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All natural products imports from China face higher tariffs

An already tariff-weary natural products industry will face elevated tariffs on nearly all ingredients and materials sourced from China, if a fresh 10% increase on the remaining US$300 billion in imports from China goes into effect Sept. 1, as promised by President Trump in his ongoing trade war.

The Trump Administration proposed the tariffs earlier this summer and held public hearings in June. However, the tariffs were put on hold after Trump and China President Xi Jinping met at the G20 Economic Summit in Japan in late June.

The tariffs would include the remaining imports from China not on the earlier three lists of punitive tariffs, some of which have elevated from an initial supplemental 10% to 25%.

The challenges for industry include how to deal with the elevated costs and possibly find non-Chinese sources of ingredients, whether another country or creating domestic supply. However, finding new sources can be nearly impossible for some ingredients, especially agricultural items that grow in certain climates and conditions. Further, it can take years to develop domestic sources of materials and ingredients that were almost exclusively imported for years and decades.

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GMP and FSMA rules compel close supply chain supervision

Supply chain management involves the careful oversight and organized handling of a product’s development flow, from purchase and receipt of the raw materials to its manufacturing, testing, label development, labeling, packaging and distribution processes with the various service providers in each segment of the supply chain.

Supply chain management is crucial for contract manufacturer selection because of FDA’s recent focus on the requirements under the Food Safety Modernization Act (FSMA), signed into law in 2011—rules that require firms to register their food facility in response to the Bioterrorism Act of 2002. The Act additionally gives FDA the ability to provide critical attention to “improved information management” to help protect the food supply. Under FSMA requirements, firms are required to have a written supply chain program. Not only “food firms,” but dietary supplement firms (i.e., own label distributors and contract manufacturers) as well, must comply per 21 Code of Federal Regulations (C.F.R.) 117 Current Good Manufacturing Practice, Hazard Analysis, and Risk-Based Preventive Controls for Human Food – Subpart G – Supply Chain Program.

In brief, Subpart G is comprised of eight sections:

  1. §117.405—Listing the requirements to establish a supply chain program;
  2. §117.410—General requirements applicable to the program;
  3. §117.415—Responsibilities of facilities that manufacture/process a raw material or other ingredient that it receives from a supplier (known as a “receiving facility”);
  4. §117.420—Use of approved suppliers;
  5. §117.425—Determination of appropriate supplier verification activities (including determining the frequency of conducting the activity);
  6. §117.430—Conducting supplier verification activities for raw materials and other ingredients;
  7. §11435—Performing onsite audits;
  8. §117.475—Records documenting the supply-chain program.

In addition to these regulations, FDA issued a guidance document [link “guidance document” to https://www.fda.gov/downloads/Food/GuidanceRegulation/GuidanceDocumentsRegulatoryInformation/UCM583490.pdf] in November 2017 to assist the industry in understanding the necessary roles and responsibilities and areas of enforcement.

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Seeing suppliers as true partners is key to successful business continuity planning

A business continuity plan is essential for every company, but this is especially important for contract manufacturers that depend on outside sources for ingredients and packaging components. With the globalization of the industry, and the way the nutraceuticals industry’s supply chain works across international boundaries, and with late delivery potentially causing a halt in the manufacturing process, contract manufacturers must have plans in place to ensure smooth operation. Contract manufacturers rely on raw material vendors and packaging suppliers to make products, so it is imperative that the finished brands know that their contract manufacturers have a plan to deal with out-of-stock situations. Addressing any issue, whether it is from a distribution error or logistical delay, manufacturers must continue to provide brands with consistent on-time delivery.

The industry must adhere to GMPs (good manufacturing practices) and proactively mitigate risk. This means not only making primary suppliers accountable to very high standards (i.e., strict incoming raw material requirements), but also pre-qualifying secondary and tertiary suppliers.

Working with suppliers closely to verify that raw material requirements are being met is a key factor, but the relationship also has other benefits. A well-researched and reliable supply chain should lead to excellent two-way communication. For example, being warned promptly of any likely delays or issues gives more visibility and extra time to make other arrangements, which means contract manufacturers can continue to supply products on time.

Both consumers and brand owners have an understandable increased interest in the integrity of the supply chain for nutraceuticals. The types of ingredients that go into the product and the fillers or additives used are increasingly drawing consumer attention. For example, consumers want to know if supplements are vegetarian, non-genetically modified organism (GMO) and/or natural. These issues are more acute for brand owners, and they need assurances about the ingredient’s purity and identity as well as heavy metals and microbial content to ensure the highest quality finished product.

Building a true partnership with suppliers means they look after contract manufacturers’ interests and communicate information about new, trending ingredients so that manufacturers can continue to innovate for brand owners. In fact, through these partnerships on many occasions, contract manufacturers are among the first to hear of new ingredients coming to market.

Moreover, it is always good practice for brands to ask their contract manufacturers about their relationships with suppliers. Brands should ask questions about the strength and length of their relationships, and inquire about the systems they have to check beyond the certificate of analysis (CoA) that is normally provided by the vendor. Another important question to ask is if contract manufacturers use a trust and verify policy with ingredient suppliers; i.e., do contract manufacturers test incoming batches and undertake onsite audits at least once every two years?

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Where is innovation in sports supplements?

Food and beverage delivery have grabbed much of the cool factor attention in the sports nutrition market. However, the most bang for the buck is still in supplement form, which can deliver higher amounts of beneficial ingredients for building muscle and improving recovery/adaptations, among other body goals. Where supplement brands have a tougher task in innovating delivery—will gummies infiltrate the sports supplement space?—they can create unique products in areas such as formulation and flavor.

How is your brand innovating in the sports supplements market? NEXTY Awards at SupplySide West 2019 is a chance for such brands and products to win recognition for quality innovation.

Flavor licensing is one area where some brands are winning consumers. While pre-workouts that break free from the usual common citrus flavors to bring candy or mocktail flavors, for example. Protein powders that go beyond the Neopolitan ice cream flavors to bring a wider array of dessert (think pie) and indulgent flavors (e.g. crème brulee and hazelnut latte).  

Industry market specialist Josh Schall, J. Schall Consulting, explained Man Sports first introduced flavors based on famous candy brands like Sour Patch Kids and Starburst, but the company had to use similar sounding names. Then Ghost Nutrition licensed actual consumer brands such Warheads, Swedish Fish and Chips Ahoy. Licensing flavors is part of what Schall calls creating an exclusive experience for consumers.

Schall and Ghost CEO Dan Lourenço will present during SupplySide West’s sports summit, Finding New Pathways in Sports Nutrition, on Wed. Oct. 16 in Las Vegas.

Novel and emerging ingredients may also help sports supplement brands standout. This is a bit harder to do on the protein side, even with the slight whey protein tweaks like native and grass-fed whey. New Hope’s NEXT data analysis (based on Expo West exhibitors) has shown a big dip in innovation in the whey, casein and milk protein categories, with more opportunity for these ingredients in food and beverage. Egg protein was the only animal protein showing positive innovation numbers in supplements. Most protein innovation activity in supplements was on the plant side, with pea and rice dominating and hemp lagging—a real opportunity area, NEXT said.

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Food and supplement industries battle sharply higher tariffs

The dietary supplement and food industries face continued tariff challenges, including a recent increase to 25% for many dietary ingredients imported from China and new retaliatory tariffs from India on nuts and produce coming from the U.S. Industry leaders, including several trade associations, have fought the tariffs via Congress, submitting comments and participating in public hearings on the China tariffs, but exclusion from the tariffs is far from a guarantee.

President Donald Trump and China president, Xi Jinping, agreed at the G-20 economic summit in Japan on June 29 to refrain from imposing any new tariffs while they restart trade talks. This puts a halt to the pending List 4 tariffs that would essentially cover the approximately US$300 billion in remaining imports from China not included in the first three lists of tariffs, including several dietary ingredients—many other dietary ingredients appeared in List 3.

While the Trump administration approved an exclusion process that will apply to the many dietary ingredients already subject to the higher tariffs, the exclusions for the earlier waves of tariffs were few and took a long time to process.

At G-20, Trump also spoke to India’s Prime Minister Nerendra Modi about the recently enacted tariffs by India on nuts and produce imports from the U.S., including apples, walnuts and almonds. The tariffs were widely seen as retaliation for the early June removal of India as a U.S. preferred trade partner—the Trump administration said India did not give the U.S. “equitable and reasonable access to its markets.”

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Supply chain partnerships deliver innovation to consumers

Consumers shopping for the latest beverage, snack or supplement have their list of criteria. They’re looking for clean labels, great taste, powerful nutrition … or all of these. And they’re increasingly interested in the story behind the brand. The growing interest in transparency is shining a light on the full supply chain, and offering companies the opportunity to showcase the partnerships they’ve developed.

Last year, Natural Products INSIDER called out some of these partnerships in the Esca Bona Supply Heroes series, designed to highlight brands that are using new approaches to repairing and solving challenges in today’s global supply chain.

Consider the work done by Alter Eco, maker of decadent chocolate products and holder of organic, Fair Trade and B-corp certifications. The company has developed strong collaborative relationships with cacao producers on the ground, focusing on improving the quality of life of all stakeholders. But it’s also taken things a step further with its work with Pur Projet, supporting the organization’s insetting philosophy and model with the goal of becoming a carbon negative business.

At the same time, not all aspects of the supply chain attract the same level of interest. Consider the laboratories that play a critical role in ensuring products meet established specs and are safe for consumption. Whether in-house or third-party, labs are an important part of the full process. Consider how Gaia Herbs, via its Meet Your Herbs program, is offering a look at not only the ingredient—traceable to the field—but also the testing results for every product.

Ultimately, it takes a village to raise a CPG brand. From the ingredient suppliers through contract manufacturers, the packaging suppliers and laboratories, each one has a role to play in helping a finished brand marketer bring a unique product to life.

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Building a better brand-supplier relationship

Part of the problem is rooted in misconception. For instance, some brand holders may think a supply partner doesn’t provide much value beyond a given product or service. Andrew Rice, director of product and brand strategy at Stratum Nutrition®, was quick to counter. “We absolutely want to ensure our customers find success with the products they masterfully create with our ingredients so that our brand partners and their customers both benefit.” Stratum’s value-add comes from internal resources it offers at no extra cost, such as brand, marketing, science and formulation consulting. “This is our way of ensuring they aren’t just getting an ingredient, but something that will help them find product launch success, build a stronger relationship with our company, and above all else, benefit their customers’ health and wellness.”

Shaheen Majeed, president worldwide at Sabinsa, said raw materials sourcing is an additional area brands may misunderstand. “Brand holders often worry that suppliers will fall short of supply, but in fact, good suppliers anticipate and take action to address potential shortfalls well in advance; that knowledge alone is worth its weight in gold,” he stated. “In the world of botanical extracts, if there is too much rain or not enough rain during the growing season, we can predict the outcomes fairly accurately; this can help the brand owners make adjustments. Supply chain risk mitigation is something that both suppliers and brand holders can, and should, work on together.”

Brand holders looking to formulate with USDA Organic ingredients should work closely with trusted suppliers. Saumil Maheshvari, senior vice president of business development, Orgenetics Inc., said a significant lag in organic supply can occur when trying to meet demand. “It often takes years for farms to become Certified Organic, and it also is sometimes not easy cultivating crops as USDA Organic,” he pointed out. Close partnership with an organic supplier allows a “forward mapping of supply/demand … to build out a supply chain of the future, for the future consumers.”

Maheshvari suggested, “This sort of ‘vertical collaboration’ can be the brand owner’s relevant teams reaching out to their specified supplier, and working with them through the entire product development’s stages—from inception/formulation to the marketing and timing of launch, etc. Having clear launch timings and expectations alleviates strains on USDA Organic supply chains (upstream to the farmer even), and it helps the supplier better manage investing in growth. It also secures new organic supply for the brand’s new products/projects.”

Beyond supply chain, Majeed suggested brands ask detailed questions of suppliers regarding testing protocols and standard operating procedures (SOPs). “A common misconception is that suppliers only test the first shipment and nothing after—this may be true of some suppliers, but should not be assumed,” he said.

Audits are another area where trust can be built. “Suppliers should expect to be routinely audited,” Majeed noted. “Any supplier that cannot or will not accommodate an audit by a customer should be suspect. It’s a basic GMP (good manufacturing practice) requirement.”

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Supply chain transparency: A practice of trust through legitimacy, from ‘farm to fork’

Supply chain transparency A practice of trust through legitimacy from farm to fork

How important is supply chain transparency to supplement brands? The level of its importance determines the level of the business’ growth and success. Supply chain transparency builds trust through legitimacy across the board–trust with suppliers, employees, customers and oversight agencies. Are you transparent in the chain? Are others transparent with you? More importantly, how high is the trust level within the chain? Have you ever suspected “deceptive documentation?”

Supply chain transparency is the disclosure and transfer of credible, accurate and truthful information from one supplier to another through the chain of products and services down to the end user. Specifically, in the dietary and food supplement industry, this could mean raw material originating from a farm; shipped or delivered to a raw material supplier or processor, then to a manufacturer; then finished product shipped to a distributor or direct to consumers. A commonly used phrase to describe this chain is “from farm to fork.”

Supply chain transparency is embedded in supply chain management that dates to the early 1900s, according to the supply chain management site SupplyChainOpz. As this network of business evolved, so did the need for dependence on each segment or entity to provide truthful and credible information in order to traverse the continuous flow of exchange of materials and goods through both foreign borders and domestic marketplaces.

The need for supply chain transparency is a demand being placed by consumers who want to know exactly what’s in their supplements, their sources or countries of origin, and how all the associated components were handled and distributed.

Over the last decade, increased attention from regulatory and compliance agencies resulted from a spate of food-safety issues and heightened threat of bioterrorism, as evidenced by the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (Bioterrorism Act), signed into law by President George W. Bush on June 12, 2002.

As a result, conducting an internet search for information on supply chain transparency today, will result in an overwhelming plethora of information, enough to keep one occupied at length. Whether this represents an emerging trend or a growing corporate awareness of consumer desires might be less debated given the climate of business-related human rights concerns also associated with supply-chain activities (e.g., child labor, forced labor, slavery and human trafficking). Consumers are not the only ones concerned about transparency.

Congress is just as concerned about supply chain transparency, traceability and disclosure requirements demonstrated in the Business Supply Chain Transparency on Trafficking and Slavery Act of 2014 (H.R.4842) introduced by New York State Rep. Carolyn Maloney (D-12). Further, FDA’s enforcement measures have caused the industry to pay more attention to supply chain management and transparency.

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Ensuring supply chain integrity before beginning supplement operations

Ensuring supply chain integrity before beginning supplement operations

In this remarkable age of international supply chains, instant transmissions of electronic information and voice communications, and the varied impositions of tariffs by different governments, the need for supply “country of origin” transparency has never been greater.

Recent statements from FDA Commissioner Scott Gottlieb, M.D., showed the agency believes it needs to step up its enforcement of the abuses of the dietary supplement industry that have been exposed in recent years. Concerns associated with imported goods remain, including the undisclosed presence of active pharmaceutical ingredients or their analogs, which have been identified by agency laboratories. The agency realizes to safeguard the consumers, it needs to step up enforcement of quality checks for imported materials.

One mechanism of this guardianship is the policing of new dietary ingredient (NDI) submissions by issuing timely acknowledgements of notification acceptance and better managing import alerts to customs and border officials to prevent adulteration, misbranding and potential harm to the consumer. This mandates transparency in the supply chain and honesty in disclosure documents.

Supply chain integrity rests squarely with the finished brand, which is tasked with the selection, handling, testing and processing of ingredients and components, as well as the composition, dose and shelf life of the finished product, whether it be a powder, liquid, tablet or capsule or in confectionery form. This elevation of responsibility was defined in statute with the passage of the Dietary Supplement Health and Education Act of 1994 (DSHEA) and the subsequent imposition of the cGMP (current good manufacturing practice) requirements.

What remains a mystery is why almost half of the cGMP inspections conducted annually by FDA still result in either official or voluntary actions being taken by the firms inspected to correct deficiencies in some of the most basic components of a cGMP system, according to information obtained in a Freedom of Information Act (FOIA) request.

Supply chain transparency, or lack thereof, can contribute to significant problems with the agency and the products intended for commerce. Either producers of products in our industry are naïve, or they are willfully ignorant of their responsibilities. In certain circumstances, importers are willfully ignorant of what is in their products. Those that engage in such deception should be met with the full force of federal law, and the offending products should be subject to immediate seizure, no matter where or how the products are being sold in the United States.

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Don’t take it personally—Regulations are the same for everyone

Dont take it personallyRegulations are the same for everyone

“Personalizing” intake is among the most exciting and logical approaches to nutrition. Nothing is more personal than something a person puts inside their body, such as a food or dietary supplement. The challenge for food and supplement brands is to make them even more personal.

The industry is approaching personalization with vigor, but regulatory pitfalls face these enterprising brands. Personalization was not anticipated by those who made the regulations, but manufacturing and labeling must follow the same laws as the old, once-daily multivitamins.

Combinations of different supplements have been put together in packs for decades. These presentations take individual product formulas and combine them in packaging for specific needs. The evolution of this would be to tailor a series of supplements for the individual and package them specifically for that person. This goal is difficult to achieve logistically and is near impossible to do from the standpoint of the regulations.

Individual batch records are required for every lot of finished product. Each “personalized pack” requires its own individual batch record, along with the other regulatory documentation and testing. Individual containers of product must be released, since these constitute a single “batch.”

To make things even more complicated, brands could custom blend individual nutrition packets for consumers. Each of these individual blends requires a master manufacturing record (MMR) along with additional production documentation. The testing requirements would be increased significantly because the results of one customer’s product are not applicable to the next. The additional burden imposed on companies wishing to venture into this must be considered during the development of the business. Compliant mechanisms can mitigate these challenges, but many of these solutions undercut the purpose of personalization.

Multiple products providing different ingredients require “ad hoc” labels for each production, but all labels must still meet regulations. That’s fine when there are rolls and rolls of labels, but not so easy when they are printed on demand.

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