19 November 2015
It’s that time of the year again, when the Australian Food & Grocery Council (AFGC) release their State of the Industry Report. The AFGC, for the most part, have given the Australian Food and Grocery industry an improving report of good health. Wiley Process Engineering Director, Steve Christie shares the biggest takeaways from the report.
The Australian food and grocery industry continues to grow stacking up a turnover of $118 billion, an increase of 0.9%. The food and beverage processing sector, however, is up on turnover by 2.8% while grocery and fresh produce fell in the last year. Imports are continuing along a modest growth path but its exports that are surging ahead with a stunning growth of 28%. Considering that the Australian increase in expenditure on food products was a modest 3.1%, it is clear that exports are driving the industry. This increase in exports is associated with the ASEAN FTA program, as 6 of Australia’s top 10 export markets are free trade partners. On top of this, drought conditions in the US have created good conditions for meat export.
In addition to this, a decline in the number of businesses operating in the sector and the growth in turnover suggests that there has been an upturn in the profitability of food and grocery businesses. The previous report indicated that most of the growth was situated in niche or small to medium businesses.
MEAT & SEAFOOD
Once again the meat sector has topped the charts for its contribution to the growth of the industry. However, this year it is closely followed by a quickly growing seafood sector; the two sectors account for 17.4% of industry growth (meat 9.1%, seafood 8.3%). The meat and seafood sectors have also realised significant growth in export value with meat increasing by 43.1% and seafood up by just over 19%. Beef exports have been driving the increases in meat with kill rates above long-term sustainable levels, so it’s likely that this will drop off in the coming years.
Interestingly, the predicted upsurge in dairy manufacturing has still not eventuated with dairy accounting for only 0.8% of industry. Although it’s important to note that competition between retailers and a drop in international milk powder prices has dampened growth in the sector.
Growth in the food and grocery industry has not been supported by capital investment with capital expenditure decreasing by 8.9% or $0.4 billion over the last year. Of the $118.8 billion sector turnover in 2013-14 only $2.2 billion (1.85%) was spent on capital projects. This is alarmingly low, and indicates that food and grocery businesses are expecting their equipment to reach the ripe age of 54 years old if this is maintained.
While the food and grocery industry makes up over 30% of the Australian manufacturing industry the food, beverage and tobacco sector accounts for only 20% of the manufacturing industry’s total capital investment. While the growth of the industry is comforting the drop in capital investment is concerning. The industry will not grow on its own and any future growth is dependent on the level of re-investment by and into the industry itself.
Employment in the food and grocery industry grew by a modest 1% in 2014-15, which is relative to its real growth, in turnover, of 0.9%. However, labour productivity in the food, beverage and tobacco manufacturing sector increased by 2.4%, significantly higher than Australia’s long-term average of 1.5%.
This productivity improvement is indicative of well-directed capital expenditure while the industry may not be spending much, it’s being spent in the right places. Recent Wiley projects reflect an industry trend towards a focus on process improvement which is the most likely source of this upturn in productivity. While this is positive, the standard for a healthy food and beverage industry is growth.