FOOD ENGINEERING’s 45th annual plant construction survey

The current supply chain is still reeling from instability caused by the pandemic, resulting in a shortage of transportation, materials and labor. Consequently, food and beverage companies are feeling the direct effects of supply chain issues when planning and constructing new facilities or expanding their existing plants.

This year’s Annual Plant Construction Survey reflects the problems that COVID-19 started in 2020. For A&E/C (architectural & engineering/construction) firms, the top-three issues are: (1) fast project deployment, (2) overall costs/controlling costs and (3) scheduling equipment arrival to the job site. All three concerns are directly affected by supply chain issues.

The top three issues that A&E/C firms say affect their client food processors the most are (1) increasing production to meet consumer demand, (2) overall costs and controlling costs and (3) workforce availability (line workers). 

Mark Galbraith, co-owner of Galbraith Pre-Design sees the same issues for both food processors and A&E/C firms, mostly brought about by COVID-19 and ensuing supply chain issues. Food processors are busier than ever and can’t seem to get ingredients and packaging materials quickly enough—a real supply chain pinch point. Another pinch point is the shortage of drivers and rigs. “This is very similar to the construction industry,” says Galbraith.

With changing consumer demands, processors are redefining their production lines and concentrating on speed-to-market, says Greg Franzen, Faithful+Gould program director. With recent cost increases and inflation concerns, there is a new focus on reevaluating how projects are designed to eliminate unnecessary specifications and the “we have always done it this way” mentality. 

It seems, however, with all this emphasis on these top concerns related to supply chain issues that interest in food safety has waned. There was a time not so long ago—just back in 2020—when food safety was among the top three concerns out of the top ten, but most processors and A&E/Cs now have food safety pretty much under control since FSMA has become the law of the land. Processors and engineering firms know what has to be done to make food plants food safe. 

Even so, the business climate for new and expanded projects has been healthy over the past couple of years in spite of the pandemic and supply chain issues. “We are currently seeing historic levels of demand for capital expansion projects in the food and beverage sector,” says Dan McCreary, senior partner at the Dennis Group. Despite escalating construction costs, there has been a noticeable increase in the number of large ground-up development projects being greenlit. Investment is coming both from large, established CPG companies as well as venture-funded start-ups in rapidly growing market sectors such as plant-based protein or controlled environment agriculture. 

Indeed, small projects seem to be on the increase as Mark Redmond, Food Plant Engineering president, says. “We continue to see an increase in the number of entrepreneurs who approach us wanting to develop small processing plants for local distribution. We have also been approached by many meat processors seeking to expand their current operations.”

End of Part 1

2021 projects edge out 2020 projects

In looking at FE’s 45th Annual Plant Construction Survey project table, reportable food projects for 2021 edged out 2020 projects by 1.3% or for an increase from 717 projects recorded in 2020 to a total of 726 projects in 2021. This total includes new projects, renovations and expansions, warehouse/distribution centers (DCs), pet food, alcoholic beverage and cannabis facilities. It also includes the construction of water/wastewater treatment centers as these projects can be valued at a large percentage of what a food plant costs to construct—and often a food plant can’t function without them. A renovation counts as a new project when it is the processor’s first facility at a new location, and an existing non-food structure has been gutted and repurposed as a food, beverage manufacturing or DC/warehouse facility.

Reportable food and beverage-related projects are those valued at over $1 million and commenced in the U.S., Mexico or Canada. They have been made public by the processor, a government entity (including local or state economic development groups) or the A&E/C firms responsible for them.

The survey includes projects begun, announced by any entity or completed in 2021. If dates listed are beyond 2021, they reflect the expected completion date for a project either announced—or under way—in 2021. Projects that appeared in last year’s table with a 2021 (or later) date were carried over—unless there was an obvious duplicate. Keep in mind, some projects can be announced, and then dropped at the last minute for any number of reasons, e.g., legal problems, lack of expected funding, site issues, changing needs, etc. In the table, “D/W” refers to distribution/warehouse, and “DC” refers to distribution center; “Exp.” refers to expansion and “Ren.” is for renovation.

The table includes—besides facilities specifically related to human food—pet food, cannabis (CBD), nutraceutical products and ingredients such as flavors, yeast-based products and alternate proteins, including cultured protein products.

An interesting trend has developed over the last four years with 2021 showing the highest percentage of new projects compared the total number of projects altogether.

New projects versus expansions

In 2021, new projects accounted for 43.7% of total projects or 317 out of 726 total projects. The percentage of new projects was 16.5% higher than last year’s number, which totaled 272 out of 717. Consequently, the 2021 number of expansions/renovations totaled 409 out of 726 or 56.3%. This percentage fell by 8.1% from 2020’s number of 445 projects out of 717. The 2021 number of all projects (726) was 12% higher than the10-year (2012-2021) average of 648.4 projects. In addition, 2021’s number of new projects was 44.6% higher than the ten-year average of 219.3 projects per year.

Most interesting is the ratio of expansion and renovation projects to new facilities, which has steadily fallen since 2017, indicating that new projects have been on the increase. This trend may be a reflection that some existing structures neither support automation very well nor have sufficient room to grow. In some cases, processors have turned these facilities into warehouse space and located a new processing plant where there is ample space, the economic environment is more suitable or the availability of labor is better.

Speaking of warehouses and DCs, 2021’s number of projects was only 2.1% lower than 2020’s facilities—that is, 137 projects versus 140 in 2020. In 2020, the number of DC/warehouse projects was 19.5% of total projects, and in 2021, DC/warehouse projects accounted for 18.9% of total projects. However, 2021’s number of warehouses and DCs was 63.5% above the simple ten-year average of 83.8 projects.

Alcoholic beverage projects for 2021 numbered 52, up slightly from 50 projects recorded in 2020, and down 11.4% from the ten-year average of 58.7. Alcoholic beverage projects (production or DC), accounted for 7.2% of 2021 projects.

While we haven’t kept track of pet food projects at any great length over recent years, it is notable that pet food projects in 2021 nearly doubled over 2020’s number, that is, from 23 recorded in 2020 to 45 in 2021. In 2021 pet food projects accounted for 6.2% of total projects. In addition, while it’s difficult to obtain statistics for cannabis/CBD projects (many are proprietary), we found 9 in 2021 compared to 13 in 2020.

End of Part 2

Disruption

We often think of new technologies being disruptive—and in a good way. However, in the last couple of years disruption means exactly “disruption,” and A M King Vice President Dan Crist sums up major disruptors as supply chain issues, extended material lead times and high demand—all driving up the costs of construction projects. While food processors push ahead with projects to expand capacity, project completion dates become moving targets.

A&E/C firms not only see disruptions with the delivery of materials, but also finding qualified labor. And now they have potentially a new competitor for an already strained labor force—the Biden Administration Infrastructure Bill, which will likely cause even more strain on the labor shortage if road, bridge and utility projects commence, says Crist.

With labor issues continuing to dominate, both in construction labor availability as well as ongoing operations, food manufacturers are looking to areas where they can build quickly and efficiently, says David Ziskind, Black & Veatch director of engineering. “Manufacturers are also seeking out areas to build where the business climate is favorable—where they can access utilities quickly and efficiently, and where local governments have streamlined the permitting process. With the Biden Administration’s push on sustainability and infrastructure, manufacturers are looking to their own plans as well as how they can take advantage of infrastructure improvements, such as water, roads and bridges, internet and clean energy.”

Inflation

To minimize disruption and its effects on construction projects, many food processors have been wanting to transfer the increased risks of economic uncertainty and environmental factors such as material availability, inflating costs and health concerns to A&E/C firms to manage and absorb, says Brook Schroeder, Shambaugh & Son mechanical process group program manager. Why? Ron Stewart, specialty process products program manager at Shambaugh, points out that even items that used to be on the shelf—like valves and doors—are 3, 6, even 12 months out. “Availability of electronic parts is the reason we are being told by our suppliers,” says Stewart.

If you could sum up all of these issues, what do you get? Inflation. It’s like a perpetual motion machine without any friction, which keeps getting larger and spinning out of control. “Inflation pressures are causing costs for labor, fuel, materials like steel and insulated metal panels, and equipment to increase, and there are continued shortages of materials resulting in long lead times,” says Ronald Rens, president, Gleeson Constructors & Engineers. “Suppliers will not hold pricing for more than 30 days. It is challenging to hire skilled tradesmen due to people receiving unemployment during the pandemic, retirements and the lack of young people entering the trades. Cost for construction projects will continue to increase in the next year,” adds Rens.

“Over the past couple of years, we’ve seen both increases due to global supply chain issues and labor shortages leading to higher overall project costs, extended lead times for equipment and materials, and extended construction schedules,” says Hixson’s Chris Jarc, VP and manager, project management. “Of course, overall inflation, which is being fueled by the supply chain issues, is also a contributing factor to higher costs as well. These problems are intertwined: Project schedules are getting longer because of extended lead times for equipment and materials and labor shortages, while project costs are going up because lead times are longer.”

These issues are causing food and beverage companies to look at their business objectives in different ways, adds Jarc. Some are loosening their return on investment (ROI) requirements: where they once wanted a 20% ROI, for example, they now may accept a 15% ROI. Others are tightening their focus on project costs, drilling into every line item to squeeze out excess costs. Still others are simply ending projects that won’t achieve the required ROI. “While there is not an exact science behind these different approaches, we tend to see additional ROI flexibility in new product launches, and the tightening approach on maintenance and renovations,” says Jarc.

New needs, new collaboration

Not only has the COVID-19 pandemic changed the way consumers purchase food, it has caused a rethink of facilities—with new concerns for interior spaces, says Timothy Nguyen, ESI Group USA senior vice president. “Increased workflow space, employee welfare areas, multiple shifts alignments, and new security practices have to be implemented. Food plants have always placed high scrutiny on food and product safety integrity. That same emphasis must now be applied to employee and worker safety interaction with each other and the food product itself. These new trends will affect food facility sizes, layouts, space programming, and security infrastructure.”

To lessen the severity of many of the issues above, A&E/C firms are taking a new approach in working with processors. “We are seeing a shift in the industry, moving from a traditional design-build delivery model to a true, integrated project delivery (IPD) with a focus on lean and high-collaborative methods,” says Jason Robertson, CRB VP food + beverage. Food manufacturers are expanding beyond the classic speed, cost and quality and weaving in flexibility, sustainability and team engagement. In a marketplace crowded with competitors and constrained by labor and supply chain challenges, aspiring for a perfect score across all of these attributes is the only way to succeed.” IPD offers a framework for completing capital projects faster and more cost-effectively through collaboration and shared accountability.

Technology and the future

To deliver the speed-to-market described above, automation technologies will help. “We are seeing an uptick in the number of renovation and expansion projects where the scope includes integrating, automating and controlling a mixed fleet of legacy technology with new OEM equipment,” says Tom Wiersma, IPM business development manager. The motive, of course, is to substantially increase uptime while conserving capital.

“Trends we see emerging are ongoing network optimization, increased automation to reduce human resources in production facilities, and adapting to resource availability constraints,” says Jens Ebert, SSOE VP and division manager, food & consumer products. “We are also seeing increased business interest in ESG-driven (environmental, social, governance) projects such as waste minimization, heat recovery, and water use reduction. We have seen many projects focused on increased production capacity to meet changing market demands, and the trends toward eating at home have resulted in less institutional packaging and more retail packaging within the same volume.”

One trend that is emerging in construction projects is utilizing digital transformation to effectively plan facility growth, says Jeff Jendryk, VP business development at Spec Engineering, a Gray company. Facilities can be duplicated electronically, and once the processing line is digitized, different scenarios can be run to see current and future performance metrics, potential labor savings and utility costs. Companies that sincerely want to increase their productivity are investing in these types of software to plan for future growth.