By: Mike Arozarena
Deal activity for the food and beverage industry has been high is continuing to build. Indeed, according to PricewaterhouseCoopers’ (PwC) and the Grocery Manufacturers Association’s (GMA) Retail & Consumer Insights 2016 Financial Benchmarking and Industry Trends Report, there were over 300 announced US deals (greater than $50 million in total transaction value) in the food, beverage, and alcohol sector over the past five years alone, totaling approximately $295 billion. PwC and the GMA predict deal volume will only continue to grow, given corporations’ strong balance sheet health and private equity investors’ access to inexpensive capital in the currently low interest rate environment.
Further driving M&A activity within the food & beverage industry is the need for these companies to expand and adapt to widely changing, and highly fragmented, consumer behaviors and preferences. According to another report authored by the GMA, along with Deloitte and the Food Marketing Institute (FMI), there are a plethora of “consumer-led disruptions” within the industry, including the average consumer’s increased access to information about products on social media sites, such as the crowd-sourced review website, Yelp. As such, it has become increasingly difficult for companies to manage their reputations and outward messaging. Making matters worse, the report indicated a general distrust for the established food industry by the average consumer. Not surprisingly, PwC’s 19th Annual Global CEO Survey revealed that 73% of consumer goods CEOs are concerned about shifts in consumer spending and behaviors.
According to Deloitte, consumer tastes will likely only continue to fragment, forcing companies to find new ways to connect with these shifts in purchase decisions. Smaller companies will be able to “leverage new technologies, third party relationships and improved engagement to earn consumer trust,” reports Deloitte, making them key acquisition targets for larger companies seeking ways to get into the evolving market place. Overall, those companies and retailers who are able to innovate to accommodate the new evolving preferences of the average consumer will succeed.
So what can dealmakers do, in this highly evolving industry, to protect themselves from an environmental perspective?
It is not uncommon to overlook environmental compliance requirements at a food or beverage manufacturing company when divesting or acquiring a business, simply because your guard is down. After all, the company you are assessing might make a delicious peanut butter spread or a smooth, single barrel bourbon. From an environmental perspective, what kind of risks could these types of facilities possibly have?
Surprisingly, there are many federal and state environmental regulatory programs that food manufacturers, distillers and vineyards must comply with, just as organic chemical manufacturers, steel mills, and even coal-fired power plants, are expected to. Take, for example, a distillery that makes one of your favorite bourbons. Basically, every major environmental program applies to this type of facility. First, the distillery must have a power house to generate heat or steam for the various distillation and fermentation processes, and therefore, must comply with the Clean Air Act (CAA) by applying for and implementing the terms and conditions of an air permit. The facility also has chemical tanks and emergency generators that are included in this air permit.
Next, given all the materials and chemicals on site for fueling, water treatment, vessel clean outs, and by-product processing, the facility must also comply with the Emergency Planning and Community Right-to-Know Act (EPCRA), from both a chemical inventory perspective and for their Toxic Release Inventory (TRI), which quantifies releases to the environment. Furthermore, distilleries are subject to storm water and wastewater regulations, and often face significant surcharges for high strength wastewaters to the sewer district.
The facility may also have septic systems in more remote locations. Distilleries and other beverage manufacturing facilities use significant amounts of water and often have water supply wells on site, or withdraw water from lakes or rivers requiring registration with the Department of Natural Resources. Moreover, with city water connections, the facility must install and test their backflow prevention devices to ensure the municipal water supply does not get contaminated by the manufacturing operations. Surprisingly enough, these facilities also generate hazardous waste on a regular basis that must be managed and properly recycled or disposed of.
Most distilleries also have bottling operations on site. This operation typically has radioactive devices to measure bottle fill height and make sure the cases are full of bottles. So as you can see, even a distillery has a wide range of environmental laws and regulations that the facility must comply with or they may face serious fines for noncompliance.
One other key environmental program that not only affects food and beverage plants, but also most manufacturing operations in the United States, is the oil pollution prevention program under the Clean Water Act (CWA). In general, any facility that has over 1,320 gallons of oil on site must develop and implement a Spill Prevention, Control and Countermeasure (SPCC) Plan. Distilleries, cooperages (whiskey barrel manufacturers), and saw mills, for example, have numerous gasoline and diesel fuel tanks on site to fuel trucks, heavy equipment, and emergency generators. One aspect of the SPCC Plan regulation requires inspection and testing of aboveground storage tanks in accordance with industry standards like the Steel Tank Institute or the American Petroleum Institute. Many facilities are not performing these required inspections or tests, and in fact, are not even aware they are supposed to be testing their tanks. This creates a serious risk of a tank failure, which could lead to a spill or release that could have a costly impact on the environment.
Regardless of the type of manufacturing operation, it is critical to understand the range of potentially applicable regulatory programs and the risk associated with noncompliance. If you need assistance conducting your due diligence or performing environmental compliance, please contact EHS Support’s Mike Arozarena or Amy Bauer.
ABOUT THE AUTHOR Michael Arozarena has over 33 years of technical and project management experience in the environmental field. His diverse work background includes environmental consulting, private industry, and the U.S. Environmental Protection Agency Research Center. His areas of experience include plant-level regulatory compliance; EHS compliance audits; environmental permitting; stormwater and wastewater monitoring; aboveground storage tank testing; ambient air monitoring; and hazardous waste treatment technology evaluations… Read More
