Australia’s food manufacturing industry has come under the spotlight again after the local arm of American group Simplot, which manages the iconic Chiko rolls brand, along with Edgell and Birdseye, announced it may close its Bathurst and Devonport plants.
The announcement has shocked the local food manufacturing sector, with potential ramifications for farmers in both New South Wales and Tasmania.
It comes just two weeks after Ford announced it would close its local plants, delivering a massive blow to the manufacturing sector.
Simplot said in a statement it would be considering closing the plants due to “unsatisfactory financial returns arising from a very competitive food industry environment”.
The food manufacturing business has been under pressure for some time – the most recent casualty being Gourmet Group, behind the iconic Rosella brand. The business collapsed into receivership with millions of dollars in debt.
Simplot local managing director Terry O’Brien said in a statement that after a six-month review, the company felt this was the appropriate response.
“The frozen and canned vegetable categories have been chronic profit under-performers for years, regardless of the value of the Australian dollar,” he said.
IBISWorld senior industry analyst Naren Sivasailam told SmartCompany the decision is a “bit baffling”, given industry trends such as imports aren’t necessarily enough to have caused such a big move.
However, he says the industry has suffered its share of pressures.
“The extended drought certainly had an impact on the industry,” he says. “The industry has also been plagued with the threat of imports, and the high Australian dollar obviously hasn’t helped that.”
“Growth rate has also been slow for vegetable and fruits, growing at just 1% a year for the past five years.”
The Simplot statement references competition from importers, but Sivasailam says the level of imports isn’t necessarily high enough to “warrant large-scale closures”.
“About 35% of the market is imported, and the majority of those are potatoes and tomatoes. Simplot are a major player…it’s a little bit baffling,” he says.
However, Sivasailam says there are clearly internal processes involved. In its statement, Simplot said the US-based parent company will seek ways to improve local returns in order to keep manufacturing alive.
But Sivasailam says the business is facing the same pressures as other local manufacturers and the lack of specific details about the closures could mean it was “simply their own manufacturing costs, like other companies have encountered”.
Simplot said it has been speaking with state and federal governments, along with employees, unions, suppliers and growers about the future of the company.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
