Australian food industry profits tumble according to report

27 Jun 2013
Foodanddrinkbusiness

Profitability of Australian food and grocery suppliers has declined by 28 per cent from 2010 to 2012 according to a new report.

The Australian Food and Grocery Council (AFGC) today released its first Competitiveness and Sustainable Growth Report, which found that while supermarket retail turnover had recorded steady growth, Australian food and grocery suppliers reporting falling turnover.

The report was based on an analysis by KPMG of detailed survey data from food and grocery suppliers operating in Australia, and covered the four years from 2009 to 2012.

The report found that suppliers were significantly increasing the funding of price discounting by retailers via their ‘trade spend’, which has increased sharply to 6.4 per cent growth per annum over the past four years, impacting on profitability which has declined six per cent per annum.

It also found that rising trade spend had been part funded by reductions in marketing and R&D.

AFGC CEO Gary Dawson said the report “represented a watershed in the debate over the viability of Australia’s largest manufacturing sector”.

“Previously we have had plenty of anecdotal evidence of how tough the market conditions have become for food and grocery suppliers. This report provides the hard data to assess market trends and chart a way forward for this critical industry.

“It presents real data from real companies operating in Australia, as well as providing comparisons with international benchmarks,” he said.

On the upside, the report also found a strong focus on cost containment had held labour costs and operating costs steady over the survey period.

It also found food and grocery suppliers had continued to invest strongly in their businesses, with a more than 30 per cent increase in capital expenditure over the four-year survey period.

“The overall picture is one of suppliers having to adjust rapidly to the shift in market conditions by investing in improvements to manufacturing systems to boost productivity and reduce labour and energy costs, and the funding of retail price promotions to try and maintain volume,” Dawson said.

“Looking forward, the ability of the Australian food and grocery manufacturing industry to increase its competitiveness and win export opportunities will require a continued focus on cost containment and capacity rationalisation, greater collaboration with retailers to drive growth and share the benefits of supply chain efficiencies, and a rebalancing of trade spend to boost brand building and innovation.”

Things are expected to look up in the coming year for one sector at least, according to another report. After a very tough year, the Australian dairy industry is finally in line for some relief, Rabobank said in its Dairy Quarterly Report, also released today.

According to Rabobank, the Australian dairy industry can look forward to a much more positive year ahead after the ‘big disappointment’ of the past season thanks to a combination of higher farmgate milk prices, better seasonal conditions and some relief in feed costs.