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Rising gas prices take toll on food sector

Woman in supermarket aisle with food shelf reading shopping list and holding basket. Woman buying groceries in store. Retail, sale and consumerism concept.

supermarketThe increasing gas prices could impact the food, beverage and grocery sector, affecting jobs in Australia’s largest manufacturing sector, according to the Australian Food and Grocery Council (AFGC) on Monday.

AFGC said the gas price surge is one of the number of pressures on the food and beverage, grocery and fresh produce industries. The sectors employ about 320,300 workers, representing more than a third of manufacturing jobs.

AFGC chief executive Tanya Barden said the industries have already undergone six years of retail price deflation and rising labour costs. Capital expenditure rose in 2015/16 but she said businesses’ confidence to invest still remained fragile.

“We are expecting these pressures to only increase as energy, especially gas, has seen a doubling and in some cases a tripling of price that is likely to have dire consequence for Australian jobs and investment, with some companies reassessing their long-term future in Australia,” Barden said.

“While a 4.7 per cent increase in capital investment is welcome, reversing the last three years of decline, expected increases in input costs could stall this recent turnaround in investment and employment.”

Capital investment in food product manufacturing surged 12.7 per cent to $2.5 billion in 2015/16, with a big fall in beverage and tobacco manufacturing dragging the overall increase back to 4.7 per cent.

“Continuing to stimulate investment in site modernisation is critical particularly in light of mounting input cost pressures,” Barden said. “We are now in danger of drifting into a low investment trap, where uncertainty about return on investment flowing from retail price deflation and rising costs is seeing investment decisions deferred or dumped.”

Glenn Carmody, Consumer and Industrial Products market segment leader, EY, has also commented on the food industry’s strengths and challenges.

“The food and grocery sector continues to play a very important role in the Australian economy. The 2017 Australian Food and Grocery Council’s State of the Industry Report found that the industry contributes strongly to international trade and is a key employer, particularly outside of metropolitan areas,” said Carmody.

“Growing markets in Asia and the improvement of market access through FTAs should further support the industry’s growing export market and provide additional opportunities. However, the report has highlighted that the industry faces a number of challenges including addressing the decline in productivity to ensure the industry remains internationally competitive.”

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