2016 Capital Spending Report: Partners in CapEx

Manufacturing ventures entail risk, and food processors increasingly are partnering with other food companies to mitigate the risk of new-plant projects.

By Kevin T. Higgins, Managing Editor

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Growth in output per cow since 2012 has supplied enough milk to satisfy Chobani’s need. The bigger drivers for Idaho dairy are Idaho Milk Products and High Desert Milk, farmer-owned processors that started up in the past eight years and are in the midst of their own expansions. Both plants rely on exports of value-added dairy ingredients for a big chunk of sales.

Logistics also played a role in Walmart’s decision to build a fluid milk facility in Fort Wayne, Ind. The plant, which will process store-brand milk for 600 Walmart stores, will soak up much of the 4 million lbs. of Indiana milk that currently leaves the state each day for processing in surrounding states.

Economic development agencies are beginning to recognize the symbiosis of raw materials and food processing and are tailoring their incentive programs accordingly. Site location decisions are based on many factors, from job training and labor availability to transportation and market proximity. Financial incentives help, and one that more processors are beginning to avail themselves of is the New Markets Tax Credit.

Premium Peanut LLC tapped into that credit when building a $50 million shelling operation that started up in January in Douglas, Ga. It is the first new U.S. shelling plant in 12 years, according to Karl Zimmer, Premium’s CEO, and the more than $6 million in investor tax credits it generated was “absolutely critical,” he says. The facility is expected to stabilize the market for Georgia peanut farmers who previously faced uncertainty over whether there would be a buyer for their crops.

To qualify for the credit, a facility has to be built in an economically distressed area. Other recent food-related projects include an anaerobic digester operated by Foremost Farms in Richland Center, Wis., and Commonwealth Dairy in Brattleboro, Vt. Commonwealth, which produces private-label yogurt for the retailer Aldi, took advantage of the credit when it built its processing plant in 2011 and again in 2013 when the facility was expanded.

CapEx projects have to make economic sense in the first place, or they don’t get done. A country with agricultural riches that extend well beyond amber waves of grain is well positioned for growth in the growing global food market, and partnerships between farmers and processors and joint food-company projects can help exploit that opportunity.

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