Table Heading (Tahoma 10 Bold)Prepared by
A Private/Public Economic Development Roadmap for Washington,
Oregon and Idaho to help food manufacturers compete globally
through increased innovation and productivity.
100 Pringle Ave., Suite 560 Walnut Creek, CA 94596 (925) 934-8712
2151 River Plaza Dr., Suite 150 Sacramento, CA 95833 (916)
923-1562
www.adeusa.com
Appendix A: Persons Consulted
Appendix B: Cluster Definition
Appendix E: NWFPA 2005 Innovation And Competitiveness Survey
Findings
Appendix F: Input / Output Analysis Summary
Appendix G: Cluster Assessment Strategy Team Meeting
Summaries
Appendix H: Energy Issues Facing The Northwest Food Processing
Cluster
Appendix I: Idaho Food Processing Cluster Study
Appendix J: Oregon Food Processing Cluster Study
Appendix K: Washington Food Processing Cluster Study
Appendix L: Portland Food Processing Cluster Study
Appendix M: Bibliography
Appendix N: Final Presentation
This report was made possible by grant number 07 69 05 716 from the
U.S. Department of Commerce Economic Development
Administration
ACKNOWLEDGEMENTS
Oregon Governor Ted Kulongoski Oregon Economic and Community
Development Department Oregon Department of Agriculture Idaho
Governor Dirk Kempthorne Idaho Department of Commerce & Labor
Idaho State Department of Agriculture Northwest Energy Efficiency
Alliance Portland Development Commission
NWFPA BOARD OF DIRECTORS: 2005 Chair – Mark Frandsen, New Season
Foods 2006 Chair – George Smith, NORPAC Foods Chair-Elect – Gerry
Isaac, Real Foods Vice-Chair – Ed Johnson, Oregon Cherry Growers
Dave Withycombe, Del Monte Foods Bryan Brown, Oregon Fruit Products
Linda Pennington, NorSun Food Group Mark Hooper, Birds Eye Foods
Jeff Leichleiter, Tim’s Cascade Snacks
Jim Wegner, Darigold Dave Simmons, Heinz Frozen Foods Jeni Billups,
SVZ-USA George Puentes, Don Pancho Authentic Mexican Foods Cliff
Brady, Tillamook County Creamery Association Bob Ashmun, National
Frozen Foods Clark Nelson, Kraft Foods Mark Dunn, J.R., Simplot Co.
Jim Root, Sabroso Company Bill Small, Beaverton Foods
NWFPA COMPETITIVENESS TASK FORCE: Chair – Todd Peretti, Basic
American Foods Past Chair – Bryan Brown, Oregon Fruit Products Todd
Aarons, Darigold Jeni Billups, SVZ-USA, Inc. Jon Fabricius,
Dickinson Frozen Foods Don Odegard, Watts Brothers Frozen Foods
LLC
Terry Oftedal, YoCream International Dan Paradis, McCain Foods USA,
Inc Josh Reynolds, Gray & Company Craig Urness, Pacific Seafood
Group Mike Watkins, Seneca Foods Corporation Mark Frandsen, Ex
Officio, New Season Foods, Inc
Applied Development Economics, Inc. 1
NWFPA CLUSTER ASSESSMENT STRATEGY TEAM (CAST): PROCESSORS
Bennett Johnson, DePaul Industries Bryan Brown, Oregon Fruit
Products Dan Paradis, McCain Foods Fred Vetter, Oregon Freeze Dry
Gary Cuddeford, ConAgra Foods George Smith, NORPAC Foods Gerry
Isaac, Real Foods Harry Noah, Yaquina Bay Fruit Processors
Jim Root, Sabroso Company Josh Reynolds, Gray & Company Kelly
Brown, Smith Frozen Foods Mark Frandsen, New Season Foods Mark
Hooper, Birds Eye Foods Rick Fisch, NWFPA Terry Oftedal, YoCream
International Todd Peretti, Basic American Foods Tom Weston,
Sabroso Company
NWFPA CLUSTER ASSESSMENT STRATEGY TEAM (CAST): AGENCIES, EDUCATION
& SUPPLIERS
Dalton Hobbs, Oregon Dept. of Agriculture Dave Reed, Moss Adams Dr.
Dick Dougherty, WSU Dr. John Henry Wells, Oregon Food Innovation
Center Dr. Eileen Casey-White, Chemeketa Community College Eric
Hurlburt, Washington State Dept. of Agriculture Ginger Rich,
Washington Community, Trade & Economic Development Jeff
Kronenberg, University of Idaho
Jerry Gardner, Oregon Dept. of Agriculture Julie Rodwell, Oregon
Dept. of Transportation Randy Evans, Portland Development
Commission Ron Fox, Oregon Economic & Community Development
Department Victor Vasquez, Washington Community, Trade &
Economic Development Wendi Secrist, Idaho Dept. of Commerce &
Labor.
NWFPA STAFF Dave Zepponi, President Dave Klick, Executive VP Amy
Park Bruce Anderson Darla Swensen
Connie Kirby Craig Smith Gary Chesnutis Pam Barrow Lee
Merrick
CONSULTANTS: APPLIED DEVELOPMENT ECONOMICS Doug Svensson, AICP,
President Kathryn Studwell, AICP, Senior Associate Matt Yancey
Peter Cheng
Ted K. Bradshaw, Senior Consultant Tony Daysog Wes Ervin Heidi
Nelson Young, Independent Contractor
CONSULTANTS: ADVANCED RESEARCH TECHNOLOGIES, INC. Jennifer Montana,
President Boris Nenide
Applied Development Economics, Inc. 2
Applied Development Economics, Inc. 3
EXECUTIVE SUMMARY
The U.S. food processing industry must re-invent itself if it is to
maintain or improve its competitive position in the international
market place. The industry is facing new challenges. Changes in the
market, consumer demands, increasing environmental regulation,
concerns over security, energy supply and fair trade practices are
driving food processors to adopt new practices in marketing,
product development, manufacturing, supply chain management and
workforce training. The dual challenge of consolidation of buyers
(retailers, distributors, food service and re-manufacturers) and
the increasing costs of labor, energy, transportation and
logistics, water treatment and regulatory compliance are squeezing
profit margins.
In response to these forces, the food manufacturing industry is
adopting leaner manufacturing processes and shedding excess capital
and labor. Processors saddled with old plant and equipment, limited
capital to invest and outdated management and marketing practices
are ultimately forced out of business. Between 2002 and 2004, total
U.S. food processing employment declined from 1.50 million
employees to 1.44 million. At the same time however, total
shipments increased from $563.7 billion to $623.7 billion1. Over
the last decade, several Northwest2 food processing plants have
closed their doors. Between 1992 and 2003, total Northwest food
processing employment decreased by 4 percent from 78,000 to
75,0003. While some sectors, such as wine and beer, gained
employment, others, such as fruit and vegetable processing lost
employment.
Food processing makes up 1.4 percent of U.S. Gross Domestic Product
(GDP), and comprises 7 percent of U.S. exports. Unlike most other
industries that are concentrated in a few regions of the nation,
food processing drives the economic vitality of communities
throughout the nation. Because of its significant presence in so
many regions, the health of the industry is of concern to policy
makers in nearly every congressional district throughout the United
States.
THE INDUSTRY RESPONDS In the spring of 2004, the NWFPA Board of
Directors authorized staff to launch an aggressive cluster
initiative with a goal to reposition the three-state food
processing industry to compete globally through dramatically
increased innovation and
1 U.S. Economic Census. 2 For purposes of this report, Northwest is
defined as the states of Idaho, Oregon and Washington. 3 Employment
and establishment data is from the Minnesota IMPLAN Group. It is
based on employment data collected through the ES202 employment
insurance program. Establishments data include the multiple plant
and office sites of companies and is always a larger number than
total number of companies.
Applied Development Economics, Inc. 4
productivity. NWFPA began developing a strategic plan that engaged
all members of the cluster to:
Identify cluster strengths and weaknesses;
Frame and prioritize issues;
Catalyze action around targeted strategic recommendations.
The NWFPA formed an unprecedented partnership with the federal
government, three states, and regional and local agencies to
participate in the preparation of the strategic plan. Each member
of the partnership contributed funding and staff time to the
development of this report and strategic plan and will play a vital
role in implementing its recommended initiatives4.
FOOD PROCESSING AND THE NORTHWEST ECONOMY: A SNAPSHOT Food
processing is a $20 billion industry in the Northwest. Together
with its suppliers, including farms, equipment, packaging, trucking
and warehousing, the entire cluster generates over $38 billion in
output. The total of all wages paid to workers employed directly by
food processors is $2.4 billion and the average wage per worker is
$32,000.
Fast Facts about Northwest Food Processing
Total Output: $20.7 billion
Total Employment: 75,000 jobs
Total Payroll: $2.4 billion
The food processing industry, through purchases from suppliers
within the region, including purchases for farm and ranch products,
other food ingredients, machinery and equipment, packaging
supplies, logistics services and engineering and marketing
4 These include: the U.S. Department of Commerce Economic
Development Administration (EDA); the State of Idaho, including the
Governor’s Office, the Department of Agriculture and Department of
Commerce and Labor; the State of Oregon, including the Governor’s
Office, the Oregon Economic and Community Development Department
and the Oregon Department of Agriculture; the State of Washington,
including the Governor’s Office, the Washington State Legislature,
the Washington State Department of Community, Trade & Economic
Development, the Washington State Department of Agriculture, and
the Washington Workforce Training and Education Coordinating Board;
the Northwest Energy Efficiency Alliance; and, the Portland
Development Commission.
services, produces a much larger economic impact on the region. In
addition to the direct economic impacts of food processing, there
are other indirect and induced effects. These include the economic
impact of wages paid to employees that are then spent on personal
goods and services as well as the payments to suppliers that are
spent on their supplies and employees’ wages. The total regional
economic impact of the food industry, counting these indirect and
induced effects, is $42.5 billion. Likewise, while food processing
directly employs 75,000 workers, it is responsible for the creation
of 283,000 jobs throughout the region due to the indirect and
induced impacts of suppliers and employees spending their income on
other goods and services.
Food processing can be divided into nine distinct industry sectors.
Figure 1 below graphically illustrates how these sectors compare
with each other on three dimensions: size, employment concentration
and rate of growth relative to the U.S.
Figure 1
Grains & Baked Goods 8,836
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
-40.0 -30.0 -20.0 -10.0 0.0 10.0 20.0 30.0 40.0 50.0 Percentage
Growth Greater /Less Than Nation (Shift-Share)
C on
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Clearly, processing of fruits and vegetables and of seafood are the
Northwest’s largest and most productive food processing sectors.
Fruit and vegetable processing employs 26,000 workers and its
employment is 5.6 times more concentrated in the Northwest than in
the U.S. as a whole. Relative to the U.S., it is growing faster,
(or rather, not declining as fast, since both the Northwest and
U.S. employment are declining in this sector.) More importantly,
given the increasing concerns about energy supplies and rising
energy costs, frozen fruits and vegetables make up the vast
majority of operations in this sector. The increasing threats to
this particular food processing sector’s on-going competitiveness
prompted the NWFPA to embark on this strategic plan.
Planning Approach: Innovation Leads to Competitiveness Figure 2,
below, illustrates the model of economic growth that underlies the
process and methodologies used to create this strategic plan.
Entrepreneurs and their companies perceive business opportunities
and enlist the necessary resources to realize financial gain. They
connect knowledge of their markets with awareness of available
technologies to create new or improved products and services that
improve their competitive position relative to competitors. As
value-added and profits increase, companies have the ability to
invest in research and development, hire more talented workers and
continue the cycle of innovation. As more companies improve their
profitability, the economy of the entire region is improved.
The role of the cluster network is to connect entrepreneurs and
their companies (in this case Northwest food processors) with the
resources they need to compete and succeed. The rate of
entrepreneurial activity and innovation in the food processing
industry can be increased by linking processors to technology,
financial capital, knowledge of markets and talented workers. The
quicker these connections are made, the faster the productivity
improvements and increased profits happen. The entire cluster
network is strengthened by the increased demand for suppliers
offering specialized services, including research, design,
marketing, legal, financial and others.
Figure 2
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NORTHWEST REGION ADVANTAGES AND DISADVANTAGES FOR FOOD PROCESSING
The explicit goal of this strategic plan is to create an
infrastructure that leads to dramatic increases in innovation and
productivity that repositions the food processing industry to
better compete globally resulting in increased profitability.
Strategic planning encompasses a series of activities designed to:
(1) define issues that have a significant impact on the future of
the system or organization; (2) rank those issues relative to their
impact on the organization or system; (3) create an action plan to
begin to resolve those issues; and, (4) develop partnerships for
the implementation of the action plan. Issue identification is a
process that first develops an understanding of the trends in the
environment (including both demand and supply-driven trends) that
have an impact on the organization and then assesses their relative
significance on the system.
REGIONAL ADVANTAGES AND OPPORTUNITIES FOR GROWTH Access to the
Pacific Rim: Asia, and Central and South America: The greatest
advantage that the Northwest has is its proximity to the Pacific
Rim markets. Opening markets in China, Korea, Japan, and India will
have significant benefits to exporters. The Northwest has several
ports, including Seattle, Tacoma and Portland. These ports will
need to be expanded to accommodate the anticipated growth in
exports and imports. Nearly all food processors source ingredients
from around the world, including South America, Asia and Europe. It
is just as vital to ensure the rapid shipment of deliveries from
the ports to the plants as it is to transport products to the ports
for export.
Healthy lifestyles; healthy foods. The Northwest is known for its
healthy lifestyle and outdoor recreation. Likewise, the cities of
Portland and Seattle have established themselves as innovators in
healthy foods processing. The U.S. Surgeon General has stated that
the number one health issue in America today is obesity and
diabetes. The Northwest could respond to the growing need for more
healthy processed foods and build on its strength in this area to
brand the region as a source of healthy foods and
nutriceuticals.
Northwest’s pioneering spirit and appetite for risk-taking.
Entrepreneurship, innovation and business leadership require an
appetite for risk. The Northwest could be true to its Oregon Trail
pioneering roots by encouraging and supporting
entrepreneurship.
Hydro-electric infrastructure. The Northwest is blessed with an
abundant supply of water power. As a renewable resource, keeping
the hydro-electric infrastructure in use will remain a key economic
asset into the future.
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Industry Association. The Northwest Food Processors Association has
demonstrated true leadership through its environmental, food
safety, regulatory compliance, workforce development and energy
efficiency initiatives, and now with its cluster initiative. The
Association acts in partnership with state, federal, and local
agencies to address challenging business and public issues. There
are few industry associations like this anywhere in the world and
it is a powerful asset and resource to the Northwest. However the
Association must continue to expand its vision to introduce
programs that will create new paradigms of growth.
Northwest Energy Efficiency Alliance. The NEEA provides technical
assistance to firms seeking to reduce their energy use and has
already helped firms save millions of dollars. Continuing to expand
this effort will help Northwest manufacturers become a more
efficient and more productive industry.
Workforce Development. The states of Oregon and Washington have
made a commitment to meeting the workforce needs of its
manufacturers through several workforce development partnerships.
These efforts, if continued in partnership with the NWFPA, will
reap many dividends for food processors.
DISADVANTAGES: THREATS TO COMPETITIVENESS Energy supply and prices.
The Northwest is in the envious position of having tapped the
energy of the Columbia River system through a series of dams and
hydroelectric power plants to provide a reasonably priced and
readily available source of electric power to manufacturers. The
combination of potential droughts and allocation of water for
salmon protection and enhancement purposes have raised serious
concerns about the future availability and price of that power
source. Relatively low electricity prices from hydroelectric plants
have, in the past, provided a key advantage to food processors that
ship products to the East Coast and other distant markets.
Relatively inexpensive electricity more than made up for the higher
transportation costs. Now, with increasing demand for limited
supplies of energy, and rising electric rates, that advantage is
eroding. Appendix H provides a more thorough discussion of this
issue.
Fresh water supply. Fresh water is a limited resource. Food
processing is a heavy user of fresh water. Population growth,
expansion of urbanized areas and environmental management policies
to protect stream water habitats, combined with complicated water
rights, have together caused great concern for the future supply of
water to food processors. All water users, including agriculture,
urban areas and manufacturing will have to find ways to use less
water. Micro-irrigation has enabled farmers in areas of limited
water supplies to have productive farms. Much of the technology
that has gone into decreasing water use by agriculture could be
transferred to landscape irrigation and manufacturing. Needed is a
solution that meets all parties’ needs.
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Regulatory compliance: The food processing industry is highly
regulated, and, for the most part, the industry is supportive of
these regulations when it comes to food safety and labeling. Food
processing plants are inspected by both state and federal agencies
for compliance with health and food safety regulations. These
inspections sometimes require a full week of a quality control
manager’s time, a major expense for any firm. Recently, the federal
government adopted an additional regulation that requires tracing
the origin of all ingredients of food products. This means tracing
the origin of the feed eaten by a particular cow that was sold for
hamburger. Or, tracing the origin of the corn used to make a
tortilla chip. This has become problematic for many processors as
it requires sophisticated data-base management capabilities and the
complete over-hauling of supply-chain management systems. Those
processors that saw the need early on and transitioned to newer
supply-chain management programs are more likely to succeed in a
regulation-driven environment. Others will need help installing
such systems.
Shortage of qualified workers. Findings from the NWFPA Innovation
and Competitiveness Survey indicate that one of the most troubling
issues faced by food processors is the recruitment of qualified
workers. This problem is not unique to the food industry. It is a
universal problem faced by all manufacturers—whether in plastics,
aerospace, semiconductors or furniture—throughout the U.S.
According to the National Association of Manufacturers, there are
three related issues: (1) current employees lack basic
job-readiness skills; (2) 9 out 10 manufacturers have difficulty
filling positions because job candidates lack basic literacy and
computing skills (as many as half of all applicants rejected due to
lack of very basic literacy and computing skills); and (3) the most
serious shortage is in entry-level positions. Needed is an
initiative to make the industry more attractive to all levels of
prospective employees.
Limited innovative capacity. An important component of this study
was assessing the strength of linkages, or connectedness, between
processors and suppliers and community foundations, including
workforce development and university research and development.
While many strong linkages do exist, as those between processors
and workforce development organizations and energy providers,
linkages with Northwest universities are under-utilized by the
industry. While the three major agriculture and food science
universities, University of Idaho, Washington State University and
Oregon State University each excel in research and have some
extension activities, they have limited or no capacity to link that
research to the needs of food processors. This has resulted in lost
opportunities to build innovation capacity within the food
processing industry. For instance, the Northwest’s patenting
activity in the area of food science and food manufacturing is well
below that of competitor regions. In fact, few processors rely on
Northwest universities for their R&D or technology development
needs. Compounding this is the fact that many of the Northwest’s
food processors are headquartered in the Mid-West or East Coast
or
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Europe. R&D activities tend to locate close to headquarters.
So, the states of Illinois, New York, New Jersey, Pennsylvania and
Minnesota tend to have more patenting activity. Needed is the
creation of a world class system of providing innovative value to
consumers in the food industry like Silicon Valley has for
technology.
Distance to markets. About two-thirds or more of the U.S. market
for food products is located east of the Mississippi River.
Transportation costs, usually by truck, can range from 17 to 30
percent of total costs of goods sold. Increasing transportation
fuel prices, a shortage of long-haul truck drivers, and an
un-interested rail provider could, together, erase whatever
advantages the Northwest has had from lower energy prices.
STRATEGIC ISSUES AND RECOMMENDATIONS
INCREASE THE CAPACITY OF THE NORTHWEST’S INNOVATION
INFRASTRUCTURE Increase basic research and the application of
knowledge that already exists with stronger transfer mechanisms to
private industry. Integrate and strengthen innovation efforts
between food processors, university research and extension
services, suppliers, customers, providers of capital, government
agencies and other research entities. Application of known
technologies has a greater impact/ cost benefit and enhances the
ability of first market mover by lowering the threshold to
entry.
IMPROVE TRANSPORTATION INFRASTRUCTURE AND SERVICES Work with
appropriate transportation agencies and services to provide
cost-effective and predictable movement of product to consumers and
movement of ingredients to processors.
DEVELOP A ROBUST PIPELINE OF QUALIFIED WORKERS Develop a robust
pipeline of qualified labor. Make food processing a career of
choice. Apply a collaborative, industry-government-education
approach to recruitment and development of the workforce
FORM STRATEGIC ALLIANCES TO IMPROVE FOOD PROCESSING
INDUSTRY’S COMPETITIVENESS Form partnerships throughout the supply
chain to address specific cost elements, such as labor, energy and
transportation, and foster development of value-added products that
break the commodity cycle. These alliances need much more effort to
make this a reality. Collaborative efforts can be significant if
effectively leveraged.
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INCREASE THE FOOD INDUSTRY’S OPERATIONAL PRODUCTIVITY Achieve
sustainable competitive cost of goods through best in class
manufacturing or operations practices, including energy, waste
water, air emissions and transportation.
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INTRODUCTION
Food processing is a vital part of the U.S. economy. Ensuring its
on-going economic competitiveness is critical to the health,
vitality and security of the entire nation for three key reasons.
First, every region’s economic health is, in large part, dependent
upon the food industry’s on-going competitiveness. The production
and processing of food occurs throughout the nation. Second, food
processing accounts for 1.4 percent of U.S. GDP and comprises 7
percent of U.S. exports5. A decline in food processing economic
activity affects the entire economy. And, third, the continuous and
reliable access to an adequate supply of nutritious food is vital
to the health, safety and security of every community. Food is a
basic necessity and we can’t rely on other countries to supply all
of our needs.
The U.S. food processing industry is facing unprecedented threats
to its economic competitiveness in the world market place.
Environmental, political and market changes are driving the U.S.
food manufacturing industry to re-invent itself. The consolidation
of buyers and increasing competition from developing nations is
causing downward pressure on prices. Increasing costs of inputs,
especially labor, energy, transportation and regulatory compliance,
are reducing profit margins. In response, the industry is adopting
leaner manufacturing processes and shedding excess capital and
labor. For instance, between 2002 and 2004, total U.S. food
processing employment declined from 1.50 million employees to 1.44
million, while at the same time total shipments increased from
$563.7 billion to $623.7 billion6.
While there are some notable success stories of large food
processors reaping growth in profits and market share, for the
majority it is extremely difficult without support from a
specialized network of innovative suppliers, advisors, work force
training experts, academic institutions and government agencies.
The companies that saw the changes coming, that invested in new
plant and equipment and that adopted consumer-driven marketing
approaches, have been able to ride the wave. Companies that chose
not to invest or to adopt different management styles or marketing
approaches have failed. The continued operation or closure of a
food processing plant, usually located in a rural area, can mean
life or death for the surrounding communities.
For some time now, economic and industrial development has been
synonymous with diversification away from food processing, usually
with a focus on attracting
5 U.S. Bureau of Economic Analysis: www.bea.gov. U.S. GDP for 2004
was $11.7 trillion. Food manufacturing GDP was $167.9 billion,
about 1.4 percent of the U.S. total GDP. Total U.S. exports in 2004
were $818.7 billion. Of that, about 7 percent or $56.6 billion was
comprised of food, including manufactured food products and
commodities. 6 U.S. Economic Census.
Applied Development Economics, Inc. 13
“high tech” companies like Cisco, IBM or Intel. Food manufacturing
is a mature industry—many existing plants have been operating for
50 or more years, are inefficient and shedding workers as they try
to compete. Unlike high tech, food manufacturing must re-invent
itself and transform its archaic, labor-intensive operations into
leaner, more automated processes, sometimes doubling production
with half the workforce. Government economic development agencies
have ignored the plight of these manufacturers in favor of
attracting something new and fast- growing. Modifying these older
models of economic development by including initiatives driven by
the needs of industry clusters could reap rewards for regions
throughout the United States, as they have for regions in other
parts of the world.
With a slight shift in economic development focus, plant shutdowns
could sometimes be avoided by applying public investments to
retaining and expanding existing companies and targeting business
attraction efforts on companies that complement or enhance existing
industries. Food production and manufacturing is not a foot-loose
industry—it is inextricably tied to and dependent upon the
qualities inherent in a particular location, including soils,
climate, topography and water. For instance, pea processing plants
are located only where peas are grown competitively and flour mills
are only located where wheat can be grown competitively. Likewise,
trout farms require an abundance of fresh water, while potatoes do
best in glacial till and volcanic ash.
The role of industry cluster networks is to improve the
competitiveness of food manufacturing within an ever-changing
global market. A well-developed network of innovative, competitive
suppliers is critical to the success of any industry. Just as Cisco
could not exist without a network of highly trained engineers,
technicians, product developers and sales people and the
universities that train them, a tomato processor could not thrive
in an area devoid of a vital network of tomato growers, food
chemists and technologists, packaging materials, logistics
services, and industrial designers.
PURPOSE The Northwest Food Processors Association (NWFPA) is a
multi-state industry association that represents more than 480 food
processing and related companies located throughout the states of
Idaho, Oregon, and Washington. Its mission is to educate, inform,
and advocate on behalf of its members and to provide forums that
allow industry members to meet, exchange ideas and forge business
partnerships and alliances. NWFPA seeks to improve its ability to
meet its members’ needs by acting as a catalyst for the formation
of food manufacturing cluster networks within the Northwest.
NWFPA commissioned this report to identify a cluster-based set of
initiatives that would help food processing companies and sectors
successfully compete in a rapidly
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evolving marketplace. The goal of this project is to recommend and
prioritize a set of actions and initiatives that will build on
existing assets to improve the industry’s competitive position
vis-à-vis other regions of the world. Initiatives identified
through this project will assist NWFPA and its members in
developing targeted action plans and initiatives to meet their
unique and highest priority requirements for success.
INDUSTRY CLUSTERS AS A FRAMEWORK OF ANALYSIS AND ACTION
Globalization of markets, international trade agreements,
increasing production in less developed nations, rapid advances in
technologies and an ever-growing population to feed create both
challenges and opportunities for food processors. Understanding
these challenges and being prepared to meet them through
initiatives that address workforce training, entrepreneurship
development, R & D, infrastructure improvements, technology
transfer and education as well as marketing are critical to the
industry’s sustained competitiveness in the coming decades.
To assist its members in developing a strategic business plan that
reflects industry priorities, NWFPA has pursued a cluster-based
approach to analyzing the industry’s competitiveness and to
developing strategies to facilitate and promote improved
profitability and growth of the industry over time. For more
information, go to www.nwfpa.org.
CLUSTERS AND GLOBAL COMPETITIVENESS A cluster is a network of
inter-dependent and competing firms that buy and sell from each
other and that have common market drivers and concerns related to
resources, such as labor supply, regulation, energy and
distribution. They are often, but not always, geographically
concentrated in one economic region. Over time, regions have become
defined by their dominant industry clusters, such as entertainment
in Hollywood, autos in Detroit, gaming in Las Vegas, fashion in
Italy or wine in France. Together, the members of the industry
cluster constitute a competitive economic advantage for the region
in which they are located. Clusters include firms that primarily
trade with buyers outside the region (exporters or traded sector)
and the firms that supply these exporters with specialized goods
and services. Clusters also include relevant community
organizations, including workforce training institutions, research
and development organizations (universities, national laboratories,
institutes), and infrastructure and utility providers. These three
types of cluster members are described below:
A traded sector is a set of competing firms that sell their
products or services to buyers located outside their economic
region. In the case of food processors in the Northwest, this would
include frozen potato, fruit and vegetable processors as well as
processors of seafood, cheese, wine and beer.
Leading Industries
materials, support services)
Economic FoundationsEconomic Foundations
Adv. Physical Adv. Physical InfrastructureInfrastructure
Quality of LifeQuality of Life
Specialized suppliers sell their goods and services to companies
within the traded sectors and are usually, but not always, located
within the same region. In the case of food processors, specialized
suppliers would include labor, farm produce, other food
ingredients, equipment, packaging, banks and distribution.
Just as important are the community-based infrastructure providers
(often, publicly supplied) of such services as workforce
development, higher education, expansion capital, power, telcom,
water, waste treatment and distribution infrastructure (seaports,
roads, rail, airports, etc.). These community-based services are
often referred to as economic and innovation infrastructure or a
region’s economic foundation.
Figure 3 Framework for Cluster Action
The economic advantages that accrue to members of a cluster are
many. Having competitors within the same region, or commute shed,
enables companies to recruit from a larger pool of workers with the
specialized skills and experience they most need. It is not
uncommon for companies to fill positions with workers from other
companies. This not only reduces the cost of recruitment, but also
increases the productivity of the hiring firm. Providers of
specialized services—accounting, finance, marketing,
engineering—are readily available in clusters so the time and cost
of sourcing supplies and services is significantly reduced. With a
larger number of firms requiring similar supplies and services, the
quality of those supplies and services increases as competition for
contracts motivates suppliers to adopt innovative technologies and
practices to improve quality and lower costs. In fact, suppliers
are increasingly the source of new technology for their client
companies.
Applied Development Economics, Inc. 16
As the cluster grows in size and significance within the regional
economy, educational and training organizations start to develop
curricula and programs to meet the specialized workforce training
needs of the cluster. Likewise, colleges and universities begin to
conduct basic and applied research that will lead to innovations
within the cluster. For instance, the Ohio plastics cluster is
supported by the largest and most productive university materials
research institutes in the world. The growth in university and
college faculty, course offerings, research projects and programs
increases the amount of ideas circulating within the region—ideas
that eventually lead to innovations and economic growth.
NWFPA’S RESPONSE TO THREATS TO NORTHWEST COMPETITIVENESS A
competitive siege is severely threatening the $20 billion food
processing industry, which employs more than 75,000 workers in the
Pacific Northwest (Idaho, Oregon, and Washington). Traditional
strategic competitive cost advantages, such as energy and labor,
are eroding or have been lost. Regional assets are threatened by
global competition from many countries as well as from federal and
state public policy. Urban and suburban areas and governments
appear to have lost touch with food manufacturing. Mega-sized,
global customers (retailers and food service) are exerting intense
pressure on profit margins of food suppliers. The crisis
intensifies as food manufacturing facilities are leaving the region
and internal consolidation continues.
With help from supportive state and federal organizations,
Northwest Food Processors Association (NWFPA) has addressed the
regional crisis by initiating the nation’s first comprehensive
multi-state food manufacturing cluster competitive assessment.
Support for this visionary program includes three governors,
state/regional government, industry, education, and other
organizations. NWFPA coordinated the project, provided liaison with
agency partners, and provided sustaining support.
This economic roadmap will be used by private and public policy
makers in Idaho, Oregon, and Washington to pursue and allocate
resources to initiate specific projects to strengthen the cluster
and global competitiveness of food processors in the region.
Clustering the hundreds of small, innovative businesses, community
organizations, infrastructure and utility providers could create a
strong, sustainable economic foundation.
ROLE OF INNOVATION AND INCREASED PRODUCTIVITY Inherent in the
design of the cluster analysis process is a model of economic
development based on the idea that innovation leads to increased
productivity and competitiveness, resulting in greater
profitability for firms. In turn, this leads to better economic
opportunities for a greater number of residents in the Northwest.
To measure the level of innovation and entrepreneurial activity
within the
Applied Development Economics, Inc. 17
Northwest’s food processing industry, the process incorporated an
analysis of food manufacturing executives’ approach to product
development, marketing and management of their operations as well
as an analysis of the outcomes of those decisions. Appendix E
summarizes responses from the NWFPA Innovation and
Competitiveness Survey conducted in the Fall of 2005 and Appendix D
summarizes the results of the Financial Benchmark Analysis. The
Survey included a set of questions used to elicit information on
executive decision-making and entrepreneurial approach to
management, while the financial benchmarks tracked such indicators
of success as sales volume, growth and return on sales, return on
asset investment and profit per employee. The following figure
graphically illustrates the connection between innovation and
competitiveness. Supplementing this research is an analysis of such
innovation benchmarks as patenting activity and graduation rates of
science and engineering students relative to competitors in other
parts of the world. Findings from these benchmarks are found
throughout the main body of the report and at Appendix N, the
presentation given at the May, 2006 Executive Business Summit in
Coeur d’Alene, Idaho.
Applied Development Economics, Inc. 18
PROCESS, TIMELINE AND METHODS
Figure 4: Process Timeline
The process for completing the analysis and development of the
recommendations for action and the roadmap was designed to engage
as many members of the cluster as possible and to facilitate quick
action on the recommendations.
The cluster analysis began in May, 2005 upon approval of funding by
the U.S. Department of Commerce, Economic Development
Administration.
IDENTIFY CLUSTER ASSETS Cluster Analysis. Applied Development
Economics (ADE) conducted quantitative analyses to understand
cluster composition, size, growth, structure and competitiveness.
This resulted in a cluster definition, and tables detailing cluster
size, growth and productivity by NAICS code (North American
Industry Classification System). Data for the cluster analysis was
purchased from the Minnesota IMPLAN Group, an organization that
maintains an Input-Output model based on industry data from the
Bureau of Economic Analysis (BEA). The cluster definition and
cluster analysis can be found in Appendices B and C.
Financial Competitiveness Benchmarks. Using the cluster definition
developed by ADE, Advanced Research Technologies (ART) began the
analysis of cluster financial benchmarks using banking data from
Fintel LLC. The results of this analysis can be found in Appendix
D.
Identify Cluster Assets
Cluster dynamics growth, decline
Innovation and competitiveness survey
Form CAST Prioritize strategic
Applied Development Economics, Inc. 19
IDENTIFY STRATEGIC ISSUES Interviews. Numbers alone are inadequate
in discovering cluster opportunities and challenges or strengths
and weaknesses. To augment and to give more understanding to the
results of the quantitative analysis, ADE conducted about 50
interviews with company executives, industry experts, suppliers,
and academics. The names of those who were interviewed can be found
in Appendix A. The interviews provided key insights into market
forces and opportunities driving change in the industry. They also
shed light on the inter-connectedness or strength of linkages
between components of the cluster, such as between firms and
universities or transportation service providers and firms.
Survey. Working with ADE, Advanced Research Technologies, Inc.
developed the 2005 NWFPA Innovation and Competitiveness Survey to
gather information about strategic business issues, company
structure, control of resources, innovativeness, pro-activeness,
growth intentions and hierarchical control. Survey findings were
used to develop strategic business issues. The survey was
administered on-line. Food processors and suppliers throughout the
Northwest were invited to participate through emails. In all, 542
executives from processing firms and suppliers were invited, by
email, to respond to the survey via Survey Monkey, the survey
administrator, in early November, 2005. A total of 172 individuals
responded fully, resulting in a 31.7 percent response rate. Results
and a description of the survey methodology can be found in
Appendix E.
CREATE ACTION PLAN To be successful, the process of defining
strategic issues and developing action plans needed to include as
many members of the cluster as possible. To begin the necessary
dialogue about the industry’s future, what it should look like and
how to get there, NWFPA organized a special cluster initiative
forum held in conjunction with the NWFPA’s annual Expo in January,
2006. ADE presented its preliminary research findings to NWFPA
members and cluster initiative partners, including federal, state
and regional agencies. The forum was a success as it generated a
great deal of interest in participating in the process from members
and partners alike.
To build on the dialogue generated at the forum, NWFPA’s
Competitiveness Task Force formed the Cluster Assessment Strategy
Team (CAST), with former NWFPA Board Chair, Rick Fisch, serving as
CAST Chair. The purpose of CAST was to work with ADE to define top
priority strategic issues and develop action plans, the
Roadmap.
The CAST had two meetings in March, 2006. The first, held on March
6, resulted in identification of the top five strategic issues. The
second meeting, held on March 30, resulted in preliminary action
plans, to be further developed by ADE. The summaries of both
meetings are in Appendix G.
Applied Development Economics, Inc. 20
ADE delivered its final presentation, summarizing its research
findings and outlining the action plan to the NWFPA members in
attendance at its annual Executive Business Summit in Coeur
d’Alene, Idaho.
REPORT AUDIENCE AND STRUCTURE There are multiple audiences for this
report and it is organized to be helpful to each of them. These
include industry cluster members and their advocacy organizations;
state and regional agencies with responsibility for working with
industry on such issues as workforce development, research,
regulation, taxation and business assistance; Federal agencies
whose responsibilities include these functions as well as the
development of national policies on investment, education,
infrastructure, trade, environmental regulation and trade; local
decision-makers and economic development professionals; educational
institutions and utilities.
This report has three major sections: An Executive Summary, a Final
Report, and fourteen Appendices. The appendices provide additional
detail on research findings, as well as meeting summaries and final
presentation. While the Final Report’s analysis addresses the
Northwest region as a whole and data is aggregated at the regional
level, there are separate appendices for each of the three states
of Idaho, Oregon and Washington and the Portland Metropolitan Area.
These appendices provide decision-makers in those regions
information to better understand their unique strengths and
challenges in fostering the competitiveness of the food processing
industry.
Final Report Organization
1. Food Processing’s Contribution to the Northwest Economy
a. Summary of Cluster Analysis: Structure and Changes in the
Industry
b. Assessment of Regional Assets
2. Leveraging Northwest Competitive Advantages: Opportunities for
Cluster Growth
3. Threats to the Region’s Competitiveness
4. Strategic Issues
5. Action Plan
C: Detailed Cluster Analysis
D: Financial Benchmark Analysis
F: Input-Output Analysis: Regional Summary
G: Cluster Assessment Strategy Team (CAST) Meeting Notes
H: Energy Issues Assessment and Recommendations
I: Idaho Food Processing Cluster Study
J: Oregon Food Processing Cluster Study
K: Washington Food Processing Cluster Study
L: Portland Food Processing Cluster Study
M: Bibliography
N: Final Presentation at NWFPA Executive Business Summit, May
2006
THE FOOD PROCESSING INDUSTRY’S CONTRIBUTION TO THE NORTHWEST
ECONOMY
SUMMARY OF CLUSTER ANALYSIS COMPOSITION, SIZE, GROWTH, AND
CONCENTRATION The Northwest food processing cluster is comprised of
all food processors within the three states of Idaho, Oregon and
Washington. In addition, the expanded cluster includes all related
farm production, packaging and equipment manufacturers and
transportation and logistics service providers located within the
three-state region. A complete listing of all industries included
in the cluster can be found in Appendix B of this report. Table 1,
below summarizes the results of the cluster analysis. Additional
tables with more detailed analysis can be found in Appendix
C.
TABLE 1A
Study Area Employment-
AAGR Employment
Establishments 1992
Establishments 2003
AAGR Establishments
LQ 1992
LQ 2003
Shift- Share
Meat Product Processing 8,669 11,504 2.61% 328 302 -0.75% 0.51 0.56
0.16 Seafood Processing 10,881 7,825 -2.95% 263 149 -5.03% 5.07
4.90 0.00 Dairy Product Processing 4,676 5,452 1.41% 91 82 -0.91%
0.97 1.10 0.16 Fruit and Vegetable Processing 31,311 26,077 -1.65%
213 195 -0.81% 5.26 5.58 0.07 Wineries and Breweries 2,062 3,295
4.35% 124 258 6.88% 1.28 1.59 0.36 Grain Product Processing 9,259
8,836 -0.42% 242 254 0.43% 0.92 0.91 0.02 Sugar and Confectionery
Products 2,438 3,146 2.34% 126 96 -2.40% 0.11 0.14 0.37 Nuts and
Snacks 1,770 1,334 -2.54% 25 23 -0.76% 1.05 0.79 -0.21 Prepared
Meals and Other Food Processing
7,253 7,704 0.55% 195 241 1.96% 0.96 0.86 -0.08
Subtotal All Processing 78,319 75,173 -0.37% 1,607 1,601 0% 1.44
1.31 -0.059 Farm Production Total 99,793 103,242 0.31% 12,636
10,633 -1.56% 3.95 3.65 -0.05 Packaging and Machinery Total 10,724
9,914 -0.71% 219 196 -0.98% 0.68 0.66 0.01 Transportation and
Warehousing Total
66,436 74,378 1.03% 5,201 6,121 1.49% 1.13 0.98 -0.13
Cluster Total 255,272 262,707 0.26% 19,663 18,551 -0.53% 1.66 1.49
Total, all industries 3,174,353 3,941,272 1.99% 260,890 381,192
3.51% Source: Analysis by ADE; Data from Minnesota IMPLAN
Group
Applied Development Economics, Inc. 22
Applied Development Economics, Inc. 23
TABLE 1B PACIFIC NORTHWEST FOOD PROCESSING CLUSTER ANALYSIS
SUMMARY
Output Avg. Productivity Avg. Wage
Meat Product Processing $3,517,422,855 $305,757 $28,052 Seafood
Processing $1,721,738,648 $220,030 $42,353 Dairy Product Processing
$2,622,972,830 $481,103 $37,943 Fruit and Vegetable Processing
$5,581,782,507 $214,050 $28,513 Wineries and Breweries
$1,009,703,890 $306,435 $27,500 Grain Product Processing
$2,168,089,144 $245,370 $36,675 Sugar and Confectionery Products
$1,063,878,487 $338,169 $29,816 Nuts and Snacks $479,277,396
$359,278 $36,527 Prepared Meals and Other Food Processing
$1,837,288,197 $238,485 $35,576 Subtotal All Processing
$20,002,153,954 $266,082 $32,403 Farm Production Total
$8,212,291,224 $79,544 $18,988 Packaging and Machinery Total
$2,260,576,726 $228,019 $44,863 Transportation and Warehousing
Total $7,967,501,876 $107,122 $37,999 Cluster Total $38,442,523,780
$146,332 $29,185 Total, all industries $35,817 Source: Analysis by
ADE; Data from Minnesota IMPLAN Group
Applied Development Economics, Inc. 24
31,311
Seafood Prepared Meals &
Study Area Employment-- 1992 Study Area Employment-- 2003
In 2003, the food processing industry employed approximately 75,000
workers in 1,600 establishments7. This represents about 2 percent
of total regional employment. While total regional employment grew
at an average annual growth rate (AAGR) of about 2 percent per
year, food processing employment shrank by almost half a percent
each year. A few sectors within food processing grew at a faster
rate than the overall average. Employment in wineries and breweries
grew, on average, 4.3 percent each year. Likewise employment in
meat product processing and sugar processing grew 2.6 percent and
2.3 percent annually. Growth was also seen in dairy processing,
mostly cheese and milk solids, about 1.4 percent annually.
Figure 5 Northwest Food Processing Employment by Sector
Source: Applied Development Economics
Consolidation is evident in all food processing sectors, except for
wineries and breweries where artisan wines and beers made in small
quantities are growing in popularity. Another exception to the
trend of consolidation is in the prepared meals sector.
Measuring an industry’s share of total employment in the region (in
this case, the Northwest) helps to understand to what extent that
industry exports its products
7 2003 data was the most current data available at the start of
this project. Total establishments include multiple plant and
office sites for individual companies that have employees. The
source of data on employment is from the federal ES202 program, the
purpose of which is to collect data on employees covered by
employment insurance.
Applied Development Economics, Inc. 25
0
1
2
3
4
5
6
Product
LQ 1992 LQ 2003
outside the region. The employment location quotients (LQ)8 for
each food processing sector are illustrated in Figure 6. An
industry sector with an LQ over 1.0 is said to be a traded sector,
or a sector that exports its products outside the region. Clearly
the NW’s key traded sectors are fruits and vegetables, seafood,
wine & beer, and, possibly, dairy9. The LQ for fruits and
vegetables increased since 1992 to 5.5 in 2003 indicating that,
relative to the U.S., the Northwest is becoming more specialized in
that industry.
Figure 6
Northwest Food Processing Employment Concentration
Figure 7, below, graphically illustrates how the food processing
sectors compare with each other on three dimensions: employment,
location quotient or concentration, and growth relative to the U.S.
The larger the size of the bubble, the greater the employment. By
far, the largest sector is fruit and vegetable processing with over
26,000 employees. The next largest, meat products, is less than
half the size of fruits & vegetables, at 11,500. The closer to
the top of the chart that the bubble is, the more concentrated its
employment and the more likely that its products are exported
outside the region. Again, fruit & vegetable, but also seafood
processing, are at the top of the chart with location quotients
between 5 and 6. The farther to the right on the chart the bubble
is placed, the more likely it is growing at a faster rate than in
the U.S. Relative to the U.S. as a whole, the wineries/breweries
and sugar processing,
8 Location Quotient is a measure of industry specialization, a
proxy measure for competitiveness. It is the ratio of a region’s
(in this case the Northwest) employment in a particular industry
sector or group of sectors as a share of that region’s total
employment divided by the ratio of U.S. employment in that industry
sector or sectors as a share of total U.S. employment. 9 As of
2003, it is not clear from the LQ that dairy is a traded sector
within the NW. However interviews with dairy executives and state
officials indicates that dairy employment has grown in the last 2
years and that dairy products, especially cheese and milk solids,
are indeed exported.
Applied Development Economics, Inc. 26
Grains & Baked Goods 8,836
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
-30.0 -20.0 -10.0 0.0 10.0 20.0 30.0 40.0 50.0 Percentage Growth
Greater /Less Than Nation (Shift-Share)
-40.0
C on
ce nt
ra ti
on R
el at
iv e
to N
at io
n dairy products and meat products are growing faster. On the other
hand nuts/snack and prepared meals are growing more slowly.
Figure 7 Cluster Dynamics: Size, Growth, Concentration – Northwest,
2003
CLUSTER OUTPUT, PAYROLL AND ECONOMIC IMPACT Food processing is a
$20.7 billion industry in the Northwest. One-fourth of this is from
fruit & vegetable processing. Meat and dairy products make up
another fourth. Figure 8, below, illustrates total output by food
processing sector.
Applied Development Economics, Inc. 27
$5.6
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
Other
Source: ADE; IMPLAN
Figure 8 Total Output by Processing Sector, Northwest in $Billions,
2003
Total payroll for food processors was $2.4 billion in 2003 and the
average wage was $32,000.
Food processing wages and purchases for supplies from other
businesses in the region have a multiplier effect on the region’s
economy. The total economic impact, due to direct, indirect and
induced effects, was $42.5 billion, more than double the industry’s
output10. There is a similar employment impact as well. Food
processing’s total employment of 75,000 is responsible for a total
of 283,000 jobs throughout the region. For more detailed
information on the industry’s economic impact, please refer to
Appendix F of this report.
In addition to food processing, 2003 output for farm production,
packaging and machinery, and transportation and warehousing was
$8.2 billion, $2.2 billion, and $7.9 billion. Total cluster output
was $38.4 billion.
10 Direct, indirect and induced impacts are defined at the
beginning of Appendix F. In this analysis, direct impacts represent
the estimated jobs, labor
income, and industry output that result directly from food
processing business activities. Indirect impacts represent the
estimated effects that result from
demand for commodities and services provided by suppliers. Examples
of supplier industries include business services, industrial
machinery, and other
equipment. Induced impacts represent the potential effects
resulting from household spending at local businesses by the
workers. These impacts generally
affect retail businesses, health services, and personal services
providers.
Applied Development Economics, Inc. 28
GLOBAL TRADE To assess the Northwest’s role in the global market,
ADE tabulated total sales and exports for all Northwest food
products and ranked them based on a combination of three factors.
These factors included employment concentration relative to
national employment, total sales, and share of production that was
exported. Table 2, below, lists the top 10 Northwest products
ranked by total output.
Table 2
2004 Output juice, and vegetable manufacturing $3,580,244,243
animal (ex. poultry) slaughtering & processed meat fresh,
frozen & canned seafood fruit and ve
$2,551,517,207 $1,806,008,002
$761,524,039 $671,494,655
coffee and tea wineries perishable prepared food manufacturing
$406,843,683 creamery butter manufacturing $185,460,357 Source:
U.S. Census
Clearly, frozen fruit, juice and vegetable manufacturing is the
Northwest’s primary food product. This sector had total sales of
$3.58 billion in 200411. Its location quotient of 11.9 means that
this sector’s employment in the Northwest is nearly 12 times more
concentrated than it is at the national level, a key indicator of
the sector’s competitiveness. Exports of frozen fruit and vegetable
products were $142 million. U.S. frozen fruit, juice and vegetable
products make up 12 percent of the global exports of those products
and the U.S. ranks first in terms of its share of global exports.
This share is decreasing, however. Between 1994 and 2004,
increasing exports from other countries has reduced the U.S. share
of exported frozen fruit, juice and vegetable products.
11 The total output for 2004 as reported by the U.S. Census differs
from the total output as reported by IMPLAN (see Table 1) is due to
differences in definitions of the sectors.
Applied Development Economics, Inc. 29
Sector Share of Exports
US Rank 1994
frozen fruit, juice, and vegetable manufacturing USA, 12% - 1 1
animal (ex. poultry) slaughtering & processed meat Australia
11% - 2 1 fresh, frozen & canned seafood China, 10% + 3 2 fruit
and vegetable canning Italy, 26% + 4 3 cheese manufacturing France,
16% - 10 11 dried and dehydrated food manufacturing Belgium, 12% o
3 1 coffee and tea Germany, 11% + 2 2 wine France, 33% - 6 9
perishable prepared food manufacturing Italy, 16% + 5 2 creamery
butter manufacturing Netherlands, 18% + 0 9 Source: U.S.
Census
Table 3 Global Export Leaders
As Table 3 shows, animal slaughtering and processed meats are
ranked second to frozen fruits and vegetables primarily due to its
total production value of $2.55 billion in 2004. Animal
slaughtering and meat processing is not a specialization in the
Northwest as evidenced by its small location quotient of .85. About
$921 million in processed meat is exported out of Northwest
ports.12 Northwest exports made up 10.1 percent of total U.S.
exports. U.S. exports of meat ranked second in the world and
totaled $5,905,859,069 in 2004. U.S. share of global meat exports
is declining. Australia has the largest share of meat exports,
about 11.9 percent of global exports.
Fresh, frozen and canned seafood contributes about $1.8 billion to
the Northwest economy. With a location quotient of 5.28, employment
is five times more concentrated in the Northwest than in the nation
and is a Northwest specialization. In 2003, Northwest seafood
exports totaled $892 million. U.S. seafood exports ranked third in
the world, with $3,594,740.700 in exports and 11.7 percent of
global exports. China, the export leader, had 10 percent of all
seafood exports in 2004 and its global market share is
growing.
Canned fruits and vegetables13 produced in the Northwest totaled
$1.18 in 2004. With a location quotient of 2.1, Northwest
employment in this sector is twice as concentrated as in the nation
and is a specialization. Exports of canned fruits and vegetables
from Northwest ports totaled $444 million in 2004, about 29.7
percent of U.S. exports of these products. The U.S. ranked fourth
in global exports in 2004,
12 Total value of exports is based on the value of products that
were exported out of a port within Washington, Oregon or Idaho.
These may include products shipped to these ports from other
states, including Montana, Nevada, Utah and others. It is not yet
possible to determine what share of total exports is from one state
or another. A complete list of Northwest ports is included in the
Appendix. 13 “Canned” refers to all forms of packaging except
frozen. It includes packaged in cans, bags, boxes, bottles, jars,
etc.
Applied Development Economics, Inc. 30
down from third in 1994. Italy is the global leader in canned
fruits and vegetables with a 26 percent share of all exports.
The Northwest produced $1.11 billion in cheese in 2004, of which
$26 million was exported from Northwest ports. This represents
about 3.9 percent of all U.S. exports of cheese. The U.S. ranks
tenth in cheese exports while France is the global leader with
about 16 percent of all cheese exports. France’s share is declining
as other countries, including the U.S., increase their
exports.
Total Northwest production of dried and dehydrated food was $1.02
billion in 2004. About $166 million was exported. This is 14.2
percent of U.S. exports. U.S. exports of dried and dehydrated foods
ranked third in the world in 2004, down from a ranking of first in
1994. Belgium is the global leader in exports of dried and
dehydrated foods, making up 12 percent of the global export market.
The remaining four top ten Northwest products each produce less
than $1 billion: coffee and tea; wine; perishable foods; and,
creamery butter. As with cheese, U.S. wine production increased its
ranking from ninth to sixth in the world. Northwest wine and cheese
played a role in U.S. gains in global market share.
CLUSTER LINKAGES Figure 9, below is a map of the Northwest Food
Processing Cluster. The cluster map depicts the inter-relatedness
of each of the cluster components and aids in visualizing how each
may affect the other. Each component of the cluster is a set of
organizations, agencies, firms and individuals, who together, play
a role in determining the success of the traded sectors.
The cluster map helps to identify all potential partners and their
roles in implementation of the strategic initiatives outlined at
the end of this report. Each of the five strategic initiatives
requires collaboration between the components of the cluster. While
firms in the traded sectors will drive or be involved in
implementing each of the recommendations, each of the other
components, especially specialized infrastructure, suppliers,
marketing and economic development agencies, have a large role to
play.
Applied Development Economics, Inc. 31
Figure 9 Northwest Food Processing Cluster Map
External Drivers
Regional Branding Trade Shows
Industry Associations / Trade Groups
Distribution Infrastructure Rail, Roads, Airports,
Ports/Waterways
Federal, State and Local Government Agencies
Farms
Warehousing / Distribution
CLUSTER MAPCLUSTER MAP
External Drivers
Regional Branding Trade Shows
Industry Associations / Trade Groups
Distribution Infrastructure Rail, Roads, Airports,
Ports/Waterways
Federal, State and Local Government Agencies
Farms
Warehousing / Distribution
CLUSTER MAPCLUSTER MAP
Source: Applied Development Economics, 2005
Applied Development Economics, Inc. 32
The top three layers depict aspects of the market that affect what
cluster firms do. EXTERNAL DRIVERS The top layer, in red, include
those political, market and technological trends that drive change
and innovation in cluster firms. For instance some of these trends
include: the natural or organic food movement; people eating out
more often; growing population and wealth in the developing world;
changing customer needs and wants; growth of specialty organic;
local movements; sustainable, functional food development;
environmental consciousness; growth of private label marketing; and
changes occurring in the retail and food service environment.
MARKETS The green layer, “Markets”, are the traded firms’
customers: food service, retailers, wholesalers and distributors
and re-manufacturers.
MARKETING INITIATIVES While mostly within the realm of individual
firms, there is a role for the cluster as well as government, in
marketing or promoting the cluster’s strengths. The blue layer,
Marketing Initiatives, outlines the role that trade associations,
government agencies and economic development organizations have in
supporting the growth of industry.
The bottom three layers, gold, light green and purple, represent
members of the cluster, including processors, their suppliers and
the organizations that provide the public goods and services that
are critical to their success.
TRADED SECTORS In the middle of the cluster map, in gold, are firms
in the traded sectors, which are specialized and export to the rest
of the world, thereby bringing wealth into the region. Altogether,
there are about 1,600 food processing establishments engaged in the
Northwest. They have a total employment of 75,000 workers in food
processing, 65 percent are in four key sub-sectors: 35 percent
(26,000) are in frozen, canned, dried fruit and vegetables; about
13 percent are in wine and beer; 10 percent are in seafood
processing; and, 7 percent are in dairy. The remaining 35 percent
are in baked goods, meat and poultry, candies and other foods and
food ingredients.
SPECIALIZED SUPPLIERS The light green layer represents inputs into
the cluster firm’s production, for instance, farm produce,
machinery, packaging, chemicals, engineering, storage and
distribution.
SPECIALIZED INFRASTRUCTURE The bottom purple layer, Specialized
Infrastructure, represents public goods, such as higher education,
research institutes, workforce development agencies and
organizations, roadways and ports, water systems. It also includes
those regulatory
Applied Development Economics, Inc. 33
Q13: Cluster's Approach to Control of Resources by Sector,
2005
1 2 3 4 5 6
Meat, Seafood & Dairy
7
Advantages for Individuals, Organizations and Societies, Westport,
CT, Quorum Books, 1998
agencies that set standards for quality and those that have
permitting authority. These include the USDA, the FDA, state
departments of agriculture, health, environment and ecology,
transportation, and commerce.
ENTREPRENEURISM IN FOOD PROCESSING CLUSTER The NWFPA Innovation and
Competitiveness Survey included five questions—13 through 17—that
delve into cluster firms’ strategic management approach. Typically,
firms that are not professionally managed tend to show a more
conservative approach to strategic management.
Q13. Approach to new market opportunities. This question relates to
a firm’s control of resources and the extent to which the direct
control of resources (e.g., talent, technology, physical
infrastructure), will influence a firm’s decisions in defining
strategy and business/market opportunities. This is especially the
case in making decisions about undertaking a project outside the
firm’s typical product or service line. The more entrepreneurial
the firm’s management, the more likely the decision will be based
on market opportunity, rather than on availability of
resources.
Figure 10 shows that, in terms of how they approach new market
opportunities, management decisions within the sub-sector of fruit
and vegetable processing tended to be slightly more conservative,
or more inclined to limit opportunities to those within their
typical line of work.
Figure 10
Q14: Cluster's Approach to Innovation by Sector, 2005
1 2 3 4 5 6
Meat, Seafood & Dairy
7
Advantages for Individuals, Organizations and Societies, Westport,
CT, Quorum Books, 1998
Q14. Degree of innovation. This survey question measures the extent
to which strategic management favors and emphasizes product and
service innovation.
Responses to this question, as shown in Figure 11, indicate that
management in the prepared meals & other foods sub-sector was
slightly more innovative.
Figure 11
Applied Development Economics, Inc. 35
Q15. Degree of risk-taking in the marketplace. This item measures
how aggressive top management’s strategy is in terms of leading and
setting the standard in the market place rather than simply
responding to it. On the whole, all food processing sub-sectors
tended to be risk averse. See Figure 12.
Figure 12
1 2 3 4 5 6 7
Meat, Seafood & Dairy
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Q16: Cluster's Approach to Hierarchical Control by Sector,
2005
1 2 3 4 5 6 7
Meat, Seafood & Dair y
bl
he
li
Q16. Degree of Entrepreneurial management. This survey item focuses
on management strategy as it relates to organizational structure
and operations. It focuses on the degree to which hierarchical
control, adherence to rules and regulations, formal procedures and
lines of reporting, etc. matter in the functioning of the firm.
More entrepreneurial firms tend to have a flatter organizational
structure and encourage innovative and entrepreneurial behavior in
this way. The meat, seafood and dairy sub-sector appears to be
slightly more entrepreneurial in terms of organizational structure
and operation. See Figure 13.
Figure 13
Applied Development Economics, Inc. 37
Q17. Perspective on the importance of company growth. This question
assesses growth intentions, which for entrepreneurially managed
firms are usually quite high. As shown in Figure 14, rapid growth
is particularly favored, and given the maturity of some of the
sub-sectors, responses make sense.
Figure 14
1 2 3 4 5 6
Meat, Seafood & Dairy
7
FINANCIAL BENCHMARK ANALYSIS As part of the cluster study, ADE,
together with Advanced Research Technologies, Inc. conducted an
analysis of the financial competitiveness of the Northwest food
cluster and benchmarked against the same industries in the United
States as a whole. The full report of the Financial Benchmark
Analysis is presented in its entirety in Appendix D. Some of the
more salient findings are summarized here.
SALES VOLUME Using the Fruit and Vegetable sub-sector as an
example, it is clear from this analysis that Northwest fruit and
vegetable processors are more successful than their peers
nationwide in terms of sales volume. The Northwest processors’
total sales volume is $44.6 million, while nationally the average
sales volume is $39.8 million. Looking at the results of our
analysis of export data (see Tables 2 and 3), American processors,
in general, export more processed fruits and vegetables to the rest
of the world than any other nation. Clearly the processing of
fruits and vegetables is not just the Northwest region’s strongest
food processing sector, but also one of the nation’s as well.
Figure 15
Average Annual Sales Volume, Food Processing Cluster, Pacific
Northwest and U.S., 2004
$33,303,275
$22,724,001
$39,767,959
$7,888,011
$17,024,357
$22,655,288
$2,761,589
$26,814,508
$7,277,278
$20,461,454
$23,909,260
$44,556,751
$4,052,989
$5,700,001
$19,634,242
$2,640,951
$29,993,761
$5,606,033
$16,922,638
$57,886,238
Meat & Dairy Product Processing
Farm Produce & Food Ingredients
Applied Development Economics, Inc. 39
Sales per Employee, Food Processing Cluster, Pacific Northwest and
U.S., 2004
$243,663
$301,874
$202,082
$180,703
$147,790
$178,194
$194,133
$144,417
$198,887
$541,652
$197,341
$70
$248,930
$152,082
$196,192
$202,220
$217,435
$102,695
$217,855
$517,776
Meat and Dairy Product Processing
Seafood Processing
Farm Produce and Food Ingredients
Processing Machinery & Supplies
Warehousing and Distribution
Source: Fintel LLC Source: Advanced Research Technologies,
Inc.
SALES PER EMPLOYEE Sales per employee offers a picture of
efficiency of production as well as the effectiveness of sales and
marketing efforts. Continuing with the example of fruit and
vegetable processing, the Northwest is again more successful than
its peers nationwide in sales per employee. Northwest processors
averaged $248,000 in sales per employee, while the nation as a
whole averaged $202,000.
Figure 16
2.
Seafood Processing
Farm Produce and Food Ingredients
Processing Machinery & Supplies
Warehousing and Distribution
3.2%
3.2%
3.7%
5.1%
4.5%
4.2%
3.3%
3.6%
2.6%
2.1%
6.7%
5.1%
4.6%
6.0%
2.5%
6.9%
0%
3.0%
3.9%
3.8%
Pacific Northwest U.S.
Source: Fintel LLC
Source: Advanced Research Technologies, Inc.
RETURN ON SALES The Northwest is again more successful than its
peers across the nation in return on sales. Pacific Northwest
processors had a 5.1 percent return on sales in 2004, while the
rest of the nation had 3.7 percent.
Figure 17
Applied Development Economics, Inc. 41
Return on Asset Investment, Food Processing Cluster, Pacific
Northwest and U.S., 2004
24.9%
20.7%
26.0%
18.3%
27.3%
26.4%
14.7%
22.3%
31.2%
22.7%
19.2%
39.2
17.9%
13.7%
22.7%
14.2%
16.4%
4.6%
28.8%
24.9%
Meat and Dairy Product Processing
Seafood Processing
Farm Produce and Food Ingredients
Processing Machinery & Supplies
Warehousing and Distribution
Source: Fintel LLC Source: Advanced Research Technologies,
Inc.
RETURN ON ASSET INVESTMENT The picture starts to change when we
look at how well company owners are doing in terms of return on
their investments. Pacific Northwest fruit and vegetable processors
returned only 17.9 percent on their asset investments, while their
peers nationwide realized a return of 26 percent.
Figure 18
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PROFIT PER EMPLOYEE Net profit per employee helps to understand how
well sales are converted into profits. This financial ratio is a
measure of the labor productivity achieved by a company. In
addition, it indicates the extent to which a cluster firm is
capital or labor intensive. A low measure may indicate that the
firm is labor intensive (or overstaffed) and a high measure may
indicate that it is capital intensive (or understaffed). Compared
to processors in the United States as a whole, Northwest processors
of fruits and vegetables are not turning their higher sales volumes
into profits. Northwest fruit and vegetable processors earned
$4,300 in profits per employee while nationwide processors earned
$5,500 in profit per employee.
Figure 19
Profit per Employee, Food Proceesing Cluster, Pacific Northwest and
U.S., 2004
$5,677
$6,830
$5,479
$7,022
$4,671
$5,548
$6,773
$4,697
$5,217
$10,874
$3,020
$11,728
$4,318
$4,092
$8,817
$4,060
$10,155
$2,412
$6,162
$13,318
Meat and Dairy Product Processing
Seafood Processing
Farm Produce and Food Ingredients
Processing Machinery & Supplies
Warehousing and Distribution
Source: Advanced Research Technologies, Inc.
NET BALANCE POSITION When looking at the Net Balance Position (NBP)
of fruit and vegetable processors, we find that these Northwest
processors have a net balance position of 1.4, while their peers
nationwide have a net balance position of 1.28. Net balance
position measures the difference between working capital available
and working capital required. A net balance position of less than 1
is equivalent to a negative net balance position and a NBP of
greater than 1 means a company has excess liquidity. Negative NBP
indicates a liquidity problem that must be corrected immediately or
the company is headed for insolvency. Positive NBP may indicate
slack resources that, unless a company is growing fast, may hinder
the performance of a company. Northwest fruit and vegetable
processors appear to have excess liquidity. A lower return on asset
investment combined with excess liquidity could indicate that they
need to improve their earnings power, which could potentially be
accomplished by redistributing their cash surplus to invest in new
technologies, human resources and facilities.
Figure 20
Net Balance Position, Food Processing Cluster, Pacific Northwest
and U.S., 2004*
1.12
1.41
1.28
0.94
1.44
1.45
1.00
1.13
1.17
1.06
1.52
0.97
1.40
0.69
1.74
1.45
0.83
0.87
0.84
0.77
0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00
Meat and Dairy Product Processing
Seafood Processing
Farm Produce and Food Ingredients
Processing Machinery & Supplies
Warehousing and Distribution
ASSESSMENT OF REGIONAL ASSETS
INTRODUCTION A region’s assets, or its economic infrastructure, or
economic foundation, become competitive advantages or competitive
disadvantages depending upon their condition, supply, cost and
utility to a particular industry. This section focuses on assessing
the region’s assets and their utility to the food processing
cluster. The following regional assets are assessed in this
report:
Workforce Development
Research and Patenting Activity
Table 4, below, assesses each regional asset’s performance,
linkages with the industry, advantage or disadvantage to the
cluster’s competitiveness, and suggests indicators to measure
progress in the future.
Regional Asset. Each regional asset is critical to the on-going
competitiveness of the cluster. Regional assets are usually
publicly-supplied goods and are dependent upon public policy
decisions. The key virtue of cluster networking is to engage the
public-sector agencies and decision-makers by involving them in all
strategic planning processes and the problem-solving that occurs
within those processes. In the NWFPA strategic planning process,
nearly all public-sector agencies with a stake in the
competitiveness of the cluster were invited to take part in the
issue identification and action plan development phases.
Performance. Performance of regional assets should be measured on a
regular basis. For the purposes of this study, performance was
measured in one of two ways: either through a qualitative process
of interviews and survey responses or through a quantitative
process of gathering and analyzing secondary or administrative data
sources. In the future, it would be more effective to find
quantitative measures of progress for each of the regional assets.
Suggested indicators for measuring progress are listed in the last
column of this table.
Applied Development Economics, Inc. 45
Linkages. Strong linkages between the providers of each regional
asset or utility and the cluster network are extremely important to
the overall utility of those assets to the cluster members.
Linkages are usually in the form of inter-personal relationships
and communications. Strong linkages lead to regional assets that
perform well for the cluster; weak linkages lead to a disconnection
between the needs of the cluster members and the activities of the
regional asset provider.
Advantage/Disadvantage. Ratings on performance of the regional
asset and its linkages with the cluster network, combined with
cluster member feedback through surveys and interviews, allow us to
determine whether a particular regional asset is an advantage or a
disadvantage to the region’s competitive position relative to other
regions.
Progress Measures. It is important to continually measure the
performance of regional assets. By doing so, the cluster can more
effectively communicate its needs to the decision-makers of
public-sector and private-sector providers of these assets. The
last column of the table below offers possible indicators to use to
regularly measure performance.
Table 4 Assessment of Regional Assets
Regional Asset Performance Linkages Advantage (Strength) or
Disadvantage (Weakness) Progress Measures
Workforce Development
The States of Washington and Oregon have well-developed workforce
development programs
Strong. Workforce development programs in the region work closely
with the cluster organization to conduct needs assessments, skills
gap analysis, develop and market new courses
Workforce development is a key regional asset. The states of WA, OR
and ID have worked closely with NWFPA to develop and market
workforce training programs applicable to the food processing
industry.
• Number of openings unfilled after 2 months
• Number of graduates of vocational training programs
• Percent of business recruitment officers indicating difficulty in
recruiting skilled workers
Energy The region’s hydro-electric infrastructure provides
competitively-priced power for food processors
Strong. The hydro-electric power infrastructure and distribution
system is a key regional advantage. NWFPA's involvement through the
tri-state Industrial Efficiency Alliance also is creating an
advantage.
• mBTUs per unit of production
Transportation Seaports: increasing congestion is threatening
timely delivery of perishable food ingredients; could push port
activities to ports outside region. Roadways: extreme congestion on
major north-south routes, especially the I-5 corridor. Columbia
River crossing is a major chokepoint. Rail: Rail operators less
interested in working with highly perishable food product shippers;
receive more business from other durable goods manufacturers like
lumber. Airports: airports adequate for business travel; too
expensive for freight except highest-priced goods such as flowers,
some berries, minimally processed fresh fruits.
Weak. The transportation system is a disadvantage for the region’s
food processing industry due to congestion at ports and on
roadways, fuel prices, and railway operators not interested in
shipping highly perishable items.
• Transportation as a percent of cost of goods sold (COGS)
• Delivery time to East Coast markets
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Applied Development Economics, Inc. 47
Regional Asset Performance Linkages Advantage (Strength) or
Disadvantage (Weakness) Progress Measures
Water Supply The region’s fresh water supply is under extreme
pressure in all three states. Regulatory pressures related to
salmon recovery, the Clean Water Act, Tribal water rights claims
are creating most of this pressure. In addition, Eastern Oregon,
Eastern Washington and Idaho all have inadequate storage facilities
to meet current uses, projected growth, and increased demand for
environmental mitigation.
Adequate Advantage. The water supply in the region is adequate for
the current level of industrial activity. Water conservation
measures and storage should be put in place to maintain an adequate
supply in the future.
• Acre-feet water used per worker per year.
• Acre-feet water recycled per year.
Wastewater Water quality regulations more stringent in WA and OR,
less so in ID. However, Idaho is rapidly changing its regulatory
programs increasing requirements for dischargers. Water quality
concerns are increasing as use of land intensifies and water
quality measurements become more sophisticated.
Adequate Advantage. Water quality regulations will become more
stringent as development intensifies and demand from competing user
groups increases. The regulations in the region are consistent with
those in competitor regions.
Higher Education Three public universities offer B.S., M.S. and
Ph.D. degrees in Food Science: University of Idaho, Oregon State
University and Washington State University. Together, they awarded
19 B.S., 18 M.S. and 10 Ph.D.s in 2005. This is inadequate for the
number of food processors in the region, which regularly recruit
from outside the region. However, linkage to production agriculture
is strong.
Weak Disadvantage. A large share of processors recruit entry-level
professionals from outside the region, from UC Davis, Cornell,
Purdue and Illinois. The Region is not producing needed
talent.
• Number of degrees awarded by discipline
• percent of graduates employed regionally
• Number of math, engineering and science graduates from all
regional universities
Research & Innovation
An analysis of patenting activity within the region showed that,
relative to competitor regions, the Pacific Northwest has much room
for improvement.
Weak. The region’s universities have limited ties to the food
processing industry and there is minimal focus on technology
transfer to the industry. Little, collaboration between academia
and industry in research agenda, design and funding.
Disadvantage. Expanding research in food and related industrial
technologies and transferring knowledge of existing research are
required to maintain competitive position within the global
marketplace.
• Number of patents issued within region for U.S. Patent office
technology classes #99 & 426.
• Number of patents licensed within region
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WORKFORCE DEVELOPMENT Access to qualified workers is critical to
the success of the food processing industry. A talented,
experienced workforce is a company’s most important asset. That
workforce is responsible for improving productivity, increasing
sales, developing new products and creating new solutions—all
activities required to stay competitive in an increasingly
competitive and global market. Food processors and their suppliers
are extremely concerned about finding workers with the skills
needed for an increasingly technology-driven workplace. Most
available workers lack the education, training and knowledge needed
to succeed in today’s workplace.
A number of trends have conspired to create the current shortage.
Vocational skills are no longer taught in most high schools,
leaving non-college-bound students with few, if any, options upon
graduation. Politically-elected school boards across the country
have opted for more rigorous academic offerings in math and science
at the expense of industrial technology and vocational training. At
the same time, master trades workers—electricians, mechanics,
equipment operators – products of earlier school systems that
integrated vocational training with academics, are retiring,
leaving gaping holes in the skilled worker supply. Today’s youth,
turned off to manufacturing by outdated images of the
pollution-producing factories, offering only dull, laborious
production-line work have set their sights on work in finance,
marketing, software, sales and customer service. This, combined
with regular announcements of layoffs in manufacturing and the
concomitant loss in political influence, has dissuaded young people
from entering the industry.
Bright young students interested in manufacturing are attracted to
bio-tech, computer, semiconductor, software, telecommunications,
aerospace and other “high tech” jobs because they offer very
competitive compensation packages, including stock options. The
food processing industry has not traditionally offered these high
levels of compensation and so is at a disadvantage when competing
for limited talent.
As part of this cluster assessment, the NWFPA Competitiveness and
Innovation Survey asked a set of questions to obtain information
about the level of difficulty processors had with certain business
issues, including workforce recruitment. Recruiting workers,
especially skilled workers, was the most difficult business issue
fac