Stop blaming the Australian dollar, supermarkets and the Australian government for the looming demise of large chunks of what’s left of the Australian food processing industry. It’s time to face the truth. And once the truth is recognised Australian food processing can boom.

I find it amazing that suddenly Australia realises what is happening to the food processing industry just as the Asian middle class steps up demand. 

When the Australian dollar was much lower and supermarkets were happily increasing their prices well above the inflation rate each year, food plants were still closing. Heinz was a classic example when it shut its Dandenong plant around 2000.

Today the SPC canning plant in Shepparton, owned by Coca Cola, faces possible closure for much the same reasons as Heinz.

The Heinz plant was old and needed either substantial upgrading or an overhaul to a complete new modern plant. That’s the current SPC situation. Heinz refused to invest in Dandenong and it looks like Coke takes the same view about Shepparton.

In the case of Heinz, the Dandenong plant had work practices from hell because weak Australian managers had given into strong unions on the basis that the costs could be passed on. But those deals stopped investment and the plant was doomed. Heinz decided that it was much better to close Dandenong and erect a modern plant in New Zealand. Publicly they blamed everything but the work practices, even though they were the real reason for the shutdown. Heinz did not want to risk a union-led consumer backlash. The Australian farmers were the sufferers.

Thirteen years later SPC has similar problems. The SPC work practices are not as bad as Heinz but they are still not at world standard.SPC faces a second problem that Heinz did not face – consumer demand for packaged pears and peaches now requires different packages to cans.  A totally new plant is required and if Coca Cola was prepared to erect a new plant it would almost certainly be able to gain long-term agreements from the supermarkets.

But Coke has refused to do that, fearing that it would not be able to change the current work practices – which might carry into the new plant and make it uneconomic. At the same time the company is a beverage group, which thought it could go into food but made a mistake.It does not want to commit new funds.

Unfortunately, as with Heinz, the farmers may pay the price of the work practices and the reluctance to invest.  

To save food processing in Australia you first need modern work practices (and I emphasise I am not talking about lower wages but rather using the optimum number of people in the most effective way) and second the best possible plant.

In the case of domestic milk we have been saddled with many high cost Heinz/ SPC type plants around Australia, until Murray Goulburn signed an agreement with Coles that gave Murray Goulburn the cash flow to erect a modern plant, which will have modern work practices and much lower costs.

In the case of dairy there is an added factor. The New Zealanders not only erected modern plants but also organised the industry so there was scale. Accordingly, the New Zealanders decimated Australian diary exports.

To have a modern food processing industry Australia needs modern work practices, modern plants and then it needs scale.

Source: Business Spectator, 28 October 2013