Why functional foods favor the Midwest.
iddle America's grain belt, long a supplier of food to the world, is increasingly viewed as a location of choice by firms involved in the manufacture of organic and functional foods. Proximity to raw materials, access to the nutritious byproducts of ethanol production and relatively low operating costs are among the factors.
, the British Columbia-based manufacturer of organic cereals, was looking for proximity to its suppliers and markets when it began its search for a second U.S. manufacturing facility. It found both in Sussex, Wis., about 20 miles (32 km.) northwest of Milwaukee.
Nature's Path also found an existing, vacant food processing facility in the form of a former Kraft Foods Tombstone Pizza plant. Kraft closed the plant in 2007. Nature's Path has invested approximately US$25 million to refit the building and install equipment. The State of Wisconsin is providing $250,000 for employee training.
"The Midwest is a desirable area for us," say Ken Hacker, plant manager at the Sussex facility. "We are near some of our raw ingredients such as corn. There are a lot of organic suppliers in the region. It's a great facility and we've invested quite a bit of money. It definitely meets world class food manufacturing standards."
Everything is all set to go at the plant, but as of early June, it was on hold due to the economic downturn. The company is also determining which products make sense to be manufactured in Sussex, Hacker says. The plant will serve the eastern half of the U.S. Nature's Path also has a plant in Blaine, Wash., along the Canadian border and the Pacific coast.
Hacker says the Sussex plant will employ 30 to 60 as it ramps up, with plans to grow to a work force of 200 within three to five years.
Sioux Falls: Most Affordable
A recent study by the Princeton, N.J.-based location consultancy The Boyd Company says Sioux Falls, S.D., is the least expensive location to operate a functional foods manufacturing facility. While the federal Food and Drug Administration has not defined the term, the American Dietetic Association this spring said they are foods that offer a "beneficial effect on health when consumed as part of a varied diet on a regular basis at effective levels."
The ADA further broke the category down into four groups: conventional foods, modified foods (fortified or enriched), medical foods (e.g. formulas used to manage disease) and foods for special dietary use, such as gluten- or lactose-free foods.
The Boyd study evaluates the cost of operating a functional food and beverage facility in 35 U.S. and Canadian cities. It analyzes all major geographically variable operating costs crucial to a corporation's decision on where to locate new bioscience research and production operations. The study's economics focus on the nation's $60-billion functional food and beverage sector. The growing field has ties to Midwestern states with strong positions in the biofuels industry.
Surveyed costs include skilled labor (including scientific workers with advanced degrees in food technology, biology, chemistry and other life sciences), utilities, taxes, construction, shipping, corporate travel and other occupancy cost factors. Operating costs are scaled to a representative 60,000-sq.-ft. (5,574-sq.-m.) functional food and beverage facility housing research and processing functions and employing 150 workers.
John Boyd Jr. says three key drivers are pushing the functional foods trend.
"We have an aging population because people are living longer," Boyd says. "The second driver is the collapse of big pharma. An unprecedented amount of patents are expiring and there's a bigger range of things that can be produced generically. In a weak economy, it is prohibitively expensive to bring drugs to market. Things that can be produced without FDA approval are looked upon more favorably.
"The third driver is the federal government's investment in ethanol production," says Boyd. "Ethanol byproducts such as distiller's dried grain [DDG] are a valuable commodity when it comes to functional foods."
Cost structures and access to ethanol give many Midwestern locations an advantage. Boyd says ethanol producers in the Midwest generate more than 10 million tons of DDG annually. He says lecithin, antioxidants and other ingredients are also likely to be mass produced from DDG for the functional foods and nutritional beverage industry. The largest bioscience firms in this field include Syngenta, Monsanto, DuPont, Dow, BASF, and Bayer Crop Science, he says.
Boyd says small markets in the Midwest such as Sioux Falls, which is a neighbor to ethanol-rich Iowa, are in prime position for the functional foods industry.
"One of the things we like about Sioux Falls is that South Dakota has no personal or corporate income tax," Boyd says. "South Dakota is also a right-to-work state."
Boyd says the proposed card check legislation, which would make it easier for unions to organize workers, would be another factor in functional food processing location decisions.
"One of the biggest things we talk about with our clients is card check," Boyd says. "If card check happens, it's really going to be devastating for Michigan, Ohio, Minnesota, Illinois and other non right-to-work states."
Site Selection Online – The magazine of Corporate Real Estate Strategy and Area Economic Development.
©2009 Conway Data, Inc. All rights reserved. SiteNet data is from many sources and not warranted to be accurate or current.