Sustainability and ingredients

1. What are the current market communication conditions for sustainable ingredients?

Todd Norton: The impending scarcity of natural resources is driving many sustainability efforts, and consumer demand for eco-friendly and sustainable products is also rising. In the future, sustainability for all businesses will become the rule rather than the exception.

In the case of marine-sourced nutritional ingredients, sustainability is fundamentally necessary to effectively manage how much of a species is being fished and be certain that the health of the biomass is preserved. Today, many marine species are under pressure, and there are real concerns that some may be at risk.

Krill is an important part of the ecosystem, so Aker BioMarine knew from day one that we needed to take every precaution possible to safeguard this resource. To that end, we have invested millions of dollars to build an infrastructure that factors in the critical importance of sustainability.

As part of our sustainability efforts, we have built solid relationships with entities such as the Marine Stewardship Council (MSC), the Commission for the Conservation of Antarctic Marine Living Resources (CCAMLR) and the World Wildlife Fund for Nature (WWF-Norway). In coordination with these partners, we are doing our part to maintain the health of the krill population and ensure the future of the krill fishery.

We work with the WWF to sustainably manage the harvest of krill in the Antarctic. In the case of the MSC, we work with them to make sure our supply is traceable from sea to shelf. Our MSC certification is proof of our commitment to a completely transparent value chain.

Raymond Winger: Sustainability in a marketing sense is aimed at consumers and that implies local sourcing of major ingredients. There's a big increase in interest in farmers' markets and providence and a concern with carbon credits in relation to transport. Ingredient suppliers tend to market to manufacturers, and the messages there will be around traceability, not sustainability.

Michele Kellerhals: We see significant consumer demand and take pride in leading the way in communicating sustainable concepts such as our PlantBottle bio-sourced PET bottles or the natural sweetener platform we adopt with Fanta in Europe. However, the notion of embedding sustainability into marketing campaigns is fairly new and not yet widely applied. A real 'sustainability market' may develop as more CPG companies enter this growing field and are able to report significant achievements beyond the core LOHAS (lifestyle of health and sustainability) consumer group.

2. Please identify the markets where sustainable foods are especially important.

Todd Norton: The Global Organisation for EPA & DHA Omega-3s (GOED) and the omega-3 industry at large recognise that international demand is growing quicker than supply. So it is imperative that all omega-3 sources be carefully evaluated and assessed.

Michele Kellerhals: Sustainability efforts today are mostly geared towards developed affluent economies where consumers are most sensitive to the sustainability idea. LOHAS consumers have emerged as a specific early adopter market segment.

Karin Nielsen: I believe certain subsets like 'cleaner label' and organic would have broader consumer appeal, especially in terms of infant and child nutrition, where growth markets such as China are concerned about food safety.

3. What are the challenges for the ingredients industry and how can businesses overcome them?

Todd Norton: One challenge we face is the perception that krill harvesting is not sustainably managed. The reality is that the krill biomass is the largest biomass on Earth, twice the weight of the human population. In Area 48 (where krill harvesting takes place in the Atlantic) the krill biomass is estimated to be around 60 million tonnes. Currently, the precautionary catch limit is set at 5.6 million tonnes, around 1% of the total biomass. The trigger level (another precautinary limit) is set at 620,000 tonnes. These limits were built in so that the fishery couldn't upset the balance in the ecosystem, or worse, drive the biomass toward dangerously low levels.

Today, the whole fishery is actually catching far below the trigger level. In fact, last year the entire krill harvest was about 157,000 tonnes, of which Aker BioMarine caught almost two-thirds. On average, the fishery catches less than one-third of 1% of the krill in Area 48 on an annual basis. The amount of krill that is harvested annually is miniscule relative to the entire krill population in Area 48.

Raymond Winger: I think the biggest ones will be the embedding of fair trading; maintaining reliable and quality sources of key ingredients as the climate changes and the locations of key agriculture change; traceability through transparent and honest brokering; and the growing complexity of specifications for ingredients.

Karin Nielsen: Besides following the broad Rio Conventions, the key challenges for ingredient companies are the lack of global standards relating to control of their agricultural supply chains as well as sustainability issues. In order to be compliant with CPG client demands, companies need to build their own control systems relating to numerous and very different global agricultural sites.

Michele Kellerhals: Only collaborative models that include the major stakeholders will be able to overcome the challenges that lie ahead. Alliances between non-governmental and private organisations are critical in order to accelerate the sustainability agenda, whereby mass consumer brands could be used as a trustworthy vehicle to convey these messages.

Bill Guyton: In the case of cocoa, there are millions of small-scale family farms that supply the chocolate industry. There are challenges to do with providing these farmers with the right inputs and training necessary to reach their full productive capacity. Disease and pest pressures destroy a third of the crop annually, thus there is a continual need to invest in research and development as well as input supply chains that are tailored for small-scale farming. Another challenge is that very few of the farmers are organised, thus making it difficult to reach economies of scale and efficiencies at the farm level.

4. How far can the ingredient industry go with sustainability initiatives and where are consumer packaged goods (CPG) companies forced to compromise?

Raymond Winger: I think the recent issues around food safety and food fraud will put huge pressure on retailers and manufacturers to implement serious traceability programmes. The impact on ingredient suppliers will be stringent specifications, mandatory requirements for transparency on sourcing ingredients and a higher level of trust. Many ingredient suppliers have refused to provide information about their suppliers and where they source ingredients, but this will change more for major, branded product lines.

Waste is a key issue if we are to have food security. Climate change is likely to create major issues around water supply, where food can be grown, and energy efficiency will become critical. The food industry is a major user of water and energy, and wastes both.

Karin Nielsen: I believe there are gains on issues such as agricultural sources, implementation of renewable energy, and waste usage, which obviously require investment, but also offer cost gains over time.

However, it may prove difficult to squeeze a more sustainable profile into many manufacturing methods without raising CPG manufacturing costs and retail prices. Solutions may include collaboration between the ingredient industry and CPG firms to understand consumers' attitudes on higher price or alternative ingredient choice.

Michele Kellerhals: Sustainable sourcing is increasingly important to leading CPG companies. Aspects such as waste recycling, traceability, minimising CO2 footprint or irrigation practices for crop-based ingredients are now anchored in most company's R&D pipelines and are part of strategic sourcing discussions.

Supplier industries have a key role to play, including adopting a technology leadership role. Contrary to high-end niche channels, mass-market consumers expect products to be sustainably produced at parity cost. Collaboration between different stakeholders in the supply chain should lead the way to manage costs in the transition phase as sustainability moves from niche to a more mass-market sustainable economy.

Bill Guyton: The ingredients industry is interested in win-win opportunities in regards to measures such as waste recycling, green energy, replanting and traceability. As technologies are created that lower the costs of these activities, company adoption rates will rise.

Tracey Rogers: Everyone has a part to play in operating sustainably, no matter the size or scale of their business. It's irrelevant whether the action is big or small as long as we're all trying. We have a saying at Unilever Food Solutions that small actions can add up to a big difference. This is why we launched our series of free resources, designed specifically for chefs and the foodservice business, to help them operate more effectively and sustainably.

5. Who are the key players in the consumer products market and how do their strategies differ?

Raymond Winger: In the main, there are branded players and private labels (i.e. supermarkets). Big manufacturers make their own products, control their own brand, and tend to combine cost and quality seriously. Retailers use contract manufacturers and have little quality control over the production process, as they almost always purchase on price, not quality.

Karin Nielsen: The key players are retail and CPG manufacturers. Retailers need to look at consumer attitudes to product demands (and thereby ingredients), such as more rigorous biochemical controls for origin and composition traceability; their own infrastructure in the market related to fuel carbon footprints; and packaging issues such as carbon footprint and recycling.

The other issue is the consumer communication on product value and quality, and how this reflects the product price. This is more or less a 180° turnaround on market communication, which is a huge challenge in all markets affected by the economic downturn.

While brands are technically improving their sustainability credentials, retailers' procurement and marketing departments are not as involved as perhaps they should be, outside of the fair trade/organic arena. Large retailers that are formulating policies and actively pursuing this include Albert Heijn, Casino, Intermarché, Metro, Sainsbury's and Tesco.

However, low-cost retail stores such as Wal-Mart may be where the big change in terms of broader retail effort could come from. For example, this year MBA candidates at the University of South Carolina are starting to scrutinise the retail giant through case studies on its environmental efforts.

Michele Kellerhals: Most large CPG companies are basing sustainability efforts on far-reaching corporate programmes, which go way beyond traditional corporate responsibility. The Coca-Cola 'Live Positively' programme, for example, broadly encompasses all aspects of our business such as people, planet and products. Other, smaller, niche players are emerging who are designing sustainable products and supply chains - product ingredients are an important element.

6. Is product sustainability becoming more of an issue for consumers?

Gert Huijberts: There is definitely a growing demographic of shoppers interested in organically grown or sustainably developed products. We introduced an organic variety of Heinz ketchup 15 years ago, and that has been doing very well. But it would be wrong to say that everybody is interested in sustainability - many shoppers are motivated by other factors, such as price.

So overall, although awareness and interest in sustainability is far from ubiquitous among shoppers, it is definitely on the rise. We are a consumer-driven organisation - sustainability is as much a part of our future as it is our customers'.