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Cost pressures affecting Australian manufacturers

cost pressures

AFGC CEO Tanya Barden says Australian food and grocery manufacturers are facing cost pressures that are starting to flow through to supermarket shelves.

“All manufacturers of food and groceries are facing pressure and that is starting to flow through to supermarket shelves,” said Barden.

“Over the past decade manufacturers have already been dealing with a situation where wholesale prices – the prices they receive for their goods – have risen by less than the cost of their inputs. There has been a lot of absorbing of costs by manufacturers before the impact of the pandemic.”

The price of manufacturing over the past number of years has also had an impact on manufacturers and distributors.

“Over the past couple of years, the price of inputs for making and distributing goods has risen,” said Barden.

“The cost of shipping ingredients and finished goods to Australia has risen by 500 to 700 per cent. There have also been significant costs to business as a result of COVID safety measures, domestic freight cost increases caused by weather disruptions, shortages of pallets and rises in the cost of packaging.

“Adding to this unprecedented COVID disruption, manufacturers are facing increases in global commodity prices as a result of the situation in Ukraine and they are now seeing increases in labour costs.”

Barden said the cost rises had finally reached a breaking point for the industry.

“There is no longer the ability for manufacturers to continue to absorb those increased costs,” said said.

The stark news comes only weeks after Barden and the AFGC welcomed the Federal Budget’s boost to regional food and beverage manufacturing.

The $2 billion Regional Accelerator Program (RAP) announced in the budget provides important support to regional food and grocery manufacturers, who employ 40 per cent of this $132 billion industry’s workforce.

Barden said the targeted funding will strengthen regional food and grocery manufacturing with measures including a $500m boost in funding for regional business through the Modern Manufacturing Initiative (MMI) and a $200m increase to the Supply Chain Resilience Initiative.

“The past two years have underscored how critically important a strong, sovereign food and grocery manufacturing industry is for Australia. The support for regional manufacturers, who are major employers and providers of essential items, is a significant boost,” said Barden.

The AFGC welcomed the further $328.3m provided for the MMI’s six national manufacturing priorities over the next five years, however, said it is still inadequate given the investment challenges faces by the food and grocery sector.

Food and beverage manufacturing was identified as one of the six priorities and the AFGC has developed a vision for doubling the size of the industry by 2030, which requires significant capital investment. The Budget’s projected fall in non-mining investment after 2023 is of concern and will need attention if we are to grow the future productive capacity of the Australian economy.

Barden commended the federal government on delivering a responsible budget while supporting the Australian community and businesses through the challenges of COVID-19 and natural disasters.

“This budget comes as Australian food and grocery manufacturers face unprecedented costs, inflationary pressures and disruption,” she said.

“It is pleasing to see the government has delivered a deficit that is considerably below forecasts while introducing measures to support consumers and shore up Australia’s supply chains.”

The AFGC represents Australia’s food and grocery manufacturers, who together employ the nation’s largest manufacturing workforce and comprise 16,000 businesses employing more than 270,000 people.

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