This industry assessment covers two closely related, but distinct industry sectors: food processing machinery and packaging machinery. Food processing machinery includes machinery for all types of operations in the processing of foodstuffs (vegetables, fruits, nuts, meats, poultry, fish, dairy products, grains, cereals, bakery and confectionery products, beverages, and animal foods). Machinery and associated systems for most applications are custom designed and constructed of special materials for highly sanitary operation and ease of thorough cleaning. Depending on their use, machines must conform to one or more of the sanitary standards established by the U.S. Department of Agriculture, the Food and Drug Administration, and the International Association of Milk, Food and Environmental Sanitarians. Food processing machinery builders regularly provide machinery to the pharmaceutical, drug, cosmetic, and personal care-products industries because of their skill in building machines for sanitary applications. Food processing machinery is classified under NAICS code 333294.
Packaging machinery consists of equipment for uses such as canning; container cleaning, filling, and forming; bagging, packing, unpacking, bottling, sealing and lidding; inspection and check weighing; wrapping, shrink film and heat sealing; case forming, labeling and encoding; palletizing and depalletizing, and related uses. Packaging machinery is classified under NAICS code 333993.
Industry Overview and Global Competitiveness
Manufacturers of food processing and packaging machinery face a rapidly changing and highly demanding global competitive environment. The food, beverage, pharmaceuticals and personal care industries that purchase most food processing and packaging machinery have globalized their supply chains—not just for finished products, but for the capital equipment they use to produce these products.
Manufacturers of capital equipment for these end-user companies have been faced with a growing tension between their customers’ demand for lower-cost equipment, on the one hand, and their own need to maintain their profit margins and their standards and reputation for quality, on the other hand. The growth of China and India both as markets and as locations for manufacturing operations has had a major influence in exacerbating this tension. As a result, U.S. manufacturers of food processing and packaging machinery are being driven more than ever to offer broader selections of products, at lower costs, and to supplement them with an ever higher level of value-added engineering, design, and other services.
U.S. manufacturers of food processing machinery had total sales of $2.95 billion in 2002, the most recent year for which data is available from the Bureau of the Census. The U.S. food processing equipment industry exports a significant amount of what it sells, 24.3 percent in 2002. Imports amounted to 21.3 percent of a domestic U.S. market worth $2.86 billion in 2002.
Sources differ on the number of U.S. companies that manufacture food processing machinery. The Bureau of the Census reported 553 such manufacturers in 2002, while the Food Processing Suppliers Association (FPSA) believes that there are approximately 2,500. Most food processing machinery manufacturers appear to be small companies, with the lion’s share of those identified by the Census having fewer than 50 employees. Leading U.S. manufacturers of food processing machinery and systems include FMC FoodTech, SPX Process Equipment and Rockwell Automation. Major foreign companies manufacturing in the United States include The Tetra Laval Group (Switzerland) and Odenburg Engineering (Netherlands).
U.S. packaging machinery manufacturers reported $4.2 billion in sales in 2006, according to the Census Bureau’s Annual Survey of Manufacturers (ASM). Exports amounted to 18.3 percent of 2006 total sales, an increase from 15.1 percent in 2002. Imports accounted for a 35.1 percent share of the domestic market, up from 26.2 percent in 2002.
The Census Bureau reports that 662 companies manufactured packaging machinery in the United States in 2002. While most packaging machinery producers are quite small, several U.S. companies are emerging as providers of integrated packaging solutions, including value-added design, engineering, and integration services, along with machinery and traditional after-sales service and support. Some of these firms include the Barry-Wehmiller Companies, Inc.; Pro-Mach, Inc.; and Hartness International. Other leading U.S. manufacturers dominate specialized technology niches, such as Videojet Technologies, Inc. and the Nordson Corporation.
U.S. food processing and packaging machinery producers are facing strong competitive pressure in the domestic market. Imports of packaging machinery grew from an 18.4 percent share of the U.S. market in 1997 to 35.1 percent in 2006, according to the Packaging Machinery Manufacturers Institute (PMMI) and the 2006 ASM. Trade statistics indicate that the food processing machinery sector has recovered robustly from the recession early in this decade, with 2008 exports of $1.2 billion and a trade surplus—for the first time in a number of years—of $100 million. Over the same period, however, imports of packaging machinery have continued to expand, both in total volume and in market share. U.S. manufacturers’ total sales and exports ($863.2 million in 2008) have risen as well, but at a slower pace, while their domestic market share has declined.
Most of the leading competitors for U.S. manufacturers of food processing and packaging machinery are European. U.S. industry participants identify the Europeans’ ability to provide turn-key service—design, engineering and installation of complete processing and packaging lines, rather than simply providing individual machines—as their most important competitive advantage. Most numerous are companies from Germany and Italy, although several smaller Northern European countries, most notably Sweden, also are home to major manufacturers. The larger, more vertically integrated European manufacturers tend to be German and Scandinavian. The Italian competition consists of numerous smaller manufacturers that form consortia to handle larger projects. Major European competitors include Tetra Laval Group (Switzerland), Krones AG. (Germany), and Robert Bosch GmbH (Germany).
The increasing demand by end-users for food processing and packaging machinery manufacturers to provide integrated, turn-key solutions is a major global trend that is having increasing influence on the U.S. market. Especially in the packaging machinery segment, companies that traditionally have viewed themselves as builders of machines are under increasing pressure to provide their domestic customers with value-added engineering and design services. They also face constant and rapidly changing demand for new consumer food products and packaging types and materials. In general, manufacturers of food processing machinery appear to have been more adept at broadening their product lines and providing value-added services.
Food and beverage manufacturing businesses are feeling pressure from the current financial crisis. For example, highly-leveraged Pilgrim’s Pride—a major U.S. poultry processor—recently filed for bankruptcy when its credit dried up. Companies, such as Heinz, are eliminating weaker brands, sizes, types, and flavors. Stronger manufacturers around the world will, in all likelihood, not go bankrupt, but will likely put capital investment/expansion plans on hold.
Food safety and the integrity of packaging are leading concerns for manufacturers of food processing and packaging machinery. In addition to whatever direct liability equipment manufacturers may have for consumer product quality in the American legal system, standards for product safety and sanitation drive the specifications set by the end-users of food processing and packaging machinery. Recent scandals in the food, pharmaceutical and pet food industries will shape the regulatory policies pursued by the U.S. Government under the Obama Administration. Manufacturers of food processing and packaging machinery will feel the effects, as their customers respond to a more demanding regulatory environment.
With respect to regulation, more rigorous food safety and sanitation requirements may have a positive long-term effect on the food processing and packaging machinery industry. More demanding regulation may lead end-users to invest in new equipment, technologies, etc. to replace sub-standard industrial capacity.
Voluntary efforts and legally-mandated requirements to address climate change and increase sustainability may have a positive effect, as well. Major end-users of food processing and packaging machinery are already developing new materials and processes for their products. These materials and processes, in turn, will serve as a basis for specifications for equipment suppliers. By creating the demand for new types of machinery, leading end-users will open up opportunities for manufacturers in new product areas.
As indicated above, sustainability is becoming a major priority for end-user industries for food processing and packaging machinery. Manufacturers of consumer food and beverages, in particular, typically have very high production volumes involving complicated processing technologies—with considerable opportunities for enhanced efficiency. Because leading firms also possess well-known consumer brands, they face high public expectations to “green” their products. They are also being driven by their customers, especially major retailers such as Wal-Mart, to produce products whose packaging meet a variety of sustainability criteria—including reduced carbon footprint, reduced use of packing materials, more efficient use of water, etc.
Increasingly, early adopters of sustainable manufacturing processes are moving from the “low-hanging fruit” (thinner bottles, less cardboard) to more aggressive redesign of manufacturing processes and facilities. PMMI, in particular, has identified sustainability as a key issue facing its members. Both board and staff members have been assigned to monitor and advance PMMI’s sustainability programs. In addition, a non-profit industry group, the Sustainable Packaging Coalition, is pursuing a variety of activities to promote the development of sustainable packaging and services. This collaboration extends, as well, to federal agencies, such as the Environmental Protection Agency, trade organizations, such as the Grocery Manufacturers Association, and leading consumer food and beverage manufacturers.
Development and training of the manufacturing work force are also a concern for producers of food processing and packaging machinery. Production line skills, such as welding, machining (CNC, CAD-CAM, etc.) and others related to metals fabricating, are in high demand. Although the recession may reduce this demand temporarily, an aging workforce means that many laid-off workers may not return, once the economy begins to recover. The leading trade associations also report that it is becoming increasingly difficult to attract talented mechanical engineers to design equipment for these industries. Out of necessity, PMMI has become a leader in promoting development and on-going education for both the professional and skilled labor workforces.
The rapid advance and severity of the global recession have placed all manufacturers in a defensive position. Accordingly, U.S. manufacturers of food processing and packaging machinery will probably see markets for their products decline next year, following strong sales and export growth in 2007 and 2008. As capital equipment, food processing and packaging machinery is highly sensitive to the business cycle, in the sense that major capital investment is the one of the first major corporate expenditures to suffer and the last to recover from a downturn. Projects that are already fully-funded and well under way will provide some revenue cushion in 2009, but new projects are likely to be cancelled, and new orders will probably be put off, until the U.S. and global economies begin to recover.
For leading industry groups in the food processing and packaging machinery sectors, it is likely that there will be a re-emphasis on core services for their members. Foremost among these core services are trade exhibitions, such as PackExpo/ProcessExpo, which are operated jointly by PMMI and FPSA.
FPSA is also concerned that separate reporting of economic data concerning food processing machinery will be dropped from USG statistical publications or pared down significantly. Since 2003, reductions in statistical reporting have already reduced the statistical data available about this industry from public sources to a bare minimum.
Since most manufacturers of food processing and packaging machinery are quite small, U.S. Government programs that support SME manufacturers and exporters will continue to be very important for this industry. ITA programs, such as the International Buyer Program (PackExpo is a long-standing participant) and the Trade Fair Certification Program for overseas shows, will continue to provide very cost-effective support for these industries. Also, it will be important to continue the close cooperation that currently exists between MAS, the Commercial Service, and the ITA Agribusiness Team to support these industries.
Enhanced facilities and access for SMEs to trade finance, working capital, and other financial services will be very helpful. The Export-Import Bank of the United States, the Small Business Administration, and the U.S. Trade and Development Agency are the federal agencies best positioned to support this industry.
MAS works closely with two of the leading trade associations in the food processing and packaging machinery industry: the Food Processing Suppliers Association (FPSA) and the Packaging Machinery Manufacturers Institute (PMMI). Both are long-standing ITA partners and customers.
PMMI is represented on ITAC-2, the Industry Trade Advisory Committee for Transportation Equipment and Capital Goods. PMMI's leading trade exhibition, PackExpo, has participated in the International Buyer Program (IBP) for many years. FPSA's "ProcessExpo" show is now co-located every year with PackExpo.
Both trade associations are past recipients of MAS-administered Market Development Cooperator Program (MDCP) grants to develop markets for packaging machinery in Mexico and China (PMMI) and to internationalize standards for food safety and sanitation (FPSA).