UCLA-Speicalty-Foods-Sector-Analysis

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					SPECIALTY FOODS MANUFACTURING:
      A SECTORAL ANALYSIS

         Shoshana Krieger
        Dominique Kaschak
          Diana Denham

     UP 237A Sectoral Analysis
      Instructor: Goetz Wolff
   UCLA Urban Planning, Fall 2010




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         SPECIALTY FOOD MANUFACTURING IN LOS ANGELES COUNTY

Executive Summary ................................................................................................................. 5
    Introduction ......................................................................................................................................... 5
    Methodology ......................................................................................................................................... 5
    Why Study Specialty Foods Manufacturing? ............................................................................. 5
    Main Findings ....................................................................................................................................... 6
    Recommendations.............................................................................................................................. 8
Specialty Food Defined ........................................................................................................... 9
    Food Manufacturing Defined .......................................................................................................... 9
    Defining Specialty Foods .................................................................................................................. 9
    Our Definition and the Industrial Classification System (NAICS) .................................. 10
Structure of the Industry .................................................................................................... 12
    Food Manufacturing........................................................................................................................ 12
    Looking at Food Manufacturing Subsectors........................................................................... 14
    Specialty Food Manufacturing Employment .......................................................................... 20
    Concentration Ratios ...................................................................................................................... 22
    Outsourcing, Offshore Subsidies ................................................................................................ 23
    History of Mergers, Buy-Outs, & Business Failures ............................................................. 23
Internal Composition of the Industry ............................................................................. 25
    Options for Production Facilities ............................................................................................... 25
    Site Requirements ........................................................................................................................... 29
    New Technologies............................................................................................................................ 31
    Research and Development and Product Design ................................................................. 31
Supply Chain, Inputs and Outputs.................................................................................... 34
    Supply Chain ...................................................................................................................................... 34
    Inputs ................................................................................................................................................... 35
    Outputs ................................................................................................................................................ 36
Finances .................................................................................................................................... 42
    Profitability........................................................................................................................................ 42
    Ownership/Subsidiaries ............................................................................................................... 44
    Sources of Capital and Reinvestment ....................................................................................... 45
    Financial Pressures......................................................................................................................... 45
Markets and Customers ....................................................................................................... 48
    Accessing Markets ........................................................................................................................... 48
    Marketing ........................................................................................................................................... 48
    Market for Specialty Foods is High in Los Angeles .............................................................. 50
    Consumer, Intermediate or Producer Goods......................................................................... 50
    Basis of Competition ....................................................................................................................... 50
    Stability ............................................................................................................................................... 52
    Customers........................................................................................................................................... 53
    Market Segmentation ..................................................................................................................... 54
    Consumer Product Concerns ....................................................................................................... 56
Trade .......................................................................................................................................... 59
    Trade Patterns in Food Manufacturing ................................................................................... 59

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   U.S. Top Trading Partners in Food Manufacturing .............................................................. 59
   NAFTA .................................................................................................................................................. 60
   Proportion of Export-Related Jobs ............................................................................................ 61
   Exporting Specialty Foods ............................................................................................................ 63
Spatial Distribution, Cluster and the Locational Advantages of L.A. County .... 64
   Zoning .................................................................................................................................................. 64
   Spatial Distribution......................................................................................................................... 65
   Location Quotients .......................................................................................................................... 66
   Spatial Concentrations of Related Industries ........................................................................ 67
   Clusters................................................................................................................................................ 69
   Commodity Chains .......................................................................................................................... 34
   Related Sectors ................................................................................................................................. 69
   Geographic/Historic Turning Points ........................................................................................ 69
   Specialty Food Manufacturers Reasons for Locating in L.A.............................................. 73
Labor and Workforce ........................................................................................................... 76
   Race, Immigration Status, Place of Origin............................................................................... 76
   Gender ................................................................................................................................................. 78
   Age......................................................................................................................................................... 80
   Wages and Skill Levels ................................................................................................................... 82
   Are Specialty Food Manufacturing Occupations Good Jobs? ............................................ 86
   Production Workers ....................................................................................................................... 87
   Unions .................................................................................................................................................. 88
   Benefits................................................................................................................................................ 90
   Multiple Shifts, Overtime .............................................................................................................. 91
   Temporary Workers ....................................................................................................................... 92
   Occupational Safety and Health Administration .................................................................. 92
   Incentive/Control Methods .......................................................................................................... 93
   Management Methods .................................................................................................................... 94
   Workforce Development in Food Manufacturing in Los Angeles................................... 94
   Local Hiring Common Practice in Some Businesses............................................................ 95
   Separations and New Hires .......................................................................................................... 96
   Turnover Rate ................................................................................................................................... 96
Government’s Role & Citizen Concerns.......................................................................... 97
   Oversight of Food Manufacturing Facilities ........................................................................... 97
   Government Subsidies and Incentives ................................................................................... 104
   Citizen Concerns about Food Manufacturing....................................................................... 110
Networking and Trade Associations ............................................................................. 112
   Trade Shows .................................................................................................................................... 112
   Food Industry Business Roundtable (FIBR)......................................................................... 112
   Other Trade Associations ........................................................................................................... 113
Interest in Green Food Manufacturing ......................................................................... 114
   Los Angeles Food Policy Council .............................................................................................. 114
   The Green Urban Manufacturing Initiative (GUMI) .......................................................... 114
   Green Practices in Action............................................................................................................ 115
Company Profiles ................................................................................................................. 117
   Don Pedro’s Meats ......................................................................................................................... 117


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Maria Elena’s Authentic Latino, Inc......................................................................................... 119
Dandy Don’s Homemade Ice Cream, Inc. ............................................................................... 121
StarLite Foods, Inc. ........................................................................................................................ 122
Passport Food Group, Inc. ........................................................................................................... 124
Caldwell Fresh Foods.................................................................................................................... 126
Passport Foods ............................................................................................................................... 128
Earth Island/ Follow Your Heart .............................................................................................. 130




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Executive Summary

Introduction

This report examines Specialty Foods Manufacturing in Los Angeles County.
Before food finds itself on our plates, even before it arrives in our markets or restaurants
for purchase, it must go through many hands and processes. This paper is an examination
of the sector that encompasses what happens to our food after it is harvested or raised and
before it gets to the kitchen. While providing a general overview of food manufacturing
generally in Los Angeles County, here we delve deeply into Specialty Foods
Manufacturing. We define specialty food to encompass foods and beverages that cater to
or serve a national, cultural, ethnic or niche market. We consider production options for
manufacturers, jobs in the sector, consumer preferences, profitability, location
considerations, clustering, supply chains, government policies that impact the sector,
possibility for greening the industry and much more.


Methodology

The information we present is primarily based on government data as well as in-depth
interviews with specialty food manufacturers. In addition to interviewing manufacturers
that produce an array of products (vegan mayonnaise, Latin American style sausages,
granola, organic Horchata, stir-fry mixes, Asian noodles, and marshmallow cakes, to
name a few), we also interviewed the director of the specialty and ethnic food trade
association Food Industry Business Roundtable (FIBR) and the Sustainability Manager of
UCLA, which is a major institutional buyer. These interviews have allowed us to
complement statistics about food manufacturing with information that paints a much
richer picture of the inner workings of the sector. Additionally, we have relied on
newspapers, trade journals and scholarly journals to complete our research.


Why Study Specialty Foods Manufacturing?

In Los Angeles County, food manufacturing employs more than 42,000 Angelenos in
over 1,000 firms, and we have found that the specialty foods subsector is performing
strongly. Specialty foods manufacturing plays a vital role in the local food system with
many small and medium-sized businesses providing local jobs; supporting local and
domestic agriculture; and providing food for local markets. Nearly everything that we eat
(including many fresh fruits and vegetables) is processed in a food manufacturing plant,
yet much of the local food movement focuses attention only on where food is grown or
bought and not on where food is processed. Furthermore, several specialty food
manufacturers in L.A. County have found innovative ways to make their processes more
ecologically sound. Closely examining the specialty foods manufacturing sector provides

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us with an opportunity to understand the challenges and potential of an important
industry to L.A. County’s economy and food system.


Main Findings


The Market for Specialty Food
   •   Demand for specialty food is on the rise. Food industry trade publications
       emphasize the emerging importance of ethnic, natural, organic and functional
       foods to the sector.
   •   Specialty food manufacturers sell to a variety of buyers: grocery wholesalers,
       grocery retailers, exporters, other food manufacturers, food service providers,
       public institutions (e.g., the military, schools), and sometimes directly to
       consumers.
   •   Retailers (supermarkets), influenced by consumer preferences, have tight control
       over what ends up in their market and on what conditions. They exercise their
       power over distributors, which in turn, squeeze food manufacturers to the extent
       possible.


Diversity of Production Models
Specialty food manufacturers’ production operations vary across the sector. We have
identified these major production options for firms:
    • Own/Lease Facility: Many firms, especially larger firms, own or lease their
        manufacturing plant. Production, packaging, and product development typically
        occurs onsite.
    • Lease Space/Time: Many smaller firms who do not have the resources to own or
        lease an entire facility will rent space from a commercial kitchen or from a
        cooperative kitchen.
    • Co-Packing: Some food entrepreneurs contract out the actual production of their
        products to other food manufacturers, a process called “contract packing.” The
        food entrepreneur owns the product’s formula and normally does her own
        distribution.


Profitability and Finances
   •   Major barriers to entry include the high cost of machinery and the time, energy
       and connections required to develop the relationships necessary to get the product
       into stores or other food establishments.
   •   Rising commodity prices are a major challenge to the profitability of the specialty
       food manufacturing sector. Government regulations and the rising cost of labor
       were also cited by some manufacturers we interviewed as additional financial
       burdens.


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Somewhat Stable Market as Compared to All Manufacturing
   •   The current recession has resulted in a greater loss of employment in the
       manufacturing sector than in the food and specialty foods subsectors: from 2007
       to 2009, a loss of 13 percent compared to 4 percent and 5 percent respectively.
   •   Some food manufacturers experience severe seasonal drops. Ice cream and
       refreshing beverages, for example, sell well in the summer and poorly in the
       winter. Manufacturers of such products must diversify in order to increase winter
       sales.


Networking
   •   The most important means of networking for many specialty food manufacturers
       that we interviewed is trade shows. They allow manufacturers to meet customers,
       size up the competition, evaluate product and packaging, meet buyers and
       distributors, and make sales.
   •   Many manufacturers also belong to trade associations, including the Food
       Industry Business Roundtable, (FIBR)


Demographics & Workforce
   •   Hispanic workers dominate all except for one of the occupations in food
       manufacturing in Los Angeles County; only the Industrial Production Managers
       occupation has a plurality of White workers. Accordingly, some manufacturers
       we spoke with emphasized the importance of employing bilingual production
       managers.
   •   Thirty-five percent of food and beverage manufacturing workers are women.
   •   Workers in more than two-thirds of identified specialty food occupations have an
       annual median wage of less than $30,000 a year.
   •   Most specialty food manufacturing firms are not unionized and the majority of
       firms we spoke to are not able to provide healthcare and other benefits.


Worker Recruitment
   •   Word of mouth is the key to worker recruitment. Social networks play an
       extremely important role. This point was mentioned in every interview we
       conducted.
   •   Of secondary importance is local hiring. Some manufacturers reported that a
       large number of their workers were local, and that some were hired by seeing a
       “Help Wanted” sign on the door of the factory in their neighborhood. Word of
       mouth, however, is much more crucial to worker recruitment than is local
       advertising and hiring.




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Food Safety
   •   Food safety is a principal community concern and, as such, is a principal industry
       concern.
   •   Manufacturers interact with many regulators, including federal, state and local
       inspectors. Additionally, many large customers require third-party inspections
       that certify a plant meets privately established standards.
   •   Some of these regulators include the FDA, USDA, Food and Drug Branch of the
       California Department of Public Health, CA Department of Agriculture, the
       County Health Department, third party audits, organic certification audits, kosher
       certification, and military inspection


Potential for Greening the Industry
   •   Many specialty food manufacturers are interested in becoming more
       environmentally sound, but they must weigh this interest against their need to
       make money while not compromising their product. Green investments that do
       not pay off in the short term may require public subsidies.
   •   Individual manufacturers we spoke with currently engage in some green practices,
       such as innovative waste disposal; energy-efficient design; the use of renewable
       energy; the elimination of toxic chemicals; and the use of eco-friendly packaging.
       However, these practices are not standardized across the industry.


Recommendations

   •   The L.A. Food Policy Council should reach out to local food manufacturers to
       ensure they are represented in discussions of local food policy. These
       manufacturers represent an important piece of our regional food system.
   •   Industry leaders and government officials should work to develop standardized
       best practices for green food manufacturing. They should work with food
       manufacturers to identify barriers to the implementation of such practices and find
       ways to overcome such barriers.
   •   Support and technical assistance programs should be targeted towards nascent
       specialty food manufacturing firms who face a myriad of barriers entering the
       industry, including locating health-licensed space.




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Specialty Food Defined

Food Manufacturing Defined

As the North American Industrial Classification System (NAICS) definition states, Food
Manufacturing transforms livestock and agricultural products into products for
intermediate or final consumption. That is, food manufacturing transforms wheat into
flour, which can be bought by a commercial bakery and turned into bread, which can in
turn be sold wholesale to a grocery store, which can then be bought by a consumer.
Alternatively, the flour may be sold wholesale to a grocery store and bought directly by
the consumer who will bake her own bread. In the case of a retail bakery, bread may be
manufactured and sold at the same firm.


Defining Specialty Foods

We define specialty food to encompass foods and beverages that cater to or serve a
national, cultural, ethnic or niche market. This includes organic, sustainable, locally-
sourced, artisanal, kosher, halal, country-specific and health foods. In classifying
specialty foods, we consider both the types of ingredients and the production process.

This definition builds on other frameworks used to analyze the specialty food industry,
most notably the one set forth by the Hale Group and funded by the United States
Department of Agriculture (USDA) in a working paper entitled “Business Opportunities
in Specialty Food Products.”

This framework defines specialty food as consisting
of products from five discrete consumer-driven
categories: 1) Wellness; 2) Indulgence; 3) Ethnicity;
4) Value and 5) Convenience (Hale: 1).

For the purposes of our definition, we will focus on
the first three categories as we believe the last two
categories encompass a broader array of food than we consider being specialty. It defines
wellness foods as foods that “have a perceived impact on consumer’s health and
wellbeing” focusing on consumer perception and not the actual health merits of a
product. Under this definition of wellness products, functional foods, products that are
actually health-promoting are combined with products that are dubiously health-
promoting (ie, “natural” foods), but that consumers purchase for their perceived health
benefits.

The second category of specialty foods in the Hale Group paper is “Indulgence” foods,

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foods that are “designed to meet the consumer’s deeply felt desires, as opposed to their
needs.” This category encompasses a wide range of foods such as luxury items, like
chocolates and gourmet coffees to “foods that excite” (wild mushrooms, sushi) to foods
that are connected to the promotion of a certain value system (animal welfare, social
consciousness, buying local, environmental concerns). The third category is ethnic
foods. These foods have “authentic appeal to the ethnic group itself” and are also
marketed to a wider U.S. population that has “been influenced by ethnic tastes and
ingredients” (1). Another author, Stephan Hall, classifies ethnic foods into several
national/regional/cultural categories. Italian style foods continue to be the most
prominent in the U.S. ad the market is fairly saturated according to Hall. Asian foods,
especially those perceived as unprocessed and fresh (spurred by interest in health and
fitness), bring in 62 billion dollars a year. Greek foods are popular for the same reason
(Hall 2005).


Our Definition and the Industrial Classification System (NAICS)

Our qualitative definition of specialty foods does not neatly fit with the North American
Industrial Classification System (NAICS), the system by which much relevant industry
data is available. NAICS does not categorize sectors as “ethnic,” “artisanal,”
“sustainable,” or “luxury.” There are only two food manufacturing subcategories that use
the term “specialty:” Specialty Canning” (311422) and Frozen Specialty Food (311412).
In Los Angeles, no businesses are classified as Specialty Canning while only 20 are
classified as Frozen Specialty Food (Economic Census 2007). There are, of course, more
than 20 firms in Los Angeles County that manufacture specialty foods. We, thus, needed
to find an alternative way to use the NAICS classification system to aid us in our analysis
of the industry.

For the purpose of the analysis found below, we have decided to select NAICS categories
at the 5-digit level that would likely contain a significant number of specialty firms. At
this level there is enough data available to get a better snapshot of the specialty food
industry than looking at food manufacturing as a whole. The thirteen subcategories we
selected are listed below.

NAICS Code           Industry
(2007)
31132                Chocolate and Confectionery Manufacturing from Cacao Be
31133                Confectionery Manufacturing from Purchased Chocolate
31134                Nonchocolate Confectionery Manufacturing
31141                Frozen Food Manufacturing
31142                Fruit and Vegetable Canning, Pickling, and Drying
31151                Dairy Product (except Frozen) Manufacturing
31152                Ice Cream and Frozen Dessert Manufacturing
31182                Cookie, Cracker, and Pasta Manufacturing
31183                Tortilla Manufacturing
31191                Snack Food Manufacturing

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31192   Coffee and Tea Manufacturing
31194   Seasoning and Dressing Manufacturing
31199   All Other Food Manufacturing




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Structure of the Industry
Food Manufacturing

Employment

To gain a better understanding of the specialty food sector, we first look at the more
general food manufacturing sector* in L.A. County.

In Los Angeles, Food Manufacturing employs, according to the latest Bureau of Labor
Statistics estimate 42,100 people, of a total of 450,000 Angelenos in the manufacturing
supersector (BLS 2010; CBP 2008). Of the more than 15,000 manufacturing firms, 1,114
manufacture food and drink for human consumption (CBP 2008).

While the food and beverage manufacturing sector in L.A. County currently employs
42,100 Angelenos, this number is much lower than it has been over the past two decades.




Source: Bureau of Labor Statistics & EDD; Prepared By: Shoshana Krieger

The food and beverage manufacturing sector’s employment decreased steadily from 1990
until 2008, dropping from 53,500 employees in January of 1990 to 48,000 employees in
January of 2008, a decline of 10 percent over eighteen years. However, this decline


*
 In analyzing the “food manufacturing” sector, where possible, we have combined two
NAICS categories: 311 (food manufacturing) and 312 (beverage manufacturing) and
excluded from the data animal food processing (3111).
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increased rapidly as the recession hit in 2008 and by August 2010 employment in the
food manufacturing sector had fallen to 42,100, a decline of 12 percent over less than
three years.

The food manufacturing sector’s employment rates have, however, decreased at a slower
pace than the manufacturing sector as a whole. While the food manufacturing sector lost
21 percent of the jobs it had in 1990, the overall manufacturing sector in L.A. lost almost
55 percent of its 1990 job levels.




Source: Bureau of Labor Statistics & EDD; Prepared By: Shoshana Krieger


Firms

The majority of L.A. County’s 1,114 food and beverage manufacturing firms are small
firms. Half of all food manufacturing firms in L.A. employ less than ten people and 65
percent employ less than twenty. Of course, this does not mean that the majority of
employees are employed by small firms since one large firm employing more than 1,000
people employs more workers than three hundred five-person firms (County Business
Patterns 2008).




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Source: County Business Patterns 2008/ Prepared By: Shoshana Krieger


Distribution of Firms According to Number of Employees at Each Establishment (County
Business Patterns, 2008)
1-4         5-9        10-19      20-49     50-99     100-249 250-499 500-999              1,000+
405         171        168        189       91        79         26         12             3
35%         15%        15%        17%       8%        7%         2%         1%             0%




Looking at Food Manufacturing Subsectors
There are nine subsectors in the food and beverage manufacturing sectors, the largest in
L.A. County being the “Bakeries and Tortilla manufacturing” sector, which boasts almost
600 firms and employs more than 14,000 Angelenos. The next largest subsector, “Other
Food Manufacturing,” includes 183 firms in Los Angeles employing over 9,500 people.
Over half of these firms are small, employing less than twenty employees; the sectors of
Baking and Tortilla Manufacturing and Sugar and Confectionery Manufacturing both
have particularly high percentages of small firms with approximately three-quarters of
such firms employing less than twenty employees.

Largest Food Manufacturing Subsector
Subsector (4-digit NAICS)     # of Firms       % Small Firms         Employment
                                               (<20 employees)
Bakeries and Tortilla           595            77%                   14,118
Manufacturing

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Subsector (4-digit NAICS)       # of Firms      % Small Firms        Employment
                                                (<20 employees)
Other Food Manufacturing       183              48%                  9,706
Animal Slaughtering and        93               48%                  7,499
Processing
Beverage Manufacturing         63               65%                  4,605
Fruit and Vegetable            62               50%                  4,676
Processing
Dairy Product Manufacturing 57                  47%                  4,330
Sugar and Confectionery        43               74%                  1,993
Manufacturing
Seafood Product Preparation    25               48%                  1218
Grain and Oilseed Milling      23               43%                  1037
Total                          1144             55.7%                49,182
Source: County Business Patterns, 2008.

The high level of employment in the Bakery and Tortilla subsector may be due to the
presence of an Oroweat baking facility (a subsidiary of Bimbo Bakers USA,) which
employs at least 1,500 people at their Montebello facility and even has its own employee
credit union (ReferenceUSA, bakeryemployeescu.com). The next largest subsector is
“Other Foods,” which we include in our definition of Specialty Foods, followed by
Animal Slaughtering and Processing.

At the six-digit NAICS level, the largest category is “commercial bakery,” employing
nearly 6,000 people in 133 establishments (CBP). Commercial bakeries are “primarily
engaged in manufacturing fresh and frozen bread and bread-type rolls and other fresh
bakery (except cookies and crackers) products.” Retail bakeries is a close second in
terms of employment—3600 employees in 378 locations. Retail bakeries distinguish
themselves from commercial bakeries as, “comprised of establishments primarily
engaged in retailing bread and other bakery products not for immediate consumption
made on the premises from flour, not from prepared dough.”




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Source: QCEW; Prepared By: Shoshana Krieger

The third largest six-digit subsector is “All other miscellaneous food manufacture,” a
subsector of “Other Food Manufacture.” Both of these, for our purposes, are
unfortunately uninformative categories. “Meat processed from carcasses” (NAICS
311612) employees 3000 people in 49 firms. This activity includes “establishments
primarily engaged in processing or preserving meat and meat byproducts (except poultry
and small game) from purchased meats. This industry includes establishments primarily
engaged in assembly cutting and packing of meats (i.e., boxed meats) from purchased
meats.” We suspect that the employment data is undercounted, given the large number of
undocumented workers known to work in meat processing. See other important
subsectors at the 6-digit level below.

Top Ten 6-Digit NAICS Subsector Employers
NAICS (2007)     NAICS Category Name             No. of Employees     No. of Firms
311812           Commercial Bakeries             5930                 133
311811           Retail Bakeries                 3662                 378
311999           All Other Miscellaneous         3231                 50
                 Food Manufacturing
311612           Meat Processed from             2980                 49
                 Carcasses
311511           Fluid Milk Manufacturing        2425                 14
311991           Perishable Prepared Food        2415                 39
                 Manufacturing
312111           Soft Drink Manufacturing        2407                 13
311412           Frozen Specialty Food           2252                 19

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NAICS (2007)     NAICS Category Name              No. of Employees     No. of Firms
                 Manufacturing
311611           Animal (except Poultry           2136                 24
                 Slaughtering)
311615           Poultry Processing               2038                 17
Source: County Business Patterns, 2008.

Of course, there is some discrepancy among data sources. The County Business Patterns
data, which we have cited so far, listed 28 tortilla manufacturers (NAICS 311830),
employing 1,436 workers; the 2007 Economic Census lists 26 tortilla firms (CBP 2008).
According to the Quarterly Census on Employment and Wages there were 34 tortilla
manufacturers employing 2,245 workers in L.A. in 2007.


Employment Trends in Food Manufacturing Subsectors
Over the past decade, most of the food manufacturing subsectors have seen a decrease in
employment. All but beverage manufacturing and “other food” manufacturing have seen
decreases in employment. The Seafood Product and Preparation subsector was
particularly hard hit, its employment decreasing by over 82 percent between 1999 and
2009 shrinking from 1,752 jobs to just 304. Grain and oilseed milling also did not fare
very well, losing over 35 percent of its 1990 employment and entering 2010 with just 550
jobs (QCEW).

The beverage and manufacturing subsectors, on the other hand, fared much better. Other
food manufacturing saw a net gain of over 1,600 jobs, an increase of over 43 percent.
Beverage manufacturing jobs increased by over 13 percent during the same period.




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Source: QCEW; Prepared By: Shoshana Krieger

Change in Employment by Food Manufacturing Subsector, 1999-2009, L.A.
2007 NAICS Subsector                          10 year change Net Job
Code                                                           Loss/Gain
3117          Seafood Product Preparation and -82.65%          -2,260.00
              Manufacturing
3112          Grain and Oilseed Milling       -35.37%          -1,448.00
3115          Dairy Product Manufacturing     -14.65%          -827.00
3116          Animal Slaughtering and         -13.42%          -821.00
              Processing
3118          Bakeries and Tortilla           -12.87%          -317.00
              Manufacturing
3114          Fruit and Vegetable Preserving  -5.49%           -301.00
              and Manufacturing
3113          Sugar and Confectionery Product -4.37%           -90.00
              Manufacturing
3121 & 3122 Beverage Manufacturing            14.26%           634.00
3119          Other Food Manufacturing        43.65%           1,632.00
311           All Food Manufacturing          -7.92%           -3,798.00
Source: QCEW


Firms by Subsector


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Looking at the number of firms across food manufacturing subsectors, we can see that
Bakeries and Tortilla manufacturing firms comprise half of all establishments (CBP).
This is a larger percentage than this subsector’s employment share and may be accounted
for by the fact that this subsector includes retail bakeries, which are likely smaller
establishments than many traditional manufacturing firms. The next largest subsector as
it relates to firms is Other Food Manufacturing, which, as noted above, also has the
second highest number of employees.

Number of Firms by Subsector
Subsector (4-digit NAICS)                     # of Firms
Bakeries and Tortilla Manufacturing           595
Other Food Manufacturing                      183
Animal Slaughtering and Processing            93
Beverage Manufacturing                        63
Fruit and Vegetable Processing                62
Dairy Product Manufacturing                   57
Sugar and Confectionery Manufacturing         43
Seafood Product Preparation                   25
Grain and Oilseed Milling                     23
Total                                         1144




Source: County Business Patterns. Prepared by: Shoshana Krieger

All of the subsectors also have a sizable percentage of small firms within them, ranging
from just over 40 percent for grain and oil seed milling to close to 80 percent for bread
and tortilla manufacturing. When comparing the percentage of small firms within each
subsector, one can see that Bread and Tortilla Manufacturing firms are more likely to be
small than any other subsector, but all of the subsectors contain a significant number of

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small firms (County Business Patterns 2008).




Source: County Business Patterns 2008/ Prepared By: Shoshana Krieger


A Note on Data Inconsistencies

Federal government data employment numbers do not seem to always correlate with
employment numbers found on Reference USA, California’s Employment Development
Department’s (EDD) Employer database, and Grey House Publishing’s Food Market
Place Employer Guide. For example, EDD’s database lists Nestle as employing over
10,000 people in the “Other” subsector, more than twice the number of total employees
reported in this subsector by the Bureau of Labor Statistic’s Current Employment
Statistics data. Additionally, ReferenceUSA lists top five beverage employers as
employing over 5,300 employees representing more than BLS’s total for the sector
(5,079) without even including smaller firms. This is probably due to the differing
employment and industry categorizations of each data source, but does pose a challenge
for a complete sectoral analysis. It seems, for example, that ReferenceUSA gives
businesses multiple NAICS codes resulting in some firms whose primary business may
not be food manufacturing as being categorized as such (ie., Reference USA lists Auntie
Anne’s Pretzel’s as a Snack & Nonalcoholic Beverage Bar (7221315), a “confectionery
merchant wholesaler” (4244503) and an “other snack food manufacturer” (3119106) even
though it is primarily engaged in the first activity).

Additionally, it is likely that all data sources (government data and private sector
accounts) will overlook smaller artisanal operators. These firms may operate out of
commercial kitchens and rent space by the hour, not having a traditional manufacturing
plant, making them more difficult to track. Additionally, many of the small artisanal

                                                                                     20
manufacturers we spoke with have other jobs in addition to their small-scale
manufacturing endeavors. It is likely that these manufacturers are categorized by
government data collectors according to their primary occupation and not as
manufacturers.

Specialty Food Manufacturing Employment

As noted above in our definitions section, we identified a list of 5-digit NAICS codes that
we believed would encompass large numbers of specialty food firms. Unfortunately
many of our data sources did not go down to the 5-digit level and so our quantitative
comparison of the specialty food sector to the lager food manufacturing sector will be
necessarily limited.

We were, however, able to glean employment numbers at the five-digit level and are,
therefore, able to trace the specialty food sector’s employment trends. Using 2009 data,
we estimate that 21,024 Angelenos are employed in firms that are likely to produce
specialty foods (QCEW 2009). This is down from a high of 21,500 workers in 2002.

When comparing the specialty food sector’s employment trends to the rest of food
manufacturing and general manufacturing, however, we can see that specialty foods
employment is faring better than these other sectors. Employment in the specialty foods
sector dropped by only one percent between 1999 and 2009, while employment in
general food manufacturing dropped 11 percent and employment in manufacturing
dropped almost 40 percent.




Source: County Business Patterns 2008/ Prepared By: Shoshana Krieger




                                                                                        21
Concentration Ratios

The 2002 Economic Census Concentration ratios show that the national food
manufacturing and beverage industries, as a whole, are relatively concentrated with the
fifty companies controlling 53 percent of total shipment values (2). Just four companies
control 16 percent of the total shipment value.

Within food manufacturing some subsectors are more concentrated than others. “Other
food manufacturing” is the least concentrated subsector in terms of both value added and
total shipments with 33.9 percent of its shipment values and 41.4% of its value added
allocated to the top four firms. The bakery and tortilla-manufacturing subsector is also
less concentrated than the other sectors, around 30 percent for the top four shipment
values and value-added and 70 percent for the top fifty. The subcategory of tortilla
manufacturing is, however, more concentrated than its subsector with around 80 percent
of value added being absorbed by the top fifty firms. Additionally, the specialty foods
canning and frozen foods categories are especially concentrated from a value added
standpoint (99 percent and 84 percent for top fifty firms respectively).

Concentration Ratios by Shipment Value and Value Added
Subsector (NAICS code)              Shipment Value               Shipment    Value
                                    Value-      Added-           Value-      Added-
                                    Top 4       Top 4            Top 50      Top 50
Grain and oil seed (3112)           47.3%        50.8%           88.2%       91.2%
Sugar and confectionery product     37.7%       43.4             82.7%       82.9
manufacturing (3113)
Chocolate and confectionery         69%         73%              98.8%       98.7%
manufacturing from cacao beans
(31132)
Fruit and vegetable preserving and  24.3%       27.7%            69.4%       92.1%
specialty food manufacturing (3114)
Specialty canning (311421)          71%         74.2%            99%         99%
Frozen specialty food               41.2%       44.5%            89%         88.6%
manufacturing (311412)
Dairy product manufacturing (3115) 24.9%        29.6%            74.6%       77.6%
Cheese manufacturing                34.6%       43.5%            88%         90.2%
Ice cream and frozen dessert        48%         54.2%            93.1%       93%
manufacturing
Animal slaughtering and processing 42.1%        36.1%            75.1%       74.2%
(3116)
Seafood product preparation and     20.5%       18.8%            68.1%       68.5%
packaging (3117)
Bakeries and tortilla manufacturing 27.7%       31.5%            69.1%       70.4%
(3118)
Cookie, cracker, and pasta          47.4%       54.9%            88.6%       89.7%
manufacturing (31182)

                                                                                      22
Tortilla manufacturing (31183)      56.1%       59.3%        87.9%       88.3%
Other Food Manufacturing (3119)     33.9%       41.4%        62.5%       68%
Snack food manufacturing (31191)    56.2%       64%          89.6%       91.3%
Mayonnaise, dressing, and other     38.5%       42%          87.8%       88.1%
prepared sauce manufacturing
(311941)
Spice and extract manufacturing     28.7%       29%          80.2%       81%
(311942)
All other food manufacturing        19.8%       22.1%        54%         57%
(31199)
Beverage manufacturing (3121)       39.5%       36.4%        81.7%       82.6%
Soft drink manufacturing (31211)    48.2%       41%          86.7%       86.5%
Breweries (31212)                   90.8%       90.5%        98.1%       96.1%
Wineries (31213                     46.5%       45.6%        81%         80.6%
Distilleries (31214)                70.5%       78.9%        99.9%       99.9%
U.S. Department of Census, “2002 Concentration Ratios: Manufacturing Subject Series”
(2006).


Outsourcing, Offshore Subsidies

Blue Pacific Flavors and Fragrances, with headquarters in L.A. County, has many firms
in Southeast Asia (Grey House Publishing 2010). Fusion Gourmet also has a number of
partner firms in SE Asia. We also know that bigger companies, such as Nestle and Pepsi
have many firms abroad.


History of Mergers, Buy-Outs, & Business Failures

Latest SUSB employment change by county Manufacturing reports 1364 births, 1,687
deaths, 4,525 expansion, 4,872 contraction, and 3,290 constant. Unfortunately, this
source would be more helpful to us if it offered data about Food Manufacturing.
Industry leaders

The Specialty Food Manufacturing sector represents manufacturers of a myriad of
products ranging from beef jerky to noodles to salsa to vegan delicacies. Because of the
variation in products, it does not seem that there is a uniform industry leader in the
Specialty Food Manufacturing sector, although there may be industry leaders within
categories of products.

In examining the Reference USA list, the Specialty Foods companies with the largest
listed revenues included Saputo Cheese ($100-500million) and Juanita Foods, La
Colonial Tortilla Products, La Reina Family Brand Foods, Los Altos Food Products, and
Cedar Lane Natural Foods (all $50-$100 million). Perhaps these companies are the
leaders in their given products.


                                                                                      23
As with other aspects of the industry, it seems that the industry leaders may in fact be the
retail markets and food establishments, which respond to consumer demand. Food
manufacturers are constantly trying to find what the market will demand. In fact,
Function Beverages ended up getting into the bottled water business after Whole Foods
asked if they bottled water and wanted to carry it if they did (Interview with Josh Simon).
The water has been one of the company’s top products even though it was not the
brainchild of months of R & D but was rather developed quickly at the behest of Whole
Foods.




                                                                                         24
Internal Composition of the Industry

Options for Production Facilities

Specialty food manufacturers both own and lease their facilities. As one would expect,
the larger the operation, the more likely it is that the manufacturer owns his or her plant.
Within the ReferenceUSA list of food manufacturers (which as we have noted previously
has severe limitations), of those businesses that reported whether they own or lease their
building, 36 said they own and fifteen said they lease (ReferenceUSA). This contradicts
what we found in our interviews in which only three out of the eight firms we
interviewed own their space (Maria Elena’s, Caldwell, and Passport Food own their
facilities). Dandy Don’s Ice Cream leases its space and feels very comfortable doing it,
saying that: “If I were in the retail business I would want a long lease. In the retail
business your lease is the most important asset you have.” Apparently, since he is a
manufacturer, it is not as important to have that an ideal street location since he delivers
most of his product.

We have identified four types of production options used by small food manufacturers.
Manufacturers may purchase their own facility, they may lease a small space within a
larger commercial kitchen or a timeslot in a shared space, they may manufacture their
product in a cooperative kitchen or they may enter into a contract packing (co-packing)
agreement.


Co-packing

The San Diego-based owner of Sauce Goddess, a hot sauce and spice rub company, uses
a Southern California co-packer because it means she doesn’t have to deal with workers,
quality control, permitting or liability issues. She simply owns the rights to the “formula”
(recipe). She perfected her dad’s recipe for hot sauce and now pays a co-packer to do all
of the production and packaging work. The co-packer then gives her back the product to
distribute. Her co-packer is CA Creative Foods, which also co-packs a number of private
label products for Trader Joe’s.

In From Kitchen to Market Stephen Hall describes co-packers as “food processing
companies that either have excess packing capacity or are specifically devoted to packing
other people’s products. Their capabilities vary and some can only pack tinned (canned)
products, while others can only package dry, nonperishable products.” Co-packers
sometimes specialize in one of the following: liquid products, dry products, ingredient
pre-blends, labeling, packaging service only, and product development/recipe conversion.
This can be advantageous to a new producer because it can be overwhelming for new
producers to take all the necessary steps to get their product to market. The primary
advantage for a small manufacturer is “to achieve maximum utilization of physical and

                                                                                         25
financial resources—and save time” (Hall 2005). One downside to co-packers is that, for
some entrepreneurs, it is important to have a close connection to their product at every
step of the process, including overseeing the product’s production. Contracting with a
co-packer removes the business owner from crucial parts of the production process and
some manufacturers, especially of specialty products, may not want to be that detached
from their products.

Hall emphasizes the importance of assuring the integrity of co-packers: “Beware of true
versus fake co-packing where your label ends up on their salsa.” Several of the artisanal
food producers expressed this concern as well. Function Drinks switched from a co-
packing firm in Los Angeles to Sacramento and hinted at concerns with “quality control.”
The co-packing firm they currently use does only beverages, where the other co-packing
firm did a lot of sauces, making all the equipment occasionally smell like garlic
(Interview with Josh Simon 10/24/10).

All of the three sauce companies we spoke to have co-packing agreements. That’sanice,
a company that produces Italian style tomato sauces and olive tapenades, has been in
business for 10 years, and uses a co-packer in Huntington Park called Specialty Co-pack.
San Angel Mole also uses a co-packer in Huntington Park. Both of these companies are
part of the Fine Food Groups, which appears to be a small artisanal foods trade
association.

Besides the hot sauce, Sauce Goddess also produces a spice rub, which is done through a
co-packer in Missouri. She reported having difficulties getting some of her ingredients,
such as whole cardamom pods, but is looking into a spice co-packing arrangement in
Ventura. Currently, she receives her spice rub from Missouri, and then has another
company label them, which refers to putting the spice mix into small tins and putting
stickers on the tins. She said that this labeling is done in Southern California through a
program that gives jobs to people with developmental disabilities.


Cooperative Commercial Kitchen

Larrian Gillespie of Jammies (with specialties such as bacon jam) uses a cooperative
kitchen with a food and dairy licenses, which she told us are few in Southern California.
Through cooperative kitchens, producers organize a time schedule to share the space
amongst themselves, and pay an hourly rent. RAWk and Roll produces their product out
of Chef’s Kitchens near Culver City. According to a Los Angeles Times article, Chef’s
Kitchens is an incubator kitchen, whose space consists of five kitchens open 24-7 for 40
or 50 businesses that operate there. “Rents at the 25-year-old facility -- a stucco building
whose front door leads to a narrow hall, with two kitchens to the left and three to the right
-- run from $16 to $25 an hour, depending on how much time one needs.”

The same article notes the benefits of this facility include the kitchen’s availability, its
large selection of equipment and that it already has proper licenses: “Building [a
commercial kitchen] can cost tens of thousands of dollars; rental kitchens are scarce.”

                                                                                               26
Because food produced out of most home kitchens is illegal to sell to the public, and
because of the expense of building or buying a commercial kitchen and the scarcity of
rental space, cooperative kitchens such as Chef’s Kitchen serve an important function in
specialty foods manufacture.


Leasing Space from a Commercial Kitchen

Another alternative for small specialty food manufacturers is to lease space from an
existing commercial kitchen. Under this arrangement the specialty food manufacturer is
not the primary user of the kitchen facility, but rather comes in after-hours and uses the
kitchen space when the primary business is closed. For the small manufacturer, this has a
few advantages: 1) less capital is needed to buy kitchen equipment (although specialized
equipment specific to the unique product may need to be purchased); 2) licensing is
largely taken care of (the commercial kitchen operators deal with the health department
and ensures that standards are met, although the subtenant must still ensure that one
licensed individual is present every time the product is made); and 3) less liability
insurance is needed since the leaser will need to carry its own insurance which will
extend to the renter’s activities. It appears that entrepreneurs find out about these spaces
largely through informal networks: word of mouth, driving around and talking with
proprietors whose facilities might work, and looking on craigslist.

Many of the vendors at Artisanal L.A. lease space form a commercial kitchen. P.o.p.
candy leases space from a commercial kitchen facility in Culver City that is used as a
bakery during the day while (Interview 10/24/10). P.o.p.’s co-owner, Rachel, told us that
three other similar small-scale food businesses lease out space at that same kitchen.
Welsh Cakes also leases space from another upstart food manufacturer who had excess
capacity due to her product’s poor performance on the market. The commercial kitchen’s
proprietor is leasing Welsh Cakes the space for free in exchange for technical assistance
services from Welsh Cakes (Interview 10/24/10). Beachy Cream, makers of specialty ice
cream sandwiches such as the Key Lime Cowabunga (key lime ice cream between two
coconut cookies) and Ginger Wipe Out (candied ginger ice cream between two molasses
spice cookies), also started making their product in a friend’s restaurant’s kitchen but
soon outgrew the space. They now lease their own space dedicated exclusively to their
product (see section below).


Leasing/Owning Your Own Commercial Kitchen/Manufacturing Plant

The final method of production is what we traditionally think of when we think of food
manufacturing: owning or leasing your own commercial kitchen. This method is more
costly since the manufacturers must buy their own equipment, meet all licensing
requirements, and take out full insurance policies. Because of these added expenses,
specialty food manufacturers in this category tend to have larger operations and a proven
track record in product sales. One such firm we talked with, Maria Elena’s Authentic
Latino Inc., said it chose to operate his own facility to have more freedom over the profit

                                                                                         27
and because he already had been successful in selling specialty popcorn on a smaller
scale. He invested heavily in developing a mix to make horchata, a rice-based beverage,
and got it certified as organic and distributed beyond Southern California. The volume of
his sales necessitate that he have his own facility or partner with a co-packer (where he
would lose control over some aspects of his product) (Interview 10/24/10).

A variation on this own-your-own model is manufacturers who lease a portion of a
commercial kitchen but have space that is entirely dedicated to their product (and so they
own most of their equipment and their operations take place in separate rooms from the
other facilities). This may appeal to smaller manufacturers who have fairly high
volumes, need specialized equipment but still cannot sustain an entire facility on their
own.

Plush Puffs Gourmet Marshmallows, a specialty marshmallow maker, is one such
manufacturer. The owner Ann, spoke of the difficulties in securing a location where they
could manufacture during business owners, in their own space but not need to rent an
entire building. She said she drove around L.A. for hours looking for a plant to produce at
and eventually stumbled upon a Masa manufacturer who suggested that she contact
Sunridge Farms, a nearby manufacturer who may have space to lease. This lead turned
out to be fruitful, and they have been manufacturing Plush Puffs at the facility since then.
Plush Puffs has their own kitchen within the facility and does not need to work around




the facility’s schedule.
Figure 1: Plush Puff's New Kitchen in 2009

Beachy Cream similarly leases a space with another manufacturer. This allows them to
arrange their kitchen in a manner suited for their particularly product and keep large
specialty machinery, such as batch freezers (large ice cream makers) and extensive
freezer storage (Interview 10/24/10).




                                                                                         28
Plant Layout at Follow Your Heart




Key Production Processes and Equipment




Site Requirements

There is great variety in the production process of specialty foods and site requirements
largely depend on which production process a firm uses. For example, some foods may
be produced in a more fordist way for mass consumption. Equipment depends on the
specificities of each product: examples of typical equipment includes large freezers,
shakers, conveyor belts, washing bins, blanching machine, 100 horsepower boiler, cold
water wash pool, 600 horsepower ammonia compressor, totes that hold 1,400 tons,
trucks.

Packaging machines are often bought in the U.S., but specialized production machines
are often bought from abroad. Caldwell’s and Passport Foods import some of their
equipment from Japan. Passport’s pasta making machinery is imported from Italy and
Germany. Vice President of Operations, Steve Chang, told us the story of language

                                                                                        29
barriers on the production line when they flew over a Japanese engineer to install their
noodle line. Someone translated into English for Chang’s wife who translated into
Chinese for a local engineer and then someone else translated into Spanish for the line
workers who had to learn how to use the machine.

Equipment represents significant investment for food manufacturers. The noodle line at
Passport Foods, imported from Japan, cost one million dollars, with a replacement blade
worth $23,000. Expensive machinery is a barrier to entry for many would-be
manufacturers. (See Financial Pressures section for more on machinery investment).

Start-up Costs and Site Requirements

A first time specialty food producer needs an investment of $40,000-$100,000 per year
for the first three years, according to Stephen Hall, author of From Kitchens to Markets.
One piece of advice from Hall, “based on 25 years of gourmet food sales and marketing
experience: you must have an independent source of income to successfully start your
own gourmet food marketing business! You should have sufficient capital available to
cover all your costs for the first three to five years...including all normal living expenses.”

To minimize costs, many specialty food manufacturers start by using their own kitchens
until product requirements outstrip the kitchen’s capacity. At Artisanal L.A., we met
several new producers manufacturing from their kitchens (although, technically, these
goods cannot be sold at events open to the public, i.e. no admission fee required).
Similarly, specialty food manufacturers may use existing office space in their homes, and
rely on the part-time work of friends to help with administrative work.

Joe and Denise, owners of Welsh Cakes, were able to start their business with only an
$8,000-$9,000 initial investment, most of which was in machinery. They had some of
their machinery custom made, and Joe’s advice to new food manufacturers was: You
should get your process right before you invest in machinery and make sure the maker of
the machine can show you how his machine makes your product. Most people buy used
machinery because so many businesses go under so there is a lot out there, but you can
spend a lot of money in trial and error. $8,000-$9,000 sounds like a lot when Joe’s
primary machinery, according to him, is two small griddles. It took them three months to
decide that that was the most efficient equipment because one person can use both at
once and produce dozens of griddle cakes every two and a half minutes (Interview
10/24/10).

A cheesemaker suggested to us that if someone was incredibly innovative and nimble,
they could probably start manufacturing cheese in most states with $20,000-$40,000.
However, she noted that the requirements vary greatly from state to state. “Some states
allow you to transport milk in home coolers with ice, and others require that raw milk be
transported in a milk tanker, which means you would have to process a minimum of 2500
gallons at once” (Interview 10/20/10).

According to the same cheesemaker, the site requirements for cheese manufacturing are

                                                                                            30
the same as for other environments that process food, such as restaurants. Regulations
define floor and wall covering, proper sinks, drainage and septic systems as well as
control of access (doors may not be connected with a personal living space in many
places). For cheese, the requirements depend on what kind of cheese you are making
(fresh, aged, pasteurized, raw, blue, mozzerella, etc.). “If I were trying to open shop, I'd
do an aged raw milk because then I could get away without a pasteurizer, which run
about $20k for a new 20 gallon one!” (Interview 10/20/10).

Rachel Flores of p.o.p Candy Butter Crunch Treats started renting space in a commercial
kitchen in Venice, but there was no air conditioning, which didn’t work for her product.
Her candies have to dry, and air conditioning is a must. The original space didn’t have
storage either, which was another key reason for moving (10/24/10). This seems to be a
recurring theme with artisanal manufacturers who are renting space in commercial
kitchens: if the kitchen does not provide adequate and ample storage space for the goods
being produced, their production is severely limited (i.e. an ice cream manufacturer needs
multiple freezers dedicated for its use and the brittle company needs climate-controlled
drying space).

FIBR directed our attention to “South California Plan Check,” a document defining the
rules regulating food processing facilities which the trade association makes available to
its members. Of FIBR members, different companies have different needs. Some need a
refrigerated work area, a little warehouse and some office space while others need
freezers and break rooms.


New Technologies

Technological variation in food manufacturing is going to vary widely as well given the
variety of foods produced. New technologies take the form of innovations in packaging,
as well as changes in processing.


Research and Development and Product Design

Many mid-size food manufacturers have an R&D room at the factory. Both Passport
Foods and Follow Your Heart have such rooms, with smaller versions of their equipment
so that they can do very small runs. Franklin, who gave us a tour of Follow Your Heart,
noted that those in charge of R&D are always passing around new things to sample. A
lot of experiments also happen outside the factory and in someone’s kitchen. Starlite’s
motto reads: “our product ideas are born in the lunchroom, not in the boardroom.” The
general manager of Caldwell’s gave us an example of learning an alternative way to
prepare one of their own noodle mixes when dining at a friend’s house.

Product design in specialty food tends to focus on these broad areas:



                                                                                           31
Healthy and Convenient

As previously noted, the market for food products in the U.S. is mature, making it
difficult for firms to increase earnings through price. But specialty foods represent an
avenue for growth. Natural and organic convenience products are performing strongly,
with packaged produce and yogurt items among the top growth performers (Wellman
2003).

Some R&D efforts and innovations in product design attempt to address the consumer
demand for healthy foods requiring little or no preparation and that can be taken along to
fit busy lifestyles (Progressive Grocer, January 2006). David Neuman, Vice President of
Sales and Marketing for Nature’s Path Foods Inc. observed in an interview “All the major
natural foods stores have had to double and in some cases quadruple their frozen doors
just to keep up with the growth” (Riell 2003).

Product design innovations developed to meet this demand include bagged salads and
refrigerated meal starters. Others include kid-oriented yogurts that are spoonable, in
tubes or drinkable (Wellman 2003).

In response to the demand for healthy and convenient foods, manufacturers of organic
innovated through product design and packaging as well. For example, Natural foods
brand Pacific Foods began to package soup in an 8 ounce package noting how consumers
used broth – “it was a cup here and a cup there.” (Nutrition Business Journal, March
2006). To drive the somewhat flat conventional soup category, Campbell’s innovated
aggressively with product formats in recent years. It expanded its soup products into
microwaveable bowls and “shippable” cups. (Nutrition Business Journal, March 2006).


Appealing to Customers Based on Age

Specialty Foods manufacturers are also changing their products in response to the desires
of the baby boomer generation. “Boomers are already driving and will continue to
influence key areas of the specific specialty food arena: Health foods, natural/organics,
gourmet, ethnic and convenience foods” (Moran 2006).

Todd Hale, Senior Vice President of Consumer and Shopper Insights at ACNielsen noted
in an interview, “Historically, those people 55 and over have been ignored from an
advertising perspective or investment perspective. That will have to change as marketers
will be spending advertising dollars against Boomers as they age…Many marketers are
doing better in the food world by showing off fortified foods, such as products that
contain calcium” (Moran 2006).

Retailers can build sales by promoting whole and unprocessed ingredients, shorter
ingredient lists and ingredients they (Boomers) can understand. They can also provide
positive and straightforward health and wellness messages to attract and retain these
consumers (Moran 2006). Thus, product and design innovations in specialty food

                                                                                         32
manufacturing geared towards Boomers will reflect changes in products themselves to
address a desire for “functional” foods, as well as changes in packaging to communicate
the right message to Boomers.




                                                                                     33
Supply Chain, Inputs and Outputs

Supply Chain

The following diagram is an example of a typical supply chain.




There are three groups of suppliers to foods manufacturers: agricultural suppliers of raw
materials such as vegetables and grains, other food manufacturers such as millers and oil
refiners, and suppliers of packaging materials and machinery. When the product is
complete, it is channeled through distributors, wholesalers and brokers to arrive at
customers, which include public institutions, restaurants, grocery stores and other food
manufacturers.


Commodity Chains

The commodity chain in specialty food manufacturing involves the “agents and
institutions responsible for the production, processing, distribution, access and
consumption and food disposal” (Donald, 2008, 1253).

The links in the commodity chain may be described in the following way:

Food processing consists of all processes of value-adding; transforming
food into food products.

Food distribution includes transporting, storing, and marketing food products to

                                                                                       34
consumers

Food wholesalers distribute products from producers to retail, commercial,
manufacturing, and other establishments. Food wholesalers serve a critical function in the
food system, by connecting farmers to markets and allowing for efficient distribution of
food among many end users. Wholesalers are required in scaling food systems; that is,
increasing potential markets for local foods and serving the varied needs of food users
and consumers. (Oakland Food Systems Assessment. Mayor’s Office of Sustainability. )

Indeed, Christina Taggart of Made Drinks helped us better understand the role and
importance of the distributor in the supply chain. At the Food Industry Business
Roundtable Dinner (FIBR) on October 13, 2010, she explained that as a sales
representative for Made (a natural beverages company), she sells to a distributor, which
then sells to a supermarket. By selling to a distributor instead of directly to a
supermarket, the company avoids transportation costs. The responsibility and costs of
keeping a ready inventory also shifts to the distributor. From her observations, the role of
distributors in “scaling” the food system is clear.

The agents in the links along the commodity chain can be one and the same company.
There has been a pattern of consolidation in the distribution network, where large
retailers and distributors are reformulating the rules of the game for small suppliers,
transforming traditional supply chains, making it more difficult for smaller players to
maintain their presence in the market or for new players to enter it (Donald 2008).

For example, as large retailers like Wal-Mart increasingly enter the market for organic
foods, they will likely place increasing pressure on smaller suppliers. As there are still
many smaller organic farmers who supply the bulk of the market, companies like Walt-
Mart will be at a distinct advantage in this market, as they command far more power than
their weaker suppliers (Datamonitor “Organic Food in the United States Industry Profile”
December 2009).
Suppliers

In addition to farmers, suppliers to specialty food manufacturers would include food
manufacturing machinery companies, other food manufacturers, paper and packaging
manufacturers, utility suppliers, waste management service providers and other related,
linked industries.

Next, we will look more deeply at the inputs and outputs of the specialty food sector.


Inputs

The major commodity category in food manufacturing at the national level is farm
commodities. However, there are some food manufacturers that remain sensitive to the
price of farm commodities, even though they are in the business of packaged food. To
adapt to fluctuations in crop prices, specialty food manufacturer SnoPac, which

                                                                                          35
manufactures frozen organic vegetables, grows its own farm commodities. In an
interview, General Manger Peter Gengler stated “We can stay in business because we
create our own market by growing, processing and packaging our own products and
being able to store them” (Killeen, 2000).

With farm commodities as the major input in food manufacturing, specialty food
manufacturers may also face shortages in the availability of inputs. Kevin Tisdale,
Director of Marketing for natural foods brand Pacific Foods, noted in a feature on the
increase in organic soup sales that Pacific Foods tries to launch products with 70%
organic ingredients, although the goal would be 95% if supply were available. He
predicted that organic ingredient supply shortages are likely to become a bigger
challenge. One of Pacific Brand’s responses to the supply crunch is to grow more of its
own ingredients at farms near its headquarters in Oregon. (Nutrition Business Journal,
March 2006). (See section on Financial Pressures for more details).

Food manufacturers must regularly face price fluctuations of inputs. In an interview with
Passport Foods, for example, they told us that they were hard hit by the sharp rise in
wheat prices. Food manufacturers cannot raise their prices overnight, so it takes them a
long time to pass them on to customers, often making them unprofitable for a period of
months or even years.


Outputs

The graph below provides a comparison of select specialty food manufacturing sub-
sectors regarding output. The data is for manufacturing at the national level.




                                    Yearr



Data Source: Bureau of Labor Statistics

                                                                                       36
       Geographic Level: National

Changes in output may be traced to numerous factors including crop yields, subsidies,
technological innovations, and weather. However, the graph does enable a comparison
of output in specialty food subsectors to food manufacturing as a whole and to other sub-
sectors.


Labor Productivity
The time series graph below of labor productivity, defined as output per hour, tracks
increases and decreases over a decade. The data below reflects fluctuations for some
specialty foods manufacturing sub-sectors at the national level.




                                       Yea


Data Source: Bureau of Labor Statistics                     Geographic Level: National

Increases in productivity may be related to technological improvements in the production
process though without verification that remains an assumption. The graph indicates that

                                                                                        37
some specialty food manufacturing sub-sectors are more labor intense than others.
Further, the graph enables comparisons of specialty foods manufacturing subsectors to
food manufacturing as a whole.


Capital Expenditures and Value Added

Capital Expenditures and Value Added for Select Specialty Food Subsectors
NAICS       NAICS Code NAICS Description                  Value added     Total capital
Code Digit                                                ($1,000)        expenditures
Level                                                                     (new and
                                                                          used)
                                                                          ($1,000)
5           31142           Fruit and vegetable           557,969         56,255
                            canning, pickling, and
                            drying
5            31151         Dairy product (except           782,112          63,544
                           frozen) manufacturing
5            31152         Ice cream and frozen            180,718          8,155
                           dessert manufacturing
4            3118          Bakeries and tortilla           1,491,626        55,981
                           manufacturing
5            31199         All other food                  354,100          93,908
                           manufacturing
Data Source: 2007 Economic Census                          Geographic Level: Los
Angeles County, CA

The more detailed the NAICS code digit level, the less information is available regarding
capital expenditures and value added within food manufacturing sub-sectors.
Unfortunately, it is easier to identify specialty food manufacturing sub-sectors at
increasingly detailed NAICS code levels. The table above includes specialty food
manufacturing sub-sectors for which data was available. Note, comparisons between
subsectors at the four and five digit level are invalid because they represent different
numbers of manufacturers.

Value added in food manufacturing varies with the product. The processing of
agribusiness commodities is a low-value added businesses. More value is added in food
manufacturing at the packaging and marketing level (Standard and Poor’s Food and Non-
alcoholic Beverages Industry Survey 2008).

Capital expenditures are described in the American Survey of Manufacturers as including
expenditures on buildings and other new structures, machinery and equipment, autos and
trucks, computers and data processing and all other machinery and equipment (American
Survey of Manufacturers 2008).


                                                                                        38
Taken together, labor productivity, output, value added and capital expenditures begin to
paint a picture of what is needed to turn a profit within each subsector. They also are an
initial indication of whether there may be high barriers to entry within a food
manufacturing sub-sector. Further, if an industry is labor, rather than capital intensive,
there may be certain advantages to being located in Los Angeles.




Shipments

The Economic Census of 2007 reported that the Food and Beverage manufacturing sector
made shipments totaling over $16 billon. This number, of course, has probably dropped
significantly over the past three years due to the economic recession; such an inference
can easily be made due to the aforementioned sharp decline in food industry employment,
which is a key indicator of business health.

When looking at shipments across subsectors, it appears that the animal processing and
slaughtering subsector accounts for the largest share of shipments. Because the beverage,
seafood, sugar & confectionery, and grain & oilseed subsectors’ shipment sales are not
reported, the following pie chart assumes that these four subsectors account for the
difference between the sum of the other subsectors’ shipments and the total reported food
manufacturing sector’s total value of shipments (Economic Census 2007).




                                                                                        39
                                                                   Fruit and vegetable
                                                                   preserving and
                                                                   specialty food               $1.75
                                                                   manufacturing                Billion
                                                                   Bakeries and tortilla        $2.4
                                                                   manufacturing                Billion
                                                                   Other food                   $2.6
                                                                   manufacturing                Billion
                                                                   Dairy product                $2.9
                                                                   manufacturing                Billion
                                                                   Animal slaughtering          $3.1
                                                                   and processing               Billion
                                                                   Beverage, Seafood,
                                                                   Sugar &
                                                                   Confectionery, and
                                                                   Grain & Oilseed              $3.25
                                                                   Milling                      Billion
                                                                                                $16.4
                                                                   Total:                       billion

Source: Economic Census 2007/ Prepared By: Shoshana Krieger

Interestingly, the subsectors’ shares of shipment value do not necessarily correlate with
either their share of value added to the food manufacturing sector, or their share of
employment.

Value Added, Shipment Value and Employment in Specialty Foods




Source: Economic Census 2007/ Prepared By: Shoshana Krieger


                                                                                           40
It is difficult to gauge the total shipments and the value added of NAICS subcategories
we have identified as possibly containing specialty food manufacturers. This is because
the Economic Census does not report these figures for half of the subcategories making
the possible specialty food sector’s share of value added or total shipments impossible to
gauge (Economic Census 2007).




                                                                                        41
Finances

Profitability


Basis of Profitability

Food manufacturing adds value to agricultural products or livestock. The basic formula
to establish profitability in food manufacturing includes ingredient cost, product price and
volume sold. According to Standard and Poor’s “Industry Surveys on Foods &
Nonalcoholic Beverages,” costs are based less on commodity prices and more on the
packaging and marketing, but our interviews reveal otherwise.

Given the maturity of the U.S. market in food and drinks, firms have little power over
price. Thus, food manufacturing profitability appears to be hinge largely on the quantity
sold, which is most strongly associated with marketing, packaging and branding.

Industry profitability was estimated to be 20% in 2010 by the IBIS as measured by the
profit ratio (value added minus labor costs divided by industry revenue), was estimated to
be 20.0% in 2010, a marginal decrease of 0.5% from the previous year. “Relatively high
value addition during the production process, favorable supply contracts with key food
manufacturers, reduced labor costs and lower per-unit costs allow industry players higher
gross margins and improved profitability.” This industry profitability was overestimated,
having not predicted any kind of recession, but the profitability ratio defined here will be
useful for our own future calculations.


How Profitable are Specialty Food Manufacturing Companies?

“The food business is pennies business,” June Lim of StarLite Cuisine told us. Because
consumers demand low product prices, unless you are running large quantities, making
the business profitable is challenging.

She bought her parents’ business and changed the product focus (from Chinese food to
vegan taquitos), and decided to stop doing her own manufacturing and instead produce
through a co-packer. Her goal was to make the business “simple, manageable, and
profitable.” It has been relatively simple and manageable, but it has not yet been
profitable. Her husband has continued to invest in her business to keep it running. His
recommendation to us: If you want a profitable career, “push papers.” The inspectors and
the consultants are the ones who make money in the food business, according to him. He
is a consultant and says he easily makes $3,000-4,000 on an easy project, whereas it takes
his wife months to make a $3,000 sale. He invested $80,000 in the business two years
ago and $50,000 last year.

                                                                                         42
Jerry Gonzalez of Maria Elena’s, which was launched just three years ago, also says that
his business is not yet profitable. He had an ambitious business plan, but has not yet been
able to achieve all of his goals. Because he had to take out many loans when he became
ill shortly before he launched Maria Elena’s, Gonzalez didn’t want to take out any more
loans for the business. He has an investor who he met through weekly meetings at the
local Small Business Development Corporation, and this investor’s continued support is
what allows him to continue to operate even though Maria Elena’s is still operating at a
loss.

Based on these interviews, it seems it can take new food manufacturing businesses quite
a while to become profitable. A major barrier to entry is developing the relationships
necessary to get into stores or other food establishments Brokers, which used to be free,
now charge a set fee on top of commissions, and it is, therefore, now necessary for many
manufacturers to devote significant resources to sales and direct outreach to customers.
Lim of StarLite discussed the relationship with food brokers that she described as her
“sales force.” She explained that traditionally brokers worked on commissions but that
their status has been elevated because so many new products have entered the market. As
a result, they are now able to request retainers to “work a line.” She said that in California
a broker can request a retainer of $500 to $1000 a month. Her policy is to retain a broker
for a maximum of six months and then switch over to compensation through commission.
(Interview 11/5/10.) Don Pedro’s Meats, for example, utilizes one quarter of its 20
employees to sales. Jerry, from Maria Elena’s, also stressed the importance of having a
dedicated salesperson.

Even if a manufacturer is successful in developing customer relationships, distribution
channels are likely to eat away at any profits. Lim from StarLite Foods noted that
distributors have increased in size and are now making more demands on small
manufacturers. As distributors consolidate, they are also likely to drop small
manufacturers in favor of larger ones, or not take smaller businesses on in the first place.
Gonzalez of Maria Elena’s, however, has decided to go with a larger distributor because
while the distributor will take the same cut in distributing the product, it will sell to retail
stores at lower prices, increasing overall sales volume.

Labor costs also eat away at profits. The minimum wage continues to rise, and the cost
of doing business in California, according to Lim, is increasing faster than a manufacturer
can increase her prices. In interviews, we were repeatedly told that labor costs are the
companies’ second highest expenditure, second only to raw materials costs (Interview
with Don Pedro’s meats, Interview with Caldwell Fresh Foods).

The companies that have been profitable tend to be older and more established. Steve
Chang of Passport Foods mentioned that his business has a healthy cash flow and is able
to provide health benefits, paid vacation and a starting salary of close to $10 an hour for
line workers. Passport Foods bought another company, Royal Angelus Macaroni that
employs sixty people, in February. Part of Passport Food’s success and increased
profitability, according to Chang and an L.A. Business Journal article, is due to its

                                                                                              43
evolution from an entirely family-operated company to a company whose board is
comprised of half non-family members and has a non-family member CEO (Interview
with Steve Chang; Lee 2010). The transition was not entirely smooth: “[t]he company
suffered two years of unprofitability” when the new non-family member CEO took over,
which happened to coincide with rapidly fluctuating wheat prices (Lee 2010). Thus, even
a company with solid corporate accounts (Cheesecake Factory, Applebees, Panda
Express), is at risk of becoming unprofitable due to market forces and business
reorganization. Passport Foods rode out the years of unprofitability and is now doing
better than ever, even adding a third overnight shift to meet demand.


Ownership/Subsidiaries

Nearly all food manufacturing firms are privately-held corporations or limited liability
companies. It is not surprising that companies incorporate or organize as LLCs since
these corporate forms limit personal liability. Only four companies of the 920 companies
identified as food manufacturers in ReferenceUSA are listed as publicly traded, including
Overhill Farms Inc. and Reynaldo’s Mexican Food Co. The small number of publicly
traded firms may be due to the large number of small firms in the industry and the
family-oriented nature of many of the businesses.

ReferenceUSA lists 16 subsidiaries:

Subsidiary                              Parent Company
Alta-Dena Certified Dairy LLC           Deans Food Co (Acquired in 1999)
America Fruit Processors                American Fruit & Flavors
Bossa Nova Beverage                     Bossausa.com
Breeder's Choice Pet Foods Inc          Breeder's Choice Pet Foods
Clougherty Packing                      Farmer John
Fleischmann's Vinegar Co Inc            Swander Pace Capital L.L.C (Acquired in
                                        2002)
Ingredients Unlimited Inc               Allied Blending & Ingredients
Mojave Foods Corp                       McCormick & Company
Mrs Cubbison's Foods Inc                Interstate Bakeries Corporation
La Mexicana Food Products               Crowers Marketing
Naked Juice Co                          Pepsico Inc (acquired 2007)
Nestle Beverage                         Nestl Beverage
Nutri Granulations                      Nutri Granulations
Orowheat                                Bimbo Bakeries
Scope Products Inc                      Scope Products
Swiss Dairy                             Ross Swiss Dairy, Dean Foods
Thrifty Ice Cream Mfg Co                Riteaid
Main Source: ReferenceUSA for Business 2010, with corrections made/gaps filled from
information on company webpages.



                                                                                      44
Sources of Capital and Reinvestment

Some start-up capital is clearly necessary, and most manufacturers we have spoken to
used their own money or family money to buy a business, while a few have solicited
private investors. Aside from start-up costs, manufactures have told us that they often
must seek out capital to help meet payroll when distributors are slow to pay them for
products but employees still need to be paid. Bank loans and investor funds have helped
manufacturers close this gap.

Andres Jaramillo bought Don Pedro’s Meats with his personal savings as well as loans
from friends and families. Due to the thirty plus days that it takes for distributors to pay
him, he sometimes depends on family to make loans to cover payroll or he takes out
short-term bank loans to cover the expenses. He recently maxed out a line of credit at a
bank due to concerns that the bank would decrease the credit line due to the larger
national economic crisis; he didn’t want to be caught in a situation where he needed
capital and the credit markets were tight.

Owner of Dandy Don’s ice cream, Don Whittemore, established the business in 1981
with money from his and his wife’s family. He also sometimes takes loans to make
payroll.

The owner of The Welsh Baker used his severance pay to fund the business. He warns
new food manufacturers against taking out big loans and making heavy investments,
because it is such a difficult business. With around $9,000 he has been able to get their
business up and running.

Because of difficulties sin accessing capital and small profit margins, most of the firms
we talked to must reinvest profits into their companies in order to be able to grow. The
owner of Welsh Cakes told us that any profits they make go directly back into the
business. Similarly Steve Chang of the much larger Passport Foods, noted that over the
years the company had acquired three neighboring parcels to expand the Wing Hing
factory and just this past year decided to buy the Royal Angelus Macaroni Company to
further diversify its product line. Like Passport Foods, both Don Pedro’s Meats and
Caldwell Fresh Foods, told us that they had moved their plants to larger facilities in order
to accommodate their business’ growth. The companies, thus, made the decision to
expand operations at the expense distributing profits.


Financial Pressures

Financial pressures in the industry come primarily from fluctuations in input prices, food
safety regulations, and rising labor cost. First, the fluctuations of raw material prices can
put a tremendous amount of financial pressure on a food manufacturer. General Manager
Thomas of Caldwell’s mentioned how the price of onions can quadruple overnight.
When this happens, Caldwell Foods cannot raise their prices immediately and must
produce temporarily at a loss. Similarly, as mentioned earlier, the surge in wheat prices

                                                                                          45
in 2008 hurt Passport Food’s business. The price of wheat, which had been stable for
many years, shot up in 2008 due to speculation and crop failure. It took Passport Foods
about six months before they could pass on the prices to consumers, which meant they
were running the company at a loss for quite a while. In addition, Jackie Robles of La
Reina, Inc., a tortilla manufacturer, stated that she was unable to afford the time to grant
an interview because “we’ve been very busy looking at price increases across the board due to
commodity market instability” (E-mail correspondence 11/1/2010).

Food manufacturers also face significant financial pressures from regulations. One issue
is that a food-safety violation fines do not vary based upon the size or revenue of a
company, thus, becoming a heavy burden for a small manufacturer. A small farmer with
a small organic chicken and egg facility noted that she would be fined the same for a
violation as Tyson. Tyson would pay the fine with no problem, sometimes with such
ease that it is easier to pay the fine than fix the problem, whereas for her, the fine would
constitute a major financial challenge.

StarLite Foods and Passport Foods both mentioned the difficulties in working with the
various levels of government officials. StarLite said officials don’t understand how much
money inspectors are requiring people to spend when they try to enforce code; asking a
manufacturer to move the sink, for example, is asking her to make a huge investment in
plumbing that you may not have the capacity to make. Many food manufacturers we
have interviewed have mentioned the often contradictory instructions of various city,
county, state, and federal officials.

For example, Passport Foods told us of problems it had with fire inspection, where
County, City and local fire inspectors all inspect it. One inspector told Passport that there
was no need to fix a fire door because he has a full sprinkler system. The next said he did
have to fix it, which he did, costing him around $2,000. The original inspector returned
and said, “Why did you fix that? I told you it wasn’t necessary.” Passport Vice President
Chang told a similar story in dealing with building permits. His wife ended up in tears
because they spent $10,000 on something the permit agency required, and when they
took in the plans, the same agency refused to approve it, saying that they needed to do
things totally differently. When Chang’s wife explained that one of the permit agency’s
own officials had required the changes they had made, the response was that that official
wasn’t in and they were going to have to change it regardless.

Rising labor costs also put pressure on the industry. The relatively high minimum wage
makes labor more expensive in California then elsewhere, and several interviews have
revealed this as a financial pressure. Distributors’ consolidation sometimes creates a
financial burden. Illegal practices imposed by grocery stores such as slotting fees also
pose an extreme financial hardship on small businesses. Grocers charge illegal “slotting
fees” in exchange for shelf space. They may ask for cash or they may ask for weeks
worth of free product. “Category captains” give large companies power over the display,
which also hurts small manufacturers. For example, a grocery store may allow a Frito
Lay employee to stock the chip shelf. That employee will favor Frito lay products and
practically hide the chips produced by a small business.


                                                                                           46
June Lim of StarLite mentioned the challenge of exporting when currency value changes.
As the U.S. dollar dropped relative to the Canadian dollar, her product became extremely
expensive in Canada, and demand went down, costing her sales.

Because labor unions are not particularly active in food manufacturing in L.A. County,
they do not constitute financial pressure for most businesses. However, Caldwell’s and
Passport Foods are both union, and may be compelled to pay higher wages (they pay
higher than other manufacturers interviewed) due to the unions. (See more on unions
below).




                                                                                     47
Markets and Customers

Accessing Markets

In From Kitchen to Market, written to assist new specialty food manufacturers, Stephen
Hall identifies a number of important potential markets in this order: 1) Health food
stores (10 billion dollars in annual sales); 2) Gift Trade (gift-type stores are around
70,000); 3) Military families (a potentially lucrative market to access with the right
contacts); and 4) Ethnic foods. In the U.S. Hall identifies 23,000 retailers that can handle
goods not needing refrigeration, 15,000 that can stock refrigerated items, and 74,000 that
can stock gift items.

He ranks New York as #1 and Los Angeles as #2 as top markets for specialty foods in the
U.S.


Marketing

Access to markets, according to Stephen Hall, is about excellent marketing. After a
specialty food manufacturer has prepared, packaged, priced a product, developed
partnerships with her suppliers, and identified the niche, her focus should be on
promoting the product. Hall advises that manufacturers focus on the consumer not the
distributor of retailer; ensure that their product is distinct and unique; provides “tasting
opportunities as often as possible;” “employ proven advertising methods; and establish
distribution channels that meet market and consumer demands.

Trade shows, for Hall, are a key way of accessing the market because they allow food
producers to “meet customers, learn about competition, experiment with product
ingredients, evaluate product packaging, test product pricing, rate various promotion
techniques, identify important trends, solicit customer reaction, and make sales” (Hall,
2005, p. 100).

At Artisanal L.A., one such trade show, it was clear that people put a lot of energy into
marketing, from fancy labeling and packaging to colorful materials with product
information and history to friendly, knowledgeable producers happy to chat and hand out
samples. Some food manufacturers even appeared in costume. The Welsh Cakes couple
was dressed in Welsh national costumes and the Beachy Cream had a glamorous, old-
fashioned ice cream server. Every manufacturer had ample samples available and while
products were available for purchase, the focus was on consumer enjoyment of the
samples and not closing a sale.

Within the specialty market, some producers have narrowed their niche markets. Ardie
Hood of Butterfly Brittle told us that she primarily accesses her markets through wine

                                                                                               48
fairs by advertising her product as an accompaniment to wine. She, in fact, expressed to
us that Artisanal L.A. was not “gourmet enough” for her product since she markets her
product to very high-end consumers (Interview 10/24/10).


Internet

Hall dedicates an entire chapter to the use of the internet in accessing consumers. All of
the food manufacturers we spoke with at Artisanal L.A. rely heavily on the internet to
make sales. Welsh Cakes specifically told us that next-day online orders dictate whether
they work or not the next day and how many Welsh cakes they prepare. Outside of
online orders, they prepare their product for fairs and for Monday morning delivery at
several supermarkets.

We were interested to note, especially considering From Kitchen to Market’s emphasis
on internet sales, that many of the specialty food manufacturing companies in L.A.
County listed on ReferenceUSA do not have webpages. Of course, the data on
ReferenceUSA is prone to error with many of the companies listed as a “manufacturer”
not actually manufacturing but rather importing or distributing and many of the
manufacturers selling at Artisan L.A. not appearing on the list.


Making it to the Supermarket

Raj Patel in Stuffed and Starved calls supermarkets “the highest temple of the modern
food system.” He describes the supermarket chain as “an empire of logistics, one that
governs and regulates the smaller fiefdoms within the food industry, such as the
commission agent’s rule over the grower, or the distributor’s clutch on the agent.
Through its decisions and through its close supervision of each step in a product chain,
supermarket buying desks can fire the poorest farm workers in South Africa, flip the fates
of coffee growers in Guatemala or tweak the output of paddy terraces in Thailand.”

Because of supermarkets’ dominance, many food manufacturers that want to increase
their sales aim to access the supermarket market. Welsh Cakes had a sheet at the fair,
asking visitors to their stand to check the retail outlets they shop at. Selling at Trader Joes
and Whole Foods is one of the major goals of Welsh Cakes. They did mention, however,
that the few grocery stores they currently sell in don’t make them much money. That’s
because the grocery stores they work with only compensate Welsh Cakes for the cakes
sold, and any leftover product not sold, Welsh Cakes simply eats the cost of. Welsh
Cakes continues to sell in this small grocery chain, though, because it gives their product
exposure to a larger consumer audience than would be possible with direct retail sales.
This exposure, they say, is necessary to create the market demand necessary for their
continued expansion and in the long term, they hope, will give them more leverage in
negotiating with larger grocery chains.

Welsh Cakes does their own distributing but there are a number of options available to

                                                                                            49
food manufacturers to access grocery stores. Many combine a variety of distribution
channels. Distributors (also called, according to Hall, “store-door distributors, full-
service distributors, jobbers and wholesalers”) may sell directly to the supermarket. The
distributor buys the producer’s product and sells to retailers. Alternatively, a broker can
be the go-between to get a product into a supermarket. A broker can also sell to a
distributor who then sells to the supermarket. Both brokers and distributors may ask for
exclusive territory (Hall 2005).

A much larger company, Function Drinks, started out on a smaller-scale level more akin
to Welsh Cakes than Snapple: They began with renting out a little warehouse space and
using their own garages for storage. Now worth over $100 million dollars a year, the
company uses wholesale distributors and has recently signed a contract with a large
national distributor. Their product is now sold at CVS, Ralphs, Whole Foods and other
large chains. Function Foods has different companies working on nearly every aspect of
their product from an ingredient supplier to different companies that produce their
bottles, caps and labels.


Market for Specialty Foods is High in Los Angeles

Specialty Food Retail Stores are especially concentrated in Los Angeles Metropolitan
Area. In 2009, the location quotient for such stores (NAICS 4452) as compared to the
rest of the country is 1.34, lower than the New York Metropolitan Area (1.72) but higher
than the San Francisco-Oakland-Freemont MSA (1.32) and the Chicago-Naperville-Joliet
MSA (1.2) (BLS). Thus, it appears that L.A. has the second highest concentration of
specialty foods stores in the country indicating a large number of consumers who prefer
specialty food products.


Consumer, Intermediate or Producer Goods

The Specialty Foods subsector manufactures products that are ready to be sold to
consumers. Often times, Specialty Food firms sell their products to an intermediary, such
as a distributor, and not directly to consumers, but the products that they sell to the
intermediaries are the same products that will later be sold to consumers. The
distributors do not further process the products. In this way, Specialty Food firms can be
differentiated from many other firms in the food manufacturing sector that sell producer
and intermediate goods. Grain and oilseed millers, for example, sell a large percentage of
their products to other food manufacturing firms to be used as inputs for a final consumer
product.


Basis of Competition

As one might expect, Specialty Foods tend to compete in the food market primarily on

                                                                                         50
the basis of quality and product differentiation (sometimes related to quality). This varies
from typical food manufacturing, which competes on the basis of price in an already
mature market. In Supermarkets and Agri-food Supply Chains: Transformations in the
Production and Consumption of Foods, authors describe this trend. Food retailers, they
say, are increasingly competing on basis of freshness, quality and diversity of products in
addition to low cost (Burch, Lawrence 2007).

Goodman and Goodman, in their article “Alternative Food Networks” provide additional
insight. The article discusses the rapid growth of alternative food networks (basically our
definition of a specialty foods cluster). The authors argue that quality rather than price is
becoming the new basis of competition in food provisioning. Their study focuses on the
UK, but given that the U.S. has seen similar growth in the specialty foods market, their
argument likely applies to the U.S. as well. They link quality with differentiation: “the
turn to quality and the scope it provides for further product differentiation neatly
complements the competitive strategies of firms in the highly oligopolistic sector of food
retailing.” Goodman and Goodman also recognize that specialty foods are increasingly
subjected to “rigorous cost-price disciplines of supply chain management” by large
supermarket chains. That is, as these products increase in volume and mainstream, they
are forced to compete on the basis of price as well as quality and product differentiation.

It may be important to describe what we mean by “quality” when we say that specialty
foods compete on the basis of quality. The power to define quality rests largely with
relatively affluent consumers, influenced heavily by media campaigns, including
company advertising as well as high-profile health or environment related studies. As
Goodman and Goodman point out, the production moment in alternative food networks
dominates academic research, but the quality turn and growth of specialty foods can be
characterized as a demand-side shift when knowledge and perceptions change.

The authors discuss “moral geographies” and note that the current trends in specialty
foods (including organics, locally-produced, etc.), owe much to the marketing around the
way a product was produced. Consumer choices reflect concerns about both
environmental and personal health: fertilizers, pesticides used in production, chemical
preservatives and additives used in processing, and packaging and nonrenewable
resources used in shipping. Part of product differentiation as the basis of production
comes from this perception of quality—being able to label chocolate “fair trade” or
“organic” commands a higher price than conventional chocolate. Another part of product
differentiation is the introduction of new products to the market; açai and coconut water
derive their higher prices not so much from perceived production as from their perceived
newness or “exoticness”. Alternatively, quality may be constructed around the idea of
familiarity rather than exoticness. For ethnic, national or cultural foods whose increasing
popularity is associated with demographic changes, a perception of quality may come
from how similar a product is to what people are accustomed to consuming in their home
regions. As Stephen Hall mentions in From Kitchen to Market, “certain foods may be
considered commonplace in their country of origin, but considered a specialty item here.”

How producers understand the basis of competition for their particular product or set of

                                                                                          51
products will be something to explore in future interviews.


Stability


Macro-Economic Stability
Food manufacturing as a whole is a relatively stable market when compared to the larger
manufacturing sector. According to Freedonia, Food Industry 2010, the industry is “in
large part shielded from cyclical trends in the macroeconomy because food is a basic
necessity”. However, seasonal variation affects the market for and production of some
products.

Using employment as a proxy for the health of a sector, we see that over the last decade
employment in the manufacturing sector as a whole has dropped by 38 percent.
Meanwhile, the food and beverage manufacturing sectors saw a drop of 5 percent.
Moreover, within the subsectors that include specialty foods (Sugar and Confectionery
Products; Fruits, Vegetables and Specialty Canning; Bakeries and Tortilla Manufacturers;
Other Foods; and Beverages), employment dropped by one percent (QCEW).

These patterns held true during this past decade’s periods of economic decline: the 2001-
2002 economic downturn and the current recession. Between 2000 and 2001, overall
manufacturing saw an employment drop of 6 percent, while specialty foods and food
manufacturing as a whole actually saw a slight increase in employment. The current
recession has resulted in a greater loss of employment in the manufacturing sector than in
the food and specialty foods subsectors: from 2007 to 2009, a loss of 13 percent
compared to 4 percent and 5 percent respectively (QCEW). The most recent data also
confirms a lower job-loss rate in food manufacturing: The Bureau of Labor statistics
reports that from January 2007 to August 2010, all manufacturing saw a job loss of 18
percent while food manufacturing saw a loss of 11 percent (Current Economic Statistics,
BLS).

Thus, the food manufacturing sector as a whole, and specialty food manufacturing in
particular, appear to be relatively stable markets as compared to other manufacturing
sectors. However, as mentioned, seasonality is an important factor.


Seasonal Stability

Certain foods are more popular in certain seasons. The owner of Dandy Don’s ice cream
told us that his part-time workers work up to 30 hours a week and he employees more of
them between May and September. More people eat ice cream in the summer, he told us.
In the winter, Don’s company tries to do catering for parties that includes pies, cakes and
coffee as well as ice cream. Geronimo, ice cream maker at Dandy Don’s, also works at a
restaurant in the evenings, and increases his hours in the winter because “during the
winter it slows down.”

                                                                                        52
Follow Your Heart said that their salad dressing sales drop significantly in the winter, as
people tend to consume more salad during the summers. They now produce sour cream,
a food often consumed during the fall and winter, to make up for the loss of summer
sales.

Josh Simon of Function Beverages also talked about this phenomenon. In New York it
rained most days last summer, which according to Simon, killed the demand for his
company’s drinks.

Holidays are also important times for specialty foods manufacturers. From Halloween
through Three Kings Days, many manufacturers have bigger orders to fill. For chocolate
makers, Valentines Day and Easter are important holidays.

For manufacturers involved in processing fresh fruits and vegetables, such as freezing
and canning, they have a lot more work around peak harvest time.

There is, however, a constant demand for some products. Andres Jaramillo, owner of
Don Pedro’s meats, on the other hand, reported to having steady production throughout
the year, processing a total of 1.5 million pounds of meat per year.


Customers
Food manufacturers sell to a variety of buyers: grocery wholesalers, grocery retailers,
exporters, food service providers and other food manufacturers. As noted above,
specialty food manufacturers will likely sell a lesser amount to other food manufacturers
since their products tend to be consumer- ready.

Food Wholesalers and Retailers as Buyers

The market for specialty foods, like the market for food manufacturing products as a
whole, has seen increased consolidation over the last decade (Freedonia 2010: 6). This
consolidation was first seen in the larger, non-specialty food sector as large-scale
supercenters, like Costco and Wal-Mart, entered into the retail food sales market and
demanded large quantities of product at discounted prices. These buyers have established
distribution networks and demand a limited variety of products, necessitating that food
manufacturers deal directly with the superstores’ distributors if they wanted to tap into
that large market (Freedonia 2010).

While, at first, the market for specialty and ethnic foods was not affected by the entrance
of supercenters into the retail food business, since these stores did not often carry such
products, more recently the specialty food market has seen a similar consolidation with
the emergence of large chains such as Trader Joes and Whole Foods who cater to the
specialty food consumer (6).




                                                                                         53
Food Service Industry as Buyers

Currently, almost half of every dollar an American spends on food is spent on food
prepared outside the home (Freedonia, Food Industry 2010: 6).


Consumers as Buyers

Food retailers, of course, choose the products they place on their shelves, in large part, as
a result of consumer preference. Thus, an analysis of the market for specialty foods must
look at trends in consumer preferences even if consumers are not the direct buyers. We,
thus, will look at two trends in consumer preferences that will likely influence the
specialty food market.


Market Segmentation

The graphic below shows the market segmentation for the Other Foods subsector
nationwide.

Other Foods Market Segmentation




The high percentage of sales to other food manufacturers (37.1 percent) is due to this
subsector’s manufacturing of products such as yeast, baking powder, sweeteners,
processed eggs, and flavoring (Kopylovsky 2010: 15). IBIS World notes that the grocery
wholesaler segment is decreasing over time as new online technologies are enabling some
retail grocery chains to buy directly from manufacturers (16).

Looking at different subsectors, the Chocolate and Confectionery from Cacao Beans
subsector, we see a very different picture. In this subsector over half of the industry’s
buyers are confectionery wholesalers, a quarter other food manufacturers and a quarter
exporters (Sivasailam 2010: 18). However, if we look at this subsector’s larger sector,
Chocolate and Confectionery products, more generally, we see yet another picture: 77
percent of buyers are confectionery wholesalers. This points to a variation in market

                                                                                            54
segmentation depending on the specific food manufacturing subsector. A sampling of
market segmentations from subsectors that contain specialty foods follows.

Chocolate and Confectionery from Cacao Beans




Chocolate and Confectionery Production (not just from Cacao Beans)




Cookie, Cracker and Pasta Production




                                                                                     55
Canned Fruit and Vegetable Processing




Bread Production




Consumer Product Concerns


Health

The development and marketing of healthier products due to consumer demand has been
on the rise over the last few years and appears to be continuing to be a significant
consideration in the development of products. Food Business News reported that there
has been “extensive healthier product formulation” in the industry and noted the
reduction and elimination of transfats in over 10,000 products and the scaling back of
fats, sugar, and carbohydrates in many others (22). Trade magazines have also
emphasized Michelle Obama’s recent campaign against child obesity (22).

In the beverage subsector, manufacturers are encouraged to tout the functional benefits of
their products; Beverage Industry’s September issue had articles on both the antioxidant
effects of açai and the health benefits of coconut water (10). Beverage Industry also notes
that consumers have begun demanding healthier options for their children; the industry’s
traditional approach of “cartoon characters and princesses” has had to yield to other

                                                                                        56
advertising and labeling approaches which emphasize the nutrition of their products and
communicates to the parent rather than the child. “Demographics Pose Challenges for
Marketing.” “A Supplement to Beverage Industry: Innovation and New Product
Development” September 2010, p. 6.

Additional demographics are increasing the market for healthy, functional products.
Beverage Industry notes the emergence of products geared towards baby boomers, that
emphasize the functional qualities of the products through highlighting the vitamins and
minerals that will protect this segment form aging.

In the meat subsector, there has been an increased emphasis on proper sanitization
methods to combat the salmonella and e coli outbreaks that have made front-page news
and caused consumer trepidation. Such efforts include increased cleanliness procedures
and implementing new technologies such as irradiation and phaging, (Meat and Poultry
“Fighting Listeria” and “Phaging In.” Meat and Poultry. August 2010, p. 50.) (Read more
under government regulations/food safety).

Even the snack subsector has begun to embrace functional foods. For example, Snack
Food and Wholesale Bakery had a “Better for You Snack Profile” in which it highlighted
L.A.-based Corazonas tortilla chips which are lower-fat and trans-fat free (42).
Symphony IRI, a leading food manufacturing market research firm released a 2010 “State
of the Snack Industry Report” in which it showed “healthier snacks faring far better than
“indulgent” snacks (14)”. Additionally, in its donut overview the SFWHB highlights
sugar free finger cakes, gluten-free donuts, and organic raw and vegan desserts (16).


Natural, Organic Products

There has also been a trend towards producing more natural products and labeling
products as such. In prominent trade magazines, natural preservatives are being touted as
better alternatives to artificial ones due to customer leeriness (Food Business Journal, 38,
“More Time on the Shelf”).

“Natural drinks” are the rage. September’s Beverage Industry profiled coconut water
drinks in its “category focus” touting them as “natural alternatives.” “Coconut Water
Emerges as a Natural Alternative” September 2010, p. 24.

The candy industry has also recognized the importance of natural foods. Two articles
appeared in September’s Candy Industry promoting natural products: “A Natural
Progression” which discussed black licorice and all-natural and organic options and
“Label Me Natural” discussing ways in which candy manufactures could label their
products “natural” (40).

Even if manufacturers are not actually changing the products to become more natural,
they are attempting to re-label existing products as such. One example can be found in a
piece in Milling & Baking News entitled, “Corn Refiners seek Option to Call High-

                                                                                         57
Fructose Corn Syrup ‘Corn Sugar’” from Milling & Baking News, Sept 21, 2010. Here,
nothing is changing in the corn syrup product, but by labeling it “sugar” processors are
attempting to promote the product as a more natural syrup as opposed to the much
maligned corn syrup.

In its “Back to Nature” bread industry overview section, Snack Food and Wholesale
Bakery wrote of “breads becoming natural again” and ranked sales of new “natural”
products. It included Wonder’s new Smart White Bread as one of these new “natural”
products.




                                                                                       58
Trade

Trade Patterns in Food Manufacturing

Food Manufacturing has consistently accounted for around 4% of exports in the U.S. In
2009, it was a slightly higher proportion than in previous decades at 4.23%.

Food Manufacturing Exports as a Percent of Total Merchandise
          Total             Food             FM %
          Merchandise-      Manufacturin of Tot-
          Exports           g-               Merch
                            Exports
1990      392,975,793,84 14,858,040,07 3.78%
          6                 0
2000      781,917,667,28 25,327,342,84 3.24%
          5                 6
2009      1,056,042,963,0 44,679,369,42 4.23%
          28                7
Source: Foreign Trade Division, U.S. Census Bureau.




U.S. Top Trading Partners in Food Manufacturing

Trade patterns in Food Manufacturing resemble trade patterns for the U.S. as a whole in
terms of top trading countries. In 2009, the top trading partners for “All U.S.
Merchandise” were China, Canada, Mexico and Japan. In Food Manufacturing, the top
countries of export were similarly Canada, Mexico, Japan and China, and imports came
mainly from Canada, Mexico, China and Thailand. Japan, despite being a top importer
from the U.S. as a whole, is ranked #20 on the list of importers for Food Manufacturing.
In fact, after the top three importing and exporting countries, there is little overlap
between the top 20 countries in the “All Merchandise” and “Food Manufacturing.”

We also looked at available 4-digit NAICS data for “Fruits and Vegetable Preserves and
Specialty Foods” and “Bakery and Tortillas.” Mexico and Canada are top exporters and
top importers in both of these categories. Aside from these two countries, the list that
follows shows great variation not only from Total Merchandise, but also from Food
Manufacture as a whole. Aside from Mexico and Canada, the U.S. is importing Bakery
and Tortilla products primarily from Japan, South Korea, the UK, Australia, Saudi Arabia
and the United Arab Emirates. Most of these countries don’t even make the top twenty in
Food Manufacturing as a whole. Similarly, the primary import countries for “Fruits and
Vegetable Preserves and Specialty Foods” differ from Food Manufacturing and Bakery
and Tortillas, with imports coming mainly from China (which rates second after Canada
and above Mexico), Thailand, Brazil, Chile and Spain.


                                                                                      59
The top markets for U.S. food manufacturers also vary somewhat across subcategories
after Canada and Mexico. Japan, China and the UK are important markets for both
Bakery and Tortilla manufacturing and Fruits and Vegetable preserves, but the
Netherlands, South Korea and Hong Kong buy much more of the latter category while
Italy, Germany and France buy much more of the former.


NAFTA

Based on trade data from the Office of Trade and Industry Information the North
American Free Trade Agreement (NAFTA) appears to have had a significant impact on
trade in food manufacturing. Before 1995 when the treaty went into effect, Mexico and
Canada were already top trading partners. However, the value of U.S. exports to both
countries grew exponentially after NAFTA, aside from the dip in 1995 in Mexico due to
the peso crisis. The U.S. has also increased its imports from Canada at an increasing rate
since NAFTA went into effect. Though the U.S. has flooded Mexico with its exports, the
U.S. appears to have increased its consumption of Mexican food manufacturing products
at a slower rate. Still, the U.S. runs a trade deficit in Food Manufacturing as well as Total
Merchandise with both Canada and Mexico. Of the two food manufacturing subsectors
examined, the U.S. runs a trade surplus only in “Fruit and Vegetable Preserves and
Specialty Foods” with Canada ($624,813,511).

                                  U.S. Exports in Food Manufacture


          10,000,000,000

           8,000,000,000
                                                                                   Canada
           6,000,000,000                                                           Mexico
      $
                                                                                   Japan
           4,000,000,000
                                                                                   China
           2,000,000,000

                          0
                          1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
                                                        Year

  Source: Foreign Trade Division, U.S. Census Bureau. Prepared by Diana Denham




                                  U.S. Imports in Food Manufacture

      10,000,000,000

          8,000,000,000
                                                                                    Canada
          6,000,000,000                                                             Mexico
  $
                                                                                    China
          4,000,000,000
                                                                                    Thailand
          2,000,000,000

                     0
                     1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
                                                        Year

Source: Foreign Trade Division, U.S. Census Bureau. Prepared by Diana Denham


                                                                                               60
While NAFTA may have increased trade between Mexico and the U.S., it has also had
important implications for labor. In a special report prepared by the California Institute
for Rural Studies, researchers include the effects of NAFTA on West Coast fruit and
vegetable processing industries. They write: “NAFTA and other forces have squeezed
the industry on both sides, with California’s frozen vegetable processors being pressured
by Mexico while Canadian frozen potato imports impacted the Northwest’s processors.”
A section of the paper entitled “The Shift of the Frozen Vegetable Industry to Mexico”
also traces the origins of U.S. companies such as Green Giant (Pillsbury) and Birdseye
opening plants in Mexico prior to NAFTA.

California’s food processing may have been particularly hard hit by NAFTA, but some
research argues that not all industry has been, despite what one may presume. NAFTA
decreased tariffs and quotas for the majority—leaving smaller, disadvantaged industries
to suffer in many cases. However, a few powerful industries were able to maintain
protection. The sugar industry in the U.S. is one example. The retention of protectionist
sugar policies have led to the opportunity for confectionary manufacturers to relocate to
take advantage of cheaper sugar prices elsewhere.

NAFTA has resulted in an increase in immigration into the U.S. Many of those who have
emigrated from Mexico are former manufacturing workers who lost their jobs when
factories closed due to a flooding of the market with cheaper goods made in foreign
countries like China; over 600,000 manufacturing jobs were lost from 2000 to 2004 alone
(Uchitelle 2007). In 2007, a reporter noted that “[a]s relatively well-paying jobs
disappeared, Mexico’s average wage for production workers, already low, fell further
behind the average hourly pay of production workers in the United States, and Mexicans
responded by migrating” (Uchitelle ). Similarly, reduced tariffs drove many corn farmers
out of business as cheaper imported corn lowered the crop’s price so much that it was no
longer financially prudent to grow it. Immigration levels from Mexico rapidly rose from
NAFTA’s enactment in 1994 through the mid-2000s peaking in 2007 with a net
migration of over 547,000 Mexicans during that year (Uchitelle, Passel and Cohn 2009:
1). Since the recession, the net migration has decreased to just over 200,000 in 2008-
2009 (Passel and Cohn 2009: 1). However, the sharp increases in immigration before the
recession, has left a lasting impact on California with over 9 percent of California’s
workforce is now estimated to be undocumented workers (Passel and Cohn 2010: 9).


Proportion of Export-Related Jobs

United States

Nationally, the food and beverage manufacturing sectors have fewer export-related jobs
than the manufacturing supersector as a whole. It is estimated that in 2008, roughly 22
percent of all manufacturing jobs were related to exports. This is over three times higher
than the percentage of food and beverage manufacturing jobs related to exports (6.7
percent) (Exports from Manufacturing Establishments, U.S. Census Bureau). Thus, the

                                                                                        61
food and beverage manufacturing industry may be more domestic-focused than the
manufacturing industry as a whole.

However, within the food and beverage manufacturing sectors, it appears that the
percentage of jobs related to exports within the sectors is increasing. From 2002 to 2008,
export-related employment in the food and beverage manufacturing sectors rose from 4.7
percent of the sectors’ overall employment to 6.7 percent of the sectors’ overall
employment (Exports from Manufacturing Establishments, U.S. Census Bureau).




Source: U.S. Census Bureau, Exports from Manufacturing Establishments. Prepared By:
Shoshana Krieger

California

In 2008, roughly eight percent of food and beverage manufacturing jobs in California
were related to the exportation of goods (Exports from Manufacturing Establishments,
U.S. Census Bureau). This is slightly higher than the national average of 6.5 percent and
indicates that California food manufacturers engage in the exportation of their products at
slightly higher rates than food manufacturers in the rest of the country.

Table 3: Export Related Food and Beverage Manufacturing Employment, 2008
                             Total             Total Export       Percentage
                             Employment in     Related            Export Related
                             Sector            Employment         Employment
California                   194,600           15,300             7.9%
Rest of the U.S.             1,569,300         89,400             6.5%
  Source: U.S. Census Bureau: Exports from Manufacturing Establishments, 2008



                                                                                        62
Exporting Specialty Foods

In his new book, Sell your Specialty Food: Market, Distribute and Profit from your
Kitchen Creation, Stephen Hall includes a section on how small-scale specialty foods
producers should aim to get their product overseas. He also cites a recent guide to
commercial food production, which read, “The last thing you should consider…is the
potential for overseas marketing of your product,” and holds such advice as partially
responsible for the “miserable failure” of the U.S. in taking advantage of profitable food-
marketing opportunities overseas.

Hall suggests that the best way specialty foods producers can make their product known
is through trade shows. These kinds of trade shows (elaborated below) are often
sponsored by associations such as NASFT and governmental organizations such as the
National Association of State Departments of Agriculture (NASDA). Hall adds that now
may be a good time for specialty foods producers to look for overseas markets, as the
weak-dollar means that American-made products may be more competitive elsewhere.
He cites the U.S. Foreign Agriculture Service as another important resource for
promotional support and overseas market development services.

Hall also points out some of the many challenges for small-scale producers. Labeling in
multiple languages and learning to negotiate trade regulations are a few that he mentions.




                                                                                         63
Spatial Distribution, Cluster and the Locational Advantages of
L.A. County
Zoning

Of course, zoning regulations determine precisely where food manufacturing plants can
and cannot locate. About eight percent of land in the City of Los Angeles is zoned
industrial. However, some of the land zoned industrial is used for residences, as MR1
and MR2 areas zoned for manufacturing do not preclude residential uses. (Generalized
Summary of Zoning Regulations of the City of Los Angeles.) The city has also granted
variances allowing developers to build residential units on land zoned for industry. A
2007 CRA/L.A. and Department of City Planning report documents the pressure to
convert industrially zoned land to non-industrial uses including a mixed-use, residential,
big-box retail and schools. The report concludes by highlighting the important role that
the city’s industrial land plays in job creation.

Other cities in Los Angeles County are more attractive to manufacturers as they are
planned for industrial use, such as the cities of Vernon and Commerce.




                                                                                        64
Spatial Distribution




In looking at employment distribution geographically, we can see that the smaller firms
are fairly evenly distributed across the county, but that the largest firms (100+
employees) seem to concentrate along the alameda corridor.




                                                                                      65
Location Quotients

Los Angeles’s location quotients for food and beverage manufacturing as a whole show
less levels of employment concentration in the food manufacturing industry as compared
to the nation as a whole (LQ: .89). However, when we look at Specialty Food
Manufacturing (as defined above), the location quotient rises to 1.17. This is probably a
result of the L.A. County’s relatively low employment in food manufacturing processes
that occur in highly agricultural regions (e.g., meat slaughtering, grain milling).

When we examine our specialty food five-digit NAICS codes individually, we can see
that in some subcategories, L.A. has very high location quotients, and, thus, very high
concentrations of specialty food employment. Of the eleven categories for which data
was available, Tortilla Manufacturing has a particularly high location quotient at 4.13
while snack food manufacturing’s is very low at .42.




                                                                                          66
Spatial Concentrations of Related Industries

Mapping wholesalers, which are downstream in the commodity chain from specialty food
manufacturers, reveals that they are concentrated in industrially zoned land, east of
downtown Los Angeles. Map 3 shows CM (commercial) and M (industrially zoned) land
in Los Angeles. Map 4 shows the location of the major Grocery and Related Product
Merchant Wholesalers (NAICS 4244) in Los Angeles County. Mapped firms have
between 100 and 1,000 employees. There are about 2,000 firms that fall under this
industrial classification in Los Angeles County.




                                                                                  67
Concentration of Industrial Land in Los Angeles County




Source: “Los Angeles’ Industrial Land: Sustaining a Dynamic City Economy.”
Department of City Planning and the Community Redevelopment Agency of Los
Angeles. December 2007.


Wholesalers




Source:Map created using Google Maps. Data pulled from InfoUsa and cross checked
with U.S. Census County Business Patterns.




                                                                                   68
Clusters

Clusters Defined

Clusters are geographic concentrations of interconnected companies and institutions in a
particular field. Clusters encompass an array of linked industries, and other entities
important to competition. They include, for example, suppliers of specialized inputs,
such as components, machinery and services, and providers of specialized infrastructure.

Clusters also often extend downstream to channels and customers and laterally to
manufacturers of complementary products and to companies in industries related by
skills, technologies or common inputs. Finally, many clusters include governmental and
other institutions – such as universities, standards setting agencies, think tanks, vocational
training providers, and trade associations that provide specialized training, education,
information, research and technical support. A cluster’s boundaries are defined by the
linkages and complementarities across industries and institutions that are most important
to competition (Porter, 1998).


Related Sectors

Food processing, or “food manufacturing,” is an important link in the food system.
“[Food Processing] has one of the highest economic impacts of all types of
manufacturing activity and is strategically linked to other economic sectors, including
tourism, biotechnology, packaging, environment, resource recovery and
advertising.”(Oakland Food Systems Assessment. Mayor’s Office of Sustainability. )

Other super-sectors related to food manufacturing, upstream and downstream, include
agriculture (NAICS 41), wholesale trade (NAICS 42), retail trade (NAICS 44-45),
transportation and warehousing (NAICS 48-49), accommodation and food services
(NAICS 72) and professional, scientific and technological services (NAICS 54).

In addition, the Bureau of Economic Analysis Industry Economic Accounts Input-Output
Accounts Data for 2008 provides insight into other industries related to food
manufacturing.


Geographic/Historic Turning Points


Structural Changes in Manufacturing

Can the study of changing marketing and consumption patterns of a single commodity at
a particular moment - even a mundane commodity produced for everyday and routine
consumption - shed some light on a wider range of social and cultural shifts? – William

                                                                                           69
Rosenbery, “Yuppie Coffee and Class in the United States.”

William Roseberry, Professor of Anthropology at the New School for Social Research,
uses growth in consumer preference for specialty coffee as a microcosm of changes in
production and consumption in the latter half of the twentieth century. His analysis
serves as a useful lens through which to understand historic turning points in specialty
food manufacturing.

Positing food consumption and production against the background of increasing
globalization since the 1970’s, Roseberry cites David Harvey:

       The market place has always been an 'emporium of styles' . . . but the
       food market, just to take one example, now looks very different from what
       it was twenty years ago. Kenyan haricot beans, Californian celery and
       avocados, North African potatoes, Canadian apples, and Chilean grapes all
       sit side by side in a British supermarket. The whole world's cuisine is now
       assembled in one place. The general implication is that through the
       experience of everything from food, to culinary habits, music, television,
       entertainment, and cinema, it is now possible to experience the world's
       geography vicariously, as a simulacrum. (Roseberry, 1996).

Roseberry further observes that Harvey’s description of the innovations characteristic of
flexible accumulation apply to the specialty coffee industry - the identification of
specialized market niches and the production of goods for those niches as opposed to the
emphasis on mass-market standardized products, the downsizing of plants and production
processes; the shrinking of inventories so that producers purchase smaller quantities and
practice just-in-time production; the revolution in shipping and warehousing technologies
to cut shipping times; the reconfiguration of financial markets, and so on (Roseberry
1996). We can expand his application to specialty foods generally. He further observes
that the moves toward product diversification often came not from the established and
dominant corporations but from independents whose initiatives have undercut and
undermined the established practices and market share of those corporations. (Roseberry
1996). This is also reflected in specialty foods manufacturing generally.

Despite the seeming applicability of Rosenberry’s analysis to the specialty food industry
writ large, since the publication of the piece in 1996 large firms have entered the
specialty food market in both manufacturing and distribution. The ability of these firms to
change the dynamics of the commodity chain suggests that the nature of production in the
specialty food industry may be cyclical even in the face of larger structural changes in the
production process.


The Better Informed Consumer

Roseberry and Harvey offer an explanation of how structural changes have affected food
production and distribution, but the part of the story yet to be explained is that of changes

                                                                                           70
in consumer preferences. Growth in the specialty food industry is driven in part by
consumer interest in organic/natural and healthy/functional foods. This interest has been
facilitated by an increased awareness of food ingredients and manufacturing processes.
The advent of nutritional regulations has contributed to better informed consumers. In the
last twenty years, the following regulations are notable:

       1990 Nutrition Labeling and Education Act (NLEA) is passed. It requires
       all packaged foods to bear nutrition labeling and all health claims for
       foods to be consistent with terms defined by the Secretary of Health and
       Human Services. As a concession to food manufacturers, the FDA
       authorizes some health claims for foods. The food ingredient panel,
       serving sizes, and terms such as “low fat” and “light” are standardized.
       This is pretty much the nutrition label as we know it today.

       1991 Nutrition facts, basic per-serving nutritional information, are
       required on foods under the Nutrition Labeling and Education Act of
       1990. Food labels are to list the most important nutrients in an easy-to-
       follow format.

       1998 Transfair, the US Fair Trade organization is established, with a
       mission “to build a more equitable and sustainable model of international
       trade that benefits producers, consumers, industry and the earth”.

       2002 The National Organic Program (NOP) enacted. It restricts the use of
       the term “organic” to certified organic producers. Certification is handled
       by state, non-profit and private agencies that have been approved by the
       US Department of Agriculture (USDA).

       Source: Fooducate blog. http://www.fooducate.com/blog/2008/10/25/1862-2008-a-brief-history-of-
       food-and-nutrition-labeling/


The availability of nutritional information on labels has increased awareness among
consumers about food production processes and ingredients. In choosing food,
contemporary consumers express ecological consciousness, and concerns about health
and food safety. A recent study found that a concern with food quality and safety leads
consumers to differentiate food according to quality attributes. Organic foods, for
example, are perceived to be of better quality than non-organic counterparts. The
perception of quality adds value to the product and thus, consumers are willing to pay a
premium for it (Tsakiridou, Mattas, and Mplesta, 2009).


Changing Demographics

Though perhaps not a turning point, an important part of the explanation for a growing
interest in ethnic foods in the United States can be explained by a more connected world,
with both goods and people moving across borders in increasing numbers. It is also a
story of changing demographics in the U.S. With regard to California specifically, since
                                                                                                        71
the U.S. annexed it, there has been a strong Chicano presence. (Prior to that there was
simply a large Mexican population as it was, after all, part of Mexico.) However, before
the end of the Bracero program in the mid-1960s the migration flow of Mexicans in and
out of California was likely more circular. With the end of the program, there was growth
within Mexican communities as migrant farm workers settled all along the Southwestern
border states.

An interview with Mauro Robles, president of the La Reina tortilla manufacturing firm,
reflects the effects of a larger Mexican population in the U.S. on the manufacturing of
Mexican foods:
        Another reason for his company's growth, Robles says, was the growth of
        Mexican fast-food chains like Naugles, Del Taco and others that have
        provided a ready market for La Reina products. Robles says the growth of
        the Hispanic population of Los Angeles contributed to some extent to his
        success, but he says Hispanic population growth played a smaller role than
        other factors. For example, he says, the acceptance of Mexican food by
        Anglos and other ethnic groups, and the spread of Mexican restaurants to
        other parts of the country both contributed to the company's expansion.
        (Los Angeles Business Journal, December 19, 1988).

The Latino population has only continued to grow. Thirty years after the end of the
Bracero program, the passing of NAFTA in 1994 increased trade between signatories,
and also migration. The legislation had a large impact on labor markets, and forced many
Mexican farmers off their land by driving down prices for agricultural commodities.
Coupled with the Mexican peso crisis of 1995, more Mexicans than ever were crossing
the border in search of work. Central Americans also began migrating north in search of
work in Mexico, and further, into the U.S. Ironically, increased efforts of border
enforcement in the last decade have swelled the number of undocumented immigrants
that have settled in the U.S., as a pattern of circular migration has become more risky.

As the Latino population in the U.S. has grown, the demand for certain foods and flavors
has also grown. Of course, other immigrant communities in the U.S. have also
contributed to the interest and demand for world foods and flavors, but in terms of sheer
numbers, Latinos control market share. The exciting thing about the diversification of
foods and people that is so well represented in a city like Los Angeles is the fusion of
cultures, and in terms of food – flavors. As such, the marriage of specialty foods has
generated product innovation for more specialty foods.


Organic, Sustainable Agriculture Gains Traction in California in the Early 1970’s

California became a significant producer of agricultural products beginning around the
1860’s and more than 100 years later, geographically important for the organic/natural
foods movement. Alice Waters, activist and champion of organic, locally-sourced slow-
food, opened famed restaurant Chez Panisse in 1971, pioneering California Cuisine. A
few years later, the California Certified Organic Farmers association was formed in 1973.

                                                                                       72
Locational Advantages of Los Angeles

Location Theory Literature

According to much of the location theory literature, first-time business owners are likely
to open close to where they live. Underlying most location theory is the assumption that
firms seek to maximize profit, but Premus and Blair note that for many first-time
business-owners and some who are establishing branches, there is a willingness to
sacrifice some profits in order to be in a safe, comfortable, close-to-home, less risky, or
otherwise preferred location.


Specialty Food Manufacturers Reasons for Locating in L.A.

Los Angeles may be well-placed for food manufacturing. Located in the agricultural
heart of the country with a huge and diverse local market, transportation costs may be
minimized. Its distribution infrastructure, including the port and airport make it ideal for
export foods and importing raw materials. These were some of the reasons highlighted in
our interviews with specialty foods manufacturers.

At interviews with manufacturers at the trade fair Artisanal L.A., interviews with
members of the Food Industry Business Roundtable (FIBR) trade association and
interviews with several other small business owners, all said that they opened shop in
L.A. because they were from here and live here. This is the principal reason, but there
may be others as well.

We asked one cheesemaker, who previously was based in Rhode Island and has recently
relocated to California for family reasons, if she could locate her business anywhere in
the U.S., where would she go? She responded that she would go somewhere “with a
current or recent culture of agriculture because the Departments of Health and
Agriculture in such places are much more supportive and aware of how food is produced.
Vermont, Oregon, Wisconsin and Pennsylvania are examples of places where the state
would be very supportive. I would also like to be in a place where water is not an
extremely limited resource, because cheesemaking is water intensive.”

Another reason mentioned for locating in L.A. was the marketing advantages of L.A.
Josh Simon, the President and Co-Founder of Function Beverages identified three
attributes of L.A. that make it a favorable market to introduce (and manufacture) a
product. First, L.A.’s seasonality (or lack thereof) dampens season cyclical forces,
which, during winter months in harsher climates, lessens the sales of beverages; Simon
believes this extends to the specialty food market as well. Second, Simon believes that
L.A. specialty retailers are “friendlier” to business startups than in many other cities,
easing a new local product’s entry into the market. Third, Simon emphasized the
importance of the “celebrity factor” in L.A.; a photograph of a celebrity using your
product can go a long way to boost sales.

                                                                                            73
He tells the story of the early days of Function, when Paris Hilton was photographed in
People magazine carrying a Function beverage, retailers such as Whole Foods and Bristol
Farms began receiving customer calls inquiring as to whether they carried the product,
leading to those large retailers contacting Function to place orders. While Simon’s
discussion of L.A.’s locational advantages are heavily focused on the marketing and not
the manufacturing side off things, this marketing element is very important to a start-up
companies’ success and it is likely that the first market a manufacturers’ product will
enter will be the market closest to the manufacturing facility. In fact, while L.A.-based
Function now contracts its manufacturing to a firm up in Sacramento and is now
marketing nationally, when it started it was contracted to a firm in Riverside County and
it’s marketing efforts were exclusively focused in L.A. (Interview with Josh Simon,
10/24/10).

These local views were echoed by Jim Kibbani, president of the national trade association
of tortilla manufacturers TIA who listed three factors that determine location. The first is
history or legacy. ‘I live here and grew up here so I am going to have a factory here.’ The
second is the availability of skilled labor. And the third, which he said has really
switched places with the second recently, is proximity to markets because of increased
transportation and energy costs. Kibbani clarified that transportation has recently gone
up in cost because of high fuel costs, which has caused trucking companies to tack on a
fuel surcharge (Interview with Jim Kibbani, 10/20/10).

These manufacturers’ and trade association answers are fairly consistent with Natalie
Cohen’s research. The cheesemaker located in L.A. because for familial reasons but was
very concerned with regulations, Function Beverages focused on market advantages
which connect closely to transportation costs, and the tortilla industry representative
highlighted the importance of skilled labor.

At Artisanal L.A., the fair highlighted earlier in this paper, which featured regional
artisanal specialty foods producers, many food producers that we interviewed opened
shop in L.A. because they were from here and live here.

We asked one cheesemaker, who previously was based in Rhode Island and has recently
relocated to California for family reasons, if she could locate her business anywhere in
the U.S., where would she go? She responded that she would go somewhere “with a
current or recent culture of agriculture because the Departments of Health and
Agriculture in such places are much more supportive and aware of how food is produced.
Vermont, Oregon, Wisconsin and Pennsylvania are examples of places where the state
would be very supportive. I would also like to be in a place where water is not an
extremely limited resource, because cheesemaking is water intensive.”

Another reason mentioned for locating in L.A. was the marketing advantages of L.A.
Josh Simon, the President and Co-Founder of Function Beverages identified three
attributes of L.A. that make it a favorable market to introduce (and manufacture) a
product. First, L.A.’s seasonality (or lack thereof) dampens season cyclical forces,

                                                                                         74
which, during winter months in harsher climates, lessens the sales of beverages; Simon
believes this extends to the specialty food market as well. Second, Simon believes that
L.A. specialty retailers are “friendlier” to business startups than in many other cities,
easing a new local product’s entry into the market. Third, Simon emphasized the
importance of the “celebrity factor” in L.A.; a photograph of a celebrity using your
product can go a long way to boost sales. He tells the story of the early days of
Function, when Paris Hilton was photographed in People magazine carrying a Function
beverage, retailers such as Whole Foods and Bristol Farms began receiving customer
calls inquiring as to whether they carried the product, leading to those large retailers
contacting Function to place orders. While Simon’s discussion of L.A.’s locational
advantages are heavily focused on the marketing and not the manufacturing side off
things, this marketing element is very important to a start-up companies’ success and it is
likely that the first market a manufacturers’ product will enter will be the market closest
to the manufacturing facility. In fact, while L.A.-based Function now contracts its
manufacturing to a firm up in Sacramento and is now marketing nationally, when it
started it was contracted to a firm in Riverside County and it’s marketing efforts were
exclusively focused in L.A. (Interview with Josh Simon, 10/24/10).

These local views were echoed by Jim Kibbani, president of the national trade association
of tortilla manufacturers TIA who listed three factors that determine location. The first is
history or legacy. ‘I live here and grew up here so I am going to have a factory here.’ The
second is the availability of skilled labor. And the third, which he said has really
switched places with the second recently, is proximity to markets because of increased
transportation and energy costs. Kibbani clarified that transportation has recently gone
up in cost because of high fuel costs, which has caused trucking companies to tack on a
fuel surcharge (Interview with Jim Kibbani, 10/20/10).

These manufacturers’ and trade association answers are fairly consistent with Natalie
Cohen’s research. The cheesemaker located in L.A. because for familial reasons but was
very concerned with regulations, Function Beverages focused on market advantages
which connect closely to transportation costs, and the tortilla industry representative
highlighted the importance of skilled labor.




                                                                                         75
Labor and Workforce

Race, Immigration Status, Place of Origin

Census 2000 Equal Employment Opportunity data was not available for all fifteen
selected SOCs for food manufacturing. It was available for eight occupations: Industrial
Production Managers (014) SOC 11-3051, Weighers, Measurers, Checkers, and
Samplers, Recordkeeping (563) SOC 43-5111, Bakers (780) SOC 51-3011, Food
Cooking Machine Operators and Tenders (785) SOC 51-3093, Extruding, Forming,
Pressing, and Compacting Machine Setters, Operators, and Tenders (872) SOC 51-9041,
Helpers--Production Workers (895) SOC 51-9198, and Other Production Workers,
Including Semiconductor Processors and Cooling and Freezing Equipment Operators
(896) SOC 51-9.




Chart prepared by Dominique Kaschak
Source: Census 2000 EEO Data.

As can be seen from the chart above, all the occupations in Food Manufacturing in Los
Angeles County are dominated by Hispanic workers, except for Industrial Production
Managers, where there are more White workers than Hispanic, Black or Asian workers.

The greatest proportion of Hispanic workers is found in the Bakers occupation (SOC 51-
3011) and in the Food Cooking Machine Operators and Tenders (SOC 51-3093)
occupation. Asians and Blacks were also strongly represented in the Bakers occupation
(SOC 51-3011). Blacks are also bettered represented in the First-Line
Supervisors/Managers of Production and Operating Workers (SOC 51-1011) occupation
compared to other job categories.

The only occupation in which the proportion of Whites and Hispanics was equal was the
Extruding, Forming, Pressing, and Compacting Machine Setters, Operators, and Tenders
(SOC 51-9041) occupation.

All production workers that we saw and spoke with on our factory visits, including

                                                                                      76
employees of Don Pedro’s, Dandy Don’s and Caldwell’s were Mexican. Owners
Whittemore and Caldwell brothers are white men raised in the U.S. Don Pedro’s owner
Andres Jaramillo is Colombian and had several Colombian administrative employees and
one Indonesian sales representative.

The office employees at Caldwell’s were all Mexican women, including a buyer who
started on the production line 14 years ago. It is very important for Caldwell’s to have a
bilingual buyer because a lot of their produce comes from Mexico and Chile. Only
Spanish was spoken in the office while we were there. In fact, Spanish seems to be
nearly a requirement for most important positions. If Thomas is hiring a salesman, he
needs to be a Spanish speaker, because everyone at the produce market speaks Spanish.
Thomas, who is not a Spanish speaker, says that he accompanies Carlos, his salesman, to
the produce market and lets him do all the negotiating.

Nuñez told us that most of the specialty food manufacturing workforce is Latino, and
another significant part is Asian, primarily Chinese. In places like Monterey Park, a
factory might be mixed, whereas in places like East L.A. a factory will be entirely Latino.
Because of this make-up, FIBR hold trainings in Spanish and is trying to offer training in
Cantonese as well.

Nuñez said the underrepresentation of African-Americans in food manufacturing is
largely due to plants’ hiring from through existing workers’ social networks, as
mentioned above.

Nuñez believes that there are undocumented workers, but that FIBR members—made up
of more than 120 specialty foods manufacturers—are making a good faith effort to hire
documented workers. She did, however, note that for a period of time a few years ago
employers in food manufacturing (like employers in all industries) began receiving social
security mismatch letters, and this was a cause for concern. She said that as long as
company owners see a social security card, they assume that a worker is documented.
While the letters were being received, though, some employers worried about having to
fire employees that had been working for them for many years under a social security
number that they were unsure about.

An L.A. Times article last year describes the devastating effect of these “desktop raids.”
A computer check on social security numbers motivated Overhill to fire 260 workers who
had provided false social security numbers, despite the fact that the government took no
action against the workers. Nuñez says these fears have mostly washed over at this point,
as threats of ICE action died down.

A cheesemaker who we interviewed recently arrived in California from a cheese factory
outside the state. At this factory, she reports to have been the only documented worker.
All of her approximately 25-30 fellow workers (varying seasonally) were all
undocumented as far as she new, and mostly came from Guatemala. Another
manufacturer we interviewed also acknowledged having a workforce that was primarily
undocumented.

                                                                                        77
A Pew Hispanic Center research report, using data from the March 2005 Current
Population Survey, estimated that 12-14% of workers in food manufacturing are
undocumented. Twenty-seven percent of “butchers and other food processing workers”
are undocumented according to this report.

We imagine that undocumented workers will comprise a significant part of the specialty
foods manufacturing sector, but that they will be a smaller percentage than food
manufacturing as a whole, in part because we are excluding most meat categories, where
a much higher percentage of workers are undocumented.


Gender

Thirty-five percent of food and beverage manufacturing workers are women. However,
when we look at the percentage of female employment over time, we see that it has been
steadily increasing since 1992, when just 32% of the workforce was female (QWI).




Source: Quarterly Workforce Indicators. Prepared by Shoshana Krieger




                                                                                    78
Source: Quarterly Workforce Indicators, Prepared by: Shoshana Krieger

However, when female wages are compared to male wages we can see sharp disparities.
Females make, on average, only 69 percent of a male’s wage. Looking at this data by age
group, we can see that younger women tend to earn a substantially higher percentage of
their male counterparts’ wage than older women: a female teenager earns 90 percent of a
male teenager’s wage while an elderly women (over 65) warns only57 percent of a 65+
male’s wage (QWI). Some of this may be accounted for by the types of jobs women
have at the manufacturing facilities, ie., they may be employed in lower-paying jobs.
Additionally, if women take off time to have children, this may depress wages (although,
one would expect that many women who work in food manufacturing facilities do not
have the luxury to refrain from working.




                                                                                     79
Source: Quarterly Workforce Indicators. Prepared by Shoshana Krieger


Age

Nuñez speculated that most food manufacturing workers were middle-aged or older.
There are not too many young people interested in manufacturing, she told us, as factory
jobs have a lot of stigma attached. CDTech is trying to change that stigma by partnering
with L.A. Trade Tech to create programs in manufacturing; L.A. Trade Tech just got a
grant to renovate its Culinary Arts Program to include a manufacturing room with large
mixers and other processing machinery. Through programs such as this Nuñez hopes that
youth will become attracted to good factory jobs that have room for advancement.

Food and Beverage manufacturing workers are predominantly in their middle age: the
age groups 35-44 and 45-54 make up over half of the sector’s employment (52 percent
total). The sector does have a significant number of workers under 25(31 percent)
(QWI).




                                                                                      80
Quarterly Workforce Indicators. Prepared by Shoshana Krieger

However, when we look at the sector over time, we see that the number of young workers
has been declining., especially in the “25-24 year old” age group. Looking at just food
manufacturing (not including beverage manufacturing), we see that this age group’s share
of sector employment has dropped from 31 percent in 1992 to 19 percent in 2009.




Source: Quarterly Workforce Indicators. Prepared by Shoshana Krieger




                                                                                     81
Source: Quarterly Workforce Indicators. Prepared by Shoshana Krieger.



Wages and Skill Levels


Wages in Los Angeles for Food Manufacturing as a Whole

The annual average food manufacturing wage in Los Angeles is just over $42,500. This
is over $14,000 higher than the average new hire’s annual wage. When looking at wages
by age group, we can see that the largest differentials between a new hire’s wage and the
average employee’s wage occur among older workers: while a new hire who is between
the ages of 35 and 44 can expect to make $6,500 less than the average worker of his age,
a new hire who is between 45 and 54 can expect to make over $15,000 less than another
worker his age (QWI 2009). This may be due to an influx of older workers into the
sector who have not previously worked in food manufacturing and are, thus, less
experienced.


Wages By Occupation

Our interview with FIBR revealed that wages vary according to position. Line workers
often earn the minimum wage, while quality control personnel, who often hold degrees in
microbiology or a similar science, earn considerably more. We presume that salaries also
vary according to tenure, but this will be something to ask as we interview more company
owners.


                                                                                       82
Occupational Structure: Nuñez describes the hierarchy as follows:




Nuñez’s observations about wages within specialty food manufacturing are largely
supported by Bureau of Labor Statics Occupational Employment Statistics (BLS OES)
food manufacturing industry data for the Los Angeles-Long Beach-Santa Ana, CA area.

To review BLS OES data on wages we chose fifteen occupations from the Standard
Occupational Code (SOC) list that are relevant to the specialty food manufacturing
industry. The Bureau of Labor Statistics uses SOC codes to classify occupations across
industries in the United States. We reviewed and filtered the California Employment
Development Department’s List of Occupations Employed in Food Manufacturing list in
selecting SOC codes because some of the listed occupations appeared to be in related
industries rather than specialty food manufacturing.




                                                                                    83
Employment distribution chart by Dominique Kaschak.

                                                      84
                             Employment and Wage Statistics for Occupations in Specialty Food Manufacturing

Source: Bureau of Labor Statistics May 2009
Occupational EmploymentIndustry Estimates" http://www.bls.gov/oes/oes_dl.htm
"Metropolitan Area Cross Statistics Survey


*Occupations Sorted by Annual Median Wage High to Low
                                                        Total
                                                                                                         Hours worked
                                                     Employment
                                                                  # of Jobs in                             per year   Hours worked
                                                     Rounded to                  Hourly
                                                                 Occupation                Annual Median   (Annual       per week
                     SOC Title for Occupation        the Nearest               Median Wage                                            Job Zone
                                                                   per 1,000                  Wage ($)     Median     (Hours worked
                                                     10 Excludes                   ($)
                                                                 Jobs in Area                            Wage/Hourly per year/52)
                                                         Self
                                                                                                         Median Wage)
                                                      Employed

   11-3051      Industrial production managers             7300        1.354        42.06         87480   2079.885877 39.99780533                3
   51-1011      First-line supervisors/managers of        23930        4.435        24.74         51470    2080.43654    40.008395               3
                production and operating workers

   51-9012      Separating, filtering, clarifying,         1030        0.192        21.53         44770   2079.424059 39.98892422                2
                precipitating, and still machine
                setters, operators, and tenders
   51-9193      Cooling and freezing equipment              150        0.027        17.73         36880   2080.090243 40.00173543                2
                operators and tenders
   51-9032      Cutting and slicing machine                2620        0.486        13.71         28520   2080.233406 40.00448858                2
                setters, operators, and tenders
   51-9199      Production workers, all other              9240        1.712        13.64         28380   2080.645161 40.01240695        Not listed
                                                                                                                                        separately

   43-5111      Weighers, measurers, checkers,             5290        0.980        12.87         26780   2080.808081 40.01554002                2
                and samplers, recordkeeping
   51-3091      Food and tobacco roasting, baking,          290        0.054        12.03         25020   2079.800499 39.99616344                2
                and drying machine operators and
                tenders
   51-9021      Crushing, grinding, and polishing           770        0.142        11.88         24700   2079.124579 39.98316498                2
                machine setters, operators, and
                tenders
   51-3011      Bakers                                     8450        1.566        11.58         24080   2079.447323   39.9893716               2
   51-9041      Extruding, forming, pressing, and          2100        0.389        11.53         23990    2080.65915 40.01267596                2
                compacting machine setters,
                operators, and tenders
   51-2092      Team assemblers                           33560        6.220        11.45         23820   2080.349345 40.00671817                2
   51-3093      Food cooking machine operators             1560        0.290        10.12         21050   2080.039526 40.00076011                2
                and tenders
   51-3092      Food batchmakers                           6750        1.252        10.08         20970   2080.357143 40.00686813                2
   51-9198      Helpers--production workers               17740        3.287         9.87         20540   2081.053698 40.02026342                1
Chart prepared by Dominique Kaschak

Annual median wages for occupations in specialty food manufacturing range from a high
of $87, 840 for cooling and freezing equipment operators and tenders (SOC 51-9193) to a
low of $20,540 for helpers--production workers (SOC 51-9198). Workers in more than
two thirds of the selected occupational codes have an annual median wage of less than
$30,000 a year.

The interview with Yvette Nuñez of FIBR revealed that skill levels and educational
preparation vary with occupations within the field. Most line workers have little
educational background and no prior training and, thus, must be trained on the job. On-
the-job training is, of course, a significant investment for each firm to make. The firms,
therefore, want to retain their skilled workers as much as possible. Line supervisors and
even general managers, are often times former line workers who have developed their
skills on the job as well as participated in company-sponsored trainings. Other positions
within a food manufacturing plant, such as quality control personnel are likely to have
advanced degrees in fields such as microbiology (FIBR Interview, 10/28/10)

The BLS OES data indicates that among the selected occupations, there is a

                                                                                                                                                 85
correspondence between educational attainment and annual median wage. The two
highest paid occupations, First-line supervisors/ managers of production and operating
workers (SOC 51-1011) and Industrial Production Managers (SOC 11-3051) are in Job
Zone 3, where “require training in vocational schools, related on-the-job experience, or
an associate's degree” (O*Net Online). In contrast, the lowest paid Helpers—production
workers (SOC 51-9198) is in Job Zone 1, where “some of these occupations may require
a high school diploma or GED certificate.” (O*Net Online). The second lowest paid
occupation, Food batchmakers (SOC 51-3092), is in Job Zone 2, where “These
occupations usually require a high school diploma” (O*Net Online). However, there is a
difference of less than $500 in the annual media wage between these two positions. The
minimal wage difference reflects that despite being in different job zones, educational
levels of workers within both occupations do not differ greatly. There is a 14 percentage
point difference in the number of workers that have a High School or equivalent degree.

Compare that to the difference in annual median income between Food batchmakers at
$20,970 and Separating, filtering, clarifying, precipitating, and still machine setters,
operators, and tenders (SOC 51-9012) who earn an annual median income of $24, 230
more. Both occupations are in Job Zone 2, and there is only a 13 percentage point
difference between the number of workers in the two occupations with a High School
diploma or equivalent, but almost 20 percent of the Machine setters, operators and
tenders have either some college or an Associate’s degree.


Are Specialty Food Manufacturing Occupations Good Jobs?

Of the selected BLS OES occupations, almost 75 percent of employed workers earn less
than $45,000 a year. However, all selected occupations pay a living wage, assuming that
workers are provided with health benefits (Los Angeles County Living Wage Program).
However, as calculated by the Insight Center for Community Economic Development,
the self-sufficiency standard for a family of two adults with two children in Los Angeles
County in 2008 was slightly more than $64,000. “The Self-Sufficiency Standard provides
county-specific costs for housing, food, and health care, as well as costs associated with
work including transportation, child care, and taxes.” (Insight CCED
http://www.insightcced.org/communities/cfess/ca-sss/cfes-county-los-
angeles.html) Thus, it seems that workers in the majority of the selected occupations for
specialty foods manufacturing would need to be part of a two-income household to
support a family with two adults and two children.

Even many of those in the upper quartile, that are in occupations classified as being in
Job Zone 3, would need a second income for self-sufficiency as part of a household with
two adults and two children. Less than one percent of workers in the selected occupations
for specialty food manufacturing would be able to support a four person household on
their salary alone.

Occupations in Job Zone 3 usually require one or two years of on the job experience and
training in vocational schools or an associate’s degree. The O*Net online data suggests

                                                                                           86
that without proper educational training it would be difficult to move into a supervisory
or managerial position in specialty food manufacturing. Without further information, we
suspected that career ladders to managerial positions without a certain level of vocational
training and educational attainment may be limited.

We note that while wage and career advancement data above is likely representative of
employment in mid-size or large firms, it probably does not apply to small specialty food
manufacturing operations. The BLS OES data excludes those who are self-employed.
However, interviews indicate that Owners of firms tend to be more highly educated. This
holds true for both food processors and artisanal enterprises. Artisanal entrepreneurs
often begin their food businesses as either side businesses or as a second (or third or
fourth) career. For example, the owner of The Welsh Baker was an engineer before
beginning his business and began making Welsh cakes after finding himself unemployed
two years ago (Interview 10/24/10). Similarly, the owner of Butterfly Brittle earned her
MBA at USC and has owned a number of other small businesses before starting her
current Butterfly Brittle company (Interview 10/24/10).


Production Workers

       Production workers include workers (up through the line-supervisor level)
       engaged in fabricating, processing, assembling, inspecting, receiving,
       storing, handling, packing, warehousing, shipping (but not delivering),
       maintenance, repair, janitorial and guard services, product development,
       auxiliary production for plant's own use (e.g., power plant),
       recordkeeping, and other services closely associated with these production
       operations at the establishment covered by the report. (U.S. Census -
       American Fact Finder.)

Production workers as defined above are included in the count of “Number of
employees.” In all of the listed sub-industries, production workers are more than fifty
percent of all employees. Sub-industries with comparatively fewer production workers
may be less labor intensive, and they might also have a more automated production
process. This assumption is supported by our visit to Caldwell Fresh Foods where we
noticed greater labor intensity than at other production facilities. The floors were quite
wet, and someone seemed to be mopping most of the time. Two people were tearing and
cutting the outer leaves off lettuce heads, others were shredding carrots. In the far corner
one woman was taping cardboard boxes. (Site visit to Caldwell Fresh Foods, 11/4/10).
Caldwell would fall into Perishable prepared food manufacturing (NAICS 31191), where
eighty percent of employees are production workers.




                                                                                         87
                                   Number of Production Workers and Hours Worked in Select
                               Food Manufacturing (NAICS 311) Sub-Industries in Los Angeles County



Source: 2007 Economic Census
http://factfinder.census.gov/servlet/IBQTable?_bm=y&-geo_id=05000US06037&-ds_name=EC0731A1&-_lang=en



                                                                       Production       Percent        Production      Avg weekly hours
2007                                               Number of
                Meaning of 2007 NAICS code                             workers avg      Production     worker hours    per worker
NAICS code                                         employees
                                                                       per year         Workers        (1,000)         (Avg yearly hours/52)


              Perishable prepared food
       311991 manufacturing                                     1066              844            79%            1714                     39.1
              All other food manufacturing
        31199                                                   4010            2940             73%            5986                     39.2
              All other miscellaneous food
       311999 manufacturing                                     2944            2096             71%            4272                     39.2
         3119 Other food manufacturing                          8197            5465             67%           10801                     38.0
              Mayonnaise, dressing, and
              other prepared sauce
       311941 manufacturing                                     1008              671            67%            1409                     40.4
              Seasoning and dressing
        31194 manufacturing                                     1817            1092             60%            2282                     40.2
       311812 Commercial bakeries                               7986            4715             59%            8199                     33.4
       312111 Soft drink manufacturing                          1755            1027             59%            2317                     43.4
       311811 Retail bakeries                                   3800            2204             58%            3475                     30.3
              Spice and extract
       311942 manufacturing                                      809              421            52%             873                     39.9


All industries may have part-time production workers. Industries with average weekly
hours per worker under thirty only employ production workers on a part-time basis
(assuming full-time employment is defined as forty hours per week). We should not
assume that production employees are full-time employees in sub-industries where it
appears that average work hours for production employees exceed forty a week. Some
employees may work overt-time while others may only be part-time employees. The
length of an employee’s work day likely includes managerial calculations about the cost
of over-time and the cost of required benefits for full-time employees.


Unions

Specialty foods manufacturers, which tend to be smaller companies, are rarely unionized.
Only a few FIBR members are union. These include Passport Foods, Gerard’s Dressings
and Caldwell’s Fresh Foods. These are bigger companies with around 200, 80 and 50
employees respectively. Most small companies can’t afford to go union, which would
assume higher wages and health insurance for full-time employees.

The food manufacturing industry as whole has a slightly higher-than0average
unionization rate. According to 2009 data from the Current Population Survey, the food
and beverage manufacturing sector, nationally, 16 percent of the sector’s workforce is
unionized (Union Membership and Coverage Databases). This is a slightly higher

                                                                                                                                          88
unionization rate than the nondurable manufacturing sector as a whole (11 percent), but is
still relatively low.

Of factories we visited this week, only Caldwell’s is union. The general manager, who
gave us the tour, knew that Caldwell’s was union but wasn’t sure which union
represented them, and wasn’t sure what the benefits to employees were of having a union.
We asked another employee in the office who told us that Teamsters Local 630 represents
Caldwell workers. According to Thomas, there are no health benefits, but everyone
makes over $10/hour. They have a meeting with the union once a year to negotiate
changes. It wasn’t entirely clear, but Thomas seemed to say that because of the union,
employees have two weeks paid vacation.

It doesn’t seem that the union has negotiated health benefits for full time employees in
the case of Caldwell’s. According to Thomas, no one has health benefits, but Caldwell’s
takes care of their most indispensable members, such as Dani, who Thomas described as
a brilliant self-taught engineer who can basically fix anything in the company—from
plumbing to trucks to refrigeration to electrical wiring to machinery. The company paid
for his sick leave, and paid for him to have back surgery in Tijuana. Luz, who has been
with the company for 24 years and is now the bookkeeper, had gall bladder surgery, and
the company also covered the bill for the surgery.

Thomas did mention that they had run into issues with the union if they wanted to lay off
a worker with more seniority than someone else. For workers with some tenure, this
seems to be an important benefit. We heard stories from other employers in non-union
companies of firing long time workers. In one case, a spoon found by a customer in ice
cream led to an employee being laid off. In another case a long time production manager
was fired because the new owner didn’t like his style. Such lay-offs would have been
more challenging in a union company like Caldwell’s.

The United Food and Commercial Workers International Union Local 770 represents
grocery stores and some food manufacturers in L.A.. Their packinghouse division,
according to their webpage, “represents packinghouse plants, food processing and
manufacturing throughout Southern California…for over 75 years…from slaughterhouse
butchers to box makers to frozen food processors, Local 770 has represented workers
whose jobs are among the most difficult, dangerous and exploitative.”

The food manufacturers represented by UFCW are large companies that we would not
consider specialty foods manufacturers. These include:

   •   Bakers Commodities
   •   City Seafoods
   •   Specialty Meats (Lido Veal)
   •   Golderberg & Solovy
   •   Overhill Foods #1
   •   Overhill Foods #2
   •   Pontrlli & Laricchia

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   •   Reliable Grease Co.
   •   Nashua
   •   Rogers Poultry
   •   West Coast Rendering
   •   Woodland Farms
   •   Farmer John

Based on a search of L.A. Times archives, it seems that most of their organizing efforts in
recent years have been directed at supermarkets and not food manufacturing companies.
The supermarkets UFCW Local 770 represents include the following list; some of our
specialty food manufacturers sell their products in these stores

   •   Albertsons
   •   Max Foods
   •   Gelson's
   •   HOWS
   •   Mayfair
   •   Food 4 Less
   •   Ralphs Lucky
   •   Vons
   •   Super A
   •   Pavilion
   •   Stater Bros.
   •   Beaches
   •   El Super


Benefits

Most FIBR members can’t afford to offer health insurance. She pointed to the large
numbers of small firms as a reason that many food manufacturers do not provide
insurance: a small group is many times more expensive to insure. It appears that only
some larger companies, some of which are also union, provide some health benefits.
Passport Foods and Follow Your Heart were the only companies we interviewed that
offered health benefits to line workers. Follow Your Heart also offers dental and one
week of paid sick-leave. Caldwell’s offers selective benefits to indispensable employees
(see Unions).

In October 1991, the Monthly Labor Review covered the signing of three collective
bargaining agreements within California in the food manufacturing industry. Coverage of
the agreements within the “Developments in Industrial Relations” column of the journal
provides some indication of how larger firms with unionized workers may differ in the
provision of benefits to workers. Together the three major collective bargaining
agreements covered 33,000 workers in Northern California working at several dozen fruit
and vegetable processing plants. In addition to tiered and incremental wage increases, the

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agreements made changes to the medical plan, including an increase in the major medical
lifetime maximum, the addition of an outpatient mental health benefit, the establishment
of an employee discount drug plan, and an increase in the dental benefit schedule. Terms
also included increases in the employer contributions to the pension fund and an eleventh
paid holiday. As Nuñez noted, the size of the firms may have played a role in the
provision of benefits to the workers in the collective bargaining agreements covered in
the Review, as large firms have the advantage of negotiating bulk rates. However, it is
likely that the unionization of the labor force was a stronger factor in achieving more
comprehensive benefits coverage.

       FIBR has explored the idea of creating a group plan for FIBR members but,
       thus far, it has not come to fruition. Not enough FIBR members have
       provided FIBR with the employment information necessary to solicit group
       rates from insurance companies and FIBR’s own capacity to administer such
       a program is limited. Currently, FIBR does recommend an insurance plan to
       employers, which is provided through the United Agribusiness League that
       allows for over-the-border health care at much cheaper rates than many
       domestic plans, but because the plan is geared more towards migratory
       agricultural workers, it may not be optimal for food manufacturing workers.
       Nuñez was unsure if any FIBR members had contacted UAL about this
       insurance.


Multiple Shifts, Overtime

There are factories that are opened 24 hours a day. These are either bigger companies or
small companies that are growing, but don’t have the capital yet to expand, according to
Nuñez. One thing that is clear from our interviews with food manufacturers is that food
production is not a 9-5 job. We spoke with p.o.p Candy, whose production happens late
into the night, after the commercial bakery, whose space they rent, closes. This kind of
arrangement is common when time shares are involved. Many of the production facilities
we have been invited to begin work 6 am.

Don Pedro’s Meats start production at 6am and ends at 2:00. Then two cleaning staff
come in and work from 2:30-7. Sometimes to fill an order, Jaramillo will keep the
facility open a few more hours. It was not clear whether he pays his employees an
overtime premium. One of the cost factors in keeping production open longer that he did
mention is that he has to pay the USDA inspector (who must be on-site at all times) $50
per hour.

Much of production at Caldwell Fresh Foods happens early in the morning. Shifts are
from 11pm-6am and 6am-2 or 3pm.

Nuñez mentioned that while companies try not to have workers on multiple shifts or
working overtime, sometimes it is necessary during high season.


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Temporary Workers

With the recession, Nuñez has seen an increase in the number of temporary workers
FIBR members are using. Using temporary workers gives the company the advantage of
only being responsible for paying workers at necessary production times, and not having
to pay them during down times. Temporary workers help a company in the case of an
especially big order or in an especially high season. Employers are not responsible for
any benefits, workers compensation, etc. for temporary workers.

While employers pay a premium to the temporary workers agencies, and receive
untrained temporary employees, Nuñez says that it must be worth their while because she
has seen the tendency of employers to higher temporary workers on the rise.

Caldwell’s uses temps if they’re especially busy, and they have hired several full-time
administrative employees through a temp agency.

Passport Foods has around 10-15% temp workers, and uses temp agencies to do hiring,
because of the challenges for Passport Foods to do its own background checks.

Jaramillo does not use temps, but is a “co-employer” with a temp agency. He partners
with an employment agency as “co-employer” to get a better workers comp insurance
rate. That same company does all of the payroll services.

June Lim of StarLite Food’s also conveyed that when she had her own manufacturing
facility, before switching to the use of a co-packer for production, the number of workers
she employed fluctuated. “We had five to ten employees depending on how busy we
were. Everyone was by the hour. I had four that were kind of permanent, and every time
I needed people (those four) would go out and find them.” (Interview 11/5/10).


Occupational Safety and Health Administration

The California Occupational Health and Safety Administration (OSHA) data indicates
that from 2001 to 2008 there were between three and five fatalities in food manufacturing
and kindred products each year. (Data was not available for 2005 and 2006). The reason
for the fatalities is only provided for 2008, in which case all three fatalities were
transportation incidents, which include “highway, nonhighway, air, water, rail fatalities,
and fatalities resulting from being struck by a vehicle.” (Cal OSHA, Table A-1, Fatal
occupational injuries by industry and event or exposure, California 2008).

The Department of Labor’s Occupational Health and Safety Administration (DOL
OSHA) reported 198 cases between November 8, 2009 and November 8, 2010. Ninety-
six of the cases were categorized as accidents, forty-seven as complaints, thirty-two cases
were planned inspections, fifteen cases were follow ups and the few remainders were
other. Both accidents and complaints are categorized as either health or safety
inspections.

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                                                                  Chart by Dominique Kaschak
                                                                     Data Source: DOL OSHA



Incentive/Control Methods

Most companies we spoke with use only informal incentives, such as letting the best
worker pick the music. At Passport Foods, more formal incentives are in place. Every
second Friday of the month, they have a “Board Meeting” (not really a board meeting,
but they have a big board with violations recorded). This board includes worker safety
(number of incidents), food safety, fill-rate (shorts, lates in delivery), customer
complaints and sales. Each of five categories is worth $5, so in one year an employee
can earn up to $300 in bonuses.

While in our interviews we didn’t hear about any formal methods to incentivize
production/control workers, we did learn about a number of informal methods.

At Don Pedro’s Meats, the best employee gets to choose the music. Jaramillo noted that
that was a bit of a problem when one employee loved to put on heavy metal (since most
employees prefer Latin American music).

Don Whittenmore, owner of Dandy Don’s Homemade Ice Cream said that an incentive
method he uses is to offer a 20 percent commission to any employee who wants to act as
a sales representative. Any employee who is successful making a new deal will be
offered that commission. No one has taken him up on the offer thus far.

Because of inspection and food safety concerns, the consequences for mistakes can be

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severe. As Thomas noted, one fly in the facility makes you lose your contract with the
military. Whittemore said he immediately fired an employee he liked a lot because one
of his clients found a spoon in the ice cream, which had slipped in the batchmaker during
processing.

At Caldwell’s two line workers who had a fight at work were dismissed for one month
recently. Dani, the plant superintendent asked them to leave for one month. Thomas, the
general manager, noted that two weeks would have been sufficient, but he was glad to let
Dani, who knew the men better, handle the situation.


Management Methods

June Lim of StarLite Foods, Inc. explained that when she switched from manufacturing
her own products to using a co-packer she more often went to the co-packing facility to
respond to issues and problems and to supervise production.

She stated, “I sometimes go (to the co-packing facility) when they are producing the
product. At the beginning I would go more to train them and to try and overcome an
issue. Like at the beginning I found they (the taquitos) had open lips so next time I would
watch production to see why that was happening. And at the beginning I wanted to be
sure that they were doing (the manufacturing) to my specifications. For example, the
tortillas needed to be filled from end to end.” (Interview 11/5/10).

       Eventually, she created a Bill of Materials, or BOM, that provides the
       co-packer with specifications for the manufacturing of her food
       products. In great detail, the BOM addresses quantity, staging
       (including procedures for storing the ingredients), the mixing
       procedure, the frying procedure, and even specifications for how the
       packaged units are to be arranged on the pallets.


Workforce Development in Food Manufacturing in Los Angeles

According to Yvette Nuñez, director of FIBR, the specialty foods manufacturing sector
needs people able to do entry-level, assembly line jobs as well as managerial jobs, shift
supervisors, and people with a science background that can do quality control. Usually,
connecting with a labor force isn’t the problem for food manufacturers, because there are
plenty of people who need jobs. Yvette believes that the good thing about these
manufacturing plants is that many are located in low-income neighborhoods, providing
some jobs in areas that need them.

Currently in Los Angeles, educational programming geared specifically towards students
who seek to increase their skills in the food manufacturing arena is limited. L.A. Trade
Tech provides certificates in chemistry and food manufacturing machinery, but does not
provide a full program in food manufacturing. As noted above, Trade Tech has plans to

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renovate its Culinary Arts Building and the plans include a machinery room where
students will learn how food manufacturing equipment works as they produce food for
sale (FIBR Interview 10/28/10). Nuñez and FIBR see this as a good step forward in
producing a workforce knowledgeable in food manufacturing production. In the long
term, FIBR hopes to set up an Associate’s Degree in manufacturing offered through the
community college and increase the number of food manufacturing certificate programs
with L.A. Trade Tech. She would like people to learn everything about manufacturing,
from machines to food to food safety issues to chemistry to marketing. This may be
years into the future, but Nuñez would like to create a possibility for good training that
would make graduates good candidates for quick advancement (Interview 10/28/10).

Aside from formal educational programming, FIBR, other trade organizations, and
government agencies provide food safety programming that increases the skill levels of
workers. FIBR has noticed that many companies are now sending not only their
managers, but also their entire staff, “from the receptionist to the General Manager,”
saying that worker morale and capability increases as more and more line workers
participate. Nuñez noted that often line workers who attend such programs and really
proactively develop their skills are promoted and that these trainings help workers to
climb the job ladder faster (Interview 10/2810).


Local Hiring Common Practice in Some Businesses

Most food manufacturing plants are located in low-income neighborhoods since these are
the areas zoned industrial (FIBR Interview, 10/28/10). In some cases, workers live near
the factory and can walk to work. Follow Your Heart mentioned that some of their
workers have responded to Help Wanted signs, which they saw posted on the factory
when walking through their neighborhood. Passport Foods said that many of their
workers were also local, though as the company has increased its pay, some workers have
actually chosen to move farther from South L.A.

Word of Mouth is the Key to Worker Recruitment

New hires often hear about the jobs from friends and family members who work in the
plant. This was the main form of worker recruitment cited by all food manufacturers that
we interviewed.

Nuñez told us that occasionally she hears, especially from African-Americans interested
in manufacturing jobs, that it seems like only Latinos are getting the jobs and that they
never hear about openings. The reason for this, Nuñez says, is networks. Food
manufacturing facilities rarely post job announcements. Nuñez described how people are
hired: “If you’re working today and you know José is gonna quit, you go to the boss and
you say ‘you know what my cousin Joe can be here tomorrow at 8 o’clock and he needs a
job’ [and the boss responds] ‘okay, well let’s try your cousin Joe’ and that’s it. No one
ever gets a job announcement” (Interview 10/28/10). That is, a worker often hears that
someone is leaving and approaches the boss before that person has even left to tell him

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about a cousin or friend willing to fill the position. This is the main reasons that most
factories are dominated by one ethnic group, who often come from the same countries
and even regions of those countries (FIBR Interview 10/28/10).


Separations and New Hires

In the third quarter of 2009, new hires outpaced separations in every age group, except
for workers who were over 55 (retirement age).




Source: Quarterly Workforce Indicators. Prepared by Shoshana Krieger.


Turnover Rate

The turnover rate in the food manufacturing sector has steadily increased over the past
two decades. According to Quarterly Workforce Indicators data, the turnover rate has
increased from just over 8 percent in the first quarter of 1992 to over 15 percent in the
third quarter of 2009.




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Government’s Role & Citizen Concerns

Oversight of Food Manufacturing Facilities


Federal

At the federal level, the primary regulators of the Specialty Food Manufacturing Sector
are the Food and Drug Administration (FDA) and the United States of Department of
Agriculture (USDA). The agency that is primarily in charge of regulating a particular
firm depends upon what the firm manufactures. Within the food manufacturing sector,
the USDA regulates meat, poultry and some egg producers while the FDA regulates all
other facilities.

The USDA as a whole regulates a wide range of areas, mostly focused on agriculture and
also is primarily responsible for food and nutrition and organics regulation. It’s Food
Safety and Inspection Service (FSIS) division regulates the “safety, wholesomeness, and
proper labeling of most domestic and imported meat and poultry and their products sold
for human consumption” (Becker 2010: 3). While slaughterhouses are required to have
a FSIS inspector on the line at all times the plant is in operation, meat and poultry
processing facilities are required to have just a daily inspection by a FSIS inspector (3-4).
The requirement for daily inspection necessitates a large staff and, accordingly, FSIS
employs over 8,000 inspectors. The one meat processor we interviewed, Don Pedro’s
Meats, told us that its FSIS inspector changes every six months and that the necessity to
have a FSIS inspector on-site deters it from adding extra shifts since additional shifts
would require the firm to pay overtime for the USDA FSIS inspector. Don Pedro’s
Meats expressed, in general, support for the meat inspection system saying that it assures
that bad players aren’t able to open shop and sell unsafe meat products (Interview with
Jaramillio).

The FDA is housed within the Department of Health and Human Services and is
“responsible for ensuring that all domestic and imported food products—except for most
meats and poultry—are safe, nutritious, wholesome, and accurately labeled” (Becker
2010). It, thus, is the federal authority responsible for regulating all food manufacturing
facilities not covered by FSIS regulators, including most egg regulation as well as
seafood regulation. It regulates more than 68,000 establishments nationwide( 44,000 of
which are food manufacturers) and has an inspection staff of 1,900 (Becker 2010: 2).
The FDA inspector to firm ratio (1:.02) is much lower than the FSIS inspector to firm
ratio (1:1.12) , and, accordingly, FDA inspection is much less frequent at FDA-regulated
firms as compared to FSIS regulated firms. In 2008, only 22 percent of all FDA-
regulated firms were inspected (Becker 2010: 3). This data corresponds with our
interviews: For example, Caldwell Fresh Foods, a produce processing facility, told us that
the FDA contracts the State’s Department of Health to do inspections “once in a while.”

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The level of FDA inspection may vary depending upon the type of product being
manufactured. Dairy and seafood manufacturers, for example, work with products more
prone to contamination and are, thus, under greater scrutiny. Caldwell Fresh Foods told
us that when it was in the business of growing sprouts a couple of years ago, FDA
inspectors showed up more frequently due to the high rates of salmonella contamination
in sprouts manufacturing (Interview with Thomas). For especially high-risk products,
such as seafood and juices, the FDA requires firms to have a Hazard Analysis & Critical
Control Points (HACCP) plan. The USDA also requires HACCP plans for meat
products. FDA’s HACCP guidelines state that:

       [s]even basic principles are employed in the development of HACCP
       plans that meet the stated goal. These principles include hazard analysis,
       CCP identification, establishing critical limits, monitoring procedures,
       corrective actions, verification procedures, and record-keeping and
       documentation. Under such systems, if a deviation occurs indicating that
       control has been lost, the deviation is detected and appropriate steps are
       taken to reestablish control in a timely manner to assure that potentially
       hazardous products do not reach the consumer.

HACCP plans, thus, detail an establishment’s monitoring and quality control procedures
and track the origin and destination of all food products that enter and exit the facility.
HACCP plans are often accompanied by a Standard Sanitation Operating Procedure
(SSOP) plans that detail a firm’s satiation procedures. Both these plans comport with
general Good Manufacturing Practices set forth by the FDA.

Currently, the majority of food manufacturers are not required to have HACCP plans,
although there is talk of possible legislation in the U.S. congress that would require
HACCP plans for all food manufacturers (http://www.fibr.info/events/2010-nov-dec-jan-
feb-foodsafety.html). However, many of the manufacturers we interviewed voluntarily
have HACCP plans and consider them to be extremely useful, especially in the case of a
recall. Caldwell’s Fresh Foods, Passport Foods, and Earth Island, all have HACCP plans
that are accompanied with quality control personnel, even though there is no federal
requirement for them. These voluntary HACCP plans conform with HACCP criteria set
forth by the FDA.

Manufacturers we spoke with discussed the importance of having a HACCP plan in the
event of a recall. While the FDA and USDA do not have the authority to issue
mandatory recalls of products, they can recommend recalls and most companies will
comport with these recommendations (Brougher and Backer 2010). Thomas at Caldwell
Foods said that while the FDA doesn’t force you to recall, it would be bad for the image
of a company not to recall, especially if one of the important retailers were to see that a
company had not done a recall when it was asked to do one. Additionally, the threat of
the FDA or USDA pulling inspectors from an establishment may entice companies to
comply with recall recommendations. Having a HACCP plan in place makes a recall
situation manageable for a firm since the firm will know precisely where a contaminated

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product has been in the facility and will only need to shut down production on those
lines. When Caldwell Foods was making sprouts and a recall was issued, the General
Manager told us that because of the HACCP plan the firm only needed to shut down one
line and production in the rest of the facility could continue. Similarly, Earth Island
experienced a peanut recall when one of its suppliers had provided it with contaminated
peanuts and the HACCP plan enabled Earth Island to shut down production and clean
the equipment of the line which had been exposed to the contaminated ingredient
(Interview with Franklin).

In addition to regulating to ensure food safety, the FDA and USDA are charged with
enforcing labeling requirements and ensuring that products are not misbranded. A few of
the firms we spoke with told us that they contract with outside consultants to help with
these labeling requirements (e.g., what can and cannot be said on a label, creating the
“nutrition facts” panel).

Product dating is not generally required on food, except for infant formula and some baby
food. If a calendar date is used, it must express both the month and day of the month (and
the year, in the case of shelf-stable and frozen products). Also, immediately adjacent to
the date must be a phrase explaining the meaning of that date such as "sell-by" or "use
before." (USDA Fact Sheet: Food Labeling.) However, a recent civil suit indicates that
food dating is enforced. In a recent settlement, American Grocers, Inc. agreed to pay
$13.2 million to settle civil charges that they engaged in false or fraudulent conduct by
shipping food products past or near their expiration dates to United States troops
stationed in the Middle East. (Los Angeles Times, November 20, 2010).

Finally, firms that want to be labeled “organic” must comply with USDA regulations. To
gain the certification “organic” a manufacturer must show that 95 percent of a product’s
ingredients are organically produced (USDA, National Organic Program). This means
that the ingredients are not chemicals or synthetic and are from farms that do not use
pesticides or chemical fertilizers. Additionally, organic processing facilities are limited
in the types of cleaning supplies they can use and make sure that all machinery used in
organics processing is not “contaminated” by conventional products. There is a lengthy
and complex process to gain organic certification and, as such, firms hire outside
consultants to help them negotiate their way through the certification process. For
example, Maria Elena’s, maker of an organic Horchata mix, worked with a consultant to
gain the certification and still uses the consultant to aid it in keeping the certification up-
to-date. The USDA does not have organic inspectors but rather relies on third-party
inspection services. Therefore, a firm like Maria Elena’s or Earth Island, that seeks
organic certification must hire the outside inspection service to certify its facility.


State and Local

In addition to federal regulators, state and local governments also regulate food
manufacturing facilities. All food manufacturing facilities must register with the Food
and Drug Branch of the California Department of Public Health and obtain a Processed

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Food Registration. To obtain the registration, firms must fill out an application and pay a
fee based on the square footage of their facilities. Firms that process meat, poultry and
dairy products, must be inspected by the California Department of Agriculture.

On the local level, firms in Los Angeles County need to pass local inspections from the
County’s Department of Public Health or the City of Vernon’s Health and Environmental
Control Department, if a firm is in Vernon. These localities also administer Certified
Food Handler licensing, which is needed by at least one employee at each facility.

Most of the firms we interviewed see state and local inspectors more frequently than
federal inspectors. Caldwell Fresh Foods told us that County and State inspectors visit
their facility around three times per year. None of the firms we talked to thought that the
food safety regulations were onerous: Franklin of Earth Island told us that all the
inspections take up a week of the year and are easy to pass if a firm is organized and is
aware of the regulations.

Some small specialty food manufacturers that rent space in commercial kitchens for
production find that they don’t fit into the current model for food safety and licensing. A
recent Los Angeles Times article notes “For small businesses, it’s not always clear which
health department permits are needed – even to a local health department. The licenses
were generally set up with regard to facilities, not individuals renting space part time.”
He article goes on to point out that the health department for the City of Long Beach has
been issuing commercial kitchen renters their own licenses. While Los Angeles County
does not have a program in place to accommodate commercial kitchen renters, it is aware
of the need according to the Department of Public Health (Los Angeles Times, November
22, 2010).


Third-Party Regulators

In addition to federal and state regulation, manufacturers might choose to have third-
party auditors inspect their facilities at the behest of a large client. In order to sell their
products to such customers as Applebees, Panda Express and P.F. Changs, Passport
Foods’ subsidiary Wing Hing Noodles contracts with firms Silliker and Steritech to
conduct such inspections. Additionally, suppliers to the military, such as Caldwell Fresh
Foods, must allow military auditors to visit its facilities. When companies private label
for lager clients, such as Trader Joes, they also undergo additional inspections. All of the
firms we spoke to said that these inspections were substantially more rigorous than the
regular government inspections.

Finally, just as an additional inspection is needed for organic certification, firms that wish
to certify their products as kosher, must have additional inspections and oversight. Earth
Island was recently certified as a “Kof K” Kosher certified facility. To gain the
certification the ingredients were examined to ensure they comply with Jewish dietary
laws and the plant’s machinery needed to be ritually cleansed; a Rabbi visits every two
weeks to maintain the certification (Interview with Franklin). Meat facilities would

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require an on-sire Rabbi to maintain a kosher certification and the slaughtering process
would have to be in accordance with Jewish dietary law.


South Coast Air Quality Management District

The South Coast Air Quality Management District (SCAQMD) requires the filing of an
Annual Emissions Report and payment of annual fees based on a facility's emission of air
contaminants, as specified in Rule 301 as authorized by Section 40510 of the California
Health and Safety Code. None of the specialty food manufacturers interviewed for this
report spoke of paying SCAQMD fees. Food manufacturing facilities required to pay this
fee are those that that meet the 25,000 tpy CO2e aggregate emissions threshold, use
anaerobic processes to treat industrial wastewater and wastewater treatment sludge
(Beveridge & Diamond, P.C., July 6, 2010). An Environmental Protection Agency
(EPA) Fact Sheet states “Most small businesses would fall below the 25,000 metric ton
threshold and are not required to report GHG emissions to EPA.” (August 2010 EPA Fact
Sheet on amendments to 40 CFR § 98).


California Department of Industrial Relations


Workers’ Compensation

California law requires employers to have worker’s compensation insurance, no matter
the number of employees. (California Code, Title 8.) In the event of injury or illness,
employers are required to pay for workers' compensation benefits. “Workers' comp
insurance provides six basic benefits: medical care, temporary disability benefits,
permanent disability benefits, supplemental job displacement benefits or vocational
rehabilitation and death benefits.” (California Division of Workers’ Compensation Web
site.) Several of the specialty food manufacturers interviewed for this report complained
about the rising cost of workers’ comp. June Lim of StarLite Foods listed worker’s
compensation as one of her highest costs when she had her own manufacturing facility
before switching to a co-packer. Jerry Gonzalez of Maria Elena’s Authentic Latino noted
“workers’ comp and minimum wage are the highest in the nation.” The rising costs of
workers’ compensation is confirmed by a 2009 business journal article. “Workers’
compensation insurers in California are seeing an increase in average lost-work claim
costs and a decrease in the number of lost-work claims, and they’re spending more of
each premium dollar they collect to pay claims.” (San Francisco Business Times,
September 17, 2009). The statement seems to imply that if is there is an increase in claim
costs, but a decrease in claims, then the rising costs may be related to the rising costs of
medical care.


Safety and Illness Prevention


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The California Department of Industrial Relations Division of Occupational Safety and
Health (Cal/OSHA) enforces regulations related to injury and illness prevention. It has
the authority to do so under California Code Title 8, Section 3203. The regulation
provides that “every employer shall establish, implement and maintain an effective Injury
and Illness Prevention Program (Program).” Exceptions and lesser standards for
prevention program written requirements apply to employers with less than twenty and
less than ten employees. A list of instruction and training requirements are contained in
the General Industry Safety Orders (Title 8, Chapter 7), regarding everything from
window cleaning to ergonomics to explosives, and are provided on the Cal/OSHA
website at http://www.dir.ca.gov/dosh/dosh_publications/trainingreq.htm.


Immigration Regulations
Work Authorization
The Immigration Reform and Control Act (IRCA) of 1986 subjects employers to criminal
and civil liability for knowingly hiring unauthorized foreign nationals and for continuing
to employ the foreign national knowing that he lacks work authorization. IRCA also
made it unlawful for employers to hire new employees without completing an I-9 form,
Employment Eligibility Verification, which is completed based on documents presented
by the employee that prove identity and work authorization .

U.S. Citizenship and Immigration Services (USCIS), a federal agency within the
Department of Homeland Security (DHS), promulgates the rules that regulate the hiring
of immigrant workers along with the U.S. Department of Labor (DOL). That is to say that
immigration law is regulated at the federal, rather than state, level.

Foreign laborers can obtain work authorization either by A) an employment-based visa or
pending petition B) a family-based visa or pending petition or C) a humanitarian status
such as Temporary Protected Status (TPS) that enables a foreign national to remain in the
United States for a temporary period due to a natural disaster or civil conflict in their
country of origin. TPS is a country rather than individual designation.

Employment-based visa work authorization is a limited option for production line
workers in specialty food manufacturing. An employer seeking to hire low-skilled
workers would have to file a temporary labor certification with the Department of Labor
for an H-2B visa. H-2B visas are intended for “foreign workers to come temporarily to
the U.S. and perform temporary nonagricultural services or labor on a one-time, seasonal,
peakload or intermittent basis.” (DOL Office of Foreign Labor Certification website).
More importantly, Congress has set the H-2B visa cap at 66,000 per year with 33,000 to
be allocated in the first half of a fiscal year and the remaining 33,000 to be granted in the
second half of the fiscal year. Given that manufacturing industry low-skilled production
line workers and workers in numerous other industries would all be lumped into this visa
category, there is an a large gap in the number of visas available and the number that are
needed.



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Employers seeking to hire specialty food manufacturing workers in high-skilled positions
would file a labor certification for the worker with the Department of Labor to test the
labor market and prove that there is not a qualified U.S. worker who is able or willing to
take the position. Upon granting of the labor certification, the foreign worker would then
have to wait for a visa to become available in the appropriate employment-based visa
category. The backlog in visa availability means that sometimes a worker may have to
wait more than a year after receipt of labor certification to be eligible for an employment-
based visa.

Visa backlogs for family-based visas are even longer than for employment-based visas.
For example, currently the wait time is eight years for some categories of family-
members if the foreign national is Mexican (Department of State Visa Bulletin December
2010).

Most importantly, undocumented workers who entered the United States “without
inspection”, that is to stay without a legal visa, or those who over-stayed a visa, would in
most cases have to leave the country in order to qualify for a visa and work authorization.
However, because they remained in the U.S. without authorization for at least 6 months if
not longer, they would likely be subject to a three year, if not a ten year bar from the
country.

To summarize, the immigration and labor laws that govern the hiring of foreign workers
are complex and bureaucratic. Visa fees are expensive, as are the services of immigration
lawyers. Visa backlogs ask employers to wait months if not years to be able to legally
hire a worker. The outlook for undocumented workers to gain legal work authorization is
a bleak if not impossible road. As such, many employers employ undocumented workers
despite the risk of penalty for doing so. One manufacturer we spoke with employed
undocumented workers, though because they were undocumented they could not drive a
company vehicle. His stipulation can be explained by state laws that prevent
undocumented foreign nationals from obtaining a driver’s license. By the end of 2009,
forty-six immigration-related state laws regarding identification cards and driver’s laws
had been enacted. (National Conference of State Legislatures News “State legislatures
enacted 222 laws, adopted 131 resolutions in 48 states” December 10, 2009.)

Enforcement

U.S. Immigration and Customs Enforcement (ICE) is the federal agency under the
Department of Homeland Security responsible for immigration enforcement. ICE is the
agency that “raids” employment facilities when it suspects that the facility employs
undocumented workers. Some ICE raids are prompted by the Social Security
Administration’s finding of a social security number “no-match.”


        The SSA annually reviews W-2 forms and credits social security earnings to workers. If
       a name or a Social Security Number (SSN) on a W-2 form does not match SSA records,
       the Social Security earnings go into an earnings suspense file while the SSA works to
       resolve discrepancies… In 2002, the SSA issued a no-match letter to each employer with


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       at least one employee whose information did not match the SSA’s records. This policy
       resulted in the SSA issuing 900,000 letters to U.S. employers, the equivalent of 1 in 8
       employers receiving these letters. (AILA Issue Paper “Social Security No-Match Letters:
       A Symptom of a Broken Immigration System.”)

On October 7, 2009 the Department of Homeland Security rescinded Safe Harbor
Procedures for Employers who received a no-match letter from the Social
Security Administration (74 FR 51447-52). The rule on Safe-Harbor Procedures
for Employers Who Receive a No-Match Letter, originally promulgated in 2007,
was challenged in AFL-CIO v. Chertoff and enjoined by the United States District
Court for the Northern District of California on October 10, 2007.

Current Climate in Employment Verification

Over the last several years, USCIS has launched a campaign to encourage employers to
use the E-Verify program. E-Verify is a federal online employment verification system
that allows employers to verify the work authorization status of their employees. Use of
the program is mandatory for all federal contractors. Some states have mandated use of
the program under state law, for example, Arizona passed the Legal Arizona Workers Act
in 2007. State-mandated employer enrollment in E-Verify is being challenged as state
pre-emption of federal law.


Government Subsidies and Incentives

Follow Your Heart got major credits/subsidies from the City to build the plant’s solar
power facilities in 2003. It indicated that subsidies were really good then, but are not
now. They’re looking into making their new warehouse solar powered, but since the
same subsidies are no longer available, they’re concerned that they might not be able to
do it.

Franklin says the company is looking into getting R&D credit, something new that they
have just heard about, which seems to be available depending on how many new products
a company has developed.

California Research and Development Tax Credit (R&D Tax Credit)

“Designed to encourage companies to increase their basic research and development
activities in California, the research and development tax credit allows companies to
receive a 15% credit against their bank and corporation tax liability for qualified in-house
research expenses, and a 24% credit for basic research payments to an outside
organization. It must not include research for the purpose.” (LAEDC - Business
Incentives County of Los Angeles, March 2009).

State Enterprise Zones

The City of Los Angeles has two State Enterprise Zones: The Los Angeles-Hollywood

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zone and the East Los Angeles zone. There are thirteen Enterprise Zones in L.A. County.

SEZs assist businesses located in the zones to lower their operating costs by providing
them with tax credits and deductions. The state offers incentives such as: hiring credits,
sales & use tax credits, expense and interest deductions. Los Angeles City offers local
incentives such as, DWP rate discount, sewer facility hookup payment plans, Work
Opportunity Tax Credit, and reduced parking requirements. (L.A. CDD Business
Incentive Zone Maps. http://www.ci.la.ca.us/cdd/bus_zonemaps.html#expansion)

Summary of State Enterprise Zone Benefits
EMPLOYER HIRING CREDITS                        Up to $37,440 over a 5-year period per
                                               each qualified employee can be claimed by
                                               an Enterprise Zone business as a tax credit.
SALES and USE TAX CREDITS                      An Enterprise Zone business can receive a
                                               tax credit of 100% of the sales/use tax paid
                                               for equipment purchases for use in the
                                               zone.
BUSINESS EXPENSE DEDUCTION                     An accelerated depreciation is available for
                                               tangible personal property the first year it is
                                               placed in service in an Enterprise Zone.
                                               Office supplies and inventory do not
                                               qualify. Limits: $20,000.
NET INTEREST DEDUCTION                         Lenders can earn tax-free interest on loans
                                               made to Enterprise Zone businesses.
NET OPERATING LOSS CARRYOVER                   100% of Net Operating Losses may be
                                               carried forward for 15 years to reduce the
                                               amount of taxable income for those years.
DEPARTMENT of WATER and POWER RATE             The Department of Water and Power offers
DISCOUNT
                                               a five-year electric rate discount to new
                                               businesses that are moving into the zone
                                               and apply within 18 months for the
                                               discount. Existing businesses whose energy
                                               consumption in the 6-month period before
                                               the date of application was at least 35%
                                               greater than the monthly average in the
                                               prior 12 months also qualify.
SEWER FACILITY CHARGE EXTENDED PAYMENT         The City allows Enterprise Zone businesses
OPTION
                                               qualify for a one-time lump sum payment
                                               exemption if the Sewer Facility Charge is
                                               over $17,000. The fee can be paid in
                                               installments over five years but interest is
                                               payable on any unpaid balance.
REDUCED PARKING ORDINANCE                      This ordinance provides reduced parking
                                               requirements for Enterprise Zone
                                               businesses compared with other areas of
                                               the City

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WORK OPPORTUNITY TAX CREDIT (WOTC)            Now any business anywhere can qualify for
                                              the credits as long as they hire persons
                                              between the ages of 18-39 who reside in
                                              either the Federal Empowerment Zone (EZ)
                                              or the Federal Renewal Community (RC)
                                              area. Los Angeles contains both an EZ and
                                              an RC. There are eight (8) additional
                                              eligibility categories, some of which are not
                                              dependent on the employee’s address. The
                                              WOTC hiring credit is worth up to $2,400
                                              per year for each eligible hire.
Table by Dominique Kaschak
Source: L.A. EDD

Federal Empowerment Zones

The Federal Empowerment Zone gives residents improved access to goods and services.
This zone offers Federal Tax Credits and local incentives including: wage credits, section
179 deductions, capital gains exclusion, DWP rate discount, city business tax waivers,
Work Opportunity Tax Credit, and the Brownfields tax deduction. (L.A. CDD Federal
Empowerment Zone webpage. http://cdd.lacity.org/bus_taxzin.html)

Summary of Federal Empowerment Zone Benefits
EMPLOYER WAGE CREDIT                   Federal tax credits of up to $3,000 can be
                                       claimed by an Empowerment Zone
                                       Business on each new and existing
                                       employee. The employee must live and
                                       work within the zone boundaries.
SECTION 179 DEDUCTION                  In general, all business taxpayers are
                                       allowed to deduct up to 100% of qualifying
                                       tangible property. $100,000 is the
                                       maximum amount that can be deducted
                                       through 2007. Empowerment Zone
                                       businesses can increase this deduction an
                                       additional $35,000 through December 31,
                                       2009. *No updates provided for 2010.
PARTIAL EXCLUSION of CAPITAL GAINS     An exclusion of 60% of capital gains is
                                       available from the sale of small business
                                       stock issued by an Empowerment Zone
                                       business that is a C corporation with gross
                                       assets of $50 million or less. Stock must be
                                       acquired after December 31, 2000 and
                                       before December 31, 2009 and held for at
                                       least five years. *No updates provided for
                                       2010.
DEPARTMENT of WATER and POWER RATE     The Department of Water and Power offers
DISCOUNT


                                                                                      106
                                           a five-year electric rate discount to new
                                           businesses that are moving into the zone
                                           and apply within 18 months for the
                                           discount. Existing businesses whose energy
                                           consumption in the 6-month period before
                                           the date of application was at least 35%
                                           greater than the monthly average in the
                                           prior 12 months also qualify.
CITY BUSINESS TAX WAIVER                   The City offers a tax waiver of the first
                                           $500 and freezes the taxes at their current
                                           rate for five years for existing
                                           Empowerment Zone businesses. Start-up
                                           businesses or businesses relocating from
                                           out of the City to this zone pay only $25
                                           annually for five years.
BROWNFIELDS TAX DEDUCTION                  Businesses can elect to deduct qualified
                                           clean-up costs of hazardous substances in
                                           certain areas (brownfields) in the tax year
                                           the business pays or incurs the costs. The
                                           contaminated property is not required to be
                                           located in any zone. The business needs
                                           certification from the state environmental
                                           agency and includes costs incurred prior to
                                           January 1, 2004.
WORK OPPORTUNITY TAX CREDIT (WOTC)         Any business anywhere can qualify for the
                                           credits as long as they hire persons between
                                           the ages of 18-39 who reside in either the
                                           Federal Empowerment Zone (EZ) or the
                                           Federal Renewal Community (RC) area.
                                           Los Angeles contains both an EZ and an
                                           RC. The WOTC hiring credit is worth up to
                                           $2,400 per year for each eligible hire.
Table by Dominique Kaschak
Source: L.A. EDD

Federal Renewal Community

“The Renewal Community is a federal designation for low to moderate income areas of
Los Angeles and designed to encourage businesses and developers to invest here to
stimulate economic development and job creation.” (L.A. EDD Website.)

Summary of Federal Renewal Community Benefits
WAGE CREDIT                            An RC business can claim up to $1,500 for
                                       each new or existing employee who is a
                                       resident of the RC. This tax credit reduces
                                       federal business income tax liability.

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SECTION 179 DEDUCTION                 All business taxpayers are allowed to
                                      deduct up to 100% of qualifying tangible
                                      property. $100,000 is the maximum that
                                      can be deducted through 2007. RC
                                      businesses can increase this deduction an
                                      additional $35,000 through December 31,
                                      2009.
COMMERCIAL REVITALIZATION DEDUCTION   The CRD is an accelerated depreciation for
                                      the costs of acquiring land and
                                      substantially rehabilitating or constructing
                                      a commercial or industrial building within
                                      the RC. IRS rules normally allow 39 years
                                      for this deduction.
                                      A business can elect to deduct:
                                      50% of qualifying expenditures in the year
                                      the building is placed in service and the
                                      balance over the normal 39 year period
                                      100% of the expenditures over 10 years,
                                      10% per year
                                      If the project is mixed use, at least 20% of
                                      the gross rental income must be derived
                                      from the commercial component. For
                                      rehabilitated buildings, up to 30% of the
                                      rehabilitation costs can be deducted for
                                      acquiring the property. For example, if the
                                      cost to rehabilitate a building is $1,000,000
                                      and the cost to acquire the building was
                                      $500,000, $300,000 can be deducted. The
                                      maximum allocation for any one project is
                                      $10,000,000 and it must meet required RC
                                      goals.
ZERO PERCENT CAPITAL GAINS RATE       A business that acquired an RC asset
                                      between January 1, 2002 and January 1,
                                      2010 will not have to include in its gross
                                      income any qualified capital gain from the
                                      sale or exchange of the asset. The business
                                      must hold the asset a minimum of five
                                      years. RC business stock, RC partnership
                                      interest and RC business properties qualify
                                      as assets.
DEPARTMENT of WATER and POWER RATE    The Department of Water and Power offers
DISCOUNT
                                      a five-year electric rate discount to new
                                      businesses that are moving into the zone
                                      and apply within 18 months for the
                                      discount. Existing businesses whose energy
                                      consumption in the 6-month period before

                                                                              108
                                              the date of application was at least 35%
                                              greater than the monthly average in the
                                              prior 12 months also qualify.
WORK OPPORTUNITY TAX CREDIT (WOTC)            Business anywhere can qualify for the
                                              credits as long as they hire persons between
                                              the ages of 18-39 who reside in either the
                                              Federal Empowerment Zone (EZ) or the
                                              Federal Renewal Community (RC) area.
                                              Los Angeles contains both an EZ and an
                                              RC. There are eight (8) additional
                                              eligibility categories, some of which are
                                              not dependent on the employee’s address.
                                              The WOTC hiring credit is worth up to
                                              $2,400 per year for each eligible hire.
Prepared by Dominique Kaschak
Source: L.A. EDD Renewal Community Zone webpage

Los Angeles County Recycling Market Development Zone

 “The RMDZ is a low-interest loan program & technical assistance for manufacturers
who use recycled material or process recycled material into a form usable to manufacture
a new product. It also helps businesses that reuse post-consumer secondary materials and
add value to recycled materials. Zone areas are unincorporated L.A. County & cities of
Burbank, Carson, Compton, Commerce, Covina, El Monte, Glendale, Huntington Park,
Los Angeles, Lynwood, Montebello, Pasadena, South El Monte, South Gate, Long
Beach, and Vernon and Santa Clarita.” (LAEDC - Business Incentives County of Los
Angeles, March 2009).

Bonds

The City of Los Angeles Community Development Department and Industrial
Development Authority provide Industrial Development bonds, Empowerment Zone
bonds and Non-profit bonds offering both taxable and tax-exempt financing for
commercial, industrial, and non-profit development projects at favorable interest rates,
usually below conventional borrowing cost. “Qualified projects must fulfill a public
benefit criteria, such as job creation for low and moderate income City residents.” (IDA
webpage on municipal bonds. http://ida.lacity.org/bonds_mb.html).

Business Assistance

The L.A. CDD also has a Los Angeles Business Assistance Program (LABAP) to provide
free training and technical assistance to business owners seeking to improve their
operations and profitability. One of the listed categories for “Growth Business” is “Food
Distribution.” However, no further information is given for Managed Career Solutions,
Inc., the small business assistance service provider.


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Citizen Concerns about Food Manufacturing


Food Safety

Betsy Donald, Professor of Geography, who carried out a five-year study into the
organic, ethnic and specialty food industry in the Toronto area in Canada, observes:
“perhaps no other commodity requires such a complex system of multi-scaled institutions
and regulations to protect public safety as does food” (Donald 2008).

As one might imagine, community concerns about food manufacturing principally focus
on food safety. There are recalls in the news nearly every week, and sometimes one
recall can break a company. Even in extremely careful facilities there are occasionally
recalls. “The thing about food safety is it has to be a way of life,” the general manager of
Caldwell’s told us. They have an extremely meticulous recording system and state-of-the
art sanitizing technology. Yet even there, sprouts were contaminated with salmonella on
one occasion. This seems to have led to Caldwell’s losing its sprout contract with Trader
Joe’s and then selling of its sprout manufacturing facility to another company.

Follow Your Heart reported that they have never had problems with inspections, and they
have a lot of them: FDA, County, State, Organic certification, Kosher and third party
audits. Franklin reported that because of their customer base, which is very interested in
how food is manufactured, they have been going above and beyond for a long time. Yet
even Follow Your Heart had to do one recall because one of their peanut suppliers found
salmonella on the peanuts.

A recall is bad for the company, said Thomas, but it lets you know that the system works.
In a voluntary recall, the FDA doesn’t force you to recall, but it would be bad for the
image of the company not to recall, especially if one of the important retailers were to see
that a company had not done a recall when asked to. During the recall, Caldwell’s shut
down, sanitized everything, took samples of seed to be tested. It took a long time to find
it.


Concerns about the way food is manufactured in the context of Green

More recently, consumers have shown to be increasingly concerned with local,
sustainable or otherwise environmentally-sound food, which includes how and where the
food is manufactured. In Sell your Specialty Food, Hall describes green as the “new
option… that impacts everything you do, and can be a sale maker or deal breaker.”

Don Whittenmore of Dandy Don’s Ice Cream noted that, although he found deficiencies
in biodegradable spoons and cups for ice cream, Santa Monica would run him away if he
tried to sell there with Styrofoam and plastic. Manufacturers such as Passport Foods are
making the importance of supporting locally manufactured food explicit in their
marketing. Maria Elena’s, Caldwell’s Fresh Foods and Follow Your Heart are all
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certified organic, finding that the increased price of inputs and certification is worth the
higher price that organic products command in the market. Follow Your Heart makes
sure that the fact that their factory is solar-powered appears on their marketing materials.
The sign at their factory reads “Earth Island: Powered by the Sun.”

Of companies we have interviewed, Follow Your Heart has perhaps done the most to
ensure green manufacturing. They have solar panels covering the entire roof that
channels energy to the city, which re-channels their energy and their energy and gives
them credits based on how much they produce. They were originally powered 100% by
the panels, but with expansion of production solar now supplies 70-80% of their energy.

The building also has other environmentally-sound features: recycled carpets, skylights
so that more natural lighting enters, motion sensor lights, environmentally safe paints,
non-hazardous cleaning products. They recycle glass, cardboard and office paper, send
good food that’s mislabeled to the L.A. Food Bank and sell their used oil for biodiesel.

A conversation with Robert Gilbert, the Sustainability Manager at UCLA, was helpful to
understand how customers are influencing major buyers, such as universities. Students
have been very influential in this initiative.

The UC Policy on Sustainable Practice aims for UCLA to serve 20% sustainable food by
2020. This policy started out with the Real Food Challenge, originally a student group,
which created a categorization system with things like rainforest alliance, grass-fed, fair
trade, USDA organic, cage-free, local, etc. Each of these labeling systems is tagged
green (best), yellow (better) or red (bad). UCLA can come up with sort of a weighted
average to assess its level of sustainability in the food it buys.

The initiative is coming mainly from students. There is more focus on food and lots of
student interest. Bruins for Animals was the student group that pushed for all cage free
eggs in student dining halls, to which the university has recently committed.

UCLA is also working with distributors to get more local and more organic food. In
general, they’ve never coordinated menus based on seasonal food, but now are starting to
consider seasonality. They ask distributors what produce they can get within 200 miles
throughout the year. Gilbert noted, “if they say we can get you melons in the fall, then
maybe we should serve more melons in the fall.”

Gilbert says UCLA is now aggressively looking at local, in particular because it might be
a way to increase its sustainability score without being as much of a cost increase.
Considering seasonality in menu-planning is part of this. One issue is that most
distributors, according to Gilbert, don’t have sophisticated tracking system. It’s mostly
on paper and not computerized. For that reason, “we may have more local produce than
we know right now,” says Gilbert.




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Networking and Trade Associations

Trade Shows

The most important means of networking for many food manufacturers that we
interviewed are trade shows. According to Stephen Hall in Sell your Specialty Food,
trade shows “rate high on the list of important promotional vehicles (104).” They offer
an opportunity to introduce a new product, learn about the competition, meet customers
and make sales. Follow Your Heart mentioned that the company spends lots of time
preparing for and attending food shows because they are an excellent place to meet
brokers, distributors and wholesalers. They attend Expo East, Expo West and the Fancy
Booth Show. Follow Your Heart also goes to machinery fairs, including one at the
Convention Center in Las Vegas. Maria Elena’s also goes to regular food shows. They
mentioned the natural food show in San Francisco as an important one.


Food Industry Business Roundtable (FIBR)

Most of the companies that we have interviewed are members of the Food Industry
Business Roundtable Organizer (FIBR), which is how we were able to originally contact
them. FIBR has around 140 members and was created 14 years ago. Dues $150-$750
per firm depending on the number of employees and they also charge for some of their
events, trainings and an annual dinner. It was not easy at first to organize an association
where companies saw each other as the competitions. Nuñez says that once she
convinced people that they didn’t have to share their recipes, they realized they had a lot
to learn from each other.

The main advantage of FIBR membership is its network, according to both Nuñez and
several food manufacturers we’ve spoken to. A FIBR member gets access to other
member lists and this enables different manufacturers to talk to each other if they are
having a problem (e.g., labor issues). Thomas of Caldwell’s said that FIBR has been an
excellent way for him to share useful information with several clients.

FIBR has even helped competitors help each other. One example is among a few noodle
firms in L.A. who at first were suspicious of talking with each other, but soon realized
talking to each other could be advantageous to their businesses, such as buying flour
together in order to get better bulk prices.

Other ways in which FIBR membership helps is by sharing experiences regarding human
services, regulation, sexual harassment suits, workers comp, food safety and third party
audits.

FIBR is small, basically run by Nuñez, who also works with a number of different

                                                                                        112
organizations. “We don’t lobby, but we stay in touch with bigger groups” The main one
is the CA League of Food Processors. Nuñez, among other things, sits on two of their
committees and talks to the regulatory committee to get their perspective.


Other Trade Associations

Maria Elena belongs to the L.A. Fine Foods Group, which has meetings about once a
quarter. This group also organized a presentation of Costco buyers to talk to group,
which Gonzalez reported as being helpful.

Follow Your Heart is part of the Organic Trade Association, which is mainly a list-serve
and a database to help manufacturers get organic ingredients. They also participate in
SCIFT, the Southern California Institute of Food Technology. This is a list-serve, and
their R&D person attends their meetings.

North American Specialty Food Trade (NASFT) has their headquarters in New York, but
produces information relevant to the industry as a whole. They describe themselves as a:

       Specialty Food Trade association of independent, innovative businesses
       committed to bringing great foods to market… a diverse community of
       passionate and creative entrepreneurs who fuel the innovation and
       authenticity found in food today. With more than 2,900+ member
       companies from around the world, the NASFT is the preeminent not-for-
       profit business trade association established to foster trade, commerce and
       interest in the $60 billion specialty food industry. Our organization
       includes domestic and foreign manufacturers, importers, distributors,
       brokers, retailers, restaurateurs, caterers and others in the specialty foods
       business. We bring the industry together with events, business
       opportunities, education and awards that further our goal of expanding the
       specialty food industry.




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Interest in Green Food Manufacturing

Los Angeles Food Policy Council

Los Angeles is in the process of convening a Food Policy Council based upon the
recommendations of the Los Angeles Food Policy Task Force. The Task Force was
convened in 2009 by L.A. Mayor Villaraigosa and “was charged with developing a Good
Food policy agenda for Los Angeles – food that is healthy, affordable, fair and
sustainable” (GoodFood L.A.). With its focus on sustainability, this Council and the
GoodFood L.A. initiative, which will include representation from both L.A. City and
L.A. County, presents an opportunity for L.A. food manufacturers to ensure that the
agenda includes attention to the role local food manufacturers play in the local food
system and in the local economy.


The Green Urban Manufacturing Initiative (GUMI)

The Green Urban Manufacturing Initiative (GUMI), which FIBR director Yvette Nunez
works for, strives to:

       work with existing urban manufacturers in four target sectors not usually
       associated with Green, but that have a great economic impact in the
       region’s economy and in underserved communities. By greening these
       sectors (food processing, apparel, metals and furniture) we can help retain
       and grow these businesses, by helping them stay competitive in an ever
       greening marketplace. We also hope to develop new green production
       clusters, by helping identify markets for manufacturing green products
       (http://www.cdtech.org/uncategorized/green-urban-manufacturing-initiative-gumi-under-
       way/)

GUMI is looking at energy efficient production processes (including lighting and
insulation and alternative energy sources), waste disposal/recycling, supply chains,
packaging, and chemicals used in cleaning and in production among other things.

Our interviews with specialty food manufacturers have been revealing. Two broad
lessons we have learned:

Best practices in Green facilities exist. To encourage greening, the City, County and
State should learn from these best practices. We highlight some of these best practices
below.

Many food manufacturers are interested in becoming more environmentally sound, but
they must weigh this interest against their need to make money and not compromise their

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product. Policies that do not pay off in the short term may require public subsidies.

This second lesson we heard echoed by many producers. Don Pedro’s would love to be
able to better insulate the facility, which could cut energy costs by more than half, but
that would require shutting down production for a month—impossible for a business
owner accountable to many customers and 20 employees. Don Whittenmore of Dandy
Don’s Ice Cream would be happy to use biodegradable spoons and cups for ice cream if
they were suitable to his products. The biodegradable spoons bend and ice cream seeps
through the paper cups he has invested in. Follow Your Heart would love to build their
new facility solar power, but the subsidies that made it feasible to make their first plant
solar power are no longer in place.

Consumer demands are driving the push towards local and green, and manufacturers
recognize this, and include some of their efforts on their marketing materials ( Follow
Your Heart makes sure that the fact that their factory is solar-powered appears on their
jars, for examples). Yet, many environmentally sound practices aren’t even taken into
account in the labeling processes. Energy expenditure at a factory, for example, a main
cost for many manufacturers is not reflected in green labeling. In that sense, there is no
additional incentive for manufacturers to make the investments necessary—whether
through better insulation, more energy efficient lighting, or alternative energy sources—
to reduce energy consumption. Cities and counties could be instrumental in making
sufficient subsidies available.

Unfortunately, according to Jim Kibbani of Tortilla Industry Association (TIA), the
interest in greening shows up in direct proportion to the size of the manufacturing
facility. Bigger companies emphasize it more, especially when opening a new plant.
Small limited companies don’t work at that. The incremental returns from it are smaller.
As an example, he explained “When you’re making a penny on every tortilla you have to
make up that kind of investment in volume.”


Green Practices in Action

A list of some of the initiatives that specialty food manufacturing companies we spoke to
have taken to green their facilities and production processes are below:

   •   Maria Elena’s and Caldwell’s are USDA certified, which means that they use
       relatively non-toxic chemicals to clean their equipment. Yvette Nunez of FIBR
       has been talking to inspectors to find out if they will support the use of green
       chemicals. Regulatory agencies must also be nimble in adopting and supporting
       green policies.

   •   Passport Foods has their food waste picked up by a producer of animal feed.
       Since food waste is much of what food manufacturers have, this is a smart way to
       keep a lot of waste out of the landfill and put it to productive use.


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•   Chef’s Kitchen separates food waste for a composting service.

•   Passport Foods also uses corrugated cardboard boxes rather than colored,
    chemical based ink or packaging.

•   Many of the companies we spoke with already recycle some materials, and in
    some there is room to further separate waste.

•   Chef’s Kitchen, among other manufacturing facilities, have had fluorescent light
    bulbs installed by the City, which has cut down on energy use.

•   Several companies, Follow Your Heart and Passport Foods specifically take mis-
    packaged food that is otherwise in perfect condition to the L.A. Food Bank. This
    kind of use could be further encouraged.

•   Follow Your Heart’s efforts deserve particular attention. They have solar panels
    covering the entire roof that channels energy to the city, which re-channels their
    energy and their energy and gives them credits based on how much they produce.
    They were originally powered 100% by the panels, but with expansion of
    production solar now supplies 70-80% of their energy.

•   The building also has other environmentally-sound features: recycled carpets,
    skylights so that more natural lighting enters, motion sensor lights,
    environmentally safe paints, non-hazardous cleaning products. They recycle
    glass, cardboard and office paper, send good food that’s mislabeled to the L.A.
    Food Bank and sell their used oil for biodiesel.




                                                                                  116
Company Profiles

Don Pedro’s Meats

Name:                   Don Pedro’s Meats
Address:                725 E. Edna Place, Covina, CA, 91723
Corporate Name          Raandom Corp.
Type:                   Private Corporation
Owners/Background:      Andres Jaramillo bought the company in 2005 from the
                        founder/owner Don Pedro Rodriguez. The company began out
                        of Don Pedro’s kitchen when he would make a special kind of
                        beef jerky for his friends and family. Local Latino stores
                        began requesting it and Don Pedro soon outgrew this space
                        and he bought a USDA-inspected plant. Don Pedro decided to
                        sell the company in 2005. Jaramillo, an entrepreneur with a
                        background in wholesale flower distribution, bought Don
                        Pedro’s and, noting the plant’s limited capacity, decided to
                        purchase a new, larger facility.
Number of Employees:    18
Year Founded:
Products:               Hand sliced Cecina Seca (Mexican Beef Jerky)
                        Sausage
                        Salsa
Customers:              Mainly grocery stores
                        El Super
                        Jons
                        Cardenas
                        Mi Pueblo (Northern California)
                        Some food service establishments
Customer Locations:     Currently: California, Arizona, Nevada
                        In the works: Texas, Atlanta, Chicago, Washington State
Brands:                 Don Pedro’s Meats
Management:             President: Andres Jaramillio
Interview Highlights:   Diana Denham and Shoshana Krieger interviewed Mr.
                        Jaramillio on November 4, 2010 at Don Pedro’s factory in
                        Covina, CA. The firm produces more than 1.5 million pounds
                        of beef jerky and sausage every year. One of its best-selling
                        products is Cecina, a Mexican-style beef jerky that is hand-cut,
                        marinated, and slow-cooked in the plant’s ovens. The Cecina
                        is sugar-free, differentiating it from many of its jerky
                        counterparts. The butchers who cut the Cecina are highly
                        skilled and are the most prized workers of the factory.


                                                                                  117
Don Pedro’s USDA-inspected plant operates weekdays from
6:00 am until 2:00 p.m., and, at times, operates at extended
hours if there is an order needs to be filled. However, because
extended hours necessitates paying workers overtime and the
on-site USDA inspector extra, Don Pedro’s tries to minimize
extended hours of operation.

Don Pedro’s is currently focusing a lot of energy on its sales
team, which is comprised of three employees dedicated to
sales, two employees who spend part of their time on sales and
Mr. Jaramillo himself. Sales team members meet with
customers and potential customers to garner sales and work
with distributors to ensure that product is sold and shipped
according to customer specifications. Mr. Jaramillo stressed
the importance of customer relations and the necessity of
developing and maintaining client contacts for future growth
of the business.




                                                          118
Maria Elena’s Authentic Latino, Inc.

Name:                   Maria Helena’s Authentic Latino, Inc.
Address:                29021 Ave. Sherman, Suite 112 Valencia, CA 91355
Corporate Name:
Type:                   Private Corporation
Owners/Background:      Co-founders: Jerry Gonzalez and John Mularky.

                        Maria Elena’s has one investor, Bill Miranda.

                        Owner’s background:
                        Jerry Gonzalez had several years of experience in food retail
                        and service prior to founding Maria Elena’s. He started
                        working at Whole Foods in college and spent several decades
                        with the company before co-founding The Bernod Group, and
                        later Maria Elena’s Authentic Latino, Inc.

Number of Employees:    4 full-time employees
Year Founded:           2008
Products:               Organic Aguas Frescas and Horchata
Customers:              Whole Foods
                        Other retail Food Stores
                        Online direct sales through MexGrocer.com
                        Sales through food service at Six Flags Magic Mountain and
                        Universal Studios Hollywood.
                        Sales to retail food establishments such as coffee and ice
                        cream shops.

Customer Locations:     Currently: Nationwide.

Brands:                 Maria Elena’s Authentic Latino
Management:             Co-founders: Jerry Gonzalez and John Mularky
Interview Highlights:   When we asked Jerry Gonzalez about the organic production
                        certification process he responded “It was a long, arduous
                        process. That is more expensive than you initially pencil it out
                        to be.”

                        The hired a food technologist to do a feasibility study and an
                        organics and natural foods specialist to help them source
                        ingredients from reliable sources.

                        He explained that it is a matter of ingredients, processes and
                        creating a standard operating procedure. If separate equipment
                        is not used for the organic products, then machinery has to be
                        cleaned between the manufacturing of non-organic and organic

                                                                                   119
products to avoid cross-contamination. To store ingredients,
they have to create separate areas in their storage bays to
ensure segregation of organic and non-organic products. They
must also use organic pest control and organic sanitation
products.

Organic certification is carried out by a third party agent who
reports to the USDA.




                                                           120
Dandy Don’s Homemade Ice Cream, Inc.

Name:                   Dandy Don’s Homemade Ice Cream, Inc.
Address:                16760 Stagg Street, #222 Van Nuys, CA 91406
Corporate Name:
Type:                   Private Corporation
Owners/Background:      The owner is Don Whittenmore.
Number of Employees:    12
Year Founded:           1981
Products:               Ice cream
Customers:              Restaurants and hotels
                        Direct sales through Sunday Bars.
                        Retail food markets.
Customer Locations:     Currently: Los Angeles metro area.

Brands:                 Dandy Don’s Homemade Ice Cream
Management:             Owner: Don Whittenmore
Interview Highlights:   The site visit to Dandy Don’s was instructive in the hiring and
                        retention of employees at small specialty food manufacturers.
                        Hiring occurs through networks and retention seems dependent
                        on a positive relationship with the owner/manager and among
                        the employees.




                                                                                 121
StarLite Foods, Inc.

Name:                   StarLite Foods, Inc.
Address:                10889 Portal Drive, Los Alamitos, CA 90720
Corporate Name:
Type:                   Private Corporation
Owners/Background:      The owner is June Lim. She purchased the company from her
                        parents with her sister in 2000. The company used to be called
                        First Vegetarian Foods Inc. and its manufacturing facility was
                        in Baldwin Park.

                        Owner described the business as both a business and a family
                        legacy.

Number of Employees:    1 full-time employee. 1 part-time employee.
Year Founded:           2000
Products:               Vegan taquitos and flautas.
Customers:              Whole Foods
                        Costco (at one time)
                        Independent natural food stores.
                        Other retail food stores.

Customer Locations:     Currently: Nationwide and Canada.

Brands:                 StarLite Cuisine
Management:             Owner June Lim
Interview Highlights:   June Lim provided many insights on the use of a co-packer to
                        manufacture ingredients. She related that an advantage to
                        using a co-packer is that she is no longer responsible for
                        employees, which were her biggest business cost, or assets like
                        manufacturing equipment, which were taxed every year.

                        She explained that when she first started using a co-packer she
                        would often go to the facility to ensure that her products were
                        being manufactured to her specifications. Eventually she
                        developed a bill of materials, or BOM, which provides
                        explicit, detailed instructions on everything from the storing of
                        ingredients, to the production of food, to the arrangement of
                        boxed food products on pallets for cold storage and shipping.

                        She also provided a first-hand account of the effects of
                        increased consolidation in food distribution on small food
                        manufacturers. She explained that access to markets serviced
                        by large distributors such as Sysco Corporation are closed to
                        her company. The explanation she gave is that a large

                                                                                   122
distributor like Sysco won’t distribute her products because
she is too small as a manufacturer.




                                                          123
Passport Food Group, Inc.

Name:                   Passport Food Group
Address:                Passport Food Group, Inc
                        5010 Eucalyptus Avenue, Chino, CA 91710
Subsidiaries:           Wing Hing Foods Inc (since 1979) and Royal Angelus
                        Macaroni Company (acquired in 2010)
Type:                   Private Corporation
Owners/Background:      The business is owned by the Yee family, but has made a
                        transition from small “mom and pop” to selling to many U.S.
                        large chain restaurants.

Number of Employees:    170 full-time employees, 10% temps
Year Founded:           1978
Products:               Asian noodles, wraps (egg roll skins, wonton, dumpling, etc.)
                        and fried products (fried wonton strips, chow mein noodles
                        and other salad toppers)

                        Traditional and organic dry pasta (manicotti, lasagna, jumbo
                        shells, etc.), including with specialty flours (organic, whole
                        wheat, whole grain, and non-gluten)
Customers:              Food service: Panda Express, Applebees, Panera Bread,
                        Cheesecake Factory and many more
                        Retailers: Longs Drugs, Gelson's, Ralphs, Bristol Farms,
                        Wegmans, K-Mart, WinCo Foods
                        Food manufacturers

Customer Locations:     Nationwide

Brands:                 Shanghai Wonton Chips, Wing Hing Noodles, Royal Macaroni
                        Brand
Management:             Parent Corporation (Passport Foods) does upper management,
                        purchasing, customer service. Management includes CEO, 4
                        Vice Presidents (operations, finance, sales and marketing)

                        At each location (Wing Hing and Angelus) they have a plant
                        manager, general manager, shipping manager, planning
                        manager and maintenance manager.
Interview Highlights:   As Passport Foods has grown, it has carefully and strategically
                        crafted its image to be one of a well-managed corporation and
                        not a “mom and pop”. This move was deemed necessary to
                        reach big chain restaurants, currently their main clients and to
                        reach beyond ethnic markets. They have done this in a
                        number of ways: having an impeccable interior with corporate
                        style meeting room, changing board membership, hiring a non-

                                                                                   124
family CEO, and making sure that almost “everything that
touches food” is domestic. The last strategy has to do with
negative impressions of China food coming from China in the
U.S., and the need to distinguish themselves as “Asian-
American, not Asian.” Their board is now 1/2 family and 1/2
non-family and their CEO is Dave Abrams.




                                                      125
Caldwell Fresh Foods
Name:                  Caldwell Fresh Foods
Address:               Jack H. Caldwell and Sons, Inc.
                       4035 E. 52nd St.
                       Maywood, CA 90270

Type:                  Private Corporation
Owners/Background:     The business has been owned and operated by the Caldwell
                       Family since 1949
Number of Employees:   49 full-time employees, no part time
Year Founded:          1949
Products:              Chop Suey Stir Fry Variety Packs
                       Chop Suey with Bean Sprouts
                       Stir Fry Vegetables
                       Stir Fry Bok Choy
                       Stir Fry with Chop Sticks and Teriyaki
                       Red Cabbage, Shredded
                       Carrot Sticks
                       Celery Sticks
                       Fajitas, Onions and Peppers
                       Stew Mix
                       Portion Packs, Carrots and Celery
                       Caldo Mix
                       Three Color Bell Peppers

                       Organic Products
                       Organic Stir Fry with Teriyaki
                       Organic Stir Fry with Vegetables
                       Organic Chop Suey with Bean Sprouts
                       Organic Fajitas, Onions and Peppers
                       Organic Stew Mix
                       Organic Cole Slaw with Carrots and Red Cabbage
                       Organic Carrots - Coined, Diced or Sticks
                       Organic Celery
                       Organic Onions

                       Cavazos Products
                       Pico de Gallo

                       Wholesale and Repacks
                       Kabobs, Gourmet with Tomatoes
                       Kabobs, Peppers and Onions
                       Fresh Fajitas, Onions and Peppers
                       Red Bell Pepper Kabobs - Sliced or Diced
                       Green Bell Peppers Kabobs - Sliced or Diced

                                                                             126
                      Cole Slaw with Carrots and Red Cabbage
                      Carrots - Matchsticks, Shredded, Coined or Diced
                      Celery - Sticks or Diced
                      Onions - Peeled, Sliced or Diced
                      Red Onion Kabobs - Sliced or Diced
                      Spinach, Premium Stemless

                      Fresh Vegetable Soups
                      Fresh Vegetable Wonton Soup
                      Fresh Garden Vegetable Soup
                      Fresh Vegetable Chicken Tortilla Soup
                      Fresh Vegetable Chicken Noodle Soup
Customers:            Grocery stores: Albertson’s Superior Supermarket, L.A.
                      Wholesale Produce Market, Trader Joe’s. They also sell to
                      hotels, cruise ships and hospitals, and schools. They also co-
                      pack.
Customer Locations:   Mainly in CA, Trader Joe’s products are sold out of state

Brands:               Caldwell Fresh Foods appears on product list above, plus co-
                      packs for Maui girl, Melissa’s among others
Management:           General manager is Maurie Thomas, Caldwell brothers also
                      have upper management roles. Production managers have
                      been with the company for many years, who typically started
                      as line workers.
                      Caldwell’s has provided long-term employment for many of
                      the workers. Around 10 of the workers have been with
                      Caldwell’s for between 10-20 years.

                      General Manager Thomas mentioned the importance of
                      bilingual workers, and all staff besides himself and the
                      Caldwell brothers, are Mexican. It is very important for
                      Caldwell’s to have a bilingual buyer because a lot of their
                      produce comes from Mexico and Chile. A salesman must also
                      be bilingual because everyone at the L.A. Produce Market
                      speaks Spanish. Production managers must speak Spanish
                      because many line workers only speak Spanish.

                      Caldwell also highlighted the role of food safety, showing us
                      their meticulous record-keeping and explaining their HACCP
                      Plan and the role of inspections and recalls.




                                                                                127
Passport Foods
Name:                   Passport Food Group
Address:                Passport Food Group, Inc
                        5010 Eucalyptus Avenue, Chino, CA 91710
Subsidiaries:           Wing Hing Foods Inc (since 1979) and Royal Angelus
                        Macaroni Company (acquired in 2010)
Type:                   Private Corporation
Owners/Background:      The business is owned by the Yee family, but has made a
                        transition from small “mom and pop” to selling to many U.S.
                        large chain restaurants.

Number of Employees:    170 full-time employees, 10% temps
Year Founded:           1978
Products:               Asian noodles, wraps (egg roll skins, wonton, dumpling, etc.)
                        and fried products (fried wonton strips, chow mein noodles
                        and other salad toppers)

                        Traditional and organic dry pasta (manicotti, lasagna, jumbo
                        shells, etc.), including with specialty flours (organic, whole
                        wheat, whole grain, and non-gluten)
Customers:              Food service: Panda Express, Applebees, Panera Bread,
                        Cheesecake Factory and many more
                        Retailers: Longs Drugs, Gelson's, Ralphs, Bristol Farms,
                        Wegmans, K-Mart, WinCo Foods
                        Food manufacturers

Customer Locations:     Nationwide

Brands:                 Shanghai Wonton Chips, Wing Hing Noodles, Royal Macaroni
                        Brand
Management:             Parent Corporation (Passport Foods) does upper management,
                        purchasing, customer service. Management includes CEO, 4
                        Vice Presidents (operations, finance, sales and marketing)

                        At each location (Wing Hing and Angelus) they have a plant
                        manager, general manager, shipping manager, planning
                        manager and maintenance manager.
Interview Highlights:   As Passport Foods has grown, it has carefully and strategically
                        crafted its image to be one of a well-managed corporation and
                        not a “mom and pop”. This move was deemed necessary to
                        reach big chain restaurants, currently their main clients and to
                        reach beyond ethnic markets. They have done this in a
                        number of ways: having an impeccable interior with corporate
                        style meeting room, changing board membership, hiring a non-
                        family CEO, and making sure that almost “everything that

                                                                                   128
touches food” is domestic. The last strategy has to do with
negative impressions of China food coming from China in the
U.S., and the need to distinguish themselves as “Asian-
American, not Asian.” Their board is now 1/2 family and 1/2
non-family and their CEO is Dave Abrams.




                                                      129
Earth Island/ Follow Your Heart
Name:                  Follow Your Heart/Earth Island
Address:               9201 Owensmouth Ave.
                       Chatsworth, CA 91311
Annual sales:          $15-20 million
Type:                  Private Corporation
Owners/Background:     The business was operated as a restaurant starting in 1972 and
                       begun as a manufacturing facility in 1988.
Number of Employees:   75-80 full-time employees, no part time
Year Founded:          1949
Products:              Veganaise
                       Vegan Gourmet Dairy Alternatives
                       Organics Salad Dressings - Organic salad dressings crafted in
                       small batches with big, fresh, homemade flavor.
                       Exotic and traditional dressing flavors made naturally.
                       Veggie Meats
Customers:             Follow Your Heart restaurant, dairy and grocery
Customer Locations:
Brands:                Veganaise, Unforgettables, Follow Your Heart, Vegan
                       Gourmet
Management:            Bob Goldberg is the CEO
Other information      Environmentally sound building features include:
                       Solar panels (produce 70-80% of electrical needs)
                       Recycled carpets
                       Skylights
                       Motion sensor lights
                       Environmentally safe paints
                       Non-hazardous cleaning chemicals
                       Sell used cooking oil as biodiesel
                       Recycling




                                                                                130
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