Missing the boat on food processing

03 Dec, 2014 04:25 AM
Comments
9
 
It is diminishing. I personally feel it is not a good trend

THE weakness in commodity prices has exposed Australia's vulnerability to global factors beyond its control. It also highlights the lack of a fallback option when oil, iron ore and coal prices suddenly go into freefall.

The debate about the demise of Australia's manufacturing industry has gone quiet this year with business and government focused on a strategy to bolster areas where the country has natural advantages such as food and agribusiness, mining technology and oil and gas.

Food manufacturing continues to struggle despite growing demand for Australian products – such as beef and dairy – from China's growing middle classes. The $1.45 billion sale of small goods giant Primo Smallgoods to Brazilian food giant JBS last month highlights the growing appetite offshore firms have for niche food and beverage producers. But their willingness to sell up is also a reflection of the challenges manufacturers face tapping into this demand on their own.

Paul Lederer, the founder of Primo, who is best known for owning the Western Sydney Wanderers football team, says he is increasingly concerned about where Australia's manufacturing industry is heading.

"It is diminishing. I personally feel it is not a good trend. America, Germany, Japan, and China have a massive manufacturing base but in Australia we are losing a lot of that. We talk about tax reform, industrial relations and all that. But I think it's no more than a talkfest," says Lederer, who sold his family's remaining 30 per cent stake in Primo to JBS last month.

Xi Jinping's revelation

Lederer, No. 75 on the BRW 200 Rich List, went to see Chinese President Xi Jinping speak in Canberra last month which, he says, made him realise the massive opportunities for Australia in the region. "Their economy will double in the next 10 years which is a staggering statement. We are in a phenomenal position but we are not taking advantage of it."

The sale of Lederer's remaining stake in Primo, Australia's biggest manufacturer of premium ham, bacon and salami, came just after G20 leaders met in Brisbane to talk up opportunities for improved global trade and investment. His decision, though, was prompted by an attractive offer from JBS, the world's biggest meat processor. It was the right time for him to sell personally and an opportunity for his private equity partner, Affinity, to cash out at a significant profit.

Foreign investment enables growth

Lederer, like many in agribusiness, embraced foreign capital to enable his business expand to the next level in an environment with few local incentives. Like the partnership with Affinity's Brett Sutton, the sale to JBS is expected to open new doors for growth, particularly in Asia.

Lederer says Australian business has become too introverted. "They [JBS] can see the potential. We don't look at the world as a market here enough. We should look at the world as one market a bit more optimistically.

"A lot of our assets are being sold but at the end of the day the people are employed here, the money stays here. The world is a global place."

Affinity acquired a 70 per cent stake in Primo in 2011 and helped to fund the company's $240 million high-care food processing plant. It also acquired New Zealand's largest bacon and ham producer, Beehive.

Investment bankers are tipping a surge in the amount of foreign capital, particularly from China, which will be directed at Australian food companies. Australia's free trade agreement with China is expected to help bolster the number of takeovers in an industry which is yet to reach its full potential.

Despite the falling Australian dollar, high production costs remain the manufacturing industry's biggest handbrake.

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READER COMMENTS

Puzzled
3/12/2014 7:20:40 AM

One of the biggest problems for local food manufacturers is that they are getting squeezed by Coles and Woolworths. The lack of fair competition and abuse of market power is killing local manufacturers just when they need to be investing for offshore opportunities. No wonder owners sell up to get out of this horror show. The Federal Govt needs to limit the power of big supermarkets, have proper country of origin food labeling laws and get behind local manufacturers.
angry australian
3/12/2014 7:50:37 AM

Not only by the chains, Puzzled, but they also are affected by over priced labour and stupid laws that both sides of politics have encouraged. Why are we exporting fish from Victoria and Tasmania to Asia and then importing the processed product? Where are all our canneries that were operated by the likes of Golden Circle, Ardmona, Heinz, Safcol etc? Or the chip factories, vegie plants and abattoirs? Between arguably the world's toughest OH & S laws, forced social welfare in super, onerous reporting and traceability requirements plus high power costs etc, we've killed the golden goose.
the Kid
3/12/2014 9:03:59 AM

The issue is being competitive in the world market. Companies playing the local market are different. For example only 10% of WA meat is consumed locally- we need manufacturing for export markets and local markets will benefit.
Qlander
3/12/2014 9:50:02 AM

Will Australia grow up, and compete in the real world? ... not likely.
newbroom
3/12/2014 9:54:16 AM

too much whinging as usual. Get up, get out and do something positive every day. Seriously, the have a go mentality is being put down by negative journos and twits. Get a life and get a go on. and I will not be back to check if my post turned up.
Invey
3/12/2014 10:38:34 AM

Yes Angry Australian and no one in Govt has the will to cut red tape, cut OH & S, Superannuation rates and wages. While ever these things are out of touch with the rest of the world nothing will be manufactured in this country. The Unions have killed manufacturing by constantly wanting more wages. Australian companies just move to China or India and why would you blame them.
Simon
3/12/2014 11:54:17 AM

Australia's food manufacturing sector IS part of Agribusiness. We keep talking about it as if it were something separate. Agribusiness is the food supply chain PLUS all the support industries including finance. It's 50% of our economy but due to fragmented representation is largely ignored by governments.
x
3/12/2014 8:24:44 PM

Deregulated labor market in Aus and we may be able to compete
angry australian
4/12/2014 6:22:44 AM

And of course, payroll tax, arguably Australia's stupidest tax. A tax on productive employers to fill city offices full of deadhead bureaucrats who then have to dream up ways of making the productive,unproductive to justify their existence. How many Australian jobs has this stupid tax sent to NZ? Any smart pollie would be going to the likes of Simplot,McCain,Heinz etc and asking why they are relocating to NZ and what needs to be done to keep the factories in Australia. The only flaw with that is I'm not sure Australia has any smart pollies!

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