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Market Report: Innovations in Food Processing Help to Meet Economic Challenges

While food processors are not sugar coating the realities of the evolving economy, they continue to devise ways to make it more palatable.

Q2 / Spring 2013
Food processing companies and economic development professionals are cooking up new ways to meet challenges and stay innovative in the recovering economy. Dave Fusaro, editor-in-chief of Food Processing magazine, discussed the economic climate in his January article: “Just when you thought the recession’s end would bring calm, it’s time to reinvent your company and meet new challenges.” He noted that in the aftermath of the recession, “a new emphasis on profitability and repositioning is emerging. Companies that survived on being reactive are now expected to be proactive.”

The U.S. Bureau of Labor Statistics reports there are currently more than 29,000 companies defined as food and beverage process manufacturers in the United States, employing more than 1.4 million people. According to those specializing in siting food-processing facilities, growth opportunities are projected in the following sectors: organics and naturals, specialized beverages, ready-to-eat, private label brands, health and wellness, age awareness and portion-control products, and ethnic foods.

Regionalization of Production

Chris Steele, COO and North American president for Investment Consulting Associates in Massachusetts, says that one of the general trends in this industry is re-regionalization of production. “Rather than being centralized, due to transportation costs and safety concerns, we are seeing food processors move closer to population centers and towards the points of consumption.” As an example, he points to a private label manufacturer for Trader Joe’s that was based in California. The firm decided to establish a location on the East Coast because of Trader Joe’s concerns with overall freshness of food, the general costs of transportation, and proximity to Trader Joe’s preferred providers. Steele adds that overall transportation costs have escalated, becoming a more salient portion of the overall operational costs. “Companies involved with organics or fresh products are looking to locally source for ingredients, or to get to their consumer market quickly,” he adds. For example, national distributor of natural, organic, and specialty foods, United Natural Foods, Inc., expects a fall 2014 opening for a 525,000-square-foot facility that will create 360 new jobs in the town of Montgomery, Orange County, New York. The $55 million investment will be the firm’s first distribution center in the Empire State. The new plant will service the firm’s growing metro New York, Long Island, and Upstate New York markets, alleviate capacity issues in existing Northeast facilities, and improve distribution efficiencies. Empire State Development, the state’s economic development agency, is providing the company with $3.6 million in tax credits through the Excelsior Jobs Program.

Food processing niches are evolving, especially in the natural markets and dietary-focused foods, such as gluten-free. Interest in gluten-free products is growing. According to consumer research firm Packaged Facts, “While growth rates will moderate over the next five years in the wake of market expansion, Packaged Facts projects that U.S. sales of gluten-free foods and beverages will exceed $6.6 billion by 2017.”

Satisfying Location Needs
Food processors consider a trained work force as a necessary ingredient for a new or expanding project. Steele says that a recent food-processing client, “Looked for community colleges that specifically worked with culinary arts. They wanted to develop new formulations, new potential products, and stay ahead of consumer tastes. To be able to pull people out of a culinary arts college was a very valuable asset.”

Other site selection needs are specific to a type of food processing. For example, wastewater concerns can cause some state’s deals to go down the drain. Steele notes that several years ago, Pennsylvania won a project of a hummus company that put out a significant amount of wastewater as a result of its process. “There were issues in Maryland or Virginia, because of Chesapeake Bay restrictions. In Pennsylvania, we ended up in a site with great logistics connections as well as access to incoming produce,” says Steele. “It was in an older industrial area, and the water and sewer systems actually required that type of wastewater to meet a certain biological oxygen demand.”

While some states are just evolving into the food processing, others, like Georgia, have already established reputations. Food processing is Georgia’s leading manufacturing industry, contributing up to $9.7 billion to the gross state product. Deputy Commissioner for Global Commerce at the Georgia Department of Economic Development, Gretchen Corbin, says that the state is home to more than 600 food manufacturing establishments employing over 60,000 workers at companies specializing in meat and poultry products, beverages, fruits, vegetables, and bakery goods. Coca-Cola, along with Flowers Foods; Tyson Foods, Inc.; Perdue Farms, Inc.; and Frito-Lay are state icons.

“At the end of the day, market accessibility is important to food processors. It’s all about getting to the end customer,” says Corbin. “We are in the middle of a high-growth consumer market — agriculture is Georgia’s number-one industry, and we have the raw materials that many food processors use. And world-class agribusiness research is done through the University of Georgia and the Research Institute within Georgia Tech.”

In Hamilton, Georgia, Koch Foods is expanding its poultry-processing facility at an investment of $49 million, creating 750 new jobs. Koch purchased the existing facility from poultry producer Cagle’s Inc. last year, retaining 350 jobs, and then added 350 jobs. A second phase expansion, incorporating two new processing lines, will create an additional 750 new jobs.

Top States for Food Processors
California ranks number one on the U.S. Bureau of Labor Statistics 2012 Q1 lists of states with the most food-processing facilities, followed by New York and Texas. Almonds are California’s largest food export and the largest specialty crop export in America. The state provides 82 percent of the world’s supply of almonds to nearly 100 global markets.

According to Blue Diamond Growers, the state’s almond crop is valued at $6 billion and generates nearly 50,000 jobs. In March, Blue Diamond Almonds opened a 6,500-square-foot Almond Innovation Center in Sacramento, which company President and CEO Mark Jansen calls “the world’s only research center dedicated to designing cutting-edge almond products.” The cooperative expects to increase new almond product sales growth fivefold over the next five years.

“Blue Diamond Growers, a cooperative owned by over half of California almond growers, formalized the almond industry in 1910 when 230 enterprising almond growers formed the cooperative to process and market almonds at a meeting in Sacramento,” says Susan Brauner, director of public affairs for Blue Diamond. “Although the offices were originally located in San Francisco, the headquarters was moved to Sacramento to be closer to the orchards and the rail system for transporting almonds to the marketplace. Blue Diamond headquarters has expanded and grown over the last 100 years to occupy 90 acres in downtown Sacramento.”

Food processing is spread throughout Texas, with meat processing in the Panhandle, South Plains, Northeast, and Concho Valley; snack/frozen foods and seasonings/dressings in the Dallas/Fort Worth area; poultry in the Central Region; seafood in the Gulf Region; and fruits and vegetables in the Lower Rio Grande. In late 2012, Campbell Soup Company announced a $45 million reinvestment in its Paris, Texas, soup plant, which will include new technology and a new product line. The facility is also slated to absorb production from the closure of a California plant. Also in the Lone Star State, construction began on Japan-based noodle-maker Maruchan’s $330 million plant in the fourth quarter of 2012 in south San Antonio, which is expected to create 600 direct jobs.

Top Concerns

Food Processing magazine’s 12th annual Manufacturing Trends Survey, heralding 2013 manufacturing trends, notes that food processors’ top three concerns are food safety, cost control, and labor. David Phillips, plant operations editor, says that while manufacturers reflect a bit less optimism than last year, “More plant operations executives foresee production increases of 20 percent or more and additions to their work forces.” While last year, 28 percent of those surveyed planned to add new hires, the most recent survey shows 37 percent plan to add to their work forces, and 41 percent plan to maintain current staff levels.

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