ESSENTIAL INGREDIENTS:GROWING THE FOOD & BEVERAGE CLUSTER IN THE MILWAUKEE REGIONDECEMBER 12, 2011                        ...
Shelley JurewiczMMAC M7 Food Network756 N. Milwaukee St., Ste. 400Milwaukee, WI 53202December 13th, 2011Ms. Jurewicz:In or...
EXECUTIVE SUMMARYThe challenge of this analysis was to identify the steps necessary for growing an industrial cluster in t...
PROBLEM DESCRIPTIONFostering a hearty economy and creating significant job growth in a post-manufacturing “boom” is a diff...
MEASUREMENT CRITERIAThe preferred alternative must cost no more than $1,000,000 per year.Total cost for economic developme...
As a main facet of the alternative, the M7 Food IndustryNetwork would be incorporated as a nonprofitorganization supported...
the economic cluster to critical mass. The areas critical to growth are support services, networking, andproviding competi...
BUSINESS ATTRACTION                                         Milwaukee: Feeds and Supplies the World                       ...
Incentives to Utilize Existing Building StockIn an effort to draw businesses to Milwaukee’s existing food and beverage ind...
The alternative would result in a 0.13 increase in the location quotient for food and beverage        processing in the Mi...
impact on economic output, employment, and wages is likely to be proportional to the numbers cited in theGrand Rapids stud...
Organic foods now occupy prominent shelf space in the produce and dairy aisles of most mainstream U.S. food          retai...
DistributionA few large distributors dominate distribution of natural and organic food products, so proximity todistributo...
RECOMMENDATIONAfter evaluating the alternatives, the Economic Gardening alternative is the one that best meets statedcrite...
The overall impact of helping firms in an area is that other firms are                                      often attracte...
APPENDICESAPPENDIX A: EXAMPLES OF FOOD CAMPUSESCross Hands Food Park, Ammanford, Carmarthenshire, UK - www.crosshandsfoodp...
APPENDIX B: EXAMPLE OF OTHER FOOD CLUSTER INITIATIVESFood Valley, Wageningen, Netherlands – www.foodvalley.nl/English/defa...
New Economics Foundation - calculating the benefits of local: http://www.neweconomics.org/BALLE - Business Alliance for Lo...
Dairy                          5.4                   4.8                   4.7                4.8Bakery foods             ...
Single serving      1,119    1,127    1,111    1,277    1,399    1,553    1,523      1,344Private label        292      42...
1 Does not include associated stock keeping units (SKUs, or variations in size andform). According to Datamonitor, the SKU...
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Essential Ingredients: Growing the Food and Beverage Cluster in the Milwaukee Region

  1. 1. ESSENTIAL INGREDIENTS:GROWING THE FOOD & BEVERAGE CLUSTER IN THE MILWAUKEE REGIONDECEMBER 12, 2011 PREPARED BY: DAVE BOEHM FATIMA BENHADDOU HEATHER GOETSCH WILL KORT
  2. 2. Shelley JurewiczMMAC M7 Food Network756 N. Milwaukee St., Ste. 400Milwaukee, WI 53202December 13th, 2011Ms. Jurewicz:In order to provide a recommendation on how the M7 can best proceed in advancing the region’s food andbeverage cluster, we conducted a thorough examination of three alternatives. Based on criteria chosen toevaluate these solutions, we recommend that the M7 implement an “economic gardening” strategy primarilyfocused on supporting entrepreneurs, developing new firms and nurturing existing high performingcompanies, in addition to other measures. However, support for business startups and entrepreneurs hashistorically not been a strong suit in the Milwaukee region. A recent study by the Public Policy Institutehighlights some of these issues and calls for greater coordination among the groups and institutions thatwork in regional development. Although MMAC has been a leader in funding local startups, we have nodoubt that efforts to grow the region’s food cluster with a large entrepreneurial component will requiresustained commitment and creativity in leveraging funding and support.These difficulties apply at the state level as well - Wisconsin has historically supported startup businessesat a lower rate than other states, and lags behind many of the states in the region in this regard. However,the newly renamed state Dept. of Commerce (now the Wisconsin Economic Development Corporation)may be more committed to providing entrepreneurial assistance than it was in the past.Regional cooperation may also be a stumbling block, as our recommendation to encourage the businessesin the cluster to take advantage of Wisconsin’s status as an organic producer will require enhancedcoordination with agricultural producers located in different regions of the state. Again, historically, therehas been a divide between the Milwaukee region and other regions of the state, but if the Milwaukee foodand beverage cluster can help outstate farmers utilize their production capacities more fully, collaborationshould be welcomed. Finally, our recommendation to focus more heavily on organic and natural products islikely to meet with resistance from both food processors and farmers, who may still view organic andnatural products as a niche market. However, recent sales trends for organic products, now totaling $21billion annually, have continued their upward climb, even in the face of recession, and 78% of consumersnow buy organic products. Educating producers and processors about the revenue advantages of organicwill be critical in this regard.We are confident that our recommendations for growing the region’s food and beverage cluster are sound.We hope you find this report to be thorough and useful. Thank you for the opportunity to conduct ananalysis of alternatives for the M7. Please feel free to contact us with any questions.Respectfully Submitted,Dave BoehmFatima BenhaddouHeather GoetschWill Kort Page 2 of 21
  3. 3. EXECUTIVE SUMMARYThe challenge of this analysis was to identify the steps necessary for growing an industrial cluster in thefood and beverage industry. The Milwaukee M7 region is interested in attracting and growing a food andbeverage cluster that will increase the number of jobs available and the income generated in the sector.Within this report, a number of alternatives were reviewed for their potential contribution to the cause.Focus was directed towards the development of a food campus, concepts of economic gardening, re-branding Milwaukee for business attraction, and the local movement supporting food and beveragebusinesses. Each alternative addresses the corresponding attributes of the City of Milwaukee that will aid inthe effort to define and develop a food and beverage industrial cluster in the region.In order to gauge the potential success of each alternative, measurable criteria were developed to allow forthe proper analysis of the alternative’s performance. The criteria selected for evaluation included:  Total Cost: The preferred alternative must cost no more than $1,000,000 per year.  Job Growth: The preferred alternative must add at least 976 food jobs by 2015.  Industry Payroll: The preferred alternative must increase industry payroll by $39 million by 2015.  Cost per Job: The preferred alternative must cost no more than $5,000 per job created.  Location Quotient: The preferred alternative must result in a 0.08 increase in the location quotient for food and beverage processing in the Milwaukee Region by 2015.These criteria were selected based on their comprehensive exploration of the alternative’s capabilities inregards to the growth of the food and beverage industrial sector in the region. The alternative that wasfound to perform optimally was the economic gardening approach. The economic gardening modelemphasizes supporting entrepreneurs and high-impact businesses to grow the economic cluster to criticalmass. The areas critical to growth are support services, networking, and providing competitive intelligence.This alternative would result in a cost of $1,000,000 per year, 1216 food jobs added at a $2,467 cost perjob, a payroll increase of $48 million, and a location quotient increase of .10. The recommended course ofaction includes focusing on start-up companies, young firms, and high-impact firms. Start-up firms arethose firms first created by people with ideas which lead to growth in later stages. Young firms are thosebetween 1-5 years, which have finally begun to make a profit and often rapidly expand during this timeframe. The final type is high-impact firms, also called “gazelles.” A gazelle is a firm that doubles in salesevery year for four consecutive years. Entrepreneurs for these companies are best fostered througheducation programs, which can be supported through Milwaukee’s educational system.Additionally, the final recommendation includes “buy local” strategies that increase focus on natural andorganic products, as well as vertical integration efforts targeted at local institutional buyers. Paradoxically,the focus on healthy foods embodied in buy local campaigns highlights opportunities for the M7 region toexpand its offerings beyond the region, by exporting more natural and organic products. The combination ofthe economic gardening alternative and “buy local” strategies is fully intended to address the challenge offostering the growth of a food and beverage industrial cluster in the Milwaukee region. Page 3 of 21
  4. 4. PROBLEM DESCRIPTIONFostering a hearty economy and creating significant job growth in a post-manufacturing “boom” is a difficulttask. Manufacturing industry has remained strong in the Milwaukee Region despite its decline in theMidwest since the 1970s. The Milwaukee M7 region is strong in several areas: 1) water technologies, 2)power, automation and controls, and 3) food and beverage processing. In fact, 253 food and beveragefirms in the region employ approximately 14,700 workers that constitute 9% of the region’s manufacturingjob base. Furthermore, in 2012, 70% of those firms expect their employment to grow, 94% expect to investin capital equipment, and 50% expect to expand their facilities. These businesses export up to 80% of theirproducts outside the region, indicating the strength of the export market in this sector.The food and beverage processing “cluster” exists in the Milwaukee region because of the peripheralsupport through local talent and education, access to the agricultural side of the food system continuumwithin the region, and its access to Lake Michigan water.Wisconsin is second only to California in the production ofvegetables and many of the local farmers till back almost one-third of their crops back into the soil as waste simply becausethey cannot find a market for the food late in the growing season.On the talent side, the Milwaukee Region is first for theconcentration of food industry talent and second for theconcentration of food scientists. Additionally, Milwaukee AreaTechnical College (MATC) is developing two degrees related tothe industry: 1) food manufacturing production, and 2) foodmanufacturing quality/science. Relating to water, Milwaukeeranks 39th for annual industrial water cost ($129,090 onaverage). In addition, there is a surplus of entry level workers inthe regionIn response to the recognized strength the region has in the food and beverage industry, the Milwaukee 7developed the M7 Food Industry Network, led by Shelley Jurewicz, Vice President of the MetropolitanMilwaukee Association of Commerce (MMAC), and an Advisory Council co-chaired by two industry leaders,the president of Chr. Hansen and the co-owner of O&H Danish Bakery. The organization’s charge is “toconnect and engage food industry leaders to improve the Milwaukee Region as a place to expand, locate,or start a food business.”This report examines several potential alternatives that could take the region’s food and beverage cluster tothe next level, and help the region expand the number of jobs and total payroll in the sector, thus benefitingthe region’s economy and workers. A number of criteria were developed to evaluate the alternatives.PROBLEM STATEMENTThe Milwaukee M7 region is interested in attracting and growing a food and beverage cluster that willincrease the number of jobs available and the income generated in the sector. This report will outline thesteps necessary for growing an industrial cluster in the food and beverage industry. Page 4 of 21
  5. 5. MEASUREMENT CRITERIAThe preferred alternative must cost no more than $1,000,000 per year.Total cost for economic development can reach to the hundreds of millions of dollars. But the M7 currentlyhas little budget for expanding the cluster. Given the size of the cluster in relation to other regional clusters,$1,000,000 annually is an appropriate amount to invest. As a comparison, the M7 Water council is currentlyfunded at approximately $350,000 annually.The preferred alternative must add 976 food jobs by 2015.There is a current focus is on job creation across the country, given relatively high unemployment rates,currently 8.6% nationally and 7.6% in Wisconsin. Wisconsin is particularly focused on job creation afterScott Walker promised adding 62,500 jobs to Wisconsin each year between 2011 and 2015. With a CPSestimated 2,822,655 jobs currently in Wisconsin, this is a 2.2% increase in jobs each year. Assuminggrowth is consistent across all sectors, the Milwaukee area would need to add 976 food jobs by 2015 toreach Governor Walker’s goal.The preferred alternative must increase industry payroll by $39 million by 2015.In addition to adding jobs, total industry payroll should increase substantially. With an average salary of$40,136 and an increase of 976 jobs, payroll would increase by $39 million.The preferred alternative must cost no more than $5,000 per job created.In speaking with local economic developers, the cost of creating one job often costs $10,000. Stateformulas vary between $5,000 and $10,000 per job. Given these standards, setting a conservative limit of$5,000 per job created is prudent.The preferred alternative must result in a 0.08 increase in the location quotient for food andbeverage processing in the Milwaukee Region by 2015.The location quotient compares the percent employment in a place (the M7 region) with percentemployment nationwide in economic sectors. A number greater than one indicates that the place is likelyexporting products in that sector and is strong in that sector. The overall food manufacturing locationquotient for the Milwaukee Region is 1.29 and increasing this number will illustrate further growth in thisindustry.ALTERNATIVESFOOD CAMPUSThe “Food Campus” alternative creates a physical food-centric business sector for industry to thrive (forexamples of other food campuses, refer to Appendix A). The purpose of the campus will be to stimulateand enhance the industry’s vitality by localizing the supply chain. The core of the campus will be foodmanufacturers and producers, with at least one large company as an anchor. The core will be supported bysuppliers, educational institutions, nonprofits, and local and state government. The location of the campusshould be in an area that already has a high concentration of food businesses and supporting industry,such as the areas circled in figure on the following page. The creation of this campus would be funded byattracting private investment. Page 5 of 21
  6. 6. As a main facet of the alternative, the M7 Food IndustryNetwork would be incorporated as a nonprofitorganization supported by membership dues, grants,and donations. The nonprofit would continue the workthe network is currently performing, but would include aspecific focus on the food campus. This would include:supporting a communication and collaboration networkbetween businesses, facilitating meetings betweenresearch institutions and specialists on the campus andin the region, promoting the establishment of new foodcompanies, supporting the development of spin-offsand start-ups, aiding business in procuring necessaryfunding, and publicizing the campus and region. Finally,the nonprofit would be charged with creatingpartnerships between food businesses and local middleand high schools to facilitate curriculum developmentand internship or work-study opportunities, as well asaid in the development of higher level food scienceprograms. EVALUATION: The alternative exceeds $1,000,000 in total cost. The food campus alternative will greatly exceed the $1,000,000 total cost criterion, whether building new or reusing existing buildings. Assuming the park is built new, the cost can be upward of $165,720,000. This number assumes that the cost of building is around $82 per square foot, and just over 2 million square feet of space is constructed. The alternative will create more than 1,300 jobs. The food campus alternative can create anywhere from 22,500 to 45,000. This assumes the campus is on 50 acres and there are 100 new buildings (average 20,000 square feet). The alternative will add $39 million to the industry payroll. Based on the previous jobs calculations, and an average salary of $40,136, the food campus alternative will add between $313 million (22,500 jobs) and $1.2 billion (45,000 jobs). The alternative will cost more than $5,000 per job created. The food campus will average $5,524 per job created (an average of the cost for 22,500 jobs and 45,000 jobs). The alternative will increase the location quotient by far more than 0.08. The food campus alternative will increase the location quotient from 1.29 to a minimum of 1.97 (22,500 jobs) and a maximum of 3.95 (45,000 jobs)ECONOMIC GARDENINGThe Food Cluster needs to include critical ingredients if a critical mass of food businesses is to be created.The economic gardening model emphasizes supporting entrepreneurs and high-impact businesses to grow Page 6 of 21
  7. 7. the economic cluster to critical mass. The areas critical to growth are support services, networking, andproviding competitive intelligence1.Support services include legal, marketing, and accounting help that a new business owner may not know orunderstand. Littleton, CO, the pioneer community of economic gardening, has become extremely proficientat providing in-depth analysis of marketing and web presence for local companies. These tools helpbusinesses expand beyond their current level.Networking is essential to new and growing businesses. This alternative provides linkage between thesebusinesses and resources that may be new to them, including resources that may not even necessarily beavailable locally. Networking also includes fostering of community acceptance of the importance ofentrepreneurial growth and creating branding to promote business growth. The cluster would also providethe voice through the correct channels for reduced barriers to market entry.Competitive intelligence is timely, reliable, actionable information about market conditions that improve thedecision making capacities of entrepreneurs. It is important that the intelligence is not only available, butusable by businesses. Intelligence catering should be done by seeking out the needs of a business andthen filtering data to meet those needs. Examples of competitive intelligence include GIS, economicdatabases, and open source information such as Lexus Nexus. EVALUATION: The alternative would cost $1,000,000 per year. Littleton Colorado increased the economic development budget from $70,000 to $600,000 over five years. In the interest of growing the cluster more quickly than Littleton, a total investment of $1,000,000 per year is proposed. This is equal to the threshold of $1,000,000 per year as set in the criteria. The alternative would add 1,216 food jobs by 2015. Grow Florida is an entrepreneurial pilot program which incentivize communities to grow businesses based on the Littleton model. The program created 1418 direct jobs as a result of a $3.5 million investment. If the food cluster performed equally well, 1216 jobs would be created. This exceeds the criterion minimum. The alternative would increase industry payroll by $48 million by 2015. Assuming jobs added meet the industry average of $40,136, payroll would increase by $48 million. This exceeds the minimum payroll increase of $39 million. The alternative would cost $2,467 per job created. With $3 million in total cost over three years and an anticipated 1216 jobs created, the total cost per job would be $2,467. This is less than half the threshold of $5,000 per job as required by the criterion. The alternative would result in a 0.10 increase in the location quotient for food and beverage processing in the Milwaukee Region by 2015. By adding 1216 food and beverage jobs to the region, location quotient would increase to 1.39, an increase of 0.10. This exceeds the criterion minimum of 0.08.1 International Economic Development Council. (2010). Unlocking entrepreneurship: a primer for economic developers. Washington, DC Page 7 of 21
  8. 8. BUSINESS ATTRACTION Milwaukee: Feeds and Supplies the World In order to garner the potential of a food and beverage cluster that allows for creative people to gather and learn, start a business, or grow their industry, Milwaukee needs a renewed and innovative spirit. The City has the potential to become a center for highly innovative food and beverage industrial production and can act as a catalyst for future growth in production, employment, and attraction of businesses to the region. The City of Milwaukee and the representatives of M7, along with other prominent members of the food and beverage industry in Milwaukee, should highlight the attributes of the City that make it a desirable locale for an industry’s growth. In the early 20th century Milwaukee was known nationally and internationally as the one who “Feeds and Supplies the World”, due to all of the manufacturing and production in the area. The purpose of this alternative’s approach will be to restore this image to the region, and reintroduce Milwaukee as the food and beverage industrial center for the nation. Certain qualities of the City that should be highlighted to attract future business to the area are as follows:  The readily available labor force with relevant skills for food and beverage production;  Quick and easy access to food and beverage research efforts;  Specialization in water research and conservation;  Easy access to high quality produce, locally grown and processed;  Growing presence of urban agriculture and aquaculture;  Large, former industrial regions of the city that can be re-purposed into food and beverage manufacturing centers;  Existing framework of food and beverage companies, capable of aiding one another with waste management and energy production;  Ease of distribution of product due to the developed transportation infrastructure of the city and the state of Wisconsin; and  Educational support system available from multiple schools and universities in the Milwaukee region.The Milwaukee region currently has a total of 243 food and beverage companies. Significant industrygrowth is expected in the next year, with 70% of companies projecting an increase in employment, 94%expecting to increase investment in capital equipment, and 50% planning existing facility expansions. Localmovements in urban agriculture and locally grown produce are also spurring increased national attentiondirected towards Milwaukee. Organizations that have originated in Milwaukee are at the forefront of theirspecialty fields, with groups like Sweet Water Organics and Growing Power receiving substantialrecognition for their efforts in urban agriculture and aquaculture. The strength of organic production inMilwaukee is becoming the city’s community identity. Page 8 of 21
  9. 9. Incentives to Utilize Existing Building StockIn an effort to draw businesses to Milwaukee’s existing food and beverage industry, the City of Milwaukeewill offer incentives to interested companies looking to locate in the City and that are willing to utilize theexisting building stock. Grants and forgivable loans will be provided for existing industries in the area thatexpand their company while conserving energy and also adaptively reuse vacant manufacturing structuresin the City. Industrial buildings are well suited for retrofitting efforts that can accommodate incoming foodand beverage industries. For example, Sweet Water Organics transformed an abandoned industrialbuilding on the City’s south side into a working aquaponics facility and obtained a forgivable loan from theCity for expansion. The structure now contains a store and multiple vertical farming stations.Marketing and BrandingTo achieve the goal of growing jobs, payroll, and capital investment, the City of Milwaukee must undertakea marketing campaign that will highlight the area and its contributions to the region. At the moment,Milwaukee accounts for 9% of the regional manufacturing base. It also has a wide array of food andbeverage industries already located in its industry concentration. The purpose of this alternative will be togrow this market by attracting new business to the region through a marketing campaign. Milwaukee’seffort to develop a competitive food industry will be centered on a marketing campaign to highlight theCity’s attributes.The campaign will require funds from private food and beverage companies, the city, and the Milwaukee 7.Engaging stakeholders and securing buy-in is the first step for this alternative, followed by re-branding. Re-branding Milwaukee will consist of reinvigorating the slogan “Milwaukee: Feeds and Supplies the World”and utilizing it to identify Milwaukee’s prominence in the food and beverage industry. Effectiveness of thecampaign will be analyzed during a 3 to 5 year period in which increases in new business brought to thearea as well as the increase in existing food and beverage industry expansion and job growth will bemeasured. Re-branding should be done with the assistance of a consulting or marketing firm with previoussuccess in city branding. Examples of similar campaigns in Milwaukee include Local First Milwaukee’sinitiative to market and re-brand in an effort to draw attention to the benefits and importance of locally-owned independent businesses. EVALUATION: The alternative would cost more than $1,000,000 per year. A city-wide marketing campaign would cost nearly $620,000 over a 5 year period. Incentives for building reuse will cost the city $2,000,000 annually. The alternative would add 1,600 food jobs by 2015. With this alternative the City of Milwaukee is anticipating spending no more than $2,000,000 annually in an effort to increase employment in the food and beverage industry. With a limit of $5,000 being spent per job created in the food and beverage industry, a total of 1600 jobs will be created by 2015. The alternative would increase industry payroll by $64 million by 2015. Based on the previous jobs calculations, and an average salary of $40,136, this alternative will increase payroll by $64,217,600 by 2015. The alternative would cost $5,000 per job created. The City of Milwaukee will cap expenditures per job created to $5,000. In this alternative $5,000 will be the maximum spent per job created. Page 9 of 21
  10. 10. The alternative would result in a 0.13 increase in the location quotient for food and beverage processing in the Milwaukee Region by 2015. This alternative will increase the location quotient to 1.42, which is an increase of 0.13.BUY LOCAL: ITS RELEVANCE TO THE FOOD AND BEVERAGE CLUSTERBuy local movements have increased in popularity in the U.S. and other countries. Their purpose is tosupport the local economy by encouraging people to shop at independently-owned local businesses. CivicEconomics is an economics analysis and strategic planning organization that has published a number ofstudies assessing the benefits of locally owned, independent businesses. The firm has assessed theimpacts of buying local for the following measures:  Local Profit Retention,  Local Wages and Labor, and  Economic Output.A 2007 report on Kent County, MI focused on the grocery, pharmacy, and restaurant sectors. Kent County,which has a population of 600,000 and includes the city of Grand Rapids, had $8.4 billion in retail sales in2007, including $2.2 billion in the food and pharmacy sectors. Using IMPLAN analysis, the study found that$68 of every $100 spent at local merchants stayed in the community, versus $43 for every $100 spent at achain establishment. The study also found large advantages for local establishments in terms of totalemployment and wages. For every $1 million in sales, the study found that grocery employment was 19%higher, and total wages were 17% higher at locally-owned stores. Comparable figures for locally-ownedrestaurants were 52% for both employment and wages. The study concluded by estimating that if 10% ofretail sales in the three categories were shifted to local merchants, the result would be an additional $53million in wages and over 1600 new jobs, as well as $137 million in additional economic output, includingmultiplier effects. With approximately $24 billion in annual food and beverage retail sales (2007 data), theprojected effects in the M7 region would be tripled compared to Grand Rapids. This would amount toapproximately $150 million in wages, 4800 new jobs, and $411 million in additional economic output.However, the difficulty of shifting region-wide spending patterns by 10% should not be underestimated - 1%is perhaps a more realistic figure, making the potential gains much less significant.The local foods movement is a parallel and complementary development that seeks to encourageconsumers to choose locally produced foods and beverages. Proponents cite a number of benefits,including supporting small farmers and local commerce, improved taste and freshness, the enhanced foodsecurity that comes from “knowing your farmer,” and environmental and sustainability benefits. There are anumber of methods to implement buy local and eat local campaigns.Marketing/BrandingLocal First Milwaukee (formerly Our Milwaukee) utilizes a marketing and branding approach to increaseconsumer awareness of locally-owned independent businesses. In addition to co-branding efforts, theorganization sponsors events, such as buy local fairs, while a complementary organization focused onfood, Eat Local Milwaukee, sponsors eat local challenges. The Local First model is a creation of BALLE(Business Alliance for Local Living Economies - www.livingeconomies.org). Although sales impact data asa result of the program are not readily available for Local First Milwaukees 187 members, thewww.localfirstmilwaukee.com website averaged 350 hits per week in 2010 and has 2400 Facebook “likes.”If the organization can shift local retail purchases from non-local to locally-owned enterprises, the likely Page 10 of 21
  11. 11. impact on economic output, employment, and wages is likely to be proportional to the numbers cited in theGrand Rapids study detailed above. However, it should be noted that these projections are speculative innature; even achieving a 1% shift in retail sales patterns would be a significant achievement. It should alsobe noted that Grand Rapids, the site of the study, is home to BALLE, so the area probably has somesignificant advantages in terms of institutional commitment to a buy local campaign.Local CurrenciesLocal currencies are types of scrip that are accepted only at local businesses within limited geographicallydefined areas, with the intent of strengthening local economies. There are local currency programsoperating in a number of U.S. regions, including Berkshire County, MA, where $2 million worth ofBerkshares changed hands in the first two years of the program. The concept is particularly popular inCanada, which boasts at least eight programs operating currently, including Torontodollars, accepted byover 150 businesses in that city. In Toronto, 10% of transactions are donated to community causes. InMilwaukee, “River Currency” was proposed for the Riverwest neighborhood in 2008, but information on theprogram is very limited. While alternative currencies have achieved ongoing success in many communities,the scale of their impact on the local employment, wages, and economic output appears to be limited, atbest. In addition, the ongoing costs of administering these programs, as well as assigning organizationalresponsibility for this function, are additional concerns.Vertical IntegrationVertical integration is the linking of suppliers/producers, processors, distributors, and consumers throughformal organizations or comprehensive contractual arrangements. The Fifth Season Cooperative in VernonCounty, WI was organized in 2010 for the purpose of structuring coordination between producers,processors, and institutional purchasers of food products. Its short term goals include increasing thepercentage of local food purchased by area institutional buyers by 3% - 10%, to help capture a portion ofthe estimated $208 million that is currently spent on food from outside the region on an annual basis.Startup costs were funded, in part, from a $2 million grant from the U.S. Economic DevelopmentAdministration, and $40,000 from the state’s Buy Local Buy Wisconsin grant program (BLBW). SimilarBLBW grants were used to fund the FEED Madison Small Producer Co-packing Service and the DaneCounty Institutional Food Market Coalition. The latter project resulted in $1.2 million in additional sales, thecreation of 1.5 jobs, and the retention of 12.5 jobs. Large scale vertical integration has significant potentialfor the M7’s food cluster, particularly in encouraging local institutions to source their foods and beveragesfrom local sources.Natural/Organic Foods and SustainabilityBuy local campaigns targeting food and beverages are often not primarily focused on economicdevelopment goals. Rather, they are typically spearheaded by groups and businesses, such as foodcooperatives, that are primarily focused on health and environmental sustainability. These efforts have thecomplementary goals of promoting the consumption of wholesome, natural foods and reducing carbonfootprints by shortening food transportation networks. Organic production both reduces environmentalcontamination from pesticides and results in a higher-value product that is preferred by many consumers.In 2009, 78% of consumers purchased organic products. In addition, according to the USDA’s EconomicResearch Service (ERS), “natural” and “organic” have ranked in the top 10 categories for new food produc tpackage claims each year since 2001, and these categories, along with other health-related foodinnovations, account for a significant proportion of new food product introductions (tables in appendix). Thegrowth in organic and natural categories continues largely unabated, averaging 20% annually. Thefollowing is from a 2009 ERS report: Page 11 of 21
  12. 12. Organic foods now occupy prominent shelf space in the produce and dairy aisles of most mainstream U.S. food retailers, while offerings of organic meats, eggs, breads, grains, and beverages have increased. The marketing boom has pushed retail sales of organic foods up to $21.1 billion in 2008 from $3.6 billion in 1997. Supermarkets, club stores, big-box stores, and other food retailers carry organic products; many retailers have introduced lines of organic private-label products; and manufacturers continue to introduce large numbers of new organic products.Demand continues to outstrip supply. As shown in the chart, in 2002, net imports of organic products to theU.S. were in the $1 billion range. Wisconsin is home to the second highest number of organic producers inthe U.S., behind California, a far larger and much more populous state.The M7 region is also home to experts in the field of wholesale sales and marketing of natural and organicproducts. Outpost Natural Foods General Manager, Pam Mehnert, is currently board president of theNational Cooperative Grocer Association (NCGA), which facilitates shared wholesale buying and sharedmarketing for 160 cooperative storefronts across the U.S. With annual combined sales of $1.3 billion, the“virtual chain” comprising the NCGA is the second largest retailer specializing in natural and organic foodsales in the U.S., behind Whole Foods. Outpost also has an innovative institutional food marketingprogram, in which Outpost-branded products are placed in local hospitals cafeteria and break areas, aswell as a relationship with the Milwaukee Public Schools lunch program. In addition, George Simeon of theCROPP cooperative in LaFarge, WI, has achieved great success in distributing and marketing organicproducts, and is often tapped to give talks on these topics. Page 12 of 21
  13. 13. DistributionA few large distributors dominate distribution of natural and organic food products, so proximity todistributors is a critical factor for natural and organic producers. The largest is United Natural Foods, Inc.(UNFI), with annual sales of $1.3 billion. Its headquarters are in Rhode Island, and it has distribution hubsacross the country, including one in Iowa City. The second largest distributor is KeHe, an employee-ownedcompany with annual sales between $500 million and $1 billion. Its headquarters are in Romeoville, IL justsouth of the M7 region. Wisconsin’s western region is also home to CROPP cooperative (Organic Valleybrands), a distributor with $690 million in annual sales.Given Wisconsin’s rich tradition of organic agriculture, proximity to specialty distributors, and the highervalue associated with natural and organic products compared to their conventional counterparts, a focus onnatural and organic products is likely to pay big dividends for the M7 region’s food and beverage cluster.RecommendationsFrom the discussion above, recommended “buy local” strategies include an increased focus on natural andorganic products, as well as vertical integration efforts targeted at local institutional buyers. Paradoxically,the focus on healthy foods embodied in buy local campaigns highlights opportunities for the M7 region toexpand its offerings beyond the region, by exporting more natural and organic products. Given thesesynergies, natural and organic food production is, well, a “natural” for the M7 region (view Appendix C forsources and resources).EVALUATION MATRIX Selected Criteria Food Campus Economic Gardening Business Attraction Total Cost $165,720,000 $1,000,000 $2,155,000 Job Growth 22,500 – 45,000 1,216 1,600 Industry Payroll $313M - $1.2B $48M $64M Cost per Job $5,524 $2,467 $5,000 Location Quotient .68 – 2.66 .10 .13 KEY: Best Moderate Worst Page 13 of 21
  14. 14. RECOMMENDATIONAfter evaluating the alternatives, the Economic Gardening alternative is the one that best meets statedcriteria and the one that is most feasible to implement in the near term. With a cost of $1,000,000 per year,the alternative is a relatively low cost option. Most important, by creating 1216 food jobs at the cost of only$2,467 per job, this alternative is very efficient.In a very competitive market, conventional economicstrategies yield modest results. A focus on well-established, older companies yields few resultsbecause these companies add few jobs to theeconomy. During the recent economic downturn,almost all job losses can be attributed to largecompanies, those with over 500 employees. A focuson young companies has great potential becausethis is where most jobs are created. From 1980 to2005, almost all net job creation was from start-upfirms and young companies. Another importantaspect is job growth during recessionary times.During recessions, new job growth typically remainsstable at young businesses while existingbusinesses may lose jobs.For economic gardening to be successful, the focus must be on start-ups, young firms, and high-impactfirms. Start-up firms are those firms first created by people with ideas. These firms are the seeds that leadto growth in later stages. Young firms are those between 1-5 years old. These firms have finally begun tomake a profit and often rapidly expand during this time frame. The final type is high-impact firms, alsocalled “gazelles.” A gazelle is a firm that doubles in sales every year for four consecutive years.Entrepreneurs are best fostered through education programs. Various programs geared towards highschool students increase the desire to become an entrepreneur. One such program by the Small BusinessAdministration increases the desire to start a business from 4% to over 14%. Another recommendation bythe IEDC is to create a local branding to help create a culture accepting of entrepreneurial efforts. Finally,these firms often need help to setup a business plan, learn basic accounting, and understand tax filingrequirements.Young firms and gazelles are best helped through technical assistance and networking. Legal services,marketing, and competitive intelligence are crucial for competing in a global market. Because young firmscannot afford these services, providing them is critical. Networking helps all firms by fostering awarenessand innovation, the primary driver behind the success of clusters. Gazelles are the best businesses tohave, but are very difficult for even skilled analysis to predict. The average gazelle is not a new startup, andgazelles can be found in any region and sector. There is not a particular size for gazelles, and these firmsare responsible for almost the entire economic growth in the private sector. Instead of trying to pickwinners, it is more beneficial to create an environment that is fertile for potential gazelles to grow. Byincreasing entrepreneurship and helping young firms, gazelles will grow organically. Page 14 of 21
  15. 15. The overall impact of helping firms in an area is that other firms are often attracted by the improved environment. In contrast, in a business attraction model, firms are lured by incentives and not helped again until they plan to move from the area. Economic gardening instead helps firms to grow their business while in the area, which creates local jobs and attracts other businesses naturally. This approach is not only more ethical, but more effective and efficient. There are key components found in the other alternatives that could help to grow the food cluster. Despite its high cost, the Food Campus has great potential to make a significant impact in the Milwaukee region. This project should be considered complementary to economic gardening, but is far more capital intensive. Re-branding of the region is an important component of the business attraction plan that should be considered. Judicious use of business attraction through redevelopment incentives can also contribute to the economic growth of the region, but at a higher cost per job than the economic gardening approach. By targeting businesses that clearly filla gap for the cluster, the direct cost per job may be well worth the overall benefits to the cluster. Targetingbusinesses that are young firms or potential gazelles looking to expand could be extremely beneficial.The buy local alternative holds great promise for supplementing the Economic Gardening. With a push tobuy local, entrepreneurs will receive a significant boost from local residents. Incorporated with a brandingcampaign, market shifts towards local purchases keeps money from leaving the region. This boosts bothpayroll locally and sales. Finally, the organic advantage Wisconsin has over other regions can be exploitedthrough Economic Gardening. As a top producer of organic food and large industry growth, the food clusterneeds to take full advantage of this opportunity.By focusing primarily on economic gardening and implementing select components from other alternatives,a comprehensive approach to building a food cluster can be created. It is through integration of variousmethods that economic development best occurs. This is possible even with limited funds if plannedcorrectly. Page 15 of 21
  16. 16. APPENDICESAPPENDIX A: EXAMPLES OF FOOD CAMPUSESCross Hands Food Park, Ammanford, Carmarthenshire, UK - www.crosshandsfoodpark.comCross Hands Food Park is one in a portfolio of development sites in Carmarthenshire, all within minutes ofthe M4 (highway) and a large workforce within short driving distance. A total of £50million is being investedin the park with the aim of providing opportunitiesfor food producers and ancillary supportbusinesses to add value to the raw product. Thepark is located centrally to agricultural and supplierresources, thus reducing food miles for production.The Food Park is strategically located near theA48/M4 at Junction 49, which offers direct linkswith the UK motorway network via the M4 and theongoing dualling of the A465 provides directaccess to markets in the Midlands. The M4 is partof the arterial EuroRoute to and from Ireland,across the UK and into the continent. The park isalso located near a main railway line and takesadvantage of available broadband and internettechnologies.Food Business Parks, Bridgeton, New Jersey, USA - www.cityofbridgeton.com/foodbusiness-parks.htmlThe City of Bridgeton has two business parks dedicated to the food industry. Food Business Park Northfeatures 12 acres of available ground for food related or agribusiness. Food Business Park South serves asa location for small to mid-sized companies whose site requirements are four acres or less. Both parksbenefit from a partnership with RutgersUniversity Food Innovation Center. TheFood Innovation Center has been servingclients from its offices in Bridgeton since2001, and is now operating from a 23,000square foot business incubator facilitylocated in Business Park North, which hasbeen operational since October 2008. Thenew facility expands the capabilities of thecenter and enables product design,development, analysis, commercialization,and ongoing manufacture of products forsale to retail and food service markets. Page 16 of 21
  17. 17. APPENDIX B: EXAMPLE OF OTHER FOOD CLUSTER INITIATIVESFood Valley, Wageningen, Netherlands – www.foodvalley.nl/English/default.aspxFood Valley stimulates innovation in the Dutch agro-food sector, with demand as its driving force. It acts onits ‘conscience’: the needs expressed by the business community. It is a membership-based organizationwith at least 12 employees managed by a board of directors. Food Valley’s purpose is to: 1) bring togetherbusinesses and research institutes in goal-oriented clusters, 2) assist entrepreneurs in writing projectproposals and help procure available funding, 3) match Dutch and foreign visitors with potential businesspartners or knowledge suppliers, 4) manage the Innovation Link, which helps individual food companieswith their innovation questions by putting them in touch with research institutes and their partners, 5)encourage development of spin-offs and start-ups, such as the Food Valley Consortium, 6) support theestablishment of new food companies, and 7) serve as a forum for members to exchange knowledge andideas through the Food Valley Society.Greater Hazleton Economic Development Food Processing Industry Partnership, Pennsylvania -www.foodprocessingip.comThe Food Processing IndustryPartnership in Pennsylvania is a jointeffort of the Luzerne/Schuylkill,Lackawanna, Northern Tier and PoconoCounties Workforce Investment Boardswith the support of PennsylvaniaCareerLink. The partnership was createdto foster collaboration with the foodprocessing industry partners, workforceinvestment agencies, local economicdevelopment groups and educationalinstitutions. The mission of thepartnership is to align economic andworkforce development resources to meetthe needs of the companies within the food processing industry cluster with the career goals of its workersand to attract and retain quality employers in Northeastern Pennsylvania.APPENDIX C: SOURCES AND RESOURCE S FOR BUY LOCALOrganic statistics: http://www.organicnewsroom.com/2011/11/seventyeight_percent_of_us_fam.htmlCivic economics - buy local studies: http://civiceconomics.com/html/library.html andhttp://www.ers.usda.gov/Publications/EIB58/Health and wellness market research for the grocery industry - the Hartman Group:http://www.hartman-group.com/ Page 17 of 21
  18. 18. New Economics Foundation - calculating the benefits of local: http://www.neweconomics.org/BALLE - Business Alliance for Local Living Economies (local first organizations):http://www.livingeconomies.org/Marketing U.S. Organic Foods: Recent Trends From Farms to Consumers / EIB-58 Economic ResearchService / USDA, 2009.Local Currencies: http://torontodollar.com/LOCAL WORKS! Examining the impact of local business on the West Michigan economyCivic Economics, 2007BALLE food leakage calculator available for purchase at: http://www.livingeconomies.org/leakage-calculators/foodEat local campaign: http://www.eatlocalmilwaukee.org/index.htmlVertical Integration in the food industry: http://datcp.wi.gov/uploads/Business/pdf/09-10AnnualImpactReport.pdfhttp://www.veda-wi.org/News.html#rpubTABLE 1—NEW FOOD AND BEVERAGE PRODUCT INTRODUCTIONS, 2006-2009 2006 2007 2008 2009 TOTALNew products 20,228 24,236 22,566 19,047Type of product PERCENT OF TOTALCandy, gum, and 29.7 29.3 26.6 25.5snacksBeverages 24.7 18.9 23.1 21.3Condiments 7.5 11.2 8.7 9.7Processed meat 7.9 8.7 8.5 7.2Meals and 5.3 6.4 6.6 6.7entreesFruit and 5.1 4.9 5.1 6.5vegetables Page 18 of 21
  19. 19. Dairy 5.4 4.8 4.7 4.8Bakery foods 3.7 3.5 3.9 4.5Pasta and rice 3.1 3.8 4.0 4.2Baking 3.3 3.4 3.6 3.0ingredientsCereals 1.8 1.7 1.6 1.8Desserts 0.9 1.1 0.9 1.6Baby food 0.4 1.0 1.0 1.3Soups 0.9 0.9 0.8 1.0Meal 0.3 0.4 0.3 0.4replacementsand special dietfoodsSource: Datamonitor.In 2009, food categories with the largest shares of overall new product introductions include candy, gum,and snacks; beverages; condiments; and processed meat. However, the share of new candy, gum, andsnack products introduced dropped from 2007 to 2009, as did the share of new condiments and processedmeat.Advertisements touting a product’s attributes are conveyed on packages and in supporting literature. Basedon new product tags or claims (such as “organic”) tracked by Datamonitor, over 100 U.S. food andbeverage new product claims or tags were identified in 2009. Health and convenience-related attributesaccounted for 8 of the top 10 subject categories for ads on packages, and one-third of all new productclaims. Five categories, including “natural,” “organic,” “single serving,” “quick,” and “fresh,” have rankedamong the top 10 claims in every year since 2001.TABLE 2—NUMBER OF NEW PRODUCT INTRODUCTIONS IN THE TOP 10 PRODUCTCLAIM CATEGORIES FOR 2002 TO 20091 2 2002 2003 2004 2005 2006 2007 2008 2009Tag or claim NUMBERPremium 905 1,589 1,568 2,106 2,645 3,552 3,362 2,336Natural 1,245 1,380 1,364 1,612 1,664 2,335 2,123 1,894 Page 19 of 21
  20. 20. Single serving 1,119 1,127 1,111 1,277 1,399 1,553 1,523 1,344Private label 292 428 275 290 414 734 743 810Fresh 578 556 599 692 700 952 918 799Organic 443 559 533 670 738 1,110 1,042 775No preservatives 421 578 551 550 586 850 807 758Quick 443 521 511 571 651 790 656 597Low or no trans 17 64 238 455 535 754 664 572fatHigh-vitamin 422 483 509 532 556 647 725 558Total new product 13,769 16,374 17,922 19,544 20,459 26,263 25,012 22,483claims PERCENT OF TOTALPremium 6.6 9.7 8.7 10.8 12.9 13.5 13.4 10.4Natural 9.0 8.4 7.6 8.2 8.1 8.9 8.5 8.4Single serving 8.1 6.9 6.2 6.5 6.8 5.9 6.1 6.0Private label 2.1 2.6 1.6 1.5 2.0 2.8 3.0 3.6Fresh 4.2 3.4 3.3 3.5 3.4 3.6 3.7 3.6Organic 3.2 3.4 3.0 3.4 3.6 4.2 4.2 3.4No preservatives 3.1 3.5 3.1 2.8 2.9 3.2 3.2 3.4Quick 3.2 3.2 2.9 2.9 3.2 3.0 2.6 2.7Low or no trans 0.1 0.4 1.4 2.4 2.6 2.9 2.7 2.5fatHigh-vitamin 3.1 2.9 2.8 2.7 2.7 2.5 2.9 2.5 Page 20 of 21
  21. 21. 1 Does not include associated stock keeping units (SKUs, or variations in size andform). According to Datamonitor, the SKU count report may produce erroneous resultsbecause a single new product introduction can have multiple SKUs, and each of these SKUsmay or may not have certain package tags.2A new product may have multiple tags or claims.Source: Datamonitor. Page 21 of 21

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