It’s nice to be king. And if you can’t be king, the next best thing might a food manufacturer scouting locations for a new plant.
That thought struck me after completing work on Food Processing’s annual capital spending outlook, the cover story in the magazine’s April 2014 edition. Virtually every new-plant project and many major renovations is helped along with generous public subsidies. The most eye-popping example comes from North Carolina, a leader in site-selection financial incentives. The state put together a package worth more than half the estimated construction cost for a Brooklyn fishmonger looking for a processing site.
Local authorities often feel compelled to make it rain in order to fend off competing offers. Memphis, which has hosted a J.M. Smucker fruit spread plant since 1970, upped the ante last year to retain the plant after Kentucky offered Smucker’s $2 million to relocate. This year, Smucker’s came back for more and ended up with tax breaks worth $13 million.
Handouts are rationalized by jobs creation. The irony is that automation means fewer workers to produce more products. Smucker’s amended downward the number of jobs its expanded production plan would generate. A new J.R. Simplot potato processing facility in Caldwell, Idaho, will require a staff of 250 to replace the production of three older plants that employ 750.
Escalating subsidies are warping the site-selection process and luring food companies to less than optimal locations. “Many companies get diverted by huge incentives,” bemoans Frank Spano, managing director at the Austin Co., the Cleveland architectural engineering firm that also offers site-selection services. “Incentives are important,” he allows, “but you first must locate in the right region.” Logistics, transportation infrastructure and labor availability remain important long after financial incentives expire.
Besides working with food companies expanding into unfamiliar geographic areas, Austin consults with utility companies (Duke Energy, AEP) and economic development groups at the state and local levels. Food facilities have specific needs, and Spano advises groups targeting the industry to make sure shovel-ready sites can meet those needs. Water quality analyses and wastewater flow measurements are essential, and “nine times out of ten, food processors need to have natural gas at the site,” he says. Light industrial parks without neighbors belching smoke or noxious odors also are attractive lures. Utility connection costs and impact fees are potentially costly but also negotiable.
Four years ago, Austin launched its Shovel-Ready for Food Processing Designation Program. A score of sites have been certified as meeting criteria like clear property ownership and environmental soundness. Spano also advises communities that want to attract food companies to clear sites and have them “pad ready.” Not only does that compress the construction timeline, it exposes any potential topographic issues.
Manufacturers would be foolish to not seek all the help they can get for a major capital investment, and there’s a certain amount of brinkmanship involved in the negotiations. What bothers me is the jobs fig leaf. Food companies are in the business of production, not job creation, and the value of employees’ work has to exceed what they are paid or the job won’t be sustained. Work is satisfying, but self-worth precludes gratitude for the opportunity to do it.
