Required Report - public distribution

**Date:** 1/5/2005

**GAIN Report Number:** AS4038

AS4038

**Australia**

**Product Brief**

**Functional Food Sector**

**2004**

**Approved by:**

![](media/image1.wmf)Andrew C. Burst

U.S. Embassy

**Prepared by:**

Hassall & Associates

**Report Highlights:**

The Australian retail food sector is the most promising sector for
functional foods, with convenience stores and gas marts being important
retail segments. These sectors attract the lifestyle consumer, who is
more likely to experiment with new products and new ingredients. An
increase in consumer demand and interest in functional foods during the
1990s has resulted in positive growth rates for the Australian
functional food market over the period. The expected continuation of
these trends should lead to continued growth in the Australian
functional foods market over the short to medium term. Examples of
functional foods and ingredients currently available in Australia
include phytosterols, probiotics and fortified products containing
increased levels of calcium, vitamins, folates and special performance
drinks, including sports drinks.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Canberra \[AS1\]

\[AS\]

This report was prepared by consultants:

Hassall & Associates Pty Ltd

GPO Box 4625

Sydney, NSW 1044

Australia

> Tel: +61-2-9241-5655
>
> Fax: +61-2-9241-5684
>
> Email: <hassyd@ozemail.com.au>

Web: [www.hassall.com.au](http://www.hassall.com.au/)

![](media/image2.png){width="3.4791666666666665in" height="3.75in"}

Table of Contents

[SECTION I: MARKET SUMMARY 4](#section-i-market-summary)

[SECTION II: MARKET SECTOR OPPORTUNITIES AND THREATS
6](#section-ii-market-sector-opportunities-and-threats)

[Retail Food Sector 6](#retail-food-sector)

[Entry Strategy 6](#entry-strategy)

[Market Access 7](#market-access)

[Competitive Analysis 8](#competitive-analysis)

[Comparative Advantage of U.S. Products
9](#comparative-advantage-of-u.s.-products)

[Market Size 9](#market-size)

[Market Structure 9](#market-structure)

[Market Trends in Consumer Demand and Preferences
10](#market-trends-in-consumer-demand-and-preferences)

[Company Profiles 11](#company-profiles)

[SECTION III: COSTS AND PRICES 12](#section-iii-costs-and-prices)

[Import Requirements 12](#import-requirements)

[Price Premiums 12](#price-premiums)

[Product Endorsement by Recognized Australian Organizations
12](#product-endorsement-by-recognized-australian-organizations)

[Further Costs Involved 12](#further-costs-involved)

[SECTION IV: MARKET ACCESS 13](#section-iv-market-access)

[Food Laws 13](#food-laws)

[Detailed Analysis of Market Access for Functional Food
13](#detailed-analysis-of-market-access-for-functional-food)

[Trademarks/Patents/Copyrights 14](#trademarkspatentscopyrights)

[SECTION V: KEY CONTACTS AND FURTHER INFORMATION
15](#section-v-key-contacts-and-further-information)

[USDA/FAS Australia Contact 16](#usdafas-australia-contact)

[Attache Reports from the Office of the Agricultural Counselor
16](#attache-reports-from-the-office-of-the-agricultural-counselor)

# SECTION I: MARKET SUMMARY

Functional foods are foods that support human health and well being,
providing benefits beyond basic nutrition (National Centre of Excellence
in Functional Foods (NCEFF)). Examples of functional foods and
ingredients marketed in Australia include phytosterols, probiotics,
fortified products containing increased levels of calcium, vitamins,
folates and special performance drinks, including sports drinks.

In recent years, European, U.S. and Japanese markets have recognized and
labeled functional foods as a separate food category. However, in
Australia functional foods do not yet form an identifiable market
segment. Reasons for this include:

-   An explicit definition of what constitutes a functional food is
    difficult, e.g. many conventional foods are also often promoted to
    offer health benefits, such as anti-oxidants which occur naturally
    in blueberries;

-   Australian regulations and food standards currently prevent
    functional foods containing labels with health claims (except in the
    case of folic acid); and

-   A general lack of commercial interest.

Specific information relating to the functional foods market in
Australia is therefore difficult to obtain. Targeted industry
consultation coupled with research conducted by the International Food
Information Council (IFIC) since 1996 has identified the following key
characteristics relating to the functional foods market in Australia:

-   An increase in consumer demand and interest in functional foods
    during the 1990s has resulted in positive growth rates for the
    Australian functional food market over the period. This is largely
    due to the improved awareness amongst consumers of the health
    benefits associated with food consumption habits. The expected
    continuation of these trends should lead to continued growth in the
    Australian functional foods market over the short to medium term.

-   In 2003, U.S. based Health Strategy Consulting (HSC) estimated that
    the Australian and New Zealand nutrition industry represented around
    0.8%, or A\$2.9 billion, of the global nutrition market. If
    Australia's share is broken down into market sectors, functional
    foods accounted for 35% (A\$1 billion), organic foods 28% (A\$0.8
    billion), supplements 30% (A\$0.9 billion) and natural personal care
    7% (A\$0.2 billion). The global market for bioactives is predicted
    to grow threefold in the next five years to be valued around A\$1.4
    billion per annum by the end of the decade. Australia's share of
    these projected earnings is around A\$3.5 million. Bioactives are
    ingredients or naturally occurring components of functional food.

-   Permission for functional foods to be marketed in Australia is
    contingent on any health benefit being substantiated on a scientific
    basis. Until this proof is available, producers and manufacturers
    will continue to face regulatory barriers to entry and labeling, as
    well as potential legal implications.

-   The Australian Government is funding a new center, the National
    Centre of Excellence in Functional Foods, based at the University of
    Wollongong (NSW), to help innovate the functional food industry
    through the research and development of new products. The National
    Centre of Excellence in Functional Foods is an integrated,
    world-class center for functional foods research that promotes the
    development, substantiation and commercialization of effective
    functional foods and provides a clear indication of the level of
    interest and awareness of the Australian Government in the
    functional foods market.

-   Prospects for U.S. exporters in the Australian functional food
    market are principally focused in the food retailing and food
    processing sectors. Market research has demonstrated that the retail
    sector presents the greatest opportunity for overseas suppliers. The
    total value of Australia's food retailing sector in 2002 was about
    A\$47 billion.

  ---------------------------------- ------------------------------------
  **Advantages/Opportunities**       **Challenges/Weaknesses**

  The United States is more advanced Food labeling laws in Australia
  in product development and has the currently prohibit the linking of
  opportunity to excel with flavor   the "functionality" of a food with
  and taste (The U.S. Soy Market     the potential health benefits (with
  (e.g. Silk^®^) now has 65% of      the exception of Folate). This is,
  market share and is an example of  however, currently under review (see
  a product that has progressed from report number AS4037 listed at the
  a niche market to mass consumer    end of this report)
  market as a result of taste).      

  Consumers are unaware of the       The existing food-retailing sector
  linkages between ingredients and   is highly competitive. New food
  benefits. Thus there is an         products, such as functional foods,
  opportunity for effective          will need to be innovative and
  marketing to connect brands with   promoted strongly, since it is not
  what consumers believe about       possible to link the functionality
  health.                            of food with the potential benefits.
                                     The additive/ingredient is permitted
                                     on the food product -- the
                                     associated benefit is not (excluding
                                     Folate).

  Tariffs on imported food products  Australian made and manufactured
  are low, at 0% (canned or minced   products are advertised as such, and
  salmon, citrus, grapes,            this awareness of 'buying
  condiments, almonds, stone fruit), Australian' may act as a barrier to
  3% or 5% (breakfast foods). With   attracting consumers to imported
  the Australia-U.S. Free Trade      products.
  Agreement, these will all drop to  
  0%.                                

  Consumers will be looking for      Consumers need to understand the
  technical solutions to specific    benefit from functional foods. There
  needs as the trend in health       may be a time lag for consumers to
  consciousness continues. Once a    link the ingredient to the gain and
  consumer has a problem that needs  for profit to be realized.
  to be fixed they will take the     
  time to understand the science     
  involved (e.g. clinically proven   
  cholesterol reducing margarine --  
  Benecol^®^).                       

  The market for functional foods    U.S. exporters will need to closely
  will grow, with a projected value  monitor prices as the Australian
  in Australia of around A\$3.5      dollar fluctuates against the U.S.
  million as consumer demand for     dollar, causing prices to rise &
  health related products continues  fall within relatively short time
  to grow. Opportunities exist for   frames.
  U.S. exporters to capitalize on    
  this with products that are        
  advanced in taste and flavor.      
  ---------------------------------- ------------------------------------

There are a number of definitions in use for functional foods. For the
purposes of assessing the overall market prospects for functional foods
in Australia, the definition from NCEFF has been adopted in this report
as it incorporates the aspects present within the Australian market
(i.e. current trends in consumer health awareness), acknowledging the
regulatory environment as a key influencer.

Note: The following exchange rates were used to convert Australian
dollars to U.S. dollars for 2001 to 2004. All figures used in the report
are in Australian dollars using the exchange rate of 0.77 as of
11/16/04.

  --------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
            12/31/2001   06/28/2002   12/31/2002   06/30/2003   12/30/2003   06/30/2004   11/16/2004

  AUD/USD   0.51         0.56         0.56         0.67         0.74         0.69         0.77
  --------- ------------ ------------ ------------ ------------ ------------ ------------ ------------

Source: <http://www.chartflow.com/ozforex/historybasic.asp>

# SECTION II: MARKET SECTOR OPPORTUNITIES AND THREATS

## Retail Food Sector

The Australian retail food sector is the most promising sector for
functional foods, with convenience stores and gas marts being important
retail segments. These sectors attract the lifestyle consumer, who is
more likely to experiment with new products and new ingredients. This
has been the experience of a number of success stories notably
Sanitarium's Up & Go^®^ breakfast-in-a-drink concept. This product
satisfies the four key success components of functional foods:

1)  Need the product - *it's a healthy nutritious start to the day;*

2)  Accept the ingredient - *fiber/protein/low fat;*

3)  Understand the health benefit -- *the health benefits of these
    ingredients are widely understood;* and

4)  Trust the brand -- *Sanitarium is Australia's number one cereal
    brand.*

An analysis of the Australian food retail sector over the past five
years is provided below as an indication of the market size for U.S.
exporters. The following is a list of key factors:

-   The total value of food retailing in 2002 was A\$47 billion.

-   Over 70% of food expenditure (A\$35 billion) occurs within the
    supermarket and grocery sub-sector.

-   Approximately 10% of products sold in supermarkets are imported, a
    share that has not changed significantly in recent years (Food and
    Beverage Importers Association, 2002).

### Entry Strategy 

There are four recommended strategies to enter the market for functional
foods;

1)  New category creation;

2)  Leveraging intrinsic healthfulness;

3)  New segment creation; and

4)  The functional food makeover.

[1) New Category Creation]{.underline}

This method is a true innovation strategy and involves creating an
entirely new category of food or drink. For example, Yakult (probiotics
in little bottles), has an estimated value in Europe of almost A\$3
billion and is growing at 40% annually. In the Australian market,
SoNatural Foods have recently combined forces with Ian Thorpe, a leading
Australian swimmer and Olympic Gold Medallist, to develop a new category
in bottled water. The product is called Thorpedo^R^ and is being
marketed as a product with great flavor, antioxidants, vitamins and low
Glycemic Index (GI). The glycemic index is a ranking of carbohydrates
based on their immediate effect on blood glucose (blood sugar) levels.
The focus is on health and nutrition with 'wellness' the positive angle
for consumers to respond to. This is the first product to be launched
under the new alliance between SoNatural Foods and Ian Thorpe. There are
more planned over the next five years including individual tuna steaks
-- high in Omega 3.

It is worth noting that, typically, there is a high failure rate for new
food products with retailers requiring that a product 'prove' itself
relatively quickly to continue occupying valuable shelf-space. New
category creations with innovative packaging designs earn premium prices
as the packaging makes it very difficult for consumers to compare
prices, as there are no identical products.

[2) Leveraging Intrinsic Healthfulness]{.underline}

These products are functional foods that have no added ingredient or
modification, however advances in nutritional science have identified
their intrinsic healthiness. This strategy is the most common with
companies bypassing the issues surrounding labeling and health claims by
targeting consumer knowledge that links these products to the benefits.
Some examples are;

-   Whole grains and heart health;

-   Tea and antioxidants;

-   Orange juice and reduced risk of stroke;

-   Tomatoes and lycopene; and

-   Cranberries and urinary tract infections.

An example is Ocean Spray^®^ Cranberry Juice. The communication strategy
focused on taste and refreshment. Ocean Spray^®^ never used a health
claim in advertising or on the label, instead relying on education,
word-of-mouth and public relations.

[3) New Segment in Category]{.underline}

This strategy entails introducing a health benefit into an existing
category by creating a new health proposition and a new segment within
the category, usually by launching a new brand or extension. For
example, Benecol^®^ created a new segment in the spreads category by
introducing the first cholesterol lowering spread.

[4) Functional Food Makeover]{.underline}

Importers introduce a product with the same benefits as products already
on the market with the only differentiation being a lower price. The
makeover occurs when an existing product has a health ingredient added.
The benefits of this strategy are usually short term as there are no
other advantages offered over rival brands. For example, Kellogg's
K-Sentials^®^ is a breakfast cereal with increased vitamin and mineral
content marketed as healthy for children.

### Market Access

Functional foods form part of a food processors and/or retailers food
product line and must compete on that basis with conventional foods for
market share and shelf space. Currently, functional foods are not
regulated any differently to conventional foods in Australia. There is
no particular standard within the Food Standard Code that relates
specifically to functional foods. However, [Standard 1.5.1 -- Novel
Foods](http://www.foodstandards.gov.au/foodstandardscode/index.cfm#_FSCchapter1)
incorporates ingredients that promote the benefits of certain foods over
and above their normal nutritional benefits such as antioxidants and
their role in the prevention of diseases. The Novel Food Standard also
specifically refers to Phytosterols and in this case it is recommended
that importers use this FSANZ standard for entry into the Australian
market. The Standard provides assistance through indicating the factors
to be taken into account in this decision making process.
\[[http://www.foodstandards.gov.au](http://www.foodstandards.gov.au/)\]

The key challenge to entry in the Australian market is the establishment
of a distribution method, with a limit to the supply chain functions
that can be undertaken by a small-scale innovator. However, industry
consultation has confirmed opportunities exist for strategic alliances
or joint venture partnerships between an innovator and manufacturer.
SoNatural Foods has demonstrated that alliance relationships could allow
the manufacturer access to new product concepts in exchange for access
to the brand name capital and market position of the manufacturer.
Recent success stories have shown that alliances between the exporter
and an existing local brand were crucial with both firms benefiting from
the core competency of the other in form of skills, tacit, distributed
knowledge and marketing leverage. For example:

-   Developing a partnership with a local company can effectively lower
    costs, assure quality and capitalize on the opportunity, e.g. the
    partnership between SoNatural and Bumblebee seafood. Bumblebee
    seafood is one of America's largest seafood companies and through
    alliance with SoNatural the seafood industry in Australia will
    benefit \[Industry consultation, 2004\]; and

-   An example of the synergies described for a U.S. company utilizing
    this method of market access is a juice company from Florida. The
    quality of their juice is superior to anything produced in
    Australia, with a much higher brix level and functional food
    components added. By establishing a partnership with a local
    distributor in Australia they have already tapped into the
    Australian market. The frozen juice is imported from the United
    States and then delivered through the extensive distribution
    channels that are in place with the local company. It is crucial
    that local partners are established.

An appointed agent, distributor or import broker can maximize market
success. The major supermarket chains have their own distribution
centers with national coverage. Agents/distributors should market
product to category managers for major chains.

The entry strategy for convenience stores is similar to that for
supermarkets except that the agent/distributor should target the major
wholesaler category managers as well as managers at major supermarket
chains responsible for the new wave of gas/convenience store concepts.
Convenience stores generally sell limited lines, gasoline, and fast
food. They are open long hours and are easily accessible to customers.
This is changing somewhat with larger convenience stores carrying
greater numbers of lines and partnering with major supermarket chains.

Further consideration of a market entry strategy should take into
account the following dynamic aspects of the retail food sector as
increasing awareness amongst the population on health issues has led to
rising demand for:

-   More natural wholesome foods;

-   Foods that have an associated health benefit (e.g. reduce
    cardiovascular disease);

-   Foods with high nutritional value;

-   More information on the nutritional content of food; and

-   Organic and not genetically engineered foods.

### Competitive Analysis

-   Imported products will have to compete with "Australian Made"
    products. There is a general awareness and affiliation for buying
    Australian made goods amongst the population.

-   Convenient, healthy, fresh and diverse meal solutions are an
    untapped opportunity for the functional food market. This market is
    underdeveloped in Australia compared to the United States. There are
    quarantine issues with regard to products containing meat and egg
    products that may restrict access. Qualities of meal solutions are
    that they are easy to buy, easy to store and easy to eat, all of
    which satisfy a rapidly emerging consumer need that provides future
    potential for imported products.

-   The use of food brokers in Australia is increasing. Food brokers can
    assist market entry by bridging the gap between retailer's reports
    and what is actually happening in the supermarkets. Brokers can also
    assist in getting a new product into distribution quickly. Some
    companies also offer warehousing and distribution options.

### Comparative Advantage of U.S. Products 

-   Due to the large domestic market, U.S. manufacturers are able to
    develop products far beyond that which can be achieved in Australia.
    This enables U.S. exporters to deliver innovative product lines that
    are otherwise not available from Australian manufacturers. For
    example the new packaging used for Hormel Foods^®^ (a U.S. owned
    company) kids meal, a plastic base that can be heated with a metal
    ring pull. This element of design fits well with the concept of
    'time poor consumers' who want convenient packaging. It also ties in
    with the underlying concept that innovation in marketing is at least
    as important as innovation in ingredients and science; innovation is
    one of the key success factors for functional food.

```{=html}
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```
-   Branding - as many U.S. brands have a significant market share.

### Market Size 

In 2003, U.S. based Health Strategy Consulting estimated that the
Australian and New Zealand nutrition industry represented around 0.8%,
or A\$2.9 billion, of the domestic nutrition market. If broken down into
market sectors, functional foods accounted for 35% (A\$1 billion),
organic foods 28% (A\$0.8 billion), supplements 30% (A\$0.9 billion) and
natural personal care for 7% (A\$0.2 billion). The global market for
bioactives is predicted to grow three fold in the next five years to be
valued around A\$1.4 billion per annum. The share of this projected
market that will be contributed by Australia is around A\$3.5 million.

Since the retail food sector has been identified as representing the
most suitable channel for the sale of functional foods, the following is
a summary of the value of imported foods versus domestic foods over the
past five years. Of the total value of food imported into Australia,
U.S. imports accounted for A\$376 million in 1996, rising to A\$433
million in 1998 and falling to A\$381 million in 2000. Data for the
functional foods segment are not available. In Australian dollars, food
imports have risen (in value) for the last six years, with a five-year
average import growth of 7.9%.

**Figure 1. Total Australian Food Imports from 1995-96 to 2001-02**

![](media/image3.wmf)

### 

### Market Structure

Success for functional foods is dependant on the commercialization
strategy adopted by the ingredient owner and its brand-owning partners,
as much as by the science that validates the functionality. The
functional food market structure is illustrated below using the two
major distribution channels available to supermarket chains and
wholesalers. The key success factor for U.S. market suppliers is
believed to be an alliance with an agent/distributor/specialist
wholesaler.

Although opportunities do exist to work directly through wholesalers and
distributors, this approach to purchasing eliminates the supermarkets
and convenience stores from the direct importation of U.S. products. The
purchasing departments of the two largest supermarket chains,
Woolworth's and Coles, confirm this practice. At some stage along the
distribution channel, food products will be stored in warehouses prior
to distribution. Delivery and transport in Australia between
distribution centers is predominantly by road. Figure 3 identifies the
movement from U.S. exporter to retail outlet for functional foods.

**Figure 3: Distribution Channel Flow Illustrating Major and Minor
Channels of Distribution**

![](media/image4.wmf){width="6.495833333333334in"
height="4.121527777777778in"}

### Market Trends in Consumer Demand and Preferences 

The drivers for market growth can be incorporated into four major
categories that are outlined below.

-   [Consumers]{.underline}: aging population, disease is 'multi
    dimensional', cardio vascular disease, cancer, diabetes,
    increasingly health conscious, and enhanced quality of life;

-   [Healthcare Professionals]{.underline}: new discoveries and research
    on specific impacts of food and increasingly vocal on
    nutrition/health linkages;

-   [Retailers/Producers]{.underline}: search for growth and a strong
    interest from both food and pharmaceutical companies to explore the
    health treatment potential of food; and

-   [Government]{.underline}: rising healthcare costs, support for basic
    nutrition and exercise, and support for science and food technology.

The main issues that affect the market size for the functional food
market in Australia are:

-   Regulatory constraints;

-   The lack of protection for intellectual property;

-   Most novel ingredients are only at the very earliest stages of
    consumer acceptance -- restricting the size of the target audience
    at this time.

There is also a strong consumer needs relationship with taste,
convenience, naturalness and health. 'Naturalness' in an unadulterated
form (i.e. less processed) is sought after. Knowledge of the positive
attributes and personal consequences of consuming functional food will
promote acceptance \[Queensland Department of Primary Industries\]. The
convenience store, gas marts and kiosk section of the retail food sector
market has high potential. Functional foods industry consultation
suggests that this is an area for growth, as consumers are looking for a
quick, healthy meal option.

### Company Profiles

As all major food companies would claim to be present within the
functional food market, the major players within the retail sector are
identified as competitors. These competitors have been separated into
chain supermarkets/convenience stores and gas marts. In addition, the
four key players that are easily recognized in the Australian market as
contributors to the growing consumer 'health food' trend have also been
acknowledged.

For information on the retail sector, U.S. exporters are advised to read
the Australian Retail Sector Report (see reports listed at the end of
this report), as it identifies the main convenience/gas marts and chain
supermarket channels that would be used for functional food. The four
companies identified below are competitors for U.S. exporters' products.

+-----------------+----------+-------+-------------+-----------------+
| **Company       | **Own    | **Sa  | **Dis       | **Products**    |
| Name**          | ership** | les** | tribution** |                 |
|                 |          |       |             |                 |
|                 |          | **    |             |                 |
|                 |          | (A\$M |             |                 |
|                 |          | il)** |             |                 |
+-----------------+----------+-------+-------------+-----------------+
| **Freedom Foods | Local    | \>74  | Through all | Range of health |
| (subsidiary of  |          |       | Coles (over | foods and       |
| SoNatural)**    |          |       | 430) and    | functional      |
|                 |          |       | Woolworths  | foods including |
|                 |          |       | (over 700)  | cereals,        |
|                 |          |       | s           | biscuits,       |
|                 |          |       | upermarkets | confectionary,  |
|                 |          |       |             | pasta, sauces,  |
|                 |          |       |             | snacks          |
+-----------------+----------+-------+-------------+-----------------+
| **Roma Food     | Local    | 118   | Through all | Range of        |
| Products --     |          |       | Coles (over | natural foods   |
| Orgran range**  |          |       | 430) and    | for people with |
|                 |          |       | Woolworths  | allergens       |
|                 |          |       | (over 700)  | (especially     |
|                 |          |       | s           | Celiac disease) |
|                 |          |       | upermarkets | and specific    |
|                 |          |       |             | dietary         |
|                 |          |       | Also        | requirements    |
|                 |          |       | exported    |                 |
+-----------------+----------+-------+-------------+-----------------+
| **Unilever      | Inter    | NA    | Sold in     | Cholesterol     |
| Australia --    | national |       | most        | reducing        |
| Flora**         |          |       | s           | margarine       |
|                 |          |       | upermarkets | spreads         |
+-----------------+----------+-------+-------------+-----------------+
| **Goodman       | Inter    | \>900 | Sold in     | Cholesterol     |
| Fielder --      | national |       | most        | reducing        |
| Meadow Lea**    |          |       | s           | margarine       |
|                 |          |       | upermarkets | spreads         |
+-----------------+----------+-------+-------------+-----------------+

Information sourced from the Grocery Industry Review and company
websites.

# SECTION III: COSTS AND PRICES

### 

## Import Requirements 

Imported food must comply with all aspects of the Australian New Zealand
Food Standards Code (ANZFSC) at the relevant point of entry. The
Australian Quarantine and Inspection Service (AQIS) perform random
inspections on any food imported. Importers are responsible for
completing a customs clearance documentation for goods above set value
limits and are advised to verify with Customs what the limits are as
they vary between sea, air cargo and the postal system. To ensure
compliance, it is recommended that importers use the services of a
customs broker to ensure that all import entries and related clearance
formalities are complied with.

Minimum requirements for an import customs clearance entry include the
following: invoices, airway bill and any relevant papers relating to the
shipment such as insurance documents, packing lists and other
documentation to support the importers entry. Cost recovery charges
apply for the processing of entries, depending on the entry being
electronic or a manual entry. Penalties may be imposed for the
submission of incorrect or misleading information or for the omission of
information to mislead. It is the importers responsibility to ensure
that the goods entering Australia are marked correctly.

## Price Premiums 

Current markets and marketing strategies allow for premiums to be
realized on the sale of functional foods. An example of a demonstrated
price premium is where a comparison is made between a standard margarine
spread and a functional food. Logicol^®^ is a canola based margarine
spread enriched with plant derived ingredients called plant sterols that
are linked to reducing cholesterol absorption. Flora Pro-active^®^ is
another plant sterol enriched margarine. Both functional food products
are sold at almost double the price of the regular margarine product. It
is expected that as functional foods become more widespread and new
competitors emerge through clearer definition of regulations, the price
premium will be reduced.

## Product Endorsement by Recognized Australian Organizations

For product endorsement by organizations such as the National Heart
Foundation of Australia, U.S. exporters are encouraged to access the
relevant website e.g.
[http://www.heartfoundation.com.au](http://www.heartfoundation.com.au/)
where guidelines are available for food products.

## Further Costs Involved

For costs associated with making changes to the food standards code
(this may be relevant if the functional ingredient/food is novel)
importers are advised to visit the website to view all necessary costs -
[http://www.foodstandards.gov.au](http://www.foodstandards.gov.au/)

# SECTION IV: MARKET ACCESS

Detailed guidance on Australia's food labeling and import regulations
are contained in the Food & Agricultural Import Regulations & Standards
(FAIRS) report for Australia (Attache Report #AS4023 listed at the end
of this report).

## Food Laws 

In Australia, [Food Standards Australia New
Zealand](http://www.foodstandards.gov.au/) (FSANZ) is the Commonwealth
Government agency that regulates the delivery of safe food. FSANZ is a
bi-national independent statutory authority. FSANZ develops food
standards for composition, labeling and contaminants (including
microbiological limits) that apply to all foods produced or imported for
sale in Australia and New Zealand. More detailed guidance on Australia's
food regulations are contained in the FAIRS report mentioned above.

Currently functional foods are not regulated any differently to
conventional foods in Australia. There is no particular standard within
the Food Standard Code that relates specifically to functional foods.
Consequently, the areas of the food standards code used for regulating
functional food will depend on the specific functional food requiring
regulation. If the functional food contains a novel ingredient or is
itself a novel food, then an application may need to be made to have
that food or ingredient included in *[Standard 1.5.1 Novel
Foods](http://www.foodstandards.gov.au/foodstandardscode/index.cfm).* If
the functional food is fortified with vitamins and minerals, than
*[Standard 1.3.2 Vitamins and
Minerals](http://www.foodstandards.gov.au/foodstandardscode/index.cfm)*
of the Food Standard Code will be of relevance.

Many manufacturers of functional foods will want to communicate the
health benefits of the foods or functional components of the foods'
overall functionality. In such case, *[Standard 1.1A2 Transitional
Standard -- Health
Claims](http://www.foodstandards.gov.au/foodstandardscode/index.cfm)*
will be of the most relevance. This standard is due to change in 2006
and an initial assessment report on proposal P293 Nutrition, Health and
Related Claims -- the proposed new standard for nutrition and health
claims - is currently available for public consultation (see Attache
Report #AS4037 listed at the end of this report). The National Centre of
Excellence in Functional Foods (NCEFF) provides information about health
claim regulations on its website -
[http://www.nceff.com.au](http://www.nceff.com.au/). Also included on
the NCEFF regulatory affairs website are regulatory issues relating to
functional foods both nationally and internationally and updates about
the work occurring in the center and about functional food issues and
events, which may be of interest.

## Detailed Analysis of Market Access for Functional Food

-   Food Standards Australia New Zealand (ANZFA) operates under the Food
    Standards Australia New Zealand Act 1991. The Food Standards Code
    contains Australia\'s food standards, including requirements/
    standards affecting particular classes of foods for example edible
    oils, dairy products and special purpose foods. An Internet version
    of the code can be located at:
    <http://www.foodstandards.gov.au/foodstandardscode/>.

-   The current [Transitional Standard for Health Claims (S*tandard
    1.1A.2*)](http://www.foodstandards.gov.au/foodstandardscode/index.cfm)
    states, in reference to foods sold in Australia, that any label on
    or attached to a package containing or any advertisement for food
    shall not include:

a)  Claims for therapeutic or prophylactic action or a claim described
    by words of similar import;

b)  The word 'health' or any word or words of similar import as a part
    of or in conjunction with the name of the food;

c)  Any word, statement, claim, express or implied, or design that
    directly or by implication could be interpreted as advice of a
    medical nature from any person;

d)  The name of or a reference to any disease or physiological
    condition.

-   The only authorized claim permitted under the provisional standards
    is for the link between folate and the reduced risk of fetal neural
    tube defects. The permitted claim is:

a)  That increased maternal folate consumption in at least the month
    before and three months following conception may reduce the risk of
    fetal neural tube defects; and,

b)  The recommendation that women consume a minimum of 400 micrograms
    folate per day in at least the month before and the three months
    following conception.

-   A list of foods permitted to carry the folate health claim and the
    criteria they must satisfy are outlined in the [*Transitional
    Standard
    1.1A.2*](http://www.foodstandards.gov.au/foodstandardscode/index.cfm);

-   FSANZ also sets out the conditions under which certain claims may be
    made on the labels of food packages, on labels associated with
    unpackaged foods and in the advertising of foods. These include
    claims for low fat, low cholesterol, low sugar, increased fiber, low
    salt, and increased energy contents;

-   Nutritional claims must include seven compulsory requirements:
    energy, protein, fat, saturated fat, carbohydrate, sugars and
    sodium. Further information is available in the [User
    Guide](http://www.foodstandards.gov.au/assistanceforindustry/userguides/nutritioninformation1406.cfm)
    for *[Standard 1.2.8 -- Nutrition Information
    Requirements](http://www.foodstandards.gov.au/foodstandardscode/index.cfm).*

## Trademarks/Patents/Copyrights

-   IP Australia is the Commonwealth Government Agency responsible for
    registrations of patents, trademarks and designs. Further
    information and useful links are available on the IP Australia
    website - [www.ipaustralia.gov.au](http://www.ipaustralia.gov.au/)

```{=html}
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```
-   Under the Trademarks Act 1995, trademarks are protected for 10 years
    and renewed indefinitely upon request by registration. U.S.
    exporters are advised to confirm with IP Australia that its
    trademark is not already being used in Australia.

```{=html}
<!-- -->
```
-   Copyrights are protected under the Copyright Act 1968. Further
    information is available on
    [www.law.gov.au](http://www.law.gov.au/).

# SECTION V: KEY CONTACTS AND FURTHER INFORMATION

**National Centre Excellence for Functional Food**

Contact Linda Tapsell/ Kim Russell Cooper

Smart Foods Centre

University of Wollongong

Wollongong NSW 2522

Australia

Tel: +61 2 4221 4620

Web: [http://www.]{.underline}<nceff@uow.edu.au>

[]{.mark}

**Australian Quarantine and Inspection Service**

GPO Box 858

Canberra ACT 2601

AUSTRALIA

Tel: +61 2 6272 3097

Fax +61 2 6271 3682

Email: <foodimp@aquis.gov.au>

Web: [http://www.aqis.gov.au](http://www.aqis.gov.au/)

**Food Standards Australia New Zealand**

PO Box 7186

Canberra MC ACT 2601

AUSTRALIA

Tel: +61 2 6271 2222

Fax: +61 2 6271 2278

Email: <info@foodstandards.gov.au>

Web: [http://www.foodstandards.gov.au](http://www.foodstandards.gov.au/)

**Australian Customs Service**

5-11 Constitution Avenue

Canberra ACT 2601

> AUSTRALIA\
> Tel: +61 2 6275 6666

Fax: +61 2 6275 6999

Web: [http://www.customs.gov.au](http://www.customs.gov.au/)

**Australian Food and Grocery Council**

Locked Bag 1

Kingston ACT 2604

AUSTRALIA

Tel: +61 2 6273 1466

Fax: +61 2 6273 1477

Email: <info@agfc.org.au>

Web: [http://www.agfc.org.au](http://www.agfc.org.au/)

**Food & Beverage Importers Association**

181 Drummond St

Carlton Victoria 3053

Australia

Tel: +61-3-9639 3644

Fax: +61-3-9639 0638

Email: <ajb@spirit.com.au>

Web: http://www.fbia.org.au/index.html

## USDA/FAS Australia Contact

Agricultural Counselor

U.S. Embassy

Moonah Place

Yarralumla ACT 2600

Australia

Tel: +61-2-6214-5854

Fax: +61-2-6273-1656

Email: <AgCanberra@usda.gov>

## Attache Reports from the Office of the Agricultural Counselor

All of the following reports are available for download on the FAS
website. We suggest that you download the MS Word version of the reports
so that you are able to utilize the hyperlinks throughout each report.
The website is:
<http://www.fas.usda.gov/scriptsw/attacherep/default.asp>

AS4023 - Food & Agriculture Import Regulations & Standards Report
(FAIRS)

AS3050 - Retail Sector Report

AS4008 - Food Processing Report

AS4037 - New Standard for Health & Nutrition Claims on Food Under
Development

AS4027 - Exporter Guide