«Food Marketing and Lumber Processing in Massachusetts, 1958 to1997 David Damery, David Holm, Daniel Lass, and Richard Rogers Department of Resource ...»
Agriculture’s Hold on the Commonwealth
Food Marketing and Lumber
Processing in Massachusetts, 1958
David Damery, David Holm, Daniel Lass,
and Richard Rogers
Department of Resource Economics, University of Massachusetts
Food Marketing and Lumber Processing in Massachusetts, 1958 to1997
This paper examines the food and lumber processing industries in Massachusetts over
the last four decades. We give much more emphasis to processing than to distribution (the next step in the vertical food marketing chain) because processing is directly linked to primary production, the topic of our first white paper, “The State of Agriculture in Massachusetts.” Unlike processing, the distribution of food and wood products is influenced more by where people live than where the primary production is located. Even within processing, though, population plays a role because certain food products (e.g., bread) are more efficiently processed near the consumer, rather than near the primary production areas, therefore separating the usually close link between production and processing.
We begin with a brief summary of food and lumber processing in Massachusetts, then provide a broad overview of the U.S. food marketing system, which allows for relative comparisons. After the national review, the paper examines more fully food processing in Massachusetts and the New England region, as well as the Massachusetts forest products manufacturers We close with a general assessment of the total food marketing system in Massachusetts in 1997, the most recent year data are available.
Food Processing in Massachusetts Food processors have long been viewed as the market channel leaders within the vertical food system because they attempt to link consumer demands to producer supplies. Agricultural products are characterized by a biological process that typically starts with the planting season and ends with a harvest. Food processors provide the critical services of preservation and transformation of raw commodities into valueadded products, and they begin the distribution process of moving food products to final consumers. They dominate the vertical food system in terms of their economic size and their importance to a modern food system.
The cost of marketing food continues to take a larger proportion of the consumer’s food dollar, but Massachusetts farmers have responded by taking on many of the marketing tasks to retain those marketing dollars for themselves. It is a common belief within the agricultural community that “all the money is made by the middle people.” Some Massachusetts farmers are testing this belief by directly assuming the functions performed by these middle people. Direct marketing through farmers’ markets and roadside stands are such examples. However, such an expansion of duties does not eliminate the marketing functions; it merely shifts them from marketing firms back to the producer, who now performs those duties along with the production duties. Such a trade-off is not always a wise decision because specialization often provides sufficient efficiencies to outweigh the loss of doing more of the marketing functions
within the farm enterprise. In Massachusetts, farmers are using both approaches:
some have reduced their production operations and expanded their marketing operations, while others have further specialized in their farm operation and allowed others to handle the marketing functions.
Massachusetts is not known as a farm state, yet it retains a significant and healthy agricultural sector (see "The Changing Landscape of Massachusetts Agriculture" by David Holm, Daniel Lass, and Richard Rogers in the Winter '99/'00 issue of
Massachusetts Benchmarks). Massachusetts is a small state, and it ranked 43rd in agricultural production in 1997. All six New England States were in the bottom nine states in the country in agricultural production. Large states, such as California and Texas, and Midwestern states led the 50 states in agricultural production. However, Massachusetts is also a densely populated state, and its population and location allow it to have a much higher national rank in food processing (26th) because food processors often locate nearer to consumers, especially for highly perishable products like bread. This population density also makes food service of great importance to Massachusetts, and farmers and food processors should cater to this sector. Retailing is another population-driven business, and Massachusetts farmers need to find ways to benefit from rather than be hurt by population pressures. The state also plays an important role as food wholesaler to the greater New England and northern East Coast region.
Employment in food processing in New England has declined over time, but most of this decline came in the earlier part of the period we examined, from 1958 to 1977, and then stabilized or posted some increases. In 1996, New England employed over 40,000 people in food processing jobs. Within New England, Massachusetts dominates food processing, but its dominance has fallen slightly, from just over 50 percent of the region’s food processing employment or value-added in the 1950s and 1960s to just under 50 percent in the 1990s. New York experienced a much more dramatic decline in food processing than any New England state, and Vermont posted a large percentage of increase, but from a relatively small base.
Overall, Massachusetts accounted for 1.3 percent of the nation’s value-added in food processing, far more than its 0.2 percent of agricultural production. In a few specific food-processing industries, Massachusetts exceeded its overall average. In dairy processing, mainly fluid milk and ice cream, Massachusetts held over 2 percent of the nation’s food processing value-added. However, the other two broad food processing categories—bakery and miscellaneous foods—where the Bay State also exceeded its overall average do not benefit the state’s farmers as directly as dairy processing does.
The large presence of bakery products in Massachusetts reflects locational advantages to serve fresh bakery items to a large population base rather than locating close to producers of the grains. The miscellaneous food group is a catchall category, which includes the very important fresh and frozen packaged fish industry and numerous other small industries that are both important (e.g., potato chips) and unimportant (e.g., tea) to the state's farmers. The fresh and frozen packaged fish industry clearly benefits from the fisheries located along the eastern coast and accounts for roughly 10 percent of the state’s total employment in food processing. Dairy products and bakery products are the leading industries within the state’s food processing sector, with each accounting for about 20 percent of the state’s workforce in food processing.
The decline in the size of the Massachusetts food processing was largely over by the late 1970s; subsequently the sector has even witnessed minor growth, and some sectors have posted significant gains (e.g., fruit and vegetable processing). Farmers benefit from having processors located nearby, and the state benefits from the substantial economic activity that food processors provide its citizens.
Wood Processing in Massachusetts For wood processing, we focus on the Lumber and Wood Products major group (SIC Food Marketing and Lumber Processing in Massachusetts, 1958 to1997
24)in this paper. Like food processing, wood processing declined in Massachusetts, but unlike in food, wood- processing declines came after the 1980s, just when the food processing sector was stabilizing, if not increasing. The number of sawmills in the state fell from 130 in the early 1970s to 85 in 1997. Employment in the Lumber and Wood Products major group fell from over 6,000 employees in 1987 to about 3,500 in 1997.
Our previous paper ("The State of Agriculture in Massachusetts") focused on the landowner and forest level of the state's wood resource. There we discussed the growing wood and timber base and the species make up of the Massachusetts forest.
We can define a breakpoint in the wood and wood products distribution system at the landowner level. Once the harvest decision is made, loggers fell the trees, sawmills provide primary processing, solid wood is dried (primarily with steam-dry kilns), and the dried lumber is then ready for additional processing, fabrication, or assembly.
Transportation and material handling costs between each of these steps is significant.
Two of the largest solid wood uses are residential home construction and furniture manufacture. Wood chips, as a by-product of sawmilling, and solid logs of smaller diameter are also used for the third major wood industry: paper. Canada is a large producer of paper and paper products, with the U.S. paper industry found primarily in the Pacific Northwest, Midwest, South, and Northeast. The sources of softwood
lumber, used largely in residential construction, come from three broad regions:
Canada (British Columbia in particular), the U.S. Pacific Northwest, and the U.S.
Southeast. Hardwood lumber, for furniture-making, comes largely from the eastern United States. In addition to its own production, Massachusetts wood consumers use wood from all of these sources and from imports.
Of the three major wood fiber uses, paper is the largest nationwide, and in Massachusetts as well. On the production side, in 1996 Massachusetts employed 19,500 in paper industries, 6,700 in furniture, and 4,500 in lumber and wood products. Looking further down the distribution chain, 10,010 individuals were employed in the wholesale trade for all three sectors and 34,814 in the retail trade.
These figures provide evidence of Massachusetts role as a wood products consuming state.
Massachusetts sawmills account for about 0.3 percent of total U.S. production compared to its 2.3 percent of total population. Most of the segments of the selected wood processing manufacturing industry —including logging, wood preservation, truss manufacturing, and wood window and door manufacturing—show similar percentages of national production. However, in the area of custom architectural woodwork and millwork, Massachusetts boasts 2.6 percent of total U.S. employment and 2.8 percent of value-added, higher than its population percentage. Furniture manufacturing categories represent close to 1 percent or less of U.S. totals. Paper industries, however, are a relative strength for Massachusetts. In folding paperboard box manufacturing, Massachusetts accounts for 3.3 percent of employment and 3.2 percent of valueadded. The figures for setup paperboard box manufacture are 11.8 percent (employment) and 13.7 percent (valued-added) of national totals. Massachusetts holds a national presence in certain of these downstream fabrication and processing segments of the paper industry.
The wholesale trade and retail trade figures for lumber, furniture, and paper hover close to the state's population share of 2.3 percent, with the exception of paper wholesaling where Massachusetts captures 3.8 percent of national wholesale trade in that industry.
Massachusetts forests have been growing over the last 30 years. The volume of growing stock has increased 68.6 percent over the period from 1972 to 1998 to almost 6 billion cubic feet. This figure represents a large and growing resource base for use by Massachusetts’s primary wood processing industries. With growing demand for certified sustainably grown lumber, Massachusetts, with its strict forest management law, is well positioned to meet this niche. New logger registration requirements from the Massachusetts Department of Environmental Management, Forestry Division, further support the move toward certification. The number of sawmills has been declining slowly, but those remaining have invested in new equipment and have developed strong markets both at home and for export. Currently, Massachusetts is largely a forest products–consuming state when compared to forest production.
Because transportation costs account for a significant component in the cost of wood products, it would be advantageous to increase local sources of wood to match consumption. Given its growing resource base, Massachusetts has significant potential to expand its wood processing industries. Local sources of timber and wood products have a competitive advantage in transportation costs and in forest products certification that can support this growth.
Food Marketing and Lumber Processing in Massachusetts, 1958 to1997 Part One The U.S. Food Marketing System 1 The U.S. food marketing system connects roughly two and half million ranchers, farmers, and fishers to more than 270 million domestic consumers and a much larger and growing number of consumers worldwide. The primary role of the marketing system is to coordinate the vast array of economic activity involved in transporting and transforming producers’ products to consumers—when, where, and how they prefer them. This coordination relies on economic markets, legal contracts, and direct ownership of various operations within the vertical marketing system to give order to the vertical flow of food products. Though the exact marketing channels used vary by product, the general vertical flow is as depicted in Figure 1 (see Appendix).
Consumers are the focal point of the marketing system, because it is their demands from which everyone else attempts to profit. It is this interplay of what consumers are willing (based on their needs, wants, and whims) and able (based on their incomes and prices) to buy and what sellers are willing and able to supply--for a profit--that makes the U.S. food marketing system an economic marvel. Americans today purchase essentially all of their food from others—expending $561 billion in 1997, a record amount for domestically produced farm foods (Figure 2). Nearly 80 percent of that amount goes to pay the marketing bill to cover the costs of all the activities that lie between the primary producers and the ultimate consumers in the vertical system.