Productivity in U.S. food manufacturing has been growing slower
than productivity in U.S. manufacturing overall. Between 1975 and
1997, productivity growth for U.S. food manufacturers averaged
0.19 percent a year, versus 1.25 percent for all U.S. manufacturers.
Labor’s not to blame: output per labor hour in food manufacturing
increased steadily over the 22-year period.
Food manufacturing industries ranged in annual productivity growth
from -0.42 percent to 1.12 percent. In general, less processed
food industries like meatpacking and fluid milk evidenced little
productivity growth. These industries use relatively expensive
raw materials to make highly standardized products. On the other
hand, the beverage and bakery industries—which rely more
on labor, elaborate packaging, and sophisticated extrusion technologies—had
productivity gains of around 1 percent each year.
Productivity is the rate of growth in output net of growth due
to increases in inputs—materials, labor, capital (machinery
and buildings), and energy. Food manufacturing is materials intensive,
with raw and semiprocessed agricultural products and packaging
materials constituting 60 percent or more of the value of output.
Productivity measurements capture the effects of applying more
efficient techniques, technologies, or equipment to the manufacturing
process, such as a labor-saving technology that allows a food company
to make more corn chips per shift with fewer employees. Often,
increases in productivity result from investments in research and
development (R&D) into new production methods that lead to
efficiencies like the example above.
Food manufacturing’s sluggish productivity growth may be
due to modest R&D expenditures of late. According to ERS data,
R&D spending by food manufacturers grew an average of 2.22
percent a year (adjusted for inflation) during 1975-97. Over the
same period, the National Science Foundation estimates that private
R&D expenditures by all U.S. manufacturing companies grew 5.78
percent yearly.
The efficiencies associated with higher productivity often lead
to lower prices or smaller price increases. In the case of the
food manufacturing industry, then, one might expect to find increasing
prices. In fact, inflation-adjusted wholesale prices for processed
foods declined an average 2.13 percent a year over 1975-97. Given
this industry’s low productivity growth and its materials-intensive
nature, these lower prices more likely resulted from a decrease
in the prices of raw agricultural products (3 percent yearly during
1975-97).