Masterclass: Peter Schwarzer, Ingredients Plus

More than 70% of our Cost of Goods Sold is in our raw materials - they drive 90% of our claims evidence, label and marketing materials and yet they’re one aspect of natural product development that many of the very capable customers we work with don’t (yet) understand well.

In this Masterclass, you’ll learn the critical elements of the global raw material supply chain, from seed to source. We tackle real quality issues like adulteration and substitution and talk through how brands can take a more active role in ensuring the provenance of their raw materials.

Our expert in this interview is one of the best in the business today.

In an industry where so much of our success is based on relationships, there is one person that in our opinion, stands out above the pack.

Peter Schwarzer, former jackaroo, champion footballer (that’s soccer in Australia) and one-time viticulturist is the first phone call for product developers, technical teams and contract manufacturers in multiple countries when they’re thinking about raw materials.

Peter is (as many of you know) funny, great company and has an uncanny ability to remember seemingly thousands of disparate raw materials instantly. He is also a master of connections and invests inordinate amounts of time in relationships across the industry.

In this conversation, we tackle raw material traceability, how to successfully import botanical materials into Australia, how Peter lands and retains some of the best raw material agencies globally, how to sell a complex product to a cross-functional team and Peter’s never-fail Rule of Seven (you’ll have to watch to learn more).

We also chat about how the raw material supplier’s economics and value chain works and offer suggestions on how new grads with a passion for ingredients can get into the business.

Oh, we also touch on the hottest ingredients in Peter’s inventory at Ingredients Plus right now as well as the ingredients he wishes he had to sell!

“…But I can connect you someone who's much better than I am, and I'm just gonna sit back, and once you guys need something, I'm just gonna fix it up, right? That's how it works. I quite often tell people give me a ring. I connect people with most of my competitors as well, because everybody's good at something. Everybody's got really good connections, really good long-term connections in the industry, right? As long as you help each other, as both of you know, it's a very small industry.” - Peter Schwarzer

Transcript Follows:

- Hey guys.

- Good afternoon, welcome, good day.

- Good afternoon, good day.

- Pete, how are you?

- Not bad at all, thank you very much, how are you guys?

- Yeah going well, going well. We're in all different parts of the country, I think. Actually you're in Sydney as well today.

- I am in Sydney, yes. Nice and sunny, beautiful, windy Sydney today.

- Good, good.

- Brisbane's sunny and windy as well. Quite a lovely time of the year.

- I wanted to start the conversation, Pete, with a story you told us over very expensive Japanese food about your early days as a sniper. This is a great story. It's totally on topic of course.

- Absolutely, wow.

- I thought I'd start there.

- This is the deal I've gotta get distributed, that's for sure.

- When you told that story, obviously in total confidence, I didn't believe it for a second, but you told it with such detail that I had to believe it. Can you share a little bit of that background?

- Usually the story goes with the photos as well, because the story is literally I got pictures of me holding an AK47, and the next picture is my grandmother holding the AK47, right?

- What? - Yeah, I grew up in Hungary, right? The communism, had the red tie, and the Russian flag, and sang the song, and so on, so on. I had a wonderful childhood, but obviously the story come from that all of us went through military service, and since you were eight or ten, all started running around and doing different exercises. By the time you were 14, you didn't even know it, but you were perfectly trained sniper to anything. You could deal with anything.

- While Dane and I were pretending to be soldiers, you were actually a soldier. - Exactly. What did you do when you were a young kid? We used to kick the ball, and pretend to throw grenades, and hit each other with sticks, and then you tell the story of what you guys were encouraged to play, yeah, it was remarkable, just a different background, different context, different time in the world, I guess.

- Yeah absolutely. I had a wonderful childhood. I grew up on a farm in a farming community, 1200 people, back in Hungary. It was great. I'm very grateful what I went through, and yeah, part of that was obviously looking after 10,000 geese every single year for maiden feathers and all sorts of other stuff. Yeah, while we were growing up, it was part of the communist party upbringing. It was all part of defend your own village, and everybody knew what to do and how to do it.

- I remember you saying--

- It wasn't, sorry, it wasn't theoretical either, it was real preparation, right? From what you were saying to us.

- Absolutely, yeah, absolutely. Yeah, everybody needed to understand where the guns are hidden, and where to set up, and then obviously how to defend your community, what was a very tight knit community, right? If I done anything wrong in school, I didn't have to go home and tell my parents. My parents waited for me--

- They already knew.

- Already knew. There was serious belting coming up as soon as I stepped through the door. I didn't even have to say a thing. Absolutely, yeah.

- I remember you telling a story, you'd have, as kids, you start off, it was the first game you learnt, but you'd have the stick with the little scope basically on it, little circle and you'd learn to look through it and get some aim. Really, you think you're learning eye hand coordinate, in a way you are, but there's a bigger picture in terms of where this fits together. And then that leads onto the next step, and that leads onto the next step, and it was a real sequence or process that was predetermined to make sure you guys were suitably trained by the time you got to 14.

- Yeah, I guess like with everything else, right? You're a master of your craft, right? Since obviously both of you guys are doing whatever you guys been doing for a very long time, and got it to an extremely fantastic level. You've been training since you were very young. You went through all your training at uni, and then all of your practitioner years, and you just keep developed it, simple math to it, right? The more you do it, you do it 10,000 times, you become a master of it, exactly.

- So your early career, I think, was in agriculture, right, from what I understand.

- Yeah, so I grew up on a farm, obviously done everything. Ended up going to uni, done a masters degree of agricultural science. Through uni, three years, finished three years and had an opportunity to come out to Australia for a gap year. And ended up finding myself five hours away from Sydney, about 100km out of Mudgee, on a beautiful farm, and not speaking any English, other than yes, no, I don't understand, and pointing a lot, and falling off horses, trying to master some cattle and sheep, and shearing. Yeah it was wonderful. It was great.

- Amazing.

- I really enjoyed it. That was in 1999, and ended up going home just before the Olympics, biggest mistake in my life. Yeah, I finished my master degree, and ended up coming back to Newcastle. Looked after this beautiful place just on a beach. Mr. Ford, Ezio was also Hungarian, he owned the farms where I done my jackarooing, and yeah, ended up looking after his place for a couple of years, and then went on to run a company in Mudgee for vineyard maintenance. Had a lot of vineyards, had multifunctional machines. Done harvesting with machines, shake up the grapes into a big bin, and that goes into processing facilities and people make wine. Done that for five years, so yeah. - We just lost your camera I think, Pete.

- Oh yeah, I did. Are we back again?

- That's it. What brought you, I guess, what was your start ig raw material?

- Yeah, that's what I was just thinking. Where did, you've been out on the farms, you've got a masters in agriculture. You've experienced where all these, particularly the herbal components come from. I know you specialise in a lot of really good quality herbal ingredients globally. So where was that moment or that shift where you had an interest in the raw materials?

- It was very interesting, because I moved into Sydney, and moving in from Mudgee, a very small community again, 8000 people, everybody knows everyone anyway. And then ended up coming into Sydney after I finished with my permanent residency, and coming in, you don't know what to start doing, or what's really the next job's going to be. I put my name down with the recruiter, and the guy just looked at me and he said "Oh my God, I did not think at all, when I got the brief, that this person exist, and there you go, you walk through the door, and your resume." And I was like I don't really get it.

- What are you talking about sort of thing.

- What are you talking about? He said there's this really big company called Orica, and they've got a business called Bronson and Jacobs, and they're looking for someone who lived in a country, knows about agricultural, not manufacturing but growing--

- Applications.

- Herbals. Able to talk to farmers or horse studs, because they do export a lot of herbs, and they wanting to grow that business, I was like okay, well let me have a chat to them. I went along and sat down, just had a chat, and eventually got the job by luck, because I had no sales experience, never worked a day in an office, right, and this was a full-time office job. It was a risk to put me on really. Couldn't speak English. People like okay, we'll give you a go but not sure if you're gonna last three months--

- See how you go.

- Six months. See how you go. Yeah, it just happened, really. I ended up going in every single day, and people were turning around. A lot of people came in and out, and eventually complimentary medicine comes, because B&J wasn't really looked at well. It was too hard, it was too hard of a sale. Long projects, a lot of issues with the herbs. You start import permits--

- Well this was pre-standardised extract too, wasn't it?

- Absolutely, yeah, correct. - So this was still bloody galenicals for the most part.

- Oh yeah, so we used to bring in, and there's still a lot of products coming in, chamomile, right? Chamomile flowers, right, or rose hip granules, right? Then every single time you bring something in, AQIS comes in and they start opening up the bags--

- What is this?

- What is this? This goes into treatment, heat treatment. This need to go to the radiation. Nah, doesn't wanna do the radiations. Making phone calls, convince them, anyway, and then the bugs, right? Once you buy chamomile from Egypt, right?

- It's full of bugs, yep.

- Absolutely, there's no other way to hide the bugs but put them into the freezer, right?

- Yep.

- A lot of people just say it's too hard, I just want to sell two containers of maltodextrin, and here we are.

- Synthetic vitamins or whatever it is.

- Absolutely. Just a much easier sale if you in sales or customer service, right? - Yes, yeah.

- I just stuck it out, and eventually I was like I'm actually enjoying it, because I know what people talking about, and what the concerns are. Talking to people in Armidale or having horse studs, I just knew. Ring them up and say "Do you guys have the rain? How's the sunshine? Anything else?" Yeah, I stuck it out, and eventually worked myself into complimentary medicine, what was a whole different ballgame, at the end, compared to herbals.

- How long have you been with Ingredient Resources now?

- Ingredients Plus, it's been, 2015 I think, so yeah, five or six years.

- So the better part of five, six years.

- Yeah, I would have been there about six years, this is about six years again, six or seven years.

- I think it's fair to say, sorry Dane, you're regarded as one of the go to guys, from my perspective anyway, and I'm sure from Dane's point of view--

- I regularly reach out, we're all about trying to find the novel, unique, innovative, front of the line formulas. I remember the three of us were over in Geneva last year, and Pete's come around one day, he said "Let me take you for a walk around and introduce you to some of my friends", and left there getting introduced to some of the best raw material suppliers on the planet. You did the same as well, Gabe, to be honest. You could just see the level of connection, and the care for some of the quality of these ingredients. I guess it comes back to your example with the chamomile out of Egypt, understanding what causes these bugs to come in, or understanding if it's on a highway that's right near the road, it's more likely to be susceptible to certain toxins, or other environmental pollutants. Having that background knowledge of what happens on the ground, all the way through to what happens in the finished good, is a unique skillset that most people just don't get exposed to, which his really why we wanted to have a chat to you about some of these things. I know before the call I even said that I've known you for a long time, and I've been in this industry for quite a long time as well. Love my herbal ingredients. Love my nutritionals and everything in between, but a lot of what you do, I've just not been that exposed to, so we're really keen to hear about some of these stories, and some of these inside bits of information. Even the simple question of, how does somebody get into this industry? I know that's somewhere we wanna explore at some stage down the track. There's a whole heap of tangents that we can go off on, but I think, the manufacturers reach out to you. The way the cycle generally goes is the customer goes to the manufacturer, they have a brief for a formula, or they say I want these types of ingredients. The manufacturer reaches out to Pete, or somebody like Pete, but definitely you in a lot of instances, and then from there, through your connections, you make it happen. You're really the catalyst to the whole equation, and the raw material supply chain is arguably the most important part of the finished good. You can't build quality into your formula, you've got to start with quality, and that starts at the ground level, from where the material comes.

- Yeah, most of the time it's an interesting story, and what gets you with the raw material, right, because that's what the marketing companies are looking for, right? You're looking at their story. The praccies are looking at the action, how you can help the patients, right? It's a combination of the two. Once you find that sweet spot, it's giving you the edge of getting something beautiful out into the market. When I started off in my career, at the beginning we were just going to the contract manufacturers, the manufacturers, the manufacturers, right? But you realise that it's not giving you everything. It's only part of the story, because everybody's running a business, and everybody's looking after their business, and they're doing the best for their business. From my end, it's become very quickly apparent that you need to go to the marketing companies, and you need to go to the praccies just to say "Hey, I've got this wonderful thing, you should have a look at it, I'll connect you", right? Technically I must say, look, I can't even recognise half of the actives, or the Latin names of the actual--

- The botanicals, yeah.

- But I can connect you someone who's much better than I am, and I'm just gonna sit back, and once you guys need something, I'm just gonna fix it up, right? That's how it works. I quite often tell people give me a ring. I connect people with most of my competitors as well, because everybody's good at something. Everybody's got really good connections, really good long-term connections in the industry, right? As long as you help each other, as both of you know, it's a very small industry.

- It's very small.

- Everybody knows everyone. Sooner or later, someone will be either asking you a favour, or you will be asking someone a favour. I'm happy to connect people, and that's how the industry is really staying close as well. Product development, recommending each other, it's always worked out fantastically.

- And I think that's right. I got my start at Pathway International, as you guys know, and Pathway was one of the pioneers of that brand-first conversation. I remember people like Miles Wayne and Wayne Coote saying "We are so sick of being at the back of the bus", because we'd essentially pitch and pitch and pitch the contract manufacturers, and we may or may not get a sale, right? Because remember this was the days when Pan was still 70% of the market. As you rightly say, Pete, if there was an opportunity for the manufacturer to use perhaps a better priced raw material with a better margin, with the same indication or the same label claim, sometimes they would do it, right? Even if you'd possibly, as a raw material supplier, given them the idea for that particular material. Pathway was one of the first companies to go, bugger this, we're going directly to the Blackmores, or we're going directly to the brand, and we're gonna sell the marketing manager, in most cases, on the idea and the ingredient, and then that's gonna flow through the formula. So actually getting the brand to request your raw material, rather than hoping that it was gonna be written into a formula. - Yeah, correct. It's been working for years--

- For a long time now.

- For a very, very long time, very successfully. That's brought in a lot of innovation as well, because it's like everything else, marketing companies have firsthand experience talking to the manufacturers of these products, and finding out all the details. Just like what we had about 20 minutes ago, another Skype with New Zealand, Dane and I had the experience to actually talk to them direct, and understand from very technical people, okay, we just done this clinical, but in the next 12 months, this is what we'll be working on, and that's where people wanting to listen, right? Because everybody wanna be first to market, everybody wanna do a different product, one that may be differentiation between their competitors. You always wanna be listening and talking to the people firsthand, right?

- And it's not, I'm gonna make this up as I go along, but it's not just one call. Let's say you call on someone in a marketing company, and say look, this is a great ingredient. They'll typically, as I understand it anyway, and correct me if I'm wrong, they'll go away for a month, think about it, chat to their tech team, go online, research it, maybe look at three other alternative ingredients that deliver the same benefit, or are a bit better priced, right? It's not a simple sales cycle. It's not like hey, I pitch to you, here's my order. It doesn't seem to work like that, right? Is that fair to say?

- Absolutely. It's Sales 101, right? A lot of people very amazed that, I keep saying that most of the sales, the first call I made on this product was back two and a half years ago, right? - Yeah, it's crazy, isn't it? - It's still not in the market with this, right? It's crazy, right? I still remember B&J, my sales manager, at the time I was doing the chelates from the US, right? This iron chelate, we started working on this right back, and I'll put it onto my project. It's number one project, this is gonna be huge. This is gonna be amazing. And six months later, Toby said to me "Mate, you need to take that off. I'm sick of looking at it."

- Nothing's happening, yeah.

- This is happening, this is happening. 12 months later he said "If I see that again, I'll literally take it off myself." I was like "no, no mate, I'm telling you, this is happening." Two and a half years later, I got the first order, he was like "ah yeah, okay, apologies, I do understand now." Not everything happens like in food, because food trading, trading in bulk materials is completely different. You've got a specification, you go to through a contract manufacturer, this is exactly matching your USP, great, CPNs, your whatever you're using for that product. You're buying 20 times a year, let's make it--

- Here's my price, here's your price, yeah.

- Off you go, here is an order, walk away, right?

- Different type of business, right? - Different type of business. Yeah, anything else, as you say, any marketing company, any big company, or even the small companies, right? You go in, you present, okay, this is what I have, this is what I have right now, right? It doesn't mean that your marketing company is actually working on--

- On that issue, yeah.

- On that product, right? They're working on either a gut product, they working on a brand product, they working on anything else, but you come up with this fantastic product, even if it's the best product on the world, it's filled, they won't be interested.

- The time is not right.

- Correct, timing is everything, right? So everything needs to line up, and then you just go in. I keep saying to most of my guys, you at least have to present it seven times before someone picks up on it, right?

- Is that right?

- That's about right.

- So hang on, so let's clarify, so seven times, same group of people?

- Correct.

- Or seven times like cross-functional teams?

- Look, I do cross-functional teams, but if you say you go in present it for MPD, they look at it, they put it in a file, and they just keep doing what they're doing day in and day out, right? Because they do compliance, they do the evidence, package, and they got projects--

- Going on, yeah. - Yeah, so MPD group, they do either formulations, like they do the road map in 12 months, or every six months, and then if it's not in there, it goes into the file, right?

- Yeah.

- You call on one company once a month, seven months later you got a chance that a new thing comes up, and that might be in there, right?

- It's so tough, hey?

- I know, 12 months later you get a phone call saying, "I got this, I remember, come in. I think it's time"--

- It's interesting because how do you do stuff? It's a highly competitive market, right? On the brand side, and on the raw materials side, quite frankly. Everyone's looking for the edge, and you're 100% right, both Dane and I have been in the brand side, on the product side of things. You've got this background awareness that I think Pete's got that magnesium, and I think Joe Blow's got that whatever, okay, right, yep. But, and I'm gonna say this with all honesty, it's not like I'm consulting this amazing database of raw materials that I can type in, to use your example, type in magnesium, okay there's my 14 different types that I can choose from, here's the studies. That's probably where we should get to, as brands, but I don't think any brands are at that level yet. It's actually, a lot of this stuff is in your head, right? That's point number one, I'm getting to a point by the way. But point number two is, all the brands wanna be first with this stuff, so I can imagine a situation where you've told someone six times about your material. You tell another brand the seventh time, it clicks into a product, and then the guy or the girl you told six times goes, "Hey man, I thought I had the advantage on this ingredient." How do you handle that situation?

- Yeah, that's an interesting--

- Has that--

- That's happened, yeah.

- It's probably more common, right, yeah.

- Yeah, it does happen, right? Yeah, you keep knocking on the door, and you keep presenting and keep presenting, and all of a sudden--

- And everybody thinks they're your only customer, right?

- Absolutely, yeah, and then all of a sudden it was like "I didn't even think that you were talking", I was like well yes, and that's what it is. It's a balancing act, right? All that you present and present, and trying to get it through, as you said, multiple group of people, right? Because once you present it to MPD, they need to take it to quality, or regs, and then they take it back--

- Or commercial, or whoever, yeah. - Yeah, so even MPD, they do, they work and then every month they have a chance to present you to marketing, and marketing get 10 ideas, and they're like nope, nope, nope, nope, maybe, yes--

- 100% right, yeah.

- Yeah, that's it, and you're like, I thought this was gonna fly. Okay, well I'll take it to another place, let's do it again and they pick it up, and someone will get a bit disappointed.

- So practical question, right? You guys carry floor stock of a lot of your materials. How on earth do you forecast this stuff?

- This is an interesting one, right? The business has been around, right, for 15 years, and Ingredients was the cosmetic, light cosmetic raw material supplier, right? And on the back of it, I came in six years ago, and started the Nutraceuticals. Michael Petros, who's one of the organisers in Ingredients, plus he's always been in pharmaceuticals, so he's got the background on pharmaceuticals.

- He's super experienced as well, right?

- Oh yeah, yeah, he's a chemist himself. As Dane asked me, how many milligrams in a kilo, right? From the top of his head, he would have told you anything, no issues. But back that, started Nutraceuticals. Most of that is years of experience and knowledge of what contract manufacturers, what marketing, using what marketing companies products, and what they forecast for day runs. It's a huge balancing act, because you base your forecast on contract manufacturers giving you forecast, based on their marketing companies forecast--

- Getting them forecasting.

- And some of the brands are really good at forecasting, and they're getting--

- But many are not, many are not.

- Many are not.

- The first batch is always the hardest. You expect you're gonna sell through the batch in X number of months, but it's not until you've got a few batches under your belt, and you start to get a feel for the monthly sales per unit, that you can start to do forecasts with a bit less assumption included. So when you're dealing three assumptions down the line, I'm sure there's a bit of room for trial and error to an extent, but obviously you guys are experienced at this, and have a bit of insight into the global markets as well. But that was one question I was gonna say, how do you find these raw materials? I've been introduced to some really good suppliers through you, over the years. One in particular, you flew over a particular brand from Europe last year and introduced me to them. They had some really premium quality organic herbs, full traceable back to the source, really beautiful ingredients. How did you meet these guys? How do you meet the raw materials you supply? And what do you go through in a process to say hey, we believe in what these guys are doing, and want to distribute their ingredient.

- It's like everything else, people meet all the time, and that's why the shows are fantastic, right? And the knowledge of the industry players, we all catch up outside of work as well, and have a chat, share information on what's hot and what's coming up, what do you see, right? We always have a chat on what new things we see, so everybody knows about it. Going to the shows, it's very interesting because connecting to people, and those connections, sometimes you don't even expect, but those connections, giving you another connection straight away. I don't feel like I met people who, Australia's very far from everything, but actually not a major player, really, let's face it. A lot of time, people got either no representation, or always being interested in linking in with the Australia, New Zealand market, into the South East Asia and China market. Just connecting with people on shows. I either do my pre-show, looking who's new and who's representing this year, and what their product range, and what they story, and then obviously getting in contact with them before the show, and sitting down with them, and just talking to them about us, our business, and what we do, and how can we help them. Or some of those shows, you actually just bump into people and have a conversation after show or before show, and by chance, you actually meet a lot of good suppliers. Not all of them are actually up to scratch for the Australian market, right, and that's where usually you have to start looking to, okay, what's your range? Is this actually TGA listable? Do you have any clinicals on this? Where is this coming from? Do you have simple stuff, like do you actually have a manufacturing facility? Are you trading? - Or are you trading, exactly.

- For you guys, it's pretty, it's easy because you've been in the market for a very long time, but I see companies who start up, marketing companies, small to medium sized marketing companies starting up, and they're bringing specs, and they do their own work. I'm like look, those guys in China, they sell, they've got 600 herbal extracts, right? They physically cannot manufacture them--

- They do not manufacture herb, exactly.

- Correct, and they also chondroitin sulfate, and they also do zeaxanthin, and they also do tartaric acid. I'm like yeah, bits and pieces what you should be paying attention. They might be having a fantastic price, but that's why part of my job here, and not gonna test well.

- It's not gonna test well, exactly right.

- Correct.

- And I think there's an expertise in just understanding origination of the raw materials, right? We've worked with, quite honestly, sophisticated customers who are using one particular raw material, a key raw material in one particular formula, for example, and it's from a supplier that none of the three of us would touch with a barge pole.

- Yeah.

- Right? And they're like "yeah, this is my hero ingredient." I'm like "oh God, is that the spec? Wow, are you comfortable with that? That's not even compliant with the whole material. That's actually, you can't use that legally." They're like "oh, I had no idea." How does one come up, related to Dane's earlier question, let's say you're starting in this industry from scratch in 2021. You've graduated as a herbalist, or you've graduated as a marketer. You wanna come into raw materials. How do you come up the learning curve?

- You will definitely make a lot of mistakes along the way, so I don't know anybody who hasn't. I've made plenty of mistakes in my lifetime, and going to make quite a lot, I'm sure. Very simple things like someone start out, and I love herbal extracts. I'm not a real expert in it, but I just love the story behind them. There's such unique ways and stories in some of the herbal medicine in the world, what you guys obviously practiced, but you can use in your marketing. Sometimes you come up against all these, as you said, you get a spec, here it is, it says whatever herb it is. You know that the collecting of the herb in Europe, or in India costing-- - South Africa or India.

- A kilo of that raw herb, root or leaf or whatever, it costing you $7, right, to get that raw material. If you're gonna make a 10 to 1 extract, right, you're gonna use $70 worth of raw materials just in an extraction. That doesn't mean that the manufacturing costs, the marketing, everything else. So by the time it gets to your market, it's not $70 anymore, it's gonna be $140--

- At least, yeah.

- But you still expect someone comes up and says "Yeah but you're charging "me $150 a kilo, I can get this for 20", I'm like look, let me show you something. Internet, just basic. You can buy the root for $7 a kilo. That's a 10 to 1 extract, you do the math, so do you think it's still what you are buying? "Yeah but the price is good". I know the price is good. I don't think we will do business, I'm sorry. I'm very sorry but I will not do business. - I can't help you on this occasion.

- Yeah, can't help you on that one, can't help you on that one.

- Which is an important part as well I think. So you've gotta have that integrity in the quality of the raw material, and know the whole story from start to end. When you do have all these different steps in the supply chain, particularly with herbal medicine, it's a known problem to trace all the way back through the supply chain. There's stories of publications over in India where, particularly with curcumin. The growers grow the turmeric, they have it in their storage facilities, and when the price isn't right by the buyers, they'll just sit on it for a year, or two years and say let's wait for it to go back up. It's good for the farmers, because they're getting a decent price then at least, but then by the time it gets through the supply chain into the finished good, it's not what it was when it started. There's been so much storage and degradation of the phytochemicals that--

- Correct.

- Yeah, they're worlds apart in terms of the quality of something that's been cared for, preserved, freshly picked or extracted, done by people who actually know what they're doing and take pride in the integrity of the ingredient.

- Correct.

- I guess related point, and I'd love your perspective Pete on this, there was an era in the industry, let's say 12, 13 years ago, where spiking of raw materials was pretty, was almost systemic. There was a big, big problem. And I guess maybe I'd ask you to explain what that means to a lay person as well, but is that still an issue these days? Or is it less of an issue? -

Look, I'm actually--

- So many first define what it is.

- Yeah, define what it is. The easiest way to explain that, just to bring up a specification, right, and a chemical profile of a herbal extract, right? So you test for an active, or two actives, right? And the identification get tested as part of the process, right? - So using, for example, it might be with analytes.

- Yeah, and you get that finger printed now, it's very common now, and it wasn't 10 years ago.

- It wasn't, no.

- It wasn't available, right? So 10 years ago, you looked at China, and there was 10 people in the lab trying to manufacture a similar result, what you would get on a herbal extract, but would you get exactly little pink powder, or a yellow powder. That was really widely used, and okay, this is the price point that they have to get to. These are the chemicals, the phytochemicals what needs to be in there--

- People are looking for, yep. - Yeah, what they're looking for, and if you put it through the TGA testing, it will come back 100% on the spot. The spikes will be on the right time. Everything else will line up, except your cranberry powder won't be pink, it will be yellow, right? But you can fix that with dye, and that was quite systemic, right? And people didn't really, not saying they didn't care, but unfortunately Australia and New Zealand is a really cut throat market, right?

- Very price sensitive, right?

- Very price sensitive, and that drives people to find ways to reduce pricing. In normal circumstances, if you're buying the right product, you can't, you just can't. But we came along from that, and with technology is now quite good, so very easily you get caught out.

- DNA identification.

- Absolutely, yes.

- Proper herbal method analysis. Proliferation of herbal method analysis. Standardisation. All of those things, I think, have happened in the last decade that have changed that, hopefully much for the better. I've still heard of spiking issues. There was an issue, I think, of sildenafil, wasn't there recently, Dane, with the TGA?

- Yeah because that's in a lot, you see, I regularly get the TGA notifications that say "Don't take this ingredient, it's been sliced with this particular compound." Just after I caught up with you guys, over in Geneva went and met up with a colleague, a mentor from London that did a massive global study looking at curcumin extracts. Just went out and bought 100 different extracts from Amazon and all the big players from all over the world, different distributors, and out of those a significant portion of them didn't contain curcumin. They did it with eleutherococcus as well, looking at the salidrosides [EDIT: Dane meant to say rhodiala as well] and the eleutherosides to see how people are spiking it, and they're using dyes like tartrazine, synthetic vanillin to convert into curcumin for the curcumin. Some of them just didn't even have anything in there at all. Australia has that safety standard to an extent. Not many people are experts in herbal medicine, so unless they go through, in terms of the analytical side of things, I mean. So unless they go through the proper analysis. That's why you've got companies like the American Botanical Council regularly sending out the adulteration bulletin, and the adulteration program, to try and prevent this stuff. So I think it really comes back to what you were saying, that people are trying to supply a material at a cheaper cost point, and unless you've got checks and measures to say let's really, like you were saying, let's check the spec and make sure it complies with the BP, or the USP monographs. Let's send it off for independent third-party testing. Let's make sure the chromatogram's authentic to the authenticator material. This is all the work that you guys, no doubt, do in the background before you even go in to present it to the brands, and the manufacturers. One of the questions I wanted to ask you, which is related to this, which we said before, I'm sure that you've seen ingredients come in that just didn't pass.

- It's huge, as Gabe said, you go back 10 years ago, and that's where all price pressure. Price pressure has been always around in contract manufacturing, right, because you're getting the push from marketing companies, and their competitor's pushing, and obviously comes back into the contract manufacturers, then comes into the raw material suppliers, and then--

- Well you guys are 70% of the cost of goods, right?

- Absolutely, I charge about 150% all the time. Yeah I wish. You see, obviously where you're gonna get the cost reduction is most of the production is raw materials, right? So a lot of people, a lot of contract manufacturers obviously ban direct, and it's a global market now. But at the beginning, people, as I said, then to people who very active, and they were trading in China back and forth. Seeing people getting chondroitin and bringing chondroitin in, and drums, the kegs being filled 20% the top is chondroitin, 80% of the rest was a white powder, right? - Unknown powder, yeah.

- Unknown powder. You're hoping that people, when they're gonna test, they take a scoop of the top of the powder, right? Well on the TGA, you actually go different twice--

- All the way through the barrel. - First delivery comes in, and you test every single drum and so on, so on. Your money all gone. You pay your money up front, it all disappears, what you gonna do? You end up paying a couple of hundred thousand dollars, hoping that you saved up $10,000, and you couldn't.

- Let me ask a controversial question then. You mentioned now global sourcing environment, right? Pre-COVID, everyone's at the same trade shows, everyone's walking around the same suppliers. The internet's a wonderful thing. How, aside from service, right, how does a raw material distributor, like you guys, compete?

- It's an interesting question, because in the last five years, right, everything is just got so much faster. Information is right at your fingertip. You can do, and COVID is obviously now brought the global community even closer, right? Look at Vitafoods in September. You go onto the--

- Look online. - Online, there you go, you don't even have to jump onto the plane to Geneva and spend €400 on a small, pokey room, right? Such a fantastic thing.

- That was a good room.

- It is a good room, everybody knows who goes to Geneva, it is horrendously expensive, and I have no idea why they're doing it in Geneva, because it's just too expensive, anyway. It's an interesting thing, because yes, everybody knows everybody in this market. Relationships are still a big part of product development, and people do business with people who they like doing business with, right?

- Exactly, exactly.

- I don't think that will change, right? You can have the best things under your belt, but sometimes you won't be able to get through a couple of gates, and then as you said, everybody else has an alternative of something, what you can choose. Usually if you formulate, you've got two or three, or four different things, unless it's a really specific claim. It is a much, I always done business ultimately, like you guys know, I introduce you right to the manufacturer. You guys can have conversations right there. What we do is, I still believe, I'm not training, I'm introducing people, I'm facilitating exchange of information, right? And if you need a warehouse where you need to store your products, you need for your cashflow, need some help that you only need delivery a pallet of this, a pallet of that, we do that. That's how we help people out, because it's not just--

- The service to the brand and to your principles, right, the ingredients and brands you represent, the principles in let's say South America don't want to be dealing with an inquiry from Dane and I for one kilo of material.

- Or even 20 kilos.

- Yeah, correct.

- Or 20 kilos, forget it, it's not economic for them, whereas if they can sell you 100 kilos, you keep it on the floor and sell it in 20 kilo lots, that's a much better proposition, right? - Absolutely. It does work on some places, but it doesn't work with others. I can see that going forward, if you're just looking for a really specific active what, or you have claims on, and it comes in five kilo lots, Fedex, DHL, wonderful thing. There's my DHL number, there's my BSB number, money exchanges, comes in, going to manufacture, right? That's already happening, right? But other products are big bulky materials, excipients, there's fibres, you just physically can't do that, because not everybody has 2000 square meter warehouse--

- Correct.

- Where you can hold those. Big subject, people don't realise how much glycerine or gelatine or fish oil--

- Goes into the products, yeah.

- Physically go through it, because most of the people over there sees a purchase order, they can see a finished good one pack, and then you go--

- So this is the thing, right? And no one does this anymore, right? I think you guys do it, but no one does this anymore, and I would encourage every single person watching to do this. If you're in a brand, every bloody month, go down to the warehouse and look at the stock in the warehouse.

- Correct.

- Right, you're not selling numbers in a spreadsheet, you're selling units of something.

- Absolutely.

- And it makes it very, very real to go and look at stock, I find.

- It's amazing because once you actually quantify it, right, you got a multi, right? That multi has 30, 40 different raw materials. You don't even realise, okay I wanna do a run, we sold out, I need a run tomorrow, well I've just gotta make a phone call, and I just place purchase orders. Hang on a second, it wasn't in your forecast, right? I make a phone call and see if the raw material suppliers--

- Correct. - Sitting on an extra 60 ton of fish oil.

- Correct, yeah.

- That will cost you $600,000 or whatever thousand dollars, but nobody just hanging around and waiting for a phone call, right? It's real materials, right?

- And that's the complexity. I've just come from a pretty tough two and a half years inside a manufacturer, right? That's the complexity of the manufacturing environment. It is literally, the brands will come and say look, we oversold on X, can you get that to us in two months? Or you get a total, and sorry to rant, but you get a totally unsophisticated entrepreneur with a million dollars, right? That comes to you and says hey, I'm gonna roll out three new SKUs, it's gonna be amazing. Is that a three week turnaround or a four week turnaround? And you're like. What are you talking about?

- Last two years, I keep saying to my team as well, I totally changed. If I have an issue, I just chuck money at it, it usually goes away, right? So there's always a price point where you can make things happen, right? - Things happen, yep.

- If you want me to air freight in 20 tonnes of whatever, there is a cost involved. Are you happy to pay that cost to get the outcome? That's what it comes down to, but people don't realise air freight are very expensive. - Now I mean, corona environment, air freight is just diabolical.

- Yeah I know, because people don't realise that 90% of the air freights are actually happening on passenger lines. - That's right, that's right. - So people go to Emirates, or Qatar, or everybody else--

- They buy at spare capacity, yeah.

- Correct, because they got spare capacity, right? And there 90% of that fleet is just sitting around not doing anything, so prices of air freights are going through the roof, because everybody's still wanting to trade, right, but there's no space on the aircrafts.

- I've got a question, so you've seen a lot of different trends over the career you've been in. You're obviously pretty much on the frontline when it comes to what's around the corner, heavily connected to all the key players and the innovators of the marketplace, through Europe, the States, as well as pretty much everywhere. Where do you see the future of the industry going? Can you see some other areas that you think are gonna be exciting applications? I know you deal a lot in the keto space, which is obviously something that's been booming the last couple of years. Do you see some other areas that, crystal ball, 2025, what's it look like in terms of your eyes for novel applications and ingredients?

- 2025 is five years ahead. I think there's a lot of prebiotic, probiotics, what has been around for a long time, right? It's bent up, died down a little bit, but it's also coming back up again, as you can see. Gut brain is almost everything still, and that will continuously just going to grow in the market, that's for sure, fermentation, all products, right? Technologies is getting fantastic, and there will be a couple of new products coming out later on. We've been working on vegetarian chondroitin sulfate, right? You were never taught that--

- Very cool.

- That would be possible, and with fermentation technologies, it's happening. Bioavailability, right? So many different opportunities and technologies available now. Some of them I did with Eric and George right here in Sydney, and they gained international recognition on NutraIngredients. They got studies in UK, wherever you look, and bioavailability is finally coming through to a lot of brands, what previously didn't really come through.

- Because it was basically ignored, wasn't it, yeah.

- Absolutely, everybody just looked at, okay, this is your dose, but haven't really thought about, okay, well you can reduce these capsules or soft gels with spending a little bit of more money. Bioavailability will be booming, and already booming, but it will be coming back in the next couple of years as well. I would hope to see a lot of herbal, more herbal actives coming out, right? With obviously very good studies. I think eye health will be quite well advanced as well. We'll see. Five years is a long time, but I think innovation will be driving most of our sales going forward, because the race to the bottom is just not gonna pay the bills, unfortunately. Eventually we're doing damage to the environment, and that's how I look at it, right? I like seeing sustainable development. I like seeing someones using a byproduct and thinking of, okay, that's coming out of something--

- Let's turn a waste stream into a product, yeah.

- Absolutely, and you look at fibres now, right. You see fantastic products coming out, what you used to dump, and now you're turning it into a profit, and to a fantastic story.

- Banana fibre, et cetera.

- Absolutely, yeah, yeah. Very, very good stories. There's a few interesting stories will come out, and I'm looking forward to just following through with the marketing companies and everyone else, to put products into the market, for sure.

- Is there any key things you've seen booming in Europe, for example, at the moment? I know they're always a couple of years ahead of us, with innovation and less restrictions with the TGA, now they've got their own regulatory systems. What are you seeing is of interest or hype, or really starting to boom in those markets currently?

- I haven't travelled for a while, unfortunately. Maybe start on Geneva, but looking forward to participating in the virtual show, and that will be interesting to see. I think there's a couple of probiotics from Europe that will be coming out. We had, one of our partners had Australian studies with press virtual. They have a couple more studies coming out, so that will be interesting to see. Organic herbs, those started picking up, and the stories of what country or what region they're coming out from. I think they will be interesting to see in the next few years, and especially some of them, I will be having studies as well. Yeah. I can't think of anything else right now.

- No that's good insight, perfect. How does a brand go about it? A lot of brands know you guys exist, a lot of brands probably don't even know and they just go direct to a manufacturer. What advice would you give to a brand, if they wanna start looking at some new innovative ingredients, how do they find you? How do they get in touch? How can they see what you've got?

- As you said, a couple, most of the brands we already talking to, and I'm continuously calling on them and having discussions. I'm covering most of the formulators and having continuous conversations through that. Most of the time, people find us through websites, all the LinkedIns and other media outlets. Marketing companies, I think, also have access to a lot of manufacturers direct, and most of the European, US manufacturers, they'll market themselves as well. And as being a global market, anything new comes out in the complimentary medicine, it's well advertised. Things like the NutraIngredients platform, everybody gets that email, that's how your day start. You get two, three emails from the Nutra, and the food, and the cosmetic version as well. Yeah, there's different ways to get in touch, yeah.

- Check out the LinkedIn, see what's coming through there. - Check out the LinkedIn. Quite often like a lot of stuff on LinkedIn.

- How does, last question I guess from me, how does a new manufacturer get in touch with you guys? And how do they, let's say I've got 10 raw materials, what's my process with the TGA, and making sure the list of all the ingredients and stuff?

- Look, if it's manufacturers, I think they've got it covered quite well.

- Really, okay.

- They have their TGA license. I usually have a good conversation with most of the marketing companies and TGA manufacturers. From my perspective, if you've got a TGA license, you're pretty well covered. If you've got people who's doing your purchasing, and the purchasing managers obviously they call on, and they get in touch with us, it's literally a conversation. What's important for you? Let me help you, and everybody's got limited time, and 24 hours, right, in a day. You do 8, 10, 12 hours in a day, and we like helping people with, how can I help you, right? And then we talk about their projects, and make sure that everything, what they're looking for is TGA listed, and can go in, and they can claim whatever the projects are. It's literally a face-to-face conversation, just on the phone. Now it's everything on Skype, right?

- On Zoom, yeah. Great. Dane, any other questions from your side?

- Look, I could talk all afternoon. I'm sure we'll carry on this conversation at a later date, but I think it's probably a good place to wind up. Yeah, inspired us and filled with a lot of relevant information. I think it's a part of the industry that's so integral to the quality of the finished product, and it's just a part that most people don't see. We take pride in really connecting to the raw materials. We do that through you quite regularly, and I think it's a great part of the whole puzzle that people should try and get more informed in, so thanks for your time, and thanks for talking through it with us.

- Thank you.

- Yeah it's been a very interesting discussion.

- Thank you for having me. It looks like you guys running out of candidates, inviting me.

- Oh no.

- You were right at the top of the list.

- Yeah, we've got some really stellar candidates lined up actually, but you were, you're a unique breed. There's not many high quality raw material suppliers with your insight and experience.

- We had to prioritise, of all the raw material suppliers we know, who's the one person everyone likes, that's not going to be offended if he goes first, you see.

- Pressure on, right? I was hoping we were--

- Really appreciate it.

- I was hoping we were gonna have the beers like we planned, but I think it's probably not a good look, right?

- No it's fine, I think we've just gotta be in the same place next time.

- Yeah, would be nice, that's our next time, next time.

- Exactly.

- Thank you man, really appreciate it.

- Yeah thanks, it's been a pleasure.

- Thanks for having me.

- No worries, we'll talk to you soon. Enjoy your night. Appreciate it. Bye guys.

- Thank you guys, thanks for having me.

- Cheers.

- Thanks Pete, bye. Cheers.