The U.S. food processing industry plays a vital role in the U.S. economy, accounting for 1.4 percent of the U.S. Gross Domestic Product (GDP) and 7 percent all U.S. exports, according to 2004 statistics from the U.S. Bureau of Economic Analysis. Food processing is critical to the health, vitality and security of the entire nation, providing Americans with constant and reliable access to a most basic need. And, because the production and processing of food occurs throughout the nation, every region of the country is at least partially dependent on the health of the industry for a strong economy.
Yet, despite the vital nature of the industry, U.S. food processing is today in a fight for its life. Across the U.S., food processing companies are working harder than ever before to maximize production, minimize costs and make careful choices designed to increase global competitiveness. Specific challenges include aging plants, closures, market proximity and globalization, a dearth of qualified workers and spiraling costs. The market also has been foreboding. Food processors’ hands are tied by a consolidation of buyers and increasing competition from developing nations, resulting in fewer opportunities for sales, a loss of leverage in the supply chain and ultimately numbing price compression.
All the while, energy prices and the overall cost of manufacturing continue to soar. Food processors are caught in a vice because they are not able to pass on these costs in product pricing. Profit margins are at risk as a result of the growing costs of energy, materials, transportation and labor. In fact, according to a recent report by the U.S. Environmental Protection Agency on energy trends in manufacturing, food manufacturing companies spend more money on energy and labor than almost any other part of their business. Moreover, the report projects that energy costs will continue to rise in the coming years. All of these factors, combined with other environmental, political and market changes are forcing those of us in the food processing industry to rethink how we conduct business.
And therein lies the rub. In order to remain viable, the U.S. food processing industry must learn how to work collaboratively and more efficiently than our competitors on the world stage. We must transform ourselves into leaner organizations, committed to tackling the big challenges with an industry wide commitment to be more efficient and productive – especially in costly areas such as high electrical energy consumption.
Evolution of the IPC
Following a year-long legislative process,in July of 2007 Oregon Governor Ted Kulongoski brought the ideas set forth in our cluster initiative to life when
he signed legislation to provide $3.4 million to fund the development of the non-profit Northwest Food Processors Innovation Productivity Center (IPC) as part of a larger $28.2 million economic stimulus package for industries considered vital to the state. The IPC, which will officially launch this January and will be located in Portland, will be the centerpiece of an ongoing effort to position food processors in Oregon, Washington and Idaho to compete more effectively on a global scale through increased innovation and productivity.
With its development spearheaded by NWFPA, our goal is to make the IPC a clearinghouse of information, technical resources and advisors that will link
industry needs to existing private and public providers. More specifically, the IPC will facilitate solutions to enhance plant and cluster level productivity,encourage technology awareness and transfer for increased innovation, and re-engineer leadership development efforts with an emphasis on innovation and productivity.
A Focus on Energy
One of the primary areas of focus for the IPC will be on continual productivity improvement in critical areas such as increased energy efficiency. To deliver products from farm to fork, food processors must rely on energy-hungry refrigeration systems, as well as pumps, fan, motors and other electrical equipment. In fact, energy comprises up to 30 percent of a food processor’s manufacturing costs and can sometimes be as high as 60 percent of the total cost of a final, finished product once it reaches the grocery store. Yet, energy efficiency is one of the most controllable, simple and cost-effective ways that food processors can improve business and systems performance. A strategic energy management program can save as much as 5 percent in energy costs without the added benefit of capital improvements and as much as 15 percent to 20 percent in total savings when it is combined with a capital plan. We believe that significant plant innovations could lead to savings as large as 50 percent.
To help with this effort, NWFPA has developed a strategic partnership with the Industrial Efficiency Alliance, a regional non-profit initiative of the Northwest Energy Efficiency Alliance with an energy management focus, to develop and deliver continuous energy improvement services in collaboration with the IPC. In addition, we recently launched a year-long pilot program with six of our food processing member companies to test a new energy management software tool called Green Energy Management System, or “GEMS.” Among other things, GEMS will help monitor and measure energy usage patterns within plants to help identify and act on efficiency opportunities. It also is designed to compare the Northwest region with other test areas in the nation.
Demonstration projects like this will help Northwest food processors focus on new ways to become efficient and innovative in the manufacturing process – ultimately leading to greater productivity and profitability. Best of all, not only will the IPC’s work increase global competitiveness among Northwest food processors, but also it will serve as a model for food processors throughout the rest of the country – as well as other industries – to increase competitiveness and expand market share.
Dave Zepponi is president, Northwest Food Processors Association. Organized in 1914 as a canners association, the Northwest Food Processors Association (NWFPA) represents the interests of food processors in Idaho, Oregon and Washington. NWFPA has more than 450 member companies including 86 food processors with nearly 200 production facilities throughout the Northwest region. Membership is primarily fruit and vegetable processors but has expanded over the past several years to include seafood, dairy, bakeries, specialty and fresh-cut. Visit www.nwfpa.org.