Australia’s food and grocery manufacturing sector is at a defining moment, the Australian Food and Grocery Council says, calling for greater innovation and investment to avoid decline or stagnation. The sector could double to become a $250 billion powerhouse by 2030, the AFGC said in its Sustaining Australia: Food and Grocery Manufacturing 2030 report.
“Australia’s food and grocery sector has been under pressure as profitability has declined and capital investment stagnated over the past decade. The unavoidable result has been being a stifling of innovation; spending on research and development in the sector has fallen in recent years to 2009/10 levels,” the report said.
Snapshot
- Food and Grocery is the largest manufacturing sector in Australia;
- it has an output of $127 billion, 32 per cent of total manufacturing output;
- in 2019, it employed 276,000 people; and
- more than 40 per cent of those jobs are in regional Australia.
AFGC CEO Tanya Barden said the report recommends steps to secure the sector’s future, including a new grants program to support the uptake of advanced manufacturing technologies, the development of new, sustainable packaging formats and equipment, and the creation of a high-tech training centre to give workers the skills to use advanced manufacturing equipment and emerging digital technologies.
“Australia’s well-deserved ‘clean and green’ reputation will not be enough to ensure our sector remains competitive in either the domestic or export markets into the future,” Barden said.
“The sector’s growth is contingent on significant investment – in new product development, sustainable packaging, advanced manufacturing and digital technologies – to boost the sector’s competitiveness, agility and resilience.”
The report, based on analysis by economist Warren Hogan at EQ Economics, finds that:
- Australian food and grocery manufacturing has strong growth potential in domestic and export markets;
- Australia’s food and grocery sector is under pressure from declining profitability due to high costs and a highly concentrated retail marketplace, resulting in a decade of stagnant capital investment and low innovation;
- Australia faces an uneven playing field through foreign governments providing significant financial incentives, and non-tariff barriers to export trade;
- Australian food and grocery manufacturing risks losing global competitiveness unless steps are taken to boost investment in new advanced manufacturing technology to improve efficiency and innovation; and
- with a strategic focus, the right policies and incentives, the size of Australia’s food and grocery sector can double to $250 billion by 2030, with a resulting 54 per cent increase in employment to 427,000 people.
The report said that over the past ten years, Australian food manufacturers’ input prices have increased by 49 per cent from 2010 to 2020, whereas output (wholesale selling) prices have only increased by 24 per cent in the same period. The challenge is obvious when this is compared to the broader manufacturing sector where output prices have closely tracked input prices, it said.
From the report: “Food and grocery manufacturers have little opportunity to pass on higher input costs due to the highly concentrated nature of Australia’s retail marketplace. In a market already dominated by two major supermarket retailers, the arrival of overseas-based competitors has driven a focus among the majors on cutting purchasing costs. The result has been a limited ability for manufacturers to pass through cost increases, a progressive decline in operating margins, and stagnation in the new investment required to stimulate innovation and productivity.
“Around the world, investment in innovation in food and beverage manufacturing is increasing and will continue to do so. If Australian businesses cannot attract some of that vital new investment, manufacturing will go elsewhere, in particular to markets where the investment case is enhanced by government support.”
The AFGC puts forward three different projected scenarios for the sector, developed by EQ Economics.
In the High Growth scenario, domestic population growth, product innovation, a lift in food and grocery wholesale price inflation and strong export growth will potentially double the size of the Australian food and grocery sector to $250 billion in 2030 – a 6.8 per cent annual growth rate in the 2020s.
The Muddle Through option describes what happens if the sector trends of the past decade are continued over to the next. That equals an ongoing underperformance by the sector compared to the broader Australian economy – with real growth in turnover of less than one per cent a year, an employment growth rate that is half that of the national average, and a continuing rise in the penetration of imported goods into domestic markets.
The Worst-Case Declining Sector scenario looks at leaving the sector settings unchanged and global market conditions becoming increasingly unfavourable to Australian manufacturers. A domino effect of falling innovation and investment would ultimately see around 16,000 jobs lost in the sector.
The report puts forward a number of policy recommendations looking at investment incentives, skills, regulatory reform, digital labelling and more.
For the full report click here.
