2004 INDUSTRY OUTLOOK FOR PROCESSED FOODS 

Food Manufacturing Industry Definition

The food manufacturing industry (NAICS 311) transforms livestock and 

agricultural products into products for intermediate or final consumption. 

Subsectors in this category include animal food manufacturing (NAICS 3111), 

grain and oilseed milling (NAICS 3112), sugar and confectionary product 

manufacturing (NAICS 3113), fruit and vegetable preserving and specialty food 

manufacturing (NAICS 3114), dairy product manufacturing (NAICS 3115), meat 

product manufacturing (NAICS 3116), seafood product preparation and 

packaging (NAICS 3117), bakeries and tortilla manufacturing (NAICS 3118), and 

other food manufacturing (NAICS 3119).

Establishments primarily engaged in manufacturing beverages and tobacco are 

classified separately in Subsector 312, Beverage and Tobacco Product 

Manufacturing and are not covered in this chapter.

U.S. Domestic Industry Overview

The food manufacturing industry is one of the United States’ largest manufacturing 

sectors, accounting for more than 10 percent of all manufacturing shipments. The 

processed food industry has experienced steady growth over the 1997-2003 period. In 

2003, the value of food shipments was $461.6 billion, an increase of 9 percent from 1997 

shipments of $421.7 billion (see chart).1 In 2003, the ten largest U.S. companies in this 

sector were Altria (Kraft Foods), ConAgra, PepsiCo, Archer Daniels Midland, Cargill, 

Coca-Cola, Mars, Anheuser-Busch, Tyson Foods, and Dean Foods. 

Value of Processed Food Industry Shipments 1997-2003

400

410

420

430

440

450

460

470

1997 1998 1999 2000 2001 2002 2003

year

shipments (in $billions)

Shipments

 

1

 This chart reflects growth in current dollars, not real dollars and does not account for changes in inflation.
Demand for processed food products is less affected by economic upswings and 

downswings than other industries since food is a necessary purchase. Historically, the 

industry has had a high level of merger and acquisition activity and consolidation and 

reorganization have continued, although at a slower pace than in the past. The processed 

food industry has become increasingly global, as companies in the industry have 

expanded production and distribution into foreign markets. 

Technological change has played an important role as production becomes increasingly 

automated and companies invest in new technology. Productivity gains from automation 

have increased output while leaving employment levels relatively stable. Investment in 

advertising and new product development is also significant. 

Nature of the Industry

Processed foods are “value-added” products, referring to the fact that a raw commodity or 

commodities are transformed into a processed product through use of materials, labor, 

and technology. Any product that requires some degree of processing is referred to as a 

processed product, regardless of whether the amount of processing is minor, such as for 

canned fruit, or more complex, such as for snack foods. 

Of the subsectors that make up the food manufacturing industry, the largest four: meat 

products; dairy products; fruit and vegetable preserving and specialty food; and other 

food, made up 65 percent of total industry shipment values of $451 billion in 2001. 

Other sectors included bakeries and tortilla manufacturing, which accounted for 11 

percent, grain and oilseed milling (10 percent), sugar and confectionary (6 percent), 

animal food manufacturing (6 percent) and seafood products (2 percent).
Food Manufacturing Industry, 

Value of Shipments by Sector 2001

27%

15%

12%

11%

11%

10%

6%

6% 2%

Meat Product Mfg- $125

billion

Dairy Product Mfg- $65

billion

Fruit & Veg. Preserving &

Specialty Food Mfg.- $52

billion

Other food Mfg- $51 billion

Bakeries and Tortilla Mfg-

$49 billion

Grain and Oilseed Milling-

$46 billion

Sugar & Confectionary

Product Mfg- $25 billion

Animal Food Manufacturing-

$26 billion

Seafood Product

Preparation and Mfg- $8

billion

U.S. Census, Annual Survey of Manufacturers, 2001

Employment

Employment in the industry increased slightly from 1.50 million in 1990 to 1.51 million 

in 2003. Better technology and increasing automation allowed companies to increase 

production while holding employment steady. The meat industry employed the largest 

number of workers in 2003 employing 34 percent of total industry workers. 

Industry Employment 2003 (thousands) %

Food Manufacturing 1518.7 100.0 

Animal Slaughtering and Processing 515.4 33.9

Bakeries and Tortilla Mfg 292.5 19.2

Fruit & Veg Preserving and specialty 183.8 12.1 

Other Food Products 152.8 10.0

Dairy Products 136.3 8.9

Sugar and Confectionary 83.8 5.5 

Grain and Oilseed Milling 61.8 4.0

Animal Food 49.7 3.2 

Seafood product prep and pkging 42.6 2.8

Source: Bureau of Labor Statistics
Geographically, the largest percentage of workers in the industry is concentrated in 

California, making up 11 percent of the food processing industry workforce in 2003. 

Texas, Illinois, and Pennsylvania employed significant percentages of the food 

processing workforce at 6 percent, 6 percent, and 5 percent respectively with the rest of 

the workforce fairly evenly distributed across the United States (see chart).

Source: U.S. Department of Labor, Bureau of Labor Statistics, 2003 State Employment for Food 

Manufacturing

Consolidation is Slowing

According to the Food Institute, there were 415 mergers and acquisitions in the food 

manufacturing industry in 2003, which reflects the fact that the industry continues to 

consolidate. The slow economy resulted in less activity than in past years, down from a 

high of 813 mergers in 1998. The Economic Research Service of the United State 

Department of Agriculture (USDA) notes that consolidation or mergers can be in a 

company’s interest in order to take advantage of more efficient manufacturing plants and 

close inefficient ones, or quickly expand a firm’s product lines by acquiring market share 

in a mature domestic market.

Consolidation among food retailers increased from 27 mergers and acquisitions in 2002 

to 42 in 2003. Despite increased consolidation, prices have remained low due to discount 

retailers such as Costco and Wal-Mart that sell large volume food products. Also, more 

consumers are buying from restaurants and take out establishments, which compete with 

food retailers. According to USDA, in 2002, 46 percent of the food dollar was spent on 

2003 Employment in Processed Food Industry by State 

>10% total employment 

5-10% total employment

1-5% total employment

>0 but <1 % employment

0 employment
food away from home while spending for food at home was 54 percent. Competition 

between warehouse clubs, traditional retailers, and restaurants has kept the rise in food 

prices below inflation levels.

Food Prices

According to USDA, in 2002, families spent only 10 percent of their household 

disposable income on food; 6 percent on food consumed at home and 4 percent on food 

consumed away from home. The consumer price index (CPI) for food rose 2.2 percent in 

2003. Due to sustained economic growth, consumer demand for food is expected to 

increase with rising disposable personal income. Consumer demand, marketing costs, 

and commodity prices can have an effect on food prices. 

Consumer Trends 

Demographic factors affect demand for processed food products in the U.S. market. The 

Hispanic population continues to grow rapidly and processed food companies are 

developing new products for this population. Convenience products and snack foods are 

also popular and cater to double income households and consumers who are generally 

short on time. Frozen foods are doing particularly well due to their convenient and quick 

preparation. Snack bars that are positioned as portable meals are in demand by 

consumers with little time for a sit down meal.

Other factors affecting demand for processed food in the U.S. market include concern 

about dieting and obesity, which are generating interest in weight-loss food products and 

low-carbohydrate options due to the popularity of the Atkins diet. The sports and fitness 

market is growing, and products that offer nutrition and energy benefits are popular. 

Organic food is another market segment that is growing rapidly due to increased 

consumer interest in healthy products. Organic food can now be found in traditional 

supermarkets, natural food stores, and other retail markets. According to DataMonitor, 

the U.S. organic market is projected to reach a value of $30.7 billion by 2007 with a fiveyear annual compound growth rate of 21.4 percent between 2002 and 2007. USDA 

estimates that organic product sales were more than $11 billion in 2003 and will reach 

almost $22 billion in sales in 2010. Although USDA and DataMonitor figures differ, 

both indicate the rapid growth of this segment of the processed food industry. Popular 

organic products include fresh produce, nondairy beverages, breads and grains, packaged 

foods, and dairy products. In response to rapid growth in the industry, USDA issued 

new Federal standards for organic food in October 2002. In accord with the new 

standards, a certified organic processed product must use at least 95 percent organic 

ingredients to be labeled or represented as organic.

U.S. Processed Food Trade

The U.S. processed food industry is a major participant in the global economy, active in 

both exporting and foreign direct investment. In 2003, the U.S. processed food industry 
exported $26.7 billion of product and imported $23.7 billion. Weakness of the U.S. 

dollar contributed to the growth of food exports. The processed food industry’s trade 

surplus has been narrowing over the last several years and in 2003, dropped to about $3 

billion. 2

U.S. International Trade in Processed Food 

1997-2003

0

5

10

15

20

25

30

1997 1998 1999 2000 2001 2002 2003

year

($ billions)

Exports

Imports

Balance

Source: U.S. Dept of Commerce, U.S. Treasury, International Trade Admin.

Almost half of the world’s top 50 food processing firms are headquartered in the United 

States (21 out of 50 in 2003 according to Prepared Foods). Acquisitions and mergers 

have resulted in consolidation of some of the largest companies in the industry. In 2003, 

15 of the top 25 food and beverage companies worldwide were U.S. companies. Major 

foreign competitors were Nestle (Switzerland), Unilever (England), Diageo (England), 

Groupe Danone (France), Kirin Brewery (Japan), Asahi Breweries (Japan), Snow Brand 

Milk Products (Japan), Heineken (Netherlands), Cadbury Schweppes (England), and 

Nippon Meat Packers (Japan).

According to USDA, global food consumption patterns are changing, leading to 

increased trade and demand for processed food products. Improvements in 

transportation, higher income, and consumer perceptions of quality and safety are 

important factors affecting sales of processed food. Income growth in developing 

countries has resulted in increased demand for meat products which may in turn drive 

demand for imports of products such as animal feed. In countries with low-income 

levels, consumers need to meet basic calorie requirements and any increases in income 

lead to consumption of carbohydrates, which are high in calories. In higher income 

countries, consumers are able to meet their basic calorie needs and, thus, demand for food 

is driven by taste, cultural trends, quality, and convenience. In developed countries, 

higher income growth has led to more demand for high value added and better quality 

processed food products. Increased demand for these items can be met domestically 

and/or by increasing imports. 

 

2

 This chart reflects growth in current dollars, not real dollars and does not account for changes in inflation
Standards for food safety vary across countries with wealthier countries often having 

stricter food safety regulations. Consumers in these countries are willing to pay more for 

increased food safety. Differing standards for food safety can affect trade patterns since 

producers may find adhering to an exporting country’s regulations costly. Alternatively, 

when domestic regulations are strict, domestic producers may face increased costs of 

production relative to importers and thus have an interest in applying the same sets of 

standards to their competitors. In response, countries are working within international 

organizations and multilateral trade agreements to move towards mutual recognition of 

systems and harmonization of standards. 

 Top International Markets for Processed Food Products

In 2003, five foreign countries accounted for 62 percent of U.S. processed food exports: 

Canada (21%), Japan (15%), Mexico (15%), Korea (7%), and China (4%).

In 2003, five countries accounted for 53 percent of U.S. imports of processed food 

products: Canada (31%), Mexico (7%), Australia (6%), New Zealand (5%), and Italy 

(4%).

The 1994 North American Free Trade Agreement (NAFTA) is one factor that spurred 

trade growth and foreign direct investment in processed food between Canada, the U.S., 

and Mexico. The United States is the largest source of foreign direct investment in 

Mexico’s processed food industry. Because U.S. food processing affiliates in Mexico 

export only about 25 percent of their sales to the U.S., demand is dependent on the status 

of the Mexican economy. Increased trade and foreign direct investment between Mexico, 

Canada, and the United States, due to NAFTA, have created a regional food market and 

can mean more efficiency in providing food to consumers due to extended growing 

seasons, expanded consumer choice, and increased food quality.

U.S. Trade Patterns in Food Manufacturing (NAICS 311) in 2003

(millions of dollars; percent)

Exports

Region Value Share, %

NAFTA 9,608 36

Latin America 2,192 8

Western Europe 2,464 9

Japan/Chinese Economic Area 6,566 25

Other Asia 3,193 12

Rest of World 2,677 10

Total 26,700 100

Top 5 Countries Value Share, %

Canada 5,561 20

Japan 4,129 15

Mexico 4,046 15

Korea 1,862 7

China 1,116 4
Imports

Region Value Share, %

NAFTA 8,869 37

Latin America 2,682 11

Western Europe 4,726 20

Japan/Chinese Economic Area 1,464 6

Other Asia 2,781 12

Rest of World 3,178 13

Total 23,700 100

Top 5 Countries Value Share, %

Canada 7,319 30

Mexico 1,549 6

Australia 1,375 5

New Zealand 1,101 4

Italy 1,068 4

Values may not sum to total due to rounding

Source: U.S. Department of Commerce, Bureau of the Census 

According to the U.S. Department of Agriculture, the best markets for processed food 

exports in the top five countries are the following:

Canada: Snack foods, organic foods, seafood, pet food, processed meat

Japan: Pork, beef, tuna, crab, pet food, cheese, flatfish, prepared whole tomatoes, 

chocolate confectionary, fresh and frozen berries, frozen desserts, frozen pizzas

Mexico: Meat, fish and seafood, frozen desserts, sauces, snack foods, healthy foods, and 

food ingredients

Korea: Red meat, poultry meat, seafood, processed potatoes, frozen vegetables, sauces, 

confectionary, bakery products, pet food, processed fruits and vegetables 

China: Red meat, poultry meat, dairy products, processed fruit and vegetables, snack 

foods, salmon, crab and crabmeat, tree nuts, fish paste, roe and urchin, egg products, pet 

food

Major Trade Shows for the Processed Food Industry

The following are major processed food trade shows supported by the U.S. Department 

of Agriculture. To search for future events, go to USDA’s website at: 

http://www.fas.usda.gov/scripts/agexport/EventQuery.asp

• U.S. Food Export Showcase & Food Marketing Institute's (FMI) Annual 

Exposition (Processed Foods)

May 3-5, 2005 

Chicago, Illinois 

Number of visitors: 30000
USDA Contact: Sharon Cook 

USDA Trade Show Office 

1400 Independence Ave. SW 

Stop 1052 

Room 4939-South Building 

Washington, DC 20250 

Phone: 202-720-3425 

Fax: 202-690-4374 

Email: Sharon.Cook@usda.gov

• Taipei International FoodShow 2004

June 17-20, 2004

Khaliaka Meardry 

USDA Trade Show Office 

1400 Independence Avenue, SW 

Washington, DC 20250-1052 

Phone: 202-720-3065 

Fax: 202-690-4374 

Email: Khaliaka.Meardry@fas.usda.gov

• Abastur 2004

September 29- October 1, 2004

Teresina Chin 

Room 4642-South Bldg 

14th Street & Independence Ave., S.W. 

Washington, D.C. 20250-1052 

Phone: 202-720-9423 

Fax: 202-690-4374 

Email: Teresina.Chin@fas.usda.gov

• Foodex Japan 2004

March 8-11, 2005

Tokyo, Japan 

Number of visitors: 93637 

Khaliaka Meardry 

USDA Trade Show Office 

1400 Independence Avenue, SW 

Washington, DC 20250-1052 

Phone: 202-720-3065 
Fax: 202-690-4374 

Email: Khaliaka.Meardry@fas.usda.gov

REFERENCES

Changing Structure of Global Food Consumption and Trade/WRS-01-1, Economic 

Research Service, U.S. Department of Agriculture.

The Outlook for Food Prices in 2003, USDA Food Price Outlook.

Organic Food Industry Taps Growing American Market, Agricultural Outlook/October 

2002, Economic Research Service/USDA.

U.S. Farm Sector Overview, Economic Research Service, U.S. Department of 

Agriculture, March 31, 2003.

U.S. Food Sector Linked to Global Consumers, Regmi, Anita and Greg Pompelli, 

FoodReview, Spring 2002, Economic Research Service, USDA.

USDA Agricultural Baseline Projections to 2011, Interagency Agricultural Projections 

Committee, February 2002.

Food Price Inflation to Moderate in 2002 and 2003, Agricultural Outlook/October 2002, 

Economic Research Service, USDA. 

Canada Exporter Guide Annual 2002, Gain Report #CA2132, 11/22/2002, Approved by 

Gary C. Groves, U.S. Embassy, Prepared by George Myles and Marion Bailey, U.S. 

Department of Agriculture. Available at: 

http://www.fas.usda.gov/GainFiles/200211/145784692.pdf

Mexico Exporter Guide Annual 2001, Gain Report #MX1171, 10/1/2001, Approved by 

Chad Russell, U.S. Embassy, prepared by Kate Deremer, U.S. Department of 

Agriculture. Available at: http://www.fas.usda.gov/GainFiles/200110/130682070.pdf

Korea Exporter Guide Annual 2002, Gain Report #KS2046, 9/19/2002, Approved by 

Susan Phillips, U.S. Embassy, prepared by She Won Kim, U.S. Department of 

Agriculture. Available at: http://www.fas.usda.gov/GainFiles/200209/145783927.pdf

Japan Exporter Guide U.S. Food Exporter’s Guide to Japan 2002, Gain Report #JA2514, 

3/29/2002, Approved by David Miller, U.S. Agricultural Trade Office, Tokyo, prepared 

by Promar Japan and the U.S. Agricultural Trade Offices, U.S. Department of 

Agriculture. Available at: http://www.fas.usda.gov/gainfiles/200203/135683861.pdf

“U.S. Firms Invest in Mexico’s Processed Food Industry,” Food Review, Volume 22, 

Issue 2, Economic Research Service, USDA. Available at: 

http://www.ers.usda.gov/publications/foodreview/may1999/frmay99g.pdf
“Globalization of the Processed Foods Market,” Agricultural Outlook/January-February 

1997, Economic Research Service/USDA. 

“Food Manufacturing,” J. Michael Harris, U.S. Food Marketing System, 2002/AER-811, 

Economic Research Service/USDA.