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Aafc-Ff Report Final July 31 2001

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Aafc-Ff Report Final July 31 2001 Business and Market Impact of the Food and Drugs Act and Regulations on Functional Foods in Canada Disclaimer: This study combines information from both secondary sources (articles and surveys conducted by other organizations for other purposes) and personal interviews as summarized by the professional research firm contracted for this study. Some of the information contained in this report consists of opinions expressed by survey respondents and/or other authors; consequently, the views expressed herein are those of the originators and do not necessarily represent the opinions of the department or the government of Canada. The Government of Canada and it employees, servants or agents make no representations or warranties as to the accuracy or completeness of the information contained in this report. Parties who rely on the information do so at their own risk. Prepared by: Inter/Sect Alliance Inc. For: Food Bureau Agriculture and Agri-Food Canada July 31, 2001 Page: 1 Authors: The project was completed by the following members of Inter/Sect Alliance: Don Jarvis, Kory McDonald, Michelle Marcotte, Barry Smith and Lorraine Stanford. Lorraine Stanford was also team leader. Acknowledgements: The project team appreciates the cooperation of the sixty companies who agreed to discuss business impacts with us in lengthy interviews. Inter/Sect Alliance appreciates their confidence in revealing important aspects of business activity and future plans. The success in this project is only a refection of the collaboration we received from food companies. Many other organizations, such as food industry association managers, academics, investment bankers and others also took considerable time to contribute information to this report. Tony Marino from AC Neilsen was also a collaborator, in providing direction for possible further work. Christine Tibelius, an independent research consultant, provided some research assistance Direction from Food Bureau managers Lynn Stewart and Jay Jackson was both effective and intelligent. Thank you. Table of Contents Report Highlights.............................................................................................................. 1 Executive Summary......................................................................................................... 2 Introduction........................................................................................................................ 9 Background .....................................................................................................................10 Definition of Functional Food....................................................................................10 Regulations Pertaining to Functional Foods..........................................................12 Canada ....................................................................................................................12 Other Jurisdictions .................................................................................................13 Size of the Market for Functional Foods.................................................................20 Methodology....................................................................................................................22 Interviews.....................................................................................................................22 Supermarket Survey..................................................................................................25 Review And Analysis Of Syndicated And Publicly Available Reports On Functional Foods........................................................................................................26 Review Of Consumer Communications In Canada And U.S.A..........................26 Consultation with Market Research Firm ...............................................................26 Results And Discussion.................................................................................................27 What We Heard..........................................................................................................27 Multi-National Enterprises and Large Canadian Firms ....................................27 Small and Medium Size Enterprises...................................................................31 Functional Ingredient Manufacturers...................................................................35 Companies Based in the U.S.A...........................................................................37 Investors ..................................................................................................................40 Research and Science-Based Organizations....................................................42 Grocery Retailers ...................................................................................................42 Other Associations .................................................................................................43 What We Read ...........................................................................................................44 Effect of Initial Health Claim Approval on Food Sales......................................44 What We Saw in the Marketplace ...........................................................................45 Supermarkets..........................................................................................................45 Observations about other Markets ......................................................................48 Getting Around the Canadian Regulatory Restrictions ....................................49 Options for Additional Quantification of the Market for Functional Foods.............53 ACNielsen Approaches.............................................................................................53 Other Measurement Option......................................................................................57 Conclusions.....................................................................................................................58 Annex A: Companies / Organizations Interviewed............................................A-1 Annex B: References.............................................................................................B-1 Annex C: World Market Data on Functional Food Sales................................. C-1 Annex D: Supermarket Survey............................................................................ D-1 Annex E: Generic Health Claims in U.S.A..........................................................E-1 Annex F: Interview Topics.....................................................................................F-1 Annex G: Interview Guide..................................................................................... G-1 Business and Market Impact of the Food and Drugs Act and Regulations on Functional Foods in Canada Report Highlights · Estimates of the world market size for functional foods vary dramatically, due to inconsistent data sources and definitions of functional foods. · A significant part of the traditional breakfast cereal, spreads, yoghurt and beverage categories (fortified juices, energy and sports drinks, fermented milk drinks) available in Europe, the U.S., Japan and Canada could be described as functional. Their designation as “functional” depends on how the individual products are formulated in each market and on how they are labelled and marketed and the type of claim(s) that may be associated with them. · Companies acknowledge the need for a regulatory system that provides oversight to ensure safety and a scientific basis for claims; however, they unanimously contend that the existing Food and Drugs Act and Regulations has a negative impact on companies marketing functional foods and ingredients in Canada. · Main aspects of the existing Food and Drugs Act and Regulations that have this impact are: · Inability to use risk-reduction health claims similar to the generic health claims found in the United States; · Lack of a process to introduce new risk-reduction health claims; · Compositional standards different from those of our major trading partner; · Length of time required to amend the regulations; and · Act and Regulations are subject to interpretation and inconsistent enforcement. · The main impacts of the Food and Drugs Act and Regulations on the functional food industry in Canada are: · Higher levels of risk and uncertainty make it more difficult to attract investors or support from parent companies. · Firms must compete in a global market with products that they cannot sell in Canada. · Firms are using a variety of creative means to overcome regulatory obstacles in order to participate in this emerging segment of the food industry. · Some firms have identified innovative functional food products but are not moving forward with them at this time. · Canadian consumers have less choice of functional foods and much less information to help them select and use these foods. · Canadian consumers place a high value on innovative products that focus upon “wellness” and convenience and all stakeholders interviewed called for Canada to move swiftly towards a more responsive and timely regulatory system. Page: 1 Business and Market Impact of the Food and Drugs Act and Regulations on Functional Foods in Canada Executive Summary Background and Methodology a. The food industry is competing in a very limited growth market as the population ages and population growth continues to decline. “Cannibalism”
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