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- What are functional foods and natural health products?
- Number and types of establishments
- Types of products
- Business structure
- Establishment activities
- Research and development
- Service activities
- Distribution channels
- Partnership agreements and contracting out
- Intellectual property
- Number of products
- Product area
- Input supply
1 What are functional foods and natural health products?
The 2011 Functional Foods and Natural Health Products (FFNHP) survey was conducted to collect information on establishments in Canada that develop and manufacture innovative functional foods and natural health products, as well as establishments that offer expertise and services such as specialized encapsulation, contract manufacturing of private label products and other packaging technologies.
Currently, there is no universally accepted definition for functional food and natural health products. Definitions vary across countries and evolve over time reflecting the perspectives of different regulatory bodies, advances in scientific knowledge and changing market demand for products. The definitions used in the 2011 Functional Foods and Natural Health Products (FFNHP) survey were developed by Health Canada, one of two federal regulators of these products.
Functional foods are similar in appearance to, or may be, a conventional food, consumed as part of a usual diet, which is demonstrated to have physiological benefits or to reduce the risk of chronic disease beyond basic nutritional functions. 1
For the purpose of the survey, the definition of functional food is specific to products that have been actively enhanced with bioactive ingredients during production. Examples of such products include milk, meat and eggs with increased levels of omega-3 fatty acids, yogurts with probiotics and fruit juice with calcium.
“Bioactive” is a substance that is demonstrated or purported to have a favourable effect on health. In the context of food, bioactives include nutrients (e.g. vitamins and mineral nutrients) and non-nutrients (e.g. lycopene, live microbes) that may be inherent in or added to food. 2
Natural health products are products made from natural sources, sold in dosage form and are designed to maintain or promote health; to restore or correct human health function; or to diagnose, treat or prevent disease. Examples include vitamins and minerals, herbal remedies, homeopathic medicines, traditional medicines such as Chinese medicine, probiotics, and other products like amino acids and essential fatty acids. 3
2 Number and types of establishments
The 2011 Functional Food and Natural Health Products (FFNHP) survey identified 750 establishments engaged in one or some combination of functional food (FF) or natural health product (NHP) production, development or service activities (Table 1). These establishments were classified into seven distinct groups:
- establishments that develop or produce functional food (FF) products only;
- establishments that develop or produce natural health product (NHP) products only;
- establishments that only provide services related to FFNHP products;
- establishments that develop or produce both FF and NHP products;
- establishments that develop or produce and provide services related to FF products only;
- establishments that develop or produce and provide services related to NHP products only;
- establishments that develop or produce and provide services related to both FF and NHP products.
In 2011, almost a third of the establishments developed or produced NHP products only. One in ten focused on the development or production of FF products only.
For the remainder of this report the seven establishment groups were collapsed into 4 sub-sectors:
- Functional Food Establishments which included those in groups 1 and 5;
- Natural Health Products Establishments which included those in groups 2 and 6;
- Establishments Active In Both Fields which included those in groups 4 and 7; and
- Service Only Establishments which were those in group 3.
Three quarters (566) of the FFNHP population were engaged in some type of production, development or service related to a natural health product in 2011 (Chart 1).
3 Types of products
Counts of establishments that directly or indirectly developed or produced FFNHP products by type of product are presented in Table 2. These establishments may have reported more than one product type. The largest share of FF establishments reported that they were involved in the development of foods and beverages that had added active ingredients, excluding vitamins or minerals. Examples of these products include margarine with phytosterols, drinks with herb blends, and foods with added soluble fibre and yogurts with probiotics. Each of the five specified NHP products was produced by more than half of the establishments producing NHPs.
4 Business structure
Most establishments operating in FFNHP activities (88%) reported that they were private corporations (Table 3). Almost all of them (98%) had a head office located in Canada and only 15% indicated that they were part of a multinational enterprise.
In 2011, FFNHP establishments reported total annual revenue of $16.4 billion from all sources (Table 4). FFNHP activities accounted for 69% of total revenue. Other activities such as conventional food processing and manufacturing, scientific research development or chemical and pharmaceutical wholesale distribution generated the remaining $5.1 billion in revenue.
Functional food establishments generated 40% of FFNHP revenue in 2011. Natural health product establishments and those active in both fields each contributed 29% of FFNHP revenue. The remaining 2% of revenue came from service only establishments.
Of the total revenue generated by functional food establishments ($7.7 billion), 58% was from functional food related activities. In contrast, 85% of the $3.9 billion in revenue earned by natural health product establishments was related to natural health product activities.
Establishments that were active in both FF and NHP fields reported 46% of revenue from functional foods and 54% from natural health products. Service-only establishments reported almost 17 times more revenue from NHP activities compared with FF activities.
6 Establishment activities
The largest share of FFNHP establishments reported that they were involved in the wholesale of products (57%), product development or scale up of new products (57%) and scientific research and development (53%) in 2011 (Table 5). NHP establishments reported the same top three activities as all FFNHP establishments. For FF establishments, the top reported activities were manufacturing consumer ready products (75%) followed by product development (64%) and scientific research and development (54%).
In 2011, establishments reported total FFNHP related exports of $1.7 billion (Table 6), which was 74% of total exports from all sources and 15% of total FFNHP revenue. Most FFNHP export revenue was generated by NHP establishments (44%) and establishments active in both fields (41%).
Exports of natural health products accounted for 79% of the total FFNHP export value and dominated exports of both NHP establishments and those active in both fields. Functional food exports accounted for the remaining 21% of total FFNHP export revenue. Sales to the USA accounted for more than half of the export revenue generated from functional food products. While half of the revenue from natural health product exports came from the USA, other notable destinations for exports included the European Union and China.
Total imports by all establishments active in FFNHP were $670 million (Table 7). Half of these imports were for FFNHP products. The USA was the main source of imported products for all FFNHP establishments, accounting for two-thirds of imports of NHP products and 99% of FF product imports.
FFNHP establishments employed 16,259 individuals to perform FFNHP related duties in 2011 (Table 8). This group accounted for 44% of all individuals employed by establishments in the FFNHP sector. FFNHP employees included those hired on a permanent, seasonal, casual and contract basis so long as they devoted all or any portion of their time to FFNHP related activities or to tasks associated with the running of the FFNHP portion of the business. Of total FFNHP related employees, 38% were working in NHP establishments and 29% in each of FF establishments and establishment’s active in both fields. The remaining 4% were employed by service-only establishments.
Almost two-thirds of the employees working in natural health product establishments engaged in some form of FFNHP related activity while only 26% of employees in functional food establishments had FFNHP related duties. The larger share of FFNHP related employees in NHP establishments reflects the fact that these establishments are specialised in NHP activities. About 40% of the employees in service-only establishments worked on FFNHP related activities.
In 2011, 12% of FFNHP establishments indicated that they had unfilled FFNHP positions (Table 9). The largest share of the vacancies (58%) was reported by natural health products establishments.
Sales, marketing or advertising and R&D were the most frequently reported competencies needed to fill FFNHP vacancies. Establishments involved in natural health products reported the largest number of vacancies in positions requiring manufacturing or production and quality control competencies. Functional food establishments indicated their highest vacancies in positions requiring research and development, manufacturing, as well as technical or engineering competencies.
In 2011, the main obstacles to filling vacant positions for FFNHP establishments included a lack of candidates with the right qualifications or expertise and high compensation requirements by candidates (Table 10).
10 Research and development
Total R&D spending by all FFNHP establishments amounted to $320 million (Table 11). Of this spending, 74% was directed to FFNHP products and services. Establishments active in both FF and NHP fields accounted for 45% of the FFNHP R&D spending, which was split almost equally between functional food and natural health products. NHP establishments also reported close to $100 million in FFNHP R&D spending devoted to NHPs. Meanwhile functional food establishments contributed 8% to the total FFNHP R&D expenditures.
More than half of the FFNHP establishments that attempted to raise capital for FF or NHP purposes were successful in raising some or all of the funds requested. The total amount of capital raised for FFNHP purposes was $42 million (Table 12).
Of the FFNHP establishments that attempted to raise capital, almost 60% were NHP establishments. Among these establishments, 45% were successful in raising funds. No functional food establishments attempted to raise capital in 2011.
Half of the total capital raised for FFNHP purposes came from other foreign based venture capital (Table 13). Government funding provided 11% and conventional funds provided 7% of the funds raised by FFNHP establishments.
12 Service activities
For the FFNHP survey, a service was defined as the provision of facilities or activities required by other business units for a fee. Examples of such services include: accounting, insurance, extraction, custom manufacturing, scientific research and development, as well as technical and engineering or mechanical services.
In 2011, 49% FFNHP establishments provided services (Table 14). Just over half of the FFNHP establishments which provided services were NHP establishments.
Custom manufacturing or production or formulation represented 60% of all services provided by FFNHP establishments. Almost two-thirds of NHP establishments and three-quarters of FF establishments reported custom manufacturing or production or formulation as their main service activity. Thirty-six percent of FFNHP establishments indicated that they perform R&D and a similar number provide sales, marketing or advertising to other business units.
Fewer than 10% of FFNHP establishments provided only FFNHP services, to other business units and did not actually produce or develop any FFNHP products. About 40% of service-only establishments provided regulatory services, scientific research and development or quality control services to other FFNHP establishments in 2011.
13 Distribution channels
The most common distribution channel used by FFNHP establishments in 2011 was direct to retailer (Table 15). Natural health product establishments also reported distributing direct to other manufacturers and wholesalers as their second preferred method of distribution. Functional food establishments favoured the other category of distribution channel along with direct selling. Establishments active in both fields reported a preference for using direct to retailers, as well as brokers or third party distributors, in addition to wholesalers as distribution channels.
In 2011, the shares of FFNHP sales were highest for the customer categories other retail and other manufacturers (Table 16). This pattern was mirrored by functional food establishments and those active in both fields. The sales for NHP establishments were more broadly distributed across all categories of customers.
14 Partnership agreements and contracting out
Just over one-fifth of establishments in FFNHP stated that they were involved in some type of FFNHP related cooperative or collaborative arrangement with other business units or organizations either inside or outside of Canada in 2011 (Table 17). A cooperative or collaborative arrangement involves the active participation by multiple business units or organizations in projects to develop or continue work on new or significantly improved functional foods or natural health products or related activities (e.g. scientific expertise, regulatory affairs, training, marketing, distribution, clinical trials, etc.).
In 2011, FFNHP establishments indicated that they were involved in cooperative and collaborative arrangements most frequently with other business units. The number of partnership agreements, with business units in Canada and outside of Canada was almost equal. Almost thirty percent of establishments with partnerships indicated that the agreements were with universities in Canada.
Contracting out as defined in the FFNHP survey refers to paying another business unit for service on a contractual basis. In 2011, 43% of FFNHP establishments contracted out FFNHP related activities (Table 18). Almost 70% of these establishments were natural health product establishments. Few service-only establishments (3%) and functional food establishments (5%) contracted out work related to FFNHP activities.
Most (84%) NHP establishments contracted out for custom manufacturing or production or formulation and 46% contracted out quality control activities related to FFNHP (Table 19).
15 Intellectual property
Intellectual property is an important contributor to the competitiveness of FFNHP establishments. Almost a quarter of FFNHP establishments made use of trade secrets to protect their intellectual property in 2011 (Table 20). Twenty three percent of FFNHP establishments made use of registered trademarks and 13% paid others for intellectual property by acquiring FFNHP licenses. NHP establishments and those active in both fields accounted for most of the FFNHP related intellectual property development.
In 2011, only 13% of FFNHP establishments indicated that they had FFNHP related patents or pending patents. More than half of those were natural health product establishments. FF establishments reported no patents.
Almost all of the FFNHP related pending patents (96%) and existing patents (91%) were held by establishments active in both fields (Table 21).
FFNHP products are rigorously regulated by Health Canada and the Canadian Food Inspection Agency. In 2011, almost eight out of every ten FFNHP establishments reported that they had some type of contact with the Health Canada Food Directorate, Health Canada Natural Health Products Directorate or the Canadian Food Inspection Agency (Table 22).
FF establishments that contacted the Canadian Food Inspection Agency (CFIA) were most often looking for information on labelling and advertising, as well as exports (Table 23). Those that communicated with Health Canada’s Food Directorate did so principally to get information on submissions for health claims on food and for labelling and advertising.
Establishments active in both fields that contacted Health Canada’s Food Directorate most often sought information on submissions for health claims on food and novel food designation. Their reasons for contacting the CFIA were not concentrated in any one information need.
In 2011, the most often cited reason that NHP establishments and those active in both fields contacted Health Canada’s Natural Health Products Directorate (HC NHPD) was for information on product licenses. Over two-thirds of NHP establishments that had contact with HC NHPP wanted to obtain information on site licenses for natural health products (Table 24). Close to 60% of NHP establishments and 71% of establishments active in both fields had contact with HC NHPD concerning health claims for natural health products. Clinical trial approval was the least common reason for regulatory contact with HC NHPD by NHP establishments and those active in both fields.
Of the various regulatory bodies associated with FFNHP activities, service-only establishments had the most contact with HC NHPD and were most frequently looking for information concerning site licenses, product licenses and health claims for NHPs (Table 25).
17 Number of products
In 2011, there were 32,266 FFNHP related product lines sold, 85% of which were in the NHP category (Table 26). 4 Establishments active in both FF and NHP fields had 83% of their FFNHP products lines in NHP.
Over half of the product lines on the market were sold exclusively to customers in Canada. An additional 40% of products were sold to customers both in and outside of Canada.
Products in development were defined in the survey as those which had completed the screening and evaluation process for business cases that included target markets, benefits to the customer and descriptions of product features and attributes. In total, FFNHP establishments listed 4,658 products in development in 2011. Three-quarters of those products were classified in natural health product lines.
18 Product area
In the FFNHP survey, respondents were asked to select one health benefit for each product. The promotion of health and wellness was the most often reported health benefit for products across all FFNHP establishments (Table 27). Products relating to sleep, gut health, eye health, stress, weight control, anti-aging and skin health are examples where claims for overall health and well-being are often made. Due to the large product lines of vitamins, minerals and amino acids in which NHP establishments specialize, supplements was one of their key health claims. The reduction of risk of diseases such as cardiovascular, cancer, diabetes and arthritis was also an important health benefit reported by a large number of functional food and natural health product establishments.
19 Input supply
Establishments were asked to identify the types of bioactive and medicinal ingredients used in the production of their FFNHP products. Table 28 illustrates that around one out of three FFNHP establishments indicated floriculture, herbs and spices, seafood or other marine species and fruits as a source of bioactive and medicinal ingredient. FF establishments reported dairy products and oil seeds as the ingredients most frequently sourced.
In 2011, more establishments indicated that the bioactive or medicinal ingredients used in their FFNHP products were manufactured in foreign countries than in Canada (Chart 2). Most indicated that the floriculture, herbs and spices along with seafood or other marine species and fruits that were used in FFNHP products were supplied from foreign sources. Dairy products, oil seeds, as well as grains and cereals were more equally sourced from both Canadian and foreign suppliers.
Quality was one of most important factors considered by all FFNHP establishments when choosing between bioactive and medicinal ingredients available both in Canadian and foreign markets (Chart 3). Year-round availability, regulatory approval and other factors were more often reported to be more important than lower total cost.
The results from the 2011 Functional Foods and Natural Health Products survey indicate that 750 establishments were active in the area of functional foods and natural health products and generated a total of $11.3 billion in FFNHP revenue. Total FFNHP exports amounted to almost $1.7 billion while imports totaled almost $337 million. Over 16,000 individuals made up the FFNHP labour force. The extensive product market for FFNHP had available 32,266 individual product lines being sold both inside Canada and abroad. Total spending on FFNHP research and development amounted to $238 million with over 4,500 products in development.
Functional food and natural health products remains an emerging activity that continues to grow within establishments focused on the enhancement and value added processing and extraction of food and bioactive ingredients. These establishments develop and produce new products and services aimed at improving the quality of health of Canadians and help reduce their health risk.
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