The tale of SPC Ardmona: what we can learn about Australian manufacturing (+ government)

Heard the one about SPCA? You only need to look at the headlines over the past 12 months to recognise the decline of SPC Ardmona’s fruit-processing business is not an isolated event. Heinz closed its cannery business in the Goulburn Valley in 2012, Windsor Farm has closed in Cowra, and only a few small players remain — mainly in NSW and WA. And don’t get us started on the automotive industry.

And then, just when all looked like a rotten apple, the Victorian Government and Coca-Cola Amatil, which owns SPC, both said they’d stump up some cash.

So what’s the answer? Is there an answer? Here we take a look at what this all means for Australian manufacturing.

Here’s a quick summary of what’s happened. SPC Ardmona’s cannery in Victoria’s Goulburn Valley is under serious threat. SPCA’s managing director, Peter Kelly, says the serious problems are a result of “a ‘perfect storm’ created by external economic factors — the high Australian dollar, which appreciated more than 50% from 2009 to 2013, has both enabled the flood of cheap imported product to be sold in Australia below the cost of production here, and also decimated the company’s export markets”.

The Productivity Commission blamed high labour costs and allowances, reporting that workers were paid up to 58% above award wage levels and receive nine weeks’ paid leave. However Kelly says this is not the case.

The problem for SPCA spreads further than the factory doors: it impacts the company’s customers. Australia’s peak bean-growing body told the ABC that if SPC Ardmona does close, it would be huge blow to them. Bean Growers Australia (BGA) processes 2,500 tonnes of navy beans annually — and SPC Ardmona is its only navy bean customer.

A perfect solution?

In a bid to save the business, Coca-Cola Amatil said it will provide $150 million if both the Federal and the Victorian Governments provide $25m each. This is said to have been part of a proposed restructure package, where CCA would invest in new a plant and equipment, as well as new products. An expert panel comprising business figures such as Dick Warburton, Catherine Livingstone and former ALP industry minister Greg Combet, advised the government to say yes.

So what did Abbott say? “It is very important that we take seriously the requests that different organisations may put to us as a government, but in the end businesses have got to put their house in order.”

In other words: “no”.

And that’s Abbott’s advice for any manufacturer who might be in the same boat.

Saved?

But Thursday this week saw a change of heart from the Victorian Government. They’ve now agreed to kick in $22m over three years, to which CCA said “yes!” and will invest $78m of its own.

One of the conditions set down by the government is employment must be maintained at a minimum of 500 full-time equivalent employees for three years. They also want their money back should SPCA “cease business operations at Shepparton within five years of the agreement”.

But wait, is this new?

Back to Abbott’s view. Is this all new? Using the same word: no. The Productivity Commission has been pretty consistent in its approach to manufacturing assistance for over a decade. Take the automotive industry. Holden will stop making cars in Australia by 2017 due to excessive production costs and now Toyota has also said farewell in advance for 2017. Ford has already made it known that it will pull out a year earlier.

For Holden workers, Abbott unveiled a $100m assistance package in December. This figure would include $60m from the Federal Government, about $12m each from the Victorian and South Australian governments, as well as a request of $20m from Holden.

For some, this is still not enough. SA premier Jay Weatherill has called on the Federal Government to contribute $333m, but Abbott said the $60m was “a perfectly reasonable amount of money” — and more than the previous government put forward for Ford and Mitsubishi.

Details on how this $100m package will be spent will be finalised this month. In the meantime, Abbott and industry minister Ian Macfarlane have been meeting industry groups in Adelaide to discuss the future of the manufacturing industry in South Australia. A similar forum was held in Melbourne in January after Holden’s decision to stop producing cars in Australia.

But according to the head of General Motors international operations, Stefan Jacoby, it is impossible to build cars in Australia competitively and “no amount of government incentives could have saved Holden”.

He continues: “Local production, even if it would be pure assembly, really doesn’t make any sense. Our automotive business is driven by scale — of economics, of productivity, of an efficient supply industry, of sufficient and efficient and optimised logistics. That means the automotive industry will be focused only on core markets, as it is today. Australia is just too small.”

Innovate to survive

Product innovation from SPC ArdmonaIf there’s one thing the stories of SPCA and the automotive industry can teach us, it’s that no industry sector can consider itself an “untouchable sacred cow”. So what’s the answer? Is there an answer? Diversification is one avenue; focusing on niche areas is another. Many successful local manufacturers today tend to operate in niche markets – take the Tomcar, an innovative all-terrain vehicle (ATV) with a specialised design that separates it from any other vehicle on the market today. Its manufacturer, MtM, is based in South Oakley, Melbourne.

Craft beer is another niche area seeing growth. While mainstream beer manufacturers have been suffering a drop in sales, micro-breweries noticed a gap in the market and worked hard to fill it. As a result, craft beer has become a huge success story in Australia’s beer making industry.

Something that goes hand-in-hand with niche manufacturing is innovation. Manufacturers need to nurture a culture of design, engineering and innovation to stay competitive. This is not just a question of new products, it’s comes down to the process itself. In this AFR article, Simplot’s Terry O’Brien says, for Australian food processing to survive, business has to get its costs down across the board, by investing more in labour-saving machinery.

And while the government can help along the way, the SPCA story tells us that ultimately this is something that will have to be driven by business — and people power. Linda Drummond, who lives 900km away in NSW, but has fond childhood memories of SPC fruit with ice-cream created the hashtag #SPCSunday to encourage Australians to support the processor by enjoying SPC tinned fruit products with ice-cream on Sunday. Drummond did that on February 7 at 10pm. The next day, the hashtag has been used in more than 900 tweets by politicians to media personalities — and everyone else in the community.

Very innovative. But the SPCA story tells us that ultimately, business survival is driven by business — through innovative production techniques and product innovation.

And they might just be further on the road to that. In an announcement to the Australian Stock Exchange about the government and CCA’s investments, Peter Kelly said the $100m “will be immediately put to work by our business to drive new product and packaging innovation and efficiency measures”. And, he said, Melbourne and Latrobe universities have both offered research and technology expertise to helpSPC Ardmona in its R&D and food-technology needs. Sounds very positive indeed.

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Matt Nichol

Matt Nichol

Key Account Manager at Matthews Australasia
Matt is a laser marking expert and has in-depth knowledge of product ID technologies. He is a regular at international trade shows like Pack Expo and is constantly looking at emerging trends and technologies.
Matt Nichol

by Matt Nichol

Matt is a laser marking expert and has in-depth knowledge of product ID technologies. He is a regular at international trade shows like Pack Expo and is constantly looking at emerging trends and technologies.

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