Chapter 1.3
Conclusion
1.60 The Committee accepts that Australia enjoys a wide variety of
advantages in producing value-added agriculturally based products. However, it is
important that none of these existing advantages be taken for granted. Every effort must
be made to ensure that these advantages are exploited to the greatest extent possible in
order to promote Australia's value-added products.
1.61 Australia's relatively clean environment is an advantage that
is difficult to duplicate in most other countries. Unfortunately, it is the most fragile
of the assets Australia has in value-adding and it is therefore imperative that Australian
authorities, industry bodies and individuals make every effort to preserve Australia's
image as a producer of clean food. Once the image of Australia as a producer of such food
from a clean environment is tarnished the image will be very difficult to restore.
1.62 As the comments of Mr Radcliffe make clear, Australia is
operating in a competitive environment overseas and it is essential that Australian
producers and manufacturers take nothing for granted in relation to the quality of
Australian food products.
Australia's competitiveness in value-adding
1.63 Competitiveness can be the single most important factor in the
growth of value-adding activities related to agricultural production in Australia. To be
competitive an enterprise must;
- produce and deliver a product at lower costs per unit than
competitors; and
- achieve premium prices on a sustained basis through some advantage
over competitors. [76]
1.64 It has been argued that for farms to operate at low unit costs
they must achieve a favourable combination of:
- high output per person, or low relative wages, low indirect costs,
overheads and capital charges per unit of output, which may be based upon:
- the efficient operating of larger scale or better technology than
international competitors;
- a richer resource endowment;
- low costs for other inputs, such as freight and port handling and
electricity; and
- low taxes and a lowering of other imposts, such as export levies,
payroll taxes and state taxes hidden in freight or power rates. [77]
1.65 Lower wages in Australia, compared to a country such as Japan, has
increased Australia competitiveness. For example, due in part to increased
wage costs in Japan, that country has moved from purchasing predominantly
raw Australian wool to scoured wool and tops and has even purchased some
finished garments and fabrics. [78]
The performance of food processing and other manufacturing sectors
compared
1.66 Turnover [79] in the food and
beverages industry increased by $1.4 billion in 1992-93 to reach a total
of $35.6 billion. This was a 4.1 per cent increase on the turnover recorded
in 1991-92. [80] The food and beverages industry makes up
the largest sub-division within manufacturing in Australia, contributing
around 20 per cent of total manufacturing turnover in 1992-93. [81]
Businesses involved in the production of highly processed food and beverages
products achieved a turnover of around $22.9 billion, or 64 per cent of
total food and beverages in 1991-92. In 1989-90 the comparable proportion
was 62.7 per cent. [82]
1.67 The level of value-adding in the processed food and beverages sector
was nearly $12 billion in 1989-90 compared to around $69 billion for manufacturing
overall during the same period. Value-added as a proportion of turnover
in the processed food and beverages sector was about 37 per cent in 1989-90
up from 33 per cent in 1986-87. This compares with 42 and 39 per cent
for the total manufacturing industry in 1989-90 and 1986-87 respectively.
[83] The Australian Bureau of Agricultural
and Resource Economics (ABARE) commented in 1988 that the growth in productivity
in agriculture, compared to other sectors of the economy, had generally
been much higher in Australia than in other developed economies. [84] Nevertheless, according to Professor Nicholas
Samuel “the real growth rate for food production has been low, averaging
only 1.0 per cent a year during the decade of the 1980s.” Professor
Samuel went on to state that:
In fact, processed food industries had the lowest growth rate among the
growth rates for all the various industry groups in the Australian manufacturing
sector. And this was in spite of having a ready supply of cheap and proximate
raw materials, and being much more exposed to international competitive
pressures than the rest of manufacturing. [85]
1.68 Professor Samuel provided two reasons why the growth
performance of Australian food processing industries appears to be poor compared to the
manufacturing sector:
- the processed food industries are mature industries with product
sales reflecting the “plateauing” that characterises the mature state of a
product life cycle where replacement demand is dominant; and
- the rapid growth in some other manufacturing industries took place
from a small base. [86]
1.69 Comparisons are drawn below between the food and beverages
sector and manufacturing in relation to their profitability and the level of research and
development that takes place in each.
Profitability Compared
1.70 Food processing industries can make higher profits, as measured
by the ratio of operating profits to funds employed, than the average
for all manufacturing industries. This situation exists despite the fact
that the growth rate for food processing industries is significantly less
than half the rate for the overall manufacturing sector. [87]
Professor Samuel is of the view that higher levels of profitability in
processed food industries is due to the vertically “integrated structural
concentration in food processing”. This is despite significantly
lower levels of research and development (R&D) expenditure and labour
productivity, compared to the manufacturing industries. [88]
1.71 In evidence to the inquiry Mr Robert Calder of DPIE accepted Professor
Samuel's views that the performance of food processing industries had
been poor. However, Mr Calder stressed that “I think we have witnessed
a change of attitude over the last few years.” [89]
1.72 The historical profit performance of food processing industries
has been good. In the five years to 1993-94 company profits, before tax,
in the food and beverages sector increased by 83 per cent compared with
a rise of 25 per cent for total manufacturing. [90]
1.73 The profitability for the food, beverages and tobacco (FBT) sector
has fluctuated since 1984-85 but has moved upward to a high of 4.9 per
cent in 1991-92. In contrast, the profitability for the total manufacturing
sector rose sharply between 1986-87 and 1988-89 before falling substantially
during the recession. The FBT sector's profit performance is reflected
in the return on assets. The return on assets in 1990-91 was 10 per cent
for the FBT sector, 2 per cent higher than the 8 per cent achieved by
the total manufacturing sector. The FBT sector with a 26 per cent return
on net worth in 1990-91, also outperformed the total manufacturing sector
that achieved 22 per cent. [91]
1.74 However, the then Agri-Food Council stated that the profit performance
of the value-adding FBT sector “tends to be counter cyclical to general
manufacturing and there are indications that its relative position is
slipping as the economy comes out of recession.” [92]Despite
company profits in FBT continuing to grow during the recession “it
was the only manufacturing industry in 1993-94 to experience a fall in
profits.” [93]
1.75 The publication Business Review Weekly published in April 1995 a
survey of the top 500 publicly listed companies in Australia. This survey
showed that many of the top ranking food companies reported lower profit
gains. According to this survey net profits for the FBT sector, which
included 15 companies from the top 500, fell by 13.6 per cent in 1994.
According to the article accompanying the results of the survey “revenues
have, however, begun to grow again, and these leading companies reported
a 2 per cent increase during 1994.” [94]
1.76 The Committee was told that labour productivity in the food sector
grew at the rate of 3.7 per cent a year between 1981 and 1986, but was
still behind the manufacturing average for the period of 4.3 per cent.
[95] However, by 1992-93, despite the
large number of smaller firms involved in the food and beverage industry
the turnover per employee was higher in the processed food and beverages
sector at $232 000 than in total manufacturing industries with a turnover
per employee of $196 000. [96]
The Agri-Food Industries Branch of then Department of Industry, Science
and Technology commented that:
The relatively high turnover per employee in the food and beverages
industry also reflects the good productivity in this industry compared
to manufacturing as a whole. [97]
Research and development
1.77 Research and development activity by food processing firms in Australia
are considered to be low by domestic manufacturing standards. Food processing
firms have been seen as being slow to become involved with the public
research infrastructure. For example, only a few firms have strong long
ongoing ties with organisations such as the Commonwealth Scientific and
Industrial Research Organisation (CSIRO). [98]
Expenditure on R&D in the FBT sector was nearly $90 million, including
R&D expenditure relating to food processing equipment in 1990-91.
This represented an increase of 3 per cent from 1988-89 and 36 per cent
from 1986-87. This compares with expenditure on R&D by the total manufacturing
industry of $1.8 billion in 1990-91, up 11 and 54 per cent from 1988-89
and 1986-87 respectively. Foreign controlled companies undertook more
than $24 million of research and development in the FBT sector during
1986-87. This amount of money accounted for about 44 per cent of the total
expenditure on R&D in the FBT sector during 1986-87. [99]
1.78 During 1992-93 industry and Government spent around $180 million
on food processing R&D. Of the funds provided by Government, the CSIRO
spent approximately $60 million on post farm processing, of which nearly
one half went to food processing and beverages. [100]
1.79 Sixty-two per cent of the funds allocated by companies to R&D
were used to develop new products and production processes, while 32 per
cent was employed to undertake the “precompetitive or strategic research
from which products and processes will later be developed”. [101]Six
per cent of the funds were allocated to pure or fundamental research.
[102]
1.80 According to the then Agri-Food Council a survey conducted in 1994
found that “92 per cent of firms in the industry now rate innovation
as important to their overall success”. [103]
1.81 The Agri-Food Council claimed in 1994 that nearly 88 per cent of
all R&D research in the FBT sector was undertaken in New South Wales
and Victoria with less than 1 per cent undertaken overseas. [104]
However, it was argued that figurers in relation to overseas research
can be misleading. Because a significant level of Australian food processing
firms are foreign owned R&D programs conducted overseas are probably
transferred to many Australian companies. [105]
Committee observation
1.82 Food processing industries have been more profitable in using
their assets compared to most other manufacturing sectors. This is despite the fact that
real growth for food manufacturing has been behind that for the manufacturing sector
generally. Food processing industries' profitability has also been assisted in recent
years by the fact its productivity per employee is greater than that found in other areas
of manufacturing.
1.83 It is apparent to the Committee that companies involved in food
processing must increase their level of growth to maximise their profitability. For
continued profitability such companies must maintain the relatively high level of
productivity per employee presently existing in the food processing sector.
Australia's agricultural based exports
1.84 The rural sector's contribution to Australia's export income is
extremely important, although its contribution to Australia's total exports
has been falling in relative terms as the return from mining, tourism,
service industries and manufacturing have increased faster than farm exports.
[106]
1.85 Since 1950-51, rural exports from Australia have increased in value
from $1.78 billion to $17.248 billion in 1993-94 but have declined in
relative terms from 85.3 per cent of Australia's total export income from
goods and services in 1950-51 to 21.0 per cent in 1993-94. [107]
Export of processed food and beverages
1.86 The growth in processed agricultural products for export doubled
in value since 1983-84 to $6.6 billion in 1991-92 and by 1993 accounted
for 41 per cent of Australia's total agricultural exports. [108]
In 1994-95 earnings from total Australian food and beverage exports reached
$16.8 billion. [109]
There has been nearly a 50 per cent increase over the past five years
in Australia's export of both highly and minimally processed food and
beverages. [110] During the ten years
to 1992-93 the export of food and beverages increased at an annual rate
of nearly 11 per cent in real terms. However, very high growth during
the two financial years 1991-92 and 1992-93 masks the poor performance
of the food and beverages industry for the four years to 1990-91 when
export growth was only an average 2.6 per cent per year. [111]
During 1991-92 there had been a 27 per cent increase in the export of
processed food and beverages . [112]
1.87 Australia's total export of processed food and beverages in 1994-95
was $10.6 billion that was up 2.4 per cent more in nominal terms compared
to the previous year. [113] By 1994-95
exports of highly processed food and beverages had increased in value
to $3.7 billion. There has been an average increase in the value of the
export of highly processed food and beverages of about 14 per cent each
year since 1990-91. [114] According
to the then Agri-Food Industries Branch:
This compares very favourably with the growth in Australian manufacturing
exports generally which over the same period averaged 9 per cent growth
each year. [115]
1.88 By 1993 the Australian food and beverages industry exported more
than 20 per cent of its production, including both highly and minimally
processed food. [116] Although these
figures are substantial compared to other manufacturing sectors, only
22 per cent of Australia's food and beverage exports in 1994-95 were highly
processed with the balance composed of minimally processed products such
as carcass meat and sugar. [117] Examples
of highly processed foods and beverages include cheese, ice cream, cereal
foods, wine, oil and fats. [118]
Footnotes
[76] Pappas, Carter, Evans and Koop, Improving
Australia's Competitiveness at the Enterprise Level in Competing on World Markets,
Economic Planning Advisory Council, Discussion Paper 90/08, December 1990, p. 2.
[77] Pappas, Carter, Evans and Koop, Improving
Australia's Competitiveness at the Enterprise Level in Competing on World Markets,
Economic Planning Advisory Council, Discussion Paper 90/08, December 1990, p. 3
[78] Maximising the Return: Adding
Value to Australian Wool: Report of the Wool Processing Task Force, Department of
Primary Industries and Energy, Canberra, 1993, p. xi.
[79] Turnover is the total value of
production which is equivalent to the value of the raw imputes plus the value-adding which
has taken place. The ratio, or per centage, of value-adding as a proportion of turnover is
the value-adding element expressed as a per centage or ratio of the total value of
production. See Christine and Dean Ammer, Dictionary of Business and Economics, the
Free Press, London, 1977, p. 433.
[80] Department of Industry, Science and
Technology, Food Australia: Processed Food and Beverages Industry -5th edition,
prepared by the Agri-Food Industries Branch , Canberra, ACT, December 1995, p. 9.
[81] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 3rd
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1993,
p. 7.
[82] Department of Industry, Science and
Technology, Food Australia: Processed Food and Beverages Industry -5th edition,
prepared by the Agri-Food Industries Branch , Canberra, ACT, December 1995, p. 9
[83] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 3rd
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1993,
p. 9.
[84] Evidence, Professor Nicholas
Samuel, p. 598; see also South Australian Development Council, Value-Added Food
Processing in South Australia, Draft 24 May 1995, p. 9.
[85] Evidence, Professor Nicholas
Samuel, p. 602.
[86] Evidence, Professor Nicholas
Samuel, p. 602.
[87] Evidence, Professor Nicholas
Samuel, p. 616.
[88] Evidence, Professor Nicholas
Samuel, p. 616.
[89] Evidence, DPIE, p. 927.
[90] Department of Industry, Science and
Technology, Food Australia: Processed Food and Beverages Industry -5th edition,
prepared by the Agri-Food Industries Branch , Canberra, ACT, December 1995, p. 14.
[91] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 3rd
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1993,
p. 9.
[92] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 4th
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1994,
p. 7.
[93] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 4th
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1994,
p. 7.
[94] Department of Industry, Science and
Technology, Food Australia: Processed Food and Beverages Industry -5th edition,
prepared by the Agri-Food Industries Branch , Canberra, ACT, December 1995, p. 14.
[95] Dr Alistair Watson, Further
Processing of Agricultural Productions in Australia: Some Economic Issues, Research Paper
Number 5, 14 December, 1993, Parliamentary Research Service , Department of the
Parliamentary Library, Appendix A, p.7 .
[96] Department of Industry, Science and
Technology, Food Australia: Processed Food and Beverages Industry -5th edition,
prepared by the Agri-Food Industries Branch , Canberra, ACT, December 1995, p. 11.
[97] Department of Industry, Science and
Technology, Food Australia: Processed Food and Beverages Industry -5th edition,
prepared by the Agri-Food Industries Branch , Canberra, ACT, December 1995, p. 11.
[98] Evidence, Professor Nicholas
Samuel, pp. 605, 632.
[99] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 3rd
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1993,
p. 11.
[100] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 4th
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1994,
p. 11.
[101] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 4th
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1994,
p. 11.
[102] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 4th
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1994,
p. 11.
[103] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 4th
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1994,
p. 11.
[104] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 4th
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1994,
p. 11.
[105] Evidence, Professor Nicholas
Samuel, p. 605. It is difficult to obtain accurate information on the level of foreign
ownership of Australian food processing firms. Professor Samuel in March 1994 estimated
the figure to be 30 per cent; see Evidence, Professor Nicholas Samuel, p. 605.
[106] John W. Longworth and Paul C
Riethmuller, Exploding Some Myths About the Rural Sector in Australia, Current
Affairs Bulletin, Vol. 70, No. 1, June 1993, p. 18.
[107] Commodity Statistical Bulletin
1994, ABARE, Canberra, 1994, pp. 6,8.
[108] Alan Burdon,
Commonwealth Government Assistance for Adjustment in Agriculture, Parliamentary
Research Service, Background Paper Number 14, 1993, Department of the Parliamentary
Library, pp. 6-8. For possible conflicting statistical information see Australian Meat and
Livestock Industry Policy Council, Submission to Regional Development Task Force, a
discussion paper prepared by a Working Group of the Australian Local Government Training
Board Inc., n.d., pp. 2-3.
[109] Department of Industry, Science and
Technology, Food Australia: Processed Food and Beverages Industry -5th edition,
prepared by the Agri-Food Industries Branch , Canberra, ACT, December 1995, p. 2.
[110] Evidence, DPIE, p. 882.
[111] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 3rd
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1993,
p. 13.
[112] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 3rd
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1993,
p. 13.
[113] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 4th
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1994,
p. 15.
[114] Department of Industry, Science and
Technology, Food Australia: Processed Food and Beverages Industry -5th edition,
prepared by the Agri-Food Industries Branch , Canberra, ACT, December 1995, pp. 2, 3.
[115] Department of Industry, Science and
Technology, Food Australia: Processed Food and Beverages Industry -5th edition,
prepared by the Agri-Food Industries Branch , Canberra, ACT, December 1995, p. 3.
[116] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 3rd
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1993,
pp. 13-14.
[117] Department of Industry, Science and
Technology, Food Australia: Processed Food and Beverages Industry -5th edition,
prepared by the Agri-Food Industries Branch , Canberra, ACT, December 1995, p. 2; see also
Department of Industry, Technology and Regional Development, Food Australia: Processed
Food and Beverages Industry - 3rd edition, prepared by the Agri-food Council
Secretariat, Canberra, ACT, December 1993, pp. 13-14.
[118] Department of Industry, Science and
Technology, Food Australia: Processed Food and Beverages Industry -5th edition,
prepared by the Agri-Food Industries Branch , Canberra, ACT, December 1995, p. 2.