Food and grocery might still be the country’s largest manufacturing sector, but years of pandemic, supply chain, weather, and inflationary impacts have taken a toll, the Australian Food and Grocery Council’s latest State of Industry (SOI) report shows.
The SOI report provides a detailed analysis of Australian food and grocery manufacturing performance for the 2021-22 period, which was affected by pandemic-related disruption, the war in Ukraine, and supply chain impacts.
AFGC CEO Tanya Barden said cost pressures on domestic industry remain high.
“The landscape has changed dramatically for food and grocery manufacturers with limited relief after three years of natural disasters, COVID disruptions and war in Ukraine,” Barden said.
SOI data shows the food and grocery manufacturing industry’s value increased by 7.4 percent to $144.1 billion in 2021-22 as domestic consumption and prices rose while exports rebounded from declines during the pandemic.
But the AFGC said that headline value growth – driven by inflationary prices and recovering exports – was not reflected elsewhere, with employment down one per cent and regional areas affected the most by labour shortages and Covid border closures.
“Just like anyone doing their weekly shopping is feeling the effects of higher inflation, Australian manufacturers are also battling higher costs in areas including freight, labour, and energy,” Barden said.
Of particular concern was capital investment across the industry was almost flat at 1.6 per cent growth. Investment in the larger food product manufacturing subsector showed a 12.3 per cent contraction, year-on-year, to $2.23 billion.
Beverage manufacturing provided a bright moment, with investment up 55 per cent on the previous year to $1.02 billion.
“We’ve also seen a shift away from ‘just in time’ supply chains to ‘just in case’ since the pandemic and manufacturers are now holding higher inventory levels to maintain supply which pushes costs higher.
“These are significant challenges for an industry that must attract new capital to embrace new technologies and remain competitive with offshore competitors after more than a decade of stagnant investment,” Barden said.
The 2021-22 SOI data shows:
- The value of turnover in the Australian food and grocery industry rose from $134bn to $144.1bn, a 7.4 per cent increase driven by price rises, higher domestic consumption and export growth;
- employment in the industry fell from 273,002 in 2020-21 to 270,661 in 2021-22, a drop of 0.9 per cent likely due to labour shortages and border closures;
- industry employment remained strong in regional Australia with 36.9 per cent of the industry workforce located outside major metropolitan centres, albeit down slightly from 40.3 per cent in 2020-21;
- Sector exports increased by 15.3 per cent to $39.4bn, regaining most of the losses of the previous year but still down on pre-pandemic levels;
- Capital investment grew by a slim 1.6 per cent, from $3.2bn in 2020-21 to $3.25bn in 2021-22, with a 55 per cent year-on-year growth in beverages investment offset by a 12.3 per cent decline in the much larger food product manufacturing subsector; and
- Food and grocery manufacturing accounted for 31.3 per cent of Australian manufacturing activity – down from 32.1 per cent in 2020-21 but still the nation’s largest manufacturing sector.
Separately from the SOI report, data from the Australian Bureau of Statistics (ABS) showed producer prices in food manufacturing – which include the cost of inputs used by manufacturers and the wholesale price of goods – rose 12.5 per cent between June 2021 and June 2022.
This is higher than Consumer Price Index (CPI) inflation of 6.1 per cent for the same period. Since June 2021, ABS data shows the value of inventories has risen from $8.8 billion to $11.3 billion in March 2023 for food manufacturing.
