John K. Borchardt (September 2010)
Food processing companies range from firms with fewer than 100 employees to corporate giants employing thousands of people and earning billions of dollars. It's a vibrant industry. More than half of all U.S. food processing companies are planning new plants, expanding, or modernizing in the coming years, despite the sour economy.
These projects will increase production of processed foods, introduce new foods, increase energy efficiency, and improve facility floor designs to boost work flow and production rates. They'll also target food safety and find new ways of using food processing byproducts to produce biofuels. Most of these projects are fairly small, averaging $5 million. But a number of major food processing giants are planning projects of $100 million or more. Total 2010 food processing industry capital investment for 32 publicly-owned companies totals $13.6 billion, an increase of $2.2 billion from the previous year's spending.
Selecting a Site
What factors determine site location for new food plants? The determinants of location choices for food processing plants, a 1989 study by Rutgers University professors Rigoberto Lopez and Nona Henderson, showed that market and local infrastructure criteria drove site choices. And The Location of Food Manufacturing Plant Investments in Corn Belt Counties, a 2000 study by Jason Henderson and Kevin McNamara of the University of Minnesota, found that facility construction tended to occur in areas with cheap access to raw materials, convenient product markets, developed transportation networks, favorable fiscal policies, and a low wage environment.
Supply-oriented firms tend to locate near agricultural commodities and low-cost labor. Demand-oriented firms tend to locate near product markets and transportation systems. Local governments in agriculture-heavy counties promote value-added economic activity with new food processing plants as a rural development strategy. The Tennessee Department of Labor and Workforce Development found that construction and operating costs, labor availability, work ethic, transportation, proximity to customers, and state government support were the most important factors in location decisions, while lack of needed infrastructure and inadequate labor stymied food processing plant locations.
The beef processing industry has its own concerns. Plants in remote sites may find it difficult to secure U.S. Department of Agriculture grading. Locating and paying for a USDA grader can be challenging for hard-to-reach beef processing plants, according to a report by consulting firm Food & Livestock Planning, Inc.
Energy demands also concern the food industry, and it seeks to improve its efficiency. According to the U.S. Energy Information Administration, food processing plants consumed 1,120 trillion BTUs (British thermal units) of energy across hundreds of plants in 2002. The construction boom of rural wind energy farms in the Great Plains, particularly Iowa, could spur construction of local food processing plants.
States and communities often focus their industrial development and recruiting efforts on providing an attractive business environment for agribusiness with financial incentives. Such recruitment is often fruitful as it increases rural employment and provides outlets for raw commodities produced there, helping the entire community. Local governments recruit food processing plant expansions or new construction to promote local markets for agricultural commodities, reducing transportation costs for area farmers while enhancing their incomes.
Iowa County, Wisconsin is considering constructing a 10,000-square-foot plant to freeze local vegetables and sell them to nearby school districts, universities, and other organizations with cafeterias. Farmer Mark Olson, who leads the project, says most of the financing would come from USDA bank loans.
Elsewhere, state departments of agriculture and economic development hone in on value-added agribusiness firms. Federal agencies, particularly the Small Business Administration and the USDA's Rural Development program, fund services for small agribusiness firms.