The Australian Food and Grocery Council (AFGC) has warned more investment is needed in the manufacturing sector, with capital expenditure slumping by more than 10 per cent over the past decade.
In its State of the Industry 2018 report, the AFGC pointed out that capital expenditure in food and beverage product manufacturing slumped 10.3 per cent from its peak of $5.4 billion throughout 2008-09 and 2009-10 to $2.9 billion in 2016-17, which translates to an average reduction of 5.3 per cent per year in net capital expenditure over the past five years.
Tanya Barden, AFGC CEO, says action is needed to boost investment. “A 10.3 per cent decrease in net capital expenditure, off the back of a decade of declining investment, reflects a genuine concern that increases in input costs coupled with depressed pricing makes the case for investment difficult at this critical time.
“Continuing to stimulate investment in site modernisation is critical particularly in light of mounting input cost pressures. We are now in danger of drifting into a low investment trap, where uncertainty about return on investment flowing from retail price deflation and rising costs is seeing investment decisions deferred or dumped,” she said.
According to Barden, pressure from input costs and retail price deflation is putting strain on the sector, which now accounts for nearly 40 per cent of Australian manufacturing jobs. “While the food and beverage, grocery and fresh produce sectors directly employ 324,450 people, there was a 1.4 per cent decline in employment in 2016-17. There was also a small decrease in industry turnover by two per cent to $131 billion," she said.
The AFGC recommends that targeted investment allowances be adopted to bring forward investments in Australia to retain jobs and businesses, particularly in regional areas where approximately 38.8 per cent of the sector’s jobs are located.
In contrast to the domestic market, the report highlights that the industry’s growth prospects increasingly lie in export channels.