Federal Budget 2012: Did the government forget the food sector?

The Gillard government has left the food processing industry reeling with its Federal Budget, channelling little money to the sector and ignoring calls for a Supermarket Ombudsman.

Farming groups have slammed Prime Minister Julia Gillard’s declaration that Australia can be a ‘foodbowl’ for Asia, saying current policies are killing their businesses, not helping them.

Despite the fact that hundreds of workers in the food processing sector have lost their jobs in the last two years as SPC Ardmona, McCain, Heinz and National Foods, amongst others, close their doors or scale back their businesses, Gillard announced earlier this week that the future for Australian food should be in export.

The high Australian dollar, supermarket price wars and lack of new recruits in the sector are making it impossible for food manufacturers to make a profit, or in many cases even break even.

Dairy, produce industries in trouble

The infamous milk price wars is leading dairy farmers to leave the industry in droves, and with the average age of an Aussie farmer about 65 and no new workers coming through the ranks, the future of the farming sector looks dire.

With the dairy industry still reeling, Coles slashed the price of produce in half in Fenruary and AusVeg spokesperson Simon Coburn told Food Magazine it “had the making” of the milk price wars.

“Long term this could deliver lots of damage to the industry,” he told Food Magazine.

“Depending where the reduced retail price is going to be absorbed, whether it’s a small grower or a big business, this will damage them long term.

“Eventually it will come back to growers and that’s where they’ll get into trouble.

“These prices aren’t sustainable if they’re passed onto growers, small operations and even big ones won’t survive this.

When asked whether the price cuts shows a lack of knowledge or respect for growers from Coles, Coburn said that will be determined by Coles’ behavior going forward.

“It depends on how these costs will be set up,” he said.

“If they absorb the costs within their own structures, it could be good, but if it is going to be passed onto growers, which it probably will, it shows mass disrespect to growers.

Murray-Darling Basin impacts

Australian Dairy Farmers Association Chris Griffin voiced similar concerns about the impact of the supermarket when he spoke to Food Magazine in the same month, saying the dairy industry is not only losing workers, but will be further damaged by the carbon tax and Murray-Darling Basin plan.

“The carbon tax will also cause problems when it’s implemented on the 1st of July; we’ve done work to find the costs that will be incurred and they are largely electrical costs,” he said.

“The average increase for dairy operation will be between $5000- $7000, and that will be an overall direct increase in cost that will have to be passed on somewhere.”

The cost increase cause by the carbon tax will have to be absorbed by the farmers in the milk export market, Griffin told Food Magazine.

“It will have to be absorbed by the farmer because our price is governed by a royal export set price.

“Australia has come out ahead of the game in a way with implementing the carbon tax, but farmers can’t go to their overseas customers and saying ‘we need extra money because Julia has put on a carbon tax,’ the customers would just go elsewhere.”

The Murray Darling Basin plan, which is tipped to see farmers sell 2750 gigalitres of water back to the Government, will mean less water available for the same number of farmers in the region, Griffin explained.

“Given that the government has a national food plan they’re trying to roll out and we believe the dairy industry is a massive part of that, we would like to consult with them about the plan,” he said.

“Australia has been very fortunate that we have been able to produce enough dairy products not only for domestic consumption, but also for export, which then generates wealth for the country.

“This plan is going to jeopardise that.”

“At this stage we say a certain amount of water has been taken out already and we need to have a strategic look, working with the government to see where it is going to come from in the future rather than using the ‘Swiss cheese approach’ currently being used.

“It means less water for the same amount of farmers, and maintenance costs will be higher because there are not as many people contributing to the maintenance.”

National Irrigators' Council chief executive Tom Chesson said if the Gillard government wants to feed the Asian middle class, it will need to ensure "water to produce food,” and  “unless government gets its act together, we won't have a food processing industry left.”

Declining produce output

AusVeg chief executive Richard Mulcahy voiced similar concerns about the government’s view of exporting to Asia, saying there simply isn’t enough.

"Only 7.7 per cent of our ]vegetable] production goes offshore,” he said.

“We need to address that before coming up with ambitious plans about feeding hundreds of millions of people in Asia.”

In the last two years fruit and vegetable exports have declined $200 million to $497 million.

The Federal Budget, announced this morning, revealed funding for the Murray-Darling Basin will be reduced, and the Commonwealth Environmental Water Office, which manages the government’s water rights, will be slashed by $13.2 million over the next seven years.

The Caring for our Country program, which aims to improve biodiversity and sustainable farming, which many feared would be cut in Wayne Swan’s budget, was retained.

A further $2.2 billion will be invested into the program’s second phase, to run until 2018.

Part of the money will concentrate on ensuring the health and sustainability of the Great Barrier Reef, which will get an extra $12.5 million over four years to fund research on the impact of climate change and how to deal with global warming.

Over six years, $58 million will be delivered to develop and maintain marine reserves to protect oceans surrounding Auustralia.

But submissions to the senate inquiry into food processing are painting a bleak picture for the rest of the industry, saying the sector is "going backwards at a rate of knots".

The Australian Food and Grocery Council has also been lefty disappointed by the Budget, after calls for funding for a Supermarket Ombudsman were not delivered on by the government.

The AFGC wants an Ombudsman to oversee the anti-competitive and bullying behaviour of the major supermarkets to ensure a future for Australia’s food sector.