Australia’s A$102bn food and grocery industry remains the nation’s largest manufacturing sector but is under intense pressure from rising imports and falling exports, according to a report by the Australian Food and Grocery Council (AFGC) and KPMG.

Launched this week by federal industry minister Kim Carr in Canberra, the second annual economic snapshot of the food and grocery manufacturing sector found for the first time in decades that the industry’s international net trade position fell dramatically from a A$4.5bn surplus in 2004-05 to a $1.8bn deficit in 2009-10.

“This alarming result shows food and grocery manufacturing – which employs 288,000 people – is now a net-importer of food and grocery products which impacts industry’s growth and competitiveness,” said AFGC chief executive Kate Carnell. She highlighted the report showed industry remained large but growth, employment and turnover are flat at best.

The detailed report – examining fresh and processed food, beverage and grocery industries – shows the complex industry was made up of 31,000 businesses in 2009-10 (236 fewer than the previous year), spends about A$3.5bn a year on capital investment and accounts for A$44.8bn of the nation’s international trade (A$50.9bn in 2008-09).

“Industry is still a major exporter but imports are rising fast, eroding the trade surplus historically enjoyed by the industry. To protect Australia’s food supply and overcome this challenge, there must be a ‘whole-of-government’ national strategy to ensure food and grocery manufacturing’s long-term growth, increase export earnings and boost competitiveness,” Carnell said.

Carnell said the wide-ranging report showed the industry represented 26% of the total Australian manufacturing industry by turnover (compared with 28% in the last report), and remained comparable ($102bn in 2007-08) to the mining industry.

Carnell said the report also recognised the importance of protecting the future needs of industry in terms of job growth and investment as well as meeting the significant food supply needs into the future.

“The industry employs more than 3 per cent of all employed people in Australia but lost 3400 jobs since 2006-07.  The sector pays wages of more than $13bn a year,” Ms Carnell said.

“There are also real challenges facing the industry including the increasing cost of energy, availability of water, the surging Australian dollar and the availability and cost of good employees.

“Proposed water allocation cuts for food production in the Murray-Darling Basin will also threaten the future viability of numerous food manufacturers in the Basin, negatively impacting exports, and making it harder for locally-produced goods to compete with imports.

“Having a robust and prosperous food industry provides many opportunities for Australia – especially for our region centres where manufacturers are their lifeblood.”

KPMG’s lead partner for the food and drink segment Mark Epper said in the challenging food and grocery manufacturing sector, companies were operating in an increasingly difficult and changing global landscape.

“Our major supermarkets have experienced lower growth in recent quarters due to the impact of food price deflation. This has put extreme pressure on food manufacturers’ margins. Companies are responding with new and refreshed products, as well as supply chain enhancements and further cost containment where possible in their businesses,” Epper said.

“Interestingly, the report found that investment in research and development is 0.43% of annual turnover, at what appears to be critically low levels. This highlights the need for increased awareness and utilisation of existing R&D concessions and grants.”

Australian Food News is Australia’s leading resource for the food industry, delivering daily news from the grocery, retail and hospitality sectors to 40,000 professionals each month.