Why has this government inquiry never (as far as I know) been published and discussed as a matter of national importance? Because what it is really saying is the Australian processed food industry in Australia is buggered, it’s just a matter of time. If ever Australia becomes reliant on imported food then we shall have lost what control we still have over our resource rich country and we shall be at the beck and call of new masters.

I have written many times about the demise of the food processing industry in Australia. That the numbers show we are eating less of our own processed food and eating more imported processed food. In short a substantial part of our once proud food processing industry is either going or has gone down the drain, well actually many of them have gone offshore, buy their produce offshore and then export it to Australia, often through our good friends in New Zealand.

I have often thought I was just shouting into the wind when I raised this topic. That I was the only one concerned. Certainly nobody put pen to paper on these columns to lend support or encouragement to what I see as the biggest danger to all of those in agriculture who do not produce the bulk commodities like grains and wool and meat, in other words those food producers who grow the food we have on out table every day both fresh and processed.

As Australia’s own processed food disappears from our shelves we need to consider this. We are a population of just over 20 million. Currently China feeds ~1.3 billion by 2050 they expect that figure to have risen to 3.0 billion and Australia’s to about 30 million. The numbers stay the same as they are today we will be about or less than 1% of the population of China by 2050. Do you think China would notice  if it has to feed another 1%, when in return it is getting tariff free, meat, milk, sugar and goodness knows what  else.

It would be interesting to have a look at India in 2050. I have a feeling, maybe I have read somewhere, but they could well be self sufficient. Now that would make life interesting because the water China is considering channeling is the Yarlung Zangbo River, is known as the Brahmaputra once it crosses the border into India. Wonder what India would have to say if one of their holiest rivers was interfered with?   

We thank Rob Dossor, Economics. That is all that appears on the paper. So whoever you are Rob, thanks.  All I disagree with is the last part ‘The Future of the Sector.’ Under current economic conditions that is rubbish. But thanks anyway.

Key issue

The processed food sector in Australia faces significant pressure, both domestically and internationally. What can be done to increase the sector’s survivability?
The future of processed food in Australia

It has been suggested that Australia should take advantage of the ‘Asian century’ to become the ‘food bowl of Asia’.

Australia appears to be moving in this direction, as exports of particular food types are on the rise. Beef, for example, has surpassed its 2004–05 export level. Another major food export, wheat, has almost doubled its 2004–05 level to become Australia’s biggest food export.

However, the Australian processed food sector faces a difficult future, as increased imports erode the sector’s domestic market share. This leads to the question: how can Australia be the food bowl of Asia, if it cannot compete with imports in the domestic market?

Until recently, the Australian processed food sector was relatively insulated from import competition and was able to survive by supplying the domestic market. However, it has become clear that for the sector to compete, even in the domestic market, it must become internationally competitive.

Those industries that appear to be succeeding have focused on exports and on innovation.

Exports to imports

Australian Bureau of Statistics (ABS) figures suggest that in the period from 2003–04 to 2009–10, the domestic market for food (including fresh food) grew by approximately 46.0%, while the processed food sector grew by only 32.2%. The sector does not appear to be keeping up with demand.

Meanwhile, imports of processed foods grew by approximately 62.0% during the period.

While Australia is a significant net exporter of processed food, the beef, sugar, wine and dairy industries account for over 72.0% of all processed food exports. These industries accounted for around 38.0% of Industry Value Added (IVA) for the sector in 2010–11.

Net processed food exports

Source: DAFF Food Statistics, various years.

The increase in imports of processed foods, typified by the importation of Italian canned tomatoes—the value of which has increased from $33 million in 2007 to $51 million in 2012—has shown that processed food industries face international competition.

The domestic market for processed food is dominated by Coles and Woolworths. For most processors, growth hinges on Coles and/or Woolworths purchasing and retailing their products. Coles and Woolworths are fiercely competitive. They and their customers have demonstrated great price sensitivity, often to the detriment of more expensive domestically grown and made products. Exposure to competitive pressures has revealed the extent to which some parts of the food processing sector are unable to compete with imports.

Economies of scale

In the past many food processors relied solely on the domestic market. While this market has increased, it remains small, so processors rarely achieve economies of scale. Processors can overcome this constraint by seeking bigger markets overseas to achieve economies of scale in production and reduce average costs.

Regulatory costs

Many food processors have a presence in several states. A number of them have claimed that dealing with multiple regulations in different jurisdictions is costly and time consuming. Several have specifically cited occupational health and safety requirements as extremely costly.

In addition to regulatory duplications, higher standards imposed by regulations may create a competitive disadvantage for Australian food processors competing against imports in the domestic market. Processors claim that higher standards often apply to domestically produced products than imported products. The Productivity Commission recently conceded that this was an issue affecting the sector.

Australian food exports are also required to meet high standards and exporters must obtain export certification from the Department of Agriculture. These standards may be higher than those of the importing country.

Lack of innovation

Ultimately, the sector must ensure it is producing products that consumers want. Effective research and development (R&D) is essential for new products to be introduced and for productivity and profits to be improved. However, in recent years some processors have stated that the limited profit margins and lack of government assistance for R&D in the sector have resulted in low levels of R&D investment. Recent changes to R&D subsidies may have improved this situation, however. ABS figures show that average levels of R&D investment for the sector are increasing—from 1.60 to 2.41% of IVA in the period 2005–06 to 2010–11. These figures remain significantly below the average R&D share of IVA for the whole manufacturing industry; this was around 4% of IVA during the period.

Cost structures

Processors claim that Australia’s high domestic and international transport costs reduce their competitiveness. They insist that the current condition of infrastructure, and transport rules including maximum weights have a negative impact on the competitiveness of their industry. Average labour costs are also higher than in many competing countries.

Labour market

Much of the food processing sector is located in rural and regional areas. This factor, as well as a decline in food and food science tertiary education enrolments, and increased competition with the mining sector, has resulted in many processors having difficulty finding and retaining staff. It is also likely that the relatively low remuneration the sector offers affects processors’ ability to attract and retain staff.

The future of the sector

While the majority of the sector appears to be struggling to compete, some industries are succeeding. The beef, sugar, wine and dairy industries have either surpassed previous peak export levels, or have steadily increased their share of processed food exports. These industries have focused on export markets and innovation. They have achieved economies of scale—and improved their bargaining position with Coles and Woolworths.

Industries which are having their market share eroded by imports may be able to learn from industries which are succeeding on the export market. By doing so, they will compete more effectively on the domestic market. If this happens Australia could really become the food bowl of Asia.

Further reading

R Dossor, The National Food Plan: food policy or something else?, FlagPost weblog, 17 July 2013.

Senate Select Committee on Australia’s Food Processing Sector, Inquiry into Australia’s food processing sector, The Senate, Canberra, 2012.

Food Processing Industry Strategy Group, Final report of the non-government members, Department of Industry, Innovation, Science, Research and Tertiary Education, Canberra, September 2012.

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Roger Crook

About 

Over the last fifty years or so Roger has worked in agriculture, since 1967 in Australia. From farm labourer, to station and farm manager, then progressively to a senior management position in agribusiness as the marketing and sales manager of what was at the time the biggest agricultural chemical company in Australia, ICI (Australia- Rural Division), Roger has both a practical farming and comprehensive agribusiness background.
After a brief spell as the marketing director of a big public relations company in Perth, Roger formed his own consultancy specialising in agribusiness communications and the marketing of Australian agricultural intellectual property overseas.
Roger says he will only ever be 'semi retired'. He believes Australian agriculture is at the crossroads so he has set up the 'Global Farmer' as a forum to both pose, debate and hopefully answer some of the challenges being faced by the Australian family farm and so by Australian agriculture.

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