EconS 451: Lecture #2
U.S. Food Manufacturing
•
Understand what comprises the Food Manufacturing/Processing
Industry.
•
Understand the changes occurring within this industry and the resultant implications.
•
Specifically:
• Which food types receive the greatest value-added throughout the manufacturing process.
• Recent mergers / consolidation
• Prevalence of production contracts, owner-integration and marketing contracts per product type.
•
Identify recent trends in new product offerings and those bearing nutritional claims.
•
Understand the degree of direct foreign investment and recent changes to the trade deficit.
Source: U.S. Food Marketing System, 2002, ERS-USDA

U.S. Food Manufacturing /
Processing Definition
•
All firms and establishments that manufacture or process foods or beverages for human consumption and
•
Other related products such as manufactured ice, chewing gum, vegetable and animal fats/oils and prepared feeds for animals and fowl.
Source: U.S. Food Marketing System, 2002, ERS-USDA

A Value-Added Business
Source: U.S. Food Marketing System, 2002, ERS-USDA

Nominal Value of
Processed Food Shipments
•
Indication of a mature market
Source: U.S. Food Marketing System, 2002, ERS-USDA

Where the Value Added by
Manufacturers Occurred
Value added = Shipment Value - Cost of Production
Ratio of Value Added = 1-(Value Added / Shipment Value)
Ratio of Value Added
•
Meat
•
Dairy
•
Fats / Oils
All < 30% http://www.ams.usda.gov/mnreports/nw_ls410.txt
•
Bakery Products
•
Beverages
All > 60%
Source: U.S. Food Marketing System, 2002, ERS-USDA

Unique Agriculture Attributes
Source: U.S. Food Marketing System, 2002, ERS-USDA

Source: U.S. Food Marketing System, 2002, ERS-USDA

Primary Commodities Under Contract
Production Contracts Ownership Integrated Marketing Contracts
•
Sugar Beets
•
Processed Veg.
•
Broilers
•
Hatch Eggs
•
Potatoes
•
Sugar Cane
•
Market Turkeys
•
•
•
Sugar Cane
•
Market Eggs
•
Potatoes
Fresh Veg.
Hatching Eggs
•
•
Milk
•
Citrus Fruits
•
Other Fruits/Nuts
Dry Beans / Peas
Source: U.S. Food Marketing System, 2002, ERS-USDA

Concentration Continues:
Top Four Firm Market Share
Processing Type
Red Meat Packing
Steer/Heifer Slaughter
Hog Slaughter
Pasta
Malt Beverages
Dairy Co-ops
Private Dairies
Early 1980’s
47%
70%
30%
42%
77%
17%
39%
Mid1990’s
63%
81%
57%
78%
90%
27%
42%
Source: U.S. Food Marketing System, 2002, ERS-USDA

Mergers and Acquisitions http://www.newint.org/issue172/facts.htm
http://en.wikipedia.org/wiki/Philip_Morris http://money.cnn.com/magazines/fortune/fortune500/snapshots/562.html
http://www.kelloggcompany.com/kelloggco/our_compan y/index.html
Source: U.S. Food Marketing System, 2002, ERS-USDA

Number of Acquisitions / Divestures
Source: U.S. Food Marketing System, 2002, ERS-USDA

Acquisitions / Divestures
300
250
200
150
100
50
0
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
Foreign Acquisitions
Total Divestures
Source: U.S. Food Marketing System, 2002, ERS-USDA
U.S. Acquisitions

New Food Products Introduced into Market
Source: U.S. Food Marketing System, 2002, ERS-USDA

Type of Nutritional Claims
Source: U.S. Food Marketing System, 2002, ERS-USDA

Relationship between Coupon
Distribution and Redemption
Source: U.S. Food Marketing System, 2002, ERS-USDA

Imports, Exports and FDI
Source: U.S. Food Marketing System, 2002, ERS-USDA

Other Manufacturing Changes
•
Total Employment slightly growing in food processing industry
• Meat Processing accounts for 30%
• Fruit and Veg. Processing accounts for 13%
• Bakery Products 12%
•
Cost of Inputs Decreases between 1997-2000
• 12% Less for crude foodstuffs
• 4 % Less for intermediate materials (packaging, etc.)
Source: U.S. Food Marketing System, 2002, ERS-USDA

Summary!
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Total U.S. Food Manufacturing accounts for about 2% of GDP, the total food and fiber system is about 12% of GDP.
•
Proportion of disposable income spent on food continues to drop while total value of all processed food shipments remains relatively flat.
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Concentration in the food processing sector has increased.
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New food products introduced into the market have declined since 1995.
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Those new food products that have been introduced focus on specific nutritional / health claims.
•
Food coupon redemption rates are very low.
•
Trade deficit in U.S. Food Manufacturing grows.
Source: U.S. Food Marketing System, 2002, ERS-USDA