Driven By Fresh Technology And New Markets, 2013 Was A Busy Year For Food Processing

By Isaac Fletcher, contributing writer, Food Online

From mergers and acquisitions, to investments and expansions, the food processing industry had an eventful year spurred by continued growth, emerging markets, and a burgeoning middle class

Despite the economic downturn, and subsequent recession, the food industry has shown resiliency and experienced mergers and acquisitions at a steady pace over the last few years.  In 2010, there were 322 merger and acquisition deals, a fairly high amount considering that the country was still in recession. In both 2012 and 2013, there were roughly 300 of these deals, according to The Food Institute’s Food Business Mergers and Acquisitions 2013 report.

Retailers comprised 13 percent of all food industry mergers in 2013, largely due to an exceptional year for supermarkets.  However, it was food processors that completed the most deals in the food industry for 2013, making up 34 percent of the overall industry mergers and acquisition deals.  In total, there were 105 total deals for the processing sector, a 27 percent increase from 2013.  Dairy and meat processors showed significant growth, with the dairy industry doubling the amount of mergers from 2012.

So the question remains: what is the driving force behind all of this industry consolidation?  Most food processors have done well surviving the recession, which means many of these deals are less motivated by cost rationalization, optimization, and efficiencies. Rather, the driving factor behind many of these deals is access to human resources, new technology, and new markets.

Additionally, there has been a spike in foreign interest in food processing plants, such as the purchase of Virginia’s Smithfield Foods by China’s Shuanghui International Holdings.  With a price tag of $4.72 billion, this is the largest purchase of a U.S. firm made by a Chinese company to date.  Much of the foreign interest in U.S. firms is attributable to emerging markets and an increased demand for pork due to changing diets.  The emerging markets are spurred by a growing middle class in many Asian countries, which translates into more disposable income.  Access to higher disposable income allows for the Asian economy to be more motivated by a Western diet having higher meat content.  U.S. meat producers offer foreign companies the chance to bring their meat quality and yield up to a standard that meets middle-class demand through access to technology and supply, a major element in foreign interest.

Investment firms and banks made up the second most active acquisition group, accounting for 47 deals in 2013.  However, as The Food Institute’s report notes, there is a large imbalance when it comes to supply and demand with regard to capital.  Companies have the capital and resources, but there is a lack of quality sellers, which stifles transaction volume.

Processors See Opportunity In Expansion And Relocation

Mergers and acquisitions were not the only form of food industry activity last year.  Many food processors made the choice to expand to be closer to customers.  For example, Maple Donuts, a specialty food processor of bakery products, expanded its operations in Erie County, PA by adding 20,000 square feet to its existing 80,000 square-foot facility. This expansion created 60 new positions, retained 110 existing positions, and helped Maple Donuts better distribute its product to local consumers.

Leclerc Foods, based in Saint-Augustin-De-Desmaures, Quebec, recently invested in a 166,500 square foot building in Phoenix, Arizona to expand its operations for Leclerc Foods USA.  The move allows Leclerc to position itself near U.S. clients and focus on food trends in the west coast of the U.S.  Not only that, but Leclerc can increase production capacity and realize significant savings on transportation costs thanks the closer location to key markets.  With the rising cost of transportation, it is little wonder that food producers across the board are seeking savings by directing money into locations closer to consumers and supply chains.