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

U.S. Food ManufacturingEconS 451: Lecture #2

• 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)

• Meat

• Dairy

• Fats / Oils

• Bakery Products

• Beverages

All < 30%

All > 60%

Ratio of Value Added

http://www.ams.usda.gov/mnreports/nw_ls410.txt

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

• Sugar Cane

• Market Eggs

• Potatoes

• Fresh Veg.

• Hatching Eggs

• Sugar Beets

• Processed Veg.

• Broilers

• Hatch Eggs

• Potatoes

• Sugar Cane

• Market Turkeys

Production Contracts Ownership Integrated Marketing Contracts

• 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 Early 1980’s Mid-1990’s

Red Meat Packing 47% 63%

Steer/Heifer Slaughter 70% 81%

Hog Slaughter 30% 57%

Pasta 42% 78%

Malt Beverages 77% 90%

Dairy Co-ops 17% 27%

Private Dairies 39% 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_company/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

0

50

100

150

200

250

300

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Year

#

Foreign Acquisitions

Total Divestures

U.S. Acquisitions

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

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!

• 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.

• Concentration in the food processing sector has increased.

• New food products introduced into the market have declined since 1995.

• 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.