The heat is on for the ingredients sector
The way in which ingredients companies work with manufacturers has changed beyond recognition in recent years, with companies building much closer relationships with their customers and product development times lasting several months.
That's according to Richard Parnell, sales director of meat-based proteins supplier BHJ, who says there is greater organisation and structure in the relationship between ingredient suppliers and customer. "The days of visiting a customer, doing a quick trial and taking an order for a product in a very short space of time are no longer there," he says. "Three months is fast these days."
Longer lead times and diligent relationship building are partly due to a more intense focus on quality assurance and companies looking to squeeze the utmost value from ingredients. Demanding codes of practice and health and safety regulations also play their part.
Consolidation of companies in the industry also means there are far fewer firms to do business with. Some 250 UK cooked meat companies have shrunk to only about 20. That consolidation, allied to the recession and the requirements of supermarkets to sell large volumes of product at competitive prices, means many companies stick to producing a smaller, but better range of core items that sell well. It can be far cheaper to buy in more specialised or exotic products from abroad in small quantities, rather than produce them at a much higher price in the UK.
Ingredients might only make up a small percentage of the total content of a finished product, but manufacturers still expect every penny to count in the race to deliver best-value to their supermarket customers. This applies to marinades and seasonings even though these typically represent only 8% and 2% respectively of a finished product. "Developers still want to control that 2%. Price is key," says Ian Mackway, general manager of supplier RAPS (UK).
It is not just the economics of the sector that has altered in recent years; consumers' tastes have changed too. "People are travelling a lot and their expectations of dishes are changing," he says. "People now expect 'hot' to be 'hot', and they say 'bring it on'. There is a genuine desire for more authentic flavours from Indonesia and other areas of the Far East. We now put seven times as much garlic in our garlic sausage, for example, as we did 20 years ago."
The last five years have also seen significant changes in regulations, most notably in demands for a reduction in the amount of salt in products and a massive change in the rules on labelling, with an increasing number of ingredients details included.
Consumers have never been more aware of what goes into food and this has had a big impact on NPD in the ingredients sector.
'Nature identical' ingredients are a good example. These are products that are manufactured using a range of ingredients to mimic the flavour of a naturally grown item. In light of more transparent labelling, and consumer demands in favour of entirely natural products, supermarkets have insisted that 'nature identical' products be dropped. Consequently, they have virtually disappeared from foods.
While welcoming legislation that brings in responsible levels of control, assurance and regulation, Mackway argues that it is a shame that some of these nature identical products have had to be dropped because, he claims, they are cheaper, more stable and have a flavour base that is identical in every way to the natural product.
Take manufactured garlic. It has all the characteristics of natural garlic, but is rejected because it is not a wholly natural product. Wholesale removal of these products from the marketplace has effectively reduced choice and, ultimately, the chance for lower-priced products.
A similar situation has arisen with what could be termed 'medical policing' of ingredients known to cause allergic reactions in some people, such as nuts. "In my opinion it has gone way too far; it's over the top," says Mackway.
While compliance with tougher regulations has presented the ingredients sector with plenty of challenges, a different threat looms as we enter the second decade of the 21st Century, the so-called 'twenty-tens'. The Westernisation of countries like China and India has seen significant new markets beginning to emerge for Western-style foods. With such huge populations this could have a massive impact on demand for raw materials. China, for example, grows some 30,000t of garlic a year and has, historically, exported it. Recently, it has kept up to one-third of supplies for its own use. With finite supplies of raw materials such as garlic and pepper, and rising demand, prices could rocket in the years to come.
So how do ingredients companies tackle this potential challenge? Most suppliers have already built strong trading relations with overseas suppliers. Mackway believes companies will have to maintain closer partnerships with existing suppliers and forge new ones where they can. The search may be on, too, for new areas to grow vital supplies.
Verstegen's UK general manager Peter van Cotthem predicts that climate change might open up new areas within Europe itself for growing certain products such as garlic, onion and red peppers. It will be impossible to find places outside the traditional growing regions to produce some spices, such as nutmeg and pepper, he says, although Vietnam has become a significant new supplier of pepper in recent years, producing some 40,000t.
Kerry Group marketing director Karl Burkitt says the company's position as a global player in the ingredients market means it must have consistency and quality of supply on a day-to-day basis. As such, it has strong relationships with a range of suppliers. He does not rule out securing further and future supplies by developing even closer partnerships or purchasing interests further down the supply chain, but adds that Kerry's core business is not farming.
Stronger partnerships with farmers and ownership of farm land is a course some may take in the coming decade to secure supplies and reduce the risk of buying on the open market.
Van Cotthem predicts that farmers of ingredients around the world will face tougher monitoring and control of their growing methods in the coming decade. They will have to implement HACCP-style controls, he predicts. Furthermore, farmers in the Far East will face the same regulations currently met by European farmers.
Verstegen is tying suppliers into its corporate social responsibility stance, particularly in relation to Fairtrade. The company has also concluded an agreement with a partner in Papua New Guinea to pay more than the standard market value for vanilla beans. A school has been built with the proceeds where farmers can learn more about the cultivation of vanilla, and provide better quality. Projects are also planned for India and Indonesia.
By securing supply, improving quality and meeting codes of practice, while also paying farmers a fair price, these initiatives address most of the challenges facing ingredients in one fell swoop. They might also just provide a glimpse of what the ingredients industry will look like in years to come.
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