By Mark R. Smith, Contributing Writer
The postscript to the unrest caused by the COVID-19 pandemic in 2020 that impacted the food processing industry as it did most all aspects of the business world and life in general was that 2021 was, thankfully, going to be the year that the world, the U.S. and industry worked toward the return to some semblance of the pre-pandemic market.
That’s by-and-large been the case, with many businesses that have been temporarily shut have reopened. But part of the reason that it had to work its way back, as opposed to experiencing a swifter rebound, is that while grocery chains saw some of their highest profits ever during the shutdown and shuttered eateries have reopened (if they were fortunate enough to stay in business), are the leftovers from 2020 that have affected the food processing operations.
Its main issues today are similar to those affecting many other industries, including “the sometimes severe disruption to the supply chain,” said Jay Garner, president of Garner Economics, in Atlanta. “In addition, companies of all types are having significant challenges finding a labor supply to staff their facilities.”
Those frequent discontinuities have caused numerous product shortages and have left food providers and processors in somewhat of a Catch 22.
While their doors have reopened, meat, potatoes, fruits and vegetables, condiments, etc., “are still often in spotty supply because of labor shortages associated with the virus,” Garner said. And industry veterans are predicting that it will be at least several months before that set of circumstances may improve.
Some Good News
But Garner pointed out some good news as we move forward, too: During this industry unrest, many consumers are still seeking healthier options and food safety is part of that paradigm.
Smart farming is part of what is driving change in food processing and that horizon is looking bright: the food and beverage industry grew 17 percent during the last decade while breweries, wineries and distilleries showed the strongest gains (surprise), increasing a massive 259 percent during that span, according to the U.S. Bureau of Labor Statistics (BLS).
The BLS also foresees gains from seasoning and dressing manufacturing (35 percent), snack food manufacturing (29 percent), animal food manufacturing (24 percent) and beverage manufacturing (including non-alcoholic products), with additive water and energy drinks leading growth.
But for now, back to the issues: manufacturing, of course, requires varying degrees of labor, and labor shortages are significant in the food processing and farming sectors, just as they are in hospitality, retail and other food-related industries. During the pandemic, a number of processing facilities closed (at least temporarily), which has affected the ability of employers to bring back workers who have new health concerns due to COVID-19 and replace those who have opted to change jobs and join the health industry, work for Amazon, etc., as they also lack solid workforce numbers.
While immigrants, legal or otherwise, have often beefed up workforce where needed, today’s “immigration issues related to migrant workers are still causing farmers labor setbacks,” said Garner. “There are simply not enough people who will do the difficult work related to farming.”
Part of the answer to the question of lack of workers is what was being discussed and employed well before the pandemic: automation.
“More farmers are using technology and the Internet of Things to gather data related to their operations,” said Garner, noting GPS systems, sensors, drones and robots as key tools in running a farm. “Self-driving tractors, automated crop harvesting and crop fertilization are becoming the norm. In a labor market where adaptation and innovation mean survival, farmers are showing the way.”
And they’re doing so in a manner that will be safer for the public, via the Food Safety Modernization Act (FMSA). It was signed into law in 2011 and gives the Food & Drug Administration (FDA) authority to regulate the way foods are grown, harvested and processed. The law grants the FDA various powers, including mandatory recall authority.
The FSMA was created after numerous incidents of foodborne illnesses during the early 2000s, mainly by members of the Grocery Manufacturers Association, after contaminated food cost the food industry billions of dollars in recalls, lost sales and legal expenses. According to the Centers for Disease Control, about 48 million (about one in six) people contract foodborne illnesses every year.
On the processing side, companies are also increasingly relying on advanced technology to enhance food safety practices during the packaging process. For instance, antibacterial liners are used to squelch spoilage and heighten shelf life, and artificial intelligence is being employed via sensors and machine visioning during the processing, sorting and shipping of commodities.
‘Not Easy Work’
Andy Drennan, senior vice president, membership/business development/special projects, for the McLean, Virginia-based Food Processing Suppliers Association, is with Garner and many other observers when it comes to addressing the industry’s lack of workforce.
“It’s really simple now,” said Drennan. “We represent the equipment manufacturers and can see that it’s about increasing automation.”
Due to COVID-19, food processing companies “are having trouble operating the plants. That’s no longer about saving pennies per pound, but just getting the product out the door with a workforce that’s getting older and more selective,” he said. This is not easy work and workers are looking at other opportunities.
“Therefore, it’s a matter of food companies wanting more equipment,” Drennan said. “Companies that 10 years ago needed 20 people operate a chain today just don’t have that labor. So they know they need to change and change quickly, and hope to get three or four people to do the same amount of work with new equipment.”
The good news here is that technology is making a difference – to the relief of many corporations and business owners.
“It’s never been better,” he said. That’s good, because “most [equipment] in the food processing industry is custom-built, so there’s nothing in the back room in case something goes wrong. And the operations side of the plant is desperate for employees as well, since the U.S. doesn’t generate a solid workforce, which is especially true in the cases of workers who can operate custom equipment the way they used to.”
The supply chain problems caused by COVID-19 have resulted in higher food prices, Drennan said the U.S. government’s consideration of taking action against meat producers, for instance, is misdirected. “This isn’t about price gouging, but interruptions to production and supply chain issues. It’s been hard not having access to the normal amount of animals and feed, and thus the finished product.”
While there should eventually be an answer to this part of the issue, it won’t be tomorrow. “It will take a while to get through this. We can’t even find truck drivers today,” he said, adding, “It used to be that companies in our business had to compete with each other for labor; however, each business competes with not only other businesses in the same industry, but other industries due to the shrinking talent pool.”
And those factors have given workers a highly-raised upper hand in job negotiations.
“I’ve never seen a time or situation where the worker has as much power as they do now, and that’s across all educational backgrounds. And it’s not all about money; it’s about perks and lifestyle,” Drennan said, “and many want to work remotely. The Generation Z worker is demanding it.”
For all of the blame COVID-19 is getting for various problems in the business world, he doesn’t feel that’s the case with the labor shortage. “Though some workers don’t want to come back and work in person for that reason,” he said, “the pandemic did bring a focus to it.”
Drennan fears that these various issues will lead some once vibrant operations to close their doors. “There are large and small food companies that know how to produce their product, but bringing it to the next level is really hard. So they have to pay engineering firms for direction concerning new equipment, hiring workers and training them.
“But I don’t know how some of them will do it and stay afloat,” he said. “I think the businesses that learn to leverage the members of GenZ and harness their intellectual capabilities are the companies that will succeed.”
Leslie Wagner is senior principal with Indianapolis-based Ginovus, an Indianapolis-based location modeling and site selection firm that can offer an expansive and keen perspective into the evolution of the food processing industry. During a 20-year span, Ginovus has not only worked on numerous projects in the food processing industry, but has a matrix for every project undertaken.
That matrix includes a deep analytical dive into a location’s business climate, “including the corporate and individual income tax rates, the property tax rate, and unemployment taxes and sales tax,” said Wagner. “That’s only one part of the criteria we use, which also includes understanding real estate availability and costs, natural disaster risks, labor availability, environmental regulation and quality of life factors.”
“As that relates to the food processing, infrastructure capacity is the primary driver,” she said, “and locating sites in less dense markets/more rural areas that are well located from a transportation perspective is generally of interest, particularly for smaller food processors. Our objective is to identify infrastructure-ready sites that have adequate and reliant power along with ample water and wastewater capacities.”
The latter leads to one key issue to be aware when making a location decision. “Know that one thing you don’t want to do to,” said Wagner, “is locate a food processing plant in an area that does not have reliable power sources.”
It’s not a surprise that not all communities are receptive to food processing, especially if odors or other environmental factors are present. “If such a business is in close proximity to a residential area,” she said, “you have to be mindful that neighbors may protest the use in close proximity to their homes.”
What it comes down to is a balancing act. “A food processing business will need adequate utilities, business services to support operations and a qualified workforce, which is a huge issue today, even in highly-populated areas,” said Wagner.
On that last note, Wagner said most projects Ginovus is working on have been heavily affected by the labor market. To obtain the best result, “We mitigate employment risk by examining the employment classifications needed by the company in operations, production and food technology, then using proprietary data sources identify markets that have ample employee availability.”
And that’s when more of the realities of the labor challenges arise. “When you have a fast food restaurant paying $20 an hour and your other option is hands-on food processing,” she said, “which job will be more desirable?
A further complication within the labor market is the post-pandemic labor market interest in hybrid work models, in particular the workers want to locate where they want to live as opposed to where the job is located. Working remotely within the food processing industry isn’t always feasible, and if the potential hire finds another job opportunity that allows that flexibility, it is often the tipping point of their job selection.
“[Choosing a position has] gotten to be more about quality of life,” Wagner said, noting some of those potential employees, particularly the younger generations, want to work at home to avoid not only avoid the risks of COVID-19, but also because they have found balance and a better quality of life by doing so.”
Moving forward, what will make working at home more feasible (and working in a plant less hazardous) is advanced manufacturing. That’s why Courtney Zaugg approaches the food processing industry from its future, in that she consults with communities to develop innovation centers.
Of recent note in her world is the Magic Valley Food Innovation Center study in Twin Falls, Idaho, that Zaugg, president of Indianapolis-based Plaka + Associates and Pittsburgh-based KRNLS, conducted to estimate the demand for food entrepreneurship from the angles of testing to packing to distribution and everything in between.
What’s better than luring a food processing plant to a given jurisdiction? Locals building within the industry from the ground up. They may turn out strong contributors to a local economy, which is especially meaningful outside of the major metros.
“Glanbia Nutritionals has a research and development facility in Twin Falls, which is a rural area,” said Zaugg, “but with a strong dairy sector. That was our focus. We landed at about 25,000-square-foot for the center, which will be notable for its testing and technology capabilities. There is a large focus on agricultural technology in that area, so bringing in the right instructors will be crucial for the innovation center’s success.
Plaka already has already crunched some analytics concerning how the building would look and what general investment priorities will be in play. That’s important, due to the need for cold and dry storage, testing labs and technical capabilities for increased productivity, as well as app development via new technology.
That heightened emphasis on technology is clearly the good news. “There has been an increase in the amount of venture capital being invested in the food processing sector,” Zaugg said, pointing to reports from TechCrunch and Crunchbase that indicate investors are committed to food innovation, or ‘agritech,’ now more than ever with current estimates of global investment topping $130 billion.
That’s good news in Twin Falls, too. “The founder of Chobani called that area ‘The Silicon Valley of food innovation,’” said Zaugg. “This statement is especially interesting, because Magic Valley is within a rural eight-county region and has a population of about 206,000. It’s not an urban center.”
Happily, the approach of firms like Plaka and KRNLS look like they’ll pay off. “The demand is rising in the ag market for agri-food products like oat milk or plant-based burgers. That’s where the innovation is happening,” said Zaugg, noting that UBS forecasts that the plant-based meat market will reach $85 billion by 2030.
“Leaders in this region want the new innovation center to help pinpoint advances in research and technology that result in such new products,” she said. “Many people are trying to create plant-based burgers, for instance, among myriad products to sell on the open market. [Those efforts have] received about $15 billion in venture capital and from angel groups that have invested in meat-alternative products, also according to UBS.”
But if you’re thinking such innovation and investment will result in the end of the agriculture business as the world knows it, she doesn’t see that coming, either. Archer-DanielsMidland Co., for instance, reported that 56 percent of consumers globally are trying to eat more plant-based foods and beverages. That’s a great chunk of the market, but that’s not all of it.
“While new products will emerge,’ said Zaugg, “the dairy industry is strong and will remain that way moving forward, and I think both sides will continue to grow and show strength.”
Next on the agenda for Plaka is a project in the U.S. Virgin Islands that calls for two innovation centers, one in St. Thomas and one in St. Croix.
“We’re planning what each will look like with the local [EDO],” said Zaugg, noting that the facilities may include a small TV studio, test kitchens and processing equipment since the Islands are a mecca of fine cuisine and wine; it attracts not only tourists, but celebrity chefs who want to promote their creations.
That’s where Nadine Marchena Kean, managing director, enterprise zone commission for the United States Virgin Islands Economic Development Authority (VIEDA), and the locals enter the picture. “We held a charette process with the community’s stakeholders and created a revitalization plan, and the community identified food as an anchor industry,” she said.
In the medium-term, Plaka and VIEDA are partnering on the development of the food and ag innovation centers to encompass programming, organizational structure and facility layout. Marchena Kean said the food sector has long been key in promoting the economic growth of the islands. “However, this ag and food innovation project is being approached from a different perspective than before,” she said. This time around, the “initiatives and facilities are focused more on working with farmers and other ag and food entrepreneurs that had not been [part of the previous] focus.”
This new effort, she said, “is being adapted to the islands’ needs and will incorporates several best practices in these areas.”
VIEDA’s vision is that the new center “would be the anchor that creates a place where foodies and techies can come to collaborate on all levels,” said Marchena Kean. “We envision it will be a catalyst, in the center of the Caribbean, for all things related to agriculture, food and technology.”
About the Author: Odenton, Maryland-based Mark R. Smith joined Expansion Solutions after having written about site selection among the vast number of topics he has covered in the business universe. That part of his career began in 1993 when he joined The Daily Record, a Baltimore business and legal publication, where he delved into the worlds of economic development and commercial real estate, among numerous other industries; in 2003, he was named editor-in-chief of The Business Monthly, another Maryland publication that covers the scene in the Baltimore-Washington Corridor counties.
Concurrently, he’s written at length about the film and video industry for a variety of publications, and about his other loves, including music, sports and leisure.
Jay Garner, president 404-518-8911 cell and firstname.lastname@example.org
Food Processing Suppliers Association
Andy Drennan, senior vice president, membership/business development/special projects
703-663-1201 and email@example.com
Leslie Wagner, senior principal 317-819-4412 cell and firstname.lastname@example.org
Plaka + Associates
Courtney Zaugg, president 317-517-5390 cell and email@example.com
United States Virgin Islands Economic Development Authority
Nadine Marchena Kean, managing director, enterprise zone commission