Australia’s food manufacturing sector is facing significant economic challenges that require urgent attention from the government, according to the Australian Food and Grocery Council (AFGC) in it's annual assessment of the industry.
Prepared by consulting firm KPMG, the AFGC’s State of the Industry 2012 reportfound that total industry output contracted by 4.5% over the 2010-11 period, while total industry employment declined by 2.2%—corresponding to almost 7,000 people—in 2011-12.
Moreover, the food manufacturing industry comprised 22,668 businesses during the 2011-12 financial year—335 fewer than 2010-11. Together, these spent around A$466.7m on R&D, and accounted for A$49.2bn of international trade.
Shot across the bows
Gary Dawson, chief executive of the AFGC, said that the food and grocery manufacturing sector’s contraction reflects the cumulative impact of both economy-wide and sector-specific factors.
Dawson said that he findings serve as a warning to policymakers at all levels of government that the Australian food and grocery manufacturing sector—the biggest such unit in the country.
“The sector is facing an environment where input costs are rising on everything from commodities to labour to energy. And retail price deflation continues to cut margins, placing the sector under increasing pressure,” said Dawson.
“This report demonstrates that the sector’s growth, competitiveness and ability to create jobs are under threat.”
Innovation is essential
Valentina Tripp, food and beverage director at KPMG, said that the industry still well positioned to improve its competitiveness through investment in R&D and innovation, even though it has shown some decline over the last couple of years.
“Capital expenditure and R&D investment have slowly increased over the past few years. However, significantly more needs to be invested to capitalise on Australia’s comparative advantage in food and groceries,” Tripp said.
She remarked that the industry was still in an enviable position to take advantage of rapidly growing middle-class consumption demands in Asia.
“Australia has a strong country brand that is high-quality, clean and safe, and these are qualities that food and grocery organisations can dovetail into their marketing strategies,” she said.
She called for regulatory reforms to ease the compliance costs faced by the food and grocery sector as the financial squeeze tightens on many food processing and manufacturing companies.
“Certainly, any additional regulation that increases costs runs the risk of driving more production and jobs offshore,” she said, adding that governments must back the innovative capacity of Australian manufacturers through R&D tax incentives and accelerated capital depreciation.