The Australian Food and Grocery Council (AFGC) has warned of dire consequence for Australian jobs and investment on the back of rising energy costs as it releases its 2017 State of the Industry report compiled by EY.
The $127.4 billion food and beverage grocery sector has added more than 7,300 jobs in 2015-16 and saw a 4.7 per cent increase in capital investment, but exports fell and overall turnover was flat, clear warning signs for the future of the sector, according to the AFGC.
“There is no doubt Australia’s largest manufacturing sector is facing an environment where input costs are rising on everything from commodities to labour to energy, and six years of retail price deflation continues to cut margins, placing the sector under increasing pressure,” AFGC CEO Tanya Barden said.
“We are expecting these pressures to only increase as energy, especially gas, has seen a doubling and in some cases a tripling of price that is likely to have dire consequence for Australian jobs and investment, with some companies re-assessing their long term future in Australia.
“While a 4.7 per cent increase in capital investment is welcome, reversing the last three years of decline, expected increases in input costs could stall this recent turnaround in investment and employment.”
According to Barden, continuing to stimulate investment in site modernisation is critical particularly in light of mounting input cost pressures.
“We are now in danger of drifting into a low investment trap, where uncertainty about return on investment flowing from retail price deflation and rising costs is seeing investment decisions deferred or dumped.”
The AFGC recommends that targeted investment allowances be adopted to bring forward investments in Australia, to retain jobs and businesses here, particularly in regional areas where approximately 40 per cent of the sector’s jobs are located.
“The ability to realise premium prices for value-added food and beverage products in growing export markets is a key source of future growth and contrasts with the low growth, deflationary domestic trading environment,” Barden said.
Barden said that the report showed a 15.4 per cent decline in the real value of food, beverage and grocery exports, and while this at first glance looked alarming, it was driven by price and cyclical events.
“In nominal terms, exports have increased by 3.6 per cent, which is still below recent strong export growth trends and below where Australia should be, given our trading advantages into key markets of China, Japan and Korea.”
“This a healthy reminder to redouble efforts to maximise the hard fought gains of free trade agreements and attack the rising costs of manufacturing,” said Barden said.
The AFGC has also welcomed the release of the Australian Labor Party’s Australian Manufacturing Future Fund Program, whihc will provide manufacturing firms concessional loans where barriers to finance from the banking sector are impeding innovation and capital investment.
“As Australia transitions from the mining boom to more broad based growth throughout the economy, it is essential to stimulate business investment in growing sectors of the economy,” Barden said.
Key findings of the State of the Industry 2017 report:
• Industry turnover $127.4 bn, down 0.3% in real terms; 2015-16 data
• Direct employment 320,302, increase 7,317 people; 2015-16 data
• Industry made up of 30,748 businesses; 2016-17 data
• Capital investment of $2.7 bn, up 4.7%; 2015-16 data
• Total international trade $67.9 bn (down 8.1%); 2016-17 data
Click here to download a copy of the 2017 State of the Industry Report
