Food manufacturers face diverse challenges in meeting the needs of consumers around the world.

In the international food market, the leading corporations can be neatly divided into two groups: U.S. companies and everybody else. American-based enterprises hold seven of the top 10 positions in this year's Food Engineering ranking of the world's 100 largest food and beverage companies, and they do most of their processing and selling in the land of amber grain. A dominant position in the world's richest market can be a disincentive to taking the show on the road.

For non-U.S. processors, the situation is quite different. World leader Nestle SA (No. 1 on Food Engineering's list) continues to expand its presence around the globe, typically investing in brick and mortar as it goes. The Swiss company operated 468 plants at last count, with more on the way as it focuses on three categories: ice cream, pet care and beverages, water in particular. Those initiatives will mean even more processing facilities, including a $100 million water plant being built in Tennessee. Nestle is investing an additional $165 million on a frozen foods plant in Arkansas. Designed with low-pollution refrigerants to meet the objectives of the Kyoto accord, the plant will serve Nestle's Stouffer's division but could also help meet the expansion objectives for Chef America. Nestle acquired the Denver specialty food operation in August for $2.6 billion--a hefty premium for a firm that will generate $700 million in sales this year.

In contrast, North America's biggest food company is shedding plants. Northfield, Ill.-based Kraft Foods Inc. (No. 2) has closed or sold 33 plants in the last 18 months, leaving it with 186 facilities. "This trend will continue as we find more ways to consolidate or outsource our production," co-CEO Betsy D. Holden recently told security analysts. Kraft products are manufactured in 68 countries and sold in 149, she added.

Kraft and Nestle represent two very different operating philosophies, though both are international players. Given Holden's goal to make Kraft "the undisputed leader" in the food industry and her belief that productivity "is clearly an area where we excel," the relative success of these two giants might settle the question of whether centralized food production best serves a global market or if local tastes are better met by regional production.

The U.S. modus operandi favors the former approach. While domestic firms can hardly be accused of neglecting the opportunities in overseas processing--foodservice meat processor Keystone Foods (No. 80), for example, has operating divisions in Asia, Australia, Europe, the Middle East and South America, as well as North America--the preference is to export finished goods across borders. That strategy might be particularly apt for ConAgra Inc. (No. 3), which is a major player in both milling and finished goods. But transcontinental shipments of both could be in jeopardy as the debate over genetically modified foods grows more contentious.

A trade war is possible between the U.S. and the European Union over European plans to require labeling on foods containing genetically modified ingredients. Despite U.S. insistence that the proposal is unworkable, the initiative enjoys broad support: a British opinion poll found 76 percent of the public favors compulsory GM ingredient labeling. Opposition to genetically modified grains extends to southern African nations where starvation threatens at least 10 million people. Those countries are saying, "Thanks, but no thanks" to GM ingredients. Zambia and Mozambique are among the nations who have rejected relief efforts involving U.S. grain, insisting that it either be milled first or incorporated into finished goods to prevent possible cross-fertilization with local crops. Seeking a middle ground, Zimbabwe recently relaxed its import ban. President Robert Mugabe announced genetically modified grains that are part of the 55,000 tons of monthly food assistance from the World Food Program will be milled prior to distribution.

Coupled with GM labeling laws already enacted in China, Australia and many other countries, the African situation underscores the emotional side of food and the precariousness of international trade. Centralized production is a logical, efficient approach, but issues like mad cow disease and bioengineered food are compelling arguments for more localized production.

Over there

The beauty of the American market is in the eye of the beholder. For the 62 corporations in the Top 100 with offshore headquarters, it is the food-sales Mecca. For domestic firms, it is a slow-growth Goliath that is attracting more and more competition. Overseas markets, particularly emerging ones in Latin America, Eastern Europe and Asia, must serve as the engine for growth, and some companies are better at the international game than others.

H.J. Heinz Co. (No. 17), for example, generates approximately 44 percent of revenues from overseas. More than 80 percent of Coca-Cola Co.'s (No. 8) sales come from outside the U.S. The Atlanta soft-drink king announced late last year it plans to expand operations in China. More selling to those consumers is also in the works for Nestle, which, along with Unilever plc (No. 5), generates a third of its sales in developing countries.

Mexico is in the cross hairs of Unilever's growth plans. The Anglo-Dutch multinational announced this summer a $230 million capital infusion there. The bulk of that will go to marketing, with $30 million reserved for direct investments to increase capacity. Unilever has five plants and 5,000 employees in Mexico, and it hopes to achieve double-digit annual growth there for the next five years.

A developing country with particular appeal to U.S. corporations is Cuba. The 40-year trade embargo is crumbling, and Cuba already ranks as the 54th largest buyer among 180 countries for American agricultural products, according to the U.S. Department of Agriculture. In late September, Archer Daniels Midland Co. (No. 6) was set to host a U.S. food and agribusiness trade fair in Cuba. More than 150 U.S. companies were expected to exhibit, including Perdue Farms (No. 77), Hormel Foods (No. 49) and Cargill Inc. (No. 7).

Brand awareness was the objective of many of the exhibitors, and a willingness to spend on brand building is characteristic of the major food companies. It's necessary but expensive work, and even the largest corporations are shedding second- and third-tier labels to focus on brands that can yield the biggest bang. Unilever was a pioneer in this strategic shift; others are following.

Kraft, for example, is focusing on its six billion-dollar brands--Kraft, Post, Philadelphia, Maxwell House, Nabisco and Oscar Meyer--and those like Oreo and Boca that have the potential to reach that plateau. Sara Lee Corp. (No. 18) shed its Coach handbag division and refocused on core food brands. The namesake brand was rejuvenated in the bakery category with last year's acquisition of the Earthgrains Co., the world's 87th largest food company until then. The deal tripled the size of Sara Lee's bakery division and keyed the 25.6 percent spurt in overall food sales.

Procter & Gamble (No. 55) is another corporation focusing on its billion-dollar brands. In P&G's case, those brands tend to be in personal care and other nonfood categories. An all-stock sale of Jif peanut butter and Crisco oil to J.M. Smucker Co. was completed in June, and the Cincinnati consumer-goods giant is shopping the Pringles brand.

A venerable brand that is reemerging as an independent company is Swift & Co. Venture capitalists Hicks, Muse, Tate & Furst Inc. and Booth Creek Management Corp. of Vail, Colo., struck a deal with ConAgra in the spring to acquire the fresh beef and pork processing unit for $1.4 billion. Originally scheduled to close in August, the deal was postponed in the wake of the summer recall of 18.6 million pounds of ground beef from ConAgra's Greeley, Colo., plant because of possible E. coli 0157 contamination.

Second only to 1997's Hudson Foods recall of 25 million pounds of hamburger, the ConAgra incident could lead to even more rigorous food-safety oversights, such as a new ConAgra protocol to test every 10,000 pound lot of ground beef and beef trimmings for pathogens, CEO Bruce Rhode predicted. Early summer drought may have made E. coli bacteria even more pernicious, he suggested in an interview in the Omaha World-Herald. While no overall costs had been determined for the recall and the beef that was implicated in 35 illnesses and one death, Rhodes indicated it wouldn't require a change in the corporation's financial forecasts for the year.

Recall costs and liabilities weigh heavy on the minds of many food industry risk managers. Even the largest companies have little protection other than their own diligence in minimizing risk. A report in Business Insurance magazine's July 29 edition indicated Gold Kist Inc. (No. 100) could not obtain liability insurance against product recalls. The ConAgra recall was one of 50 active recalls being monitored in July by USDA, and many underwriters have withdrawn from the recall-indemnification business, resulting in scarce availability and higher premiums.

Merger indigestion

The buyout frenzy that peaked in 1999 is becoming a distant memory. The largest food firms are focused on integrating the companies they bought, a process often described as "rationalization" and other euphemisms for plant closings and sell-offs.

Chicago-based Dean Dairy sold its plants and other assets to Suiza Foods, which promptly renamed itself Dean Foods (No. 16) and began looking for cost savings to help pay for the purchase. CEO Greg Engles recently told analysts the new Dean had shuttered five dairies and two specialty food plants in its first eight months, "the beginning stages of consolidating our manufacturing and distribution centers." Sales and marketing is another story: a $70 million target for brand development would likely balloon to $130 million, Engles said, with the Silk brand of soy milk the recipient of much of that largesse.

Tyson Foods (No. 15) also is busy putting its financial house in order in the wake of last year's purchase of IBP Inc., a deal that created "the world's leading protein company," according to CEO John Tyson. Pork will be a smaller part of the protein plate. The company announced deep cuts in live swine operations in August, a move that will eliminate 200 jobs and prompted legal action by some of the 132 contract hog producers affected. Tyson also is selling off noncore businesses such as Specialty Brands Inc., a processor of frozen Mexican dishes with plants in five states.

North American cheesemaker Saputo Inc. (No. 95) will shutter three more plants in the coming months, bringing to seven the number of announced closings since its purchase of Dairyworld in late 2000. General Mills (No. 23) cut 755 jobs at four plants this year, in most cases citing overcapacity as a result of last October's merger with Pillsbury.

Heinz also is in a selling mood, though it has nothing to do with post-merger consolidation. The Pittsburgh-based food giant is spinning off StarKist, 9Lives cat food and other business units that generate $1.8 billion in sales to a reorganized Del Monte Food Co., a transaction that will propel the San Francisco processor into the ranks of the world's 100 largest food companies.

A more contentious sale was the one proposed by the Hershey Trust Co., which solicited bids in July for its controlling interest in Hershey Foods Co. (No. 39). The Pennsylvania attorney general obtained a court injunction against a sale of the state's second largest food company, and strong opposition to a sale emerged. The trustees rejected a $12.5 billion offer from Wm. Wrignley Jr. Co. (No. 87) and a joint offer from Cadbury Schweppes plc (No. 22) and Nestle. Nestle was more successful with an earlier merger with Dreyer's Grand Ice Cream Inc., the $1.4 billion U.S. leader in that category. Nestle merged its Haagen-Dazs and frozen novelties business with the company that makes Edy's, Dreyer's and other brands. Nestle owns two-thirds of the combined company, and buyout of minority shareholders is deferred until 2006.

The Hershey sale would have overshadowed 2002's other blockbuster deal: the sale of Miller Brewing Co. for $5.6 billion to South African Breweries in July. The Johannesburg-based brewer has been actively acquiring breweries in Asia, eastern Europe and Central America in recent years, and the Miller transaction catapults it to the second position in worldwide beer volume. Renamed SABMiller plc (No. 45), the company plans to continue operating all seven U.S. breweries it acquired.

The deal gives SAB a foothold in the world's leading market, both for beer and food. Almost half, 45 of the 100 largest food conglomerates are based in North America, including 38 U.S. firms. Canada is home to four, while three are based in Mexico. In the pre-NAFTA era, a single Latin American entry was the rule.

Predictably, Europe was the base for the next largest contingent, with 31 food and beverage corporations. All 19 of the Asian entries are Japanese firms, including 15 in Tokyo (London is the second most food-friendly town, with six corporations based there.) Two of the Top 100 are based in South America, two on the Australian continent, and Africa is represented by one.

Beverage makers constitute the largest product group, with 21 firms on the list, including nine breweries. Dairy operations are the next most-prevalent group, representing 18 of the Top 100 entries. They are followed by 16 protein food processors--beef, pork, poultry and fish-and a dozen grain--based processors, including baked goods.

Sidebar: $679.4 billion total sales for world's top 100 food processors

Each year’s ranking of the 100 largest food and beverage makers introduces new names, and this year is no exception.

Joining the international elite are Constellation Brands, Wm. Wrigley Jr. Co., Pilgrim’s Pride and Barilla. They replace some corporations that no longer exist, including IBP Inc., which merged into Tyson Foods in September 2001; Quaker Oats Co., now part of PepsiCo Inc.; Ralston Purina Co., which was sold to Nestle in December; and the Earthgrains Co., now the centerpiece of Sara Lee Corp.'s bakery division.

Also disappearing are Suiza Foods, which acquired Dean Foods and adopted the Dean name, and Eridania Beghin-Say, the French ingredients company that was broken up into four companies.

Click here to download a complete listing of The World’s Top 100 Food & Beverage Companies (PDF)