1. Source: U.S. Food Marketing System, 2002, ERS-USDA U.S. Food Manufacturing EconS 451: Lecture #2 Understand what comprises the Food Manufacturing/Processing Industry. Understand the changes occurring within this industry and the resultant implications. Specifically: Which food types receive the greatest value-added throughout the manufacturing process. Recent mergers / consolidation Prevalence of production contracts, owner-integration and marketing contracts per product type. Identify recent trends in new product offerings and those bearing nutritional claims. Understand the degree of direct foreign investment and recent changes to the trade deficit.

2. Source: U.S. Food Marketing System, 2002, ERS-USDA U.S. Food Manufacturing / Processing Definition All firms and establishments that manufacture or process foods or beverages for human consumption and Other related products such as manufactured ice, chewing gum, vegetable and animal fats/oils and prepared feeds for animals and fowl.

3. Source: U.S. Food Marketing System, 2002, ERS-USDA A Value-Added Business

4. Source: U.S. Food Marketing System, 2002, ERS-USDA Nominal Value of Processed Food Shipments Indication of a mature market

5. Source: U.S. Food Marketing System, 2002, ERS-USDA Where the Value Added by Manufacturers Occurred Value added = Shipment Value - Cost of Production Ratio of Value Added = 1-(Value Added / Shipment Value) Meat Dairy Fats / Oils Bakery Products Beverages All < 30% All > 60% Ratio of Value Added http://www.ams.usda.gov/mnreports/nw_ls410.txt

6. Source: U.S. Food Marketing System, 2002, ERS-USDA Unique Agriculture Attributes

7. Source: U.S. Food Marketing System, 2002, ERS-USDA

8. Primary Commodities Under Contract Sugar Cane Market Eggs Potatoes Fresh Veg. Hatching Eggs Sugar Beets Processed Veg. Broilers Hatch Eggs Potatoes Sugar Cane Market Turkeys Production ContractsOwnership IntegratedMarketing Contracts Milk Citrus Fruits Other Fruits/Nuts Dry Beans / Peas

9. Source: U.S. Food Marketing System, 2002, ERS-USDA Concentration Continues: Top Four Firm Market Share Processing TypeEarly 1980’sMid-1990’s Red Meat Packing47%63% Steer/Heifer Slaughter70%81% Hog Slaughter30%57% Pasta42%78% Malt Beverages77%90% Dairy Co-ops17%27% Private Dairies39%42%

10. Source: U.S. Food Marketing System, 2002, ERS-USDA Mergers and Acquisitions http://www.newint.org/issue172/facts.htm http://en.wikipedia.org/wiki/Philip_Morris http://money.cnn.com/magazines/fortune/fortune500/snapshots/562.html http://www.kelloggcompany.com/kelloggco/our_compan y/index.html

11. Source: U.S. Food Marketing System, 2002, ERS-USDA Number of Acquisitions / Divestures

12. Source: U.S. Food Marketing System, 2002, ERS-USDA

13. New Food Products Introduced into Market

14. Source: U.S. Food Marketing System, 2002, ERS-USDA Type of Nutritional Claims

15. Source: U.S. Food Marketing System, 2002, ERS-USDA Relationship between Coupon Distribution and Redemption

16. Source: U.S. Food Marketing System, 2002, ERS-USDA Imports, Exports and FDI

17. Source: U.S. Food Marketing System, 2002, ERS-USDA Other Manufacturing Changes Total Employment slightly growing in food processing industry Meat Processing accounts for 30% Fruit and Veg. Processing accounts for 13% Bakery Products 12% Cost of Inputs Decreases between 1997-2000 12% Less for crude foodstuffs 4 % Less for intermediate materials (packaging, etc.)

18. Source: U.S. Food Marketing System, 2002, ERS-USDA Summary! Total U.S. Food Manufacturing accounts for about 2% of GDP, the total food and fiber system is about 12% of GDP. Proportion of disposable income spent on food continues to drop while total value of all processed food shipments remains relatively flat. Concentration in the food processing sector has increased. New food products introduced into the market have declined since 1995. Those new food products that have been introduced focus on specific nutritional / health claims. Food coupon redemption rates are very low. Trade deficit in U.S. Food Manufacturing grows.