Are Contract Manufacturing and Organic, Natural Products Made for Each Other?

Organic and natural foods have long been ascendant in the marketplace. So, naturally, their reach is extending into contract manufacturing.

Organic foods have been a steadily growing presence in mainstream American store brands for years. Kroger, the biggest U.S. pure grocer, has seen its Simple Truth line, introduced in 2012, surpass $2 billion in annual sales. Organic store brand lines have been established on the shelves of grocers at all levels, even discounters like Aldi.

Natural and, especially, organic foods and beverages demand specialization in sourcing, and often in production and packaging. And contract manufacturing is a specialty in and of itself. So the two would seem made for each other, right?

In some cases, that’s true. There are contract manufacturers who are mostly, or wholly, devoted to organic and/or natural products. But in other cases, they’re dedicated to a particular product category; organic/natural is just a niche they fill within that category.

For both kinds of processors, a major challenge, especially with organic products, is ingredient sourcing. And in many cases, it’s like sourcing anything when the supply is unreliable: longstanding relationships confer a distinct advantage.

That’s the case with Crofter’s Organic, a maker of fruit spreads, jams, jellies and similar products. Crofter’s production is all organic, and about half of it is contract manufacturing for retailers. (It used to be more, but the company has grown business under its own label.) The parents of Dan Latka, director of sales and marketing, founded Crofter’s in 1989. He says getting into the organic market relatively early made, and continues to make, a big difference.

Crofter’s Organic has provided all-organic fruit spreads to private label since 1989.

“Thirty years ago, organic didn’t exist,” Latka says. “There was no regulation for it; there was no standard. It was kind of a grass-roots movement. And so having been involved in that industry for such a long time, we’ve really been a big part of the growth of it. We don’t have a lot of challenges that most new companies that try to do organic have."

Foremost among those challenges is maintaining a supply chain, which can be tricky to do with organic fruit. Crofter’s ingredients come from all over the world, including Europe, South America and Asia. The company’s longevity is a big factor behind its ability to secure its supply.

“We have a sturdy and well-built-out supply chain,” Latka says. “We’ve been able to establish not only business relationships but also meaningful personal relationships with the majority of our suppliers. A lot of them are longstanding partnerships. It’s not that we’re vertically integrated, but it’s about as close as you can get without actually owning the farm.”

A nutty market

Supply is more of a challenge with Redland Foods, which provides private-label snacking nuts. Joe Milando, vice president of sales, acknowledges that “as organic crops represent a small portion of all growing crops, supply can on occasion become an issue.”

The supply problem manifests itself partly in terms of difficulty in finding organic nuts that meet different grades or specs, he says: “Due to the small nature of crops within organic nuts, we are also subject to no defined specs/grades vs. traditional nuts, as there is far less material to go around or grade out.”

The lack of supply for organic nuts is due in large part to a lack of demand. Milando says organic is only a single-digit share of Redland’s business. He attributes this partly to the “fairly large” price gap between organic and non-organic nuts, and partly to consumer attitudes.

BrightPet Nutrition's dry pet food falls into the natural niche by virtue of eschewing preservatives and artificial ingredients.

When it comes to snack nuts, he says, most consumers are satisfied with better-for-you products free from artificial flavors and preservatives, which the industry as a whole has done a good job getting rid of. Such products can be marketed as “natural,” which carries consumer appeal without the additional expense of organic.

BrightPet Nutrition Group is another private label supplier that fell naturally, so to speak, into the “natural” niche. BrightPet makes kibble and other dry pet food for retail customers, mostly pet stores. They have only one organic customer but market the rest of their output as natural, which they can do because they avoid the high-volume, low-margin types of products that often use artificial ingredients or preservatives.

“It wasn’t a conscious decision to say ‘Hey, we’re going to do natural,’” says company president Matthew Golladay. “It was a conscious one to say, ‘We’re going to do higher-quality ingredients for the pet parent that is more concerned about health and longevity of their pet, and not [for] the cost-conscious type customer.’ ”

Protection priority

When it comes to processing and packaging of organic and natural products, many contract manufacturers must deal with protection – from the environment and from contact with conventional product.

Processing techniques per se usually don’t vary that much between organic/natural and regular products, but techniques chosen for the former tend to be those that eliminate microorganisms most efficiently, to make up for the lack of preservatives. One such technique rapidly gaining favor is high-pressure processing.

A frequent protection issue arises from the lack of preservatives. To maintain shelf life in a product without preservatives often requires extra-protective packaging. That’s what BrightPet uses for some of its super-premium products. Some of these have vitamin E, which is a natural preservative, but they’re limited in how much they can add to the formulation, because too much will give it an off-taste, Golladay says. BrightPet solved the problem by putting its super-premium products in a multilayered plastic bag with an oxygen-barrier layer laminated to a sealant layer.

“The better-quality products are in a more expensive bag, and that is to drive that limited oxygen exchange in and out of the bag,” Golladay says.

Another issue for those who make both organic and conventional products is product separation. This doesn’t necessarily require dedicated lines for organic product; adequate sanitation often can provide enough protection against cross-contamination, especially when organic is a small portion of total output. This sanitation has to be done with cleaning chemicals that are approved for organic production, which rules out substances like quaternary ammonium. Lubricants must also be organic-compatible.

PacMoore, a contract manufacturer of crunchy snacks, protein ingredients and dry powders, has organic as a small but growing portion of its business. Its protocols include clearly making incoming organic ingredients and storing them separately, away from areas of high traffic or significant air movement, says Chris Bekermeier, vice president of marketing and legal affairs.

Back track

One of the most important factors in organic manufacturing is traceability. Technologies both within and outside the plant offer more capability to trace both ingredients and finished product than ever before – and players throughout the supply chain, including consumers, are increasingly demanding it.

Crofter’s was in the process this spring of rolling out an embellishment to its labeling: a 1-cm-square black box containing a QR code that will be able to release complete traceability information.

“We have fitted our labelers with a special laser-burning mechanism that will burn into that black box a QR code,” Latka says. The code, etched onto labels at 200 jars a minute, will be used primarily for potential recalls or other food safety notices, but can also be used to trace back and establish the organic bona fides of all Crofter’s ingredients.

As organic and natural foods become more mainstream, they’re spreading to all the shelves occupied by private label foods. Contract manufacturers who pay attention to the special requirements of this niche can tap into a lucrative potential market.