STATE OF THE INDUSTRY 2016 REPORT

EXPORTS GENERATE GROWTH DESPITE DIFFICULT DOMESTIC CONDITIONS

The Australian Food and Grocery Council’s (AFGC) annual industry snapshot State of the Industry 2016, released today, shows a 14% increase in Australia’s food and grocery exports in 2015-16 to some extent moderated the challenging economic conditions confronting Australia’s $125.9 billion food and grocery processing sector.

AFGC CEO Mr Gary Dawson said the State of the Industry 2016, compiled by EY, highlights export growth and a lift in overall industry turnover, but falling capital investment and stalling job growth are clear warning signs for the future of Australia’s largest manufacturing sector.

“This year’s State of the Industry highlights the importance of the food and grocery sector to Australia’s economy, as well as its resilience in the face of the significant challenges it faces to stay competitive,” said Mr Dawson.

“The good news is that industry turnover continues to increase with food and grocery processing now making up 33% of total Australian manufacturing. This growth is largely on the back of strong growth in exports. In 2015-16 food and beverage exports grew by 11% to $26bn, fresh produce exports up 49% to $1.5bn and grocery (non-food) exports up 32% to $4bn.

“Yet low domestic growth, rising costs for energy and other inputs, and six years of retail price deflation in the ongoing supermarket price war has created relentless pressure back through the supply chain to become more efficient in order to stay competitive.

“In 2015-16 job growth stalled across the food and grocery sector reflecting the ongoing financial pressure the sector is under which is forcing food and grocery producers and processors to cut costs across every part of their business.

“A key concern is the continuing decline in capital Investment at a time when a step change upwards in investment is required to fully capitalise on improved market access and growing demand from middle class consumers in the emerging economies of Asia and the Middle East,” said Mr Dawson.

“Stimulating investment is critical.  Company tax cuts for all businesses are more important than ever as a means of sparking investment, and targeted investment allowances must also be considered. We are now in danger of drifting into a low investment trap, where uncertainty about return on investment flowing from retail price deflation and sluggish growth is seeing investment decisions deferred or dumped.

Key facts from the State of the Industry 2016 report on the food, beverage and grocery sector, using the most up to date data from the ABS and other sources:

• Industry turnover $125.9 bn, up 3.9% in real terms; 2014-15 data
• Direct employment 307,169 people; 2015-16 data
• Industry made up of 27,745 businesses; 2015-16 data
• Capital investment of $2.7 bn, down 14.2%; 2014-15 data
• Total international trade $66.6 bn (up 14.5%); 2015-16 data

“The ability to realise premium prices for value-added food and beverage products in growing export markets is now a key source of growth and contrasts with the low growth, deflationary domestic trading environment. Without an ongoing push for trade competitiveness, a stable regulatory environment and reform to drive down input costs, suppliers run the risk of remaining forever at the mercy of the domestic supermarket price war.

“The food and grocery sector has shown great resilience and ability to adjust to the shifting market over the past five years, but it can’t be taken for granted. There is an enormous opportunity for Australia to capitalise on improved market access and growing demand from middle class consumers in the emerging economies of Asia and the Middle East but it will require favourable policy settings to drive a step change in investment in the food and grocery sector.”

Andrew Metcalfe AO, Federal Government Lead Partner, Agribusiness Lead Partner, EY similarly commented on the industry’s strengths and challenges. “The food and grocery sector continues to play a very important role in the Australian economy. The 2016 Australian Food and Grocery Council State of the Industry Report found that the industry contributes strongly to international trade and is a key employer, particularly outside of metropolitan areas,” said Mr Metcalfe.

“Growing markets in Asia and the improvement of market access through FTAs should further support the industry’s growing export market and provide additional opportunities. However, the report has highlighted that the industry faces a number of challenges including addressing the decline in productivity and investment to ensure the industry remains internationally competitive,” said Mr Metcalfe.

Click here to download a copy of the 2016 State of the Industry Report

 

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AFGC Media Contact: James Mathews 0407 416 002