Incentives Wouldn't Have Rescued Lifesavers

March 19, 2002
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HOLLAND — State and local incentives designed to reduce operating costs for LifeSavers in Holland didn’t matter as much to corporate parent Kraft Foods as the need to consolidate manufacturing facilities when it decided to close the local plant.

The ability to absorb the Holland plant’s production into a facility in Mount Royal, Canada, made the move the most viable option as Kraft looked to cut corporate costs through consolidating its manufacturing operations.

In this case, the Holland plant is significantly underutilized and the cost of raw materials such as sugar, corn syrup and corrugated cardboard are considerably lower in Canada.

Even with the financial incentives state and local economic development agencies offered, Kraft still would have had to invest heavily in the Holland plant. That was an avenue the company was simply unwilling to consider, said Cathy Pernu, senior manager of corporate affairs for the Northfield, Ill.-based Kraft Foods North America.

“There is not a desire in the company to invest in the Holland facility. The savings can still be achieved by the transfer of production,” Pernu said. “Upgrading isn’t the issue in Holland. The issue in Holland is underutilization.”

Kraft Foods announced Jan. 7 that it plans to phase out production at the 35-year-old plant beginning this spring, with production ending completely in mid-2003. Kraft acquired the 430,000-square-foot plant in late December 2000 when corporate parent Phillip Morris Companies Inc. bought LifeSavers owner Nabisco from R.J. Reynolds Tobacco.

As part of the acquisition, Kraft divested its line of breath mints and gums that were made in Holland, a move that resulted in the plant being significantly underutilized and becoming expendable.

The closing, which will cost 600 LifeSavers workers their jobs and take a sizable bite out of the city’s tax base, surprised economic development officials who had worked with LifeSavers on the local and regional levels for eight months on a package of incentives to reduce the plant’s operating costs.

“We’re all pretty much at a loss for this because everything we’ve gotten back from the company for the last eight months indicated we were on the right track,” said Chris Byrnes, president of the Holland Economic Development Corp. (HEDCOR).

Among the local incentives HEDCOR orchestrated after being approached for assistance to reduce the plant’s operating costs was having LifeSavers switched to a lower electric rate by the city’s power utility, the Holland Board of Public Works, which saved the company “significant dollars.” The designation last year of a brownfield district also would have made LifeSavers eligible for property tax breaks on investments made in the plant, Byrnes said.

The Michigan Economic Development Corp. came through with similar brownfield tax breaks, as well as a promise to invest $400,000 in an eastern Michigan sugar company so it could begin producing the liquid sugar LifeSavers needs to make candies, reducing the company’s transportation costs by $1.8 million a year, Byrnes said.

The MEDC planned to explore other options to help the Holland plant but the company canceled a meeting scheduled for August. Repeated follow-up inquiries from the state to the company to reschedule did not meet with a response, MEDC spokeswoman Jennifer Kopp said.

“We didn’t even get a chance to tell them how it could help them,” Kopp said of the state financial package. “It’s frustrating. We would have liked a chance to sit down with them and share what we have to offer.”

MEDC staff were hopeful of working out something with Kraft for the Holland plant after it pulled together a package to save the company’s Post Cereal facility last year in Battle Creek.

But the situations in Battle Creek and Holland are different, Pernu said. The Battle Creek cereal plant is older and needs upgrades, while the Holland plant does not, she said. The financial incentives were also offered at a time prior to Kraft’s broader corporate initiative to consolidate underutilized facilities, Pernu said.

“The current plans had not been realized at that time. They are new,” she said. “The whole picture is to reduce into fewer plants and reduce operating costs.”

In the days following Kraft’s announcement, the MEDC hoped to still arrange a meeting with executives to see if it’s possible to formulate an incentive package to keep the plant open, Kopp said.

Pernu indicated that Kraft executives would listen to the MEDC, although she downplayed hopes that the state could convince the company to reverse its decision.

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