NORTHWEST FOOD PROCESSING CLUSTER ASSESSMENT & ROADMAP

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A Private/Public Economic Development Roadmap for Washington, Oregon and Idaho to help food manufacturers compete globally through increased innovation and productivity.
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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
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.
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
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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
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.
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.
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
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.
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.
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.
“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
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.
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
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.
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
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.
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
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
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.
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.
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.
$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.
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.
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.
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.
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
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
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
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
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
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
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
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
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
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
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%
Seafood Processing
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
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
Seafood Processing
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
Seafood Processing
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.
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
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
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

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NORTHWEST FOOD PROCESSING CLUSTER ASSESSMENT & ROADMAP