Food and Beverage Manufacturing Industry in Kentucky
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Food and Beverage Manufacturing Industry In Kentucky The Food and Beverage Manufacturing Industry in Kentucky I. Executive Summary .......................................................................3 II. Business Cost Comparison ...........................................................4 III. Labor Cost Comparison .................................................................5 IV. Tax Costs.........................................................................................6 V. Business Climate............................................................................7 -- Kentucky’s Central Location -- Utility Cost -- Transportation VI. Kentucky Facilities.......................................................................10 VII. Other Influential Factors ..............................................................17 -- State Support -- Research for the Future Information Compiled by: Jessi Carlton Division of Research Kentucky Cabinet for Economic Development May 2010 2 Executive Summary The food and beverage manufacturing industry represents a large portion of the U.S. manufacturing sector. According to the Bureau of Economic Analysis, this industry accounted for almost 11% of the nation’s manufacturing gross domestic product in 2007. The U.S. Bureau of Labor Statistics describes the food industry and the beverage industry as: • Industries in the Food Manufacturing subsector transform livestock and agricultural products into products for intermediate or final consumption. The industry groups are distinguished by the raw materials (generally of animal or vegetable origin) processed into food products. • The industry group, Beverage Manufacturing, includes three types of establishments: (1) those that manufacture nonalcoholic beverages; (2) those that manufacture alcoholic beverages through the fermentation process; and (3) those that produce distilled alcoholic beverages. Ice manufacturing, while not a beverage, is included with nonalcoholic beverage manufacturing because it uses the same production process as water purification. In Kentucky, nearly 12% of the manufacturing jobs are in the food and beverage products manufacturing industry. This industry has been successful in the Commonwealth for reasons such as: Low Business Cost Quality Workforce Central Location Rich Agricultural History Kentucky’s successful food and beverage manufacturing facilities make significant contributions to the Commonwealth of Kentucky, including: • In 2007, Kentucky’s food products manufacturing industry represented almost 14% of the manufacturing gross domestic product by state. • The Bureau of Economic Analysis reports Kentucky’s 2007 gross domestic product by state for the food product manufacturing industry, which includes food, beverage and tobacco manufacturing, as $3,983,000,000. That accounts for 2.2% of the nation’s GDP for the food product industry. • The combined economic impact – direct, indirect and induced – of the food and beverage industry generated an estimated $6.6 billion in value added to the Commonwealth’s economy. According to the Economic Development Cabinet’s Business and Industry database, 184 food and beverage manufacturers have chosen to locate facilities in Kentucky. These companies might have viewed Kentucky as a favorable place of doing business because of the Commonwealth’s business climate, workforce, low business cost when compared to other states, central location or rich agricultural history. Kentucky is a state where the food and beverage industry thrives. 3 Business Cost Comparison Economists with Economy.com, Inc. (formerly Regional Financial Associates, Inc.) have concluded that relative business costs are the most important long-term determinant of state economic performance. Several business cost indices were developed to compare the relative cost of doing business in each state, and in the District of Columbia. The overall business cost index includes energy costs, tax burdens, and labor costs. While each cost component is estimated for each year, the business cost index uses a three-year moving average. This process ensures a more consistent and reliable estimate of business costs. Kentucky tied as the fifth lowest in overall cost of doing business compared to all states east of the Mississippi River and tied as the fourth lowest compared to states generally considered Kentucky’s economic competitors. The index utilized to measure the overall cost of doing business within a state ranks Kentucky tied as the 12th lowest cost state nationally with an index of 90, 10% less than the national average. (North American Business Cost Review, 15th Edition, June 2009). Cost of Doing Business: 2007 Competitor Overall Unit Labor Energy State & Local States Cost of Doing Cost Cost Taxes Business Business Rank Cost Rank Energy Rank Tax Rank Index Index Index Index United States 100 -- 100 -- 100 -- 100 -- Kentucky 90 12 95 21 70 7 99 30 Georgia 96 27 99 31 84 23 96 21 Illinois 99 32 102 42 95 31 99 30 Indiana 89 10 91 10 76 15 102 38 Michigan 102 39 103 43 96 32 100 32 Mississippi 93 17 89 5 93 30 93 18 Missouri 92 16 100 37 67 4 88 11 North Carolina 81 2 78 1 80 19 96 21 Ohio 96 27 95 21 90 28 107 42 South Carolina 93 17 97 24 79 18 87 10 Tennessee 90 12 93 12 84 23 78 2 Virginia 94 22 98 26 70 7 89 12 West Virginia 85 3 93 12 60 2 107 42 Note: A ranking of one (1) represents the lowest cost. United States Average Cost Index = 100.0 Source: North American Business Cost Review (2007), 15th Edition, Prepared by Economy.com, Inc.--Updated June 2009. 4 Labor Cost Comparison The labor costs for Kentucky employers in the food and beverage manufacturing industry compare favorably to surrounding states. Kentucky’s average annual wages are below the U.S. average for all of private industry and manufacturing, while the state’s food and beverage manufacturing wages are less than six percent higher than the national average and less than three surrounding states. For all private industry, the average annual wages in Kentucky are lower than all but one surrounding state. The Cost of Doing Business Table (on the previous page) shows that Kentucky is competitive with surrounding and competitor states with respect to the lowest unit labor cost. In the area of workers’ compensation, Kentucky’s workers’ compensation comparative cost for the manufacturing sector is over two percent less than the national average according to 2009 annual data (Actuarial & Technical Solutions, Inc.). Also, the state was the first with an active benchmarking program that issues data on workers’ compensation carrier performance. Food & Beverage Manufacturing Industry Wages Kentucky Average Weekly Wages 2008 Average Annual Pay 2008 (Kentucky and surrounding states) All Industries $720 F&B All Agriculture, Forestry, Manufacturing Manufacturing All Industries Fishing and Hunting 571 US $40,910 $54,400 $45,563 Mining 1,179 Construction 807 Illinois* 47,208 56,091 48,719 Manufacturing 915 Ohio* 43,755 51,902 40,784 Tennessee 42,755 48,213 39,996 Food & Beverage Kentucky 42,615 47,592 37,434 Manufacturing 820 Missouri* 38,523 49,570 40,361 Trade, Transportation, Indiana* 38,197 52,379 38,403 and Utilities 665 Virginia 37,163 48,763 47,241 Information 770 West Virginia* 27,693 47,558 35,987 Financial Activities 937 Services 631 Public Administration 794 Other 869 2008 F&B Industry Employment (Kentucky and surrounding states) 2008 F&B Industry Establishments % Total (Kentucky and surrounding states) State Employment Employment US 33,123 US 1,649,332 1.22% Illinois 1,641 Kentucky 29,161 1.63% Ohio 1,116 Missouri* 40,915 1.51% Missouri 691 Tennessee 36,478 1.34% Indiana 566 Illinois* 77,778 1.33% Virginia 531 Indiana* 33,473 1.17% Tennessee 428 Ohio* 53,881 1.03% Kentucky 353 Virginia 34,769 0.95% West Virginia 112 West Virginia* 3,618 0.51% Sources: Quarterly Census of Employment and Wages, US Department of Labor, Bureau of Labor Statistics, Annual 2008, May 2010. * Beverage employment not included due to disclosure laws. 5 Tax Costs Kentucky continues to be ranked as the state with the lowest overall cost of doing business among surrounding and competitor states according to Economy.com. The June 2009 edition of the North American Business Cost Review, 15th edition, measures the cost of doing business within a state for unit labor cost, tax burden, and energy cost. When compared to the top 10 states for gross domestic product by state for the food products manufacturing industry, Kentucky ranks lowest in per capita state and local property tax and second lowest in state and local tax burdens. Nationally, Kentucky ranks 5th lowest in per capita state and local government property tax burden, and 13th lowest in per capita state and government tax burden. Competitor State Tax Burden: 2006 Kentucky vs. Per Capita State and Local Per Capita State and Local Competitor States Government Property Tax Revenue Government Tax Revenue Per Capita National Rank Per Capita National Rank United States 1,204 4,006 California 1,031 23 4,533 42 Georgia 960 18 3,329 16 Illinois 1,533 41 4,087 36 Kentucky 576 5 3,229 13 Missouri 855 15 3,139 8 New York 1,881 46 6,385 50 North Carolina 760 13 3,393 18 Ohio 1,099 27 3,774 28 Pennsylvania 1,147 31 2,960 34 Texas 1,390 38 3,241 14 Virginia 1,210 33 3,940 32 Source: Morgan Quitno Press State Rankings 2009, using data from U.S. Bureau of the Census, Governments Division. Note: A ranking of 1 represents lowest cost 6 Business Climate Kentucky offers a wide range of opportunities for a profitable investment in all business sectors. Kentucky has a strong industrial base of steel, aluminum, chemical, and machinery production, driven by massive resources of water, low-cost electric power, and reasonably priced barge, rail, and truck transportation. The manufacturing base has shown particularly dramatic growth in Kentucky during the past decade. Kentucky ranked 9th in the 2008 Site Selection Governor’s Cup awarded annually to U.S. states with the most new and expanded facilities. It has the smallest population of any state in the top 10. Site Selection also ranked Kentucky 10th in the magazine’s list of states with the most new and expanded facilities from 2006 to 2008.