By Sherree DeCovny, Co-Founder and Research Principal
About 25 years ago dietary supplements was a $4 billion industry comprising about 4,000 unique products. Today, it’s worth more than $40 billion, and there are more than 50,000 products, according to the U.S. Food and Drug Administration (FDA). The industry is much bigger when you add natural foods and beverages as well as cannabis products into the mix. Despite the exponential growth, companies’ operations tend to be immature when it comes to working closely with supplier networks and establishing track and trace capabilities.
To illustrate, it takes months for some types of plants to grow from seed to full maturity, and spikes in demand can result in supply shortages. A few years ago, some smart marketing and branding fueled a huge demand for Garcinia Cambogia, a tropical fruit that became popular as a weight-loss supplement. Faced with shortages, suppliers began fulfilling orders with counterfeit product. More recently, there has been strong demand for turmeric because it’s being marketed as a natural way to alleviate conditions including arthritis pain and depression, and supply has come under pressure.
Another issue is that some companies have an extensive supply chain, and do not have much control over important segments such as sub-tier suppliers. Their supplier is buying from another supplier, who is buying from a vendor deeper in the chain. In addition, a huge percentage of dietary supplements ingredients are imported. Even if a brand owner wants to source high-quality products that have been grown sustainably, they often lack the information to do so.
However, stricter regulations along with consumer demand for products that are healthy, safe and grown sustainably are driving change. More supplements have come under the FDA’s purview, and efforts to protect consumers against unsubstantiated claims and mislabeled products have been stepped up recently. In February 2019, the FDA sent out several warning letters and online advisory letters to companies that made unsubstantiated claims that their supplements products prevent, treat or cure Alzheimer’s disease, diabetes or cancer. In 2018, The FDA warned consumers about supplements marketed in bulk that contained pure and highly concentrated caffeine, as well as Rhino male enhancement products containing sildenafil and/or tadalafil, the active ingredients in prescription Viagra and Cialis. Also in 2018, the FDA issued warnings against companies that made unproven claims that their supplement products containing tianeptine could be used to treat opioid addiction.
Could blockchain be a tool to help the natural foods and dietary supplements industry achieve more transparency, efficiency and regulatory compliance, and earn consumers’ trust? Very possibly.
A few companies are either already in production or pilot testing TagOne’s SaaS-based, blockchain-enabled suite of solutions that deliver transparency to the natural products industry. TagOne allows companies to capture information about ingredients, products, suppliers and customers. Users have a record of all transactions pertaining to receiving, manufacturing and shipping as well as quality certifications. A proprietary algorithm ensures that ingredient movement is linked seamlessly from seed to shelf. The solution also provides data analytics on inventory availability, transaction history, supplier performance and traceability history.
T.J. Gupta, CEO of TagOne, points out that effecting change is never easy. Small and medium sized companies are used to relying on Excel spreadsheets for supply chain management. They love the concept behind blockchain, but they’re not comfortable with it because they’re not confident about their process for inputting data accurately. They’re afraid that once it’s on a blockchain, they can’t change it. Of course, in an ideal world data wouldn’t be input manually: it would be fed into a blockchain automatically from sensors, mobile devices, RFID and so forth. But true digital transformation is years away.
Gupta believes that one of the biggest problems is the lack of standards. In natural foods, for example, turmeric may also be called curcumin or haldi, and this could result in a systems mismatch. Full automation is a long way down the road because the standards and attributes that need to be tracked haven’t been defined.
So, is there a tsunami of natural foods and dietary supplements companies that want to embrace blockchain? Absolutely not. Are there enough companies that want to do it because they recognize that transparency and consumer trust is good for their brand? Absolutely yes.
Chain Business Insights has been following the implementation of blockchain and related technologies in the food industry. Our research brief on “Blockchain and the Future of Food: Driving Efficiency, Transparency and Trust in Food Supply Chains” explains how blockchain can help break down information silos to improve visibility and traceability from the farm to table. A shorter eBook version is also available. We also posted a blog recently about a Dutch enterprise that is developing a blockchain-based marketplace solution that could provide a sourcing option for environmentally sustainable, ethical food ingredients. Natural foods and dietary supplements is an interesting subset of the food industry, and we’re looking forward to monitoring developments in this space.