The California Food Processing Industry
(prepared by the Office of Economic Research)

Introduction California is the top agricultural state in the nation, a position it has held for 50 years. As a natural result, California is also the largest food processing employer in the United States. With an enormous variety of crops, great growing conditions and increasing demand for prepared food products, California is the center for food processing, shipping $50 billion worth of food products.

Definition Food processing is an umbrella term used to describe all the activities of manufacturing food and beverages for human consumption, as well as prepared feeds for animals. California processing includes fruits and vegetables, baked goods, meats, dairy products, sugar and confections, beverages, and fats and oils. The industry is defined as food and kindred products by Standard Industrial Classification (SIC) code 20.

Size and Location Food processing firms in California are as widely spread across the state as the farmlands that supply them. Food manufacturers purchase most of their perishable raw materials from area growers, ensuring the ultimate in freshness.

California is the top producing state for many fruit and vegetable crops, providing the basis for myriad fresh, canned and frozen products. Correspondingly, preserved fruits and vegetables is the largest industry group in California food processing, providing a quarter of the state's food processing jobs.

Regionally, the processing of fruits and vegetables is especially significant in the counties of the San Joaquin Valley, Sacramento Valley, and Central Coast. The San Joaquin Valley, and in particular, Fresno County, leads the rest of the state and the nation in food production. The San Joaquin Valley includes six of the top ten agricultural counties in California. Fresno County alone shipped $770 million of preserved fruits and vegetables.

Beverage manufacturing provides 19 percent of the food processing employment in California, led by the high value-added wine production. Over 65 percent of the U.S. wine production employment is in four California counties; Napa, Sonoma, Stanislaus and San Joaquin. The manufacture of soft drinks is the second largest beverage employer.

Bakery products in California provide 13 percent of the state's employment in the manufacture of those products. Bakeries, and sugar and confectionery producers use sugar beets processed in Fresno, Imperial and San Joaquin Counties. Bakeries and confectionery producers can add roasted nuts processed in Madera, San Joaquin, Stanislaus, Tulare and Sacramento Counties.

California also has above-average representation in canned and cured seafood processing located in the coastal counties, and pasta production in Los Angeles, Orange and Alameda counties.

Economic Importance CCalifornia produces a wide variety of food products and is the leading state in many food categories. California surpasses Wisconsin in milk production. California is the only producing state of such specialty foods as almonds, artichokes, raisins, prunes, olives, dates, figs and pistachios.

California food processing employed 183,300 people in 1999, composing 11 percent of the nation's total. Seasonal harvesting results in an annual employment surge in the late summer, as illustrated in the graph below. In addition to actual harvesting, the food processing industry provides thousands more jobs in directly related industries such as food wholesaling and retailing. More jobs are linked through manufacturers of packaging materials, industrial and agricultural chemicals, biotechnology products, and farm and food production machinery. Still more jobs are indirectly related to food processing; including grocery stores, eating and drinking places, hotels, grocery wholesaling, trucking and warehousing, and hospitals.

Examples of Product Leadership California's famous produce are the ingredients in everything from soup to nuts. Crops grown in California may be lightly processed, or go through many steps before reaching market. Examples of lightly processed products are raisins, dates, prunes, almonds and walnuts from the state's giant cooperative processors, such as Sun Maid Raisins, Blue Diamond Growers, and Diamond Walnut Growers.

Further processing makes California crops major ingredients in other nationally known foods. For example, Campbell Soup and La Victoria Foods use locally grown tomatoes and other vegetables for their soups, "V-8" juice and salsa. Odwalla Fruit Juices use fruits and vegetables primarily grown in the Central Valley.

California-grown rice, corn and potatoes are the main ingredients in snack foods made by Quaker Oats Rice Cakes and Frito-Lay. See's Candies uses the state's famous raisins and dates, in addition to local nuts and cream. Milk processed in the state goes into Kraft cheese products, Haagen Dazs ice cream, Land-o-Lakes creamery products and Hershey's chocolates. Hershey's is also the nation's largest user of California almonds.

International Trade and Investment The export market holds the greatest potential for expanding sales of California agricultural products with a world market of six billion people. California is the leading agricultural export state and the sixth largest exporter in the world. In 1999, California exported $4.4 billion worth of food and kindred products. The export volume was down 17.2 percent from 1998, though total exports were up 2.4 percent. Food products were the fifth largest export after electronics and transportation, and represented 5 percent of total California manufactured exports.

Agricultural products are one of the few U.S. industries to enjoy a positive trade balance, and highlight the important role agriculture plays in the thriving California economy. California is expected to continue its positive contribution to the U.S. trade balance as worldwide demand increases for high-value agricultural products. California products with the fastest growth are those with the highest value added: canned fruits and vegetables, wines and frozen foods.

Japan was the single largest market for California food and kindred products. Purchases in 1999 exceeded one billion dollars, or one quarter of the total California exports of food and kindred products. Canada was second with purchases totaling $683 million, or about 16 percent of the total.

Infrastructure As with other industries, California universities and colleges conduct research and development on agricultural products and food processing. One of the most renowned research facilities is the University of California at Davis. The University currently has projects underway to improve the quality and shelf life of processed foods, such as sliced melon and fresh-cut peppers, while maintaining their healthful qualities.

Food processors incorporate new research in their efforts to maintain the high quality of the products and create new ways to market existing products. Two examples of relatively new marketing are the lunchbox packs of fresh carrots, and premixed salads in "breathable" plastic bags. Packaging that makes life simpler for time-constrained families will boost consumption of processed foods.

The processing of fresh fruits and vegetables to maintain appearance, aroma and flavor is especially important to the state's growing demand for exports. To facilitate the sale of foods, California has a well-developed infrastructure of processing, packaging, storage, loading and shipping facilities. In particular, some products are picked and packaged right in the field, while many others are processed at plants adjacent to the fields. These methods further expedite the movement of farm-fresh products to market.

The business climate in California has improved in recent years. Tax credits, manufacturing credits and employment training funds, among other incentives have attracted new businesses and encouraged expansion of existing businesses. Some of the food processing giants that have recently expanded operations in California are Blue Diamond, Land O' Lakes, Campbell Soup, Frito-Lay, Mission Foods and Dole Vegetables.

Trends The demand for processed foods is driven, in part, by the increased demand from two-worker families, and single parent families with less time available for shopping and meal preparation. Pre-packaged salads, and pre-sliced vegetables combined with fresh meat create nutritious meals in minutes.

The market for U.S. processed foods is largely domestic with a national market of 250 million people. California is itself a ready market with 34 million residents. Domestic demand for fresh fruits and vegetables, where California is at its competitive best, continues to grow. California research continues to find new ways to increase crop yields and preserve freshness and flavor, while using fewer pesticides and herbicides.

California agriculture is characterized by high-yielding, high-value cash crops that use advanced levels of technology, capital and management. High per-acre yields are an important contributor to the state's consistently high farm revenues. California exceeds the national average in yields per harvested acre in several major crops.