Food Engineering

Consolidations leading to plant closures, study shows

March 22, 2003
Since improved efficiency is a prime driver of mergers and acquisitions, it's not surprising that the consolidation of the U.S. food industry is resulting in the closure of less efficient food plants.

Some 141 plants in the U.S. and Canada closed their doors this year alone, and more than 85 major mergers and acquisitions were made, with more in the works or pending by year end, according to Industrial Information Resources, Inc (IIR).

Data compiled by the Houston-based IIR also indicate that companies seeking to construct new facilities are facing more stringent state and local regulations concerning air emissions and water pollution. Given the increasing capital investment, food processors are more likely to expand when possible rather than construct new plants, according to IIR.

IIR's capital spending and MRO projections for 2001 are at $13.8 billion. In the top 45 publicly held companies, spending projections are estimated at $11 billion, up 1.1 percent over 2000 projections. More than two-thirds of capital spending is occurring within existing facilities, with money being spent mainly on production, packaging and process control equipment. Improvements in automation and information integration are expected to be the major trend impacting capital spending over the next five years.

Excess production capacity is becoming a problem in some parts of the food industry, notably grain processing and meat production, according to IIR. The primary reason is a decline in foreign demand, partly due to increasing production by processors in South America and Asia, particularly China.

One more bit of information from IIR: Five of the biggest industry players now control about 50 percent of sales in the U.S.