Food and Beverage Manufacturing
Food and beverage manufacturing plants transform raw agricultural materials
into intermediate foodstuffs or edible products by applying labor, machinery,
energy, and scientific knowledge. In 2005, these plants accounted for
13 percent of the value of shipments from all U.S. manufacturing plants.
Because intermediate inputs (primarily agricultural materials) account
for a relatively large share of food and beverage manufacturers' costs, value added in
food and beverage manufacturing represents a slightly smaller share (12.7
percent) of value added in all manufacturing.
Meat processing includes livestock and poultry slaughter, processing, and rendering, and is the largest single component of food and beverage manufacturing, with 24 percent of shipments in 2005. Other important components include beverages (13 percent), dairy (12 percent), other food products (11 percent), grains and oilseeds (10 percent), and fruits and vegetables (9 percent). Meat processing is also the largest component (18 percent) of the food sector's total value added, followed by beverage manufacturing (16 percent).
There are many food and beverage processing establishments (plants) in the U.S.—almost 31,000 owned by about 25,800 companies in 2002, according to the most recent comprehensive data in the Census of Manufacturers. These plants employed about 1.6 million workers in 2005 (about 12 percent of all U.S. manufacturing employment and just over 1 percent of all U.S. employment). The meat processing industry employed the largest percentage of food and beverage manufacturing workers in 2005 (30 percent), followed by bakeries (18 percent) and other food products (15 percent).
Food and beverage processing plants include many small local plants and relatively few large plants. However, large plants account for the major portion of shipments. In 2002, small plants (1-19 employees) accounted for 69 percent of all plants, but only 4 percent of the total value of shipments. On the other hand, large plants (100 or more employees) accounted for 77 percent of shipment value in 2002, but only 12 percent of plants.
Food processing plants are located throughout the United States. The Census Bureau's County Business Patterns (CBP) reports that in 2005, California had the most food manufacturing plants (4,451), while New York (2,137) and Texas (1,729) were also leading food manufacturing States.
Consolidation is occurring in many food processing industries, where plant sizes have increased sharply and mergers have led to fewer but larger companies. In many cases, changing processing plant technologies and the emergence of new scale economies has facilitated consolidation. When market demand grows slowly, increased consolidation can lead to increased concentration (fewer competitors). ERS researchers examined the role of changing technology and demand on structural changes in nine food processing industries (see Structural Change in the Meat, Poultry, Dairy, and Grain Processing Industries).
Concentration in several processing industries raises questions about market power in the sale of agricultural products and about the effects of concentration on innovation and productive efficiency. Consolidation in beef and pork slaughter has been of special interest to policy officials given the historically high and growing rates of concentration. For example, the four largest hog slaughter firms have increased their share of slaughter by 20 percentage points over the past 10 years, reaching 64 percent in 2004. For a historical account of the nature and causes of consolidation in U.S. meatpacking industries and the effects of meatpacking consolidation on producer and retail prices, see Consolidation in U.S. Meatpacking.
From 1997 to 2002, the fluid milk industry exhibited the largest percentage increase in the four-firm national concentration ratio among all 53 Census food and beverage industries. In 2002, there were 33 percent fewer fluid milk processing plants than in 1992, processing 46 percent more milk per plant. Structural changes in fluid milk processing are occurring at the same time as rapid consolidation in milk production. From 1994 to 2004, 45 percent fewer farms produced over twice as much milk per farm.
Methods of vertical coordination are also changing, with a shift away from the use of spot markets toward greater reliance on contracting in some grains and in livestock (see Agricultural Contracting Update: Contracts in 2003) and Contracts, Markets, and Prices: Organizing the Production and Use of Agricultural Commodities).
Vertical Coordination in the Pork and Broiler Industries: Implications for Pork and Chicken Products traced the spread of contracting in the pork and broiler industries, related to earlier changes in broiler production, and identified reasons for the growing reliance on contracts in place of spot market purchases. More recently, ERS examined a small sample of actual contracts used by pork processors to explore how contracts address growing concerns over pork quality (see Pork Quality and the Role of Market Organization).
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