April 08, 2014

08/04/14: Impediments & Challenges in Australia in Food Manufacturing

Terry O’Brien, Managing Director, Simplot Australia, was highlighting the massive challenge in Australia relating to any food manufacturing at the recently held Global Food Forum in Sydney.

He was reported as saying ‘I don’t think it’s a coincidence that there’s very few true food processors on the stock exchange. It does require pretty patient money, because unlike what a few people have said recently, it’s not a licence to get rich in the food processing industry. And we’re impacted by agricultural issues, just like anyone else and like the farmers. So what’s tended to happen in Australia is you have very few, really, ASX-type funded companies. You have international conglomerates who really just have the aim to keep their brand on a global basis here, so they have subsidiaries that tend to be funded from offshore. And then you have the big private companies. And if you look at our company, Simplot, we’re American owned, but it’s a family company.’

A clickable map of Australia's states and main...
A clickable map of Australia's states and mainland territories (Photo credit: Wikipedia)
The Simplot chief added ‘So in Australia we’re constantly bidding for our capital from our international parent against the other businesses that they have in other parts of the world. And because most of that capital is coming from reinvestment, our profit performance is the major criteria on which we get our brownie points when we go and ask for money. So if you look at the last few years, it’s been a pretty poor scene here in Australia with the non-tradables cost just climbing and, really, quite a cap on the pricing and the available profits within the supply chain in Australia.’

‘We’re all now setting about trying to put a much leaner business in place. We’re finding it a little difficult to pass that message on to some of the other people who put costs into our business. It’s going to take a while to change the whole mentality, and I think government’s one of those things. And I think, you know, listening today to the two gentlemen (Government Ministers), there’s clearly a recognition that government has brought costs to this industry. I’m waiting to see the proof that the new government can do something about that.

When asked about Australian organisations losing market share internationally Mr O’Brien reportedly said ’Well, first of all, you’ve got to realise that we are growing; it’s just the market’s growing quicker than us. So we are losing share, but it doesn’t mean we’re losing business. But the one that alarms me is New Zealand, because they have an FTA, for example, in China. And the products they sell to China that compete with us, they’ve got a 13 per cent advantage on tariff, you know, from day one. And there’s no way you can overcome that sort of disadvantage, considering the cost structures of New Zealand versus Australia. We battle to keep their products, you know, out of our market, just coming across from New Zealand. So, yes, it does worry me a lot. And there’s been a few comments. We have to get more of an Asian mentality. We’re not concentrating entirely on Asia. We’ve got Middle East opportunities as well. But the point of it is we have tended to not have the – we haven’t had the money to reinvest into products that are specifically for those markets. We’ve just tried to sell products that we are comfortable making. And I think you’re not going to succeed in that pursuit.’ 

Source [1]

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