The R&D Tax Credit Aspects of Commercial Baking

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        Recent changes in regulations and consumer preferences have made a large impact on the food industry, including bakery products and production process. As the demand increases for healthier, natural, less processed foods, challenges emerge for bakeries to change their formulations and processes to create products that are both natural and healthy and still maintain the taste and texture of customer’s favorite baked goods.

The R&D Tax Credit

    Enacted in 1981, the Federal Research and Development (R&D) Tax Credit allows a credit of up to 13% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

        Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent.  On December 18, 2015, President Obama signed the bill making the R&D Tax Credit  permanent.  Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax and startup businesses can utilize the credit against payroll taxes.

Sugar Reduction

        In March 2015, the World Health Organization issued new guidelines that recommend a reduction of roughly 25g of free sugars per day. This proposal adds increased scrutiny of added sugars to all baked goods, which in turn will give bakers more of a reason for reducing sugar in recipes. In most baked goods, sugar provides everything from bulk and structure to browning and moisture management, in addition to desirable sweetness , thus presenting a complex challenge to commercial bakeries.

        However, this trend towards more natural and less altered food products has driven researchers to look into new, calorie-free alternatives. With almost one hundred natural calorie-free sweeteners on the market, commercial bakeries are beginning to take advantage of these substitutions in their products.

The following are just some of the emerging sugar alternatives:

Sweet Potato Juice Concentrate
    Whether it is in the form of dehydrated granules or flour, the use of sweet potatoes can serve multiple functions in a formulation while offering a naturally sweet flavor profile.
Sweet potatoes are also loaded with beta carotene and other essential nutrients, making them an extremely healthy vegetable option.

Chicory Root Fiber Powder
    When compared to sugar, chicory root fiber is 55% as sweet and can also work with other sweeteners to mask flavors. It has half the calories per gram and provides scientifically proven health benefits including blood sugar management, weight reduction, and improved digestive health.

Soluble Corn Fiber
Soluble corn fiber can not only deliver many of sugar’s critical baking functionalities, but it has also been shown to improve product quality while cutting calories and boosting fiber. Different versions with different caloric contents can be used depending on product and formula needs.

One of the most recent sweeteners to enter the marketplace is allulose, a monosaccharide that contains almost zero calories. Described as a rare sugar, allulose is only found in nature in small quantities. Despite this, newly commercialized enzymatic approaches now allow for commercial viability of this sweetener alternative ingredient.

Trans Fat Elimination

        Trans fats are created when liquid oils are put through a process called “hydrogenation”. By adding hydrogen atoms, the oils are converted into solid fats with an extended shelf life, and are readily used in commercial baked goods and stick margarines. Although trans fats were once believed by experts to be healthier than saturated fats such as butter or lard, researchers now believe that these man-made fats are linked to many serious health problems. Since 1911, when vegetable shortening, Crisco, entered the market, trans fats have become major contributors to heart disease in the United States. In addition to cardiac implications, trans fats have been linked to other health conditions, including obesity, diabetes, and memory loss .

        There are several alternatives to using trans fat in baked goods. One option is to reexamine the usefulness of saturated vegetable fats, such as palm, palm kernel, and coconut oils. These tropical oils are creamy in consistency which can mimic the chemistry found in saturated fats from animal sources. The result is a healthier product, without the sacrifice of taste and texture that consumers expect. However, although some studies show that fat in palm oil may actually help lower blood cholesterol, many dietitians are wary. While any product that reduces trans fat is beneficial, using saturated fats isn’t necessarily a healthy alternative.

        Another option is to blend currently acceptable oil products into formulations that yield the benefits of partially hydrogenated oils, such as shelf life, texture and taste while minimizing exposure to risks. Some companies have already begun to take advantage of this alternative. Crisco, the long-time manufacturer of fats used in baked goods and frying, now offers a trans fat-free shortening made from a combination of sunflower, soy, and cottonseed oil. Fast food chains have also implemented similar blends. In regards to baked goods, combinations of healthy liquid fats like grape seed oil, walnut oil, or vegetable oil spreads can be mixed with fruit puree for bulk and texture .

Gluten Free

        Gluten has a very important goal in the role of baked goods. It is a protein that, when combined with water, provides the basic structure of breads, cakes, cookies and other baked goods. It also acts as an elastic agent, giving dough a stretchy consistency. In addition, gluten is partly responsible for the rising and fluffing of dough. It is present in all forms of wheat and newly emerging conditions such as Celiac disease poses a challenge for many commercial bakeries.

        Creating gluten-free baked goods requires careful production techniques through the manufacturing process. The goal is to create gluten-free products which are indistinguishable in taste and appearance from their gluten-packed alternatives.  Although flour may be one of the most difficult items to replace, there are many types of gluten-free flours that can be combined to create viable alternatives such as brown rice flour, potato flour, garbanzo bean flour, soy flour.

        There are other important ingredients aside from flours such as quinoa, eggs, cornstarch, cornmeal, and Xanthan gum that can help create an authentic taste, texture, or structure without the presence of gluten.  The best baked goods often require extensive experimentation and iterations until a viable mixture and process is decided on.

Enrobing Processes

        Invented in France in 1903, an enrober is used in the confectionery industry to coat food items such as nuts, biscuits, and cookies with a coating medium, typically chocolate. As the demand for chocolate-coated sweets grows, it has become increasingly impractical to employ enough staff to dip confections into melted chocolate in order to keep up with required production capacity. As a result, several companies are finding ways to create innovations in the chocolate production chain, from the farms where beans are grown to the sales floor where it is sold.  

        Not only does it enhance the decadence of a confection, the enrobing process also aids in increasing the shelf life of a product by reducing moisture loss and maintaining product shape. Additionally, enrobing can often allow for greater production rates with lower capital costs when compared to moulding, which is used for chocolate exteriors.  

        When compared to traditional tempering machines and enrobers, commercial bakeries can save up to two-thirds consumption by utilizing a combination of the Aasted Energy Enrobing Concept and the SuperNova Energy tempering machine. This optimal enrobing circuit not only provides homogenous processing and a stabilized temperature and tempering index, but also reduces product waste.   

Automation in the Industry

        The baking industry is faced with a growing variety of products and increasing pressure to control costs, making seamless interaction of production processes crucial. Integrated automation systems provide solutions from the receipt of raw ingredients to finished product shipment.  

        Post liquidation, Hostess Brands re-launched in 2013 under an Apollo Global Management LLC private-equity firm joint venture with Dean Metropoulos & Co. They recently made a $150 million investment in improvements and efficiencies at the firm’s bakery plants. According to Forbes, the investment helped bring the classic American snack food into the 21st century. Hostess’ 500-worker Kansas bakery, equipped with a $20 million auto-bake system, now produces more than one million Twinkies per day, performing 80% of the work once done by 9,000 workers across 14 plants.  

Commercial Oven Technologies

        At the heart of any bakery is its oven. When confronting the challenges of recipe and formula adjustments, it is important to choose an oven best suited for the products and quantities being produced.

        Convection ovens are one of the most common pieces of commercial bakery equipment, as they can bake a variety of goods both quickly and evenly. They use internal fans to circulate the air which creates even browning and repeatable results that cannot be matched by a standard radiant oven. It is also the least expensive.
        Deck ovens are often used by bakeries that specialize in artesian-style goods. Their stone cooking decks heat up, giving the crust a distinctive, crispy character while maintaining a soft and moist inside. By design, these ovens are simple and have only a few moving parts, making them long lasting and easy to use.

        A roll-in rack oven allows the user to wheel a pan rack full of goods right into the oven for baking. Some models will rotate the pan rack during the baking process for even results. The advantage of this style is time and labor savings due to less product handling.

        Revolving ovens have large revolving trays that can be loaded with a product, similar in concept to a rotisserie style oven at a deli or market. These have a very high capacity and output capability, but are also quite expensive so it is crucial that output needs and budget can justify the purchase of one of these units .

Increasing Shelf Life & Stability

        The aroma and texture of baked goods fresh out of the oven are strongly appealing, but unfortunately, these qualities are quickly lost.  Extending the longevity of bakery product shelf life relies on product developers, process technologists, and packaging technologists. Since the flavor and appeal depend heavily on freshness, commercial producers have to compensate by using food additives.
        Baked goods have a short shelf life in terms of spoilage by bacteria, yeasts, and molds due to the high water activity of products such as bread. Preservatives such as propionic acid and sorbic acid and their salts are commonly used in order to extend the mold-free shelf life of bakery product. Natural mold inhibitors are also being used, for example, those made by fermenting wheat and whey products to produce organic acids such as acetic, propionic, or lactic acids.

        The juice of a number of berries has been studied with respect to antibacterial activity against a range of bacteria and yeasts. Results suggest that the antibacterial activity of raspberry and blackcurrant cordials may be a benefit as a means to enhance shelf life when incorporated into food products.

        Similarly, dried plums contain about 2% of naturally occurring malic acid, which has been shown to help to inhibit microbial spoilage and can also serve as the natural acid component of chemical leavening systems.

Improvements in Packaging Processes

        Baked products, whether designed to have a shelf life of two weeks or six months, owe these achievable goals largely in part to packaging innovations. High-quality barrier films are available at whatever the cost a company’s margin is willing to bear. Some of the latest technology includes adding gases to control the atmosphere within the package, known as modified-atmosphere packaging.   

        One of the main causes of the spoilage is the growth of microbes such as bacteria, yeasts, and mold that are present all around us. These microbes feed and grow on food products, causing them to go bad. There are a number of ways to slow down these processes and keep food both attractive and edible for as long as possible. Refrigeration is the simplest and most commonly used method, as microbes grow slower at lower temperatures.

        However, it is a challenge to keep food fresh for as long as possible without additives, and one key technology for achieving this goal is to seal the food product in a package which contains a mixture of carefully controlled natural gases that significantly slow down the process of decay by inhibiting processes of oxidation and the growth of microbes.  The type and proportion of gas used in the packaging is largely dictated by the type of food in the package, and with the help of cutting edge technologies, can be ensured that the gas mixture is correct, and that the sealed package does not leak. This is the essence of modified atmosphere packaging.  


        While commercial bakeries today face many challenges such as major changes in consumer preferences and regulations that impact both the production process and the product itself, new and efficient technologies coupled with innovative thought and processes make it more possible than ever to increase the production of baked goods while at the same time cutting costs.

Article Citation List



Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Lara Tomiko is a Tax Analyst with R&D Tax Savers.

Andrea Albanese is a Manager with R&D Tax Savers.

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