Food sector supports Australia's manufacturing future

The $131 billion food and beverage, grocery and fresh produce sector is important to the future of Australian manufacturing, which has faced challenging industry conditions through 2016–17.

The Australian Food and Grocery Council’s (AFGC) State of the Industry 2018 report, compiled by EY, found that the sector now accounts for nearly 40% of Australian manufacturing jobs.

AFGC CEO Tanya Barden said it “highlights the importance of the food and grocery sector to Australia’s economy, and its resilience in the face of a significant loss of competitiveness that has impacted Australian manufacturing more broadly”.

“There is no doubt Australia’s largest manufacturing sector is facing a tough environment where input costs are rising on everything from commodities, particularly caused by the drought, to labour to energy, and six years of retail price deflation continues to cut margins, placing the sector under increasing pressure.”

She said these factors have created relentless pressure back through the supply chain, and this is now placing strain on the sector, which directly employs 324,450 people.

Industry turnover decreased by 2% to $131 billion, and there was a 10.3% decrease in net capital expenditure in 2016–17. Barden said this is off the back of a decade of declining investment, and “reflects a genuine concern that increases in input costs, coupled with depressed pricing, makes the case for investment difficult at this critical time”.

“Continuing to stimulate investment in site modernisation is critical particularly in light of mounting input cost pressures. We are now in danger of drifting into a low-investment trap, where uncertainty about return on investment flowing from retail price deflation and rising costs is seeing investment decisions deferred or dumped.”

The AFGC suggested targeted investment allowances could bring forward investments in Australia to retain jobs and businesses, particularly in regional areas where approximately 38.8% of the sector’s jobs are located.

The report also highlighted that the industry’s growth prospects increasingly lie in exports, as there was a 7.7% increase in exports to 36.1 billion in 2017–18. Barden said this shows the ability to realise premium prices for value-added food and beverage products in growing export markets.

“For the Australian economy to grow, we need strong regional employment, a strong manufacturing base and export-led growth. The food and grocery sector offers these three aspects but requires polices that address cost competitiveness and ensure fairness in retailer supplier trading,” explained Barden.

Image credit: ©IvonneWierink/Dollar Photo Club