Australia’s manufacturing sector stands at a pivotal moment. Contributing approximately 5.9 per cent to national GDP and employing over 850,000 people this year, the sector has rebounded from pandemic disruptions but faces new pressures.
More than 60 per cent of manufacturers are experiencing delays in essential materials, according to the Australian Industry Group, while rising energy costs and skills shortages compound operational challenges.
Yet this turbulent landscape is creating unexpected opportunities for FMCG manufacturers willing to rethink their sourcing strategies.
The Federal Government’s $15 billion National Reconstruction Fund signals renewed commitment to local manufacturing capability. For FMCG companies, the question is no longer whether to manufacture locally or offshore; it’s about creating intelligent hybrid models that leverage the strengths of both approaches.
When local production actually matters
The conventional wisdom about Australian consumers’ loyalty to local products deserves scrutiny.
In low-involvement, processed categories like confectionery and chocolate, origin is typically secondary to taste, brand and value. By contrast, in fresh food, origin remains a key purchase driver. For retail buyers, the focus is even more pragmatic: Margin, volume, inventory performance and innovation consistently top procurement criteria.
However, this doesn’t signal the end for local manufacturing. The Australian Government’s Modern Manufacturing Strategy is supporting businesses in onshoring operations and diversifying suppliers, creating new opportunities for strategic local production.
Supply chain vulnerabilities exposed during recent global disruptions have fundamentally altered the risk-reward calculation of offshore sourcing. What once appeared as obvious cost savings now carry hidden expenses in inventory buffers, expedited shipping, and lost sales from stockouts.
Local manufacturing offers compelling advantages in this environment. Shorter lead times enable faster response to demand spikes and seasonal variations. Integrated innovation between research teams and production facilities accelerates product reformulation. Perhaps most critically, proximity allows for better demand sensing and inventory optimisation, crucial when every day of stock shortage represents lost market share.
The ESG reality check
The environmental credentials of local versus offshore manufacturing present a more complex picture than sustainability advocates often acknowledge.
Upstream emissions from manufactured inputs often make up 40-70 per cent of a company’s carbon footprint, far outweighing transport. While local production is seen as an ESG benefit, the impact depends on the energy mix. Australia’s grid is similar to Southeast Asia’s, offering limited advantage. In contrast, New Zealand’s highly renewable energy mix enables far greater emissions savings.
However, local production does provide superior oversight of labour practices, workplace safety and modern slavery compliance.
With sustainability efforts gaining momentum through programs like the Australian Packaging Covenant Organisation encouraging circular economy principles, the ability to ensure ethical manufacturing practices close to home represents a meaningful competitive advantage for socially responsible brands.
The portfolio approach
The most resilient FMCG companies are moving beyond the false choice between local and offshore production. Instead, they’re developing portfolio-based sourcing strategies that optimise each product line according to specific requirements and market dynamics.
High-volume, brand-critical products with short shelf lives benefit from local manufacturing’s speed and flexibility. Commoditised lines or price-sensitive categories may be better served by offshore production’s scale economics. Third-party manufacturing, whether local or international, offers capital-light scalability for testing innovation or managing demand variability.
Winning with import models now hinges on a strategic grasp of end-to-end supply chain economics, supported by integrated demand planning and resilient inventory strategies. Without these, long lead times and reduced flexibility risk undermine market responsiveness, product availability, and shelf impact.
This hybrid approach enables late-stage differentiation strategies, such as importing bulk products and customising packaging locally for seasonal promotions or regional preferences. It’s a model that combines global efficiency with local responsiveness, exactly what today’s volatile market conditions demand.
The evolution of Australian FMCG manufacturing reflects broader changes in how businesses compete in 2025. Cost remains important, but it’s no longer the sole determinant of success. Speed, trust, sustainability, and adaptability have become equally critical competitive factors, supported by government initiatives like the National Reconstruction Fund, rebuilding manufacturing capability.
‘Made in Australia’ isn’t dying, it’s evolving from a nostalgic marketing message into a strategic capability. The companies that thrive won’t be those that choose local or global production, but those that master when, how, and why to use each approach.
With government backing and renewed focus on manufacturing sovereignty, Australian manufacturers have an opportunity to redefine their role in the global FMCG ecosystem. The question isn’t whether they can compete, it’s whether they’re smart enough to compete differently.
