Report highlights opportunities in food and beverage sector

Despite strong domestic and global economic, political and social headwinds, Australia’s food, beverage and grocery manufacturing sector remains resilient. It is a key national employer, a trade powerhouse and contributes billions to the national economy.

The Australian Food and Grocery Council’s latest annual industry snapshot, State of the Industry Report 2019, highlights where the strengths of the industry lie, identifying the greatest opportunities for growth, and reinforcing the ongoing challenge of staying competitive in a country with high costs and low margins. Areas of focus include:
• Industry turnover.
• Employment.
• International trade.
• Capital investment.

The report found the sector injected $122.1bn into the economy in 2017-18, with 4.5 per cent real growth largely due to increased exports totalling $34.4bn. Food product manufacturing was the largest sub-sector, with a turnover of $90.1 billion. The major sources of production were meat processing, cheese and other dairy manufacturing, and human pharmaceutical and medicinal products.

Jobs are central to the success of the Australian economy and the food the grocery manufacturing sector is Australia’s largest manufacturing sector, representing 32 per cent of all manufacturing jobs. It is also one of the biggest employers in the country, providing more than 273,300 jobs, of which 39.3 per cent – just over 107,000 – are in regional and rural communities.

Regional and rural communities rely on the sector not just through direct employment, but also because of the multiplier effect it has in boosting and sustaining local economies. This filters right along the supply chain through the sector’s sourcing of not only agricultural inputs but also other goods and services used in food and grocery production.

Similar to employment, the number of businesses in the Australian food and grocery sector increased by 1.4 per cent year-on-year to 15,325, driven largely by the growth of the business count in the grocery sector. New South Wales, Victoria and Queensland are the dominant states, together constituting 85.3 per cent of sector turnover and 79.9 per cent of sector employment.

Australian food and grocery exports increased by 7.6 per cent over 2017-18, led by a 45.3 per cent increase in Chinese exports. This comes off the back of the China-Australia Free Trade Agreement and the opportunities it has unlocked. It has also been spurred on by a favourable exchange rate and the great reputation of Australia’s food and grocery products.
Growth in imports was much lower at 3.3 per cent year-on-year, totalling $33.4bn. The USA was the leading exporter to Australia, followed by New Zealand and China.

As the sector’s global footprint continues to expand, with new free trade agreements opening up more export opportunities for Australian food and grocery manufacturing businesses, policy settings must be right for continued growth are crucial. While the AFGC supports the federal government’s commitment to a strong deregulation agenda, there are other opportunities that can be harnessed to ensure the strength of the sector into the future.

For example, trade and investment policies should be reviewed to ensure they are ‘fit for purpose’ in supporting the international competitiveness of Australian food and grocery manufacturers. This would not only will help ensure the expansion of the export market, but also shore up new jobs and investment domestically.

While the sector has a strong presence and remains Australia’s largest manufacturing industry, its recent growth has been subdued. This is the result of domestic challenges, both in terms of input cost pressures and a deflationary retail market, which are putting pressure on profit margins and eroding willingness to invest.

Capital investment was less than $3bn in 2017-18 and although companies have continued to make efficiency improvements to stay competitive this is not sustainable in the long term. There is a need to strengthen the sector through innovation, increased automation and modernisation. And for this to occur companies need the confidence to invest.

Governments and industry can work as partners through identifying key areas for cutting red tape and designing efficient incentives and allowances for targeted investments. In addition, policies addressing cost competitiveness and fair retail trading conditions are essential and will help ensure the sector remains viable, retaining business and jobs into the future.

In its 2020-2021 Pre-Budget Submission, the AFGC has focused on the need for more sector incentivisation for innovation.

Three key areas of opportunity are:
• the introduction of a food, beverage and grocery manufacturing site modernisation program;
• workforce upskilling for small to medium enterprises; and
• support for the sector’s positive contribution to meeting community health, environmental and consumer information demands.

Measures that would help bring these goals to fruition could include mechanisms such as instant write off and grants programs, investment allowances, support funding for education programs and incentivisation grants.

In addition to site modernisation programs, AFGC has proposed the Federal Government implements a grants program to support manufacturers to innovate their packaging to meet packaging recycling targets. Specifically, the program would seek to establish increased collaboration between the food, beverage and grocery, and the recycling and packaging sectors, in order to expedite the delivery of the national packaging and food waste targets.

Government policies to encourage industry investment in the food, beverage and grocery manufacturing industry will help to ensure a return to all Australians with a reliable, safe and affordable food and grocery industry that also provides jobs and stability for local economies, especially in rural and regional Australia.

Given the magnitude, significance and contribution of the industry, it should be a central consideration when shaping economic, industrial and trade policies.