Business Strategies / Economic Development

States Woo Food Companies with Generous Financial Incentives

By Kevin T. Higgins, Managing Editor

Apr 14, 2016

Former U.S. Treasury secretary and Alcoa CEO Paul O’Neill was no fan of tax breaks to get manufacturers to build a facility in a given location.

“If you are giving money away, I will take it,” O’Neill said. “If you want to give me inducements for something I am going to do anyway, I will take it. But good business people do not do things because of inducements, they do it because the can see that they are going to be able to earn the cost of capital out of their own intelligence and organization of resources.”

Nonetheless, state and regional economic development agencies continue to sweeten the incentive pot. If anything, the tax breaks and low-cost loans are getting richer, if only because there are fewer deals to be made as the U.S. economy continues to dig out from 2008’s Great Recession. “The trophy deals seem to be getting more subsidies than ever,” notes Greg LeRoy, executive director of Good Jobs First, a Washington, D.C.-based public policy organization.

The richest incentive packages in 2015 involving food and beverage companies are included in Good Jobs First’s Subsidy Tracker 3.0 database. Some of the industry’s largest corporations received the richest deals, but topping the list was Clemens Food Group, a Pennsylvania deli-meat processor that is building a pork processing facility in western Michigan in partnership with Cooper Farms, an Ohio turkey processor. Four state subsidies valued at more than $25 million were provided last year by the state in the form of property tax abatements, tax credits and rebates and infrastructure assistance. The facility is expected to become operational in late 2017.

The capital cost of the Clemens project is pegged at $255.7 million. That puts state subsidies at 9.8 percent of project cost. In comparison, state assistance for the Nestle Product Technology Center in Bridgewater, N.J., totals 20.6 percent of project cost, or $14.45 million for the $70 million greenfield. Other major subsidies include $10 million for a former Conagra plant (now Treehouse Foods) in Princeton, Ky.; $9.44 million for Kellogg Co.’s Eggo manufacturing facility in Blue Anchor, N.J.; and $4.95 million for expansion of Chobani LLC’s Norwich, N.Y., plant.

Economic incentives for beverage companies were considerably more modest in 2015. Oklahoma bundled four grants worth a total of $543,166 for Coca-Cola Refreshments USA, making it the year’s most generous package.

Job creation is the stated goal and justification for generous subsidies, though LeRoy points out there often is no follow up to see if those jobs ever materialized. If a project fails, clawback provisions typically are not included in the original deal.

An example is the Muller Quaker Dairy in Batavia, N.Y.: a joint project of Pepsico and Germany’s Muller Dairy, the yogurt facility received a $20 million package of support beginning in 2012 from local development authorities, including a six-year waiver of all local taxes. The facility was sold to Dairy Farmers of America in December, eliminating 64 jobs.

Economic incentives for manufacturers to build or relocate in a given area trace back to the 1950s, though they accelerated in the ‘70s with the completion of the interstate highway system, according to LeRoy. Originally used in southeastern states as a lure to northeastern manufacturers, incentives became common practice throughout the country. “Typical job piracy is not across state lines, it is across city lines,” he adds, with developers pitting communities in the same area against one another. Some local authorities are trying to end the practice, notably in the Denver and Dayton, Ohio, areas and the states of Missouri and Kansas, which are considering a truce in the greater Kansas City metro.