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Functional Foods & Nutraceuticals Exploring the Canadian Possibilities Kelley C. Fitzpatrick, M.Sc. Marketing and Research Development Manager RICHARDSON CENTRE FOR FUNCTIONAL FOODS & NUTRACEUTICALS Room 256 Agriculture Building UNIVERSITY OF MANITOBA Winnipeg, Manitoba R3T 2N2 kelley_fitzpatrickumanitoba.ca CANADIAN DEFINITIONS Nutraceutical & Natural Health Product Product isolated or purified from foods Sold in medicinal forms - pill, powder, capsule Functional Food A conventional food Consumed as part of a usual diet Physiological Benefit or Protect against Disease Health Claim Variable status CANADIAN REGULATORY STATUS Natural Health Products New regulations Canada Gazette II, Summer 2003 Will allow expanded labeling information & health claims Will require much more stringent processing, etc. Functional Foods Five “generic” risk reduction claims approved within “Mandatory Nutrition Labeling” Jan 2003 Other “product specific” claims Not expected for 2 or so years Will allow some limited claims but with significant scientific support $150 billion Global Nutrition Industry in 2001 V i t a m i n s & M i n e r a l s14%H e r b s / B o t a n i c a l s13%N a t u r a l P e r s o n a l C a r e8%N a t u r a l / O r g a n i c F o o d20%S p o r t s , M e a l , H o m & S p e c8%F u n c t i o n a l F o o d37%Source: Nutrition Business Journal, 2002 2001 USA Category Growth 1 . 2 %2 . 0 %5 . 3 0 %8 . 0 % 8 . 5 %8 . 5 %9 . 6 % 9 . 6 %1 1 . 0 %7 . 0 %0%2%4%6%8%10%12%Herbs/BotanicalsVitaminsNaturalProductsMineralsFunctionalFoodsMealSupplementsSportsNutritionNatural/OrganicFoodSpecialty/OtherNutritionIndustrySource: Nutrition Business Journal, 2002 U.S. Functional Food Market Is Expected to Grow at 8.3% Through 2004 1996 1997 1998 1999 2000 2001 2002 2003 2004$12.3 Source: HBP Analysis, 2000 U.S. FUNCTIONAL FOOD RETAIL SALES ($ US billion) $13.7 $14.8 $16.0 $17.3 $18.8 $20.4 $22.1 $23.8 PROJECTED Trends driving FFN market Consumers More health conscious Natural self-medication Aging population Government Government Guidelines Regulatory framework(claims) Rising healthcare costs Health Care Professionals New discoveries in FFN Promote healthy eating NGO Support Retailer/Marketers Search for growth opportunities Rapid development of FFN Canada Represents a Respectable 2.8% of The Global Market, Considering Relatively Low Population Size 2001 GLOBAL NUTRITIONAL INDUSTRY (in Canadian $ billions) O t h e r$ 5 8 . 9 C a n a d a$ 6 . 6 J a p a n$ 3 5 . 7 E u r o p e $ 5 5 . 6 U . S .$ 8 1 . 0 Source: HSC Research and Analysis, 2003 TOTAL $239 Billion The Canadian Nutrition Market is Being Shaped by a Collection of Connected Forces Branded Manufacturers Branded manufactures have strong competitive advantage because they are established to meet current Canadian regulatory guidelines. Supply Chain The supply chain in Canada is very well organized. Legal/Regulatory Uncertain regulatory environment Consumer Demographics The largest growing segment is the aging consumer with growth of womens products ahead of other segments. Consumer Attitudes/Lifestyle Increased desire for healthier lifestyles and increased awareness Retailers The mass channel is the dominant leader for most sales while the direct channel lags behind. NUTRITION MARKET However, the importance of these forces varies by category. Source: Health Strategy Consulting Research and Analysis, 2003 Imports Because of current regulations many products are being purchased cross-border in the U.S. 2001 Canadian Market $ 6.6 billion CDN Herbs & Botanicals 10% Specialty Supplements 7% Functional Foods 41% Vitamins& Minerals 14% Natural & Organic Foods 19% Natural Personal Care 9% Source: Nutrition Business Journal, 2002 Factoring in Canadas Low Population, Sales Figures Reflect a Smaller, but Attractive Industry 2001 SALES (CAD $ Billions) Source: HSC Research & Analysis, 2003 REGION FUNCTIONAL FOODS ORGANIC FOODS SUPPLEMENTS NATURAL PERSONAL CARE TOTAL Western Europe $26.9 $1.7 $19.7 $7.0 $55.4 Canada $2.8 $2.0 $1.2 $0.6 $6.6 U.S. $29.1 $19.4 $27.6 $6.4 $81.0 Japan $17.5 $1.4 $12.9 $4.0 $35.7 The Canadian population is barely 0.5% of the worlds population, while America represents 4.5%. The ratio of 9:1 is a commonly seen when comparing the two countries industries. Canadian Spending Per Capita Reveals a Strong Market SALES PER CAPITA (sales population) (CAD.$) $ 2 9 9 . 3 6$ 2 1 2 . 3 2$ 2 8 3 . 0 5$ 1 4 6 . 9 7$0$50$100$150$200$250$300U . S . C a n a d a J a p a n W e s te r n Eu r o p ePopulation = 271M Sales = $81B Population = 31M Sales = $6.6B Population = 126M Sales = $35.7B Population = 377M Sales = $55.6B Source: HSC Research and Analysis, 2003 Canadian per capita purchases of nutritional products in 1997 was only $91. Canada Healthy Foods and Supplement Market Ca. $ 1.23 billion US annual Supplement sales (NBJ 2002) 68 % Canadians Vitamins 60 % Minerals 25 % Herbals 28 % Men 64 % Women 72 % Highest usage aged 18-29 years old Angus Reid Group, 2000 Top 5 Selling Herbs (by Canadian Household) 35%17%16%9%7%0%5%10%15%20%25%30%35%Ec h i n a c e a G i n s e n g G i n k g oB i l o b aG a r l i c St. J o h n sW o r tSource: Canadian Natural Health Retailer, September-October 2001 Ontario Leads Retail and Supplier Sales O n t a r i o41%Q u e be c20%B r i t i s h C ol u m bi a17%P r a i r i e P r ov i n c e s17%A t l a n t i c P r ov i n c e s5%O n t a r i o45%Q u e be c20%B r i t i s h C ol u m bi a23%P r a i r i e P r ov i n c e s10%A t l a n t i c P r ov i n c e s2%NATURAL PRODUCT HEALTH RETAIL STORE SALES SUPPLIERS SALES (distributors & manufacturers) Retail and supplier sales closely follow populations the heavier populations densities found along eastern Canada. Source: Saskatchewan Nutraceutical Network, 2002 The Canadian Industry Number of Companies % of Companies British Columbia 47 22% Alberta 15 7% Saskatchewan 26 12% Manitoba 7 3% Ontario 52 24% Quebec 49 23% New Brunswick 2 1% Nova Scotia 7 3% Newfoundland 6 3% Prince Edward Island 4 2% Total 215 100% Source: Canadian Technological Road Mapping on Functional Foods and Nutraceuticals, KPMG 2002 & the Saskatchewan Nutraceutical Network, Membership Directory, 2001. Primary Focus of Western Canadian Industry Personal Care Products 15% Other 11% Natural Health Products 52% Functional Foods 22% Source: Saskatchewan Nutraceutical Network, 2002 Products Natural Health Products Over 70 herbs grown in Western Canada Essential Oils Caraway, coriander, dill, celery, hemp Elk velvet and emu oil products Willowherb (Fireweed) Echinacea Products Elk Velvet Products Ingredients from Oilseeds & Others Essential Fatty Acid Supplements Omega 6 - Borage, Evening primrose, Black Currant, Hemp Oil Omega 3 - Flaxseed, Fish, Hemp oil Algae Sources - EFAs, Carotenoids Pumpkin seed oil Conjugated Linoleic Acid - Sunflower Oil Flaxseed Lignans Hemp based products Phytosterols Nutritional Significance of Canola Oil Healthy Fatty Acid Profile Cholesterol Free Optimal Balance of Essential Fatty Acids (EFAs) “Good” Source of Vitamin E Source of Phytosterols Borage Also known as “Starflower” Richest source of GLA 20-24% GLA Grown extensively in Western Canada Hemp 3 - 4 % GLA 20 % ALA Grown in Western Canada since 1998 Phytoestrogens 75 - 800 times higher than 66 other plant foods (Thompson et al. Nutr. Cancer, 1991) Major lignan - Secoisolariciresinol diglucoside (SDG) converted by bacteria into estrogen-like compounds Estrogenic Properties Structurally similar to several sex hormones FLAXSEED LIGNANS Anti-oxidant Properties Reduce Atherosclerotic lesions Hypoglycemic effects ( Prasad, K. 1999. Circulation. 99(10):1355) Alleviate symptoms related to lupus nephritis (Clark, W.F. & A. Parbtani. 1998 US Patent 5837256 ). Reduce hormone-dependent cancers - breast, endometrial and prostate (Thompson, 1995. In: Flaxseed in Human Nutrition) Decrease rate of bone resorption Protection from bone loss (Arjmandi, B.H. et al. 1998. JANA. 1(2):27.) FLAXSEED LIGNANS Flax & Soy Energy Bar Multi-ingredient formulas EFA blends, condition specific formulas Phytosterols Oats & Barley Beta-glucan - FDA Health Claim Soy Fenugreek Wheat Bran, Lentils, Peas & Bean Soluble & Insoluble fiber Red clover Functional Foods & Ingredients Fenugreek Functional Foods & Ingredients Omega 3 enriched products Dairy & Vegetable sources - Pro & Prebiotics Modified fatty acid vegetable oils Fruit products Seabuckthorn, Saskatoon berry, blueberry, cranberry etc. Seabuckthorn Canadian Nutritional Industry Summary Rapid growth Past few years spawned largely by consumer demand for natural health products While seemingly small when compared to other global powerhouses in the nutritional industry Rapid growth of 130% in consumer purchases in the last four years Comparable per capita spending to other leaders Leads to position of a competitive contender in the global market Source: Health Strategy Consulting Research and Analysis and SNN 2002 Canadian Nutritional Industry Summary Functional foods - largely undefined segment continues to be pulled by consumers into traditional food market The supplement category - largely affected by regulations allowing a few companies to have a large portion of the market share Distribution - highly dominated by mass, health food and specialty stores Regulatory reform vital for ensuring consistent enforcement of safety, quality and efficacy issues, while also allowing for the growth of a competitive industry Source: Health Strategy Consulting Research and Analysis and SNN 2002 Low production costs & high quality raw materials Leader in oilseeds & grain processing Strong research infrastructure focused on value added ag production - unique Innovative growers with capacity to expand Capacity for small-scale custom processing Government support for agriculture Innovators and entrepreneurs in the sector Proximity to US market Industry Strengths Western Canada Industry Challenges Focus on production as opposed to producing for markets Research funding constraints Regulatory and business constraints Identifying market opportunities and constraints Competitive intelligence Identifying and attracting skilled human resources Consumer Positioning, Awareness & Education Health Claims in Canada Current Situation Food and Drug Act & Regulations, 1953 Premarket approval by HPB for new foods and drugs. Health claim - Drug Identification Number (DIN) and New Drug Submission required. Prohibit sale or advertisement of products which indicates a treatment, cure or preventive role for diseases or disorders listed in: Schedule A wide range of diseases and disorders including CHD, diabetes, cancer, hypertension, obesity and arthritis Generic Health Claims Foods Calcium & Osteoporosis Sodium & Hypertension Dietary Fat & Coronary Heart Disease Fruits, Vegetables & Cancer Dietary Sugar Alcohols (sorbitol, xylitol, mannitol) & Reduced Risk of Dental Caries Generic Health Claims Foods Further Scientific Review underway Folate and Neural Tube Defects Fibre-Containing Grain Products, Fruits and Vegetables and Cancer Fruits, Vegetables and Grain Products that Contain Fibre, Particularly Soluble Fibre and Risk of Coronary Heart Disease Other Health Claims ? Soy Protein & Risk of Coronary Heart Disease Sterols/stanols & Risk of Coronary Heart Disease “Qualified” Health Claims Structure / Function Claims NATURAL HEALTH PRODUCTS A New Vision Report of the Standing Committee on Health Joseph Volpe, M.P Chair November 1998 Natural Health Product - Definition Purpose - Diagnose, treat, mitigate or prevent disease Restore or correct organic functions Maintain or promote health Natural Health Product - Definition Health Claims - impact of Schedule A? Working Group, Feb 2003 reassess diseases in Schedule A suggest possible modifications to Schedule Sub-set of Drugs Does not require establishing a new regulation for each new health claim All products MUST register as NHPs and carry a claim Natural Health Product Definition Categories - (a) Plant, alga, fungus or non-human animal material (b) Extract or isolat