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Market Report: Food Processing Shows Concern for Public's - and Its Own - Health

The food processing industry is responding to government and public urging to make their products healthier and realizing substantial growth.

March 2011
On a gray and slushy January day, a dark blue grain truck sits on the scales outside Wyandot, Inc. - Marion, Ohio's privately held corn snack processor. Normally, the driver would unload his human consumption corn, the premium grade that sells several percentage points above the Chicago Board of Trade price for field corn. But not today. Today, there's a problem. The grower, apparently, doesn't have the correct documentation that would allow those bright yellow kernels to be traced back to the silo, the farm, the field, and the day they were harvested. Under today's safe food protocols, that information is necessary should the tortilla chips made from that corn be recalled for some reason. The load is refused. Maybe the grower can sell it down the road a mile, at the recently constructed ethanol plant.

Food Safety Is Paramount
It is another day in the increasingly complicated business of making the nation's - indeed, the world's - food. Food safety is the number-one issue facing processors today, according to Wyandot's CEO Nick Chilton - and not just because President Obama signed the Food Safety Modernization Act into law on January 4. The legislation upgrades the food safety functions of the Food and Drug Administration, giving the agency a broad mandate to prevent food contamination. Caroline Smith DeWaal, director of Food Safety for the Center for Science in the Public Interest, calls it "the most important food safety advance in 70 years."

Chilton has managed Wyandot for over 16 years and was president of the Snack Food Association's Board of Directors in 2004. He suggests food safety has been topic #1 for processors well in advance of President Obama's recent bill signing. In fact, says Chilton, plants like his have been complying with rigorous standards required by the Global Food Safety Initiative (GFSI) that took effect in May of 2000. The GFSI grew out of collaboration between food processors and major retailers like Wal-Mart. To sell to those retailers, food processors must comply with protocols such as the Safe Quality Foods program. "The shift in power from the processors to the retailers has been the biggest shift I've seen in my 43 years in the food business," says Chilton.

Healthy Food Movement
That power was put on display at the end of January when Wal-Mart announced it was pressing suppliers to lower salt, sugar, and fat content of the foods they supply the giant retailer. Wal-Mart's endorsement adds significant momentum to the low-salt, fat, and sugar movement.

Dr. Sheryl Barringer, professor of Food Science at Ohio State University, says the healthy food trend has been several years in the making. "Potato chips have been decreasing in salt for, like, 20 years. The standard keeps moving lower and lower as people adapt to the new taste - then they're okay with it."

First Lady Michelle Obama has certainly heightened awareness of obesity and the need to eat better and exercise more, but Professor Barringer believes the healthy food movement started well before the current administration took office, perhaps through the influence of television's Food Network. Students in her applied food processing classes have told her they've seen the techniques she teaches used on TV. She believes the "better for you" trend is a good one overall, but says consumers aren't always well informed.

"I do have quite a few former students who tell me, actually, their main focus now is to make our products healthier," she notes. "So, what does that mean? One of my former students was told, `Get all of the high fructose corn syrup out of our product.' I'm not entirely convinced that replacing corn syrup with just sucrose is a healthier thing, but the consumer believes that. They think the high fructose corn syrup is bad. So, his job is to get that out of there."

Whatever it's derivation, the "better for you trend" has resulted in new "front of package" nutritional labeling introduced by the Grocery Manufacturers Association (GMA). The voluntary system puts calories, saturated fat, sodium, and sugar content per serving on the front of food labels where they can be easily seen and compared by busy shoppers. The GMA says it developed the system at the request of First Lady Obama who believes informed parents can make better choices and reduce childhood obesity. Some Struggles and Successes
The Grocery Manufacturers are not as pleased about government subsidies for ethanol. They claim government requirements for ethanol blends, tax subsidies for ethanol producers, and tariffs on imported ethanol have combined to raise commodity costs dramatically. Squeezed by rising commodity prices at one end and large retailers reluctant to raise prices at the other, some small and middle-sized processors are struggling.

Tasty Baking Co. of Philadelphia is one iconic processor facing an uncertain future. The maker of Tastykake pies and snack cakes recently moved out of an old, multistory plant into a new $78 million facility in Philadelphia's restored Navy Yard complex. However, the company hasn't realized the efficiencies hoped for and faces an uncertain future as it restructures debt.

Meanwhile, Bushman Family Farms opened a 43,000-square-foot organic chicken-processing plant in Charles City, Iowa, in November 2010 employing 125, only to close the plant in January 2011. The company cites problems with a contractor and, as of press time, said it hopes to re-open the facility within 14 weeks.

Despite the challenges, there are bright spots in the industry:
• Diamond Foods is doubling the size of its kettle potato chip plant in Beloit, Wisconsin, with construction expected to be complete in 2012.
• Japanese confection maker Mikawaya USA recently opened a 103,000-square-foot plant near downtown Los Angeles.
• Hershey is investing $300 million and adding 335,000 square feet to its Eastern Distribution Center near Hershey, Pennsylvania.
• Cone Distributing, Inc. of Ocala, Florida, is building a new $16 million distribution center.
• Paramount Citrus has begun construction on a 600,000-square-foot mandarin orange packinghouse in Delano, California, that will create 500 local jobs. Paramount specializes in oranges called California Cuties, a hybrid of a sweet orange and a Chinese mandarin.

The good news is that the American food processing industry is adapting to the public's tastes and desire for high-quality food, as it has always done, and that should continue to serve the public and the industry well.

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