Food Processing Adapts to Environmental, Government Challenges
The food processing industry is adjusting to the challenges of energy efficiency, an environmental disaster in the Gulf of Mexico, and unfavorable legislation.
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.

Government Aid
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.

Processed Food Trends
As the economy has faltered, so, too, has consumers' appetite for dining out. Consumers are buying more pre-packaged chicken and turkey, packaged sandwiches, and deli salads such as potato salad and coleslaw. Increased sales of these and other processed foods have softened the impact of adverse economic conditions on many food processing firms.

Packaged frozen food sales continue to grow. While the number of lunch, dinner, and snack foods continues to multiply, frozen breakfast food products are doing especially strong sales and diversifying their products. Frozen fish products with good taste and texture have long posed a manufacturing challenge. But firms such as Sea Cuisine are introducing improved frozen fish entrees.

As with most other manufacturing industries, energy efficiency is on the lips of most food processors. It not only offers a chance for businesses to save money, but reduces pollution. In early 2010, the U.S. Environmental Protection Agency recognized the first three frozen potato processing plants to earn its Energy Star rating for superior energy efficiency. J. R. Simplot in Aberdeen, Idaho and Othello, Washington and ConAgra Foods Lamb Weston in Quincy, Washington received the designation. These facilities perform in the top 25 percent for energy efficiency nationwide and use an average 20 percent less energy compared to similar plants. These facilities annually save more than $10 million combined, while eliminating nearly 40,000 metric tons of environmentally-harmful gases. That's the equivalent of the annual emissions of 5,000 homes.

Food Processing and Biofuels
U.S. biodiesel production is expected to reach 1 billion gallons by 2012. Fats and recycled vegetable oil from food processing plants will originate nearly two-thirds of those fuels, offering big advantages to processors. Biofuels offer a new market for processors while presenting a way to reduce the cost of disposing byproducts. And converting byproducts into biodiesel reduces the dilemma of diverting crops such as corn and soybeans to biofuels while people go hungry.

Americans generate more than 110 million gallons of waste cooking oil annually, according to the U.S. Energy Information Administration. Converting oil and animal fats into biodiesel reduces the risks of water pollution and overloading landfills. Producing biofuels enables food processing plants to expand operations and build new biodiesel plants. Agricultural communities are already combining these efforts. High Plains Bioenergy in Guymon, Oklahoma operates a 30 million gallon per year biodiesel plant with waste animal fat from parent company Seaboard Foods' nearby pork processing plant. William Walden, High Plains' yield engineer, said it will eventually expand production to use Seaboard's waste cooking oils as well.

Large oil refineries are also interested in working with food processors to produce biodiesel. Valero Energy plans to build a 135 million gallon per year biodiesel facility using animal fats and waste grease in a joint venture with animal fats producer Darling International. Darling already converts these wastes into tallow and animal feed. The new plant will be located in Norco, Louisiana, adjacent to Valero's St. Charles refinery. The U.S. Department of Energy will extend a loan guarantee under the Energy Policy Act of 2005, which offers $8.5 billion of debt financing guarantees to projects utilizing renewable energy technologies.

Government laboratories and universities are getting into the game, too, with small-scale plants that test new methods to prepare biofuels. Bioenvironmental engineer Ruihong Zhang of the University of California at Davis has invented a more efficient process that uses bacteria to convert food wastes, yard clippings, and farm wastes to biogas, a natural gas substitute that includes methane, carbon dioxide, and occasionally hydrogen. The university has built a $4 million demonstration plant to support the research. While biogas has been made from several food sources, the facility processes mostly food waste from the campus cafeterias and restaurants.

Energy efficiency-minded companies are finding commercial interest in large and small biofuel facilities. Larger plants can be built near urban landfills, while smaller rural plants could help farmers process crop wastes that produce energy to run the farm. Facilities could also be built near food processing plants to convert plant wastes into energy.

Trends and challenges
Environmental damage from the Gulf of Mexico oil spill has significantly diminished the catch of oysters, shrimp, and fish, particularly in Louisiana. This has resulted in economic hardship for those who harvest these animals, as well as the food processing plants that package and sell them to restaurants and grocery stores. Seafood imports, already climbing before the spill, will accelerate, and recovering the lost market share will challenge U.S. food processors.

Depending partly on the spill's long-term effects, opportunities may grow for freshwater shrimp fisheries. Freshwater shrimp farms are located as far away from the sea as Kentucky. While most production currently comes from Asia and South America, U.S. freshwater shrimp farming is a $9 billion dollar industry, and poised to expand.

New federal government dietary guidelines expected this fall will encourage reduced consumption of sweeteners, fats (particularly trans fat), and salt. Additionally, several states are passing sin taxes to discourage production and consumption of sweetened soft drinks. California, Washington, Arkansas, Tennessee, Virginia, and the city of Chicago will add the tax, and similar taxes have also been proposed in Arizona, Connecticut, Hawaii, Massachusetts, Michigan, New Hampshire, New Mexico, New York, Rhode Island, and Vermont.

Governments are also targeting school food with proposed laws to eliminate trans fats in cafeterias and serve more fresh fruits and vegetables. And vending machine sales of sweet snacks and sodas may be restricted.

But no matter the constraints placed on the industry, its history of growth and innovation will allow it to rise to the challenges of the day.

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