Soaring energy costs impacting manufacturers

The Australian Food and Grocery Council (AFGC) has urged the federal and state government to act on soaring energy prices and reduce pressure on food and grocery manufacturers facing energy cost rises. Businesses already burdened by rising input costs driven by COVID-19, flooding and the war in Ukraine have been further impacted by increases in gas and electricity prices.

Manufacturers have been exposed to retail pricing and they are incurring cost of gas increases that are undermining the long-term future of the food and grocery industry.

Michael Perich, CEO of food and beverage processor, Noumi, said, “We are currently facing an unprecedented and unsustainable four-fold increase in our contracted gas prices. It’s no exaggeration to describe this as a national energy crisis.”

According to Perich, intervention is needed for Australian food processors to stay competitive in Asian markets, where there hasn’t been such a sharp rise in energy prices.

AFGC CEO Tanya Barden said: “The vast majority of food and grocery manufacturers purchase gas on the retail market rather than the wholesale market and so consideration must be given to making the code of conduct governing gas supply agreements mandatory and extending it, along with price caps, to cover retail pricing.

“Australians understand that acting to rein in soaring energy costs isn’t just about supporting consumers now, it’s about backing local manufacturing capabilities that will secure our nation’s future.”

What’s the plan?

The Albanese government has announced a four-point Energy Price Relief Plan to cap, for 12 months, the price of black coal at $125 a tonne and the price of gas at $12 a gigajoule. It also has plans to provide targeted energy bill relief for households and businesses; as well as investing in cleaner energy for the future.

Australia’s $134 billion food and grocery manufacturing industry contributes significantly to the national economy and regional employment.

“These businesses have sustained Australia and kept supermarket shelves full throughout the disruption and cost increases resulting from the COVID-19 pandemic, natural disasters and the war in Ukraine,” Barden said.

“We know from the federal Budget that gas prices are forecast to continue rising by 20% a year over the next two years, and for businesses already under immense pressure, such increases are unsustainable.”

The government intends to introduce primary legislation this year to put in place a strong enforcement framework for the mandatory code and price cap.

With these policy interventions, Treasury now forecasts that retail gas prices would rise by around 18% this financial year, with most of this increase having already occurred, and by around 4% in 2023–24 — rather than 20% in each year.

Consultation on the mandatory code, including the reasonable pricing provision, will remain open until 7 February 2023, and it is planned to be implemented via regulation in early 2023. 

There will be a review of the price cap by mid-2023 and a review of the code, including the reasonable pricing provision, after 12 months. These reviews will provide an opportunity to assess whether these measures are operating as intended, and to make any necessary refinements.

Prime Minister Albanese said: “We are working hand in hand with our state and territory partners to find the best outcomes for all Australians; keeping Australians in work, keeping industry going and making sure that families and businesses can pay their bills.”

Image caption: iStock.com/NVS