Labour, power costs putting squeeze on processors

It's one of Australia's largest employers and has an estimated value in the tens of billions of dollars, but the food and grocery manufacturing sector is facing tough times.

So what does industry want and what's being offered by political parties ahead of Saturday's poll?

Shiran De Silva, who runs a food manufacturing business employing just a handful of staff making samosas and Indian snacks for the restaurant trade, says the cost of labour and electricity are the big issues.

"Well, we are just keeping our head above water with difficulty because of the cost of electricity, labour. That's the reason that we can't employ more people.

"In fact, I work on weekends personally with one other staff member to run the machines, simply because electricity is 50 per cent off during the weekends, so therefore I've got no weekend."

Gary Dawson, chief executive of the Australian Food and Grocery Council, says manufacturers have little ability to pass labour and energy costs onto consumers.

Shiran De Silva is the director of a small food manufacturing business and says energy and labour costs are making business tough.

"At the retail end, you've got retail price deflation in the supermarkets. So that, combined with a high Australian dollar, is imposing a significant squeeze on Australian food and grocery manufacturers."

He says it's led some manufacturers to shift jobs and production offshore.

"The challenge from a policy point of view to whoever wins government is how to retain a strong and vibrant food and grocery manufacturing sector in Australia."

The Coalition has promised to abolish the carbon tax to lower energy costs, while Labor will reduce the carbon price.

Both parties are also offering money for individual manufacturers with the Coalition pledging funds for Cadbury and Labor for Simplot and SPC.

Labor has also promised food skills training centres in regional areas.

Food industry consultant David McKinna says governments have a history of throwing money at ailing manufacturers. He thinks a better approach would be tax incentives to help them invest in modernising factories.

"One of the problems we have in the food industry is we've got very old factories with very old technologies. What we need to do is invest in new, modern equipment.

"And that's where government really can help, particularly by accelerating depreciation rates for taxation etc, because if you just do the straight sums it's pretty hard to justify a 50 or 60 or 80 million dollar investment.

"But if you get a tax incentive, which has occurred, where you write off very quickly. In the current tax scheme, you have to write off a factory over 20 years, but if we could write that off in three years, or four years that would make a huge difference.

"It would give people the incentive to invest in new technologies that would make us more competitive, and also more innovative to come up with new products that are different."

Gary Dawson, of the Food and Grocery Council, also wants a rollback of regulatory red tape.

"Action to reduce the regulatory burden, or at the very least, call a halt to the additional regulations that are coming down the track. Action to finalise some of those free trade agreements would be very welcome and a hard look at competition law to improve the competitive position of suppliers within Australia, in that food and grocery space, all those policy areas will make a difference."

Food manufacturer Shiran De Silva says he's not seen any policies from political parties that would sway his vote.

"No, it's not worth looking at any of them."

Source: ABC News, 5 September 2013