The corporate location study, conducted by Princeton, NJ-based Boyd Company, compared the cost of operating a functional food and nutritional beverage facility in 35 US and Canadian cities.
Operating costs surveyed for the study included skilled labor, utilities, taxes, construction, shipping and corporate travel.
A principle driver behind this type of study is the growing need by companies to find ways to improve their bottom line in a tightening economic environment. According to Boyd, manufacturing site selection could be one of the best ways to cut costs.
“In today’s difficult economy, comparative costs are ruling the corporate site selection process,” writes the firm, which provides location counsel regarding corporate mobility.
“For most bioscience companies, improving the bottom line on the cost side of the ledger is much easier than on the revenue side due to the credit squeeze, rising research and development costs, soaring litigation costs from civil lawsuits, the long and expensive regulatory process and government’s heightened efforts to rein in healthcare costs.”
The study found that annual operating costs could differentiate by over $6m depending on site selection. Operating costs were scaled to a representative 60,000 square foot functional food and beverage facility, housing research and processing functions and employing 150 workers.
The top five most economic sites were (in US dollars):
· Sioux Falls, South Dakota ($12.6m annual operating costs)
· Saskatoon, Saskatchewan ($12.8m)
· Salt Lake City/Provo, Utah ($13.1m)
· Winnipeg, Manitoba ($13.1m)
· Des Moines, Iowa ($13.2m)
At the other end of the scale, the most expensive cities to operate a functional food facility in ascending order were: Boston, MA; Los Angeles, CA; San Jose, CA; San Francisco, CA; and New York/Nassau County, NY, the latter of which recorded estimated annual operating costs of $18.8m.
Benefiting from ethanol
One of the reasons for variable operating costs at facilities in different regions was the proximity to ethanol production and access to byproducts of this process.
“The massive increase in ethanol production in the US has also resulted in a similar increase in its most valuable residual product: DDG (distiller’s dried grain),” writes Boyd.
“Phytosterols, lecithin, as well as carotenoid antioxidants, such as lycopene, are some of the ingredients that are being researched and expected to be mass produced from DDG for the functional foods and nutritional beverage industry.”
Ethanol production in the US is said to have increased from 2.7bn gallons in 2003 to over 10.5bn gallons in 2008. Sioux Falls, the lowest-cost city identified by Boyd’s report, houses the corporate headquarters of the world’s largest ethanol producer, Poet Energy.
Boyd’s report includes six Canadian cities that house “significant concentrations biosciences operations”, as North American free trade and Canada’s favorable exchange rate have firmly established Canada as a competitive location for manufacturing facilities.
Another potential cost benefit for companies operating in Canada involves the lower fringe benefit costs that Canadian bioscience firms need to pay out, compared to US-based firms. This is linked to the two countries’ differing national healthcare plans.
The report reveals that functional food and beverage companies in the US pay an average of 38 to 40 percent of their payroll for employee fringe benefits. In Canada, the same percentage is only about 18 to 20 percent.