Supplement Sustainability Can Sow Competitive Advantage

Much of the dietary supplement industry may be missing the movement toward sustainability in ingredient sourcing. Advocates say adopting practices that consider economic, environmental and social sustainability can make for a more predictable supply chain and more compelling marketing message.

The dietary supplement industry largely is missing the boat on sustainable ingredient sourcing, some stakeholders say.

Meanwhile, firms that have embraced principles of economic, environmental and social sustainability say they benefit from a more predictable supply chain as well as a resonant marketing message.

With resources under pressure and increasingly volatile ingredient costs, the defining aspect of sustainability may be seen in the difference between a company that survives and thrives in the long run, and one that does not.

“Many companies are still behind the curve,” said Audra Davies, VP of nutrition product development and analytical sciences at [Amway Corp.] “We certainly don’t see the supplement industry moving as aggressively toward sustainability as we’ve seen in some of the consumer goods industries.”

Amway’s Nutrilite line generated $4.7 billion in 2011 sales, making it the world’s top-selling supplement brand. With that kind of scale, the firm has had a distinct advantage in establishing 6,400 acres of in-house organic farmland across North and South America.

Echinacea harvesting at Amway's Trout Lake, Wash., farm

Photo courtesy of Amway

On the other hand, some small and medium-sized supplement companies have made sourcing sustainable ingredients their modus operandi as well, including Gaia Herbs, [Herbalist & Alchemist Inc.], MegaFood and New Chapter Inc., which Procter & Gamble Co.recently acquired (Also see "Procter & Gamble Opens New Chapter With Supplement Deal" - Pink Sheet, 26 Mar, 2012.).

Ethnobotanist Trish Flaster, who helps supplement firms source ingredients through her consultancy Botanical Liaisons LLC, says the industry’s emphasis on marketing health claims and the difficulty obtaining patent protection on ingredients relegate sustainability largely to an afterthought.

“There are probably a thousand different companies doing dietary supplements, maybe more. And I still think I could count on my hands the number of companies that are really trying hard to do sustainability,” she said. “It has increased incrementally, but it’s still very small.”

A Sustainable Consumer Proposition

While the definition of sustainability can become muddled in a marketing message, many consumers seek “sustainable” products and project their own definitions onto the term.

In 2010, the Federal Trade Commission proposed an update of its Guides for the Use of Environmental Marketing Claims – the so-called “green guides” (Also see "FTC Advises Against Unqualified "Green" Claims, Including Eco-Seals" - Pink Sheet, 18 Oct, 2010.). FTC laid out views on sustainability from commenters that defined the subject in a broad sense – how an organization positively impacts future economic, environmental and social conditions, for example – as well as narrow, sector-specific perspectives, such as that offered by the Sustainable Forestry Initiative.

Ultimately, FTC opted to not provide guidance on “sustainable” as an environmental marketing term, “given the diversity of possible phrases and imagery” associated with it, some of which are not directly related to the environment.

Still, many consumers associate sustainability in marketing with environmental health. A study by market research firm Packaged Facts on consumers and sustainability, focusing on product categories including OTC medications and supplements, found 44% of respondents associated sustainability with conserving natural resources and recycling.

Packaged Facts says supplement consumers perceive a product’s eco-friendly characteristics – such as “natural” and “organic” – as an indication of product efficacy. The September 2009 study, conducted with the Hartman Group, also found consumers with wellness concerns are more willing to try sustainable alternatives, while brand loyalty drives purchases of OTC drugs for more acute health conditions.

“Consumers frequently shift to sustainable supplements as an easy next step along the pathway of sustainable purchasing because sustainable supplements are perceived to be better both personally and environmentally,” Packaged Facts says.

Using minimal or more environmentally friendly packaging materials also is part of the consumer appeal equation for OTC drug and supplement manufacturers. The Sustainable Packaging Coalition is working toward best practice packaging solutions with members including consumer health product companies such as P&G, Abbott Laboratories Inc., Johnson & Johnson and supplement maker [Rainbow Light Nutritional Systems] (Also see "OTC, Supplement Firms Wrapped Up In Sustainable Packaging Initiatives" - Pink Sheet, 2 May, 2011.).

Controlling The Harvest

Amway believes the sustainability of its Nutrilite products derives from its control of a largely vertically integrated supply chain. For crops not climatically or geographically suited to its facilities in California, Washington, Brazil and Mexico, Amway looks to its global network of third-party growers.

Davies points out that, because organic farming requires such a long-term commitment, Amway likewise has long-term relationships with ingredient suppliers. These relationships, coupled with an intensive auditing program, ease ingredient traceability and offer Amway a degree of pricing stability.

But most companies would be hard-pressed to exercise that type of oversight of third-party farms. Indeed, even for Amway “it’s not the path of least resistance,” said Davies.

“There is a tremendous amount of diligence that goes into managing the quality of our botanical ingredients,” she added.

Additionally, many botanical ingredients do not lend themselves to conventional agriculture at all, necessitating the practice of wild-crafting, which may have serious implications for the sustainability of a plant species.

The American Herbal Products Association and American Herbal Pharmacopoeia, with help from Flaster, developed a guideline for good agricultural and collection practices for herbal raw materials, including sustainable harvest techniques.

“Harvesters of wild plants must apply collection practices that address not only their need to gain economic benefits from the sale of wild-harvested plants, but that also make sure that each of the collected species survives,” according to the document, published in December 2006.

“Consumers frequently shift to sustainable supplements as an easy next step along the pathway of sustainable purchasing because sustainable supplements are perceived to be better both personally and environmentally.”

– Packaged Facts

Among AHPA’s recommendations, harvesters should collect only from abundant stands of the species while minimizing habitat disruption, such as trampling surrounding plants. For bark harvesting, avoid “girdling” trees, which means removing bark all the way around, and harvest from branches as opposed to the trunk, where possible.

For botanical ingredients supplier Euromed USA, sustainability is a function of the firm’s control over a plant. Ideally, that includes owning the seed genetics as well as the land on which it grows, said the company’s General Manager Joe Veilleux. When Euromed relies on wild-crafted materials, especially from developing countries, sustainability gets complicated.

“In the West we kind of play by the rules, and when you have to get a plant from Africa or China or somewhere that doesn’t always play by the rules, then sustainability becomes a bigger issue,” Veilleux said.

He cited issues with pygeum, a tree bark from Cameroon used in herbal supplements for prostate health. After poachers began chopping down trees, some of which had stood for a century, pygeum was listed by the Convention on International Trade in Endangered Species of Fauna and Flora, which limits trade of endangered plants and animals. Additionally, the European Commission in 2007 banned imports of pygeum from Cameroon due to the unsustainable harvesting practices.

In such instances, cooperation among international regulatory bodies, governments and companies is needed to protect an economically valuable species, Veilleux said.

Euromed USA, the Presto, Pa.-based subsidiary of Spanish firm Euromed S.A., is making a concerted effort to ensure the continued viability of saw palmetto, one of its top-selling ingredients. Last year, the company launched the Glade-iator program through which it donates to the Everglades Foundation, a nonprofit working to safeguard the Florida habitat that is the main source of saw palmetto berries (Also see "Euromed Recruits Supplement Manufacturers For Saw Palmetto Conservation" - Pink Sheet, 28 Mar, 2011.).

Investing At The Source

Veilleux suggested that educating harvesters on sustainable practices is important.

But Fair Trade USA takes that a step further, arguing that workers need to feel invested in the land to make sustainability education stick.

The nonprofit works with suppliers and producers of agricultural goods to audit supply chains for environmentally and socially sustainable practices, then licenses out its Fair Trade Certified label for use on finished goods. Premiums paid by consumers at the retail level go back to the producers to be invested in the farming communities, often to make the land more productive.

“Our belief is that the best way to protect the environment is to invest in the people who work the environment, who work the land,” said Mary Jo Cook, chief impact officer for the Oakland, Calif.-based organization.

Among the product categories Fair Trade certifies are cocoa, tea, nuts, oilseeds, herbs and spices. Though it does not currently work with producers of ingredients specific to dietary supplements, Cook said Fair Trade is willing to include them, as long as it can ensure adequate market demand.

Consumer product manufacturers typically contact Fair Trade to source certain certified ingredients and often request other ingredients it needs but that are not yet certified. After Fair Trade hears from several companies looking for a certain ingredient, it initiates the process of working with suppliers to certify sources.

“We’re very open and eager to bring on new farmers sourcing new ingredients when there’s market demand, and it’s simply just a matter of figuring out how to stage them and how high the interest is,” Cook said.

Botanical Liaisons’ Flaster points out that flash-in-the-pan, poorly researched supplement ingredients can devastate agricultural communities that tried to establish a sustainable supply. As an example, she referenced hoodia, the African plant that in the mid-2000s enjoyed a wave of hype as the next big weight-loss ingredient (Also see "AHPA Hoodia Committee To Promote “Responsible Commerce”" - Pink Sheet, 5 Dec, 2005.).

But after much hoodia on the market was found to be adulterated with other cheaper plants, consumer demand waned. According to SPINS Inc., weight-loss supplements containing hoodia generated just $1.1 million in U.S. sales during the 52 weeks ended March 17, taken from natural and conventional retail channel data, excluding Walmart and Whole Foods Markets.

“Too often, business looks at a very short term, and that hasn’t been beneficial in many things,” Flaster said. “What happens when [market demand] disappears is that it has a really negative effect on the local environment – those people built up a supply and then nobody buys it.”

Fair Trade USA, conversely, helps companies focus on the long term by securing sustainable supply chains, which Cook said impart a competitive advantage over firms racing to the bottom for cheap ingredient sources. Marketers also see an advantage of having the Fair Trade Certified logo – and thus a more compelling story to tell – to differentiate their products at retail, she added.

Science has alleviated the need to harvest certain botanical ingredients, as many supplements today are formulated with synthesized nature-identical components.

But FDA’s stance in the 2011 new dietary ingredient notification draft guidance – that synthetic versions of botanicals cannot be dietary substances – has raised concerns that an inability to use synthetics could spur a return to unsustainable harvesting practices.

In a positive turn for the supplement industry, FDA’s recent warning letters to firms marketing bodybuilding products containing DMAA suggest the agency will be flexible in accepting synthetic ingredients if “commonly used as a food or drink” to increase dietary intake (Also see "DMAA Warnings Shed Light On FDA NDI Enforcement" - Pink Sheet, 7 May, 2012.).

Plenty Of (Some) Fish

Supplement ingredient sustainability extends beyond plants into animals, most notably fish as a source of omega-3 fatty acids.

While overfishing and polluted waters are placing the future of many marine species at risk, most omega-3 fish oil – about 75%, covering all commercial applications – comes from the fairly robust Peruvian anchovy fishery, according to Global Organization for EPA and DHA Omega-3 Executive Director Adam Ismail.

The nonprofit non-governmental organization Friend of the Sea has certified the Peruvian anchovy fishery as “not overexploited” and Ismail says sonar monitoring by Peru’s government has found a stable biomass of anchovies over the past 15 to 20 years. The semi-independent Instituto del Mar del Peru studies the country’s coastal marine environment and biodiversity, and advises the government on setting catch quotas.

Unlike other fisheries governed by multiple governments or international entities, Peruvian anchovies swim almost entirely in Peruvian waters, giving the country better control over the species’ sustainability.

Ismail says Peruvian anchovies yield about 300,000 tons of oil, plus or minus 10%, each year. As omega-3 food and supplement applications have become increasingly lucrative, more of the catch has shifted toward that industry and away from aquaculture. The overall catch has remained relatively stable.

“I think the industry feels pretty confident that it’s a sustainable catch and sustainable source of omega-3s,” Ismail said. “The real question is, as omega-3s grow in demand … what happens when the demand exceeds the sustainable catch?”

“I think the industry feels pretty confident that it’s a sustainable catch and sustainable source of omega-3s. The real question is, as omega-3s grow in demand … what happens when the demand exceeds the sustainable catch?”

– GOED’s Adam Ismail

According to SPINS, fish oil concentrate sales in the U.S. rose 8.7% to $351.1 million in the 52 weeks ended March 17.

Ismail suggested omega-3 attention could turn increasingly toward other fish species, including cod and tuna, as well as crustacean-derived krill oil. Outside the animal kingdom, algae provides vegetarian omega-3 oils for companies including Royal DSM NV, which has a nutritional lipids business comprising polyunsaturated fatty acids from both algae and fish (Also see "DSM Makes Waves In Omega-3 Fish Oil With Ocean Nutrition Pick-Up" - Pink Sheet, 21 May, 2012.).

One Firm’s Trash

Identifying value in another company’s waste stream is another aspect of sustainability that makes good business sense but often is overlooked.

For example, omega-3 fish oil supplement manufacturers are not limited to sourcing from a fresh catch. New Chapter gets the oil for its Wholemega products from pressing otherwise discarded heads of salmon that have been filleted for grocery stores (Also see "Natural Products Expo West In Brief" - Pink Sheet, 4 Apr, 2011.).

Another company using innovative and sustainable sourcing for both fish- and plant-based ingredients is Cyvex Nutrition Inc. As a subsidiary of [Omega Protein Corp.] since late 2010, Cyvex feeds off its parent’s production of fish meal for omega-3 oil to make the OmegaActive supplement ingredient (Also see "Omega Protein Diversifies In Nutritionals, But Draws Short-Term Doubts" - Pink Sheet, 19 Mar, 2012.).

“All parts of the fish are used,” said Cyvex CEO Matthew Phillips.

Throughout the firm’s ingredient portfolio are examples of waste streams from other industries, such as Biovin grape extract, sourced from the leftovers of wine producers.

Cyvex’s SolaThin potato protein extract, marketed for weight-management supplements, is a concentrated byproduct of potato starch processer Avebe Group, based in the Netherlands. Cyvex struck a deal with Avebe for SolaThin’s worldwide marketing rights and also has invested jointly with the Dutch firm on a clinical trial to evaluate the ingredient’s benefits.

“Ideally, you find partners or ingredients where there’s a continuity in supply, that have a good story from a health perspective, and that you can then go and invest in the science side,” Phillips said.

Many Moving Parts

Analyzing the lifecycle of a consumer product – measuring the energy and resources expended at each step in the supply chain, production, consumer use and disposal – can help a company make its operations and output more sustainable.

In this area, the supplement industry likely can learn something from other consumer health product companies and their strategies to minimize costs and resource use.

Procter & Gamble has been especially vocal about its sustainability efforts, as it strives to return to profitable growth. The diversified company releases annual sustainability reports tracking its progress on multiple fronts, and has pledged to reduce packaging and raw materials in hopes of saving $4.5 billion in manufacturing costs (Also see "P&G Targets $10 Billion In Cost Savings In Four Years" - Pink Sheet, 5 Mar, 2012.).

Tom’s of Maine Inc., part of Colgate-Palmolive Co., regularly reevaluates ingredients in its toothpastes, mouthwashes, antiperspirants and other personal care products, as well as packaging materials, to see whether more sustainable options are available.

For instance, the Kennebunk, Maine, company recently transitioned from a deodorant ingredient extracted from wild-crafted lichen that grows on trees, to a more potent substance derived from hops grown as a crop, which provides a more predictable and sustainable supply.

Given its home state’s potato industry, Tom’s also is collaborating with the University of Maine to develop a bio-plastic made from locally sourced potatoes for its mouthwash bottles.

Pam Scheeler, stewardship manager for Tom’s, says the lifecycle analysis of each product component strives to minimize the firm’s carbon footprint from transportation and production inputs. But with some ingredients, regulatory considerations, as well as how much they ultimately add to the retail price, may be paramount.

“There’s definitely a tipping point and a multivariate consideration that goes in,” Scheeler said. “Is it an ingredient that you have to have at a USP-level purity because it’s a drug ingredient? Is it a flavor?”

With many moving parts, deeming one ingredient more sustainable or less environmentally damaging than another hardly is cut and dry.

“You might be weighing one that has more transportation costs versus one that has more processing costs to the environment. How do you weigh those?” Scheeler added.

Seeking Opportunities, Avoiding Conflicts

Amway’s scale allows it to invest in a high level of ingredient sustainability that could serve the firm well in the face of supply chain disruptions such as rising energy costs, climate change and natural disasters.

The Ada, Mich., company is in the midst of spending $180 million on its U.S. nutritional infrastructure, including a $31.8 million extraction and concentration facility near its organic farm operations in Trout Lake, Wash., further integrating the Nutrilite supply chain and reducing its carbon footprint (Also see "In Brief" - Pink Sheet, 28 May, 2012.).

Acerola cherries from Brazil for Nutrilite supplements

Photo courtesy of Amway

But smaller companies – essentially the rest of the supplement industry – may be able to afford only small steps toward sustainability that will save costs and enhance competitive advantage in the longer term. It is crucial for a firm to conduct lifecycle analyses to see where its greatest and most cost-effective opportunities lie.

A firm also should clearly define sustainability through quantifiable goals, such as reducing carbon emissions by a certain amount or purchasing a certain percentage of ingredients from certified or local sources.

An amorphous definition of sustainability can create conflict with other markers of environmental friendliness, such as the popular “natural” claim. While many consumers are attracted to natural products, natural ingredients are not always the most environmentally sustainable.

The controversy over genetically modified organisms, which some see as a growing threat to supplement companies in the form of proposed labeling requirements, is one example (Also see "California GMO Labeling Initiative Threatens Supplements" - Pink Sheet, 21 May, 2012.).

Natural Products Association VP of Scientific and Regulatory Affairs Cara Welch points out that ensuring a product is free of GM ingredients may require a company to source from Europe or elsewhere overseas, which makes for a less sustainable supply chain.

“For companies selling here in the U.S., it doesn’t always make dollar sense or just environmental sense” to eschew GM ingredients, Welch said. “I think if consumers knew all of these shipping costs back and forth, they might feel differently about their GMO-free ingredients.”

Welch added that, although the interplay between sustainable and natural can be complex and often unclear, NPA increasingly considers aspects of sustainability in its Natural Seal certification program for home and personal care products.