Current Economic Indicators
The food manufacturing industry is one of the United States’ largest manufacturingsectors, accounting for more than 10 percent of all manufacturing shipments. Theprocessed food industry has experienced fairly steady growth over the 1997-2006 periodbut experienced a slight decline from 2005 to 2006. In 2006, the value of food shipmentswas $538 billion, an increase of 27 percent from 1997 shipments of $422 billion (seeFigure 1).1 Demand for processed food products tends to be less susceptible tofluctuating economic conditions than other industries.
In 2006, there were 28,000 establishments in food manufacturing. Large multinationalsare a big presence in the industry but although they account for 36 percent of all the jobsin the industry, they represent just over 500 of the 28,000 establishments. Eighty ninepercent of establishments employ fewer than 100 workers.
According to the Food Institute, there were 99 mergers and acquisitions among food processing companies in 2006, up from 94 in 2005, but down from 168 in 2000.Acquisitions and mergers have already resulted in consolidation of some of the largestcompanies in the industry.
In 2007, the ten largest U.S. companies in this sector according to Food Processing wereKraft Foods, Tyson Foods, PepsiCo, Nestle, Anheuser-Busch, General Mills, DeanFoods, Smithfield Foods, ConAgra Foods, and Cadbury Schweppes. Kraft Foods, thelargest in the industry, employs 103,000 employees, has more than 180 manufacturingand processing facilities worldwide, and reported net revenues of $37 billion in 2007.Kraft also manufactures some of the industry’s leading brands, such as Oreo, Nabisco,Oscar Mayer, Philadelphia Cream Cheese, and Maxwell House coffee.
The industry invests heavily in technology and increased automation and production improvements have allowed companies to increase output while relying on feweremployees. Employment in the industry declined 5% from 1996 to 2007, decreasingfrom 1.56 million to 1.5 million (see Figure 2). The Bureau of Labor Statistics expectsoverall wage and salary employment in food manufacturing to experience little or nochange over the 2006-16 period, compared with 11 percent employment growth projectedfor the entire economy.
Geographically, the largest percentage of workers in the industry is concentrated inCalifornia, making up 11 percent of the food processing industry workforce in 2005.Texas, Illinois, and Pennsylvania employed significant percentages of the foodprocessing workforce at 7 percent, 6 percent, and 5 percent respectively with the rest ofthe workforce fairly evenly distributed across the United States.
Nature of the Industry
Processed foods are “value-added” products, referring to the fact that a raw commodity orcommodities are transformed into a processed product through use of materials, labor,and technology. Any product that requires some degree of processing is referred to as aprocessed product, regardless of whether the amount of processing is minor, such as forcanned fruit, or more complex, such as for snack foods.
Of the sub sectors that make up the food manufacturing industry, the largest four: meatproducts; other food; dairy products; other food; and grain and fruit and vegetablepreserving and specialty food manufacturing, made up 68 percent of total industryshipment values of $510 billion in 2006. Other sectors included grain and oilseedmilling, which accounted for 10 percent, bakeries and tortilla manufacturing (10 percent),animal food manufacturing (6 percent) sugar and confectionery product manufacturing(5%) and seafood products (2 percent).
Market Overview and Demand
According to the Department of Labor, average annual food spending per personincreased 18 percent during 2000 to 2006, from $5,158 to $6,111. Total spending onfood makes up about 13 percent of a household’s total average annual expenditures. Ofthe $6,111 in food spending, $3,417 was spent on food at home and $2,694 was spent on5food away from home. Consumers spent the largest portion of their food at homespending ($1,212) on the “other food” category which includes sugar, sweets, fats andoils, miscellaneous foods, nonalcoholic beverages, and prepared food.
Most supermarkets now offer prepared meals. There is high demand for conveniencefood and ready to serve products such as snack foods, snack bars, and frozen food that arepopular with double income households and consumers who are generally short on time.The aging U.S. population and rising per capita incomes should cause this trend tocontinue.
As the U.S. population becomes increasingly ethnically diverse, consumer demand forfood products also diversifies. The Hispanic population continues to grow rapidly and processed food companies are developing new products for this population. Some retailers and supermarkets now cater specifically to Hispanic populations. Also, manytraditionally ethnic food products are crossing over to the mainstream population.
Other factors affecting demand for processed food in the U.S. market include concernabout dieting and obesity, allergens, and increased interest in sourcing locally and use ofquality ingredients.
Organic food is another market segment that has grown rapidly (an estimated 20% peryear through the 1990s according to USDA) due to increased consumer interest inhealthy products. Organic food can now be found in traditional supermarkets, naturalfood stores, and other retail markets. USDA issued Federal standards for organic food in October 2002. In accord with the standards, a certified organic processed product mustuse at least 95 percent organic ingredients to be labeled or represented as organic. The Organic Trade Association reports that sales of organic food were $16.7 billion in 2006,making up nearly 3% of total food sales. Sales growth was strongest for organic meat,dairy, fruits and vegetables, and bread and grains. The Organic Trade Associationanticipates growth of 18 percent a year for the organic food industry through 2010.
Retail food sales at warehouse clubs and supercenters has increased steadily since theirintroduction in the 1980’s and have taken away some sales share from traditionalsupermarkets which still sell 58 percent of all retail food. The leading U.S. groceryretailers are Walmart and Kroger, while top warehouse clubs include Sam’s Club,Costco, and BJs.
Food manufacturers continue to invest in greater automation in manufacturing processes.Budgeted spending for plant equipment, upgrades, computers, and automation remains atsteady levels and manufacturers are adding additional processes to address concerns withensuring food safety. Increased use of automation and innovation in the manufacturingprocess has limited employment in the manufacturing sector to some extent.
According to Food Engineering, key issues for plant manufacturers include planttechnology improvements and automation, consolidation, energy costs and usage,consumer demand for healthier and more nutritious products, and continuousimprovement programs.
Use of radiofrequency ID (RFID) tags is still limited in the food manufacturing industrydue to its prohibitively high cost. The technology consists of tagging pallets with RFIDtags to track goods through the supply chain from the factory floor to the store. Althoughit is currently not used on a widescale basis on individual products, it could be headedthat direction if technology costs drop. Walmart required its top 100 suppliers to haveRFID technology in place to track pallets in 2005. And according to a 2006 FoodEngineering Survey, 40 percent of respondents indicated that their companies either hadinitiated or were investing already in RFID-tag initiatives.