Health Food Supply
Herbal Medicines Supply
Breaking into the Market
List of Acronyms Used
The pharmaceutical, herbal and health food industries operate in rather different environments and therefore make different demands on their suppliers of raw materials.
They all, however, need a reliable supply of material from species outside of the mainstream, with well-documented quality control, and will therefore best suit those farming enterprises which already have experience of specialist crop production. The tonneages involved are not large, but can provide a profitable niche business for growers able to master the technical challenges.
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The problems which have beset British agriculture for many years have created a considerable pressure for diversification. The returns which can be obtained from conventional farming activities are often inadequate and therefore farmers are looking to new activities, new crops, new uses and new outlets in order to improve the economic performance of their businesses. One area which might provide suitable opportunities is the production of plant-derived raw materials for the medicinal and health food industries.
At the outset, it should be understood that the scale of the opportunity is small by comparison to the size of the farming industry. Although health foods appear to be ubiquitous in our high streets, and we hear a great deal about the development of medicines from plants, the volumes concerned are tiny by comparison to our major crops. Detailed data are not available, but the total of European imports for medicinal and aromatic plants is estimated at 150,000 tonnes per year (IENICA, 1999) which represents about 1% of the annual UK wheat harvest. From the perspective of our national agricultural strategy therefore, these markets are unlikely to have a substantial impact on farm diversification.
On the other hand, from the perspective of an individual business, there is the possibility that these niche crops and uses may make a significant contribution to income and profitability. However, the pharmaceutical, health food and herbal medicine markets are not easy to break into, and it is therefore necessary to have some understanding of their different characteristics and constraints in order to determine the best approach for potential growers.
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The pharmaceutical industry is highly regulated by government agencies. No pharmaceutical product (whether over-the-counter or prescription-only) may be sold without a licence (more correctly, a Marketing Authorisation), and in order to obtain a licence, a company must present comprehensive data to demonstrate safety, quality and efficacy, and that they are able to manufacture a stable and uniform product (MCA, 2001). To the outsider, the volume of material required is stunning. It would not be uncommon for such an application, printed on normal A4 paper, to weigh over 1000kg, with every aspect of the product described in exquisite detail. The cost of achieving a successfully licensed, innovative product can also be staggering; informed estimates suggest a cost of US$800 million (£520 million) per product (DiMasi et al, 2003).
The major part of the cost normally lies in the research and trialling effort which is required in order to find new products, evaluate them and to ensure that there are no unexpected side effects. A very small proportion of candidate drugs reach as far as trialling in humans and, of those, only 20% are eventually marketed (DiMasi et al. 2003). The profit from the small percentage which do make it to market therefore has to carry the cost of all the failures.
In order to recoup these enormous development costs, the profit relative to manufacturing cost is normally very high. Naturally, this is attractive to competing manufacturers, who could produce a generic version of the drug much more cheaply, as their development costs would be insignificant by comparison. Because of this, pharmaceutical companies do not normally proceed with candidate drugs unless they have solid patent protection with which the generic manufacturers may be held at bay. Protection has to be obtained early in the research process, but it lasts for only 20 years from the date of filing. The research and development phase is so long (the human trialling phase alone takes an average of 7.5 years (DiMasi et al, 2003)) that, by the time a product is launched, there may be only a few years of patent protection remaining. The window of opportunity for the original developer to recoup its costs and to earn its profit is therefore relatively short.
It is clear therefore that, once a company has obtained a licence to sell a new product, it is under enormous pressure to maximise the sales and the profit from the product and to guard against anything which might interfere with that process.
When searching for new products, pharmaceutical companies look at compounds from a wide range of sources, including the plant world. However, given the pressures noted above, plant sources present them with a number of problems:
These problems are exacerbated if the plant species involved is not already in cultivation. The normal reaction therefore when an interesting compound is found in a plant species is: 1) to see whether it can be synthesised at reasonable cost; and 2) to see whether, by making small changes to the molecule, the efficacy and safety can be improved. It is unusual therefore for a novel licensed end product to contain an unmodified extract from a plant-based raw material.
On the other hand, it does sometimes happen that an important molecule either cannot be synthesised on a reasonable scale because it is too complex, (e.g. paclitaxel - Taxol - isolated from Yew (Taxus baccata L.) or requires a specific molecular orientation (e.g. gamolenic acid - Epogam - from Evening Primrose (Oenothera spp.). In those circumstances, there may be little choice but to source the compound from plant material. These types of molecule form the basis for the opportunity for growers in supplying raw materials for new pharmaceutical products.
In addition to new products, there is also the possibility of supplying raw materials for generic products, where the initial patents have expired and there is free competition between companies.
In both cases, whilst some companies organise production in-house (particularly those which have an explicit botanical orientation), most will obtain their raw materials from a specialist company, which will organise production and perhaps initial processing. In this way, the pharmaceutical manufacturing operation is able to receive its raw material supply at an intermediate stage which is stable and uniform and delivered directly to the factory gate, in accordance with its manufacturing schedule. This gives at least the illusion of greater control, although in fact it means that the risk factors have simply been transferred down the chain to the supply company, who will manage the supply and quality risks through phased, dispersed production, control of inventory, and blending, with the associated costs being passed on in the price. The supply company also acts as the interface between the manufacturer and the primary producer, who may well have very different cultural values and operating methods, which could otherwise lead to misunderstandings and conflict.
Whether the raw material is sourced direct, or through a supply company, there will still be the same priorities for the buyer:
Quality: The quality of the material supplied is paramount, both in terms of the content of active material, and in the control of spoilage, agrochemical residues and admixture. The buyer will probably have some room to manoeuvre on contract specifications, but the standards laid down by the pharmaceutical licence will be absolute.
Consistency: Although some variability in quality is inevitable from season to season, growers will be required to take every possible step to minimise this.
Information: Full documentation will almost certainly be required, either to a recognised standard such as ISO9000 (ISO, 2003) or Good Agricultural Practice (IENICA, 1998), or to the manufacturer's own standards. The manufacturer will be governed in turn by the terms of the product licence and by Good Manufacturing Practice (MCA, 2001)
Reliability: The manufacturer will not wish to hold significant stocks, and so will have limited room for manoeuvre in the event of poor yields or crop failure. Grower reliability is therefore a critical factor.
Pro-active reporting: If there is a problem developing, the buyer will need as much notice as possible in order to make alternative arrangements.
Service: A grower who thinks in terms of providing a service, rather than merely selling a product, will usually be first in line for subsequent contracts.
This is a rather more demanding situation than is normally encountered with food production, but there are some compensations.
Price: Even with generic medicines, the raw material may well be the cheapest component of the cost of the packed product. Thus, although price is important, it may be subsidiary to the other requirements, thus allowing for larger margins for the grower.
Stability: Once a grower is established as a reliable pharmaceutical supplier, the buyer will be reluctant to move to an alternative, unless there are problems, or the grower is unable to meet demand.
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The health food industry has some superficial similarities with the pharmaceutical industry, in that both address issues of personal health and well being, but they operate in very different environments.
Health food products are sold under the rules governing normal foods. By definition therefore, the manufacturers are not permitted to make any medical claims for their products. This might seem surprising, but examination of the packaging of any reputable health food product will reveal many general statements about 'health' and 'vitality' and such like, but no specific claims unless such benefits have general recognition (e.g. for specific vitamins and minerals). All promotional text is in fact carefully monitored to ensure that it does not step outside of the limits permitted for food products.
There is no specific licensing system for health foods (unless they are genuinely novel foods, in which case they must be licensed under EU regulation (FSA, 2003)) and very little prospect for patent protection. This makes it easier for competitors to copy any new products and there is therefore little incentive to invest large amounts in research. Differentiation between companies is therefore achieved through branding and advertising, and there is severe price competition.
Given this situation, most products will be sold by a number of healthfood companies operating in competition with each other, and hence the raw materials may well be informally traded as commodities.
As for pharmaceuticals, few companies have the entire manufacturing process in-house. In fact, many health food companies have become even more specialised by being completely dissociated from the entire manufacturing process, simply buying their bulk or packed finished products from third parties.
A primary producer therefore is more likely to be supplying to a manufacturing intermediate or a trader than to a company with a recognised high street brand name, and there may be many links in the supply chain before the product reaches the retailer. Given this, the criteria used by the health food buyer will be rather different from those of the pharmaceutical buyer.
Price: Given the intense market competition, there will be much greater emphasis on low producer prices, and growers may even encounter 'risk-sharing' schemes, whereby the buyer and producer share the risk of market price variations after harvest. Such schemes are best avoided unless the grower is in the unusual position of having access to accurate market information.
Quality: High quality is always desired, but it will be tempered by the level of availability in the market. When supply is short, the quality requirements can be adjusted to a quite remarkable degree, as there is no external supervision. On the other hand, when the market is in glut, growers may be made aware of quality terms in their contracts which had seemed innocuous when they were signed.
Stability: Long term supply relationships for health food raw materials are possible, but the barriers to swapping suppliers are low, so growers should expect to have to bid for the business anew each season.
Documentation: The requirements of the health food trade is much lower than that for pharmaceutical supply. Some buyers merely demand that the produce meet the specification. Others would be satisfied with evidence that the grower is following a recognised quality scheme such as the Assured Combinable Crops Scheme (ACCS 2003)
Service, reporting and reliability: These factors will help a grower to gain a contract if all other things are equal, but may not overcome a price differential.
Examples of healthfood products, sold under food regulations, would include evening primrose (Oenothera spp.) and borage (Borago officinalis L.) seed oils, garlic oil and cranberry juice.
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The herbal medicine industry is, in many ways, intermediate between the health food and pharmaceutical industries. There are two regulatory routes by which a herbal product may be brought to market. On the one hand, the company can apply for a pharmaceutical licence which, as for a pharmaceutical, will require a demonstration of efficacy, quality and safety. As already noted, this can be a very expensive and time-consuming process, but it allows the company to make specific medical claims for its product. On the other hand, herbal medicines are exempt from these licensing requirements if certain conditions can be met, for instance, if they are prescribed by a herbal practitioner, or are sold without any specific medical claims on the packaging.
The situation is currently in a state of flux, with new regulations under discussion at the European level (CEC, 2002). These draft regulations are aimed at harmonising the legal framework between the member states of the EU, and at improving consumer protection. They allow for the registration of herbal remedies which have a 'traditional use' without submitting a full licence application, but the introduction of new remedies which do not have a history of use within the EU is likely to be restricted. The UK Medicines Control Agency has prepared a guide to the likely impact of these proposals (MCA, 2002).
Herbal medicines are not of course restricted to those within the European tradition. There is a rapidly growing use, for instance, of both Chinese and Indian (Ayurvedic) traditional remedies in the West. Many of these have been used for long enough within the EU to be accepted under the traditional use definition, but others with no such history may face barriers to their future introduction.
From the commercial point of view, the position of the industry is also intermediate. There are some specialist herbal suppliers, who sell remedies direct to consumers through retail outlets or to herbal practitioners. There are some companies which are better known for health food products but which have herbal medicine products in their ranges. On the other hand, some of the suppliers of botanical raw materials to the pharmaceutical industry also supply herbal products. Finally, there are companies which act primarily as traders who make opportunistic purchases and place speculative contracts according to the state of the market. There is therefore a range of possible outlets for herbal raw materials, and the approach taken by the buyers is likely to vary according to their position in the spectrum. In fact, concern over the variability in quality standards in herbal medicines is one of the driving forces behind the proposed regulations described above.
Examples of licensed herbal products would include extracts of Echinacea (Echinacea purpurea Moench), St. John's Wort (Hypericum perforatum L.) and Valerian (Valeriana officinalis L.).
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As discussed earlier, production of health food, herbal medicine and pharmaceutical raw materials will not be suitable for every grower. The quality and documentation demands are, in general, much higher than for food crops, and the crops themselves are much more technically demanding. The greatest chance of success lies with those who already have experience in producing similar crops. Production of vegetable or flower seed would be a good starting point for seed crops, as would culinary herbs or specialist vegetables for the production of herbal material. The starting point therefore is for the grower to have a good understanding of the strengths and weaknesses of his own farming operation. Moving into this specialist area of production will be easier if it is an evolutionary step, rather than a radical departure.
The next step is to find a customer. Some growers are inclined to choose a crop which they believe they can grow and then look for a market. The list of potential species is very large, and it even includes many plants normally regarded as weeds, such as Burdock (Arctium lappa L.), Milk Thistle (Silybum marianum Gaertn.) and Dandelion (Taraxacum officinale Weber) (IENICA, 2000, Milliken and Bridgewater, 2001). It is, however, likely to be easier to survey the companies involved in sourcing, find out what they need, and then select the most promising of those candidates. The sourcing companies will be inclined to give contracts first to those growers they know and who have proved themselves to be reliable and easy to work with. It can be difficult to break into the circle, but opportunities do present themselves when, for instance, demand for a product starts to rise unexpectedly or a new product is introduced. An element of salesmanship on the part of the grower will help in securing a contract.
Geographical location, climate and soil type will rule out some crops for some growers, but the range of habitats which are required by these specialist crops is very wide, from the hot, dry lands of East Anglia (e.g. essential oil crops) through to the bogs of the Scottish Highlands (e.g. Bog Myrtle Myrica gale L.) (Simpson et al. 1996)). Growers located in less-favoured parts of the country may therefore be able to compete effectively if they can find a species (with a market) which is particularly suited to their farming environment.
There is a learning curve for any new crop, and reputable sourcing companies will offer a package which includes instructions and farm visits in order to ensure that the grower has the best chance of a successful crop. For this reason, they are likely to select growers who are located within easy reach of their offices, or near a group of existing growers. This will minimise the travelling time for their advisers and the transport costs for harvested material. This is particularly important for the harvest of fresh material which would normally have to be processed or stabilised within a few hours of harvest.
Some growers, given the difficulty of obtaining a contract, are tempted to produce material speculatively, but this is an extremely risky venture. If a grower cannot obtain a contract, it implies that the sourcing companies do not foresee a large demand, or that they feel that the grower's enterprise is in some way unsuited to the crop. The companies will often be in an unstable market situation, which could be exacerbated by uncontrolled, uncoordinated speculative crops. Many buyers therefore actively try to deter speculative production and, if they do buy, will only offer the lowest prices. The odds are therefore stacked against the independent speculative producer.
Once a contract has been obtained, any technical information and help which is offered by the buyer should be enthusiastically accepted. However, many of these speciality crops are new to cultivation, or new to this country, or have been only cultivated on a small scale, and so growers need to accept that there is unlikely to be as much experience available as for mainstream food crops. It is therefore worthwhile for the grower to look for alternative sources of information, both in the UK and overseas, to get the best possible advance warning of potential problems and how best to overcome them. The Internet and the telephone are, between them, very powerful tools in this respect. The grower also should not be afraid to experiment, although preferably on small areas rather than the whole crop. The buyer can be very helpful in this regard, with his knowledge of other growers' experience, saving time and effort spent on reinventing of the wheel.
Finding the best combination of techniques for the grower's own situation is in fact the key to profitability. The variation in return between a good crop and a poor one is much larger in speciality crops than in mainstream crops, as is the rate of crop failure. Pricing by the buyer will be geared towards the average yields obtained, yet the best growers may be able to achieve double that yield or more, with most of the difference going straight to the bottom line. The risks therefore are higher, but so too are the rewards if the challenges posed by a crop can be overcome.
As a strategy for boosting profitability, some growers may consider installing basic processing facilities so that they can sell their product further up the supply chain. At least one farm has built a successful business selling cold-pressed oils from seed crops such as borage (Borago officinalis L.) and evening primrose (Oenothera spp.) in this way. However, specialist knowledge is normally needed for such processing, market information is difficult to obtain prior to starting, and so the possibility of failure is high.
As with any new enterprise, following in the footsteps of others is unlikely to reveal the best opportunities. Given some creative thinking, it is surprising the range of opportunities which can come to light. A good example is a family beef and grain enterprise, situated in mid-Missouri in the United States (Sneed, 1997). They spotted an opportunity 30 years ago and have since then had a profitable business as one of the world's largest suppliers of pollens and oleoresins to the pharmaceutical industry, for use in allergy testing and treatment. They were among the first into this new area and, by developing their own techniques of growing and harvesting pollen, and continually expanding the repertoire of species harvested, they were able to hold onto their lead for an entire generation. As an aside, they also took a great deal of pleasure in making a profit from a farm full of weeds and some of the lowest yields per acre in the country!
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There are opportunities for a small number of growers to move into the production of raw materials for the pharmaceutical, herbal medicine and health food markets. Those best placed to succeed will be those who are already farming to a high standard, with pre-existing experience of difficult or specialist crops and a track record of reliable production. For those who are able to spot the opportunities and to overcome the technical difficulties, there is the potential for healthy returns.
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ACCS Assured Combinable Crops Scheme
CEC Commission of the European Communities
EU European Union
FSA Food Standards Agency
IENICA Interactive European Network for Industrial Crops and their Applications
ISO International Standards Organisation
MCA Medicines Control Agency
WHO World Health Organisation
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Assured Combinable Crops Scheme Manual 2003.
ACCS(Verio) Web. http://126.96.36.199/accs/manual.asp
Proposal for a directive of the European Parliament and of the Council amending the directive 2001/83/EC as regards traditional herbal medicinal products.
Commission of the European Communities, Brussels, COM(2002) 1 final 2002/0008 (COD), 17pp.
(Available at: http://europa.eu.int/eurlex/en/com/pdf/2002/en_502pc0001.pdf)
[Final version available at: http://pharmacos.eudra.org/F2/eudralex/vol-1/new_v1/direct_comm_2003_63_en.pdf]
Constandouros, R. (1999)
Establishing the cultivation and processing of plants for the production of speciality chemicals and their associated marketing. Some United Kingdom experience.
Presented at: Speciality Chemicals for the 21st Century. Sophia Antipolis, Valbonne, France 16-17 September 1999.
(Available at: http://www.ienica.net/specchemseminar/constandouros_copy(1).pdf)
DiMasi, J.A., Hansen, R.W., Grabowski, H.G. (2003)
The price of innovation: new estimates of drug development costs.
Journal of Health Economics 22 (2003) 151185.
(Available at: http://www.cptech.org/ip/health/econ/dimasi2003.pdf)
Food Standards Agency (2003)
Novel foods regulations.
The Food Standards Agency, http://www.foodstandards.gov.uk/foodindustry/regulation/foodlawguidebranch/novelfoodandgm/novelfoodlaw
Interactive European Network for Industrial Crops and their Applications
Guidelines for good agricultural practice (GAP) of medicinal and aromatic plants.
IENICA, York. http://www.ienica.net/policy/goodagpracherbs.htm
Interactive European Network for Industrial Crops and their Applications
Report from the state of the United Kingdom.
IENICA, York, 198pp. (Available at: http://www.ienica.net/reports/uk.pdf)
Interactive European Network for Industrial Crops and their Applications
Summary report for European Union: crops for speciality chemicals.
IENICA, York, 12pp. (Available at: http://www.ienica.net/reports/bigspecchem.pdf)
International Standards Organisation (2003)
The ISO9000 Family.
[Now at: http://www.iso.ch/iso/en/iso9000-14000/iso9000/iso9000index.html]
Medicines Control Agency (2001)
Types of licence/certificate: Marketing authorisations.
Medicines Control Agency, London. http://www.mca.gov.uk/ourwork/licensingmeds/types/marketauth.htm
Medicines Control Agency (2002)
Briefing on draft directive on traditional herbal medicinal products.
Medicines Control Agency , London, 10pp. http://www.mca.gov.uk/ourwork/licensingmeds/herbalmeds/qanda.pdf
Milliken, W. and Bridgewater, S. (2001)
Flora Celtica: sustainable development of Scottish plants.
Scottish Executive Central Research Unit, Edinburgh. 114pp.
(Available at http://www.scotland.gov.uk/cru/kd01/orange/sdsp.pdf)
Simpson, M. J. A., MacIntosh, D. F., Cloughley, J. B., Stuart
A E. (1996)
Past, present and future utilisation of Myrica gale (Myricaceae).
Economic Botany 50(1), 122-129.
Sneed, J. (1997)
Growing allergens for medicinal uses.
Presented at: The Ethnobotanical Richness of the Mississippi River Basin - Past, Present and Future. Society for Economic Botany Annual Meeting, St. Louis, Missouri, USA, 4-8 June 1997.
Quality assurance of pharmaceuticals. A compendium of guidelines and related materials. Volume 2: Good manufacturing practices and inspection.
World Health Organisation, http://www.who.int/medicines/organization/qsm/activities/qualityassurance/gmp/gmpcover.html
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