Home > An advancing Australia is not so fair: why Aussie food manufacturers are doing it tough

An advancing Australia is not so fair: why Aussie food manufacturers are doing it tough

Editorial
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You'd be hard pressed to come across a topic in the Australian food manufacturing sector that generates as much passionate discussion as how to best support Australian brands using Australian ingredients.

A high Australian dollar – despite easing recently – coupled with an influx of cheap imported products, a decline in export markets and ambiguous country of origin labelling legislation have all impacted on the profitability of local businesses.

2013 has been a particularly challenging year. Unable to compete with cheap imported products, SPC Ardmona was forced to cut 61 fruit growers’ contracts, and was then denied provisional safeguard tariffs against cheap imported tomato and fruit products as part of the Productivity Commission’s accelerated report.

Food processor Simplot announced that two of its plants were under threat of closure due to a highly competitive industry and unsustainably high costs, and Gourmet Food Holdings, which owned iconic brand Rosella, was placed into receivership.

South Australia’s Spring Gully also entered voluntary administration earlier this year with debt of more than $3 million, only to be saved – largely - by a wave of local consumer support.

So what needs to be done in order to save our local food processors and iconic brands? And what’s stopping them from sourcing Australian inputs?

Made in Australia? Or from local and imported ingredients?

In August this year, the Australian Made campaign‘s chief executive, Ian Harrison, called for a strategic partnership between the government and Australian Made to develop a plan to reduce consumer confusion surrounding country of origin labelling.

The ambiguous term ‘Made in Australia from local and imported ingredients’ does not distinguish between ingredients and packaging and has been a long-standing matter of contention within the industry and amongst consumers.

According to the Australian Competition and Consumer Commission (ACCC), the ‘Made in’ claim means that the product was made (not just packed) in the country stated, and that at least 50 percent of the cost to produce the product was incurred in that country. Products that use the ‘Made in’ claim may also contain ingredients from other countries – hence a product with a ‘Made in Australia’ label won’t necessarily contain Australian ingredients.

The ‘Made in Australia from local and imported ingredients’ claim can also be confusing as it doesn’t communicate to the consumer what proportion of the ingredients are local, and what’s imported.

“'Made from imported and local’, or ‘Made from local and imported’ – depending on the order in which the two words are placed, is supposed to infer  whether the majority of the product is imported, or whether the majority of the product is local,” Harrison told Food magazine. “But the public doesn’t understand that.”

Australian Made’s iconic green and gold kangaroo logo has been used by thousands of businesses for nearly three decades to identify genuine Australian products and produce in Australia and overseas. Harrison says that the logo serves as a powerful marketing tool for those companies that meet Australian Made’s strict ‘made in’ test.

“Being Australian is a decided advantage - you will get a premium for your product, particularly if it is dairy-related at the moment. And that premium is justified because Australia has a reputation for high product standards, high safety standards, and it reflects our clean green environment,” says Harrison.

"In an environment where increased costs and a high Australian dollar have seriously undermined the competitiveness of many Australian products, country of origin is an asset we should be driving much, much harder."

Cheap imported ingredients come at a cost to Aussie producers

Country of origin labelling is just one of the many factors that is affecting the livelihood of the Australian food manufacturing industry. Australia, even without the high Australian dollar, is still an expensive place to do business.

Australia’s wage structures are amongst the highest in the world, industrial arrangements are quite inflexible and government-related charges coupled with high power costs seem to be increasing year on year.

One manufacturer whose struggles have been highly publicised is SPC Ardmona.

The company, which makes a commitment to sourcing a significant percentage of its ingredients from Australia, was forced to cut 61 growers’ contracts from Victoria’s Goulburn Valley region – home to SPC Ardmona’s iconic Goulburn Valley Fruit brand – in April this year.

The company, which is the largest remaining fruit and vegetable processor in Australia, said that the decision was not made lightly, and was a direct result of a huge rise in the Australian dollar that fuelled imports to record levels. The low cost imports were favoured by major supermarket chains as it enabled them to take advantage of the exchange rate appreciation and import products at an extremely low cost.

In an attempt to tackle the issue, SPC Ardmona applied for temporary safeguard tariffs of at least 30 percent for retail canned tomatoes and 45 percent for multi-serve fruit products for 200 days, consistent with the World Trade Organisation (WTO) Safeguards Agreement.

However in late September, findings in the Productivity Commission’s Accelerated Report indicated that provisional safeguards were not warranted, and as such, the application was denied.

“This is extremely disappointing for SPCA, growers and the Goulburn Valley region. We disagree with the Commission’s conclusion in the reports. We have provided compelling evidence that in these circumstances the immediate provision of safeguards should be applied,” said managing director SPC Ardmona, Peter Kelly.

Although the Productivity Commission’s full report is not expected to be finalised until 20 December, Kelly said that the findings “further delay action at a critical stage in our business and seasonal cycle and perpetuates uncertainty in the region.”

Some positive news for the food processor was the recent announcement of a $7 million deal with retail giant Woolworths. Under the new deal, Woolworths will source 13 lines of canned fruit from Goulburn Valley growers for its private label ‘Select’ lines, which were previously imported from South Africa and Thailand.

The power of the consumer

Even if SPCA was to secure emergency safeguards, the reality is that wholly Australian-made products have a tendency to attract a higher price tag than their imported counterparts. So how do you communicate to consumers the importance of choosing a locally-made product over an imported one?

Peak industry body for the South Australian food industry, Food SA, has launched a number of successful campaigns including ‘Eat Local’ which saw a selection of restaurants and cafes showcase the state’s high quality produce by either including a dish that was made from local ingredients, or selling local produce in-store.

Another was the Shop & Swap initiative launched by Robern Menz – South Australia’s largest confectioner, and endorsed by Food SA.

The Shop & Swap campaign was launched on the back of unprecedented public support for South Australian pickle and sauce manufacturer, Spring Gully, which was on the verge of receivership until a sudden wave of both retail and consumer support saw sales soar.

Spring Gully experienced three weeks’ worth of sales within a three day period shortly after Shop & Swap was launched, resulting in Foodland, IGA and Coles supermarkets placing extra orders to keep up with demand. The Shop & Swap campaign encourages consumers to simply swap one item for a locally-made product every time they shop. The campaign is intended to help shoppers recognise locally-owned brands so that they can make informed purchasing decisions that support and strengthen local businesses.

Catherine Barnett, CEO of Food SA, said that the initiative serves as a powerful vehicle that has the capacity to influence the shopping habits of many South Australians.

“It is critical that people understand what they are buying. We would like consumers to think about buying and consuming South Australian-made and owned high quality products. There are many ways consumers can make this change,” she said.

Government support – food manufacturers need more of it

As we have seen with the revival of Spring Gully, consumer support can do a great deal to sustain local industry. But what the industry really needs to foster and secure a sustainable and profitable future is sufficient government support and investment, especially if the nation is to become Asia’s food bowl, as some reports have suggested.

A recent industry roundtable involving executives from NAB, Nestle and SMS Management reinforced this sentiment.

The executives were asked to identify sectors of the Australian economy with the best potential for future economic growth and the consensus was clear: the nation needs to capitalise on its reputation for clean and green food production, otherwise known as “Brand Australia.”

The executives contended that Australia needs to focus on producing and exporting high quality finished products to best capitalise on Asia’s growing middle class, rather than sending over raw materials such as wheat and milk.

"There's almost no new investment in food production, in food manufacture and, in fact, if you look at what's happening in the Goulburn Valley, fruit is rotting on the ground because of closures of factories,” Elizabeth Proust, chair of Nestle Australia, said at the roundtable.

"I'd be very cautious about seeing us as an exporter of raw materials, so to speak, rather than somebody who can be really smart and clever, and find ways of really making export dollars by exporting the final or the almost final product."

Proust’s view is echoed by many other key players in the industry. The notion of focusing on quality over quantity and then exporting that final product is exactly what a number of boutique food producers and winemakers are currently doing.

A prime example is the Barossa Valley Trustmark which was launched by SA Food Minister Gail Gago in September. The trust mark was created by Paul Henry of Winehero and is designed to encompass the region’s commitment to consistent, high quality products and provide a platform to firmly establish the Barossa brand on the world stage.

The reality is that Australia is blessed with a beautiful clean and green environment, and from that, we produce some of the best food and wine in the world. All we need to do, is invest in it.

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