2016 Comparative Food & Beverage Industry Operating Costs and Key Site Selection Drivers — A Q&A with John Boyd, Principal, The Boyd Company, Inc., Princeton, New Jersey
First, tell us about The Boyd Company and your new report, “2016 Comparative Food & Beverage Industry Operating Costs”
A. Founded in 1975 in Princeton, New Jersey, Boyd provides independent site selection counsel to leading U.S. and overseas corporations. Devoted exclusively to corporate mobility, The Boyd Company is recognized as one of the nation’s premier authorities in comparative business cost analysis. Boyd clients in the food & beverage industry include PepsiCo, Nestle, Michael Foods, Gerber Products, Frito-Lay, Godiva Chocolatier and other Fortune 500 companies both in and out of the food sector.
Our new 2016 site selection study compares the cost of operating a typical food processing plant in 24 regions of the U.S. and Canada. The study focuses on current and emerging centers of food and beverage manufacturing activity.
Annual operating costs are projected solely for comparative purposes, with only major geographically variable factors being considered. Those costs not varying significantly with geography, including relocation and start-up expenses, were not considered. The analysis focuses on those key cost elements most pivotal within the food processing industry site selection process, including labor, real estate, power and taxes.
Q. What are the 24 U.S. and Canadian locations included in the new 2016 report?
A. Major geographically-variable operating costs are compared in our new report for the following North American food manufacturing centers:
- Fairfield/Northern CA Region
- Los Angeles/Southern CA Region
- Modesto/Central Valley CA Region
- Salinas/Monterey Bay CA Region
- San Francisco/Bay Area CA Region
- Miami-Fort Lauderdale/South Florida Region
- Twin Falls/Southern ID Region
- Chicago IL Region
- Portland/Southern Maine Region
- Baltimore/Central MD Region
- Minneapolis/St. Paul MN Region
- Omaha/Eastern Nebraska Region
- Henderson/Southern Nevada Region
- Camden/Southern NJ Region
- Brooklyn/Long Island NY Region
- Rochester/Upstate NY Region
- Cincinnati/Southern OH Region
- Eastern Ontario Region
- Allentown/Lehigh Valley PA Region
- Harrisburg/Lebanon Valley PA Region
- Scranton/Northeast PA Region
- Cleveland/East Tennessee Region
- Dallas/North Texas Region
- Tri-Cities/Southeast WA Region
Q. How do the 24 locations rank cost-wise?
A. First, overall costs in our report are scaled to a hypothetical 300,000 sqare-foot food processing facility employing 500 workers. Geographically variable operating cost differentials are based on second quarter 2016 figures from our firm’s proprietary BizCosts data bank. Canadian costs are in U.S. dollars at an exchange rate of .7500.
Presented in the following table is a cost ranking of the 24 food manufacturing regions. Annual costs range from a high of $45.7 million in the San Francisco/Bay Area Region of California to a low of $30.2 million in the Eastern Ontario Region of Canada.
Q. In addition to costs, what other drivers are dominating the corporate site selection process within the food and beverage industry?
A. Beyond the cost of doing business, we see these five factors heavily influencing site selection decisions in the food manufacturing sector:
1. Site Selection Trend: Food Safety and Modernization Act (FSMA)
In today’s global and uncertain economy, comparative operating costs are ruling the corporate site selection process like never before. However, comparative costs are of special concern to the hyper cost-sensitive food and beverage industry — a sector now faced with added compliance costs associated with the new Food Safety and Modernization Act (FSMA) now being rolled out by the Food and Drug Administration. This the most extensive and far-reaching update of federal food safety laws since 1938. It is expected that FSMA-mandated plant upgrades will be economically unfeasible for many older food processing facilities, this spurring a significant demand for new, greenfield manufacturing sites by food processors. Today, food processing — a sector less prone to offshoring — is a growth sector of the domestic corporate relocation field.
Overall, FSMA is a food safety game-changer, shifting the paradigm of the food industry from reaction to food safety events to one of preventing them. It is yet another mandated expense for processors, placing an even greater emphasis on bottom-line operating costs for investment decisions on a new plant and equipment. For many food processors today, improving the bottom line on the cost side of the ledger is far easier than on the revenue side.
2. Site Selection Trend: Water
An epic drought and new government restrictions on ground water access is expected to have long-range implications on food processing site selection decisions in California and throughout the western U.S. In California, the nation’s leading food processing state, water availability and its cost, along with rising taxes, are precipitating an out-migration of food and beverage plants. The availability of reliable, long term water supplies — an asset for water-rich locations like upstate New York and Eastern Ontario — is an increasingly pivotal site selection factor for the food and beverage processing industry.
3. Site Selection Trend: Trade
Foreign consumer markets, especially Asia’s growing middle class, show great demand for U.S. food and beverage products due to their branding appeal, quality and safety. As a result, export opportunities and trade agreements are of growing importance to the food and beverage industry. Canada — included in the Boyd analysis — has free trade agreements with 40 countries compared to only 20 for the U.S. Popular support for free trade with Japan and China is much higher in Canada than the U.S., and the Trans Pacific Partnership (TPP) trade agreement is expected to be ratified in Canada later this year. The TTP — which would connect the U.S. with 12 countries accounting for 40 percent of global GDP — is stalled in Congress and its likelihood of approval after the fall presidential election is uncertain.
4. Site Selection Trend: Canada
Eastern Ontario — home of food processing operations of Kellogg’s, Quaker Oats, PepsiCo and Nestle — is the least cost location in the Boyd analysis. A favorable exchange rate, low world-market sugar prices, low land costs, absence of development fees and lower corporate fringe benefit costs owing to Canada’s national healthcare plan all contribute to its cost effectiveness. In terms of tax policies, KPMG ranks Canada first among G7 nations for its low corporate taxation rates. Last year, Ontario launched the new $2.7 billion Jobs and Prosperity Fund to incentivize new corporate investment and jobs. The fund includes a special food and beverage industry focus and is considered by Boyd as one of the most extensive and best funded incentive programs in North America.
5. Site Selection Trend: Workforce Training
One of the biggest challenges facing our site-seeking clients in the food sector is finding skilled labor to assemble and run the high-tech equipment on the production floor, as well as recruiting scientifically trained workers to carry out demanding quality control research and testing in the lab. Today, the food industry is high tech and suffers the same problems recruiting skilled workers that other advanced manufacturers do. In many markets, the available workforce is not properly trained coming in, so our clients need to do their own training. To assist with this costly undertaking, our site searches include a thorough examination of workforce training programs, as well as access to strong academic programs in the food technology field for training, continuing education and recruiting support.
Colleges with strong food technology programs serving those locations included in our cost analysis include Penn State University, Rutgers, the University of Nebraska, the University of California-Davis, Washington State University, Lehigh University and Loyalist College located in the Eastern Ontario city of Belleville.
SUMMARY COST EXHIBITS FOR ALL 24 LEADING FOOD PROCESSING REGIONS