Costs crisis driving rationalisation in food sector

09/07/2008 - 22:00

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The Western Australian food manufacturing industry is at a crossroads, with rising costs and a changing retail marketplace threatening the sector's future viability. Janelle Macri reports.

Costs crisis driving rationalisation in food sector
Photo: Jemma Howard

Get bigger or go niche.

That was the message from some of Western Australia's prominent food producers at a recent WA Business News food industry boardroom forum.

From rising labour, input and transport costs, to the changing retail environment, WA's food and beverage manufacturers are battling pressures on a number of fronts, forcing some players out of business.

From a producer's perspective, Harvey Industries chief executive Michael Rapattoni said his business, and WA farmers, had done it tough during the past 18 months, with the company facing a number of internal and external pressures.

"Labour is our critical issue. We employ more than 600 people in a town with a population of 2,500 to 3,000 people. We've got three mine sites [competing for labour] within a 40-kilometre radius.

"Labour is big input cost for us. When we look at how competitive we are compared to east coast competitors, we're paying 40, 50, up to 80 or 90 per cent more in labour costs."

Externally, competing with the timber industry over land use and maintaining a consistent supply of quality livestock were the key issues.

"Livestock's an issue," Mr Rapattoni told the forum. "We're on path to promote the industry to grow, and we think it's important to the WA cattle industry that it is grown and it has scalability.

"Our view is that, for us to be more efficient, we need a consistent supply of quality cattle 12 months a year."

Harvey Industries has managed to emerge from a period in administration about 18 months ago, growing its staff from 330 to 650 and recently buying a Fremantle processing facility to free-up bottlenecks.

Mr Rapattoni said the business was focused on becoming efficient and competitive in the state, national and international markets.

"We've been working really hard on the marketing and sales side to develop structured programs," he said.

"It's fair to say we probably enjoy the best meat in Australia, probably in the top five in quality beef in the world. So from our perspective, we need to get out there and educate the consumer and retailer that we have high-quality meat that deserves to be paid a premium for."

Canon Foods managing director and founder Richard Pace said a strategic review of his business two years ago resulted in the decision to downsize his workforce and invest in capital.

"We changed our strategy and focused on products that needed a lot more equipment to be made, rather than labour," he said.

"Our workforce is 10 per cent less than what it was, but we're looking at 18 per cent growth in sales in the last 12 months."

Mr Pace believes the high cost of doing business in WA, and the ability to import cheaper products, will drive more businesses out of the industry.

"What's going to happen in the food industry, as I predict it in the future, is that basically you've got to get bigger or get smaller," he said.

"Which means companies like us, I see that we will only survive in the future if we invest significantly or we get taken over and become part of a multinational company.

"Locally owned will not be able to survive in this market in two or three years' time."

Ambrosia Quality Foods managing director John Percy also re-structured his business some years ago as a result of the changing operating environment.

"We used to do a lot of major manufacturing, within the constraints of the size of our business and had a lot more staff, but we were doing high volume with low margin. And with the shortage of skilled staff that's just not possible now," Mr Percy said.

"We used to employ 10 butchers at a time, doing value-added beef products, and those people are now not available so you can't do those products. So you move onto other things that you can do."

Mr Percy is now able to employ students and unskilled staff.

He has also increased his pool of workers by hiring female staff whose husbands have come to the state on 457 visas.

"Really, it's about making a niche business and working on a product range that suits that style of business," Mr Percy said.

On a larger scale, even major national producers are not immune to the unique pressures facing WA businesses.

Ingham Enterprises general manager WA Greig Smith said his business has also battled a tight labour market, although the situation has eased over the past two months.

"We seem to be able to get a few more people into our plants. On the farming side, it's not the most glamorous industry, so we struggle on that side to get labour," Mr Smith said.

Fred Holman, WA sales manager of Vesco Foods (previously known as Kailis & France Foods), agrees that the labour situation has eased slightly in recent weeks.

"Labour in the last four to five weeks appears to be easing a fraction," Mr Holman told the forum.

"I think a number of people who've gone chasing gold in the north are finding that it's not all roses up there. What's left at the end of the day is not as much as one would hope on the money that they're basically earning."

But, he said, the costs of doing business were continuing to rise.

"Labour costs and the cost of goods, and the cost of services required to use those goods is only going one way, and that's up," he said.

Food Industry Association of WA chief executive Andrea Berteit told the forum the state government should boost its support for the food and beverage manufacturing sector.

"The food industry is a growth industry worldwide, so it's something we will always need," Ms Berteit said.

"From a political and government point of view we really would like to see that commitment, that there is more incentive for the WA industry and recognise there is a disadvantage based on isolation, the high cost of production, based on labour."

Mr Pace agreed that the government needed to make a greater investment in the food manufacturing industry and recognise its valuable contribution to the state.

"I've been in the industry for 25 years and I've seen the food industry contract in real terms," he said.

"One of our leading companies has put a lot of manufacturing into the eastern states when it was taken over. And that's happening time and time again because it doesn't make sense to value add."

"I'd like the government to look at the industry because it's contracting. This mining boom isn't going to last forever, and the food industry is a very big employer."

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