Simplot mulls shutting its frozen veggies plants in Tasmania and NSW

John Durie
June 06, 2013
The Australian

AUSTRALIA’S high cost of living has taken another victim with Simplot Australia considering shutting two plants, which provide 15 per cent of its sales and employ 325 people, because it cannot compete with rivals such as New Zealand.

Local boss Terry O’Brien told The Australian there was no single reason his frozen vegetable plants in Devonport in Tasmania and Bathurst in NSW couldn’t compete, which made it difficult to find the solution “because there are a whole range of factors which when added up make us uncompetitive”.

“Trouble is, given the costs of living in Australia, it’s not that our workforce is getting rich either,” he added.

In a recent presentation, Coles merchandise boss John Durkan noted Australia had the third-highest manufacturing labour costs in the world.

According to US Department of Labour statistics, Australian manufacturing workers collected $US28.55 an hour compared with New Zealand at $US17.29 an hour.

Simplot Australia accounts for about 25 per cent of the US-based company’s sales, and its products range from Chiko rolls and Birdseye frozen vegetables to John West salmon.

It is also a big supplier to Coles private label sales, so O’Brien can’t blame the big supermarkets for his decision.

Based on 2011 figures, private label market share in Australia stood at 16 per cent, against the major country average of 25 per cent.

O’Brien also played down the impact of the high Australian dollar, saying in Australia you had to ensure the business could survive the ups and the downs of the currency. A 20-year veteran at Simplot, the last 12 as boss, he also knows how tough it is to be a manufacturer in Australia, given his last job was in the carpet industry, which was almost destroyed by the 25 per cent tariff cut in 1973 during the early years of the Whitlam government.

The last remaining local carpet supplier, Godfrey Hirst, acquired his old firm.

The Simplot business was built in stages from a variety of sources, including the old Pacific Dunlop conglomerate.

The best performing division, based in Tasmania, is the potato operation, because it has the biggest scale and hence better cost management. But vegetables have always been a tough game, as shown by the departure of Heinz a few years back.

Smaller operators such as Rosella and Spring Gully have also fallen by the wayside.

Ironically, the inland town of Bathurst is the centre of Simplot’s fish business because the plant was established under the old de-centralisation grants some decades ago.

It just goes to show government assistance is not always the best remedy for a sustainable business.

O’Brien plans to make a decision on the two plants in the next couple of months, but the actual shutdowns will be staggered over the next couple of years.

It would seem he is half hoping for some sort of handout, even though his career seems to highlight the futility of Bandaid-type approaches to industry assistance.

The reality is, Australia needs to lower its cost base if it is to continue supporting a manufacturing industry.

Food processing should be a core competence in Australia, but as soon as labour gets involved the costs soar.

The way O’Brien sees it, Aldi was the big mover in the supermarket game and when it expanded with its predominance of private label and low-operating costs it woke up the other two operators, who are now key players in holding costs down.

In short, there are no simple answers to the issue, and attempts by politicians and others to supply them are doomed to fail. But at the centre of it all is labour-market flexibility.

A more flexible labour market would be a key start to the healing process.