Food is Big Business in Michigan (and so is food logistics)

State economic development officials and agricultural leaders see great potential in expanding the food processing industry in Michigan, but enticing processors to locate here isn't simply a matter of financial incentives.

"It's about a bankable deal," said Jim Byrum, president of the East Lansing-based Michigan Agri-Business Association.

That's the conundrum facing the state's agriculture industry. Although food and dairy processing are strong, there are other areas in which processing is almost nonexistent, such as pork and soybeans. Although the demand for capacity is real, it hasn't been enough to justify the large investments required for new processing plants.

The lack of processing capacity leads to higher transportation costs for farmers, but it also affects the economy.

STATE NEARS AGRICULTURE GOALS

At a food processing summit in 2011 at Michigan State University, Gov. Rick Snyder gave the state agriculture department five goals to achieve within five years:

• Increase the economic impact of the food and agriculture industry to $100 billion, from the $71 billion it generated in 2011. It's now at $91.3 billion, according to the department.

• Double agricultural exports from $1.75 billion to $3.5 billion. They are now at $2.77 billion.

• Grow food and agricultural-related jobs in the state by 10 percent, to hit 1.1 million such jobs by 2015. Jobs are now at 923,000.

• Increase access to healthy foods for Michigan residents by 20 percent. In 2011, about 40 percent of state residents had access to healthy foods, according to the agriculture department. There was no update available on this goal.

• Reach 5,000 verifications in the Michigan Agriculture Environmental Assurance Program, meant to help farms prevent or lessen the risk of agricultural pollution. In 2011, there were about 1,000 verifications in the voluntary program. There are now 1,639. The verification certifies that farmers have implemented environmental practices and are committed to agriculture stewardship.

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Food-processing facilities are attractive not only because they have the potential to bring thousands of jobs and hundreds of millions of dollars in investment, but because they also enable overall expansion in the industry.

Costly hogs

Sam Hines, executive vice president of the East Lansing-based Michigan Pork Producers Association, said there are a few small pork processing firms in the state, but nearly all of the hogs raised in Michigan have to be sent out of state to be processed.

"It's a real concern in our industry," Hines said. "It would be truly helpful if we had a major processor here."

In the late '90s, Thorn Apple Valley, which was one of the biggest processors in the country, closed its operation in Detroit. Since then, Michigan pork producers have sent their hogs to facilities in northern Indiana. This puts producers in Michigan at a disadvantage because they have to factor in higher transportation costs.

To circumvent that, some producers here have contracted with producers in Ohio and Indiana, Hines said. The animals are born in Michigan and then shipped while they are small on a semi, upward of 1,000 animals at a time, to farms closer to processing plants.

Indiana has two large processors, but the state also produces 8.5 million hogs annually. Michigan produces about 2.5 million.

If Michigan had its own processor, Hines said, he is confident production would increase here.

"It's a little bit like a chicken-and-egg situation," he said.

Hines recently commissioned Michigan State University to conduct an economic impact study that looked at what locating a pork processor in Michigan would mean for the state.

The study, by William Knudson, an agriculture economist at MSU, found that a large processor would have a direct economic impact of $895 million in Michigan and employ about 2,000 people.

Knudson agreed that if there was a pork processor here, production would increase, but companies prefer to see the numbers that would sustain such an investment before they begin.

"All aspects of that have to grow together," Knudson said, but added that without a processor, it is unlikely production would increase as much as needed for a company to show real interest in the state.

"It's an easy problem to identify; it's a very difficult problem to solve," he said.

According to Knudson's report, in order to lure a processor, hog production in Michigan would have to increase by at least 50 percent. At the state's production level now, a plant that processes more than 10,000 hogs a day would run through all of the state's hogs in about 200 days.

Filling needs

Bob Boehm, manager of the commodity and marketing department at the Lansing-based Michigan Farm Bureau, said there are a few hundred large-scale processing facilities in the state that handle some of the more than 300 food commodities produced in Michigan.

Some of the more successful and notable include Zeeland Farm Services Inc., Detroit-based Better Made Potato Chips, Ferndale-based Garden Fresh Salsa Co. Inc. and Chelsea Milling Co., the company behind Jiffy Mix.

If the state could unlock the key to expanded processing in the state, that would unlock the potential for more animal and crop production in Michigan, he said.

"Everything is connected," he said.

Aside from the direct economic impact a pork processor in the state would have, Hines said, it would also benefit grain farmers and could lead to increased soybean production, because the beans are often turned into meal for hogs and cows. And if more soybeans were produced, that could lead to the need for another soybean processor in Michigan.

Doug Buhler, director of AgBioResearch and senior associate dean for research for the College of Agriculture and Natural Resources at Michigan State, said about 90 percent of soybeans produced in Michigan are shipped out of state.

That is because Zeeland Farm Services, which employs about 200 people, is the only soybean processor in the state.

It processes 10 million bushels of soybeans per year, the vast majority of which is turned into meal for animals. A smaller portion is used for food, including about 40,000 tons per year that is exported to Japan and used to make soy sauce.

The facility also creates between 100 million and 110 million pounds of soybean oil, said Beth Westemeyer, Zeeland Farm marketing manager.

The company began as a grain hauler in the 1950s and opened its processing facility in 1996, when there were no soybean processors in Michigan.

"We did see soybean growth in the industry when we opened the processing plant," she said.

Now as the state is looking to increase processing in the state, Westemeyer said, the company would look at expanding its capacity if that best served its customers' needs.

"We're always looking to expand and grow our business," she said.

Westemeyer said when operations began, the company was processing about 500 tons a day, a number that has grown to 900 tons a day.

She said that while demand for animal feed has grown steadily in the state, it has not grown enough to justify building another plant.

Another reason the company has not expanded further, Westemeyer said, is that doing so requires a slew of state permits and that it takes the Department of Environmental Quality a year or more to process the applications.

"It just takes time," she said.

Knudson said more growth has yet to occur because grain elevators find it easier to ship out whole soybeans than to ship out finished soybean meal.

The farms in Michigan that purchase the meal are by and large getting what they need now, but if dairy or pork processing increased in the state, animal production would grow and so then would the need for more soybean meal, he said.

"We have enough business to justify more than one, but less than two right now," Knudson said.

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