Times are tougher than ever for manufacturers in Australia, says the Australian Food and Grocery Council (AFGC), as cost pressures continue to mount on the food industry.
In its response to the ACCC’s Interim Report for its inquiry into supermarket pricing, the AFGC noted rising costs are eroding industry profits. Although some costs, including some commodities, energy, and shipping have slightly moderated, they continue to be above pre-COVID levels and other costs are increasing. Wholesale price increases to supermarkets do not fully reflect manufacturing costs.
“The reality is that it’s tougher than ever for manufacturers in Australia,” AFGC CEO Tanya Barden said. “The hard truth is that manufacturing costs have soared, creating a supply-side inflation issue that calls for supply-side solutions.”
Over the past three years, according to AFGC’s data, energy and gas costs have gone up by more than 50%, sugar is up 46% and some packaging is about 30% more expensive. Since late 2023, cocoa prices have spiked about 200%.
The current inflationary environment was preceded by years of costs rising faster than wholesale prices, adds AFGC. Manufacturers had already trimmed the fat and while they continue to adopt efficiencies where they can, they now risk cutting into the bone.
Faced with ongoing cost pressures, manufacturers offset where possible but are often left with the difficult decision whether to increase prices, reduce pack size, reduce quality, or cease production in Australia completely.
The industry is encouraging the government to adopt a cost of doing business agenda and develop a long-term strategic focus to boost productivity and global competitiveness of Australian manufacturing. A move to increased automation and digitisation, through government tax incentives and other policies would bolster productivity and help keep Australia’s largest manufacturing sector globally competitive, says the industry body.
AFGC is also urging the government to revisit the Food and Grocery Code of Conduct, as the recent review missed critical updates that could improve commercial relationships between retailers and suppliers.
Response to the ACCC’s interim report from AFGC and others can be accessed here.