Each year, the Australian Food and Grocery Council (AFGC) releases its State of the Industry report, providing a picture of what went well – and what went downhill. We've dug deep into the report to bring you the key points.
1. Industry turnover down 0.3%
While the $127.4 billion food and grocery sector has added more than 7300 jobs in 2015-16 and seen a 4.7 per cent increase in capital investment, exports fell. And overall, turnover is flat.
These are clear warning signs for the future of the sector, according to AFGC CEO Tanya Barden.
“There is no doubt Australia’s largest manufacturing sector is facing an environment where input costs are rising on everything from commodities to labour to energy, and six years of retail price deflation continues to cut margins, placing the sector under increasing pressure,” she said.
“We are expecting these pressures to only increase as energy, especially gas, has seen a doubling and in some cases a tripling of price that is likely to have dire consequence for Australian jobs and investment, with some companies re-assessing their long term future in Australia.”
“While a 4.7 per cent increase in capital investment is welcome, reversing the last three years of decline, expected increases in input costs could stall this recent turnaround in investment and employment.”
2. Australia expands trading partners
While the US and China remain Australia's main trading partners, other countries including India, Malaysia and the Netherlands are increasing their trade activity with Australia.
However, the industry remains relatively protected from external economic events given domestic consumption levels. On average, 69.8 per cent of the total sector turnover is consumed domestically while the remainder is exported.
3. Capital investment up 4.7%
In the food, beverage and tobacco product manufacturing sector, capital investment was $2.9 billion in 2015-16, increasing 4.7 per cent.
The increase was driven by the food product manufacturing sector, which increased by $271.4 million. This was the first increase in capital investment since 2011-12.
Moving forward
The Australian economy is forecast to continue to grow at a relatively subdued pace over the next few years on the back of a slowdown in residential construction and weak consumer spending.
Soft local demand is expected to put pressure on industry performance.
China is expected to shift to a more balanced growth, while the AUD exchange rate will remain vulnerable to commodity price movements.
New international retail companies such as Amazon have announced their plans for Australia, which will require an adjustment in strategies and outlook within the industry.
Click here to download a copy of the 2017 State of the Industry Report.
