Seeing Eye to Eye: A Guide to Finding the Perfect Co-packer

By Joan Scheel, Thomas Harding and Kimberly Kopp


Let’s begin by debunking the old myth that most certified organic products are produced in dedicated organic processing facilities. The truth is that most are not! In fact, up to 97 percent of certified organic products are produced in conventional certified organic processing and/or manufacturing plants. To date, although it is growing, there are only a handful of 100-percent dedicated organic processing facilities.

Are You Ready for a New Relationship?
Once you come to the conclusion that you cannot build a dedicated facility to produce your proposed organic products, you have made the first step in selecting a co-packer partner. However, before you can go any further in your search for a qualified organic co-packer, you have to get your own house in order.

Make sure you and/or a dedicated staffer, such as a quality assurance (QA) manager, have a serious working knowledge of the U.S. Department of Agriculture’s National Organic Program (USDA NOP) 7 CFR Part 205, or hire a professional organic program consultant. Even with an excellent consultant, someone in-house must be in charge of your organic program management.

Be sure you have completed your production and marketing research and development (R&D), clearly define and formulate the proposed organic products, source and verify organic and non-organic ingredients and processing aids, determine organic labeling category (100%, 95%+, 70%+, etc.), and determine basic processing technology, finishing and packaging, which includes storage, handling, and logistics.

There are nine critical issues to organic production and certification that you should document:
• The type of organic product (100%, 95%+, 70%+) that you will produce, including detailed formulations for each organic product.
• Source verification of raw materials and ingredients (organic and non-organic), including processing aids, and additives.
• Clearly defined technical manufacturing processes, unique and proprietary processes, extraction methods, etc.
• Production process flows for each organic product by equipment or process—including capacity, quality assurance program, product re-call, audit control, etc.
• Established organic product segregation and organic sanitation programs.
• A qualified structural pest management program, using approved materials and procedures—establish organic/standard operating procedures (O/SOPs).
• Established organic batch processing procedures—O/SOP and the prevention of organic product commingling and/or contact contamination throughout the system.
• An established audit trail system with verifiable recordkeeping system for full traceability from purchasing through finished product.
• A detailed organic handling systems plan (OHSP) that has been tested.

Organic Company Seeks Same for Meaningful Long-term Relationship
Today, more and more food processors are looking for experienced, organically certified, co-packers as partners for processing organic products. The challenge is finding a co-packer with the expertise in formulating, manufacturing and packaging products for a specific food category that also embraces the rules, certifications and philosophies behind producing organic foods.

Co-packers manufacture and package food products for other companies to sell. Co-packers offer a variety of services in addition to manufacturing and packaging. They often help with formulation of products, sourcing ingredients and distribution of finished products. They may function only as packers of other food businesses’ products or may be in business with their own products. Often, they are manufacturing several competing products. The services offered by a co-packer will vary based on the size and experience of the company, the type of facility and the equipment used at the plant.

For many newcomers to the organic food industry, sourcing a qualified, organically certified co-packer can be a nightmare. You not only have to understand all of the issues of contracting with an outside partner, you must also understand the organic requirements for a facility that is certifying organic products. Having an experienced organic processor with a certified plant can make manufacturing, packaging and labeling a food product a much simpler process. Depending on the type of food products being produced, an organically certified manufacturing facility may be difficult to find. A compiled list of all manufacturing facilities that are certified is not in existence.

Therefore, it is essential that you exhaust every means to identify and qualify a possible organic co-packer for your organic products. This means asking friends and professionals already in the business, and searching the Web—especially trade-specific sites, such as the Organic Trade Association (OTA), www.ota.com; the Institute of Food Technologists (IFT), www.ift.org; and the Food Processors Institute, www.fpi-food.org. Different certifying agencies may also have searchable databases that will allow you to search for a specific type of facility but even these are limited in their search capabilities.

For many small- and mid-sized organic food processors, the best source of information about co-packers is often other small- and mid-sized organic food processors. Attending organic food shows, association meetings and tradeshows will provide you the opportunity to meet others in the industry and find manufacturing facilities that are certified organic. Universities, trade publications, local economic development organizations, and Internet searches are all good contacts when searching for a qualified co-packer.

Are You the One? What to Ask Your Potential Mate
Once you have identified and established a short list of prospective organic co-packers, develop a worksheet that will aid you in conducting and qualifying the highest quality organic co-packer. Here are a few questions to assist you in structuring your interview:
• Does the co-packer candidate meet your technology requirements?
• Does the co-packer have previous/existing organic experiences?
• Is it currently certified organic by a USDA/NOP accredited certifier? If so, by whom?
• Can you have a copy of the certificate? Who holds the certification?
• Does it have any possible conflicts-of-interest with other clients or products?
• Does it have the capacity to meet your needs today and in the future?
• If the co-packer is not certified would it be interested in pursuing an organic certification? If so, confirm its interest and needs in writing and schedule an in-person plant visit.

Obviously there are other pertinent questions that both you and the prospective co-packers will have; however, these are only important if you can get through the above points, indicating serious interest from the co-packer in working with you.

This prequalification process is essential, otherwise you can waste a great deal of valuable time and resources going after a company that can’t or won’t meet your needs. For example, you may find a high quality co-packer that is already engaged with another organic products company; that may not control the organic certification of its own plant; or whose certification is owned and managed by the company for which it is co-packing.

All of these issues can be deal-breakers, so do not hesitate to ask the critical questions up front. It is essential to first determine whether this co-packer is for you—only then can a contract production partnership be created. As you review the co-packer candidates, establish a confidential and proprietary discussion platform to establish that each party is ready to move forward with this important opportunity and feels comfortable with the business relationship.

Taking the Relationship to the Next Level
Once the prequalification process is complete it is most important to immediately follow-up with a mutually acceptable plant visit date to establish a face-to-face discussion, take a plant tour, professionally establish their capabilities and verify their willingness to work with you . Building a strong business relationship foundation from the beginning will pay great dividends in the future.

During the plant visit do not be afraid to bring an organic program consultant with you. It is smart business, at least until everyone is up to speed, but make sure that you advise your prospective co-packer partner who is coming, by name and their specific role. Do not surprise them on the day of the visit, you could be denied entry and you may lose a co-packer partnership opportunity.

If the co-packer is already certified organic by a USDA/NOP accredited certifier, owns and manages its organic certification, and has capacity to take on your organic product business without a conflict of interest concern, then your life has just been made easier. All that you have to do is make sure the co-packer meets all of your technical and quality needs and you are off to the market.

Remember, your business entity may be required to be inspected and certified, depending on your role in the organic system and the co-packer certifier’s requirements. That is an easy matter to resolve, but make sure you get good advice at this point in the process and maintain control of cost and organic program management for your products.

Is There Someone Else?
Sometimes finding the perfect co-packer is not so easy. Assume for example that the co-packer’s facilities are certified organic but that the organic certification is owned and managed by a client of the co-packer. This is a very different situation than the previous example—and a much more complicated matter to deal with, especially if the client has an exclusive arrangement with the co-packer. Hopefully, the co-packer will tell you up front and either refuse to work with you or agree to talk to his current organic client about working with you. Be crystal clear about your needs and do not waste a lot of time trying to piggy-back on someone else’s certification.

If the co-packer is willing to have its plant certified organic under your own certification by a qualified certifier, make sure you have a written agreement with all parties, otherwise it could get messy. Sometimes, as happens with Kosher certification, it might be best to find another co-packer.

If the co-packer is certified organic, does have capacity, is willing to work with you and is qualified in all other respects, this could be the ideal situation. However, you still need to determine who will undertake the organic certification process. That means deciding who owns the certification and who pays all costs relative to preparing the certification application, OHSP, organic inspection, annual certification renewal and related assessment fees.

At this point you may want to maintain control of the organic program certification process and external management and relevant cost, including an exclusive agreement with the co-packer. Unless you are a retailer, this could be the most costly route for you to take but it may be the best fit for you and your unique organic products at this stage of your organic business development.

If you choose to take this route and you have very limited experience and expertise, you need to seek out the professional services of an organic program consultant. At the same time, appoint a top manager in your company to manage the organic program in-house and build a strong partnership relationship with the co-packer, including assisting it through the entire organic certification process. This approach will save you countless hours and money in the long run. Yes, in the beginning the cost is much greater—not to mention the learning curve. However, it is an important and wise investment. After a few years your organic program manager will be ready to take on all aspects of the program’s management.

Do You Need a Pre-Nup?
When you’ve selected a co-packer, enter into a written contract that defines your relationship. Contracts with co-packers by nature are highly specialized and contain various “pitfalls,” especially if you are inexperienced. Before entering into this contract, contact a competent attorney to assist you. This contract should detail the relationship and address all of the important expectations of both parties.

The first item that must clearly be defined in this contract is what you expect of your partner. For example, is the co-packer to manufacture your entire product or only a small component or ingredient? Will the relationship be on an exclusive or non-exclusive basis? Most likely, the co-packer will desire an exclusive relationship. An exclusive relationship may strengthen the partnership between you and your co-packer but also puts you at a disadvantage because you are relying on a single vendor. To some extent, this decision may be made for you, depending upon your size and the size of your co-packer.

Is your co-packer engaged solely to provide manufacturing services or also to provide assembly, packaging and shipping services? Will the co-packer also perform marketing and distribution functions? The answers to these questions (and more) must be clearly indicated in a legal contract that is agreed upon by you and your co-packing partner.

Once you have made decisions concerning these items, you must clearly establish and set forth the product specifications and any performance and regulatory standards that you expect your co-packer to satisfy. At a minimum, the contract should provide the right to inspect the manufacturing process and products manufactured by a co-packer and detail compensation if products manufactured do not satisfy the established specifications and standards.

Included in the performance and regulatory provisions of the contract should be provisions relating to the process of product recalls and liability relating to any recalls. You must also agree on the quantity and pricing for the services your co-packer will perform for you.

Since your co-packer will be privy to your product formulas and many trade secrets, such as how your product is manufactured, priced, marketed, and so on, it is extremely important that your contract contain all necessary confidentiality, non-competition and other protective provisions. The contract should clearly state that you remain the exclusive owner of any and all information provided to the co-packer and require your partner to maintain such information in the strictest of confidence. Also, the contract should explicitly define who owns any improvements developed in the process of manufacturing your product.

To more fully protect your secrets, you may consider diversification, which means having multiple partners with each partner manufacturing only a component of your product rather than the entire product. This, however, may be difficult or impractical.

Also, in order to ensure that your new partner does not, negligently or intentionally, disclose any secrets, there should be a substantial penalty attached to any breach of the promise of confidentiality and non-competition. The importance of these provisions cannot be stressed enough. Just imagine how you would feel if someday your partner became your competitor by producing a product curiously similar to yours but at a lower price.

A contract provision that is often overlooked is a mechanism for resolving disputes. You cannot afford to take the time to litigate a dispute in the courts if an impasse is reached, since your product might not be manufactured while you are involved in the dispute. Therefore, you should set up provisions whereby your co-packer will continue to manufacture your product while being assured that the dispute will be resolved in an efficient manner without incurring significant legal expenses. One way to do this is to develop an arbitration system agreeable to you and your partner. This system should be designed in a manner so as to avoid protracted litigation.

The bottom line: The company you select as your co-packing partner is just that: your partner. To establish a relationship of trust and respect is imperative. The contract between you and your partner is the mechanism with which to clearly define your relationship so such trust and respect may develop.

Building A Future Together
When the deal is sealed and the first organic certification process is behind you, it is time to refine the system and solidify a long-term relationship with the co-packer partner of choice to your mutual benefit. Your organic program manager and the co-packer’s organic program manager must have an excellent working relationship at all times and these relationships must be built on trust. Trust is an essential element to building and managing an organic program that guarantees the highest organic product quality and integrity.

Follow these tips for creating a long-lasting, mutually beneficial co-packer relationship:
• At the beginning of the relationship, establish a clear and agreeable line of communications and management authority.
• Make the co-packer an integral part of the development and management of the OHSP.
• Develop an organic management system that overlays the co-packer’s production system and guarantees organic product integrity. Keep it simple.
• Develop O/SOPs and recordkeeping protocols that are comprehensible and verifiable throughout the plant.
• Develop an organic training and education program that is to the point and agreed to by the co-packer. Routinely train and update all employees and supervisors about the organic program requirements, verify training effectiveness and test the system.
• Share the end results. A successful organic co-packer partnership is built on trust. Always evaluate the partnership and raise the bar for your mutual benefit.

Keep in mind that choosing a good co-packer partner to produce your certified organic products may be the most important decision you make in bringing a successful organic product launch to the rapidly growing, dynamic organic marketplace. These partnerships are vital to the continuing growth of the organic industry, and partnerships that are built on mutual benefits are the foundation of our industry’s future. Partnerships and continuous industry-wide consumer education will make a great difference to all entrusted in these values and these partnerships for change.

Joan B. Scheel is a consultant for the Food Processing Center University of Nebraska-Lincoln. She can be reached at jscheel2@unl.edu.

Thomas Harding is a consultant to agriculture, forestry and fisheries and the trade, both public and private sectors, in developing certified organic production in more than 60 countries. He can be reached at Agrisys1@aol.com.

Kimberly Copp is an attorney with Shefsky & Froelich Ltd. in Chicago, IL. She can be reached at kcopp@shefskylaw.com.