As food prices soar, sustainability becomes more than just an environmental buzzword—it’s the key factor in choosing a new location with access to raw materials and a customer base.
Anyone searching for evidence of the interconnectedness of today’s world doesn’t really need to understand satellite technology, global capital flows, or game theory. Simply looking at the cost of a dozen eggs at the local grocery store should do the trick.
Grocery Manufacturers Association (GMA) members, who operate within this web of mutual dependencies, have experienced increasing input costs throughout 2007 and 2008. Overall, crop prices are up 31% from last year. These raw material price increases can have a significant impact on manufacturers-large food companies attribute 45% to 55% of their products’ price to raw material costs, and the industry is not likely to see relief soon.
Despite this challenging economic climate, U.S. consumer products manufacturers experienced a 10.6% sales growth this past year and delivered a relatively strong shareholder return of 7.3% in 2007, according to The Food, Beverage and Consumer Products Industry: Achieving Superior Financial Performance in a Challenging Economy 2008, a report prepared by PricewaterhouseCoopers LLP for the GMA. Released in June, the report states that even in a difficult economy with ever-increasing commodities prices, agile consumer product companies can achieve growth by adopting successful practices in key strategic areas.
The report found that the aggregate market index, known as the CPG Market Weighted Index, closely tracked with the Dow Jones Industrial Average and S&P 500 for most of 2007 and was in line with the market for two of the past three years (2005-2007). Another key finding of the study: While there is some exposure in sustainability reporting, it can enhance a company’s bottom line and shareholder value.
An interconnected world is a great reason for all of us to create a more sustainable world. One way to combat rapidly rising input costs is to-simply enough-use fewer inputs. That’s where sustainability practices come in, because using fewer raw materials is one of the main tenets of sustainability. CPG (consumer packaged goods) companies, due to the high visibility of their branded products, are-as a sector-more committed than most to sustainability. There is great progress being made in corporate sustainability reporting, as well as the ways in which forward-looking companies are deriving value from both sustainability practices.
We are learning that, while the ever-shrinking world has many benefits, it also poses challenges; we can harness the interconnectedness driving accelerated input costs to create superior performance. The modern CPG sector has shown remarkable adaptive abilities, responding to recessions in 1973, 1980-1982, 1991, and 2001-2002 with its trademark resourcefulness and resilience. No doubt, CPG companies will similarly respond to today’s challenging economic environment, as we remain steadfast in our mission of providing the safest, highest quality goods to consumers the world over.
Sustainability also is created when you locate your food processing plant close to both raw products and your customer base. Here are some examples from a key U.S. region that is creating the business climate to provide you with both needs for your relocation or expansion.
Genesee County: Home to the Largest Agri-Business Park
The Genesee County Economic Development Center (GCEDC) broke ground this spring on what it says is the largest agri-business park in the nation, according to a June article in The Buffalo News. The Genesee Valley Agri-Business Park, a vision of Steven Hyde, president and CEO of the GCEDC, will convert nearly 600 acres of former farmland into a business park devoted to food processing.
GCEDC received a $3 million grant from the state of New York in 2007, the largest single award received by the GCEDC, according to Hyde. “This grant is the culmination of three and a half years of hard work and countywide collaboration and represents the single largest economic development grant received in our history,” says Hyde when announcing the grant.
“This demonstrates a significant commitment by the state to assist in capacity building by providing strategically critical investments. The Governor’s office and Dan Gunderson, the upstate Chairman of Empire State Development, had both stated their commitment to support strategic industry clusters and this certainly solidifies that commitment,” Hyde adds.
Components of the project include 1.3 million square feet of food processing, research and development and warehouse/distribution space. The site could yield more than 1,000 new jobs to the region when complete. Located near six million gallons (daily) of aquifer water, it is ideal for food production companies looking to locate in Genesee. The park also is located next to OATKA Milk Products, one of the largest food processing employers in the county. Additonally, this county has an employment concentration for food production that is nearly twice the national average, according to the GCEDC.
Agribusiness, consisting of food production, food processing and packaging, and food product distribution, is the number one industry in Genesee County. In fact, according to the 2002 Census of Agriculture, Genesee County is the New York state leader in terms of food production output, with an annual average of $124.9 million worth of agricultural products sold. Not only that, three of the top 10 largest vegetable farms in the U.S. are in Genesee County; it is one of the top 10 counties in New York state for onion, cabbage, sweet corn, milk, and wheat production, and the county is ranked second in the state for production of cattle, fourth in total sales of agricultural products, and has the fifth highest milk production. Perhaps that’s because Genesee County is part of the Great Lakes and Finger Lakes regions, which provide long-term fresh water availability that’s more reliable than anywhere else, making it one of the most logical choices for locating a food processing company.
Livingston County’s Barilla Plant Takes Top Honors
Livingston County, located in the Genesee Valley/Finger Lakes region of western New York State, encompasses 638 square miles with a population of 64,328.
Because time is of the essence-particularly with delivering food products-this county is a great location for food processing. The richest market in the world is within a radius of 750 miles of New York State; this radius includes half of the total U.S. and Canadian populations and covers the 18 northeast states and parts of two Canadian provinces. Half of the U.S. personal income, wholesale sales, and about 50% of its retail trade are accounted for within this radius.
That’s just one of the reasons agriculture and food production are a large part of the expanding businesses in Livingston County. More than 50% of the land area is used for agriculture, and the county is within the top five New York counties in grain, beet, bean and dairy production.
Nearly all food processors and commodity handlers have expanded into major regional and national production marketers. Livingston County is the sole manufacturing location for Kraft’s Cool Whip dessert topping and a major production site of Oscar Mayer Lunchables. Barilla, the worldwide pasta market leader, opened its second U.S. manufacturing plant there in 2007.
Barilla, named the most respected company in the world by Forbes magazine, was attracted to Avon, NY because it is close to east coast markets, expressways and rail lines. During the six-month site selection process, Barilla’s consulting firm, Deloitte, reviewed 54 sites in 13 states before choosing Avon. It was a great choice for Barilla, since nearly 50% of the company’s U.S. sales comes from its Northeastern customers. The state-of-the-art facility, which recently won Food Engineering magazine’s 2008 Plant of the Year award, churns out up to 100,000 tons of pasta a year, nearly half of Barilla’s U.S. product.