In the dairy industry, adding value to products has proven to be more difficult. According to Russell Redding, deputy secretary for marketing and economic development in the state Department of Agriculture, many of the industry's milk marketing cooperatives are still focused on selling fluid milk and have been slow to respond to a changing marketplace. He points out that producers could form cooperatives to make products such as cheese or ice cream. "Pennsylvania is very strong in milk production, but the key is to get the producer more closely tied to the consumer by sharing technology and facilities to make value-added products," Redding says.


Even without the help of a cooperative, innovative dairy farmers can find ways to develop and market value-added products. Way-Har Farms, a dairy business based in Strausstown, has tied expansion to its thriving dairy convenience store, where consumers can buy fresh milk just hours after it leaves the cow, as well as a variety of other dairy products. William Lesher, who runs the family farm and dairy business with his father, says that the number of farms bottling milk and selling directly to consumers is steadily dropping. "If you want to continue to grow, you have to find products that generate more income," he says. "Just adding more cows isn't the answer in the long run." Way-Har sells a full line of milk products from its store and markets specialty products, such as eggnog and strawberry milk. The company also sells milk to a local creamery, which manufactures private-label ice cream to Way-Har's specifications. In addition, the farm contracts with a gourmet company that sells Way-Har milk in New York City as a farm-fresh gourmet item. Lesher says the small company will concentrate on its dairy store for now, yet he doesn't rule out expansion into manufacturing ice cream in the future. "But we don't want to become too big, because our competitive strength is quality and freshness," he admits.

Production line workers at an ice cream packing machine talk with Quintin Frey (center), president of Turkey Hill Dairy in Lancaster County. Turkey Hill has succeeded in part by anticipating consumer demand for low-fat milk products and low-fat frozen desserts.

Although most Pennsylvania firms are not large enough to support an in-house research and development department, Turkey Hill Dairy has expanded from a dairy farm deeded from William Penn to one of the largest ice cream manufacturers in the country. The business has done this by astutely analyzing the market and reacting quickly to changes. "Turkey Hill was one of hundreds of little dairies in Lancaster County when the wave of pasteurization and refrigeration hit in the '50s," says John Cox, secretary-treasurer of the firm. "When it became apparent that home milk delivery was in serious jeopardy, the owners made the decision to go into the convenience store business in 1967." As other dairies failed or were absorbed by bigger operations, Turkey Hill expanded by purchasing several local dairies. Then, in the late '70s, the company thought it could compete as a regional ice cream producer by making a premier product. "In 1980, we built a much larger facility than we needed at the time," Cox recalls. "The ice cream business took off, and by looking at what was happening to the milk industry in 1985, which had switched from whole milk to low-fat products, we became experts at producing low-fat frozen desserts." The company has grown from 120 employees to 320 in 10 years and now has two plants side by side. A fluid milk facility produces a full line of milk products, ice teas, and fruit drinks, while a frozen dessert plant manufactures ice cream, low-fat ice cream, and frozen yogurts. "The dairy industry has to stop seeing itself as a conduit to the consumer for farmers' milk and start seeing itself as a food industry," Cox says. "It should figure out what consumers want and make those products."

Global marketing has become a high priority for most manufacturing industries, but Pennsylvania Department of Agriculture marketing expert Redding says exports are a low priority for almost all of Pennsylvania's food processors." Some industries, such as mushroom processors and candy manufacturers, have trouble selling overseas because their products are not unique, while others, particularly dairy processors and snack food manufacturers, face daunting hurdles in freshness and perishability. "Simply put, the domestic market is huge, and the costs to operate domestically are much less than those incurred overseas," Redding says. "It's expensive just putting together an international sales effort, not to mention implementing one."

To assist Pennsylvania companies, PDA has offered its own contacts and expertise, an approach that has worked best on a small scale. "Small companies that have identified a niche market often are the ones aggressively pursuing international opportunities, but they need help getting started," Redding adds. "A specialty product may have great appeal in the world market, yet to take advantage of the potential market, the manufacturer needs business connections and investment capital."

One company benefiting from the state's international marketing efforts is Bob Cotten Gourmet Specialties, located in Stowe. The firm produces frozen gourmet pies for restaurants and food service distributors. Bob Cotten started the business in 1981 and by 1987 was selling pies in most of the states east of the Mississippi. In 1988, after being approached by a PDA representative, Cotten decided to attend an international food show in France. "The department paid for a booth and for shipping our products over there," Cotten recalls. "A little company like ours wouldn't have been able to make that initial investment." A French distributor learned of Gourmet's products at the trade show and agreed to market the company's pecan pies and cheesecakes. "It's like fishing," Cotten says of PDA's export marketing program. "You're not going to catch a fish if your lure's in the boat. PDA allowed us to put our lure in the water. There was a big fish there, and we got it."

Some larger Pennsylvania firms also have been successful marketing overseas. Moyer Packing Co., which is located in Souderton, sells beef to Japan. The company produces boxed cuts of beef, ground beef, and variety meats. "As a mid-sized packer, our operation is well suited to Japanese markets because we can adjust our production to meet their exacting specifications," says Ella Roush, assistant vice president for planning and communications.

Despite Pennsylvania's many compelling success stories, not every entrepreneur is lining up at the state's borders, ready to slice, dice, and price the agricultural bonanza. "If I were looking to start up again as a vegetable processing company, I doubt I would locate in Pennsylvania," Tom Cope says. He and many other business leaders cite Pennsylvania's corporate taxes and high worker's compensation rates as major hurdles to economic development. Today the state's corporate tax rate is about 10 percent, while other states in the South and Southwest have 6 percent corporate taxes. Worker's compensation rates are about double those in many other states. "These fees are huge hurdles," says PDA's Chris Herr. "And they are not easily offset by other advantages because they directly affect the company's bottom line." State agencies, under a mandate from Governor Tom Ridge, are working to ease the burden for newcomers and existing Pennsylvania firms. "In the next year, we'll be turning that boat around," promises Caroline Ployer. "Governor Ridge already has made major gains in restructuring taxes."

Many processors in the state also cite Pennsylvania's regulations as being unwieldy. Hershey's Dick Zimmerman cites the long maze of state, county, and local permits as another major impediment to economic development–particularly for companies looking to expand. "We built a plant in Virginia several years ago," he says. "We could have located it in Pennsylvania, but the permitting process would have taken 10 to 12 months. In Virginia, we received permits in 60 days, and the environmental laws in Virginia are tougher." Ployer says the permitting process recently has been streamlined, including a Department of Environmental Protection program that provides a fee-returning "money-back guarantee" if the agency fails to meet a deadline. Several firms have praised the "one-stop shopping" approach at the state level but point out that holdups still can occur at the county or local level.