By Mark R. Smith, Contributing Writer
This is an interesting period in the food processing industry. On the surface, it’s enduring a number of struggles, such as addressing inflation, supply chain issues, lack of workforce, energy costs, etc.
But the industry always has one ace in its deck of cards, no matter the problems: people get hungry a few times a day. Or more.
So while the industry addresses its issues via training programs, robotics, digitalization, analytics and other methods, know that while the U.S. braces for a much-discussed potential recession (that the country may be experiencing or may even be over, depending on the sources), the long-term forecast for the domestic food processing industry looks bright.
According to Verified Market Research, the domestic market reached $143.51 billion in 2020 and is projected to hit $235.67 billion by 2028, growing at a compound annual growth rate of 6.6 percent from 2021 to 2028.
Part of that growth will be fueled by technology. Leslie Wagner, senior principal with Indianapolis-based Ginovus, said a key trend is digitalization, meaning that “vendors, compliance agents and customers are demanding a higher-tech approach to food processing that encompasses packaging, labeling and tracking,” with food safety being a primary driver.
While that approach adds expense to the process, “not doing so could be even more costly,” Wagner said.
The workforce shortage also results in driving up the cost of food, but it also points the way to greater automation, which may result in more consistent production. “Robotics are becoming a more integral part of food processing and are being driven, in part, by the labor shortages,” Wagner said, “but it’s also a way to mitigate labor risk and keep production at needed levels to meet shifting consumer demands.”
The ironic angle, she said, is that in the not-too-distant past, industry was concerned about automation taking jobs away from the workforce.
“But as it’s developed, automation is needed to keep production levels higher. It’s also good news for workers who are willing to upskill,” she said. “These automated jobs are more technical and often result in higher wages.”
In addition to automation, food processors are evolving in other ways. Due in part to these very workforce issues, employers are enhancing the quality in the workplace by increasing natural light, encouraging proper ergonomics and generally trying to create better atmosphere.
Another trend is sustainably, especially as it relates to packaging. “Some of the big food producers like Kraft Heinz and ConAgra are committed to using only recyclable, reusable or compostable packaging by 2025. That’s partially because many larger retailers like Costco, Walmart and Target are putting pressure on their suppliers to do so,” Wagner said, “simply because their customers are demanding it and in recognition that it is the right thing to do environmentally.”
Another part of the move toward sustainability involves plant-based foods, which have grown to a $1 billion sector. “From a consumer demand perspective, there are more analytics used by food processors who are responding to such consumer trends, as well as healthy and environmentally friendly products,” she said.
And while it has its pros and cons, indoor farming is also coming to the forefront.
“It allows fresh products to be grown in closer proximity to consumers,” said Wagner, “requires a much smaller footprint than a normal-sized farm and creates year-round employment, versus seasonal, for agricultural workers.”
“But the downside to these projects,” she said, “is they require a great amount of energy and water and in more rural environments, the needed infrastructure can be a challenge.”
At Madison, Wisc.-based Diligent Solutions, Site Selection Lead Charlie Walker said the firm is seeing many companies prioritizing product innovation, as well as digital and e-commerce infrastructure.
Several are looking to improve their “hit the market fast” strategies by eyeing expansion to new market while helping companies reprioritize their supply chains. This trend “will only accelerate in the hot-and-fast-growing market for health and wellness products,” said Walker.
“As consumers return to the brick-and-mortar stores, private label appeal increases. Some companies are pivoting to take advantage of consumer in-store shopping comparison and looking for collaborative partners who are strong in the private label space,” thus a spike in activity, Walker said, adding that Diligent is starting to see more partnerships, mergers and acquisitions aimed at accelerating process refinement and capabilities.
To his point, NextFoods recently merged with all-natural sports nutrition leader Cheribundi and gut health innovator GoodBelly, better positioning two high-growth companies looking to capture category and product synergies within the functional food and beverage trends of whole foods-based nutrition.
Walker also offered the example of the Kirin-owned New Belgium Brewing Co.’s acquisition of Constellation Brands’ production facility in Daleville, Va. The deal will allow Fort Collins, Colo.-based New Belgium to expand production capacity for its craft beer portfolio, including its popular Voodoo Ranger.
Concerning the supply chain issue, Walker cited companies like New Belgium that are locating closer to customers, vendors and markets for reasons that stretch beyond the issues that came to a brighter light during the shutdown.
“When choosing that next facility site, risks associated with natural disasters, including flooding and earthquakes, tornados and the like have always been considered. Much of this could be adjusted for, or mitigated, during the design and construction process,” he said. “Now, we’re spending more time with the client’s crisis team reevaluating backup plans to try to keep the supply chain moving when an emergency siphons resources or causes slowdowns.”
“Even train derailments have become part of that equation,” he said. “What if your supplies get caught in an investigation and the train gets hung up for several weeks?” he said, citing the recent Norfolk Southern chemical situation, as well as the dairy explosion in Texas and forest fires in California.
Walker also suggested that “economic developers should reacquaint themselves with their area’s crisis plan” and be prepared to assist clients. “It’s about risk management,” he said, “and a search for cost savings.”
Concerning problems finding workers, Diligent’s clients are working with community colleges and universities to get help via internships and apprentice programs. While automation offers some relief, “It’s capital intensive,” he said. “Since prices have not yet dropped back down, companies are addressing the dilemma by investing in their workforce with training and more benefits.”
Still, all told, he sees a bright horizon. “With rising interest rates and supply chains improving, clients are looking at ways to make [production] more efficient,” Walker said. “Their main question concerns whether they need to be closer to ports or to final processes. I’m not seeing any mass layoffs, plant shutdowns or any downside.”
The Wild Card
An observer who is keen on taking the automation route is Christopher Lloyd, senior vice president/director, infrastructure and economic development for McGuire Woods Consulting, in Richmond, Va.
“Increased automation often helps when you can’t find enough workers,” said Lloyd. “While the projects are more capital intensive, the fewer human touches that are involved in processing can provide other benefits, including improved safety,” also noting, like Wagner, that automation can be key to the final steps of product manufacturing, including the packaging and boxing.
What geographic markets are hot “depends on the market served,” he said, “but food processing operations are often very water intense, so locations with strong water treatment capabilities are often attractive. Also, the closer a company can locate to commodities used in production such soy or protein, the better. There are always clusters around such areas.”
Concerning the U.S.’s current issues with market volatility and inflation, Lloyd stated the ironclad bottom line of the matter: “People are still eating food and that’s why there has been an incredible amount of investment going into the market. It’s even one of the hotter markets within this industry in recent times.”
“Even if you look across industries,” he said, “food and beverage is in anybody’s top five.”
Yes, commodity prices have risen, but “even the supply chain issue has not been as much of a factor in hindering the growth, especially when those coveted commodity producers are nearby. The only thing I’m concerned about,” said Lloyd, “is inflation, which is causing machinery to become more expensive and could restrain future investments.”
Brandon Talbert also heralded the overall health of the industry. The managing director of Cleveland-based Austin Consulting said, “There is a continual stream of activity, whether it’s a new plant or expansion, despite the economy. The industry is somewhat insulated from market volatility.”
And one of its problems was a problem before the pandemic, Talbert said.
“The workforce shortages have really been a challenge for site selectors. While it has been an issue across manufacturing, it’s been particularly hard for food processors due to strong demand in certain categories has been driving expansion and hiring activity,” he said.
But the extent of the challenge “doesn’t necessarily correlate to the size of the location,” Talbert said. “It’s an issue affecting companies in rural as well as large metro areas. It’s more about competitively positioning among other employers and job opportunities in the area. Being in a favorable location is a significant advantage.”
Therefore another factor here is the preponderance of large distribution facilities in hubs such as Kansas City, the Lehigh Valley region of Pennsylvania and Harford County, Md.
“Amazon and others are now competing directly with manufacturers,” said Talbert. “Fulfillment centers tend to cluster and, given their density and rapid pace of development and hiring, they can have a significant impact on other businesses operating in the area.”
The accelerating creep of automation into food processing is a thing, just as it is across manufacturing. However, that too has put pressure on the demand for skilled labor, especially since those workers often require the aforementioned upskilling.
“It’s a huge headache for anyone who’s in plant operations,” Talbert said. “The technical schools and community colleges have not been able to keep up with demand and you have a lot of seasoned maintenance folks who are retiring.”
Still, Austin is helping companies relocate.
“Some of our clients have been forced to make the difficult decision to close underperforming facilities due to these ongoing labor challenges.” Talbert said. “They’ll often contemplate automation, but in some cases it’s not a viable solution. So they build a new, more automated facility elsewhere.”
For instance, one of his clients had legacy, poor performing facilities in multiple locations and opted to consolidate into a new facility, though it brought less than 10 percent of its workforce to the new location.
Talbert also remarked on the “increasingly intense cost pressure in an industry where margins run thin,” he said, such as increased wages needed to attract workers combined with rising utility costs, “which are generally more significant in food processing anyway.”
How can communities and states help? “Offer more creative incentives, such as site improvement grants, special utility rates and property tax incentives,” Talbert said. They can reduce costs, which is particularly important “given the high cost of capital required to build a new facility.”
It’s ‘About Yield’
Despite today’s issues, these industry insiders expressed optimism about what lies ahead for the food processing industry, including Subash Alias.
“There were three industries that were hot during the height of the pandemic,” said Alias, CEO with the Missouri Partnership, in St. Louis. “Distribution, construction materials and food processing― though the latter has always been strong.”
His reasons for the above statement include Principe Italia (the former Swift Prepared Foods) opening an approximately $200 million, 325,000-square-foot Italian meats and charcuterie production facility in Columbia. Mo.; the new $68 million, 420,000-square-foot production facility built by Niagara Bottling, in Kansas City; and the $800 million, 500,000-square-foot beef processing plant for American Foods Group that’s underway in Warren County, Mo.
“Nothing of its kind has ever been built,” he said.
Those above news flashes were inspired by Missouri’s solid access to protein. “When we saw the supply chain disrupted due to COVID-19, we saw more activity. We have three or four more companies looking to locate here,” Alias said, citing its animal health corridor near Kansas City that spans from Kansas to mid-Missouri. “That attracts a national focus.”
Missouri also boasts a plant sciences sector anchored in St. Louis that is addressing the challenge of feeding a growing population in a harsh climate. “This issue has been going on for decades,” he said, “but new companies have still sprung up around these two clusters.”
What’s next? Alias noted the trend of geospatial technology becoming part of the industry’s core. “It allows farmers to use satellites to grow plants, water them, use fertilizer,” etc., “more efficiently,” he said. “They signal the distribution equipment of when to spread what’s needed and where it’s needed most.”
“The population is growing and we’re not making any more land,” he said. “This is about yield.”
That the general citizenry is continuing to look into their health is yet another boost for the industry. Still, Alias expressed some concerns about interest rates and the expense of equipment. “However, I wouldn’t call this a downturn,” he said. “After all, people are still eating food.”