Institutes of Health (NIH), is funding a study of lutein and zeaxanthin. The NIH has two other studies currently under way examining the link between lutein and eye health.

Lycopene: After two years of booming sales in 2003 and 2004, growth in 2005 was more moderate. At retail level, IRI recorded an 8.3 per cent drop in supplements sales in US mainstream outlets. The overall market for lycopene, estimated at $25-30 million in North America, has softened as the whole carotenoid market matures.

There are new drivers in the wings to propel lycopene demand
However, there are new drivers in the wings to propel lycopene demand. Whereas the lycopene market for human nutrition was founded on its benefits for prostate health, more recently its relevance to cardiovascular health has been opening up.

In May last year, results of a randomised, double-blind, placebo-controlled crossover trial evaluating the effect of standardised tomato extract on 54 hypertensive patients were presented at the American Society of Hypertension's 20th Annual Scientific Meeting and Exposition. Results indicated a significant reduction in systolic and diastolic blood pressure, as well as an increase in urinary nitrate excretion, in correlation with an increase in serum lycopene levels. Other emerging areas of scientific focus include lycopene for liver and breast cancers.

However, lycopene news has not been all good. Last November, the FDA stated there was sufficient scientific evidence to award a qualified health claim for consumption of tomatoes and/or tomato sauce, but not for products containing lycopene. The claim states: "Very limited and preliminary scientific research suggests that eating one-half to one cup of tomatoes and/or tomato sauce a week may reduce the risk of prostate cancer. The FDA concludes that there is little scientific evidence supporting this claim."

To explain why lycopene-containing products were excluded, the FDA says lycopene in isolation from other nutritional factors was limited and the research inadequate.

Astaxanthin and zeaxanthin: Apart from lutein, zeaxanthin is the only other carotenoid found in the eye. The potential total natural and synthetic zeaxanthin market has been estimated at one fourth to one third the size of the lutein market because of the smaller dosages required for eye health.

Synthetic zeaxanthin for eye health was launched by Roche in 2001, and represents an estimated $3-5 million market. Interestingly, lutein extracts from marigold also contain naturally occurring zeaxanthin, and should zeaxanthin prove more effective than lutein in future trials, its potential market could be much bigger.

Astaxanthin, used to colour salmon and trout, is the second largest carotenoid after beta-carotene, with a global market value of $234 million in 2004. The market has grown by less than $20 million over the past five years, mainly because of substantial competition and smaller margins in the feed category as opposed to supplements.

Price is another issue, since astaxanthin is more expensive than many other antioxidants. Also constraining the market is limited consumer awareness of astaxanthin's health benefits. "More work needs to be done on educating the consumer," says Gerald Cysewski, president and CEO of Cyanotech, the largest producer of natural astaxanthin derived from microalgae, based in Hawaii. "But we believe that due to its unique qualities, it provides as good or perhaps even better value to the consumer since daily dosages are usually only 4-8mg."

Some clinical trials have shown natural astaxanthin can relieve the pain associated with rheumatoid arthritis and carpal tunnel syndrome, as well as reduce joint soreness after strenuous exercise. It has also been claimed that the ingredient delivers antioxidant and anti-inflammatory benefits to the brain and central nervous system.

Essential fatty acids grew to a $440 million market in consumer supplements sales in the US in 2004, or about $90 million in raw-materials sales. In 2004, 65 per cent of that overall market — $285 million — was represented by fish-based ingredients and the rest by plant materials such as algae, flax and borage oils.

In 2005, fish-oil supplement sales grew to $360 million, while fish-oil suppliers individually reported growth in the 20-50 per cent range.

Essential fatty acids grew to a $440 million market in consumer supplements sales in the US in 2004
Also helping margins is the condition-specific, niche approach of the fish oil category. Moreover, executives believe the market is still in an early stage of development. "Only about four per cent of consumers take fish oil supplements on a chronic basis, so there is a long way to go to get to a maximum penetration, which we believe will be similar to multivitamins, which are upwards of 70 per cent," says Ian Lucas, executive vice president of global marketing for Ocean Nutrition Canada.

Fish oils have been the explosive story of 2005, and the competition has been intense. A big reason for the fantastic growth of the fish-oil category was an industrywide voluntary monograph that established purity standards in 2002. By 2004, nearly every company supplying fish oils was meeting the quality standard.

Functional food with added fish oil is still in an emerging market phase, with the promise of one day outselling supplements.

Functional foods with added fish oil hold the promise of one day outselling supplements
Fish-oil powders first appeared in functional-food products in North America. The first yoghurt in the US using omega-3 from Ocean Nutrition Canada was introduced at Natural Products Expo East in September 2005. Since then there have been many omega-3 food innovations from breads to milks to juices to chocolates.

Ocean Nutrition's patented 'PowderLoc' technology seals fish-oil molecules in a micro-encapsulated double-shell protection matrix that effectively eliminates any problems of fish-oil taste or odour contaminating processed foods. Older technologies use single-shell protection, which can break and expose the oils during food processing.

Food manufacturers are also sourcing omega-3s from flax instead of fish oils, even though the flax source, after its metabolic conversion of alpha-linolenic acid to EPA, nets consumers less than 10 per cent of the EPA. Still, there are health conditions flax oil benefits that go beyond those of fish oils: high blood cholesterol, high blood pressure, immune system function, male infertility and cancer. Although the 2004 health claim on omega-3 oils EPA and DHA was exclusively for fish oil-derived omega-3s, the consumer cache of 'omega-3s' is stronger than the cumbersome FDA-minted health claim, and so food fortification with flax-derived omega-3s continues apace.

US consumers are increasingly aware that flaxseeds and flaxseed oils are healthy, and conventional health care providers are cheering flax for its omega-3 and omega-6 fatty acids. But a lesser known component of flax — lignans — is fast becoming a star to rival the omegas. Flaxseed lignans have more science in relation to hormone-related conditions such as menopause and prostate health and even certain types of hair loss. The North American market for lignan-containing supplements is ahead of Europe at this point. Mintel's global new products database since 1998 lists 29 entries in the US, two in Canada, three in the UK, and one each in Finland and Sweden.

An emerging trend is for manufacturers to blend oils from various sources — fish as well as plants. One supplier, Spectrum Organic Products, supplies flax and fish sources of fatty acids, and positions itself as 'the healthy fats company.' Says president and CEO Neil Blomquist, "When the market was anti-fat for several years, we kept preaching the need for healthy fat in the diet. It is where we have strength in supply-side management and processing technology. The healthy fat story is finally getting attention. Plant-based EFA sales are flat, but fish oils are strong for us and the category thanks to science-based studies publicised by the big fish-oil companies. Science supports plant-based EFAs, with several studies soon to be made public that will give flax and other EFAs their due share."

Glucosamine, Chondroitin, MSM
The glucosamine and chondroitin market notched up $730 million in consumer sales and about $80 million in raw-material sales last year. Glucosamine was in short supply in 2004-05, causing prices to soar. The shortage was caused by poor weather that affected the aquaculture industry, US tariffs on shrimp, and price hedging in China, which supplies an estimated 75 per cent of the world market. At the same time, warnings about arthritis drugs boosted demand for glucosamine in the US.

Cargill is the major supplier of US-produced glucosamine. Its brand, Regenasure, made from a non-shellfish source, went into production in June 2003, and is now also cleared for sale in Japan and the UK. Avoiding allergy risks associated with shellfish is a selling point for Regenasure — but avoiding shellfish supply issues could be another advantage. Other suppliers are now producing vegetarian glucosamine.

The big news in the joint-health category was the Glucosamine/chondroitin Arthritis Intervention Trial (GAIT) published in the New England Journal of Medicine in February. The authors concluded that a combination of glucosamine hydrochloride plus chondroitin sulfate is effective in treating moderate to severe knee pain due to osteoarthritis. The multi-centre GAIT, conducted by the National Institutes of Health, was designed to rigorously assess the efficacy and safety of these agents alone and in combination.

Patients were given glucosamine, chondroitin, or a combination of both, or celecoxib (the prescription drug Celebrex). The response rate for the glucosamine-chondroitin combo was equivalent to celecoxib — as well as for placebo. This caused some controversy with the study because placebo rates are usually about half of the 60 per cent found in this study. However, for a subset of those suffering from 'moderate to severe' arthritis pain, the glucosamine/chondroitin combination was significantly better than all other treatments, including both the pharmaceutical and the placebo.

In the midst of this landmark study giving somewhat conflicting results, the market for alternative joint-health ingredients continues to grow at breakneck speed. Botanicals, minerals, speciality chemicals and proprietary ingredients are all being employed by suppliers looking to give manufacturers a special edge in this large wellness category. Some of them are touted as complementing glucosamine and chondroitin's cartilage-building actions.

"Many supplements marketers want to sell unknown ingredients for joint health instead of leveraging strong consumer equity already in place with products like MSM, glucosamine and chondroitin, which are highly recognised as effective by millions of supplements customers," says David Lakey, president of Cardinal Nutrition, which supplies OptiMSM brand MSM.

MSM had a record 2004, and demand remains strong for the joint-health ingredient
Demand for MSM through mid-2005 continued to be very strong after a record 2004. Half of US human and animal MSM consumption is fulfilled by Asian production, with an estimated raw material US market size of $50-75 million. MSM consumer sales were in the $110 million range in 2004. MSM ingredients sales will increase by 5-15 per cent annually in the next three to five years due to new human clinical science fuelling proven higher dosages of 1,500mg to 6g daily. "Sales are up due to new strategic brand marketer customers and due to acquisitions by our existing customers," Lakey says.

The probiotics category grew around 10-15 per cent last year, both for finished supplements products and supplement raw materials. The US market represents $200 million for probiotic supplements (eight times larger than corresponding raw-ingredients sales of $25 million) and at about $5-9 million for raw materials sold for functional-foods applications.

Traditionally, Japan and Europe have been the strongest markets in food products, with the US doing better in supplements. A number of theories explain the slower evolution of the US market.

First, the Nordic countries have an age-old heritage of consuming fermented dairy products, which doesn't exist in the US. Talking about intestinal activity is also an alien concept to many Americans, who tend to think that all bacteria are potentially harmful, and this has led to slower acceptance of probiotics. A recent survey contracted by DSM found that one third of American respondents did not know whether they had consumed products aimed at gut health in the past six months. In Europe, that number was less than one in four respondents. This shows that more awareness of ingredients, probiotics chief among them, is needed among consumers.

Such obstacles, however, have not deterred intrepid manufacturers. In 1999, before most American consumers had even heard of probiotics, Stonyfield Farm launched YoBaby, an organic whole-milk yoghurt for babies and toddlers with live cultures. YoBaby has enjoyed unfettered growth since its launch. It is now the number two kids' multipack brand in the US and grew 36 per cent in 2005, against category growth of 6.5 per cent.

Dannon, by contrast, took a more direct approach when it introduced American consumers to DanActive — known as Actimel in Europe — last year, marketing the drink on its 'ability to help strengthen your body's defenses naturally' and seeking to replicate the consumer education recipe that has proved so effective in many European markets.

While gut health and immune health remain the leading health sells, products are expanding into new areas. "Suppliers are also looking at opportunities in skin, oral and vaginal health — any part of the body that has bacteria associated with it," says Scott Bush, global probiotic business director for Danisco USA. "Prevention rather than simply cure; that's where we think probiotics really have an opportunity to develop."

Probiotics companies continue to focus on proprietary strains for which structure-function claims can be made. Such strains can command two to four times the price of generic strains. A four-strain blend by Danisco was recently the subject of a clinical trial to determine if patients taking antibiotics would maintain or restore beneficial flora more rapidly when taken during and after antibiotic therapy. Another study is under way to see whether probiotics can reduce absence and illness in a day-care population.

It has been estimated 10-20 per cent of Chinese yoghurt drinks now contain probiotics
European suppliers have been looking to develop probiotic products for the Chinese dairy market by partnering with Chinese companies. The Chinese government expects the dairy market to grow tenfold in the next decade. Chinese probiotic offerings recorded substantial growth in the past year. It has been estimated 10-20 per cent of Chinese yoghurt drinks now contain probiotics. One year ago, none had probiotics.

Chr Hansen has formed an alliance with China's largest dairy, Mengniu, to develop probiotic products in the Asian region. Moves into Korea, Taiwan and Thailand are planned, along with an enlarged Japanese presence. Major dairy players like Arla and Fonterra are also partnering with Asian companies to produce various dairy products. Danish probiotics supplier, Danisco, is also marketing its probiotic cultures in China and establishing an innovation centre in Singapore.

The first products were due to hit the market early this year, sell at a premium over regular milk, and be similar in formulation and design to the one-shot yoghurt drinks that have been so successful in Europe.

Sterols are still a relatively small market at the raw-material level in the US. However, in 2005, sterols continued to expand beyond the original sterol spreads category into bars, yoghurts and juices. The most recent application is in cookies. Forbes MediTech's Reducol ingredient received regulatory approval in Europe for seven food categories: yellow fat spreads (margarines), fermented milk-type products, soy drinks, low-fat cheese-type products, yoghurt-type products, spicy sauces, and salad dressings. It is now used in a range of label foods from the UK's largest food retailer, Tesco, as well as Dutch retailer, Albert Heijn.

One of the hot new trends is combining sterols with other heart-healthy ingredients
"With multiple product launches and new market opportunities in continental Europe, the new venture is well positioned to reach retailers looking for healthier alternatives to existing branded products," says Charles Butt, president and CEO of Forbes Medi-Tech. "The strength of Forbes' product innovation and ongoing development combined with Forbes Fayrefield's experience in retail chain distribution will be a tremendous asset in reaching new customers." The product range, marketed under the Albert Heijn private label brand, includes a margarine spread and a range of yoghurts.

The cholesterol-lowering sterols category, whether in supplements or foods, faces the challenge of effective and widely prescribed statin drugs, the most popular of pharmaceuticals.

One of the hot new trends in the phytosterol category is combining sterols with other health-promoting ingredients including soy protein and soluble fibre, to target specific medical conditions such as heart health.

Masterfoods USA, a division of Mars , has introduced CocoaVia Bars, a dark-chocolate bar containing at least 100mg of cocoa flavanols and 1.5g of sterol esters per bar. These bars, however, have run afoul of the FDA, which has told Masterfoods to alter their labelling and marketing mainly due to their fat and folic acid content.

A US start-up, Right Direction, launched sterol-fortified cookies this year.

Another avenue of innovation is the addition of phytosterols into oils. Japanese firm The Kao Corporation has created a cooking oil made from soybeans and canola that has been processed to include higher concentrations of the naturally occurring component called diacylglycerol (DAG) — at 80 per cent. Kao then blended this oil with four per cent plant sterols, sold under the Econa brand, which is currently on the market in Japan.

"All data on sterols and stanols are for use in food products. No one has shown that they alone actually work in tablet or capsule form without adding other agents — and sterols in these formats remain a small market," cautions Anthony Almada, president and chief science officer of IMAGINutrition, an industry consultancy based in California.

The most dramatic supply shortage last year was in co-Q10, created by greater consumer demand due to positive science supporting its heart health benefits, interest from the personal-care market and Japan's decision to switch co-Q10 from a prescription drug to an over-the-counter product.

Production could not be ramped up quickly enough to meet demand because of the intensive capital investment and technological expertise required to manufacture co-Q10, but new plants are now coming on line in Texas, China, Korea, Italy and elsewhere.

Work to enhance bioavailability of co-Q10 is at the forefront of competitive differentiation
Supply is catching up with demand this year and there are legitimate concerns that the co-Q10 shortage could be followed by a surplus — and a collapse in prices. Skyrocketing prices tempted unscrupulous players to adulterate or counterfeit co-Q10, and some buyers likely ended up with bogus supplies.

It's estimated that more than 90 per cent of the co-Q10 on the world market is natural fermented, which is favoured by most supplements marketers. This form of co-Q10 is fermented from yeast while synthetic co-Q10 is processed from tobacco. Some companies claim natural fermented co-Q10 is best for human consumption and identical to the substance produced by the human body itself. Synthetic co-Q10 is used primarily in personal-care products.

Although suppliers are trying to differentiate with their trademarks, there is no real brand loyalty in this segment as consumers look for the best value. Analysts say co-Q10 is becoming a commodity and private label is becoming more prevalent. The challenge for brand marketers is to make their co-Q10 product a noncommodity through custom formulations such as solubility and enhanced bioavailability formats.

In fact, work to enhance bioavailability of co-Q10 is at the forefront of competitive differentiation. There has been some debate on the type of formulation that should be used to provide the best absorption of co-Q10 from the gut. Various methods have been tested to introduce co-Q10 in micellar form via the use of additives such as lecithin, polysorbate 80 and other surfactants.

Historically, the most promising vehicle for co-Q10 absorption has been the use of a lipophilic medium such as a natural oil like soybean oil or rice-bran oil. Within the last year, companies have introduced solubilised co-Q10 that both dissolves the crystals that are formed when co-Q10 is produced commercially, and prevents the solution from recrystallizing. Also, liquid nano-vehicles increase solubility and transport co-Q10 into cell membranes more efficiently, making it more stable and more bioavailable.

Research by HealthFocus Inter-national found that 38 per cent of consumers rate 'high fibre' as an 'extremely' or 'very important' statement on a food label, third behind 'whole grain' (45 per cent) and 'fresh' (68 per cent). Apart from naturally occurring fibre in foods, functional fibre is used to describe isolated or extracted nondigestible fibres that are added to numerous food products to increase dietary fibre and modify the functional properties of the food. Fibre can be added to almost any food and beverage category — breads, cereals, dairy and confectionery; a fibre-fortified orange juice is a recent addition to the market.

Consumers no longer only equate fibre with regularity but also with fullness or satiety for weight management, longer-lasting energy, disease prevention and stable blood sugar. Whole grains, particularly in cereals, have proved popular with consumers and many of the largest players have converted entire cereal lines to whole grain. Indeed, by September 2005, there were 269 new products labelled as whole grain, already equal to all of 2004 and up from 185 in 2002.

Although there is much innovation in Europe and North America, Japan still leads the way in this category. The main classifications of fibre include:

Naturally occurring dietary fibre:
Lignins — found in the cell walls of woody plants and seeds
Beta-glucans — constituents of fungi, algae, and plants such as oats and barley
Inulin and oligofructose — occur naturally in a variety of plants — but can also be synthesised Resistant starch — naturally occurring but is also produced by the modification of starch during processing

Isolated fibres and supplements:
Psyllium — the husk of psyllium seeds
Chitin and chitosan — found in the exoskeletons of crabs and lobsters. Mostly consumed in supplement form.

Alternative sweeteners to sugar are seeing wide mainstream acceptance in food products as manufacturers seek to do their part to combat obesity. Reduced-calorie sweeteners such as polyols, xylitol and erythritol have fewer calories than sugar (2.4kcal/gram in the EU) and provide bulk to a product while also keeping insulin and blood-sugar levels in check. Non-nutritive sweeteners do not provide calories or bulk to a product, and can be hundreds of times sweeter than sugar. The heavyweights of this class include saccharin, acesulfame-K, aspartame and sucralose.

The market for alternative sweeteners is set to grow at 8.3 per cent per year until 2008
According to market analyst Freedonia, the market for alternative sweeteners is set to grow at 8.3 per cent per year until 2008, as rising health concerns drive consumers toward sugar-free products and manufacturers introduce low- or no-calorie sugar substitutes. Freedonia predicts sales will rise from a base of $81 million in 1998 to $189 million in 2008. Recent introductions of high-intensity sweeteners have been widely popular (despite some safety concerns).

Cereal giants Kellogg and General Mills are both introducing reduced-sugar versions of their popular cereals aimed at children. General Mills uses sucralose — available under the brand name Splenda invented by Tate & Lyle and marketed by McNeil Nutritionals — incorporated in traditionally sugar-laden children's cereals with 75 per cent less sugar. Kellogg has introduced reduced-sugar versions simply by adding less sugar than in their traditional children's cereals. Both cereal companies declined to give sales numbers but said their reduced-sugar cereal sales are going better than expected.

Splenda is clearly the Cinderella story of the decade. It was first approved in Canada in 1991, with the first product containing sucralose launched in 1992. The US did not approve it until 1998. By 2000, Splenda brand sucralose was available in 35 products. Today, Splenda can be found in about 4,000 new products world wide. Although often formulated in blends with ace-K, sucralose has gained market share at the expense of ace-K and, especially, aspartame.

"Whilst we estimate that the value of this market is up only modestly, by less than two per cent, sucralose has grown by 19 per cent in US dollars, reflecting both Splenda sucralose taking volume share from other sweeteners and pricing changes in competing products," a Tate & Lyle spokeswoman says. "Splenda sucralose has grown its market share with $253 million of sales compared to $212 million of sales in the 2005 year."

Globally, just more than half of Splenda sucralose by sales revenue is sold into foods, 40 per cent into beverages and eight per cent into the pharmaceutical industry.

Sucralose has double the shelf life of aspartame, and, unlike aspartame, does not react to heat and so it can be used in baked goods and other products that require high heat times.

The NutraSweet Company, which sells aspartame, is trying to get a handle on the market with a new sweetener called neotame, which the US Food and Drug Administration approved in 2002. Because of its intense sweetness profile, less of it is needed to sweeten products, which could pay dividends to manufacturers that use it. By the end of 2004, sales of neotame had quadrupled.

Tate & Lyle is not resting on its laurels. It really cannot afford to, as the patent on its sucralose recently expired, thus opening it up to competitors.

"Tate & Lyle has a comprehensive patent matrix covering manufacturing processes, product forms and blends," says the company spokeswoman. "Tate & Lyle holds 35 patents globally and has eight pending, which, should they issue as filed, will provide additional patent coverage beyond 2020. In addition to our patent portfolio, there are crucial barriers to entry including know-how, technology, economies of scale, regulatory and the Splenda brand."

The company has been aggressively marketing 'sweetener solutions' for the entire range of manufactured food and beverage products. Its expansion of a plant in Alabama doubled the capacity, and a second plant, in Singapore, will be up and running in 2007, so clearly Tate & Lyle is bullish on Splenda's continued success.

As the pitched battle for market share rages on among the big three, other competitors continue to vie for attention. Among natural sweeteners, stevia is plant-derived and is gradually becoming more popular but suffers from not being approved as a sweetener by the FDA. Fruit juice concentrates, brown rice syrup and honey are also being used by food producers as alternatives to sugar.

Soy and Whey Protein
Everybody is talking protein, from physical trainers and nutritionists to food companies and health-aware consumers. In particular, whey protein's solubility, digestibility, amino acid profile and other characteristics make it a popular choice for manufacturers interested in adding protein to their products. The dairy protein powder/formulas subcategory of sports supplements sales has grown consistently in 2000-05, to $1.16 billion in consumer sales in 2004, according to NBJ estimates.

Products containing soy are enjoying unrivalled popularity in the United States
Fortunately for many dairy processors, the same equipment used to make powdered milk and powdered cheese can also be used to blend and formulate protein powders. For this reason, dairy processors supply the bulk of raw whey protein powders to the burgeoning sports nutrition and weight-loss industries.

"Margins for whey protein product are much higher than those for dairy products produced on the same machines," says Chuck Hanson, vice president of marketing for Davisco Foods International. "Dairy product supply margins are based on production efficiency and controlling costs, whereas whey protein supply margins are supported by steadily rising demand."

Commoditisation of the dairy-based protein powders business is inspiring many suppliers to develop more technically advanced protein-based products. Movement toward more technical ingredients based on whey proteins is the next logical step for those interested in maintaining margins.

The soy-proteins market is dominated by large corporations, in particular Cargill and ADM. Products containing soy are enjoying unrivalled popularity in the US, as sales of soy milk, soy foods and supplements attest. Soy-food sales are estimated at $4 billion in 2004, on year-over-year growth of only 2.1 per cent overall — the slowest rate since the early 1980s. In 2004, four of the top five soy-foods categories showed decreased sales, and only soy milk posted increased but modest gains.

ADM is the world's largest supplier and processor of soybeans and an early mover in value-added soy proteins. It has been selling Novasoy, a product containing 40 per cent soy isoflavones, for several years and also sells soy flour, soy concentrates and textured vegetable protein. ADM's consumer research identified key drivers for soy and functional foods. Findings indicated that consumers would pay extra for supplements in pills but not in food. It also discovered that convenience comes first; great taste is the price of entry; and health benefits must be relevant and simple to understand.

Healthful eating is now a world-wide mainstream trend
The functional-foods and nutraceuticals industry has seen many highs and lows over the past year, but as major food companies look to increase their healthful product lines, suppliers are increasingly offering their ingredients for use in both food and supplements platforms. Pricing, an unpredictable mainstream media, pending GMPs that will require investment, and Chinese competition are all challenges that remain, but there can be no doubt that healthful eating is now a world-wide mainstream trend with all the opportunities that presents to both ingredients suppliers and product manufacturers.

This report is based on data from Nutrition Business Journal's Raw Material & Ingredient Supply Report 2006, NBJ's Annual Industry Overview 2006 (June/July 2006), and reporting by FF&N staff.

2004 US functional-foods sales by key ingredients

US vitamin E consumer and supply sales; 1995-2005 (sales $mil; all channels)

Top-selling US herbs and botanicals ranked by 2004 sales ($mil, all channels) 2000-2004


Herbs & botanicals







Non-ephedra combination herb blends







Noni juice







Green tea





















Saw palmetto







Ginkgo biloba





















Mangosteen juice







Milk thistle







Black cohosh root














St. John?s wort







Horny goat weed



































Evening primrose







Grape seed extract







Goji juice














Olive leaf extract













US raw materials and supply sales growth, 1997-2005































Sports nutrition




















Meal supplements










Speciality supplements










Natural/organic food










Functional food*










Natural personal care










Nutrition industry total










*Functional foods includes only fortification ingredients

Top concern: low-cost competition
According to Nutrition Business Journal's 2005 raw-material supplier survey, respondents cited low-cost competition as the biggest supply issue of 2004-5. Their concerns included:

  • Low-cost, low-quality competition (26%)
  • Imports of lesser-quality 'commodity' materials (15%)
  • Price competition from Asia (8%)
  • Negative media coverage of supplements (15%)
  • Slowdown of supplements markets in the US (20%)
  • Declining margins (11%)

US fish oil consumer and supply sales; 1995-2005 (sales $mil; all channels)

US glucosamine price estimates, 2001-2005 ($/kilo)






Commodity glucosamine






Pharma-grade glucosamine












*Assumes 7% in pharma-grade; note annual pricing averages are inexact and prices range broadly

US chondroitin price estimates, 2001-2005 ($/kilo)






Commodity chondroitin






Pharma-grade chondroitin












*Assumes 20% in pharma-grade; note annual pricing averages are inexact and prices range broadly.

Pharma-grade chondroitin includes shark cartilage sold at premium and bovine; commodity is usually bovine or undetermined. Note: estimates put global chondroitin volume at about 4,000 tonnes in 2005 with 3,500 tonnes from China

Probiotics suppliers



BI Nutraceuticals

Long Beach, CA


Stockholm, Swe


Heerlen, NL

Institut Rosell/Lallemand

Montreal, QC

JR Laboratories

Burnaby, BC

Khader Group

Mt Kisco, NY

Mitsui Norin Co

Halifax, NS

Nebraska Cultures

Walnut Creek, CA


Lund, Swe

Ria Int'l

Whippany, NJ

Sabinsa Corp

Piscataway, NJ

Scandinavian Formulas

Sellersville, PA

Specialty Enzymes & Biochemicals Co

Chino, CA

Strategic Technologies Int'l

Mundelein, IL

US co-Q10 price estimates, 2001-2005 ($/kilo)






Co-Q10 high volume






Co-Q10 low volume






Co-Q10 average






*Assumes 30% in lower volume; note annual pricing averages are inexact and prices range broadly

Intense sweetener market relative value [FY 2006, (FY 2005)]

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