Food Proc Guide

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INTRODUCTION

This guide is intended to help you develop your food processing business. Whether you’re new to the food industry and starting a new business, or are considering expanding your existing operation, you’ll find the tools you need here.

The guide takes a look at some of the important areas that are specific to the food processing business. We’ve included guidelines for food safety, quality assurance and government regulations, as well as general information about how to market and promote commercial-scale products. If you’re a new entrepreneur and you’ve never started and run your own business in Ontario, we highly recommend two other invaluable resources along with this guide:

• Your Guide to Small Business: This six-part guide, from the Ontario Ministry of Small Business and Entrepreneurship, highlights what you need to know to begin a new business. It takes you through the process, covering everything from initial preparation

to developing a business plan, financing your business, incorporating, assessing your progress and expanding your business. Your Guide to Small Business is available free online at http://www.sbe.gov.on.ca/ontcan/sbe/en/st_yrguide_en.jsp, or you can download it as a PDF file.

• The Canada-Ontario Business Service Centre website, www.cbsc.org/ontario.

This website, jointly managed by Industry Canada and the Ministry of Government Services, contains a wealth of information for anyone starting a business. Here you’ll find guidance on getting started, financing, research, marketing, taxation, management and planning, hiring employees and much more. An on-line small-business workshop takes you step by step through a program that will help you develop your business idea, start a new venture or improve an existing business.

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ACKNOWLEDGMENTS

The Guelph Food Technology Centre for their technical support

Ministry of Agriculture, Food and Rural Affairs—Economic Development Division Staff

Disclaimer Content

This information is provided as a public service. Although we endeavor to ensure that the information is as current and accurate as possible, errors do occasionally occur. Therefore, we cannot guarantee the accuracy of the information. Readers should where possible verify the information before acting on it.

External Links

There may be Web sites linked to and from this site that are operated or created by or for

organizations outside of the Government of Ontario. Those organizations are solely responsible for the operation and information (including the right to display such information) found on their respective Web sites. These linked Web sites may or may not be available in French. The linking to or from this site does not imply on the part of the Government of Ontario any endorsement or guarantee of any of the organizations or information (including the right to display such information) found on their respective Web sites.

The Government of Ontario does not assume and is not responsible for any liability whatsoever for the linking of any of these linked Web sites, the operation or content (including the right to display such information) of any of the linked Web sites, nor for any of the information, interpretation, comments or opinions expressed in any of the linked Web sites. Any comments or inquiries regarding the linked Web sites are to be directed to the particular organization for whom the particular Web site is being operated.

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Acknowledgments

1. DOING YOUR RESEARCH

Research makes good business sense. It can uncover hurdles you need to overcome, identify unexpected costs and help you avoid spending time and money on a project with little or no chance of success. Research can help you “fail small and fail early”—or not fail at all. Research is essential for developing a sound business plan. What’s more, the knowledge you gather will be a useful marketing tool.

In your research, you need to look at the industry, the environment, your competition and your customers. The Canada-Ontario Business Service Centre website at www.cbsc.org/ontario contains information about initial research.

However, when it comes to researching the food processing industry, you’ll want specific information that’s unique to this business.

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RESEARCHING THE INDUSTRY

Your goal here is to gain an understanding of how the overall industry works. You’ll discover trends, important players, competitors and customers that you can then investigate in more depth.

Information on an industry comes from two main sources: • published data; and

• interviews.

The easiest way to begin is by collecting all the published information that’s available. This will enable you to build a base of knowledge before you attempt to contact anyone directly. Your starting point should be with the industry associations. They can often provide:

• a list of participants;

• leads on published information;

• general impressions about how the industry functions; • key factors for company success; and

• important industry trends.

A word of caution: industry associations are more likely to help members than non-members, and they may share what you discuss with them among members who are potential competitors. If you already have a business, you might want to consider joining the associations (there are many benefits beyond gathering information). An introduction from a member may also be useful in gaining the association’s cooperation.

An excellent source for agri-food industry associations is:

Food in Canada

www.bizlink.com/food.htm

(food industry associations, events and trade shows) Jan/Feb Guide Book Issue

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Narrowing Your Search

Once you have collected background information from the industry associations, you’re ready to refine the topics for your search. All of the organizations that specialize in information can help you complete a narrower search. This might include:

• industry profiles and studies;

• annual reports of publicly held participants;

• articles and newspaper clippings about the industry or participants; • company directories;

• company documents; • trade magazines; and

• Statistics Canada information.

The government-publication section of your library is a good place to start. Here, you can see if any reports have already been done on the industry. You can also look at specific market information such as food consumption habits, consumer price indexes or income groups. This type of information will help you determine potential target markets or product demand.

Libraries

Some libraries specialize in government publications. You’ll find a list in the Resources section of this guide.

Databases

A vast amount of information about new research, consumer surveys, business trends and developing technologies from all over the world is available on a wide variety of databases. You can access some of these yourself at a library or on the Internet. Others are available through data services, most of which charge on a fee-for-service basis.

In order to get the most relevant information, make a list of key words that describe the

industry, the participants and the topic in question. Key words can include (but aren’t limited to): • company names;

• industries; • products;

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As you go through the information you have gathered, take notes and be sure to reference them. This will reduce your need to reread the material, and help you avoid the frustration later of trying to find where a piece of information came from.

You should also look through each source for references to other published sources and names of people to interview.

The Resources section of this guide includes on-line data sources.

Trade Journals

Trade journals and magazines can be a useful source of information. Some of these publications are general, while others are specific to the food industry or a sub-sector such as dairy.

You can get journals by subscription. Many libraries also carry them. For a list of trade journals see the Resources section of this guide.

Also check industry association newsletters; they provide information that you may find of value.

Field Research

Once you have a basic understanding of published information, it’s time to go out and start talking to people. Field research can give you more specific information than you’ll get from published sources.

As you do your field research, make a list of the trends that you see, both positive and negative. You should also try to establish who competes in the food processing industry and for which customers. This will help you identify your company’s own standing in the industry, as well as who to watch out for.

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2 2. YOUR RESPONSIBILITIES AND

OBLIGATIONS

Once you have completed all the basic steps involved in starting your own business, you’re ready to look at specific considerations relating to the food processing industry.

As a food processor, you have specific obligations and responsibilities that are governed by federal and provincial acts, statutes and regulations. You need to be aware of these, to ensure that you are operating a safe and legally compliant business.

Equally as important, you must be certain that you are properly insured. When you’re starting a business, you can’t afford to be under-insured. Even small disasters have the potential to destroy a new business. And personal assets such as your house or car could be seized if you don’t have proper insurance in place.

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LIABILITY AND INSURANCE

Many types of insurance are available. Your best bet is to consult with an experienced insurance agent or broker, who can advise you about the coverage you need. When you’re looking for an agent, speak with other food processors, friends and associates for suggestions about who to use.

There is a section on risk management for small businesses at the Insurance Bureau of Canada website at: www.ibc.ca.

You can also find names in the Yellow Pages. It’s always useful to get more than one quote.

You may need to purchase individual policies for each type of protection. However, your insurance agent might be able to find a package that’s geared to your particular business.

Product Liability Insurance

As well as general insurance, as a food processor you should be covered for product liability and completed operations liability. This will give you protection against claims by customers who have incurred damages or become ill through eating your food product.

Much of the regulation aimed at protecting consumers is designed to reduce the risk that they will eat a spoiled or tainted product. But food-borne illness is a continuing concern. A single lawsuit in this area can bankrupt even the biggest company. Personal assets such as a house or car can also be seized.

Store owners may require you to provide assurances that your product is properly insured, because they can also bear some liability for selling the product.

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GENERAL OBLIGATIONS AND RESPONSIBILITIES

Food safety is the responsibility of everyone along the chain, from farm producers to those supplying inputs to them to consumers.

Health Canada

The Food Program is administered by Health Canada’s Health Protection Branch. Its main task is to assess and control the nutritional value, quality and safety of food under the authority of the

Food and Drugs Act. The branch’s activities include nutritional assessments of food, nutritional

labelling and the regulation of novel foods derived from biotechnology.

The branch also carries out surveillance and risk-assessment activities to prevent and control diseases of national and international concern, including food-borne diseases.

Food Safety

You have specific obligations to: • your employees;

• the suppliers of raw products, ingredients and other materials and services; • the distributors and retailers of your products;

• the consumers of your products; and • the community in which you operate.

Consumers expect food to be safe. And they expect to be protected from unfair or fraudulent business practices. It’s your responsibility to ensure the safety of your products and the proper representation of its quality and quantity. The government’s role is to ensure that these obligations are met.

At the manufacturing plant level, food safety begins at the receiving dock and continues beyond the shipping dock. It includes such considerations as:

• the location and design of the plant;

• the safety, proper handling and storage of raw materials, ingredients, packaging materials and manufactured goods;

• proper handling, storage and disposal of waste products; • proper installation, maintenance and use of equipment; • proper training of your employees;

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Allergen Control

A variety of foods contain ingredients or substances that can cause adverse or allergic reactions in sensitive people. You need to ensure that prepackaged food is labelled in compliance with the federal Food and Drug Regulations. Most prepackaged food must have a complete and accurate listing of ingredients. If allergens aren’t labelled correctly, or if there is inadvertent contamination of a food with these products, the results can be serious.

For information on food allergies and your responsibilities as a processor, go to the Canadian Food Inspection Agency (CFIA) website at www.inspection.gc.ca.

You’ll find more information about labelling in Part 7: “Packaging and Labelling.” The CFIA website also contains information about labelling.

HACCP

Increasingly, buyers are requiring suppliers of raw products, ingredients and manufactured food products to use a documented process control system that maximizes safety. One such system is the Hazard Analysis Critical Control Point (HACCP) system. This is a method of analyzing the food processing to identify potential hazards to food safety. Once they have been identified, critical limits are set at each point during the processing.

The Ontario Ministry of Agriculture, Food and Rural Affair’s HACCP Advantage Program was developed as part of the HACCP approach, and is designed to be feasible and practical for any food processing facility, regardless of its size, the commodity produced or the volume processed.

The HACCP Advantage Program consists of 57 prerequisite program standards and eight HACCP plan forms. The prerequisite programs are designed to control environmental—and personnel— related hazards, while the HACCP plan accounts for product—and process-related hazards. When you implement all the prerequisite program standards and complete and implement the required HACCP plan forms, you can create a functioning HACCP system. Much of the program may already be present in your business, with the only requirement being proper documentation. The HACCP Advantage Program manual presents the prerequisite program standards and the HACCP plan forms in a user-friendly format. For more information about the HACCP Advantage Program or to get a copy of the manual, call 1-866-641-3663 or e-mail

[email protected].

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Product Returns and Recalls

You can minimize product returns by ensuring that the quality is maintained once the product leaves the plant. Many companies:

• use packaging designed to protect and prevent contamination of the product; • ensure that everyone handling the product is aware of all storage and

transportation procedures;

• develop clear inventory control procedures;

• use a printed or embossed code marking on the package to identify the date produced and even the exact production machine or production run; and • use systems designed to indicate whether temperature abuse has occurred

during distribution.

Product Returns

Occasionally, customers will want to return a product because they feel something is wrong with it. As a gesture of goodwill and a way of maintaining and strengthening customer relations, you might want to accept the returned product and issue a credit note or a refund.

Investigating and keeping records of complaints is useful. Investigations may reveal problems in production or distribution systems that you need to correct. Records may indicate that a continuing complaint by a customer isn’t related to a defective product or deficiencies in your distribution system, but to home or institutional preparation problems or other customer-related problems. For example, if the local football association is always returning hot dogs when games are rained out, it may be due to their own poor planning, not bad hot dogs. If this is what the complaint records show, then you may want to look at other ways of dealing with the football association.

Product Recall or Removal

If one of your products is found to be unsafe or is implicated in a food-borne illness outbreak, regulatory agencies will request that you withdraw or recall the product from the marketplace. If you refuse, or there is an imminent threat to public safety, the Canadian Food Inspection Agency or municipal health units may exercise their powers to recall or remove the product from sale.

You need to be continually vigilant to avoid product recalls. To minimize the impact of a food recall, have a process control system that provides readily accessible and accurate documentation as well as an efficient and effective emergency recall plan.

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Food and Consumer Products of Canada publishes a number of guidelines and publications, including a Product Recall Manual. Contact:

Food and Consumer Products of Canada

www.fcpc.ca

885 Don Mills Road, Suite 301 Toronto, Ontario M3C 1V9 Tel: 416-510-8024

Fax: 416-510-8043 E-mail: [email protected]

REGULATORY RESPONSIBILITIES AND OBLIGATIONS

The information that follows is only a partial guide to the regulations that apply to the food processing industry. It’s your responsibility to contact the applicable regulatory agencies for detailed information.

Some of the responsibilities and obligations you have to your suppliers, employees, customers and communities are specified in agricultural, business, contract, food, environmental, labour, trade or criminal law.

In Ontario, federal, provincial and municipal governments have enacted laws governing the food industry and food processors. You need to be aware of the applicable laws, as well as any changes that occur in these laws over time. Get as much information as possible to determine the requirements

of the applicable legislation, regulations and bylaws, particularly before: • building a new plant;

• buying an existing plant; • starting operations;

• expanding or modifying your operation; • introducing new products; or

• expanding into new markets.

One main function of regulatory agencies is to conduct inspections to ensure compliance. The frequency with which these routine inspections are carried out is generally determined by the degree of risk posed by a product.

For example, meat is a relatively high-risk product. The slaughter of animals for meat for human consumption has to be done in the presence of an inspector. The inspector will examine all animals before they are slaughtered and all carcasses afterwards.

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If your facility produces lower-risk products, inspectors might visit less frequently. If your product is intended for export markets, the inspection frequency will be determined by requirements imposed by your trading partners.

If, during the course of a routine inspection, a product or the premises are found not to be in compliance, you will have to take corrective action.

Product and other requirements may vary from country to country, province to province and state to state. Requirements for food processing premises, as well as restrictions on them, may also vary from municipality to municipality.

Harmonized Inspection Standards

In Canada, the federal, provincial, territorial and municipal governments recognize the need to harmonize food safety standards nationally. The Canadian Food Inspection System Implementation Group is developing a new system of food safety inspection standards, which will be applied

nationally. These may reduce the regulatory burden on processors and make international and interprovincial trade easier.

You can check the progress of this initiative at the Canadian Food Inspection System website,

www.cfis.agr.ca.

Legislative Renewal

The federal government and many jurisdictions also recognize the need to modernize and

consolidate existing food safety legislation. Both Health Canada and the Canadian Food Inspection Agency have launched legislative renewal initiatives. Ministries with food safety responsibilities in Ontario have joined with municipal representatives to identify improvements needed in Ontario’s food safety system.

Supply Management at the National Level

National supply management plans were introduced under the Canadian Dairy Commission Act and the Farm Products Marketing Agencies Act.

The Canadian Dairy Commission oversees the administration of the National Milk Marketing Plan and reports to the Minister of Agriculture and Agri-Food in Canada. The plan covers all processed dairy products, with the exclusion of fluid milks (which are administered by the provinces).

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If you are planning to use dairy ingredients in your finished product, you need to contact the Commission. It administers a system of “special classes” that sets raw milk prices used to make milk ingredients for finished products. Contact:

Canadian Dairy Commission

www.cdc.ca

Building 55, NCC Driveway Central Experimental Farm 960 Carling Avenue

Ottawa, Ontario K1A 0Z2 Tel: 613-792-2000 (main) Fax: 613-792-2009 E-mail: [email protected]

The National Farm Products Council is a federal body that oversees certain national supply management agencies. Supplies of chicken, turkey, eggs and broiler hatching eggs are controlled so that Canada’s needs are met effectively. Contact:

National Farm Products Council

www.nfpc-cnpa.gc.ca

Canada Building

344 Slater Street, 10th Floor Ottawa, Ontario K1R 7Y3 Tel: 613-995-6752

Fax: 613-995-2097

E-mail: [email protected]

A list of national marketing agencies is available on the Ministry of Agriculture, Food and Rural Affairs website, www.omafra.gov.on.ca/english/farmproducts/index.html

Imports

You can import products from other countries for processing or further processing as long as you comply with certain conditions imposed by federal or provincial legislation. Some products can only be imported under a federal import permit issued by International Trade Canada.

Certain products are subject to tariff rate quotas. These are described on the International Trade Canada website at www.international.gc.ca/eicb/menu-en.asp.

If you would like to learn more about import requirements, contact: • a customs broker or freight forwarder;

• the local Revenue Canada-Customs office; or • the local Canadian Food Inspection Agency office.

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FEDERAL STATUTES AND REGULATIONS

You need to familiarize yourself with a number of federal statues and regulations, administered by several agencies.

Canadian Food Inspection Agency (CFIA)

All federally mandated food inspection and quarantine services are consolidated in a single federal food inspection agency—the CFIA.

Acts and regulations that the CFIA administers or enforces include the following: • Agriculture and Agri-Food Administrative Monetary Penalties Act; • Canada Agricultural Products Act;

• Canadian Food Inspection Agency Act; • Consumer Packaging and Labelling Act;

• Orders made under the Financial Administration Act; • Fish Inspection Act;

• Food and Drugs Act; • Health of Animals Act; • Meat Inspection Act; and • Plant Protection Act.

The CFIA maintains an excellent website at www.inspection.gc.ca that provides explanations of the programs and services it offers to industry, access and regulations, and a directory of

staff and offices. This website contains a wealth of information available to industry and consumers. It includes newsletters, fact sheets, guidelines, manuals and databases covering a wide range of topics such as allergens, labelling, food safety and codes of practice. Be sure to check out the CFIA’s Guide to Food Labelling and Advertising, which is available on the website and can be downloaded as a PDF file.

You can contact the CFIA at:

Head Office

Canadian Food Inspection Agency

59 Camelot Drive

Ottawa, Ontario K1A 0Y9 Tel: 613-225-2342

Fax: 613-228-6601

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Measurement Canada

Measurement Canada is a special operating agency of Industry Canada that administers and enforces two statutes dealing with measuring devices—the Electricity and Gas Inspection Act and the

Weights and Measures Act.

Under the Weights and Measures Act, the agency evaluates and approves all measuring devices (scales and meters) used in trade. You must ensure that all approved devices are inspected before you use them, and that you have them inspected regularly. Measurement Canada has an inspection program. However, you are legally responsible for the accuracy of your devices.

Measurement Canada also inspects goods and services that you trade on the basis of measure, to ensure that they are accurately measured.

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PROVINCIAL STATUTES AND REGULATIONS

As a food processor, you must familiarize yourself with a number of provincial statutes and regulations. The Innovation and

Competitiveness Division has useful website links for gaining information about food labelling regulations in Canada and the United States, as well as proposed changes to current government regulations. Note that the selected links below are to external websites, and are intended for information only. A good reference source is the food page of the Ministry of Agriculture, Food and Rural Affairs website at www.omafra.gov.on.ca.

You can also get copies of the various acts through government information centres in Toronto and Ottawa, as well as a number of third-party outlets throughout Ontario.

Ontario Government Bookstore

www.publications.gov.on.ca

880 Bay Street, 5th Floor Toronto, Ontario M7A 1N8 Tel: 416-326-5300

Toll Free: 1-800-668-9938 Fax: 416-326-5317

By mail: Publications Ontario 50 Grosvenor Street

Toronto, Ontario M7A 1N8

Access Ontario

Ottawa Court House 161 Elgin Street, Level 2 Ottawa, Ontario K2P 2K1 Tel: 613-238-3630

Toll Free: 1-800-268-8758 Fax: 613-566-2234

A list of private distributors is available at www.publications.gov.on.ca/english/shopsite. The acts are administered or enforced by a number of agencies, including the following.

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Ontario Ministry of Agriculture, Food and Rural Affairs

The Ministry of Agriculture, Food and Rural Affairs administers or enforces the following statutes: • Dead Animal Disposal Act: regulates renderers and the disposal of dead animals;

• Edible Oil Products Act: regulates manufacturers and wholesalers of edible oil products that resemble dairy products;

• Farm Products Grades and Sales Act: establishes requirements for fruit and vegetable, honey and maple products and grade marking requirements for beef;

• Livestock and Livestock Products Act: establishes requirements for eggs and processed eggs;

• Milk Act: establishes requirements for dairy processors and dairy products; and

• Meat Inspection Act: establishes requirements for abattoirs and processing in abattoirs. Regulations under the Food Safety and Quality Act, 2001 will harmonize Ontario’s

standards for food safety with national standards where appropriate. The legislation will serve as a strong complement to the Ministry of Health and Long Term Care’s Health

Protection and Promotion Act.

For more information, contact:

Food Inspection Branch

1 Stone Road West, 5th Floor NW Guelph, Ontario N1G 4Y2

Tel: 519-826-4230

Toll Free: 1-888-466-2372 Fax: 519-826-4375

Note that if you are a processor of dairy products, edible oil products or eggs, you must be licensed under provincial legislation. Abattoir operators who aren’t federally registered also need a license. Contact the Food Inspection Branch for details.

The Ontario Farm Products Marketing Commission administers the following acts: • Farm Products Marketing Act; and

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If you are a processor of apples, asparagus, grapes, potatoes, tender fruit or vegetables, you need to be licensed under the Farm Products Marketing Act.

Ontario Farm Products Marketing Commission

www.omafra.gov.on.ca/english/farmproducts/index.html

1 Stone Road West, 5th Floor SW Guelph, Ontario N1G 4Y2 Tel: 519-826-4220

Toll Free: 1-888-466-2372 Fax: 519-826-3400

A useful resource about regulations governing dairy processing in Ontario is the Dairy Farmers of Ontario—Online Services website, at

www.milk.org/Corporate/View.aspx?Content=Processors/DairyProcessing

Marketing plans have been established under the Milk Act and the Farm Products Marketing Act. These plans are administered by various producer marketing boards.

The plans vary by commodity, and each board has been granted different authorities. See the Ministry of Agriculture, Food and Rural Affairs website at www.omafra.gov.on.ca for a list of marketing boards and agencies.

Ontario Ministry of Consumer and Business Services

The Alcohol and Gaming Commission of Ontario has jurisdiction over the following acts: • Liquor Licence Act; and

• Wine Content Act. For more information, contact:

Alcohol and Gaming Commission of Ontario

www.agco.on.ca Atrium on Bay

20 Dundas Street West Toronto, Ontario M5G 2N5 Tel: 416-326-8700

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Ontario Ministry of the Environment

The Ministry of the Environment is responsible for the Environment Protection Act. For more information, contact:

Ministry of the Environment

www.ene.gov.on.ca

135 St. Clair Avenue West, Main Floor Toronto, Ontario M4V 1P5

Tel: 416-325-4000

Toll Free: 1-800-565-4923 Fax: 416-325-3159

Ontario Ministry of Health and Long Term Care

The Public Health Branch is responsible for the Health Protection and Promotion Act. For more information, contact:

Ministry of Health and Long Term Care

www.health.gov.on.ca

Suite M1-57, Macdonald Block 900 Bay Street

Toronto, Ontario M7A 1N3 Tel: 416-314-5518

Toll Free: 1-800-268-1154 Fax: 416-314-8721

Local Public Health Units are official municipal health agencies established to deliver community

health programs. Among their duties, the Medical Officer of Health and the inspection staff of each unit are responsible for inspecting all food premises, including restaurants and retail outlets, within their units. They also investigate and control food-borne illness outbreaks.

You can find Food Premises Regulation 562 under the Health Protection and Promotion Act on the Internet at http://www.e-laws.gov.on.ca/html/regs/english/elaws_regs_900562_e.htm

For your location go to: Municipal Public Health Unit Locations (Ontario) Bills before the Legislature

The Ministry of the Attorney General website provides the status of bills before the legislature, as well as electronic versions of statutes and regulations. Go to:

• www.attorneygeneral.jus.gov.on.ca ; or • www.ontla.on.ca.

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MUNICIPAL REGULATIONS

Local municipalities are responsible for enforcing the Ontario Building Code. Your municipality may have bylaws that control the location of food processing operations, water and energy usage and waste disposal. Check with your local municipal office for more information.

U.S. REGULATIONS

You must comply with specific regulations when your products are destined for the United States.

United States Food and Drug Administration

The United States Food and Drug Administration (FDA) is generally responsible for all food products entering the United States except meat and poultry.

If you intend to manufacture products destined for U.S. markets, you must comply with all applicable U.S. laws, particularly the:

• Federal Food, Drug and Cosmetic Act; • Fair Packaging and Labeling Act; and

• Nutrition Labeling and Education Act of 1990.

Note that you must register with the FDA if your business includes low-acid canned food and acidified food processing and you ship products to the United States.

The FDA maintains a web page at www.fda.gov/oia/impinsp.htm for international importers to the United States, which includes frequently asked questions. The web page also includes a source of international regulatory resources, as well as a listing of FDA District Office Import Program Managers.

The Food and Drug Administration (FDA)

www.fda.gov

Center for Food Safety and Applied Nutrition Industry Activities Staff (HFS-565)

5100 Paint Branch Parkway

College Park, Maryland 20740-3835 Tel: 301-436-2600

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United States Department of Agriculture

The Food Safety and Inspection Service (FSIS) is the public health agency in the U.S. Department of Agriculture that’s responsible for ensuring that imported meat, poultry and egg products are safe, wholesome and correctly labelled and packaged. These requirements come under the following acts:

• Federal Meat Inspection Act;

• Poultry Products Inspection Act; and • Egg Products Inspection Act.

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3. DEVELOPING AND MANUFACTURING

YOUR PRODUCT

Your next step in getting your business started is called “product development” or “product commercialization.”

This includes taking your initial market research and, perhaps, a simple homemade recipe and developing a physical version (or prototype) of your product, including a commercial recipe and the manufacturing technology needed.

You may have already developed a sample of your product at home. However, commercial recipes must still be developed for batch processing.

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CHOOSING A MANUFACTURING STRATEGY

There are several ways you can proceed from this point, including:

• developing your own commercial recipe and manufacturing facility;

• obtaining the assistance of a product development specialist who will help you develop a commercial product; or

• developing your own commercial recipe and finding an existing food processor known as a co-packer, who will make the product according to your recipe.

You’ll find that, as with market research, there is a great deal of support from groups that want to help you develop the best commercial product possible. These groups are experienced in new-product development, or they specialize in one part of the process, such as developing recipes. Most groups will charge a fee for gathering specific information or preparing material customized to your needs. To avoid excessive fees, be clear about your objectives. Also determine whether you have the expertise to develop your own commercial recipe, analyze ingredients and fat levels and set up a manufacturing plant. Product development fees have been known to exceed $20,000.

SETTING UP YOUR OWN MANUFACTURING FACILITY

If you decide to operate your own plant, you can either lease or purchase an already existing facility or you can construct a new building.

Choosing the Best Location

You need to look at many factors when you’re deciding on a location. These include rental or purchase cost, customer and market location, labour force, raw material accessibility, trucking and freight access, leasing arrangements and industrial space availability. You should consider the following initial steps:1

• understanding all the needs of the production process; • determining if an existing building will satisfy those needs;

• trying to locate a facility that was originally designed for food processing operations (preferably one that’s already federally or provincially registered); • determining if the lessor will pay for renovations required for the business; and • calculating whether it is cheaper to adapt an existing building or to build a new one.

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Zoning

Be sure to check the zoning laws for the location you have selected. To find out if your business can obtain a permit, call the city planning department (the number will be in the Blue Pages of your phone book). You can also get a good indication of whether the area is zoned in your favour by looking at the surrounding businesses.

If the area you have chosen isn’t zoned for business, you can apply for a re-zoning vote before city council. (Re-zoning isn’t likely to happen if there is other land available in an appropriate zone.) Also be aware that just because one inspection department checks your proposed business and, for example, certifies that it meets health and safety requirements, you can’t assume you are a correctly zoned business. Each department is operated separately.

Talk to local economic development officers; they can be a great ally in helping you with all municipal concerns.

Food Plant Design

Naturally, you’ll want your plant to operate as efficiently and cost-effectively as possible. As well, you’ll have to meet certain federal, provincial and municipal requirements. Here are some questions and considerations to keep in mind:

• Your bank will ask for a Phase One environmental assessment if you are buying a site, and it could also be required if you are leasing or changing the use of an existing facility. • If you are taking over an existing building, is there documentation to show that it was

used for food processing?

• Is there room for future expansion? • Does the facility need repairs?

• Do the hydro services fit your needs? • Will you need space for a cooler?

• The production line should be as linear as possible; when cross-overs occur they result in inefficiencies, staff waiting time and loss of productivity.

• If possible, use rolling conveyors, for less walking, lifting and turning.

• Here’s a general rule of thumb for size—1,000 square feet for $100,000 in sales, 2,000 square feet for $200,000 in sales, etc.

• Two doors—one for shipping, one for receiving—are best.

Also look at such requirements as floor drains, washable walls, suitable hand-washing facilities, washrooms that don’t open onto the production floor, a change room and a separate area for storing packaging goods, ingredients and finished goods.

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USING A PRODUCT DEVELOPMENT FACILITY

Product development facilities include laboratories, research stations and pilot plants.

Laboratories provide product development and testing facilities on a small benchmark scale. This is usually the first step if your product is totally new rather than a variation of similar or previously processed products.

The process may involve standardizing your home recipe and developing it to a commercial formula. This would include analytical tests, chemical analysis and shelf-life analysis.

Product Development Laboratories

You’ll find a list of product development laboratories in the Resources section of this guide. For the names of other product development testing labs that operate in Ontario, contact the Ontario Ministry of Agriculture, Food and Rural Affairs—Business Development Branch, at 1-888-466-2372.

Guelph Food Technology Centre (GFTC)—Pilot Plant

The GFTC provides and maintains a state-of-the-art pilot plant with specialized facilities for fruits and vegetables, dairy, meat, cereals, baking, fermented products, confections and pet food. You can access this pilot plant through a project at the GFTC or by arranging to lease or rent space to install and test equipment and new processes.

Leading equipment manufacturers have installed equipment in the pilot plant. They can demonstrate the operation of new equipment or carry out confidential development work with you.

Ingredient manufacturers use the facility to test the performance of new products in a range of processing environments. You can also use their other advisory services, covering product development, scale-up and nutrition labelling.

Guelph Food Technology Centre

www.gftc.ca 88 McGilvray Street Guelph, Ontario N1G 2W1 Tel: 519-821-1246 Fax: 519-836-1281 E-mail: [email protected]

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In addition to the GFTC, several laboratories provide food research services. You’ll find a list in the Resources section of this guide. Note that the list isn’t complete; for the names of other food research labs that operate in Ontario, contact the Ontario Ministry of Agriculture, Food and Rural Affairs—Business Development Branch, at 1-888-466-2372.

CO-PACKING YOUR PRODUCT

A co-packer, or contract manufacturer, is a food processor that agrees to produce another company’s product within their own facility. Manufacturers that pack products for others generally do it to use their own equipment to full capacity, which will cover some fixed costs. Choose a co-packer carefully to ensure that it meets your criteria, because it is producing a product that will possess your name. After all, it’s your reputation that will suffer if the end product doesn’t meet client/consumer standards.

Advantages and Disadvantages

There are some definite advantages in having your product produced by an existing manufacturer. For example:

• no investment in facilities or equipment; • conservation of cash;

• fewer personnel needs; • reduced capital requirements; • reduced start-up time required;

• able to bypass plant maintenance and equipment obsolescence; • ongoing technical support by co-packer’s personnel; and • assistance with product development (some co-packers).

There are also some drawbacks to using a co-packer. However, they can be mitigated with your contractual agreement. Make sure your contract covers:

• control of your product (quality, safety and delivery); • formula confidentiality; and

• cost and product agreement.

Because you can’t be present for every production run, you must have mutual trust and confidence in your co-packer and your agreement.

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Establishing Your Criteria for a Co-Packer

Before you contact potential co-packers, it is essential for you to define your specific needs. Some things you should consider include:

• the price you are willing to pay for their services; • the quality that must be maintained;

• the volume you need produced;

• distribution and delivery methods required; • your level of involvement in manufacturing; • the timing of your needs; and

• the availability of warehousing.

You also need to determine whether you require a co-packer that specializes in a particular area (for example, canning equipment). This will depend on your specific equipment needs. Often it is difficult to find a co-packer with the exact equipment you require. In such a case, you must determine up front whether you are willing to purchase or lease the equipment to be installed on the co-packer’s premises.

It’s essential to prioritize which needs are the most important to you. It’s unlikely that you will find a perfect match between your objectives and those of your co-packer. Trade-offs must often be made. By prioritizing your most important objectives, you can more easily determine which ones must be met and which can be compromised.

Where to Look for Co-Packers

Even many experienced entrepreneurs and workers within the food industry often don’t know where to begin looking for a contract manufacturer. There are, in fact, very few publications that list potential co-packers. It’s usually through work-related encounters that manufacturers are revealed. For assistance in finding a co-packer, contact the Ministry of Agriculture, Food and Rural Affairs at 1-888-466-2372.

Other alternatives available to assist you include: • food industry associations;

• Industrial Research Assistance Program advisors; and

• Private Label Directory, published annually by Private Label Magazine (for U.S. co-packers).

Selecting a Co-Packer

Once you have a list of co-packers, start contacting manufacturers to determine: • if they are willing to co-pack; and

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Ideally, the size of your business should be matched to that of the co-packer. That is, a small or medium-sized co-packer will probably service a small product line best.

After you have screened a number of co-packers and begun looking more closely at using a few facilities, you will want to schedule a tour of each potential plant. From this tour you will be able to get a good idea of their processing line set-up, general up-keep, sanitation, product loss factors, quality monitoring systems, etc. It might also be a good idea to ask to see:

• references from other clients;

• copies of federal and provincial processing licences (if applicable); and • copies of previous quality control inspections.

Limit the amount of information that you give a potential co-packer about your product, formulas, processes, etc., until a confidentiality agreement has been signed between both parties. It’s wise to not disclose confidential information to a co-packer, regardless of any agreement that has been signed by both parties, until you are absolutely certain that this is the co-packer that you are going to contract. You certainly don’t want someone running away with your ideas.

A test run is usually completed before signing any agreement. Test runs not only determine if the product can be produced within the facility, but they also help to establish the costs assumed by the co-packer.

Other key points besides processing capabilities must be taken into consideration when you are selecting a co-packer. These factors are associated with the way the manufacturer does business and how it will affect the co-packer—the client relationship. When dealing with a co-packer, consider their openness, enthusiasm and corporate goals in addition to their facility.

Co-Packing Costs

In order to negotiate a mutually beneficial agreement with a co-packer, you need to know the costs of producing your product within their facility. The co-packer will provide you with a breakdown of the fixed and variable costs.

Generally, if you can offer a co-packer high volumes or long-term business, you will likely be able to negotiate a better agreement.

In calculating what you can afford to have your product co-packed, you may need to consider the cost of mark-ups as the product moves from the co-packer to retail. In the food industry, mark-ups are calculated from the retail price working back, rather than from the cost price working up. As a rule of thumb, retailers’ margins average around 30 percent. Distributors’ margins can be as high as 30 percent as well, depending on the services provided.

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PRODUCT DEVELOPMENT

Whether you plan to develop the product yourself or use the assistance of a product development specialist, you need to take certain steps in preparation.

Food product development involves building on an idea and developing a product to the stage where it is suitable and acceptable for commercial sale.

Recipes used for commercial-scale production can be significantly different from the original recipe, because the commercial product must meet the requirements of the regulatory agencies. Many product development facilities can assist you in modifying your product so that it is suitable for commercial production and is accepted by consumers.

Before you approach a product development facility, you should establish certain criteria for choosing one that will be appropriate for your product.

By this stage, you will have identified the location and size of your target market, so you have an idea of the potential sales. You will have assessed your competitors’ products, gathering such vital information as the ingredients and packaging (including package specifications and cost of packaging) and the positioning of the products in the marketplace. Sensory evaluation tests and physical and chemical analyses can also be performed on your competitors’ products, which will provide further information on their composition.

Once you have assessed your competitors’ products, you should have a clearer idea of what the final product should be like. For example:

• general description (fruit pies, cookies, etc.); • basic process (fresh, frozen, etc.);

• flavour and aroma;

• key ingredients (blueberries, chocolate, etc.); • texture;

• shelf life; and • packaging.

You aren’t trying to duplicate a competing product, but you may generate ideas for possible ingredients or packaging and combine them with your own unique ideas.

Product formulation involves a series of trials in which test batches are evaluated against a pre-determined set of quality criteria. Before you begin the product development process, set a budget for the amount of money you are willing to spend. This will help the product development facility to determine which services you require. It will also help you to identify the areas that are crucial to developing the product so that it is acceptable for commercial sale.

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Equipment Sourcing

Sourcing equipment for the production of your product can also be a difficult process. One way to get the information you need is through the expertise of other food producers; they can provide trade publications, supplier lists and trade show information.

As well, people in research and development and product development will provide important information. Go to the Resources section of this guide for equipment sourcing contacts. Trade shows also provide an opportunity to look at available food processing equipment. Trade shows are discussed further in Part 8: Strategic Marketing of this guide.

Ingredient and Raw Material Sourcing

A good place to start is with the Canadian Company Capabilities website at

www.strategis.ic.gc.ca/sc_coinf/ccc/engdoc/homepage.html. This on-line database—part of Industry Canada’s Strategis website—profiles tens of thousands of Canadian companies. The database is used globally to find Canadian supply sources, investment partners, agents and joint venture projects.

You can also find other information sources for suppliers of raw materials through trade publications, trade directories, trade shows and other producers. One useful source is:

Canadian Food Brokers Association

c/o Food & Consumer Products of Canada

www.fcpc.ca

Tel: 416-510-8024 E-mail: [email protected]

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INVENTORY

Inventory is the most visible and tangible aspect of a food processing operation. It includes all the raw materials you have on hand for manufacturing, the goods in progress and your finished products. These items are a large portion of your business investment, and you must manage them well in order to maximize your profits. As a small business, you probably can’t afford the losses that poorly managed inventory can cause.

Inventory Management

Successfully managing your inventory involves simultaneously balancing the costs and benefits of the inventory.

The costs of inventory are called holding costs. They include the costs of storage facilities, insurance on stocks, loss, breakage, deterioration, obsolescence and the interest on capital you could gain if the money weren’t tied up in inventory.

In any business, you should aim to minimize holding costs. However, the benefit of inventory is sales revenue. Sufficient inventory will ensure that your customers can purchase products when they need them. If you hold too little inventory, you may lose a sale. But if you hold too much, you may have excessive holding costs.

Proper inventory management includes the following:

• keeping holding costs low while ensuring adequate supply for customers; • increasing inventory turnover while maintaining adequate profits;

• keeping process material stocks as low as possible; and

• making volume purchases to get discounts while avoiding excess buying.

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ABC Analysis

ABC Analysis states that “80 percent of the firm’s total inventory cost is caused by only 20 percent of all items.” ABC analysis divides stock items into three classes—A, B and C—that is, those items accounting for 80, 13 and 7 percent of your total inventory costs. Once you can divide your stock into these classes, you can control the stock accordingly.

A computer can help you in this method of coding sales items into the three classes. Take the following steps to do your ABC analysis:

1. Determine the value of each item by multiplying the cost times the number of units sold. 2. Rank items on the basis of their dollar value and list these in ascending order.

3. Calculate the percentage of dollar value of each item. 4. Determine the cumulative percentage for:

• the number of items; and

• the dollar volume based on the totals for A and B. 5. Classify the items according to A, B and C groupings.

Just-in-Time (JIT)

Another method of controlling stock is Just-In-Time. This means carrying a minimum inventory and buying only as it’s needed or against orders in hand. This allows you to keep inventory costs at a minimum.

This form of inventory management requires working closely with suppliers and customers to ensure that shortages of product or ingredients don’t occur.

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4. FOOD INGREDIENTS

As you work on developing your product, one of the keys to success is in knowing the various basic ingredients that are added to foods, as well as how they’re used.

Six groups of ingredients are commonly found in food products: • sweeteners;

• starches; • fats and oils; • flavours; • spices; and • food additives.

Once you have read through this section, you should be able to answer the following questions about the food ingredients covered:

• What forms does it come in? • When would I use it?

Note that for information about sources for any food ingredients, you can contact the Ontario Ministry of Agriculture, Food and Rural Affairs at 1-888-466-2372.

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SWEETENERS

The taste sensation of sweetness is one of the most highly regarded attributes of food substances. To most people, sweetness comes from sucrose, the white granular sweetener sold in the supermarket.

To the food processor, however, sweetness can come from a number of different carbohydrate sources.

Commercially Available Sugar Products

You can choose from a wide variety of sugar products.

Sugar Beet/Cane Products

Products in this category include the following:

• Dry granulated sugar: This type of sugar is commonly referred to as table sugar or sucrose. Sucrose is a disaccharide. It is composed of one molecule of glucose and one molecule of fructose.

Sucrose is processed in a variety of granulations to fulfil different processing requirements. For example, fine granulated sugar is used for direct consumption, whereas powdered sugar may be used for confections and baking.

Dry granulated sugar is packaged in large, multilayer paper bags. A moisture barrier layer must be present to slow the penetration of moisture and the release of water that causes clumping.

The clumping of dry sugar is a common problem. To prevent it, bags of sugar should be stored in dry areas. Generally, if the relative humidity of the air is less than 70 percent, little or no clumping will occur. You can also minimize clumping by rolling the bags every few days to prevent a hard mass from forming.

As a rule of thumb, as the size of granulation decreases, there is an increase in tendency for clumping because of the larger crystal surface area. In products such as icing and powdered sugars, about three percent cornstarch is added. The starch absorbs the moisture, which prevents the sugar from clumping.

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• Liquid sugar/sucrose: Liquid sugar is simply the melted form of refined granular sugar. The typical percentage of sucrose in liquid sugar is 66 to 68 percent, and the remaining 34 to 32 percent is water.

• Invert liquid sugar: Invert sugar is made from sucrose by splitting the sucrose into its component parts, glucose and fructose. (Glucose is also referred to as “dextrose.” Fructose is also referred to as “levulose.”). Invert sugar is a liquid mixture of these component sugars. An equal ratio of glucose to fructose is always obtained during this process.

Varying levels of invert sugar are available to food processors, ranging from 10 percent to 90 percent. As invert sugar has a higher sweetness level than sucrose, it is often more economical to use.

• Molasses: Molasses is the “concentrated juice extracted from sugar-bearing plants, such as the viscous liquid produced in the refining of sugar.” (Pancoast and Junk, 1980) Fancy is the term given to the highest grade of molasses, and blackstrap molasses is the final syrup obtained in the refining process.

• Brown/yellow or golden sugar: The trade usually refers to brown sugars as soft sugars because they are typically used for their characteristic flavour. Brown sugar is a fine-grain sugar covered with a very thin layer of syrup, usually cane molasses. The grades are based on the degree of brown colour.

The clumping of brown sugar is very problematic if it isn’t stored properly. In low relative humidity conditions, loss of moisture causes the layer of syrup to become sticky. However, if it’s stored in high relative humidity, the syrup is permitted to regain moisture. Ideally, brown sugars should be stored at a relative humidity of between 60 percent and 70 percent.

Corn Products

Corn sugars are classified as any carbohydrate obtained by the partial or complete breakdown of cornstarch. All corn sugars are processed to have a dextrose equivalent of greater than 20.

Maltodextrins are also obtained from the breakdown of cornstarch. However, they possess dextrose equivalents of less than 20.

It is important to define the widely used term “dextrose equivalent” (DE). This is the percent of reducing sugars in the syrup, calculated as dextrose (that is, glucose) on a dry weight basis. The simple way to remember this is that DE indicates what percentage of syrup is glucose.

• Corn syrup: Corn syrup is produced from the starch of corn by a series of chemical reactions called hydrolysis. Corn syrup is a very viscous liquid that gains much of its sweetness from its high glucose content.

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• Glucose (dextrose): Glucose is the product of the complete breakdown of starch. It is available to food processors in a liquid solution form or a crystalline sugar form. In Canada and the United States, glucose syrup made from corn is referred to as corn

syrup. This could create some confusion. Therefore, it’s important that you request the

proper ingredient from suppliers.

• Corn syrup solids (CSS): These are the dried version of corn syrup, and may also be referred to as dried glucose solids. CSS are classified according to particle size, carbohydrate distribution and dextrose equivalent.

• High fructose corn syrup (HFCS): This type of syrup is similar to invert sugar, but it doesn’t have an equal ratio of glucose to fructose. HFCSs are classified according to their glucose-fructose ratio.

The trend in industry is to increase the amount of fructose with a corresponding decrease of glucose. This causes a syrup with a higher sweetness level, so that less syrup is required. However, this is often counterbalanced by the higher cost of processing.

In Canada, HFCS is called “glucose-fructose” in the ingredient statement. The proportion of glucose to fructose affects the terminology.

• Fructose: Fructose has the highest sweetness level of any commercial sugar. Therefore, only a small amount is usually required in food. It is available as a solution or a crystalline powder. • Maltodextrin: Maltodextrins in a strict sense shouldn’t be considered sweeteners,

because they possess little sweetness. However, they are often used to control sweetness. As mentioned earlier, maltodextrins are obtained from starch that has been processed to have a DE of less than 20. They are sold as a dry white powder that can be reconstituted in water. They are classified by their DE value and their bulk densities. Because they possess a large volume in comparison to their weight, they are often used as fillers.

Honey

Food processors generally use two types of honey: white and golden.

Golden honey imparts more flavour and, as the name implies, is a golden yellow colour. White honey is less sweet and possesses little colour.

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Artificial Sweeteners

Two choices of artificial sweeteners are available:

• Aspartame: This artificial sweetener, with the brand name Nutrasweet®_{, was approved}

by Health Canada in 1981. It is a dipeptide, composed of two amino acids, that possesses a sweetness value 160 to 200 times that of sugar.

Because aspartame isn’t heat stable, its applications are limited. A recent development, however—encapsulated aspartame—does have applications now in baking.

One remaining difficulty with aspartame is that it can’t be consumed by people with phenylketonuria, a genetic condition where the amino acid phenylalanine can’t be broken down by the body.

• Sucralose: This non-nutritive artificial sweetener, more commonly known as Splenda®_,

was approved by Health Canada in 1991. Sucralose is a synthetic form of sucrose that contributes no calories and is 600 times as sweet as sugar.

Since sucralose is more stable at high temperatures, it can be used in bakery and cooked product applications.

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Functions of Sugars

Sugars have the following functions:

• Sweetness: Not all sugars impart the same level of sweetness. When establishing the sweetness level of your food product, you need to consider the relative sweetness of the sugar. A value of 100 has been arbitrarily assigned to sucrose, which is used as the benchmark. All other sugars are given a value depending on their relative sweetness to sucrose. For example, fructose has been assigned a value of 170, which means fructose is 1.7 times as sweet as sucrose.

The Relative Sweetness chart below lists the sweetness values of some of the commercial sugars available. Use such a system only as a guideline. Note that sugars shouldn’t be substituted directly based on values given, without experimentation.

Relative Sweetness

Adapted from: Pancoast and Junk (1980)

Sweetener Relative Sweetness To Sucrose

HFCS 42% fructose 100 HFCS 55% fructose 100-110 42DE corn syrup 40-45 54 DE corn syrup 50-55 Molasses 75 Fructose 150-170 Lactose 40 Glucose (dextrose) 70-80 Honey 97 Sucrose 100

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• Humectancy: This is the ability of an ingredient to resist a change in moisture content. With respect to sugars, humectancy is related to the water activity of sugar solutions. Thus, adding some sugars to a food product will reduce water activity.

• Preservation: The growth of some microorganisms is inhibited by high sugar concentration. • Fermentable carbohydrate: Some sugars are used by yeast to produce either

carbon dioxide or alcohol. This is beneficial in products such as dough and wine.

• Browning: Reducing sugars (glucose and fructose) take part in a browning reaction with amino acids in the absence of water. This reaction is known as “maillard browning.” The reaction forms pigments that exhibit a brown colour.

Maillard browning is evident in toast, baked goods and certain cooked meat products. • Bulking agent: Some sugars that possess a low sweetness level can be used to add

volume to a food product without overpowering the flavour of the product. For example, low-calorie table sweeteners made from artificial sweeteners use maltodextrins as a filler. • Hygroscopicity: Some dry sugars readily absorb moisture. This is a negative property,

because it causes clumping. Some sugars, however, have a very low capacity to absorb moisture. These sugars are used in products where moisture absorption is undesirable.

FATS AND OILS

The difference between a fat and an oil is its state at room temperature. That is, a fat is solid at room temperature, whereas an oil is liquid.

Today, consumer diet and health concerns have forced food processors to choose very carefully the fats and oils they include in their food products. Fat provides twice as many calories per gram as either carbohydrate or protein, and contributes to health problems if consumed in excess. Unfortunately, certain foods can’t retain characteristic properties without fat. Knowledge of the properties of fats and oils will help you reduce the level of fat, hopefully without sacrificing quality.

Functions of Fats and Oils

Fats and oils have four functions:

• Palatability: contributes characteristic flavours and aromas, and aids in colour development. • Satiety: makes you feel full.

• Texture: contributes to tenderness and flakiness, mouth-feel.

• Cooking medium: can be heated above the temperature of boiling water, resulting in an alternative method of food preparation.