Cars get more government help than food processing

Australian car manufacturing receives almost three times the rate of government support given to food processors, the latest Productivity Commission review has shown.

The rate of combined assistance for car makers, including measures such as government programs, tariff and regulatory assistance, was 9.4 per cent in 2011-12. For the textile, clothing and footwear industries, that was 7.3 per cent.

That's compared with 3.3 per cent for the food, beverage and tobacco sector in the same year.

In government programs and tax concessions, food and beverage manufacturers received $106 million in 2011-12, while car and parts manufacturers received $621 million.

Last week, vegetable processing company Simplot Australia announced that it will likely have to close its factories in Bathurst, NSW and Devonport, Tasmania, because the cost of doing business is too high.

It's the latest food processor to scale back or shut down its Australian operations. SPC Ardmona, Heinz and McCain, along with smaller processers such as the Windsor Farm cannery at Cowra in NSW, have already closed their doors or cut supplier contracts.

While the car and textiles sectors continue to receive higher rates of support than other manufacturing industries, the review notes that assistance for both groups has declined significantly in recent decades because of big reductions in tariffs and the removal of import quotas.

Looking specifically at tariff rates on output in 2011-12, the Productivity Commission found that the food and beverage sector did better than the car manufacturers, receiving $1.7 billion worth of tariff assistance, compared to the motor vehicle and parts sector's $0.8 billion.

Within the food and beverage sector, horticulture and fruit growing was by far the biggest beneficiary of net tariff assistance.

The Australian food processing sector is struggling to remain viable because of a range of factors including comparatively high labour costs, a falling but still high Australian dollar, and cheap imports.

While there have been calls from some quarters, including Victorian fruit processors SPC Ardmona, for emergency tariffs on imported goods, agrifood consultant David McKinna, from Melbourne, says increasing tariffs isn't a suitable long-term solution for the industry.

"If you need a tariffs to prop up an inefficient industry, it's only a matter of time before it rears up and bites you, " he says.

"The other point is that tariffs are a double-edged sword, because we're trying to get a free trade agreement for a lot of our food products.

"If we go the tariff route, it compromises that."

Dr McKinna says that labour costs remain one of the biggest challenges for Australian food processors, as does the fact that it's not currently profitable for companies to invest in factories to improve their efficiency and competitiveness with overseas processors.

"I think tax incentives could be an option [to help that]. Accelerated depreciation of capital equipment would be a major tax benefit. In some countries, you can write off 100 per cent of a capital investment in one year.

"If that occurred, that would be a great help."

The Productivity Commission's review found the overall rate of assistance for the Australian primary industries was 3.3 per cent in 2011-12.

The sheep, beef cattle and grain farming industries received the majority of the budgetary assistance given to the primary production sector in that year, $567.9 million out of a total $1.4 billion.

The review found that was mainly in the form of tax concessions through the Farm Management Deposits scheme, Income Tax Averaging Provisions for primary producers, and the Small Business Capital Gains Tax concessions, and also in assistance to the Grains Research and Development Corporation, GRDC.

The overall rate of government assistance for primary industry declined between 2010-11 and 2011-12, reflecting few payments being made through the now-defunct Exceptional Circumstances drought assistance program, as the drought broke across Australia.

Source: ABC News, 12 June 2013