•	Dakota Gourmet - Dakota Gourmet Snacks specialize in providing healthy, natural and organic snacks to schools, daycare centers, retailers and healthcare facilities throughout North America, including military facilities. Products include sunflower kernels, roasted corn and soy nut snacks.
			•	Sunrich Naturals - This brand offers a variety of frozen edamame and vegetable blends to health food stores and supermarkets in the U.S. and Canada.
4)	Animal Feed and Inputs - The Grains and Foods Group provides a full range of grain-based animal feed and pet food products. The premium feed products originate from select organic and non-GMO soy, corn, sunflower and other grains. The Grains and Foods Group prides itself on using the minimum processing necessary to maintain the inherent whole grain goodness while enhancing the nutritional content.

The Grains and Foods Group also engages in processing and Contract Manufacturing services and offers a comprehensive range of processing and packaging services from basic grain cleaning through ingredient processing to custom roasting to finished goods in retail-ready packaging. With over ten processing facilities, the Grains and Foods Group handles orders of every size, including barge lots, rail cars, bags, pallets, retail packages and more. The Grains and Food Group services include:

Competition

The Grains and Foods Group competes with large grain suppliers for customers and competes with other companies active on the international commercial grain procurement market for supply. The Grains and Foods Group’s organic specialty grains compete in the smaller niche U.S. commercial organic grains market. Key to competing in these markets is access to transportation, supply and relationships with organic producers. The Grains and Foods Group’s aseptic packaged products facility competes with a number of other regional manufacturers of similar size and similar aseptic packaging capabilities.

Distribution, Marketing, and Sales

The Grains and Foods Group has well established sales and marketing capabilities that have provided for its dramatic yet stable growth. As a leading provider of soy, corn, sunflower and grain-based food ingredients, the group offers a comprehensive range of ingredients and services to the food industry. Distribution channels can vary greatly by product category of raw materials, ingredients and consumer goods, but the Grains and Foods Group enjoys a diverse ‘to market’ strategy in each product category. The Grains and Foods Group’s Organic, Non-GMO and Identity Preserved (IP) ingredients are valued by manufacturers worldwide. For specialty whole food grain raw materials, approximately 50% of the customer base is international, for food ingredients while the majority of customers are North American, the users range from major multi-nationals to smaller specialty innovative organic food makers, and the consumer goods line distribution channels include private label and store brands, food service and also SunOpta controlled brands. This wide array of sales and distribution avenues allows the Grains and Foods Group to maximize sales and margin while mitigating the risk of concentrating business in a single segment of the market.

Suppliers

Despite having an established IP, organic soy and corn grower network with approximately 2,500 producers, with many relationships existing for over 20 years, and relationships with approximately 500 sunflower farmers in the Midwest, weather conditions and other factors can limit the availability of certain grains in North America. The Company is focused on expanding production and sourcing capabilities to other parts of the world in order to ensure supply in years when local production may be below normal levels. The Grains and Foods Group also has the ability to divert available product based on market demand and customer requirements in order to maximize return.

INGREDIENTS GROUP

The Ingredients Group focuses on transforming both internally and externally sourced raw materials into value-added food ingredient solutions. The Ingredients Group comprises the previously acquired Northern Food & Dairy’s Fosston and Bertha, Minnesota facilities, Opta Food Ingredients, Inc., and the Cedar Rapids oat fiber facility purchased in 2005 from General Mills. The Ingredients Group specializes in the technical processing of specialty food ingredients with a focus on non-GMO, natural, functional and organic offerings. The Ingredients Group works closely with customers to identify product formulation, cost and productivity issues and develops solutions to these problems based on proprietary, value-added, highly functional food ingredients and ingredient systems utilizing the Ingredients Group’s extensive technical knowledge and manufacturing base.

The Ingredients Group is an innovator in the value-added food ingredients market with a technical selling and product applications focus. Based on management’s estimates, the Ingredients Group is the world’s largest supplier of oat fiber to the food industry and one of the largest producers of soy fibers in the United States. Through its extensive manufacturing platform, the Ingredients Group markets the Canadian Harvest ^® Oat Fiber and SunOpta ^® Soy Fibers families of insoluble organic and conventional fiber products, a number of value-added starch-based texturizers, resistant starch and proprietary stabilizer blends under the SunOpta Ingredient Systems ^tm umbrella, and a number of custom processed ingredients including natural preservatives and sweeteners.

The Ingredients Group is headquartered in Bedford, Massachusetts. Processing facilities are located in Bertha, Fosston and Cambridge, Minnesota; Galesburg, Illinois; Cedar Rapids, Iowa; and Louisville, Kentucky.

SunOpta believes the Ingredients Group is well positioned to capitalize on the rapid growth of the natural and organic food markets with a clear focus on a wide range of fiber, soy and starch based products. Publications from both the American Dietetic Association and a Mayo Clinic Health letter noted that fiber consumption is below recommended levels in the U.S. The Ingredients Group’s Canadian Harvest line of oat fibers and stabilized brans and SunOpta soy fibers are used in numerous products such as fiber-enriched breads and other baked goods, breakfast cereals and snack bars. These products can be used to increase total dietary fiber content of foods while minimizing negative effects on taste, texture and appearance. The Ingredients Group oat and soy fibers which are insoluble fibers enhance overall gastrointestinal health. Oat and soy fibers are primary ingredients in breads, pastries, muffins, tacos and tortillas as food companies reformulate their products to meet the growing opportunities for fiber-enriched foods. Recent innovations have expanded applications of fiber into dairy and meat products. Stabilized oat brans can be used as a source of soluble fiber (ß-glucan) which is beneficial to cardiovascular health.

The Ingredients Group continues to diversify its unique portfolio of products. Products are organized under five main technology platforms: 1) Fibers and Brans, which include Canadian Harvest ^® , Oat Fibers and Stabilized Bran products as well as SunOpta Soy Fibers; 2) SunOpta ^tm Ingredient Systems , which include OptaGrade ^® , OptaMist ^® , Shimizu Konjac Flour, Blanver’s microcrystalline cellulose (“MCC”) and a growing portfolio of proprietary stabilizer and dairy powder blends; 3) Grade A Acid Whey; 4) Dried sweeteners, primarily honey and molasses; and 5) Contract manufacturing.

The Ingredients Group food ingredients are used by approximately 300 customers worldwide, including some of the largest U.S. consumer packaged food companies and quick service restaurant chains. In 2007, the Ingredients Group continued to enhance its international sales capabilities and has approximately 25 distributors around the world.

Many of the Ingredients Group starch-based texturizers and ingredient blends were originally developed for and are used in reduced fat versions of a variety of dairy products such as low fat or fat-free cottage cheese, sour cream, cream cheese, or processed cheeses. As discussed in “Taking the Fat Out of Food,” a publication of the United States Food and Drug Administration (“FDA”), reducing fat intake by consuming reduced fat versions of these products is an element of a healthier diet. Given the increased demand for soy-containing foods, the Ingredients Group has developed several ingredient blends for use in organic and conventional soy-based dairy alternatives such as soy yogurt, cream cheese, beverages, and frozen desserts.

In addition to helping food manufacturers improve the healthfulness of their food products, the Ingredients Group family of texturizing ingredients can improve the overall quality of food products, reduce formulation costs, and meet specific processing requirements. The Company believes that all of its products are Generally Regarded As Safe (“GRAS”) under current FDA regulations (see “Regulation – SunOpta Food Group” section for further description).

The Ingredients Group’s major products are as follows:

		•	Konjac Flour: The Ingredients Group is a North American distributor for konjac flour for food ingredient applications. A unique and very versatile texturizing agent obtained from the konjac plant commonly cultivated in East Asia, konjac flour provides excellent heat and freeze thaw stability when used to thicken or gel processed foods. Based upon current sales levels, the Company does not believe the distribution agreement with Shimizu is material.
		•	MCC: Under a distribution agreement with Blanver Farmoquimica, Ltd. of Brazil, the Ingredients Group is a distributor of MCC for food applications in the United States. MCC, commonly known and labeled as cellulose gel, is a naturally derived stabilizer, texturizing agent and fat replacer. It is used extensively in reduced fat salad dressings, numerous dairy products including cheese, frozen desserts and whipped toppings and bakery products. Based upon current sales levels, the Company does not believe the distribution agreement with Blanver is material.
	3)	Custom Ingredients and Services
		The Company produces a number of unique functional food ingredients, and offers services to customers, on a contract basis utilizing customers’ proprietary technologies. Products include:
		•	The Microgard tm family of natural food preservatives.
		•	Dried sweeteners such as powdered honey and molasses.
		•	Technical processing and spray drying to produce a variety of food ingredients.

Competition

Food ingredients are considered unique niche items usually developed or processed for specific customers or industry segments. The Ingredients Group competes with other product developers and specialty processors for the specialty ingredient business .

The food ingredients industry is intensely competitive. Competitors include major companies with food ingredient divisions, other food ingredient and sourcing companies, stabilizer companies and those consumer food companies that also engage in the development and sale of food ingredients. Many of these competitors have financial and technical resources as well as production and marketing capabilities that are greater than those of the Company.

Distribution, Marketing, and Sales

Sales and marketing is done through a technically oriented customer account team, the Ingredients Group believes that the most effective way to solve each customer’s problem is to gain a thorough understanding of the customer at all levels, build solid working relationships throughout the customer’s organization, be knowledgeable of the market segment in which the customer competes, and have a detailed technical understanding of the customer’s problem as well as its preferred solution. The Company takes a multidisciplinary approach in order to achieve this level of customer understanding and service. Members of the Ingredient Group’s direct sales force are teamed up with the appropriate technical personnel to work as “consultants” in defining and developing a range of potential solutions to our customer’s formulation and product development problems. In all cases, the Ingredient Group’s strategy is to provide outstanding service and responsiveness, which we believe will lead to additional opportunities with existing and prospective customers.

Suppliers

The Ingredients Group’s raw materials and packaging needs are sourced from various suppliers who provide products that are contractually required to comply with certain specifications. Products are sourced from approximately 1,000 suppliers with availability subject to world market conditions. There are a number of alternative sources of supply for all raw materials with critical customer supply relationships highlighted below.

Dairy ingredients are purchased from a number of suppliers, primarily dairy producer cooperatives. Products are purchased in the spot market with certain ingredients purchased under short-term supply contracts. Oat and soy hulls are primarily sourced from major food companies or their brokers and there is ample supply to meet production requirements. Honey, molasses, high fructose corn syrup and flour are purchased based on required specifications in the spot market. The supply for these ingredients is sufficient to meet current demand. Supply shortfalls would have an effect on availability and price and would be reflected in finished product pricing for the Ingredients Group. Certain other raw materials are supplied by processing customers and are not sourced directly from Food Group suppliers.

FRUIT GROUP

The Fruit Group focuses on providing natural and organic fruits, vegetables and related products to the private label retail, quick-service restaurant, food service and industrial markets. Management evaluates the Fruit Group through three separate divisions:

SunOpta believes the Fruit Group is well positioned to capitalize on the rapid growth of the natural and organic food markets. The Fruit Group’s global sourcing capabilities, extensive product development experience and organic certification expertise provide the Fruit Group with a strategic advantage in the organic industry in specific commodities.

Based on management’s estimates, the Fruit Group is one of the largest suppliers of organic individually quick-frozen fruit and organic citrus juices to the private label retail market in the United States. Through its extensive production platform, the Fruit Group provides customers with a wide range of vertically-integrated solutions including bulk raw materials, value-added ingredients, quick-service and casual dining restaurant support and turn-key healthy retail solutions.

The Fruit Group services over 700 customers, including food manufactures, food service distributors, quick-service and casual dining restaurants and retail companies located principally in North America. The Fruit Group is headquartered in Buena Park, California.

The Fruit Group’s three divisions operate as follows:

	The organic food industry is intensively competitive due primarily to the limited worldwide supply of organic raw materials. The Company’s competitors in the supply of industrial ingredients include domestic and worldwide brokers, traders and food processors. In the private label retail market, competitors include major food manufacturing companies, some of which have production and technical capabilities more extensive than SunOpta’s. A number of the Company’s competitors are also its customers and/or co-packers.
	The Company’s raw material suppliers include growers, processors and traders of organic fruit and vegetable based ingredients, sweeteners and other food products. Raw materials are sourced from worldwide growing regions, including North America, South America, Central America, Europe, Africa and Asia. Organic food suppliers are required to meet stringent organic certification requirements equivalent to the United States Department of Agriculture (“USDA”) National Organic Program or European Union standards. Wherever possible, the company enters into exclusive supply arrangements, and establishes multiple supply chains of key commodities.
2.	Berry Operations: This division consists of berry processing facilities and fruit base operations. The berry processing division processes frozen strawberries, peaches, mangos and other fruits and vegetables, and packs natural and organic frozen fruits and vegetables for the food service, private label retail and industrial ingredient markets. The Company sources strawberries from various growing regions throughout California and Mexico, and processes the fruit into individually quick-frozen (“IQF”), block frozen, strawberry sugar packs and purees to meet the customer’s technical specifications. The division supplies frozen fruit products to the private label retail, food service and industrial markets, including food manufacturers and quick service and casual dining restaurants. The Company’s poly-bag packaging operations in Buena Park, California and Irapuato, Mexico, provide retail customers with a wide range of private label natural and organic frozen fruits and vegetables, including strawberries, blueberries, raspberries, blackberries, peaches, mangos, tropical fruit and many other items. The division operates four berry processing facilities located in Buena Park, CA, Salinas, CA, Rosarito, Mexico and Irapuato, Mexico, and shares offices with the Fruit Group in Buena Park, CA.
	The berry processing division faces intense competition from strawberry processors in California and Mexico and frozen fruit imports from Mexico, South America, Europe and Asia. The competitive landscape includes divisions of companies with financial resources larger than the Company’s. In many cases, Mexican, South American, European and Asian competitors are able to achieve cost efficiencies greater than the division’s due to lower relative cost of living in these regions.
	The berry processing division’s raw materials consist primarily of fresh strawberries sourced from growers in California and Mexico, and fresh peaches, mangos, honeydew melons and other fruits from growers in Mexico. The Company faces competition in securing the grower base required to meet its needs; however, due to the location of its processing facilities, the division is able to source raw materials from a number of growing regions by securing exclusive supply arrangements and in some cases providing advances to growers to finance upcoming crops. The Company also sources other frozen fruits and vegetables from a number of domestic and worldwide growers, processors and traders, including the Fruit Group’s Trading and Sourcing Operations.
	The fruit base operations supply natural and organic value-added fruit ingredients to the dairy, food service and beverage industries. The division offers fruit bases and preps for customers seeking high-quality, custom formulations to meet their flavor and texture profiles. Applications include fruit for yogurts, ice creams, cheeses, smoothies, shakes, frozen desserts, bakery fillings, health bars, various beverages, dressings, marinades, dips and sauces. The fruit base division’s highly experienced research and development team is integral to the Company’s reputable product quality and customer service. Manufacturing capabilities include aseptic and conventional processing and packaging at its processing facility in South Gate, California.
	The fruit base operations face intense competition from regional and national food manufacturers with similar capabilities. In addition, the Company faces research and development competition from flavor companies. A number of these competitors have production capabilities and financial resources that are greater than the fruit base division’s. The fruit base division’s primary raw materials are sourced from processors and traders of frozen fruits and vegetables including the Fruit Group’s Trading and Sourcing Operations and Berry Operations, major sweetener producers, and a number of regional and national flavor companies. Availability of supplies is subject to world market conditions, including quantity and quality of supply.

3.

Healthy Snack Operations: This division produces natural and organic apple-based fruit snacks. The Company operates three facilities in the apple-rich Okanagan region of British Columbia, Canada with a focus on supplying natural and organic fruit snacks to the private label Canadian and U.S. retail markets. The Company’s primary raw material, apple, is sourced from both local growers and the Fruit Group’s Trading and Sourcing Operations. The division’s production capabilities include a variety of bar, twist, rope and bit sizes and shapes, as well as the ability to add a variety of ingredients including fiber. The Company utilizes the Fruit Group’s research and development capabilities to introduce innovative products to the marketplace. The division operates two processing facilities in Summerland, British Columbia and in Omak, Washington. During 2007, the Company significantly expanded its operations at Omak by adding capacity for an additional 140 million units per year, doubling through-put. The new equipment is highly sophisticated and expanded production capabilities.

This division faces competition from a small number of competitors, some of whom have production and technical capabilities and financial resources greater than the company’s. These competitors include independent fruit snack manufacturers and fruit snack divisions of larger food manufacturers.

This division’s raw material suppliers include growers and traders of apples and flavor companies. This division is subject to the availability of apples based on conditions beyond its control.

DISTRIBUTION GROUP

The SunOpta Distribution Group represents the final layer of the Company’s vertically integrated organic, natural and specialty food and natural health products business model. SunOpta started to build a Canadian national organic, natural, kosher and specialty food distribution system in late 2002 with the acquisition of Wild West Organic Harvest based in Richmond, British Columbia and Simply Organics based in Toronto, Ontario. In late 2003, SunOpta acquired Pro Organics, an organic fresh foods distributor based in Burnaby, British Columbia. In 2004 the Company completed a series of acquisitions including Distribue-Vie, another organic fresh foods distributor serving Montreal, Eastern Ontario and the Maritime provinces; Supreme Foods, an organic, natural, kosher and specialty foods grocery distributor located in Toronto, serving Ontario, Quebec and the Maritimes; Snapdragon Foods, an organic and natural grocery distributor based in Montreal serving Quebec, Ontario and the Maritimes; and Kofman-Barenholtz, a kosher foods distributor based in Toronto serving Ontario, Quebec and western Canada. In 2005, the Company acquired Hahamovitch Kosher Imports, a Montreal based kosher foods distributor serving Quebec. In late 2006 the Company acquired Aux Mille et une Saisons, a Quebec based distributor of organic and natural foods and Purity Life Health Products, a natural health products packager and distributor, expanding its distribution scope to include natural vitamins, supplements, health and beauty aids, and other natural health products. To augment the Purity Life product mix, the Company also made strategic purchases of the Quest Vitamin brand in 2006 and, in January 2007, the Herbon natural cough drops brand. Finally, in late 2007, the Company further strengthened its vertically integrated capabilities in the Natural Health Products category with the acquisition of Neo-Nutritionals, Inc., an Ontario based capsule, tablet and powder manufacturer. These operations will assume the manufacturing of a number of the Company’s branded natural health products, which previously was outsourced. The companies in the Distribution Group form the basis of a national distribution system, handling approximately 22,000 natural, organic, kosher and specialty food products; fresh organic produce, vitamins, supplements and other natural health products. The broad range of stock keeping units (“SKUs”) includes the Company’s branded and private label packaged products.

During 2005, the Company completed the consolidation of the operations of Supreme Foods, Snapdragon Foods and Kofman-Barenholtz into a newly constructed 135,000 square foot distribution center in Toronto, Ontario. The facility name was changed to SunOpta Grocery, Central Region. In the fourth quarter of 2007, the Company consolidated three separate British Columbia grocery warehouses into a 100,000 square foot, high bay state of the art distribution facility and rebranded the distribution centre name to SunOpta Grocery, Western Region. With the acquisition of the Quest Vitamin brand, the Company also established a western division of Purity Life Health Products operations in Vancouver, B.C. in order to improve service lead times to its western customer base.

In tandem with the opening of SunOpta Grocery, Western Region, the company also completed the implementation of a new Enterprise Resource Planning (“ERP”) software system for this region specifically designed for food distribution. The software will be rolled out to the central region distribution center in the second quarter of 2008. Management believes the consolidated central and western warehouse facilities represent two of the larger Canadian distribution centers dedicated to organic, natural, kosher and specialty foods in Canada.

The organic produce category of Richmond, B.C. based Wild West Organic Harvest was consolidated into the Pro Organics Burnaby warehouse in late 2005, allowing Wild West to expand its organic and natural grocery business without expanding its facility. In early 2007, the Company’s Pro Organics division consolidated the operations of its Montreal based fresh produce warehouse into its Etobicoke, Ontario distribution centre.

The Distribution Group plans to continue expansion through internal growth and through additional strategic acquisitions. According to The Organic Trade Association’s 2007 Manufacturer Survey , the market for Canadian natural food distribution grew by approximately 10 – 15% in 2007 and is expected to continue to at this rate in 2008. In addition, according to the same survey, the market segment growth, in dollars, continues to be significantly higher than conventional foods and organic penetration continues to increase as consumers continue to recognize the benefits of a healthier lifestyle and environment through diets that include natural, organic and quality specialty foods as well as natural vitamins, supplements and health and beauty aids. The Distribution Group is also strategically important to other parts of the Company’s food business. See specific strategies of the Food Group detailed on page [8] of this report.

The Distribution Group’s major products are as follows:

Fresh Organic Produce – a full line of certified organic fruits, vegetables and bulk foods.

Fresh Organic Dairy and Dairy Alternatives – numerous regional and national brands of organic liquid milk, butter, cheese, yogurt, tofu, soy cheese, soy beverages and other dairy alternatives.

Bulk Foods – a full range of organic bulk foods including grains, nuts, seeds, dried fruits, legumes, flours and healthy snacks.

Natural and Organic Grocery – approximately 8,000 natural and organic grocery items including dry, refrigerated and frozen categories from a broad range of North American and international suppliers.

Kosher and Specialty Foods Grocery – approximately 6,000 kosher and specialty groceries including dry, refrigerated and product offerings.

Natural Health Products – approximately 7,000 SKUs of natural vitamins, supplements and health and beauty aids.

Competition

The Distribution Group competes against much larger conventional distributors; however, management believes that SunOpta is the largest national natural and organic foods distributor in Canada. Competition in organic and natural grocery products is represented by a number of regional natural and organic food distributors that vary in relative size. Management believes that Purity Life is Canada’s largest distributor of natural health products. Purity Life competes with a handful of national distributors and a diverse group of much smaller regional distributors.

Distribution, Marketing and Sales

The Distribution Group’s primary direct to store distribution coverage includes central, eastern and western Canada. The Company primarily services supermarket chains and independent natural and organic food retailers. The customer mix also includes a growing component of large mass merchandisers and major drugstore chains. The Distribution Group’s core competencies include the breadth of its product line, organic market and natural health product knowledge, excellent product quality and consistency, competence in handling refrigerated and frozen products, direct to store service and maintenance of strong relationships with customers, growers, and suppliers.

Suppliers

The Distribution Group sources products from over 900 suppliers around the world. Overall supply is sufficient; however, quality, price and availability of fresh produce can be affected by harsh weather conditions in growing regions. With respect to fresh produce items, supply is controlled through spot pricing, with changes in supply reflected in prices to end customers.

REGULATION – SUNOPTA FOOD GROUP

The SunOpta Food Group is affected by a wide range of governmental regulations and policies. Local, state and federal fertilizer, pesticide, food processing, grain buying and warehousing, as well as wholesale food regulations are examples of laws and regulations that affect the Food Group. Government-sponsored price supports and acreage set aside programs are two examples of policies that may also have an impact on the Food Group. In addition, the Food Group’s business activities are subject to a number of environmental regulations.

The Food Group is involved in the sourcing, manufacture, supply, processing, marketing, selling and distribution of organic seed and food products and, as such, is subject to certain organic quality assurance standards. The Food Group is currently in compliance with all state and federal fertilizer, pesticide, food processing, grain buying and warehousing, and wholesale food-handling regulations. Regulatory agencies include the USDA, which monitors both the organic process and agricultural grain business, the FDA which oversees the safety, security and efficacy of the food supply in the United States and the Canadian Food Inspection Agency (“CFIA”) which monitors food processing and safety in Canada.

Certain food ingredients are regulated under the 1958 Food Additive Amendments to the Federal Food, Drug and Cosmetic Act of 1938 (the “Act”) as administered by the FDA. Under the Act, pre-marketing approval by the FDA is required for the sale of a food ingredient which is a food additive unless we believe the substance is generally regarded as safe (“GRAS”) under FDA standards. A food additive is a substance, “the intended use of which results or may reasonably be expected to result, directly or indirectly, either in their becoming a component of food or otherwise affecting the characteristics of food.” Such pre-marketing approval for ingredients that are not GRAS, which is issued in the form of formal regulation, requires a showing both that the food ingredient is safe under its intended conditions of use and that it achieves the function for which it is intended.

Companies may establish GRAS status through “self-affirmation” in which the producer determines on its own that the ingredient is GRAS, normally with the assistance of a panel of qualified experts. The producer may also voluntarily submit a “GRAS Notification” to the FDA that includes the products description, conditions of use, and the basis for GRAS determination among other information. The FDA response, typically within 180 days, to a GRAS notice is not an approval and the product may be marketed while the FDA is reviewing the information.

A food ingredient is eligible for GRAS classification based on the “views of experts qualified by scientific training and experience to evaluate the safety” of the product. The expert’s views are either based on scientific procedures or through experience based on common use of the material prior to 1958. If based on scientific procedures they must use the same quantity and quality of scientific evidence as would be required for the FDA to issue a pre-market approval of the sale of a food additive. If a food ingredient is not entitled to GRAS status, pre-market approval must be sought through the filing of a Food Additive Petition.

Many of the Food Group’s products are being marketed pursuant to GRAS self-affirmation. The Food Group believes that a majority of products for which it has retained commercial rights are GRAS. However, such status cannot be determined until actual formulations and uses are finalized. Thereafter, the Food Group decides whether self-affirmation procedures and a GRAS notification will be appropriate. For those components that do not qualify for GRAS, the Company may require a Food Additive Petition. In the event that a petition is required, the Company may elect to sell or license its rights to manufacture, market, and distribute the component to another party.

Countries other than the U.S. also regulate the sale of food ingredients or characterize food ingredients differently. Vitamin and minerals supplements in the US are regulated pursuant to the Dietary Supplement Health and Education Act, which regulates there products as foods. In Canada these products are presently regulated as drugs. Regulations vary substantially from country to country, and the Company takes appropriate steps to comply with such regulations. In Canada, the Company has sales of Natural Health Products (“NHPs"), drugs, cosmetic, devices and pest control products. These may be regulated by various federal, provincial and municipal laws, but are principally regulated by the Canadian federal government pursuant to Canada’s Food and Drugs Act and supporting regulations, the Pest Control Products Act and supporting regulations and the Canada Environmental Protection Act, 1999, (“CEPA”) and supporting regulations. A substantial portion of these products, are classed in Canada as NHPs and are regulated pursuant to the provisions of the Food and Drugs Act and the Natural Health Product Regulations (“NHP Regulations”), enacted under Canada’s Food and Drugs Act.

As this regulatory framework is still considered to be relatively new, (it became effective January 1, 2004), Health Canada has published a compliance policy and guide which have the practical effect of relaxing enforcement of the NHP Regulations, assisting regulated parties in complying with the NHP Regulations. Prior to the adoption of the NHP Regulations, many of the NHPs now regulated under the NHP Regulations were regulated as drugs pursuant to the Food and Drug Regulations. These products will continue to be classed as drugs pending their transition by the Company to the NHP regulatory framework, which for those products which bear a DIN is not required until December 31, 2009.

It is anticipated that full compliance with the NHP Regulations including those presently marketed as drugs will be required by April 1, 2010 based on verbal representations made by the NHPD to industry representatives. This extension of the compliance policy and guide is and likely will be dependant on the ability of the Natural Health Products Directorate’s ability to reduce the existing backlog to workload, i.e. reducing the time frame from submission to review of a pre-market application from the existing time frame to a time frame considered to be representative of performance criteria to be established for future operations of the NHPD. As such, the NHP industry as well as the Company’s compliance with the NHP Regulations will at that point become mandatory, and any NHPs for which a market authorization has not been granted will have to be removed from the marketplace until the market authorization is issued. Failure to do so could see enforcement action taken by the Health Products and Food Branch Inspectorate, which could include the removal of non-compliant NHPs from the market place and possibly result in charges against the Company.

In addition to the NHPs and drugs which the Company sells, it also imports and sells cosmetic products for which it files with Health Canada, cosmetic notification forms, a post-marketing requirement for those cosmetics manufactured in Canada and a pre-market requirement for those products imported into Canada. In light of the changes to the Cosmetic Regulations requiring ingredient disclosure on the Cosmetic product labelling, the Company continues to work with its vendors to bring cosmetic labelling into compliance.

In addition there is an ongoing review of ingredients used in regulated products including those sold by the Company for compliance with CEPA. The Federal Government has undertaken a review of ingredients used in commerce for these regulated products with a view of determining whether the use of certain ingredients in these products represent a risk to the environment. This could eventually lead to the removal of the use of these ingredients in Canada. This would require a re-formulation of product affected by such a determination.

On April 8, 2008, the Federal Government introduced two proposed pieces of legislation intended to overhaul the Food and Product Safety Laws in Canada. Bill C-51, legislation to amend the Food and Drugs Act, and Bill C-52, the Canada Consumer Product Safety Act,

Bill C-51 and C-52 propose amendments to the Food and Drugs Act as well as a new Canada Consumer Product Safety Act. The changes include:

Greater oversight of manufacturers, importers and retailers, including requiring holders of market authorizations to provide information and/or conduct tests to establish the benefits and risks associated with the sale of the product.

• Increased public access to risk and benefits associated with products.
• Ability to disclose personal and confidential business information.
• A general prohibition against the manufacture, importation, advertisement or sale of consumer products that are a danger to human health or safety.
• A requirement of mandatory reporting by suppliers of serious product-related incidents including near- misses and defects, allowing for more targeted oversight.
• Dramatically increased fines for violations, including imposing on directors and officers liability for the breaches committed by the corporate bodies.
• The power to order recalls of unsafe products, increased powers for inspectors, direct persons in control of consumer products to take actions or refrain from taking certain actions.

These two pieces of proposed legislation are not yet law in Canada, and it is expected that there will be amendments proposed to be made to the Bills once a committee of the Federal Parliament reviews the proposed Bills and hears comments from stakeholders affected by these Bills.

The Food Group endeavours to comply in all material respects with applicable environmental regulations. Some of the key regulations in the U.S. include:

Air Quality – air quality is regulated by the United States Environmental Protection Agency (“EPA”) and certain city/state air pollution control groups. Emission reports are filed annually.

Waste Treatment/Disposal – solid waste is either disposed of by a third-party or in some cases the Company has a permit to haul and land apply. Agreements exist with local city sewer districts to treat waste at specified levels of Biological Oxygen Demand (“BOD”), Total Suspended Solids (“TSS”) and other constituents. This can require weekly/monthly reporting as well as annual inspection.

Sewer – agreements with the local city sewer districts to treat waste at specified limits of BOD and TSS. This requires weekly/monthly reporting as well as annual inspection.

Hazardous Chemicals – various reports are filed with local city/state emergency response agencies to identify potential hazardous chemicals being used in our facilities.

Storm Water – all facilities are inspected annually and must comply with an approved storm water plan to protect water supplies.

Bioterrorism Compliance – we are currently complying with the four recognized and approved sections of the Bioterrorism Preparedness and Response Act of 2002.

In Canada the key regulatory framework is found in the regulations to the CEPA. New Chemical Entries -prior to the importation and use in products, the importer must ensure that all ingredients are found on the Domestic Substances List (“DSL”) maintained by Environment Canada. In the event that an ingredient is not found on the DSL, then subject to the amount of the substance imported into Canada and used in products sold in Canada, a filing may become necessary under the New Substances Notification Regulations.

All of the Food Group’s Canadian manufacturing facilities and warehouses are registered with the CFIA and/or Health Canada. All imported materials are shipped in compliance with the notification systems that alert FDA, Health Canada, the CFIA and customs before the materials enter the country. We have the necessary processes and controls in place that provide for an additional level of traceability of all raw materials from the supplier to the immediate subsequent recipient of the finished products. We also recognize and have the necessary programs that allow the applicable regulatory body the right to seize, voluntarily retain and or recall any regulated product if required at law and if the regulatory body has credible evidence that the sale of the product and its use may be a threat to the health and wellbeing of the intended recipient.

As a result of the acquisition of Tradin (subsequent to year end) with its headquarters in the Netherlands, the Company is now subject to Dutch and European Commission (“EC”) regulations and policies. Tradin is involved in the sourcing, supply, marketing, selling and distribution of organic food products and, as such, is subject to standards for production, labeling and inspection of organic products contained in EC Regulation 2092/91 (and its subsequent amendments). Tradin is certified by SKAL, the inspection body for the production of organic products in the Netherlands. Products certified as organic by a European Union (“EU”) recognized inspection body such as SKAL can be marketed within the entire EU.

Tradin is also affected by general food legislation both at an EU and Dutch level relating to product safety and hygiene, among others. Tradin is Hazard Analysis and Critical Control Point (“HACCP”) certified in the Netherlands and manages a fully computerized system that guarantees the traceability of each product. In addition, Tradin also considers and abides by EC and local legislation with regard to packaging and packaging waste.

RESEARCH AND DEVELOPMENT – SUNOPTA FOOD GROUP

The Food Group maintains extensive applications and research and development expertise via resources which are organized around four key product categories:

• Grains and grain-based ingredients through finished packaged products;
• Value-added ingredients, focused on fiber and starch based applications;

• Fruits and fruit-based ingredients through finished packaged products; and
• Natural health products sold via certain owned brands within Purity Life and other units within the Distribution Group

These groups maintain staffs of highly trained and experienced food scientists and engineers, dedicated to resolving customer formulation, processing and packaging challenges. Applications and technical support provided by each of the groups to its customers include all aspects of product development from concept to commercial launch as well as ongoing manufacturing and processing support.

Ongoing research and development are also a key priority of these groups. Research and development initiatives are intended to continually improve existing product portfolios in addition to bringing new and innovative products to the market, a key requirement in the fast growing natural and organic foods and health categories.

Over the past year, the Food Group has continued to develop a number of new soy and other grain-based ingredients and alternatives to accommodate new product adaptation of these ingredients into various food items. The expanding interest to incorporate soy and grain-based foods in consumers’ diets creates numerous opportunities to develop ingredients that can be incorporated into food developer’s menu items.

In addition, the Food Group continues to expand its product portfolio via the addition of new fiber offerings and other texturizing agents that can be used along with its oat-derived ingredients to improve the nutritional content of a variety of foods. Many of these ingredients can be used in products that help address the industry’s need to respond to the growing epidemic of obesity in North America and elsewhere by replacing fat, sugars and other calorie-dense components of food. These ingredients can also be used in products which qualify for a “whole grain” claim by augmenting the insoluble and soluble fiber content of foods.

In hand with continued focus on increasing consumption of fruit-based products in North America, the Food Group has developed a number of new fruit-based beverage, fruit snack and other packaged goods applications and continues in the development of innovative fruit ingredient systems for the dairy, food service and beverage industries.

INTELLECTUAL PROPERTY – SUNOPTA FOOD GROUP

The nature of a number of the Food Group’s products and processes requires the Company to create and maintain patents and trade secrets. The Food Group’s policy is to protect its technology by, among other things, filing patent applications for technology relating to the development of its business in the U.S. and in selected foreign jurisdictions.

The Food Group’s success will depend, in part, on its ability to protect its products and technology under U.S. and international patent laws and other intellectual property laws. The Company believes that it owns or has the right to use all proprietary technology necessary to manufacture and market its products; however, there is always a risk that patent applications relating to the Company’s products or technology will not result in patents being issued or that current or additional patents will not afford protection against competitors with similar technology.

The Company also relies on trade secrets and proprietary know-how and confidentiality agreements to protect certain of its technologies and processes. Even with the steps taken, the Company’s outside partners and contract manufacturers could gain access to the Company’s proprietary technology and confidential information. All employees are required to adhere to internal policies which are intended to further protect the Food Group’s technologies, processes and trade secrets.

EMPLOYEES – SUNOPTA FOOD GROUP

The Food Group has approximately 1,870 full-time employees as of December 31, 2007. There are no unions within the Food Group.

PROPERTIES – SUNOPTA FOOD GROUP

The Food Group operates from 28 processing facilities (18 owned, 10 leased) in eleven U.S. states, one Canadian province, and Mexico. The Food Group also owns and leases a number of office and distribution locations and also leases and utilizes public warehouses to satisfy its storage needs. For more details see Item 2, Properties.

OPTA MINERALS

Opta Minerals (currently owned approximately 66.6% by SunOpta) is a vertically integrated provider of custom process solutions and industrial minerals products for use primarily in the steel, foundry, loose abrasive cleaning, roof shingle granules and municipal water filtration industries. The Company has experienced solid growth since 1996, to become, in management’s estimation, one of the leading regional suppliers of industrial minerals and silica-free loose abrasives in a number of select markets in North America and Eastern Europe.

Opta Minerals has grown steadily through a combination of internal growth and strategic acquisitions in eastern and central Canada; eastern, central and southeastern United States; and Slovakia. Opta Minerals has completed a number of acquisitions over the past eight years and opened operating facilities in Louisiana, South Carolina, Maryland, western New York and Quebec. Opta Minerals has been able to successfully integrate these new businesses into existing operations and financial management systems, creating synergies that have increased revenues and profit margins. The Company has continually invested in improving its plant equipment and infrastructure and has been able to reduce costs while growing its production capabilities. As a result, SunOpta believes that Opta Minerals is currently well-positioned to expand current operations with modest capital expenditures.

Opta Minerals started with the initial acquisition of Barnes Environmental and Industrial in 1995. In 2000, George F. Pettinos (Canada) Limited (PECAL) and Temisca, Inc. were acquired followed by the acquisitions of Virginia Materials Inc. and 51% of International Materials & Supplies Inc. in 2001. In late 2002, the remaining 49% minority interest in International Materials & Supplies was also acquired. In 2004, Opta Minerals purchased Distribution A&L, and in 2005 it completed the acquisition of certain assets of the abrasive division of Hillcrest Industries Inc. In February 2006, Opta Minerals acquired Magnesium Technologies Corporation followed by the acquisition of Bimac Inc. in October 2006. In 2007, the Group acquired Newco, a Slovakian company that produces desulphurization products for the steel industry and in July 2008 acquired 67% of MCP of France, a company selling ground magnesium products to the European steel industry.

Industry Overview

Opta Minerals competes primarily in the silica-free abrasives and industrial minerals industry, focusing to date on select markets in the eastern and central areas of North America and Europe. Opta Minerals’ principal product lines include the following: (i) silica-free abrasives and roofing shingle granules; (ii) industrial minerals; and (iii) specialty sands and other products and services.

Acquisition of Newco a.s.

In July 2007, Opta Minerals acquired Newco of Kosice, Slovakia which generates revenues from its proprietary desulphurization and refractory products. Products are produced to the specific requirements of the customers that Newco services within the European steel industry. The acquisition expanded Opta Minerals business capabilities in Europe and complements existing operations which supply a wide range of desulphurization products in both the United States and Canada from operations in Indiana and Ontario.

Acquisition of MCP Mg-Serbien SAS

In July 2008, Opta Minerals acquired 67% of MCP of France. The transaction included an option to acquire the remaining 33% minority interest on similar terms. For fiscal 2007 MCP recorded revenues of approximately $6,300,000 selling ground magnesium products to a variety of industries in Europe including integrated steel mills. This acquisition expands business capabilities in Europe and complements existing operations in the U.S., Canada and Eastern Europe. Opta Minerals also secured an option to purchase a majority position in an associated company located in Europe which is focused on the production of magnesium ingots.

Products

Opta Minerals produces, manufactures, distributes and recycles silica-free abrasives and industrial minerals to the foundry, steel, roofing granule, marine/bridge cleaning and municipal water filtration industries, and recycles inorganic materials. The sole source abrasives produced are free of silica, making them a clean, efficient and recyclable alternative to traditional abrasives. Recycling operations are conducted at Waterdown, Ontario and Norfolk, Virginia. This is an important service that Opta Minerals provides to its customers which results in the reuse of materials that would otherwise be sent directly to landfills. Opta Minerals also continually focuses on new product innovation and maintains laboratory facilities and works with local universities and research centers to evaluate product quality and develop new products.

Silica-Free Abrasives - Opta Minerals abrasive products are primarily sold into shipbuilding, ship repair, bridge cleaning and roofing granule markets. Significant silica-free abrasive products produced by Opta Minerals include BlackBlast, Ultra Blast, EconoBlast, EbonyGrit, Powerblast, Garnet and other specialty abrasives.

Industrial Minerals - Opta Minerals sells industrial mineral products primarily to the foundry and steel industries. Significant industrial minerals products produced by Opta Minerals include chromites, magnesium blends, lime, nozel sands, clays, coated sands and a wide range of industrial garnets and foundry pre-mixes.

Specialty Sands and Other Products and Services - Opta Minerals also generates revenues from the sale of specialty sands and other products and technical services. Opta Minerals specialty sands include silica products which are sourced, processed and packaged from their quarries located in St. Bruno de Guigues, Québec. The silica sands produced are not sold for use as an abrasive material. Significant specialty sands and other products and services of Opta Minerals include filtration and industrial sands, construction sands, golf bunker sand, silica (not sold for loose abrasive applications), colored sand, technical services and recycling of used and spent abrasives.