Dietary Supplement Contract Manufacturing in a Time of Trump

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In the aftermath of the most contentious presidential contest in modern American history, our divided nation can at least agree on this: Elections have consequences. And if even half of what was said during the campaign vis-à-vis global trade comes to pass, the election of Donald J. Trump to the office of United States president will usher in some unintended consequences, as well.

For despite still being president-elect at the time this article was written, Trump has made abundantly clear-in tweet and in deed-that he intends to revive American manufacturing by closing the gates on those who’d gladly ship operations overseas, and by calling home those who already have. Within weeks of the vote, Trump was busy convincing (some would say strong-arming) the Carrier air-conditioner company to nix its “job-killing” move to Mexico in exchange for some $7 million in tax incentives-proving what the president-elect promised all along: He means business. Even more recently, in January, came reports that Ford had ditched plans to open an auto-manufacturing plant in Mexico following criticism the company received from Trump.

But for those in the business of making dietary supplements-and who’ve enjoyed the fruits of offshore production no less than any other industry-the Carrier and Ford events raise concerns. Will they herald a coming trade war? A fracturing of international supply lines? An era of manufacturing policy conducted via PR stunt? For now, says Marc S. Ullman, of counsel, Rivkin Radler (Uniondale, NY), “We know nothing.” The only certainty is that manufacturing, both at home and abroad, is in for a change. “Even without any specific focus on the supplement industry,” Ullman says, “actions by the administration on a global basis could have great impact on the sector.” We just have to wait to find out how.

Reading the Tea Leaves

Stuck squirming in this state of policy purgatory, industry members have taken to consulting everything from tea leaves (imported, probably) to Magic 8 Balls for clarity. But as Eugene Ung, executive vice president, Best Formulations (City of Industry, CA), concedes, “At this point, there are more unknowns than knowns.”

Whether you blame the founders for giving us the presidential transition period by design or the Trump team for running the cabinet-selection process like a beauty pageant, “There’s a lot of speculation as to what all this means for FDA, for the Federal Trade Commission, for what Congress will address first and for how that will affect the dietary supplement industry,” says Mike Greene, vice president, government relations, Council for Responsible Nutrition (CRN; Washington, DC).

Starting from Strength

If there’s any upside, it may be that the sector is entering the Trump years in a position of strength. According to the Transparency Market Research report “Nutraceuticals Market – Global Industry Analysis, Size, Share, Growth and Forecast, 2015-2021,” the global nutraceuticals market was valued at US$165.62 billion in 2014 and should reach US$278.96 billion by 2021, with consumers in North America likely to dominate demand over the forecast period.

An independent economic-impact analysis that CRN funded and John Dunham and Associates conducted shows much the same, including that supplement manufacturers and ingredient suppliers across all 50 states employ upwards of 750,000 Americans and generate $5.75 billion in state and local taxes atop the $9.2 billion they pay the Federal Treasury. In the United States alone, the report says, the industry’s overall economic impact in 2016 was $122 billion and continues to grow thanks in part to growing demand for health-promoting products from health-involved consumers.

So seeing as how the sector’s “been gaining strength for several years,” surmises Steve Holtby, president and CEO, Soft Gel Technologies Inc. (Commerce, CA), his guess is that “it doesn’t appear the new administration will change this rate of growth.”

Looking Abroad

It could, however, change where and how that growth occurs. That’s because for years, domestic supplement brands have been capitalizing on the lower production costs and immediate access to raw materials in developing countries by either moving their facilities to those locations or enlisting the services of contract manufacturers based there-a strategy bound to be at odds with coming administration policy.

“It was a growing trend indeed,” says Shaheen Majeed, marketing director, Sabinsa Corp. (East Windsor, NJ). “We’ve seen processes ranging from gummy manufacturing to simple tablet pressing take place outside the U.S. for products to be sold in the U.S., with manufacturing happening in South America and India as well as in China.”

And though safety suspicions often cloud the reputations of products known to be made abroad, Holtby says that “emerging countries like India and China are starting to provide low-cost products that meet cGMPs”-current good manufacturing practices. “As these countries rapidly improve their facilities’ GMP compliance,” he says, “companies will continue to relocate their operations to these regions.”

All-American?

Or not. “While we predict that this trend will continue,” Majeed says, “it may slow down with more consumers opting for domestic brands-especially with the more nationalistic tone we’re seeing from the new administration.”

And especially with the appeal that comes from being “made in the USA.” As Greene points out, “When you look at the dietary supplement industry specifically, one of the things you see is that a majority of CRN’s members, at least, are making their products here in the United States.” The constituent ingredients may be grown, harvested, extracted, or synthesized abroad, he avers, but by virtue of being put together as a finished item within our borders, the whole shebang must comply with FDA’s GMPs and other regulations.

Having said that, Greene continues, “I think it’s important to underscore the difference between ‘manufactured’ and ‘made’ in the United States,” as the Federal Trade Commission (FTC) controls the terms’ use “very stringently.” To wit, for a product to claim without qualification to be “Made in the USA,” “all or virtually all”-that is, all significant parts and processing-must be made and performed in the 50 states, the District of Columbia, or the U.S. territories and possessions, per FTC regulations.

But with more dietary ingredients coming from overseas, making such claims may be getting harder. Roughly 90% of the vitamin C sold on the world market originates in China, according to an IBISWorld report. Green Tea, fish oil, even hemp: In all cases, foreign exports account for not-insignificant portions of what goes into American supplement products. So to the extent that “the president elect talks about ongoing free-trade agreements,” Greene says, “that will affect the global supply chain of every company doing business in the United States.”

Ullman agrees. “I think the sourcing of material is potentially the wildcard here,” he says. And though he doesn’t expect the new administration to target our industry specifically, “the consequences, for example, of slapping 30% tariffs on goods from China” could have tremendous consequences for domestic supplement brands. “We will be impacted by overall changes on tariff policy.”

And they don’t even have to be our policies. “It may not be America that imposes trade reforms,” notes Majeed, “but, in fact, countries like China that may not agree with America’s policies and therefore charge extra duties and tariffs for incoming and outgoing goods.” Regardless of who fires first, he says, “A company in our industry whose supply chain can be impacted-which is all of us-should pay close attention and have alternative plans in place, just in case.”

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Coming Home

David Sandoval, founder/CEO, Organic By Nature Inc. (Long Beach, CA), is already on it. “If we end up in a war”- trade, cyber, or otherwise-“the further you are from your product, the further you are from your customer and the worse-off you’re going to be,” he says. That’s why he considers manufacturing domestically “just smart business”-for companies, the economy, and the environment. “I think it makes a lot of sense for those who may be worried about an unstable global and economic situation to want to keep things closer to their vests,” he says.

And that’s not the only reason to bring production home. Ten-plus years ago, during the height of China’s “growth spurt” as a global economic power, Best Formulations established a Chinese manufacturing facility “in an effort to market commodity softgels to the U.S. for cost reasons,” Ung recalls. Even as its domestic facility was busy producing “more challenging softgel formulas,” the company felt that an overseas expansion would boost its competitiveness on the commodity scene while also positioning it “for a shift to manufacturing in China,” he says.

But things didn’t turn out as planned. “It was extremely difficult to sell ‘made-in-China’ dietary supplements, even though we ran the facility, implemented our own quality systems, and used our raw materials,” Ung says. So strong was the stigma that the company sold the facility a few years later. “What we didn’t know was that China would keep getting in its own way with safety scandal after scandal,” he says. “Six months couldn’t go by without some negative news coming out, whether about contaminated pet food, baby formula, or something else.”

Regulate Us, Please

For that reason, Ung suspects that irrespective of the Trump administration’s stance toward overseas production, the majority of supplements sold in the U.S. will continue to be manufactured in the U.S. because, outside the commodity channel, “consumers both domestically and abroad want made-in-the-USA dietary supplements.”

From Greene’s vantage at CRN, their preference makes sense. Even so, he maintains, “Regardless of where ingredients are sourced or whether or not something’s made in the USA, for the dietary supplement industry, it’s much more important that our ingredients be safe, and that our products are safe.”

Which is another way of saying, “Please, Trump-era FDA, regulate us!” And that’s exactly what Greene et al are pleading. “Because we’re dietary supplements,” he says, “and because we put these products into our bodies, we reinforce the message that we need to be regulated-reasonably.”

Alas, the agency’s bureaucracy can sometimes make reasonable regulation a fantasy. As Ullman quips, “FDA is a complicated, unwieldy organization on the best of days.” Further, in both its tone and its agency appointments, the Trump team has signaled that, to cadge a phrase from the Clinton years, the era of big government is over.

As Greene says, “While we don’t know anything for certain yet, we can make some informed predictions.” For one, given the incoming party’s fondness for asserting that regulations impede growth, “it’ll be important for contract manufacturers not to relax their GMP compliance and commitment to quality” even if government agencies do, Greene insists. After all, “Industry critics aren’t going away.”

For another, any relaxation of oversight at the federal level will shift the burden to independent third bodies. Reckoning that Trump’s policies will lead to “a reduction in consumer protections that scares me,” Sandoval predicts that certifications for everything from organic and kosher to gluten-free status will “carry a lot more weight as confidence in our domestic verifications and protections under a Trump administration erode.” Reliance on these parties “is going to be vitally important for companies in differentiating themselves,” he says.

Wait and See

Beyond that, the industry remains in wait-and-see mode. As Majeed says, “The Carrier deal, however, you look at it, reflects some of President-elect Trump’s thinking.” And his reading of the situation tells him that “it’s a great time to invest in the quality and craftsmanship of ‘made-in-the-USA.’” He wagers the supplement sector’s prospects could even brighten “if the politics move in the right direction toward a focus on labor training, job welfare, and more.”

For his part, Ung focuses more on “the overall economy” than on “who’s in the White House.” And yet he, too, is cautiously optimistic. “Through policies that support business growth-lower taxes and smart regulation-the industry impact could be positive overall,” he says.

That said, just where the Trump years will take us is “too difficult to tell at this time,” Majeed concludes. “While the stance may be to ‘make America great again,’ the roadmap for doing so may have neither a road nor a map.”

Also read:

Dietary Supplements: Made in the USA?

What Does Contract Manufacturing Dietary Supplements Cost?