Although it has taken some hits, the food processing industry is holding up well in this tough economic climate. According to the Grocery Manufacturers Association's (GMA) 2009 performance report, even though median shareholder returns were down for the industry in 2008, they still outperformed the median returns posted by both the S&P 500 and the Dow Jones Industrial Average indexes.
Food processing is a big part of the $2.1 trillion food, beverage, and consumer packaged goods industry (CPG), which employs 14 million workers and contributes over $1 trillion in added value to the nation's economy. The five key segments to food processing are meat and poultry, fruits and vegetables, beverages, bakery, and dairy. CPG manufacturers maintained a median sales growth of 10 percent in 2008, only slightly lower than 2007, which reflects the stable nature of the industry. Top companies like General Mills and the Hershey Company saw solid results across their brand portfolios in 2008 and into 2009.
"Companies that have more diversified portfolios are generally doing better than those who don't," says Stephen Sibert, senior vice president of industry affairs for GMA. "We are seeing more companies trying to adjust their portfolios to include more affordable products."
One reason food processors have benefited from the recession is that more people are buying groceries and eating at home. "We're seeing growth in our baking divisions that we haven't seen in years, because not only are people trading down to the grocery store, they are also trading down within the grocery store," says Don Mulligan, executive vice president and CFO for General Mills. "For example, instead of going to the in-store bakery and buying a ready-made cake, they are buying our Betty Crocker mix. In some cases, they are economizing even more by buying flour - our retail flour."
Of course, the economy is still challenging for the industry. Half the respondents to a recent poll conducted by FoodProcessing.com said that the recession had not affected their business; the other half, however, answered they were considering cutting back on production, laying off workers, cutting salaries, and closing plants or consolidating operations. In that same poll, 27 percent of respondents reported that their companies were growing and 40 percent indicated they were holding steady.
Food Safety Is Top Concern
Food safety continues to be the number-one priority for food processors, especially with the ongoing controversy regarding contaminated ingredients from China and other countries, food-borne illnesses, and undeclared allergens. Each year, about 75 million people are sickened by contaminated food, hundreds of thousands are hospitalized, and about 5,000 die. To lessen these numbers the food processing industry wants the federal government to become more involved in regulating both foreign suppliers and U.S. importers. At present, the Food and Drug Administration (FDA) physically inspects only about 1 percent of the over 9 million batches of food imports that enter the country every year and about 5 percent of domestic food-processing plants.
The Food Safety Enhancement Act of 2009 is currently making the rounds in Congress. The proposed legislation is intended to give the FDA greater authority to regulate the food industry's suppliers and manufacturers, review business records, and establish a national food tracing system. Some supporters are also calling for annual registration fees for all facilities that store, process, or manufacture food products.
"The GMA is also working to develop technological applications our members can use to improve safety, from the first step in the supply chain to the last step of stocking the shelf," says Sibert. GMA is researching track-and-trace systems, methods of recall, best practices for removing and destroying contaminated products, and how to get products back on the shelf and regain consumer confidence.