Ongoing concern over supply, costs

09/07/2008 - 22:00


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Drought in much of the country and rising commodity prices will ratchet up the pressure on the state's food manufacturing industry, the WA Business News forum heard.

Ongoing concern over supply, costs

Drought in much of the country and rising commodity prices will ratchet up the pressure on the state's food manufacturing industry, the WA Business News forum heard.

As rising input costs and a decline in the supply of raw materials put upward pressure on food prices, manufacturers are struggling to absorb the higher costs in an already highly competitive and low-margin industry.

Ambrosia Quality Foods managing director John Percy said the drought had significantly affected his value-added businesses.

"Grain prices have escalated, and flour and all those sorts of things that are a big part of our business, they've created some real shortages and created some major price increases," he said.

"The agricultural industry is so closely tied with our food manufacturing game that people just aren't aware of it. They see a loaf of bread or a coated product and they forget that it's come from some wheat that wasn't grown this past year."

Fonterra Brands WA managing director Peter Tedesco said one of the biggest impacts on his business has been the decline in the availability of milk volumes.

During the past three years, milk supplies in WA have declined almost 25 per cent, with Fonterra now paying 52 cents a litre for milk, up from 32 cents a litre a few years ago.

"The biggest thing is availability of raw materials here," Mr Tedesco told the forum.

With the number of dairy farmers in WA declining, Mr Tedesco said the government needed to work on encouraging dairy farming.

Farmers, particularly in the South West, are also facing challenges from outside the sector, with the increase in residential developments turning some farming land over to residential use.

The timber industry has also put pressure on land use in the South West, according to Harvey Industries chief executive Michael Rapattoni.

In the fresh produce sector, Pacco Group managing director Leanne Wesche said the state had lost 400 growers during the past five years to urban sprawl.

That downturn in local produce supply is being met by an increase in imports from the eastern states and overseas.

Cheap product from other states has also hit the beef sector.

Mr Rapattoni said the amount of product coming in from the east coast was a huge challenge for his business.

"If there's no export market we seem to be the dumping-ground for, particularly red meat. It's a commodity, and you think about the freight costs coming over and its still $2-$3 on some of the good cuts cheaper than what we can actually produce it for," he said.

And with more food imports come questions surrounding quality and safety.

The local industry believes its high compliance level is often not matched, particularly by imports.

"With the demand on us locally to produce safe foods and comply with all the legislation, I question whether they put the same demands on the importers," Mr Tedesco said.

Vesco Foods' Fred Holman said the cost of compliance for WA companies was very high, yet it did not translate to the bottom line.

"One of the things that amazes me is the perceived intangibility of compliance, yet it's a very real cost. People don't understand the degree these companies go to investing in the safety of the food, good, clean green food, light years ahead from where it was 10-15 years ago."


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