Standard Process

Standard ProcessAnalyzing the Economic Impact in Wisconsin

Principal Researcher and Analyst Russ Kashian, Ph.D.

Professor, Department of Economics University of Wisconsin-Whitewater

800 W. Main Street Whitewater, WI 53190

[email protected]

Industry Analysis and Report Preparation Jeremy Peterson, research assistant

university of wisconsin

whitewaterFiscal and Economic Research Center

History of the Company

Located in Palmyra, Wisconsin, Standard Process Inc. makes whole food supplements at its corporate headquarters. Ingredients are grown on the company’s 450-acre organic farm a mile and a half west of the company’s headquarters. Employing more than 300 people, Standard Process has been named one of the top 100 places to work in southeastern Wisconsin by the Milwaukee Journal Sentinel. The company has also received several awards for its corporate wellness program, including a Governor’s Worksite Wellness Gold Award from the Wisconsin Governor’s Council on Physical Fitness & Health.

Founded in 1929 by Wisconsin native Dr. Royal Lee, Standard Process is now in its third generation of family ownership. The company is committed to a whole food philosophy first introduced by its founder more than 80 years ago: “The best sources of vitamins and minerals are found in whole foods.” Using ingredients grown on its farm, Standard Process (one of the largest organic farms in Wisconsin) continues to make nutritional whole food supplements.

Standard Process is devoted to improving the quality of life by providing the safest, most effective, highest quality dietary supplements through health care professionals.

Standard Process is now in its third generation of family ownership. Sold exclusively through health care professionals, the growing company is committed to a whole food philosophy first introduced by its founder, Wisconsin native Dr. Royal Lee, in 1929: “The best sources of vitamins and minerals are found in whole foods.”

Employing more than 300 people, Standard Process has twice been named one of the top 100 places to work in southeastern Wisconsin by the Milwaukee Journal Sentinel. The company has also received several awards for its corporate wellness program, including a Governor’s Worksite Wellness Gold Award from the Wisconsin Governor’s Council on Physical Fitness & Health.

Quality Control

Good Manufacturing Practices (GMPs) Standard Process follows current Food and Drug Administration GMPs. These GMPs are similar to pharmaceutical GMPs in some important respects. They address everything from raw material handling and sampling to the manufacturing process to finished goods and product labeling. Standard Process controls all of its manufacturing processes, including milling, mixing, tableting, bottling and packaging.

Meeting Label Claims Quality control methods ensure all label claims are met. Tests are performed after critical stages of production to ensure the products are free of bacterial contamination.

Repeat Testing to Ensure Quality and Safety Repeated testing throughout the manufacturing process ensures quality and safety. On average, a product is tested six times. Every week, degreed scientists in full-scale microbiology and chemistry laboratories perform as many as 400 tests on raw materials, product batches and finished products. Testing procedures have been approved by the Association of Analytical Communities.

Degreed Microbiologists and Chemists Onsite Standard Process takes great pride in its quality assurance program. A team of trained microbiologists and chemists work hard to guar-antee customers receive the best products on the market today.

The Economic Impact of Standard Process on Wisconsin To gauge the economic impact of Standard Process on Wisconsin, the Fiscal and Economic Research Center (FERC) employed the 2011 IMPLAN (Impact analysis for planning) economic modeling system. This produces an economic multiplier, which is a quantitative measure of economic impact that recognizes that all levels of economies are interconnected networks of inter-dependent activity. When one part of the economy changes, the rest of economy will be influenced by that change. This will typically result in a greater total impact than was caused by the original injection of capital into the economy. IMPLAN is capable of determining the overall economic impact that initial spending has on the local economy. The IMPLAN model uses survey data to estimate how much different spending categories affect the local economy in terms of initial effect, direct effect, indirect effect, and induced effect.

When spending, a portion of that money will “leak” out of the local economy through taxes or be spent outside of the local economy. Only a fraction of the money spent by Standard Process will probably stay in the local economy. People who work within this company could reside outside the state. Insurance paid by the employers and employees might be paid to a company in a different state. The processing equipment could have been not only assembled by people from outside the community, but also designed and fabricated in a state other than Wisconsin.

Each of these and many more possibilities allow for money to leak out of the economy and to have effects on other areas. The multiplier effect compensates for this “leak.”

An example of an economic multiplier: consider that when 30 employees are hired to work at Standard Process, employment will increase by more than 30 jobs directly tied to the industry. This happens for two reasons. First, the operation of Standard Process requires several expenditures including utilities, insurance and maintenance costs. This spending creates additional jobs in those industries that supply those services. These impacts are referred to as indirect effects because they are indirectly created by the establishment of jobs at Standard Process. Another impact occurs from the people who work at the company spending their earned income in the local community. This spending creates jobs in the businesses that provide the services. These impacts are called induced impacts. This defines the employment multiplier as the number that is multiplied by the number of jobs directly involved with Standard Process to give the total number of jobs created (both directly and those created in the community by Standard Process). If the total number of jobs created by this company was 40, then the employment multiplier would be 1.33 (40/30).

To calculate the impact of expenditures by Standard Process, an IMPLAN input

Regional Impact of Standard Process Inc.

Standard Process demonstrates its commitment to the Whole:

• Personbyfosteringthe physical, emotional, intellectual and spiritual health of its customers and employees.

• Productbyemphasizingthe importance of concentrated whole foods and herbs in its product line.

• Processbyensuringthe highest quality in every state of development from farming to shipping.

• Planetbyutilizing environmentally safe farming, manufacturing and business practices.

• Posteritybypreservingand strengthening the company for all future generations.

Standard Process is one of the top 10 supplement companies among those who sell nationwide to healthcare professionals. But the company is also committed to being a good corporate citizen. For over two decades, Standard Process support for its local and regional communities has provided:

• Naturaldisasteraid,bothfinancialand material

• Localfoodpantrysupport

• Enrichmentopportunitiesforchildren and seniors

• Supportforlocalschooldistrict initiatives

• Contributionstolocalcharitable organizations and clubs

• Leadershipfororganicfarmingin Wisconsin through education support and resources for organic agriculture research.

In light of the fact that both the organic food and dietary supplement segments have experienced robust growth nationwide, these are excellent areas of growth for Wisconsin and are expected to continue this growth for the next few years.

The Economic MultiplierThe economic impact of Standard Process is measured across industry sales, job creation and employment income. The employment and sales estimates were received from Hoovers and LexisNexis. These figures are estimates and the actual figures may vary.

• DirectEffect

This indicator refers the spending brought about by Standard Process. As a direct result of Standard Process, 300 jobs were created, paying out over $14,878,192 dollars in wages and benefits for a total direct effect on the economy of over $100 million. One of the unique attributes of Standard Process’ impact on Wisconsin’s economy is its vertical integration. Because Standard Process produces the ingredients to their products, most of the output created by the company stays in the state in Wisconsin. Thus leakes are minimized.

• IndirectEffectThe operation of Standard Process requires several expenditures including utilities, insurance and maintenance costs. This spending creates additional jobs in those industries that supply those services. These impacts are referred to as indirect effects because they are indirectly created by the establishment of jobs at Standard Process. Standard Process has a demand for locally produced materials needed to produce their product. The success of Standard Process affects all of the suppliers that provide inputs for Standard Process.

•InducedEffectAnother impact occurs from the people who work at the company spending their earned income in the local community. This spending creates jobs in the businesses that provide the services. These impacts are called induced impacts. The induced effect measures the effects of the changes in household income: Individuals working at Standard Process and the suppliers of Standard Process spend money at restaurants, grocery stores and shops.

Impact: Indirect Effects:

Jobs created 259.2

Labor Income $13,456,744

Output $32,686,009

Impact: Induced Effects:

Jobs created 198.4

Labor Income $6,245,778

Output $19,373,261

Impact: Direct Effects:

Jobs created 300

Labor Income $14,878,333

Output $162,220,712

The Economic Multiplier

– output model was used. This model uses data gathered in surveys and estimates to what extent different spending categories affect the local economy in terms of initial effect, direct effect, indirect effect, and induced effect.

• Directeffect-refers to production change associated with a change in demand for the good itself. It is the initial impact to the economy, which is exogenous to the model. In this case, it is the spending brought about by Standard Process.

• Indirecteffect- refers to the secondary impact caused by changing input needs of directly affected industries (e.g., additional input purchas- es to produce additional output).

It concerns inter-industry transactions: Standard Process has a demand for locally pro- duced materials needed to produce their product (perhaps office supplies). The success of Standard Process affects all of the suppliers that provide its inputs.

• Inducedeffect- is caused by changes in household spending due to the additional employ- ment generated by direct and indirect effects. The induced effect measures the effects of the changes in household income: Individuals working at Standard Process and the suppliers of Standard Process spend money at restaurants, grocery stores and shops.

FERC estimates Standard Process contributes $225,094,696 to the economy of Wisconsin and creates 779 annual full-time jobs with a total labor income of 34,580,715.

Impact: Total Effect: Jobs Created 779.2 Labor Income $34,580,715 Output $225,094,696

Conclusion-Standard Process has a combined impact (including direct, indirect and induced) of $225,094,696 on the economy of Wisconsin.

-This impact led directly to the creation of 300 jobs.

-A large portion of the money generated by Standard Process stays in the state, which explains the impressive income multiplier and output multiplier.

-Some money does ultimately flow outside the state to purchase items that do not originate in Wisconsin.

-The impact of Standard Process on the economy of Wisconsin in general and Palmyra specifically is significant. Standard Process provides a notable amount of employment and labor income for the state.

Sales Multiplier 1.39 +$0.39economic activity for every sales dollar

Employment Multiplier 2.60 +1.60 jobs for every one added

Income Multiplier 2.32 +$1.32 income for every labor dollar

Tax Revenue $2,199,696

Table 2: Standard Process Impact on Wisconsin Economy

The “Standard Process sales multiplier” equals 1.39 (225,094,696/162,220,712), which suggests that for every dollar of sales by Standard Process, an additional 39 cents of economic activity will be generated in Wisconsin.

The “Standard Process employment multiplier” equals 2.60 (779/300), which implies that for every job created by Standard Process, 1.6 additional jobs will be created.

Finally, the income multiplier created by Standard Process is 2.32, implying that for every dollar of labor income earned by employees of Standard Process, an additional 1.32 dollars of income is earned in Wisconsin.

In 2012, Wisconsin will collect $2,199,365 in tax revenue. The taxes collected from Standard Process come from personal income taxes and sales taxes. The personal income taxes collected from Standard Process employees amount to $965,170. The output is taxed in the form of the sales tax. Of the total output, the state collects $1,234,195. Some of the inputs and products are tax ex-empt, or this figure would be greater. While this analysis focuses on sales and personal income taxes, there are a wide variety of fees and taxes (both personal and corporate) that contribute to federal and state budgets.

7-2012