Food and beverage manufacturing

Food and beverage manufacturing plants transform raw agricultural materials into products for intermediate or final consumption by applying labor, machinery, energy, and scientific knowledge. Some products may serve as inputs for further processing (such as syrup for manufacturing soda). In 2015, these plants accounted for 16 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 (14.1 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 2015. Other important components include dairy (13 percent), beverages (13 percent), grains and oilseeds (10 percent), fruits and vegetables (8 percent), and other food products (12 percent). Beverage manufacturing (18 percent) and meat processing (17 percent) are also the largest components of the food sector's total value added.

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There are many food and beverage processing establishments (plants) in the U.S.—over 30,000 owned by about 25,800 companies in 2012, according to the most recent comprehensive data in the Census Bureau's 2012 Economic Census.

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These plants employed more than 1.5 million workers in 2015 (about 14 percent of all U.S. manufacturing employment and just over 1 percent of all  U.S. nonfarm employment). The meat processing industry employed the largest percentage of food and beverage manufacturing workers in 2015 (31 percent), followed by bakeries (16 percent), and fruits and vegetables (11 percent).

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Food and beverage processing plants are located throughout the United States. According to the Census Bureau's County Business Patterns (CBP), California had the most food and beverage manufacturing plants (5,531) in 2015, while New York (2,508) and Texas (2,175) were also leading food and beverage manufacturing States. The number of processing plants for various industry segments are also reported in County Business Patterns.

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Food processing plants

Food processing plants include many small local plants and relatively few large plants. However, large plants account for the major portion of shipments. In 2012, small plants (fewer than 20 employees) accounted for 68 percent of all plants, but only 4.5 percent of the total value of shipments. On the other hand, large plants (100 or more employees) accounted for 76 percent of shipment value in 2012, but only 12 percent of plants.

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 steer and heifer slaughter firms accounted for 85 percent of total slaughter in 2015, after remaining around 80 percent prior to 2009. 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 2002 to 2012, the four-firm national concentration ratio in the soft-drink industry increased from 52 percent to 68 percent. In 2012, there were 11 percent fewer soft-drink processing plants and 14 percent fewer companies than in 2002. One factor influencing consolidation is the decline in per capita consumption of soft drinks; U.S. soda sales dropped for the 11th consecutive year in 2015, reaching a 30-year low. U.S. bottled-water consumption surpassed soft drink consumption for the first time in 2016, becoming the largest beverage category by volume.

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 reports in the Agricultural Contracting Update series).

Vertical Coordination in the Pork and Broiler Industries: Implications for Pork and Chicken Products (see link below) 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. ERS also 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, link below).

High and increasing levels of concentration in some sectors of the food industry, coupled with changing methods of vertical coordination between producers and processors, have led to concerns about reduced competition. Policy concerns include thinly-traded spot markets where processors could use informational advantages to lower prices paid to producers and increased difficulties in gathering market information and assessing market performance. At the same time, contracts and vertical integration offer more opportunities for coordination that may foster gains in efficiency that would ultimately benefit producers, processors, and consumers. For a discussion of the effects of increased concentration and coordination on producer prices and returns and policy options to address thin markets, see:

Thinning Markets in U.S. Agriculture