Food Processing: Nourishing Customers' Needs | Food Processing Technology Division, Craig Wyvill

The nation's food processors are exhibiting a combination of ingenuity and proactivity to deal with an escalation in competition from foreign countries. Foreign producers are able to deliver at lower cost because of their lower labor and operating costs. But that doesn't tell the whole story, according to Craig Wyvill, division chief of the Food Processing Technology Division at the Georgia Tech Research Institute.

"Just being the low cost producer is not the end-all," says Wyvill. "Domestic producers have strong oversight of their operations and are meeting their competition by controlling costs [and] absorbing lower profits while maintaining quality and safety functions that foreign producers lack. In China, for example," he says, "there have been incidents showing that their food processing infrastructure is not as intact and lacks the safeguards of ours." Indeed, the Chicago Tribune recently reported that Chinese officials have shut down 180 food manufacturers this year after finding potentially toxic materials in foods produced.

Foresight and planning take center stage on the domestic front, according to Thomas R. Gilpatrick, Ph.D., executive director of the Food Industry Leadership Center at Portland State University in Portland, Oregon. He says American food processors are meeting competition by differentiating their products on the basis of service, answering customer needs and packaging. Niche marketing of specialized products such as peaches in old fashioned glass jars, frozen organic dinners, and flavored beverages such as white tea also plays an important role. He concedes, though, that those processors who are restricted to a commodity focus will have a difficult time meeting foreign competition.

In the Northwest, the focus is on innovation and improved productivity, according to David Zepponi, president of the Northwest Food Processors Association. "We need to compete on a global level and doing that requires building on knowledge and innovation," he says. "We can't just compete on price alone." To achieve those objectives, he cites development of the new Northwest Food Processors Innovation and Productivity Center where processors from Oregon, Washington, and Idaho share knowledge and exchange information.

Ed Yates, president and CEO of the California League of Food Processors, points out that competition is more difficult today because of rising energy costs that affect every facet of food processing going back to the farm tractor. "It even extends to the grocery shelf and there's a very delicate balance because prices can only be raised so much," he says. "As a result of the energy squeeze, some processors on limited budgets may be forced into producing staple items."

Yates says processors are adjusting to global competition by using advanced technology such as rapid electronic grating and filling - formerly done by hand - and by adjusting production schedules to use 100 percent of plant capacities. Conservation of water used in production processes is another cost-saving technique.

It should be noted that the global market works both ways. In some instances, American producers are buying foreign product because it's less expensive than producing here. For example, says Gilpatrick, some apple producers in the Northwest are buying crops from China.

Organics Is Number One
There's general agreement that the top trend in food processing today is organics. These are products grown without use of toxic and persistent pesticides and fertilizers, and they must meet USDA regulations to use the organic label.

Organics leads Food Processing magazine's list of the industry's top six trends. According to the publication's report, the organics industry is entering its second generation of double digit growth, and is on another big upswing.

In a preliminary report, the Organic Trade Association (OTA) says U.S. organic food sales totaled nearly $17 billion in 2006, representing around 3 percent of all retail sales of food and beverages. That represents a 22.1 percent increase over 2005 sales of $13.8 billion. "These findings show there is a continued strong demand for organic products,' says Caren Wilcox, OTA's executive director.

In addition to organics, the other five major industry trends according to Food Processing magazine are health and wellness foods (the largest of the categories in terms of product diversity), age awareness foods, specialty foods, controlled portions, and religious certification foods.

Sources concur that there are several areas of production where domestic food processors have an advantage over their foreign competitors. Yates cites California's yields per acre, which he says generally outstrip yields around the world. Wyvill lists investment in infrastructure and plant operations. In Zepponi's view, it's a well-trained work force with the experience to get the product from board room to factory floor and make it commercial.

On the environmental front, the well-publicized global warming trend is having an effect on food production and processing, says Wyvill. The search for alternative energy sources is creating demand for conversion of corn, soy products, and peanut oil into fuel rather than food uses. "This will put added pricing pressure on food segments," he warns.

Strategizing Against Competition
Industry experts cite several factors that food processors should take into account to stay competitive.

• Location: Food Processing magazine lists the top 10 American food processing companies and their headquarters locations as:

1. Tyson Foods, Inc.
      Springdale, Arkansas
2. Kraft Foods, Inc.
      Northfield, Illinois
3. PepsiCo, Inc.
      Purchase, New York
4. Nestlé Food Services North America
      Glendale, California
5. Anheuser-Busch Companies, Inc.
      St. Louis, Missouri
6. Dean Foods Company
      Dallas, Texas
7. General Mills, Inc.
      Minneapolis, Minnesota
8. Smithfield Foods, Inc.
      Smithfield, Virginia
9. ConAgra, Inc.
      Omaha, Nebraska
10. Swift & Co.
       Greenley, Colorado

In terms of site selection, "You need to be aware of issues that impact your ability to hold costs down and enable you to deliver product in a timely and cost-effective fashion," says Wyvill. These include incoming and outgoing distribution infrastructure, nearness to market and sustainability of the labor pool.

In California, Yates says most processors are in rural areas because 50 to 80 percent of their former locations became urbanized. He lists water, access to energy, access to railroads and highways, and nearness to labor pools as key site selection requirements.

One of the upcoming areas for food processors is Fairfield, California, halfway between San Francisco and Sacramento at the gateway to the Napa Valley. Food industry sources such as Calbee America, Inc., a distributor of healthy snack foods, are choosing to locate in Fairfield because of its easy access to ports and freeways, ample supplies of superior quality water, and available land with room to expand.

• Research and development: Mian Riaz, Ph.D., director of the Food Protein R&D Center at Texas A&M University and a member of the Institute of Food Technology, advises, "Don't sell technology to China. We can produce new ingredients at lower cost with quality assurance and consumer confidence. That should keep us competitive."

• A reality check: Gilpatrick comments, "You need to be more aware of the global landscape today. Many processors are surprised by the volume of foreign competition."

• Dollars and cents: "You have to manage the costs, but don't let cost alone be the deciding factor," says Wyvill.

• Information: Zepponi remarks, "It's all about people and technology. You should be learning from each other."

• Distribution systems: Yates says the keys are to "pursue efficiency and maintain improved quality."

What's Ahead
Yates foresees problems for food processors in connection with additional regulatory costs and rising energy costs. "All the independent regulatory agencies are not looking at the collective impact of their regulations on the cost of production." But he remains optimistic. "It will continue to be a challenge, but people in the business are dedicated to finding ways to survive."

Wyvill also weighs in on the optimistic side. "There are some challenges, but the outlook is very bright," he says. "The food industry has a strong position in domestic markets and should sustain it based on population growth. There may be international opportunities as well, where foreign economies are booming."

And Zepponi strikes a similarly positive note: "As long as we as an industry understand how to compete in a global environment and play to those strengths, we'll be alright. We're building for tomorrow."