US food group Simplot has decided to hang on to two plants in Australia it had said could close but warned costs would have to fall to keep them open in three years' time.

Simplot said in June the sites in New South Wales and Tasmania, which produce frozen and canned vegetables, were under the threat of closure. The company cited a "very competitive" industry and "unsustainably high costs" of manufacturing in Australia. It pointed to low-cost imports coming into a country facing a strong domestic currency.

Today, Simplot said it was "downsizing" operations at one of the plants, in Bathurst in New South Wales. It will retain the other facility, in Devonport in Tasmania. Around 110 jobs will go at the Bathurst site.

Simplot warned costs would have to come down for the sites to remain "viable" in the years ahead.

"Simplot Australia's parent company, US-based JR Simplot, has committed significant financial investment but it has done so only if the operations can be shown to be viable into the future," Terry O'Brien, the MD of Simplot's Australian arm, said. "In the absence of a lower cost structure, neither plant has a strong business case long-term."

The company is "paring back" its Bathurst plant to produce only frozen and canned corn and Chiko rolls, an Australian savoury snack. O'Brien said the moves made the site "financially sound" but added: "However, if costs escalate or other aspects do not prove financially viable, a total closure would then be necessary."

On the future of the Devonport facility, O'Brien said: "For Devonport to remain operational past the three years mark, it requires considerable capital investment and labour cost reduction."

Last month, Simplot was offered a new contract to supply more frozen veg to local retail giant Coles. The retailer said the deal would see Simplot increase the amount of frozen vegetables and potatoes it supplied to the retailer by 12%.

O'Brien said today the offer from Coles - and another from Australia's largest grocer, Woolworths Ltd - were "welcomed and very much appreciated". However, he added: "Both retailers still require products to be supplied at sustainably competitive prices."