U.S. food companies are rushing to offer consumers thousands of products free of genetically modified ingredients but are finding the effort costly and cumbersome in a landscape dominated by the controversial biotech crops.
The hurdles are so high that the growing "GMO-free" trend could result in a price spike for consumers, industry experts say. Eighteen years after GMO crops were introduced to help farmers fight weeds and bugs, they are so pervasive in the supply chain that securing large and reliable supplies of non-GMO ingredients is nearly impossible in some cases.
Just ask General Mills (GIS.N).
As one of the world's largest makers of consumer food products, the Minneapolis-based company has hefty buying power in the marketplace for corn, soy, sugar, oats, and other commodities needed for its packaged food products.
But when the company announced last month that its 70-year-old "yellow box" Cheerios would be made free of genetically modified ingredients, the effort capped more than a year spent tracking down ingredients that have undergone no genetic modification. Cheerios is primarily made with oats, for which there are no GMO varieties. But even securing small amounts of non-GMO corn and sugar used to sweeten the cereal was a challenge, officials said.
General Mills said it spent millions of dollars installing new equipment for processing non-GMO ingredients and setting up distinct transportation and handling facilities to keep non-GMO supplies from mixing with biotech supplies.
General Mills is not raising prices for its non-GMO Cheerios right now. But the company sees labeling the cereal as free of ingredients that many consumers associate with health or environmental risks as helping gain market share.
The change came after outside pressure from activist groups who oppose biotech crops. But Tom Forsythe, General Mills' global communication executive who met with the critics about their concerns, said the company's decision was an independent one.
"We did it because we think consumers may embrace it," said Forsythe. "But it is a sizeable investment. And it wasn't as easy as people think. It would be difficult, if not impossible, to do the same with our other products."
General Mills is only the latest of many food companies making the shift. Post Foods said last month that it was altering ingredient sourcing for its Grape-Nuts cereal. Companies making baby foods, baked goods, frozen dinners and pet food are among those offering non-GMO versions.
"A lot of food manufacturers are looking at switching over to non-GMO. The demand is out there," said Aaron Skyberg, director of SK Food International, a North Dakota-based bulk ingredient supplier to U.S. and foreign food companies. "But it is a huge learning curve for them."
There is no federal standard for non-GMO labeling, so many companies, like Post, are signing up for a third-party verification program known as the Non-GMO Project.
The Non-GMO Project, started by natural and organic food retailers in 2007 in Bellingham, Washington, grants manufacturers a license to use a seal signifying their products have been audited to assure that they contain no more than 0.9 percent GMO.
The number of such non-GMO "verified" products surged to 14,800 in 2013, up from 4,000 in 2011, and 1,000 more products are in the verification pipeline, according to the Non-GMO Project Executive Director Megan Westgate. Sales last year of verified products hit $5 billion, up from $1.7 billion in 2011, she said.
"We get about 80 new companies enrollment inquiries every week. People want non-GMO," Westgate said.
A key catalyst for the growth, Westgate said, was grocer Whole Foods Market (WFM.O). The eighth largest U.S. food and drug store said last year that food sold in its North American stores must contain labeling about GMO content by 2018.
Another push came when Chipotle Mexican Grill Inc (CMG.N), said last year that it was switching to non-GMO ingredients in its chain of 1,550 restaurants.
PRICE SPIKE AHEAD?
More than 90 percent of the corn and soybeans now grown in the United States are GMO strains. This means the pipelines for harvesting, storing, transporting, mixing and purchasing the commodities are awash in the biotech supplies.
To supply conventional crops, farmers must plant non-GMO seeds, prevent pollen or other contaminants from drifting in from neighboring fields, and store and transport the grain separately from GMO crops. The separation must be maintained all the way to the finished product.
Partly because of the pipeline headaches, non-GMOs typically come at premium prices. Non-GMO corn, a key ingredient in many packaged foods, is especially scarce because virtually all corn in the United States likely has at least some slight contamination, experts say.
"All the non-GMO seed we sell has some level of GMO in it," said Mac Ehrhardt, president of the Minnesota-based Albert Lea Seed company. "Corn is a big problem. It is really really difficult to produce seed corn that would meet the current non-GMO verified label."
Indeed, even as General Mills labels its Cheerios as "not made with genetically modified ingredients," it adds a disclaimer that "trace amounts" of genetically modified material "may be present." The company would not say how much GMO it allows in the corn and sugar for its non-GMO Cheerios.
The difficulty of supplying large quantities of non-GMO commodities is such an urgent problem that in December three dozen representatives of grain and food groups formed the "Non-GMO Working Group" to try to expand the non-GMO commodity supply chain.
"If you want to secure your supply of non-GMO corn or corn syrup, you really need to be contracting ... lock in your supply," said Russ Gaskin, a consultant to the working group.
The supply crunch spells a likely spike in prices for consumers, Gaskin said.
Chipotle officials have already said they are planning to pass along the higher costs they are seeing when switching from GMO soy oil to non-GMO sunflower and rice bran oil by midyear.
The market moves have caught the eye of some investors. One, San Francisco-based Equilibrium Capital Group, is looking at investment opportunities in grain storage, transportation and converting farmland to non-GMO crop production.
"There are significant infrastructure issues, but there is real demand," said Equilibrium principal Rob Hurlbut, a former food industry executive.
As the supply chain seeks its own solutions, many say the federal government must set a national standard to apply evenly across state lines and products. Companies like General Mills say a federal standard would level the playing field and provide consistent expectations for consumers.
"We need a national solution," said General Mills' Forsythe.
(Reporting By Carey Gillam in Kansas City; Additional reporting by Lisa Baertlein in Los Angeles; Editing by David Greising, Christine Stebbins and Jonathan Oatis)