Food Processing Supplement 2017 Area Development

foodprocessing 2017

What’s Driving Decision-Making in 2017?

Bakery Dairy Assembly Produce

AREADEVELOPMENT A N D

F A C I L I T Y

Red Meat

Poultry Seafood

S I T E

Ensuring Food Safety and Sanitary Design

P L A N N I N G

How E-Commerce Is Affecting the Food Industry A Changing Food Manufacturing Industry

Special Supplement to Area Development Magazine

ALL OF OUR PRODUCTS ARE DERIVED FROM CORN. WE NEEDED A LOCATION TEAM THAT WAS

out to build a new about to leave it ng with Hoosier -Martin County le to find the ideal electric transmission her infrastructure duction. They ake advantage of motors, HVAC and oof that when it siness of Ag, no one er Energy. Give us We’re all ears.

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EDITOR’S NOTE

FEATURES

The food manufacturing and processing industry is undergoing tremendous changes. Consumers are opting for healthier choices, and some are choosing to accept the delivery of ready-to-prepare meals, which is further impacting the industry’s supply chain. Additionally, new standards in food safety are affecting plant design. And foreign direct investment into the food industry is also exerting an influence. All of these factors are driving today’s location decisions for food manufacturers and processors.

The articles in our 3rd annual Food Processing supplement delve further into the topics outlined above.

Several examples of recent location decisions by food processors are also presented in article sidebars from the supplement’s sponsoring organizations. We trust the information gleaned from the contents will prove valuable as your company undertakes its next location/ expansion decision.

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LOCATION TRENDS IN THE FOOD INDUSTRY: WHAT’S DRIVING DECISION-MAKING IN 2017?

When working with economic developers, food processing companies should look for an industry-specific value proposition supported with compelling data and local insight.

7

ENSURING FOOD SAFETY AND SANITARY DESIGN IN FOOD MANUFACTURING FACILITIES In order for food manufacturers to meet today’s high facilities’ standards for food safety and sanitary design, they should utilize a structured preconstruction approach that solicits input from many stakeholders.

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DINNER ON THE FRONT PORCH: HOW E-COMMERCE IS AFFECTING THE FOOD INDUSTRY

As consumers receive more and more of their food through e-commerce, food manufacturers, assemblers, and distribution networks are going to have to think differently.

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A CHANGING FOOD MANUFACTURING INDUSTRY

Evolving consumer preferences, the use of automation, food safety regulations, and foreign direct investment are stirring up the food industry.

Editor

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Kentucky Cabinet for Economic Development C4 From single-employee startups to Fortune 500 brands, the Kentucky Cabinet for Economic Development helps businesses select, grow, and succeed in Kentucky. The state’s central location; strong UPS, DHL, and FedEx presence; low costs of conducting business; and high quality of life make Kentucky a top choice.

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2017 / 3

LOCATION TRENDS IN THE FOOD INDUSTRY: WHAT’S DRIVING DECISION-MAKING IN 2017?

By Scott Kupperman, Founder, Kupperman Location Solutions, LLC

While assumptions like those above are well intentioned and very understandable, the truth is that a far more complex and dynamic set of needs and factors are driving food industry requirements at this moment in time. Today’s food industry needs to innovate and be as nimble as possible in their manufacturing operations.

W h a t ’s h a p p e n i n g i n the food industry today?

When working with economic developers, food processing companies should look for an industry-specific value proposition supported with compelling data and local insight.

As a site consultant who focuses on working with food-related clients, I have the privilege to meet and talk with representatives of economic development organizations from across the country. Many of these organizations have identified food processing (in one definition or another) as a “target industry,” worthy of their recruiting efforts and the time and focus necessary to compete for and, they hope, win projects of this type.

I’m often told about the presence of a local resource in their home region that they believe should lead to success in recruiting food-related projects: “We have considerable excess water and waste-water processing capacity, ideal for most food processors.”

“There is a considerable amount of (insert crop(s) here) grown in our region. We’re a great place to further process and refine consumer products that rely on those ingredients.”

“Our region has a number of shovel-ready/certified sites that are perfect for food processors.”

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As a whole, the food industry is in an incredibly dynamic state, with constant change the only predictable norm. There are a variety of factors that have created this situation, many driven by the changing way our population chooses and consumes what is called “at-home food,” i.e., not consumed in a restaurant or establishment outside the home.

Food companies of all sizes and the incredibly savvy and astute marketing professionals who market their products look to satisfy growing demand for products that address increasingly specific health, ethnic, portion control, dietary, freshness, and ingredient demands. Waste reduction, labeling/packaging transparency, food safety and reliable ingredient sourcing, and delivery options via e-commerce have all become major drivers that food companies have strived to address, with varied success.

With retailers increasingly pressuring “big brand” package food companies to lower their pricing, margins have become exceedingly thin and are driving the need for growth in sales among categories where sales have been flat or declining over the past four years. This has created considerable acquisition activity of growth brands being acquired by larger brands of holding companies, hungry for products that will drive growth in sales. This has been especially true in the grocery categories where average annual unit sales have increased over recent years; salty snacks and coffee are two examples.

In addition to acquisitions and brands re-shuffling/pruning in ways to appeal to changing consumer demands, larger firms are also focusing heavily on cost cutting. Evidence that “big food” is under profit pressure is reflected in changes in CEO leadership. Since the spring of 2016, the food and beverage manufacturers with global food and beverage sales rankings of 1, 3, 4 10, 11, 19, 43, 52, 58, 69, and 74 have all changed chief executive officers.

What does all this mean for site selection?

The factors noted above (along with countless others) drive a tremendous need for constant innovation among food companies. Critical needs change from project to project and very often among the same companies with new requirements only several years removed from the last site search. The days of making one or a very limited number of products in a facility have been replaced by the need to quickly put new ideas and concepts into production, with minimal disruption and new investment. Being able to quickly change or modify processing lines, ingredients used, waste streams, packaging materials and sizes, brand messages, and marketing tactics will continue to be viewed by food companies as critical to their success.

Comprehensive location solutions that foster and support this need for innovation and doing more with less, in as many ways as possible, are becoming sought after. Economic development representatives who contribute to food processors’ overall set of requirements have an opportunity to stand apart.

Clearly, the regional mix of labor skills and availability will play a major role in food facilities’ operational success as defined above. The labor-related aspect of site selection will and should be of major concern, and food processing companies are well advised to work with existing facility doesn’t economic developexist, vacant land sites ment teams who with near-term/low-risk can convey both meaningful data and development potential anecdotal evidence are often considered of viable, projectand selected. specific workforce availability and cost.

Other non-laborrelated resources that would serve to promote the level of innovation described above must also be taken into consideration.

If a viable

land sites with near-term/low-risk development potential are often considered and selected.

When looking for a site for their next food processing facility, companies should focus on obtaining from economic developers site-related property information and an overall value proposition centered on minimizing both delivery and operating risk. At a minimum, this should include demonstrating all or as much of the following as possible: Typical “minimum” information requirements for further consideration: • Food processing uses allowed under the current zoning district and restrictive covenants, should they exist • Immediately surrounding uses (both existing and planned) that are free of all but the lowest density residential uses, active airport runway departure or approach flight paths, larger retail uses, schools and high occupancy institutions, and any industrial uses that emit an odor, dust, contaminant, etc.

• Meaningful detail on the status of existing access and comprehensive utility infrastructure (it’s not just about water and sewer!)

• If a land site is being considered, confirmation as to whether the current property owner will sell the property without further involvement in the construction/development process Also note, if an existing facility is being proposed under a leasehold form of occupancy, confirmation that ownership is amenable to considering a food processing operation (and the frequent modifications it will likely require during occupancy) as a prospective tenant should be obtained.

Information that will typically be viewed as “differentiating”: • Significant due diligence information that serves to demonstrate with current documentation areas that are free of development restrictions, such as delineated or likely wetlands and buffer zones, easements, rights-of-way, flood plain zones, endangered species, historic artifacts, and known or likely environmental contamination Presuming the quality of information is from qualified parties, well organized and current, this does not necessarily have to include a third party “certified” or “shovel-ready” designation.

C o n s i d e r “ h a rd a s s e t s . ” Property solutions, as one would expect, play a critical role in driving the ability to innovate. Most food processing is done through a production process that takes the form of a processing line, where raw ingredients are ultimately turned into finished form, and packaged in various sizes and quantities. The ability to quickly modify these lines inside a facility where there is ample column spacing, clear height, utility distribution, water and sewer supply and discharge locations, structural capacity (floor and ceiling) dock locations, and exterior space for large process utility equipment and vehicular movement should all be considered competitive advantages that support innovative manufacturing.

Many economic developers ask whether the lack of a viable existing building is a “death blow” to their chances of landing a food-related project. In some cases it may be, but due to an increasing lack of these types of facilities nationwide, vacant

Local Support The presence of existing food clusters, reflected in the form of legacy and, more recently, settled food processing entities that have thrived, is also a critical factor. Food processors should look to economic development teams that can explain how their respective organizations provided support and contributed to overcoming challenges realized in startup and or/ stabilized operations.

An existing food industry presence will typically be an indicator of the following factors, all of which could serve to contribute to operating innovation: • A labor pool with relevant skill sets and experience in an increasingly complex and capital-intensive manufacturing environment • Workforce training resources that can support the industry-

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ROSE ACRES FARMS:

and transmission cooperative, to ensure that energy usage is on the cutting edge at its facilities.

There’s an evolution going on in the egg industry to move to cage-free production, and Indiana-based Rose Acres Farms is at the forefront of embracing the innovations needed to meet consumer demands.

“We value our relationship with Jackson County REMC and Hoosier Energy,” said Tony Wesner, Chief Operating Officer for Rose Acres. “We have to have them and need their guidance to help us be more energy efficient. More importantly, we have to have proper ventilation and climate controls to keep our birds safe and healthy — they are there at a moment’s notice when we need them.”

INNOVATORS OF EGG PRODUCTION

specific needs of food manufacturers, which now include elevated needs for skills associated with highspeed automation, robotics, increasingly stringent and complex sanitation and cleanliness requirements, and energy-efficient production processes • A regulatory environment (at both the state and local level) that has experience in approvals required both to construct and operate food processing facilities and the various utility requirements, emissions, and waste streams that are often associated with their operations • A local presence of suppliers, contractors and technicians who can install, maintain, and maximize energy efficiency required for critical process utility systems and specialized production equipment, which is increasing in sophistication • Incentive packages geared to assist manufacturing by offering programs that mitigate infrastructure upgrade costs, reduce taxes on real property and machinery and tools, and support training Food processing is an industry looking for safe choices, with evidence of acquisition and operating risk minimization. When making their next location decision, food processing companies should look to economic developers in the regions under consideration for industry-specific value propositions supported with compelling data and local insight. FP

Headquartered in Jackson County, Indiana, Rose Acres is the No. 2 egg producer in the United States — producing enough eggs to feed eight million people two eggs a day through egg The cooperalaying farms tive feeling is in Arizona, mutual with Georgia, Rose Acres Indiana, Ilbeing a longlinois, Iowa, time member Missouri, of Jackson and North County A view from inside one of Rose Acres’ cagefree facilities Carolina. The REMC, which company has been able is currently at 15 percent cageto see the company grow from a free production and continues to small local operation to a national reshape its facilities with new techcontender in the poultry and egg nology and designs to increase that industry. number over the next 10 years.

“We look at everything from lightThe massive egg-laying facilities ing to ventilation to help reduce have become advanced manufacoverall energy usage and demand turing centers over the years. Rose to help lower energy costs, and Acres’ patented system includes help make their facilities as efmiles of egg belts, feeder chains, ficient as possible,” said Jackson and manure belts as well as roCounty REMC General Manager botic equipment; in fact, no human Mark McKinney. hands touch the eggs from laying to placing them on a truck for shipWesner added that moving to ping. This increase in technology cage-free production does not means that a reliable and responnecessarily lower energy demands, sive energy supply is essential to and making improvements in keep the operation running safely facility design will be essential to and efficiently. maintaining costs while continuing the company’s strong traditions: Rose Acres is working closely with “We take great pride in feeding the Jackson County Rural Electric world and will continue to evolve Member Cooperative (REMC), and grow as we always have since a distribution cooperative, and the company’s inception seven Hoosier Energy, a generation decades ago.”

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ENSURING FOOD SAFETY AND SANITARY DESIGN IN FOOD MANUFACTURING FACILITIES

By David Dixon, Food and Beverage SBU Leader, O’Neal, Inc.

and more complicated sanitation procedures may be required.

It is now very common for food manufacturers to conclude that existing equipment cannot be adequately sanitized and must be replaced. Furthermore, after a certain point, the hurdles to ensuring food safety and implementing best practices in sanitary design are so great that a decision is made to retire a plant and build a new facility.

Sanitary Design: A Brief History

Beverage production facility

In order for food manufacturers to meet today’s high facilities’ standards for food safety and sanitary design, they should utilize a structured preconstruction approach that solicits input from many stakeholders.

Food manufacturers face all of the usual challenges when designing a new facility or expanding an existing one: market uncertainty, return on investment hurdles, and capital constraints, to name a few. But in addition, food manufacturers must meet very high standards for food safety and sanitary design.

While it may seem that approaches to ensuring food safety and sanitary design would not change significantly over time, there are several recent factors impacting decision-makers.

Consumers’ preferences for minimally processed foods with nontraditional savory and exotic ingredients influence facility and process design. Non-GMO, allergen-free, local, and other trends impact recipes and ingredient supply chains. After preparation and cooking, material flow paths, room separations, and HVAC must be carefully addressed to ensure no recontamination or adulteration is possible. Redundant dedicated processing equipment, restrictions on production schedules,

During the Reagan years, the U.S. Department of Agriculture (USDA) stopped approving construction drawings. Sanitary design responsibilities shifted to owners and operators. The Food and Drug Administration’s (FDA) cGMPs (current good manufacturing practices) were not as prescriptive or detailed as the USDA’s had been at that time. Kraft had the best standards for sanitary design of equipment and ran training courses for vendors and design firms. Buyers could specify “The Kraft Standards” as an option on many pieces of food processing equipment.

Around 2002–2004, the AMI (now the North American Meat Institute (NAMI) led two task forces which built on the designs promoted by Kraft and expanded the discussion to bring in best practices from the leading manufacturing and plant design firms. Updated in 2014, the equipment checklists are available on the NAMI website. The facility design guidelines are available from consultants and design firms as well as from Commercial Food Sanitation.1 Building on these efforts, the Grocery Manufacturers Association (GMA), the American Institute of Baking (ABI International), and other groups adjusted the approaches for low-moisture, produce, dairy, nut processing, and other sectors.

Standards, checklists, guidance documents, and certifications are also promoted by other groups. 3A and Pasteurized Milk Ordinance (PMO) standards are well established for the dairy industry. And 3A, American National Standards Institute (ANSI), and the National Science Foundation (NSF) develop standards for meat and poultry equipment. The European Hygienic Design Group (EHEDG) certifies equipment. ISO (International Organization for Standardization) is also active.

Arguably, the greatest impact on food producers has been the requirements from retailers to their supply chains under the

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Factors Contributing to the Complexity of Sanitary Design 1. Due to organic and local trends, ingredients can arrive with greater bio-load. Global supply chains needed to deliver savory and exotic ingredients may have similar issues. This affects receiving, washing, quality assurance hold/release, and ingredients separation.

2. Consumer desires for fresh or minimally processed foods (or similar trends) may lead to a less-robust kill step.

3. Non-GMO or allergen issues require especially stringent cleaning. Many facilities are compelled to introduce wetwash-down and sanitizing into areas not designed for this.

Automated food factory making fresh pasta

The best practices in sanitary design of equipment and facilities make thorough sanitation easier and cheaper with less labor, less water, fewer chemicals, and less downtime.

If existing equipment cannot be adequately sanitized and must be replaced, it’s not uncommon to retire a plant and build a new facility.

Global Food Safety Initiative (GFSI). In the United States, most common are certifications that meet this requirement awarded by Safe Quality Foods (SQF) and the British

Retail Consortium (BRC).

After inadequate sanitation practices at the Peanut Corporation of America led to a 46-state outbreak of Salmonella poisoning — including nine deaths –— in 2009, the issues of food safety and sanitary facility design were elevated to a heated national debate. That led to the implementation of the Food and Drug Administration’s Food Safety Modernization Act (FSMA), signed into law in 2011.

The FSMA does not detail requirements for equipment or facility design. Rather, operators, primarily using Hazard Analysis and Critical Control Points (HACCP) and Hazard Analysis and Risk-Based Preventive Controls (HARPC) techniques, identify the required changes or investments. These can be numerous and vary widely as circumstances warrant. Captive boot programs, renovations to improve employee gowning and entrance vestibules, and new “CIP-able” equipment (i.e., equipment that can be cleaned in place) go a long way in meeting

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FSMA goals but are not directly required by the new rules.

Sanitary Facility Design Best Practices The previously mentioned AMI principles are commonly the point of reference for new construction, remodeling, and renovation of food processing plants, and not just those in the meat and poultry industries. The principles are as follows: • Distinct hygienic zones are established in the facility.

• The movement of personnel and materials flows is controlled to reduce hazards.

• Water accumulation is controlled inside the facility.

• Room temperature and humidity are controlled.

• Room airflow and room air quality are controlled.

• Site elements should facilitate sanitary conditions.

• The building envelope must facilitate sanitary conditions.

• Interior spatial design promotes sanitation.

• Building components and construction facilitate sanitary conditions.

• Utility systems are designed to prevent contamination.

• Sanitation is integrated into facility design.

These principles, along with the various guidelines and certifications, promote common themes, as follow: • For most food plants that clean with water and sanitizers, floors must be designed for proper draining. Site grading

must direct water away from buildings.

• HVAC systems must control humidity, temperature, airflows and quality, with strategies ranging from filtration to room-to-room pressure monitoring.

• Piping or ceilings in food processing areas must not be prone to condensation.

• Surfaces should be hard and nonporous and resistant to any chemicals that will be used to clean the facility.

• All connection points and joints must be sealed, without crevices in which dirt or microbes can accumulate.

• All building openings, including utility conduits, pipes, and ductwork, must resist entry by insects or rodents. Horizontal surfaces or ledges that hold dust should be avoided.

• All objects should be placed away from walls and elevated from floors to simplify cleaning.

• Adequate lighting, which is critical to maintaining a clean environment, must be provided.

Importance of a Detailed P ro c e s s

SATISFYING FOOD PROCESSORS’ R&D AND POWER NEEDS Companies within the food processing industry rely on institutions of higher education for research and development, as well as providing a source of skilled workers. One company that got its start with the help of the Food Processing Center at the University of Nebraska-Lincoln is Apollo Food Group, LLC, which produces and markets frozen Greek yogurt under the brand name Yasso™.

Nebraska provides many advantages to food processors of all sizes, including its central geographic location with access to I-80, the most traveled east-west interstate highway; a high-quality, productive workforce with low turnover and absenteeism rates; and reliable supplies of affordable energy that are particularly important to the food processing industry. Nebraska’s electric rates for typical industrial customers

are 21 percent lower than the U.S. average and are among the lowest in the lower 48 states.

Nebraska is the only state in the nation with electric service provided entirely by public power.

The Nebraska Public Power District (NPPD) is the state’s largest electric utility, serving all or parts of 86 of the state’s 93 counties with a diverse mix of fuels.

Together with its public power partners, NPPD has developed a large customer economic development incentive electric rate that offers energy at a discounted price for a fixed period of time.

Other incentives are offered for energy-efficiency programs. For example, Open Range Beef’s meat processing plant in Gordon recently received an incentive from NPPD to improve the efficiency of the compressed air system used in its operations, thereby reducing electricity use.

Copy supplied by NPPD

While it’s possible to reduce the requirements for sanitary design to a concise, numbered list, actual decisions that will affect a plant’s performance can number in the hundreds — or more. A detailed process is, therefore, crucial when planning for food safety and sanitary design. Combined with the shorter timelines that are now common during construction projects, the result is a heightened demand for experienced designers and builders, as well as for new workflows and technologies that can support a more integrated approach to facility construction.

Traditional project delivery, in which responsibility is handed off from designer to engineer to operations team, does not support contemporary quality and safety standards. A structured preconstruction approach that solicits input from many stakeholders is more effective, allowing teams to make very

specific decisions early in the planning process — right down to equipment selection and finish specifications — while improving project definition in terms of scope, schedule, and cost.

Use of engineer-led design/build firms, which make a single firm responsible for the end-to-end construction process, is a fast and easy method for integrated design processes.

While the amount of information available to plant owners and operators has improved in recent years, it’s still not practical to assume that studying the available literature will be sufficient to optimize food safety and efficient operations.

Forward-thinking food companies will use a variety of resources, including third-party consultants or other specialists, to ensure sanitary design success. FP 1

http://www.commercialfoodsanitation.com/documents/

2017 / 9

DINNER ON THE FRONT PORCH: HOW E-COMMERCE IS AFFECTING THE FOOD INDUSTRY

By Jeff Dearduff, Corporate Director, Baking & Snack, The Austin Company

Bakery Dairy

Assembly

Produce

Red Meat Poultry

Seafood

As consumers receive more and more of their food through e-commerce, food manufacturers, assemblers, and distribution networks are going to have to think differently.

Back in the day, dinner on the front porch meant that it was a beautiful evening, mom was making a great home cooked meal, and we would all go out on the front porch and enjoy the weather, the food, and the neighbors. Those days were about being simplistic, undistracted, and content with what we had.

Enjoying dinner on the front porch delivered directly to those values.

Today, dinner on the front porch means something totally different. Not many people have a front porch, few have time to prepare a home-cooked meal, and we hardly know our neighbors. The only constant we have is the weather, although we don’t see as much of it as we should because we are usually inside and distracted. Today, dinner on the front porch means

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that a delivery person with a plastic sign on their car roof arrived, or the big brown delivery truck stopped by and left cardboard boxes of food on your front step.

We have all had our dinner delivered to the front door at some point. Pizza, oriental, sandwiches, chicken wings, and so on, ready to eat. Convenience drove the consumer to the decision to place the call, and taste and quality became secondary. Ordering “dinner in” has become a common part of our American lifestyle and more so now because we live lives where we feel that time must be rationed, and shopping and cooking are less likely to get a piece of the precious clock we watch so closely.

In addition, while the idea of someone else making food for the consumer is an attractive option, food TV shows have changed how we look at this task. Doing a little bit of cooking interests more people today than before. Nowadays, the consumer wants convenient foods that taste great and they don’t want to shop, although they might be willing to take the time to do a little bit of the work themselves after they open the box.

How to Logistically Satisfy N e w C o n s u m e r D e s i re s So how do we, the industry professionals, satisfy this new consumer desire of wanting great foods that he or she might put some effort into? No secret here — e-commerce is the answer. Whether the consumer wants tasty boxed meals with healthy attributes for the microwave, or indulgent ingredients and instructions for cooking like the pros, they can have this delivered right to their stoop.

So, how does this happen — logistically speaking?

We know these foods are not coming from grandma’s kitchen down the street; rather, it is our own high-volume food manufacturing plants, assemblers, and distribution centers.

While it seems the globe is getting smaller, there is an extreme amount of logistical thought, action, and stars aligning to ensure that when consumers order online today, the box with fresh food is on their porch tomorrow. The behind-thescenes element of this e-commerce, some-assembly-required, prepared-food industry is pretty complicated.

For example, imagine the consumer orders a simple gourmet hamburger meal for two from one of the ready-to-prepare-

and-cook meal providers. That box will contain meat patties, produce, condiments, hamburger buns, side items, and instructions. The meat might be in a freezer or vacuum pack, but everything else is fresh.

Sounds simple, but getting all of those items into the box and keeping them in the right conditions actually starts back at the food manufacturing plants, which may be spread across the country. This new way of delivering a meal is causing food manufacturers to rethink what they do to remain in the game.

Meat gets packaged differently for this scheme than for the general market; produce and side items are carefully monitored to assure freshness through the process and delivery; and the baker is now individually wrapping hamburger buns that typically are packaged in bags by the dozen. These processes are easily done, but negatively affect plant efficiencies — ultimately affecting the price tag.

Because of the growth in this ready-set-food channel, food manufacturers must find ways to make it happen efficiently to remain relevant. Manufacturers are doing the best they can right now as they wrap their heads around this new and exciting segment of the food market.

So now all these individual items are in flight or on a 53foot trailer and on the road to an assembler. This is where the logistics become really important. This is where, as they say, location is everything.

It’s easy to realize that a box of ingredients ordered for delivery in California is not going to be assembled in Maine. While the supplies for the meal boxes need to be in proximity to the ultimate gathering place, existing food manufacturers are usually spread far and wide.

Assemblers and their distribu-

FORESTRY RESOURCES

ATTRACT FOOD AND BEVERAGE BUSINESSES What do forestry resources have to do with the food and beverage industry? It turns out…a lot.

Kentucky wood. American Stave Company LLC recently announced plans for a second mill in Kentucky to manufacture barrel staves.

The Benton location will add 40 additional jobs.

These two new companies, plus a variety of others, have brought For example, thoughts of Kentucky’s additional attention to Kenprimary economic drivers typically tucky’s immense resources for focus on bourbon, horses, and auwood manufacturing. Kentucky tomobiles. However, one day soon, has the second most diverse it also could become known for ice hardwood species mix in the nacream sticks. tion and 12.4 million acres In October, of forestland; Smart Wood that’s 48 — a French percent of the family-owned state. That manufacturer underused of ice cream market, comand coffee stir bined with sticks forthe state’s merly known logistical and The worldwide p popularity p of Kentucky-made as Euro Sticks distribution bourbon whiskeyy has greatly g y increased the Group — advantages demand for bourbon and whiskey barrels made from Kentucky wood. celebrated and workthe opening force, has of its U.S. affiliate in the Southeast led to several new and expanKentucky Business Park in Corbin, sion projects within the wood which will employ 90 and manumanufacturing industry of late. facture some two billion ice cream In the last two-and-a-half years and coffee stir sticks annually. alone, wood manufacturers have Eastern Kentucky’s rich supply of announced more than 60 new beech trees helped attract Smart locations and expansion in the Wood, as the hardwood is known Commonwealth, accounting for for its strength and largely lacks more than $140 million in investodor and flavor. ments and 1,500 new jobs.

“Abundant beech resources and the availability of quality manpower were major factors in our decision to locate our new plant in Kentucky,” said Frédéric Debacker, Smart Wood president and owner.

“We look forward to operating a successful manufacturing operation that contributes to the Kentucky economy.”

The rapid growth in the world’s thirst for bourbon also has increased the demand for bourbon and whiskey barrels made from

“People don’t always realize the contribution that wood products make to the food and beverage industry,” said the Kentucky Cabinet for Economic Development’s Joe Lilly. “Proper management of our abundant forestland is just another tremendous asset we have to offer food and beverage industries looking for a place to grow or expand.

The growth of the wood manufacturing industry in Kentucky is certainly a trend we intend to capitalize on and build upon into the future.”

Copy supplied by Kentucky Cabinet for Economic Development

2017 / 11

tion systems are strategically located to cover a prescribed marketplace, simply because they are new and can be in the right place.

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R a m p - U p o f E - C o m m e rc e – D r i v e n Meal Delivery Options The current ramp-up and growth of e-commerce–driven meal delivery options has been steady, and predictions are that this burgeoning industry is moments from breaking out in a big way. Today, it is believed that foods purchased through e-commerce comprise 1 to 2 percent of the total purchase of foods by consumers, which includes meals to prepare. Predictions are that this market will grow to 18 percent of total food purchases very soon.

To respond to the expected growth in this market, food manufacturers, assemblers, and distribution networks are going to have to think differently. Imagine that one day there are more people who prefer this convenient way of meal preparation than those who visit the local grocer to shop for their ingredients. When this becomes reality, the systems that make this happen must become more robust, more aligned, and even more strategically located.

What if a ready-to-prepareand-cook meal provider wanted to drive the most prepare-and-cook meal efficiency and provider wanted to drive cost-effectiveness the most efficiency and into their delivercost-effectiveness into able? What if they their deliverable? stepped outside the box and created the right method to efficiently meet consumer demand? What if they developed a complex that resembled the USDA’s MyPlate format? In other words, what if they could create a single complex where all the food categories needed for the box are produced and packaged without ever leaving the building?

You can visualize this as a large wagon wheel design. The assembly of the meal box is the hub. Several spokes come off the hub where proteins, grains, vegetables, fruits, and dairy products are produced — each in its own factory, but all connected to the hub. You could have a red meat plant, a poultry plant, a seafood plant, a produce plant, a dairy product plant, and a bakery — all separate companies, but all feeding the hub. The outer “wheel” could be for raw ingredient receiving and storage that would allow for proper food safety and separation.

Imagine the efficiency that could be generated by this concept. Imagine the price point that could be obtained by removing post-production transportation. Imagine the freshness that could be obtained by removing time and distance. Imagine the growth that this industry could see because they are providing even fresher foods, at a better price, to more people.

Yes, it may sound far-fetched, but so was the idea of delivering packages with drones. When imagination aligns with an appetite for risk, anything can happen. The reality is that one day, ready-to-prepare-and-cook meal providers are going to need a bigger box. FP

What if a ready-to-

A CHANGING FOOD MANUFACTURING INDUSTRY

By Clare Goldsberryow

and beverage companies.

According to Shelley Balanko, Ph.D., senior vice president of The Hartman Group, “Smaller, younger food/beverage producers appear to have a better understanding of consumers’ contemporary definitions of food/beverage quality — for example, fresh, health cues, culinary values, transparency.

They also appear to be targeting niche premium benefits that resonate better with today’s consumers who perceive their needs as ever more unique and, therefore, seek highly personalized and/ or customized food/beverage experiences,” Balanko told Area Development. The larger food processors have made some attempts to catch up to Mexico-based Grupo Bimbo — “the world’s largest bread maker” — has been investing in the the trends of today’s consumers, by U.S. market for more than 20 years. “renovating products, innovating, and / or acquiring small brands that are more Evolving consumer preferences, the use on-trend,” Balanko added. of automation, food safety regulations, Dave Donnan, partner with A.T. Kearney, explained to Area and foreign direct investment are stirring Development three factors he considers most interesting in the study: First, he notes the size of the drop in market share up the food industry. experienced by the big companies. “The top 25 food comFood manufacturing and processing, like nearly all manupanies have lost over $15 billion in market share…And it’s not facturing segments, is undergoing change. A report by A.T. just companies that are losing share, but product categories Kearney and The Hartman Group released in August of 2016 are dropping as well. Some iconic brands are doing well — but titled Is Big Food in Trouble? revealed some of the challenges a lot of categories such as dry breakfast cereal have declined facing the food business. One key trend the survey uncovered quite a lot.” is a slowing of the growth of the largest food and beverage That is the second-largest trend the A.T. Kearney study companies.1 found. “People are buying more in the perimeter area such as The top 25 U.S. food manufacturers have ceded 300 basis the deli, prepared foods, meat, and dairy as they seek fresher points to small and medium-sized competitors since 2012, and healthier eating; center aisles where you find dry and packand have grown revenue at 1.8 percent compared with 11 aged goods are experiencing losses,” he explained. to 15 percent growth for smaller companies. The report Third, Donnan commented that store brands are growing cited several factors contributing to this, including changes as well, “as retailers start to put higher quality and better-forin consumers’ core values — amplified by social media, you products on shelves” that compete with long-time familiar celebrity chefs, and myriad food-as-nutrition experts — that brands. Kroger, for example, has the higher quality brand in are rewarding small and medium-size companies with abovemany areas, and Costco’s Kirkland brand is one many consider average growth and slowing the growth of the top 25 food better overall than known brands, Donnan noted.

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Structural Changes in Food Manufacturing: In a report from Food Engineering, 2017 State of Food Manufacturing Survey,2 10 top trends were noted that are affecting the future of food manufacturing. Structural changes cited by survey respondents included changed a process (39 percent), added manufacturing staff (33 percent), added a new line (30 percent), and expanded/renovated/added capacity to existing plants (30 percent). Overall, reported Food Engineering, food manufacturing is “generally in good shape,” as shown by the survey responses: “About half of the respondents report throughput is up at their plant locations, as well as their companies, and is expected to grow in 2017.”

Surveys generally show that plant expansions are outpacing consolidation. In the Food Engineering survey, 7 percent of the respondents reported building a new plant, while 5 percent have consolidated manufacturing facilities.

Mark Redmond, president of Food Plant Engineering, a Cincinnati-based company that designs plants for food processing, said increased demand is certainly a major factor driving this increase in business, but Food Engineering reports that “a number of respondents say the growth is coming from their companies finding new efficiencies in production.”

Much of this can be attributed to increased use of automation, something that countries in the North Food Engineering calls “the American Free Trade most impactful trend” to Agreement rely heavily affect manufacturing operaon exports across tions over the next five years — ranking this #1 among borders. the 10 top trends.

Food Engineering’s 40th Annual Plant Construction Survey (June 2017),3 “found there is a concern that many plants might not be able to reach FSMA (Food Safety Modernization Act) compliancy.” However, many co-manufacturers and co-packers “have invested in food safety and are seeing their best payoff through fulfilling more orders from big brand names.”

Additionally, M&A activity in the food manufacturing sector has generally been strong, as A.T. Kearney’s Donnan points out: “Several big deals have been done such as the Kraft/Heinz deal and Tyson buying Hillshire Farms.” He adds, “A lot of the large food companies might buy for cost synergies, but many look for acquisitions in growing categories.”

A.T. Kearney reported that through these types of acquisitions large companies “can expand in premium market tiers by acquiring natural, organic, and ‘free from’ products that command higher prices from consumers willing to pay more for healthier offerings. Acquirers also can reap value by capturing merger synergies through zero-based budgeting and optimiza-

All three

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tion of networks, sourcing, and assortments.”

F o re i g n I n v e s t m e n t s i n U . S . P l a n t s Capital investment by foreign companies in the U.S. is also driving U.S. growth in the food and beverage industry. According to a report from the U.S. Department of Commerce’s Bureau of Economic Analysis, foreign direct investment (FDI) in the processed food industry across North America translates into additional sales of U.S. agricultural products, further supporting American jobs. In 2012, majority-owned affiliates of U.S. multinational food companies had sales of $32.4 billion in Canada and $13.8 billion in Mexico.

When Mexico-based La Moderna located its first U.S. plant in Cleburne, Texas, a lot of people in the Hispanic communities recognized this iconic brand. The maker of pasta, pastries, and whole wheat flour was already shipping 4,000 tons of its products from Mexico to the U.S. every month, but the company’s $35 million Cleburne plant was projected to supply 3,500 tons per month.

Mexican firm Sesajal announced in July 2017 the acquisition of a majority stake in U.S.-based Chosen Foods of San Diego.

The company is a leading processor of specialty oils. “The deal is expected to combine a fast-growing brand in North America with a better-for-you food manufacturing company from Mexico,” said George Todd, director of Chosen Foods. “Sesajal has been a valuable partner for the company for many years.”4 Grupo Bimbo, the “world’s largest bread maker” according to the company, and the “biggest bread seller in the U.S.,” has been investing in the U.S. market for more than 20 years.

The company’s first acquisition in the U.S. was in 1994 when it bought La Hacienda Tortilla Company. Known today as Bimbo Bakers USA, the company’s headquarters are in Horsham, Pa. The company owns brands such as Boboli, Entenmann’s, Orowheat, Thomas’ and, in 2011, purchased Sara Lee’s North American Fresh Bakery brand. The company’s most recent acquisition was announced in July of this year — East Balt Bakeries founded in 1955 in Chicago, which produces and supplies bagels, biscuits, English muffins, tortillas, and breads in the U.S., Europe, Asia, the Middle East, and Africa. Grupo Bimbo reportedly paid $650 million for East Balt.

The largest merger for 2016 was Danone’s acquisition of WhiteWave Foods Co. for $12.5 billion, which doubles the size of the French company’s U.S. business — which has been renamed DanoneWave.

N A F TA R e n e g o t i a t i o n a n d F o o d P ro c e s s o r s Food and agriculture are big business across the North American continent as all three countries in the North American Free Trade Agreement rely heavily on exports across borders.

According to the U.S. Department of Agriculture (USDA), the North American market has become a “bonanza for U.S. farmers and ranchers over the past 20 years,” with one in every 10 acres planted on American farms feeding Canadians and

Mexicans.5 Based on a USDA estimate, for every $1 of food and agricultural exports, another $1.27 is generated in business activity.

That is, in 2016 U.S. food and agricultural exports to Mexico and Canada supported $54.6 billion in additional business activity. “In the 20 years since NAFTA was initiated, U.S. food and agriculture has grown to support hundreds of thousands of good jobs, support U.S. food security, improved efficiency and innovation, and enhanced our competitiveness in a rapidly changing global economy,� said the report.

It is believed by many that NAFTA renegotiation could jeopardize U.S. food processors access to Canadian products.

According to Dr. Al Mussell, Research Lead of Agri-Food Economic Systems in a report for Farmscape, a Canadian publication, “Processors need to be sensitive to the potential impact on them of reduced access to imported Canadian products under a renegotiation of NAFTA.�6 Mussell observes, “The U.S. food processing industry has benefitted from imports of Canadian bulk products, primarily grain, and intermediate imports such as ground grain and livestock.�

In a startling comment, Mussell said, “I think the reality is the U.S. wouldn’t be able to support its food processing

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industries at the level they’ve been able to had they not had access to Canadian products.� He gave an example of oats that the U.S. imports from Manitoba “directly down into breakfast cereal manufacturing plants in the United States. The U.S. is not a large oat producer of its own. Whether or not it could sustain those kinds of industries, understanding that oats are a big part of what goes into breakfast cereal, is perhaps on open question, but probably pretty difficult for them without access to Canada.�

The same holds true for pork products and red meat products, Mussell noted. “We know the U.S. imports a significant volume of Canadian cattle and hogs for processing in their plants and products, which they turn around and export back to Canada as well as elsewhere as ready-to-eat products. That’s the value-added that’s added in the U.S.� FP 1 http://store.hartman-group.com/content/is-big-food-in-trouble-2016.pdf 2 www.clearmarkettrends.com 3 https://www.foodengineeringmag.com/constructionsurvey-list-2017 4 https://www.prnewswire.com/news-releases/chosen-foods-announces-company-sale-to-sesajal-sade-cv-world-leader-in-healthy-oils-and-ingredients-300492531.html 5 www.corn.org/wp-content/uploads/2017/03/Importance-of-North-American-Trade-to-the-U.S.Food-Agriculture-Industry.pdf 6 www.farmscape.com/f2ShowScript.aspx?i=25951

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