Milling & Baking News - June 4, 2019 - 36

IBIE Update

New tax incentives
could change bakers'
IBIE approach
SOSLAND PUBLISHING COMPANY

KANSAS CITY - With the sweeping changes in the tax code
last year, bakers and snack producers received new incentives if
they install a new line, expand a facility or make other qualified
capital expenditures.
"Those tax savings are pretty significant," said Robb MacKie,
president and chief executive officer of the American Bakers Association, Washington.
Starting in 2018, the first-year bonus depreciation increased to
100% of the qualified asset purchase price for the next five tax
years. It may be used for new and used equipment as long as it
is put into service and into an operation during the tax year, and
that can improve cash flow for other investments.
"We already have a strong base when it comes to capital expenditures," Mr. MacKie said. "The tax code changes add further incentives."
The changes could have an impact on how bakers approach
the 2019 International Baking Industry Exposition (IBIE), which
runs Sept. 7-11 in Las Vegas.
"It will be fascinating to see if people literally show up with
shopping lists," he said. "I have a funny feeling that they will.
Many bakers went to iba (trade show) in Munich last year to do
the research phase, and many will come to IBIE to buy."
The wave of consolidation that has changed the face of the
industry for decades seems to have been replaced by a greater
emphasis on capital spending in recent years.
"I think we'll look back at this period and say, 'Wow. This was
a big uptick in investment,'" Mr. MacKie predicted.
Recently, Kansas City-based Cypress Research conducted an
analysis of the Economic Census of Manufacturing data that
provides the most complete information on the commercial baking industry every five years. Additionally, Cypress Research
supplemented its findings with statistics from the Annual Survey of Manufacturers (A.S.M.).
The data, which provide a historical, long-term perspective
dating back to 2002, offer comprehensive information about the
entire category. In addition to framing the state of the industry,
the report lays the foundation for identifying those mega trends
and underlying factors that have been impacting industry sales
and capital expenditures over the long run.
Historically, about 85% of capital expenditures targeted machinery and buildings, with the bulk spent on equipment in the
overall commercial baking industry, according to the analysis
by Cypress Research. Overall, census data showed that total investment rose steadily to $2.37 billion in 2012 compared with
$1.86 billion in 2002, despite the impact of the Great Recession
and financial crisis that made it nearly impossible for businesses
to borrow money from 2008 to 2010.
Looking forward, Cypress Research projected that cap spending may reach $3.03 billion in 2022 and approach $3.89 billion
36 / June 4, 2019

Milling & Baking News

by 2032. Marjorie Hellmer, president of Cypress Research, noted
those conservative projections are based on the average annual
growth rate between 2002 and 2012 of 2.3% for machinery/
equipment and 4.9% for buildings.
"Given the historical trends, earmarking an annual average increase of 2% for capital expenditures in commercial baking seems
viable during the next 13 years," Ms. Hellmer said. "A 2% annual increase in capital expenditures certainly isn't a declaration
of bullishness on the industry's part. It plays on the industry's
reputation for conservative investments in plants, reflecting the
strategy to enable facilities to make products that are in demand."
But there is reason for greater optimism because bakers and
snack producers have better tools to determine and even justify
the return on investment (R.O.I.) for equipment purchases, said
Dave Van Laar, senior adviser to A.B.A.'s president and c.e.o.,
and longtime veteran of the cookie and cracker industry.
Since 2012, he observed, more sophisticated - and userfriendly - data management systems are allowing operations
to pinpoint bottlenecks, reduce downtime and garner higher
yields that achieve a quicker R.O.I. than in the past. In addition
to replacing aging capacity with new technology, companies are
investing to enhance food safety processes through Global Food
Safety Initiatives and to comply with the onslaught of requirements from the Food Safety Modernization Act.
Once an afterthought, Mr. Van Laar noted, sanitary design
has become front-of-mind to control allergens, avoid recalls and
streamline cleaning and maintenance procedures.
Perhaps the greatest emerging need involves recruiting and
retaining skilled employees.
"It's labor, labor, labor," Mr. Van Laar said. "It's the shortage
of labor, the turnover of labor, the churning of labor and the
education of labor. We know labor issues overshadow the entire
industry. From an operations standpoint, it's probably the biggest factor that we deal with."
Cypress Research's analysis indicates employment in the
commercial baking industry has slipped from 295,000 in 2002
but has held steady at around 250,000 since 2007. About 180,000
of them work in production.
While employment has leveled off, Mr. MacKie noted the labor issue goes beyond numbers.
"Twelve years ago, a lot of investment was made to reduce headcount," he said. "Today, it's spurred in part by the workforce gap."
That abyss is expected to widen.
"We're on the cusp of what is going to be pretty significant
turnover in the next five or six years," Mr. MacKie said. "I talked
to half a dozen bakers last year who said part of their strategy
for capital spending is to allow their companies to automate
pieces of the baking process that enables them to retrain and
reinvest in their employees in higher value activities." MBN
bakingbusiness.com / world-grain.com

http://www.bakingbusiness.com http://www.world-grain.com

Milling & Baking News - June 4, 2019

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