2010 Capital Spending Outlook: Pent-Up Demand Causes an Explosion in Projects

Another $100 million expansion is by the Hilmar Ingredients division of Hilmar Cheese Co. at the Dalhart, Texas, facility. The company will double its investment in the plant to make more natural American-style cheese and functional whey products. "Ultimately, the addition will give us the ability to double capacity in Texas," explains President/CEO John Jeter. "We are installing emerging technology to increase our ability to meet our customers' changing needs."

General Mills' is adding on to its Wellston, Ohio, plant, to make pizza. Big G will invest more than $70 million and create 70 new jobs to expand production.

Sanderson Farms has the honor of the biggest percentage increase (+448 percent). After spending $25 million and $49 million in its 2009 and 2008 fiscal years (which end Oct. 31), the Laurel, Miss.-based poultry processor is budgeting $137 million this year. Most of that is for a new processing complex in Kinston, N.C., "which is moving forward as planned and we expect to begin processing chickens at this location in January 2011," said a spokesperson.

The biggest decline belongs to aforementioned Imperial Sugar, and that despite the big new refinery. The Sugarland, Texas, company's capex budgets have traditionally been in the high teens, but it had to spend $163 million last year to rebuild the parts of its Port Wentworth, Ga., sugar refinery that was damaged by an explosion in February 2008. Its $22 million budget for this year, which includes some funds for the Gramercy joint venture, is a return to normalcy.

No (more) skimping on safety

Between foodborne contamination incidents and third-party inspections, food safety is driving some of the capital spending. "Nobody wants to be the next Peanut Corp. of America," says Gunst of Power Engineers.

"We're seeing a lot of projects relating to food safety," says Mike Murphy, a vice president in the food division of SSOE (www.ssoe.com), a Toledo, Ohio, engineering and architectural firm. "A lot of the facilities out there are dated and especially [susceptible] to microorganisms. They were not built with sanitation in mind, so they need improvements in sanitation and cleanability."

Gunst agrees, noting activity in completely new floor drain systems; in washrooms, lockers and footbath areas for personnel sanitation; and in new walls, HVAC systems and other ways of segregating raw from cooked areas of the plant.

Gunst also says Power Engineers is being employed as kind of a third-party inspector, with larger processors sending Power employees out to assess suppliers' facilities from an AEC firm's viewpoint.

The emphasis on food safety includes allergens, so Burns & McDonnell (www.burnsmcd.com/fcp), Kansas City, Mo., is seeing some activity in new lines that will never run peanut and wheat-containing products, says David Dixon, senior director of strategic accounts.

"Overall, there's a lot more emphasis on cost justification, and often that means more throughput on the same lines," says Dixon. "It might mean de-bottlenecking a line, adding a new conveyor or some other line modification – anything to increase capacity without building new."

And it's not just about throughput or food safety. "There are always opportunities, especially in the food industry, to take out costs and to invest in automation," says Todd Allsup, vice president of food & beverage facility services at Stellar (www.stellar.net), Jacksonville, Fla. "There are trends toward more visibility to the plant floor, for collecting data and using it to manage the business better.

"It seems a lot of companies in the past year held onto their cash waiting for the economy to shake out," he continues. "I think the better companies have some cash on their books and are ready to spend."

Other projects
Among General Mills' $630 million capex funds are "projects relating to growth": capacity for grain snack bars, yogurt and cereal. Plus $30 million of the budget goes toward completing the replacement of a Latin American plant destroyed by fire in 2008.

Smithfield Foods has spent heavily in recent years to increase capacity and build new plants. It spent $460 million in fiscal years 2007 and 2008. But the company, which recorded a $190 million loss last year, spent just $175 million in 2009 and forecasts the same amount for 2010.

While some of Tyson Foods' spending will be for traditional, domestic projects, the 2010 projection does include significant spending on international operations (especially China and Brazil) as well as the completion of the new Dynamic Fuels plant in Geismar, La. This joint venture between Tyson and Syntroleum Corp. will produce diesel from non-food-grade animal fats rendered or procured by Tyson, such as inedible beef tallow, pork choice white grease, chicken fat and used cooking grease. It's expected to be operational this summer.

Reser's Fine Foods will create 500 new jobs, according to local press reports, in an expansion of its Halifax County chilled deli salads plant. The company reportedly is spending $15 million this year in the first of a three-phase expansion of the plant.

Lance acquired the Stella D'Oro brand last October, and notes that some of its increased cap spending will be to upgrade those facilities.

Chiquita expects "slightly higher capital expenditures in 2010 as we continue to invest in our salads business."

TreeHouse Foods' spending is for food safety, quality and productivity improvements and installation of an ERP system.

It opened late last year, but Mars Petcare last September opened the doors on a LEED Gold-certified pet food plant in Fort Smith, Ark. The $80 million, 305,000-sq.-ft. facility will produce Cesar Canine Cuisine. It's Arkansas' first sustainable manufacturing facility and the first sustainable pet food manufacturing facility in the world.

Minneapolis-based Malt-O-Meal has been enjoying the past year's trend toward private label foods. The family-held cereal maker late last year opened its first facility in the east, in Asheboro, N.C. The 350,000-sq.-ft. facility sits on 33 acres and "represents an investment of $140 million." It should employ 133. It already is producing Frosted Mini Spooners and Frosted Flakes and has room for additional lines.