As farmers across the state struggle to turn a profit in an era of depressed commodity prices, one aspect of agribusiness — food processing — continues to grow in West Michigan.
While lower commodity prices affect profitability on the farm, they also encourage farmers to seek out processing capabilities closer to home to boost margins. That element, combined with rising freight costs, has led to a growing food processing industry in West Michigan to handle a range of products from soybeans and livestock to dairy and animal feed.
“From an overall standpoint, frankly, agriculture is doing OK, (but) agribusiness and food processing tend to be doing better than the producer segment,” said Jim Byrum, president of the Michigan Agri-Business Association. “General commodity prices for corn and soybeans are not good. Dairy prices are not good. At the producer level, there is going to be some pain. But there is an awful lot going on in agriculture right now from a development standpoint.”
The opportunity for food processors has played out firsthand for Zeeland Farm Services Inc. in Ottawa County. The soybean processor in late 2016 announced plans to build a $130 million processing facility in Ithaca, about 45 miles north of Lansing.
When completed, the new facility will process more than 40 million bushels of soybeans annually. By contrast, Zeeland Farm Services’ existing soybean processing facility in Zeeland processes 10 million bushels annually.
“Ithaca will provide a major market for soybeans in central Michigan,” said Cliff Meeuwsen, president of Zeeland Farm Services. “It will provide a major supply of energy products to the feed industry. On one hand, it will give the farmer more motivation to grow soybeans because he’ll make better money. On the other hand, it will lower the cost of protein and energy to the livestock producer and thus help them be more competitive.”
Zeeland Farm Services also plans to expand its soybean oil processing facility in Zeeland, increasing capacity by 40 percent, largely to accept the byproduct created by the Ithaca plant, Meeuwsen said.
While food processors may be capitalizing on the low price of commodities, many experts believe it won’t be at the expense of farmers and producers in the long run. As soybean, feed, livestock and other processing capabilities grow in the state, farmers will face lower transportation costs than if they had to send their commodities outside Michigan to be processed, said Rick Chapla, vice president of strategic initiatives at The Right Place Inc.
“Just ZFS alone, their demand for product is going to open up a lot of other opportunities for either new growers to get into the mix, or growers to expand that may be growing something else that could also diversify and provide soy as well,” Chapla said.
According to Meeuwsen, Zeeland Farm Services would not be able to expand like it has without the strong backbone of farming in the state.
“One thing works with the other,” Meeuwsen said. “I don’t think we could put up a soybean processing plant that would process 40 million bushels of beans if there was only 40 million grown in the state. Farmers have improved their efficiencies and yields so that can happen.”
Increasing crop and food processing capacity in the region also could yield higher profits for farmers in struggling rural areas such as Lake and Osceola counties to the north of Grand Rapids, Chapla said.
“That opens up some of the more northern counties in our region where soy may not be a dominant product, but could be a bigger commodity,” Chapla said, speaking specifically about Zeeland Farm Services’ Ithaca facility.
Outside of Zeeland Farm Services, a number of other large food processor expansions have increased capacity throughout the region. Those projects include Clemens Food Group’s $255 million pork processing facility in Coldwater, a $11.5 million feed mill in White Cloud developed by Ceres Solutions Cooperative, and Continental Dairy Facilities LLC’s $173 million collaborative expansion in Coopersville with Fairlife LLC, among others.
‘BLURRING THE LINES’
Chapla of The Right Place has also noticed a “blurring of the lines” between food producers and food processors in recent years.
More and more, farmers are expanding into value-added processes at their operations prior to sending off products for final processing or distribution. In particular, Chapla sees more producers adding automation equipment in their operations.
“That’s where you start to see the blurring between growing and processing and that’s going to continue to accelerate,” Chapla said. “I think automation will continue to accelerate the blurring of the lines between a pure grower and pure processor.”
Meanwhile, producers like Grand Rapids-based Michigan Turkey Producers have taken a more straightforward approach to add processing capacity, said Carl Bednarski, president of the Michigan Farm Bureau.
“It’s a great success story where they ended up a few years back losing a processor, so they stepped up themselves and are doing very well at it,” Bednarski said, noting Michigan Turkey processes 5 million birds annually at its facility.
A representative from Michigan Turkey Producers did not respond to requests for comment.
Additionally, producers and food processors have started to work more closely in a bid to comply with stipulations laid out in the Food Safety and Modernization Act (FSMA), Chapla said.
“There are some conversations out there with processors that are actually looking at taking tighter control over the supply,” Chapla said. “That maybe isn’t operation and ownership, but it certainly means a different form of collaborative and cooperative model of doing business because the two are so linked for FSMA compliance.”
Specifically, Chapla cites Nestle’s relationship with producers for its baby food production at Gerber in Fremont. Nestle scientists will work closely with family-owned growers to provide pest management, disease management and other services that may be cost prohibitive for smaller growers.
All of that is done to help promote compliance with FSMA regulations, according to Chapla.
“It forces the processors to absolutely link themselves directly with the growers,” he said.
LACK OF CAPACITY
While food processing capacity is increasing across the state, some sectors in Michigan’s agricultural industry are suffering from a lack of processing space.
Michigan currently has one of the lowest prices for milk in the country, feeding an already apparent over-supply problem, Bednarski said. With so much milk on the market, production is far outstripping available processing in the state, forcing dairy farmers to ship their raw products outside Michigan.
“Dairy is in an interesting situation because Michigan has a climate that encourages a lot of production of milk,” Bednarski said. “When you take that and our processing capabilities in the state, we are outproducing what we’re processing. Then we start overloading our neighboring states that didn’t really plan for this either. Indirectly, your milk price tanks because there is an excess supply of milk. The only thing is, there’s not really a quick fix to it.”
Companies including Continental Dairy and Fairlife will help solve the lack of milk production in the state through their expansions, he added.
Another possible solution includes a proposed cheese processing facility developed by a collaborative of Ireland-based food processor Glanbia plc, Michigan Milk Producers, Dairy Farmers of America and Foremost Farms. The project would be located in an undisclosed location in the state and process roughly 8 million pounds of raw milk per day, according to a previous report by MiBiz. However, further details on the project remain scant.
Bednarski said the cheese plant would be beneficial, but “once the siting is approved, it’s probably going to take two to three years before full production, so there is going to be some lag time there.”
While many industry insiders remain bullish on the state of food processing in West Michigan, some headwinds could hinder the overall agricultural economy in the state. In particular, Byrum of the Michigan Agri-Business Association worries about potential interruptions to service caused by large rail haulers such as CSX Corp., which has “some major upheavals and challenges.”
The large rail operator came under fire in recent months for poor management that has resulted in snarled traffic jams throughout the Midwest, disrupting operations of major companies including Battle Creek-based Kellogg Corp. and McDonald’s Corp., according to the report in the Wall Street Journal.
Most experts pin the blame on Hunter Harrison, who was appointed as CSX’s president and CEO in March after an activist investor forced an executive-level reshuffling, according to the report.
Locally, some producers have struggled with CSX after the company sued short-line hauler Grand Elk Railroad, barring it from operating on a 3.3-mile section of track in Grand Rapids.
“The grain industry is nervous about the kind of service they may be able to have from CSX during soybean harvest,” Byrum said. “When soybean harvest starts, grain elevators in the countryside want to get beans in the house and move them out as fast as they can. There’s a lot of anxiety about if those soybean trains are going to move as aggressively as they need to move.”
Overall, Bednarski believes the food processing sector will continue to grow in Michigan, given that the business climate stays attractive to those companies.
“We have so many different commodities that there are a lot of opportunities for many segments of food processing,” he said. “I only think that is going to increase.”