Potential Benefits of Functional Foods and Nutraceuticals to the Agri-Food Industry in Canada

by Scott Wolfe

Executive Summary

Nutraceuticals and functional foods represent a potentially significant opportunity for Canadian farmers and food producers. Quantifying this industry is difficult, even from the demand side, where the data is relatively easy to obtain. It is currently believed that the demand for nutraceuticals and functional foods in Canada is in the CAD$1-2 billion range, though estimates depend on the definition of the industry. Estimating the size of the industry from the supply side is more difficult, as the products are extremely variable and input totals cannot be calculated. Based on an analysis that incorporates the functional penetration rates of various food categories, estimates of the opportunity from the supply side can be made. It is estimated that between $300 million and $1 billion of farm production value goes to supplying ingredients for functional foods.

This farm production value is broken down by region and production category as well. The largest apparent opportunity for functional foods and nutraceuticals exists in the Prairie region in the grain and oilseed category, which represents approximately $290 million. Other areas of significant opportunity include dairy through all regions, vegetables in Quebec and Ontario, fruit in Ontario and British Columbia, and herbs and botanicals throughout Canada. Primary food categories that present little in the way of opportunity for functional foods and nutraceuticals include meats and poultry. Legumes are rarely considered functional, though this is believed to be due to a lack of research in the area.

Scientific research is believed to drive the supply side of the industry. Many new research facilities have opened in many regions in Canada, and interest in nutraceuticals and functional foods has been on the rise. Many new industry associations have also arisen to meet the needs of this industry. These organizations will be expected to provide a coordinated effort in developing processes and technologies that will further the industry and provide value to the food industry.

The value chain for functional foods and nutraceuticals differ from the standard food model in a few key ways. Three components are added to the value chain: research, technology development, and product commercialization. While these three components are also present in the value chain for conventional foods, they are generally considered insignificant, and are ignored in most value chain models. With functional foods and nutraceuticals, scientific research and technology development are often the driving force behind product development, and product commercialization takes on added significance. It is believed that farmers and raw ingredient producers receive a relatively lower proportion of the consumer value of nutraceuticals and functional foods than for conventional foods, but this may represent a larger total received per unit production. Estimates are that raw material producers receive from 5% to 25% of the value of the end product.

Functional food and nutraceutical products carry higher prices and greater margins than do conventional foods, generating a great incentive for companies to enter this market. There are an estimated 300 Canadian companies that have developed interest in the nutraceuticals and functional foods industry, though it is unclear how many of these have developed functional products that are currently available. These companies have approached the industry from many standpoints and with many different strategies. This report presents three of these companies that have each utilized unique strategies in entering the market and develops estimates for the value chain for each.

The Flax Consortium developed as an association between several researchers who had developed a technology to extract specific beneficial compounds from flaxseed. This company is now licensing its technology to Archer Daniels Midland, potentially generating new markets for flaxseed. These markets should enhance the demand for flaxseed, either raising the prices for the product, or at least stabilizing the market somewhat. Through these means, farmers are expected to benefit. Through the value chain, the Flax Consortium has added value in the processing of flax ingredients, and flax growers hope to benefit from increased market exposure.

Bioriginal Inc. has focused its efforts on developing healthy oil products to be sold directly to consumers or as private labels, or to be used as ingredients in functional foods. Bioriginal has developed strong oil processing capabilities and has developed contractual arrangements with growers to provide top quality inputs. Bioriginal's success will depend on the strength of these arrangements, and producers benefit from a guaranteed market and a certain price for their production.

Burnbrae Farms has extended their egg product line to include several functional products such as omega-3 enriched eggs. These functional products are being sold throughout Canada at a price of approximately twice that of their conventional counterparts despite the relatively low technology involved in their production. This product depends upon new ingredients into chicken feed that provide new markets for farmer production as well as for egg producers.

All three of these cases, and others, demonstrate that there are strong possibilities in the nutraceutical and functional food markets, but the value is generally added downstream of primary producers. Regardless, farmers will benefit from the development of this industry in several ways, including increased markets for certain products, improved price stability as a result of the markets, and the possibilities of engaging in contract production.

Despite the opportunities presented by the industry, there are several challenges that will be faced. While Health Canada has taken a proactive role in defining functional foods and nutraceuticals, it has historically taken a strong stance against allowing health claims on foods. Research initiatives will need to support the industry by providing scientific evidence in support of functional ingredients and technologies. Methods for undertaking clinical trials for preventative products such as nutraceuticals and functional foods must be devised. Organizations such as Statistics Canada must also begin to consider this industry as an entity and support the industry development by providing industry-specific market research.

Disclaimer

Information contained in this report consists of opinions expressed by the author(s); 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.

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