Designing Organics

The organic market is healthy -- economically healthy that is. According to the Organic Trade Association, Greenfield, MA, almost 30% of the U.S. population already buys organically grown products. Additionally, retail sales of organic products are expected to top $20 billion in the United States by 2005. Sales figures from 2003 are estimated at $12 billion.

"Organic is not a fad," says Laurie Demeritt, president and COO of The Hartman Group, Bellevue, WA, a consulting and market-research firm. "Rather, consumers have turned to organic foods as a way of taking care of their health and well being, as well as making a statement about who they are in both social and psychological contexts. The interest in organic has been steadily building over the years, and organic has become a constant in consumers' lives; it has become part of who they are and what they value. One thing is certain, organic is here to stay."

Organic still represents a relatively small segment of the U.S. food industry. "It is important to remember that many organic users only buy organic on an occasional basis, which helps explain why organic food and beverage represents only 3% to 5% of overall food and beverage retail sales," says Demeritt.

Changes in consumer buying patterns, however, do show an encouraging trend. "The number of daily, weekly and monthly users has increased since 2000," Demeritt adds. "Although consumers continue to enter the organic category, (the number of those who have "never" used has decreased), the more profound change in usage is that consumers who were using organics occasionally in 2000 are increasing their frequency of purchase."

The fresh-vegetable and -fruit aisle is usually a gateway for organic consumers. "Organic produce is typically an initial pathway for consumers to be introduced to the organic marketplace, so the fact that consumers are now interested in organic 'staples,' such as organic spices, organic flour, organic oils, etc., indicates that they truly believe organic products are better for them, their family and the environment," says Steve French, managing partner, The Natural Marketing Institute (NMI), Harleysville, PA.

Indeed, getting consumers to buy more organic food more often is one way the food industry can successfully fuel organic growth. In fact, a nationwide online survey by Whole Foods Market, Austin, TX, in 2002 found that 75% of all consumers say they would likely eat organic foods more often if a larger variety was more readily available. Most likely, consumers will get their wish.

"We see many multinational food manufacturers becoming more active in the organic industry because of its growth potential," says French. "Many of the these large manufacturers have recently bought organic food brands. And since these companies typically have the marketing expertise and resources, the consumer is being exposed to more products, more brands and increased availability -- all good for the organic industry."

And while the influx of big companies might put the smaller, organic pioneers out of business, hopefully the pie is big enough for everyone to get a healthy slice. "There are opportunities for everybody," says Craig Bair, Ph.D., president, Food Solutions, Inc., Greensboro, NC, a food-industry consulting agency specializing in organics. "The big guys move slowly and won't always capitalize on small niche opportunities. The small guys need to focus on being creative in these niches, which can still provide excellent income and room for growth, and let the big guys cover the wide-range products."

Federal regulations, which took effect Oct. 2002 under the Organic Foods Act of 1990, now govern organic products and their labeling. A nationwide standard finally exists for how products billed as "organic" must be grown, processed or raised.

While government legislation is often viewed as intrusive -- or simply excess bureaucracy -- many in the food industry welcome organic definitions. "The fact that USDA made the rules gives a lot of credence to the whole organic movement," says Bair. "I love that the government has said: 'Hey, this is a very viable industry and food market segment, and we believe in it, we support it, and we're going to regulate it.' This legislation was also much needed. Nobody really knew what to do prior to the rules. These new labeling restrictions and classifications are something you can sink your teeth into. Plus, there were so many fraudulent things going on in the marketplace before." The current rules and regulations can be found on the National Organic Program (NOP) website at http://www.ams.usda.gov/nop.

One component of the legislation, as it relates to product development, is the certification requirement. Certification, whether for agricultural products, ingredients or manufacturers, helps assure quality and prevent fraud. So while anyone can make an organic product, in order to call it "organic" it must comply with certification regulations. It's also a requirement for use of USDA's organic seal on packaging.

Certification is granted by an accredited agent; a comprehensive list of USDA-accredited certifying agents can be found on the NOP website. "There are a lot of domestic and international agencies out there, and new ones are being added all the time," says Bair. "Each agency has its own forte and each manufacturer needs to find out which one is going to be best for them."

Take a dive into the world of organics, and you quickly realize that organic-product development can't happen in a vacuum. In fact, an R&D department that acts alone will most likely just spin its collectively creative wheels.

Successful organic-product launches usually result from two-way communication and good relationships between product developers and other integral departments. Organic R&D isn't just about formulas. It impacts marketing's choice of product and its labeling, positioning and price points; purchasing's ingredient sourcing; quality assurance's ingredient specifications; manufacturing's scheduling, processing and sanitation procedures; and the warehouse's ingredient handling and storage.

Before development should begin, the marketing department must define the product's target market. Because NOP regulates organic labeling, it becomes part of the target-market assessment. As stated above, producers and handlers must be certified by a USDA-accredited agent to sell, label or represent their products as "organic." Several categories exist within the organic label designation: "100% organic," "organic" or "made with organic ingredients." Some producers and handlers might qualify for exemption from certification and may use the term "organic" in compliance with the labeling requirements specific to their exemption.

"When you're developing an organic product line, you need to consider which organic label you want on your package because there are different ways within each classification group as to how you can approach it," says Bair. "A '100% organic' product must contain 100% certified-organic ingredients. This is very difficult unless the product is minimally processed. If you choose the 'organic' label, which must have at least 95% organic ingredients, there are restrictions and it's a little more costly to get into. Choosing 'made with organic ingredients,' which must contain at least 70% organic ingredients, gives you a little more leeway."

Read the previous paragraph very carefully. It contains a critical distinction. Because of vague legislative language, confusion surrounds the difference between the use of "100% organic" and the simple "organic" distinction.

Many companies assume products can carry the "100% organic" label if 100% of their ingredients are certified organic. This is not the case. They can only use the "100% organic" label on products made completely from ingredients certified as "100% organic." Something labeled as "organic" has to only have 95% organic ingredients. Containing all 95% organic ingredients does not make a product "100% organic."

Some distinctions need clarification up front because, as any food scientist knows, it's hard to formulate without direction. Conversely, as any marketer knows, it's hard to make decisions without a product formula. At a minimum, manufacturers should run costs on preliminary formulas and evaluate which organic designation will be feasible and at what price points.

Once manufacturers identify the parameters, organic-product development pretty much resembles conventional-product development. Steps progress similarly, but some new variables enter into the picture -- especially with organic-ingredient selection, which often adds an element of complexity to the process.

"All nonagricultural materials are considered noncertifiable and therefore must be approved through the materials review process as outlined in the National Organics Program Final Rules," said the late Peter Murray, former president of Sustainable Systems Design, Ann Arbor, MI, during an interview earlier this year (Murray died in July). "To be used in any product labeled as 'organic' or 'made with organic ingredients,' nonorganic, nonagricultural materials must be on the National List." The National List of allowed and prohibited substances can be found on the NOP website. Also, the Organic Materials Review Institute (OMRI), Eugene, OR, publishes a list of approved formulated, brand-name ingredients and materials not available on the NOP National List.

One of the biggest hurdles that organic developers will encounter is the reduced number of ingredients in their R&D toolbox. "The list has a limited number of processing aids," says Bair. "Most conventional products use several ingredients that represent processing aids, which are important to the manufacturing process -- whether for catalyzing reactions or adding synergistic types of effects."

Organic processing can pose limitations. "Without the availability of artificial and synthetic ingredients to recreate any number of functional food properties, the processor must rely on ingredient selection and more physical and mechanical means to create the product's properties," added Murray. "New nonchemical technologies are critical to the further development of organic products, which help reduce the reliance on these artificial ingredients. However, where we run into problems is with the use of formulated ingredients that cannot take advantage of synthetic subingredients, which provide functionality not found in the whole food."

Having fewer tools to work with often dictates what's feasible in a finished product. "Typically, a decision has to be made as to whether the intent is to recreate the original conventional food or accept the differences that organic ingredients may have on the final product," said Murray. "Without the availability of many of the synthetic, food-grade processing aids and ingredients to formulate taste, texture, shelf life, color and flavor, it is often a challenge to produce a product, particularly one that consumers are very familiar with, such as ketchup, chicken soup, etc., that approximates the same organoleptic properties."

Over time, however, suppliers have offered new ingredient solutions. "In the past couple of years, many new organic processing aids have been brought to market," says George Kalogridis, president of Ojai Organics, Ojai, CA. "Organic lecithin and organic starches are just a couple of examples of the dozens of new organic processing aids." Working with an ingredient supplier that understands organics makes the job of ingredient sourcing easier and faster.

It is important to note, however, that there are usually several ingredients in a formula that are not available in a certified "100% organic" form. This makes achieving the "100% organic" label all the more difficult.

But savvy developers can often find new ways to solve new problems. "The National List is a starting point on what developers can and cannot use," says Kalogridis. "However, we have seen over and over again that creativity and imagination have succeeded in overcoming the limited resources on the National List. This is not to say developers have found loopholes that will allow them to use prohibited substances, but by looking backward, developers have found substitutes for materials that are not allowed under the current rules."

To Kalogridis, "looking backward" also means going back to the basics. "Food formulators have had to look back at food-processing techniques that predate many of the chemicals that are used in everyday food processing," he says. "This is not to say that these chemical aids are bad; many are very good improvements and much less expensive than the products they replaced. However, if you are going to formulate an organic product, you have to dust off some old books or talk to retired food developers and find out: 'How did you do this in the old days?' If you take the time to do your homework, you will find the answers, and some will be surprisingly simple."

Developers might also look to the techniques of scientists across the ocean. The European Union (EU) has "a history of minimally processing of all foods, organic and conventional," add Murray. "They have not typically relied upon all of the cheap, artificial ingredients typically found in a U.S.-produced, multi-ingredient foodstuff."

But just finding ingredients isn't the only concern. For one thing, organic ingredients don't always meet processor's specifications.

"Say you're sourcing certified-organic whey powder," says Bair. "There's going to be a certain particle size that works best in your product, so you'll request a specific size distribution from your vendor. But your vendor might be a small company that's only capable of milling it one way. They're going to have to decide whether or not it's worth it to custom-mill the ingredient or if they should try and get their customer to work with the ingredient as it's currently made. Usually, the customer and vendor have to work together to arrive at some type of compromise which will be right for the product."

  Spices are another good example, according to Bair. "Most are irradiated or fumigated to reduce the inherent microbial load, but organic spices can't be treated like that," he says. "I always caution my clients that the micro levels on organic spices are going to be heavy. The bigger companies have usually set their specifications for microbial loads low, so the levels on the organic spices are probably going to be pretty scary. But once we look at the finished product and its process -- is it cooked or are we reducing the load in the process somehow -- it often becomes a minor issue. These are the types of thought processes that need to go on during development. Specifications are not a major hindrance as long as both parties are realistic, and they understand that there is going to have to be some give and take."

Making sure that the ingredients are available is the next hurdle. For the most part, the demand for organic ingredients keeps pace with the demand for finished products. "We see a great deal of growth and increased availability on the ingredient side of the business," says French. "This is, in part, driven by increased consumer demand of more prepackaged organic foods," such as cookies, crackers, frozen entrées, etc.

"Supply is catching up to demand as the big guys get into organics, because farmers are seeing the merits of growing crops in organic compliance," adds Bair.

But the situation isn't perfect. "Certain raw materials continue to be scarce and high-priced," said Murray. "Good examples are organic soybeans, honey, vanilla, etc. The industry has also become more concentrated with fewer and larger manufacturers often controlling the availability and prices of certain commodities. As demand grows, so do the prices that producers are getting."

Purchasing departments also need to understand that the process for procuring organic ingredients differs when compared to traditional approaches. "One of the ways organic suppliers and brokers have overcome shortages in the past is to secure long-term contracts for certain commodities and ingredients," said Murray. "This has been a longstanding practice in the organic industry and continues to drive production today."

This method of buying may take some getting used to. Kalogridis asks: "Are conventional food companies who are entering the organic marketplace for the first time nervous about the differences between the 'just-in-time delivery' conventional market and the 'contract for future delivery' organic market? You bet they are."

Timing also becomes exceptionally critical. "A product roll-out by a major food company can easily surpass the existing supply of an organic ingredient," adds Kalogridis. "That being said, this does not mean that the introduction is not possible. It just means that food companies must adjust to the realities of the organic market. Unlike the conventional world, most organic products are farmed under contract, leaving very little surplus product for spot market purchase."

But this can be an advantage. Once the company "makes the adjustment, they discover they have a marketing advantage, since any competitor who wants to copy their success will also have to go through the extended time period to get their products on the shelf," says Kalogridis. "So being first in the market has additional advantages in the organic marketplace."

Organic suppliers, like their conventional counterparts, source organic ingredients worldwide. "So, if a company has missed the planting season in North America, we can contract for product to be grown in the southern hemisphere," notes Kalogridis. "We can supply all the product a company needs, but it takes a little more time than the conventional market, where huge supplies of almost every ingredient are readily available."

Ingredient buyers also have to consider how the popularity of organics can impact their potential vendors. "A lot of organic ingredient suppliers have been operating on a very small scale," explains Bair. "Now, all of a sudden you're throwing them into a big arena, and many are becoming overwhelmed. The amount of raw material a big manufacturing company can move is huge, so the vendor has to make some decisions. Are they going to be loyal to their existing customer base? Or, because of the larger purchase volumes, do they just supply the one big customer and cut out their 50 smaller customers? It's a tough situation for the vendor, and they're often torn about which way to go. Often, the vendor will supply the big company, but with limits on how much they can buy. But this means that the big company now has to source four or five different vendors in order to get the volumes they need."

Multiple vendors can be a nightmare for both the purchasing department, which wants a secure supply of ingredients at a consistent price, and for the quality-assurance and production departments, which want consistency. Unfortunately, multiple sourcing is often an unavoidable reality.

As the industry continues to grow, however, the supply of ingredients should improve. "The tremendous opportunity afforded new and experienced organic producers of ingredients has proven a very strong enticement to continue to expand the acreage devoted to organic production," said Murray.

So, ideally, the organic development process should involve R&D and purchasing sourcing ingredients together -- especially with organic development where supply is often a little tighter. In the typical flow of things, however, purchasing begins contracting for ingredient delivery at the completion of R&D's work. But there's nothing more frustrating to the developer and marketing than finding the perfect formula only to hear that the ingredient is either cost-prohibitive or unavailable in quantities needed to support production. At best, this just means a delay. At its worst, it means reformulation.

Selecting the right ingredients isn't all that it takes to please an organic-certification agent. Almost every part of a manufacturing plant has some type of role to play in order to get a finished product certified.

Luckily, a processing plant doesn't have to be strictly organic in order to produce certified-organic foods. Certification agencies also allow manufacturers to use existing equipment. This is good news, as it's often cost-prohibitive to dedicate an entire line to organic production or purchase separate equipment. However, certification will likely require changes in the facility.

"When a certification agency comes to inspect and approve a facility to manufacture certified-organic products, assurances have to be given to the inspector that the facility can comply with the NOP rules and regulations," says Bair. "The plant should implement an organic handling plan that includes standard sanitation operating procedures. It should address how things are cleaned, when cleaning is done and how that corresponds to organic production scheduling." Cleaning involves using organically allowed chemicals prior to running any organic products.

Preventing organic and conventional product commingling is a major tenet of the NOP, as it would compromise a product's organic integrity. "Typically, a conventional facility that wants to do organic will run full sanitation when it's down on the weekend," explains Bair. "Then the first run for the following week starts with organic. After that, they can run conventional products without any problems with product commingling."

And organic production standards don't stop at the plant's exit door. "The warehouse/storage facility has to be included in any certified operation's organic systems plan," adds Bair. "The certifying agent will need to know where organic product is being stored so they can verify that the facility is compliant with any applicable standards -- e.g., commingling or contact with prohibited substances. I also recommend that companies segregate organic ingredients from conventional ones. This prevents cross-contamination, and prevents nonorganic ingredients from being used in an organic production run by mistake."

Eatem Foods, Vineland, NJ, a manufacturer of food bases, learned firsthand about the challenges of organics when they produced their organic line of chicken, beef and vegetable bases. As both producer and supplier, they deal with issues on both ends of the spectrum.

"Sourcing organic ingredients is a key factor in product success," says Jerry Santo, director, purchasing and quality control. "Furthermore, not only are stringent specifications needed, but also as a company, Eatem Foods must make sure the ingredients ordered perform as needed in its formulas. This is where micro specifications are extremely important. Normal methods of reducing micro count, such as irradiation and ETO (ethylene oxide) treatment, are not available. Often, lot selection is the only method available. This entails more initial testing before shipment and additional lead time."

Color will vary naturally since control methods are not available with organic ingredients. "You may have to purchase certain ingredients during specific times of the year to maintain flavor and color consistency," says Santo. "Even during processing of organic ingredients, additional care is needed during sanitizing. Often, additional rinse cycles are needed to ensure there is no trace of residue on any equipment. Additional care is needed to make sure organic ingredients are not commingled with conventional products. It is a lot of work and very time consuming, but in the end, our products make life easier for our customers in product development."

As a supplier, the company supports the development efforts of their customers, too. According to Bill Cawley, CEC, manager, culinary & technical applications, its customers' main R&D concerns are functionality, how the manufacturer handles the product -- such as keeping it frozen to protect the flavor and maintain shelf life -- and product performance. "They also want to know if the organic line replaces the regular base in specific formulas," he adds. "We offer starter applications so they can evaluate on their own. Functionally, the Eatem organic line performs just as the regular base, with respect to usage levels, yields and flavor impact. The essential flavor is slightly different because of the organic ingredients. However, it offers other advantages. The ultra-clean ingredient label is highly attractive to product developers wanting their own simplified ingredient list, and the absence of MSG, HPP, AYE and any other chemical additives make it popular with other manufacturers."

Don't fret if this all seems overwhelming. Consultants can help with every facet of organic formulation: sourcing, processing, product development, and the rules and regulations of the NOP. Their job is to get companies up to speed quickly in understanding organics and compliance regulations.

"I'm usually called in for a project because R&D doesn't seem to understand the NOP, and they don't think they can develop an organic product," says Bair, "because to them, the process seems mind-boggling. Besides, most people are not going to take the time to read the NOP and fully understand it." Consultants can help manufacturers work through the little details and get everyone on the same page. "Once we go through it, it clicks," he continues. "And as long as the different departments are willing to cooperate -- and that's often a challenge in itself -- and work with each other and understand each other's problems, we can usually get there in a short period of time." A consultant can also help with the search for the right certification agent.

Manufacturers considering organic lines often think organic looks too cost-prohibitive. "But it isn't," Bair adds. "It doesn't cost a lot of money to get into organic, but you need to make sure that your marketing group is cognizant of the market and knows what their target is. Then we can figure out a way to get there."

According to Kalogridis, tens of millions of dollars have been lost by conventional food companies trying to enter the organic industry. "They have all made the same mistake of assuming they can overlay their successful conventional business practices and succeed in organics," he says. "The hard lesson they have all learned is organics operates as a separate industry, and conventional companies have to adjust to organics. You cannot just turn on an additional supply of raw ingredients at any time. If you call more than two brokers looking for ingredients, you will end up competing against yourself in the market and actually increase the price of the raw materials."

The use of an experienced organic consultancy can ease a manufacturer into the industry by offering clients tracking and maintenance of certification documents, providing training for employees and developing fully compliant NOP handling plans. "These handling plans form the basis for executing the necessary policies, procedures and practices that facilitate the annual certification inspection as required by the law," Murray said.

"The NOP rules and regulations, as they are currently written, are a wonderful baseline," says Bair. "But there is a lot of gray area within them. And they are very limiting right now, especially with respect to prepared foods with lengthy ingredient declarations."

But this isn't a lead-in to searching for legal loopholes. "Now I'm not saying we should compromise organic integrity," explains Bair. "But the NOP should be based on more than just: 'Hey, I don't think it should be on there.' Let's put some more scientific substance or evidence to the rules. The NOP was written based on organic practices that have been occurring for the last 50 years. But we're just now discovering things that have never been looked at before. So if the organic integrity isn't compromised, let's consider adding them to rules and regulations. We need to have some change down the road. The rules need more clarification -- we need to build upon them, and we need more people involved"

Lisa Kobs is a Minneapolis-based food scientist and technical writer focusing on new-product development. She has a M.S. in Food Science from the University of Wisconsin-Stout, Menomonie, and enjoys healthy cooking and finding new ways to promote good nutrition.