Anderson’s abundant water supply makes city well-suited for Nestle, other food processors

ANDERSON—Tom Brewer has a recipe for reviving this city abandoned by the U.S. auto industry.

Study satellite photography, groundwater flow
and historic well records. Build wells to increase pumping capacity by millions of gallons daily. Then
position that bounty in front of food processors—one of the thirstiest industries out there.

"Food processors are notorious for using a
lot of water," said Brewer, superintendent of the Anderson Municipal Water Department. "The
Midwest is a great oasis, or water belt."

The city soon will tap a new well to help accommodate demand from Nestle USA, which opened a plant
here in May 2008 producing bottled, flavored Nesquik and liquid Coffee-mate, a water-based creamer. The
company already has launched an expansion slated for completion in 2011.

The well, costing $313,000, will yield as much as 2 million gallons a day. Anderson also has agreed
to build a $3 million water tower to stabilize pressure at the industrial park where Nestle resides—a
project Brewer said will help the entire city.

Later this year, Brewer plans to install two more wells. If all goes as planned, Anderson will
have boosted its maximum daily yield 30 percent, to 15 million gallons.

Spurred on by Nestle, Brewer and economic development officials hope to net more food processors.

"We’re going to make a comeback, and water
is one of the major tools we have for doing it," Brewer said.

When Nestle’s expansion is complete, the Swiss company will have invested $529 million. The 1.1-million-square-foot
facility near Interstate 69 will crank out bottled Nesquik and liquid Coffee-mate for the entire United
States and part of Canada.

Citing food-safety concerns, the company would not grant a tour of the plant.

Nestle’s expansion will grow its Anderson employment
from more than 400 to 500. That number hardly fills the 25,000-job gap left by fallen auto manufacturers
Delphi Corp. and General Motors Corp., but economic development officials hope it’s the first step in
the ascent toward prosperity.

"Nestle is a great turning point for the diversification of our work force," said Rob Sparks, executive director
of the Corporation for Economic Development Anderson/ Madison County.

Food processors are relatively recession-proof. That’s creating rare opportunities for the local
economic development team. Sparks sees about one lead a month from the industry.

"It’s reasonably stable, and companies
are still expanding," he said.

A giant Nesquik bunny beckons drivers on Interstate 69 with a glass of chocolate milk in hand. But milk isn’t the only ingredient
Nestle’s factory slurps by the ton.

Nestle has used as much as 1.7 million gallons of water in a single day, according to public utility records. That represents
18 percent of the 9.5 million gallons the entire city of 57,000 people uses on a typical day.

Nestle’s peak use, recorded last October, is also 3-1/2 times the average daily water use of a
typical ethanol plant in the region.

"If somebody’s making something in a jar, or something in a plastic bottle, it’s mostly water,"
Brewer said. "Naturally, it’s going to be high."

Brewer would not discuss Nestle’s average use, or how much consumption might grow once the plant
reaches full capacity.

But he believes Anderson could accommodate the food industry’s thirst. The city’s waterworks can pump as much as 5 million
gallons a day to Flagship Enterprise Center, the industrial park south of the city where Nestle is located.

Brewer said he plans to continue to improve
the city’s water infrastructure. "My goal is to stay ahead."

Brewer’s confidence in creating a Midwestern "oasis" stems from Anderson’s proximity
to the ancient Taeys River valley. Buried beneath the prehistoric Wisconsin glacier, the river created
plentiful aquifers across Ohio and north-central Indiana.

Plentiful water also means food processors aren’t likely to come up against the sort of public
outrage that has gripped Nestle Water’s pending plan to tap springs in Chaffee County, Colo.

The Indiana Economic Development Corp. provided
$7 million in tax credits to Nestle for the Anderson plant. The city provided a 10-year tax abatement
worth $27 million, plus $18 million in bonds for infrastructure upgrades and construction. The city also
waived $1 million in utility and permit fees.

In addition to its much-celebrated Anderson facility, Nestle bottles water in Greenwood and makes
ice cream in Fort Wayne.

Brewer takes pride in helping Anderson capitalize on its geologic heritage.

"Anybody can generate electric power,"
he said. "Try building your own water from scratch."

These days, the Nesquik bunny makes more appearances on bottles kept in convenience-store refrigerators
than on the boxes of powder.

The company began marketing Nesquik as a ready-made drink in 1984, more than three decades after
the powder flavoring became a pantry staple.

"The American consumer is turning to on-the-go lifestyles," said Pam Krebs, spokeswoman
for Nestle USA’s beverage division, based in Glendale, Calif. "They want something sweet. Then they
also want the health benefits of milk."

Flavored milk is a $620 million market in the United States, according to sales data from The Nielsen Co. Krebs said Nesquik’s
main competition comes from regional milk processors such as Prairie Farms, which also has a plant in Anderson.

The multibillion-dollar Swiss food company doesn’t
break out sales for its 30 brands, or disclose how much of each product is produced in Anderson. Both
Nesquik and Coffee-mate are part of Nestle USA’s beverage division. Nestle USA had $8.8 billion in sales
last year.

While the Nesquik
bunny is iconic, Brad Alford, CEO of Nestle USA, suggested during an April conference call that Coffee-mate
is the real moneymaker. He predicted U.S. sales of Coffee-mate would reach $1 billion this year.

Alford and other executives, including global CEO
Paul Bulcke, visited Anderson in April for a grand-opening ceremony.

"We believe we can make these brands mega-brands with the capabilities that this facility
is going to give us here," Alford said.

Though Nesquik and Coffee-mate use different ingredients, they can be bottled on the same factory
lines.

"We can switch
back and forth, based on the need," Krebs said.

Before building in Anderson, Nestle bottled Nesquik and Coffee-mate through an undisclosed number
of contractors around the country. The new central location might mean longer trips. Because of the processing
technology used in Anderson, the products have a long shelf life and can travel at room temperature.

Longer shelf life has helped Nestle push its
flavored milk into new outlets, including vending machines and fast-food restaurants. In fact, the current
expansion was spurred by deals Nestle struck with Pizza Hut and Wendy’s to provide 8-ounce bottles of
milk for kids’ meals.

The "aseptic" process Nestle uses in Anderson is the same technology used in making juice boxes, said Philip Nelson,
the Scholle chair professor in food processing at Purdue University.

Aseptic systems have been available since the 1940s, but most U.S. milk processors haven’t used
the technology, Nelson said. One reason is that refrigerated distribution is readily available in the
United States. Plus, heat changes the taste of milk, which Americans like to drink ice-cold.

Nestle is able to clear the weird-taste hurdle
by adding chocolate or other flavors.

The aseptic process heats and sterilizes a liquid within seconds by running it through thin pipes or across plates, Nelson
said. The liquid then travels through the same process to return to room temperature. Finally, it’s poured into a sterilized
container.

Purdue scientists
helped train Nestle’s Anderson employees.

"It’s highly technical," Nelson said. "They have to know what causes spoilage, both microbiological and chemical,
and know how the process affects that."

Anderson is Nestle’s only aseptic plant in the United States, and the company’s largest in the
world, Krebs said.

The
recession changed the way Americans eat, but it hasn’t damaged food-company profits as much as one might think, Purdue
University agriculture economist Chris Hurt said.

Food processors started raising retail prices in the latter half of 2008 because they’d suffered
high commodity costs since 2007, Hurt said. But just as consumers started paying more, the cost of raw
materials dropped.

Dairy
farmers, for example, are selling their milk for half the price of a year ago, he said.

The precipitous drop in commodity prices would easily make up for a slight loss of appetite among
milk-chugging consumers, Hurt said.

"I would guess their margins are extremely good at this point," he said.