Manufacturing in turmoil: who’s to blame for Simplot’s closures?

Australian manufacturing in turmoil

Australia’s manufacturing industry is in the spotlight this month, with big announcements from Ford and Simplot causing people to ask if this is the beginning of the end of manufacturing in Australia?

What is really behind the closures?

Simplot’s Australian operations managing director, Terry O’Brien, announced the company’s two factories in Bathurst, NSW, and Devonport, Tasmania, are uncompetitive and under threat of imminent closure. The Edgell sweet corn and bean cannery plant in Bathurst will likely shut its doors in 2014, while the Birds Eye frozen vegies plant in Devonport faces closure in two to four years. Together, the plants amount to 15% of Simplot’s sales.

In addition to the 400 people who would be put out of work, the decision would have ramifications for hundreds of specialist vegetable growers in Tasmania and NSW who would be left without an assured buyer for the $26 million worth of vegetables sold to Simplot each year.

Simplot’s announcement came just two weeks after Ford shocked the industry by announcing it would cease all manufacturing in Australia by 2016 — and cut 1,200 jobs in the process.

It also follows closures of Heinz’s tomato sauce plant at Girgarre, Victoria, last year and McCain’s frozen vegetable factory at Smithton, Tasmania, in 2010 when McCain moved to New Zealand to halve production and processing costs.

 

Labour costs, imports and Aldi

So what’s behind this landmark decision from Australia’s last remaining vegetable-processing company?

Simplot’s O’Brien points to a “whole range of factors, which, when added up, make us uncompetitive”.

He says high labour costs are at the problem’s core. Other factors he mentions are “much lower-cost, imported product alternatives” and a squeeze on retail prices caused by the “Aldi factor”.

Factors O’Brien specifically says are not to blame are inefficiency, lack of investment and the supermarkets. After all, Simplot is also a big supplier of Coles private label sales. O’Brien also doesn’t blame the impact of the high Australian dollar.

Jan Davis, spokeswoman for the Tasmania Farmers and Graziers Association (TFGA), says the only surprise about Simplot’s announcement was its timing.

“Tasmanian farmers have been working tirelessly with processors, including Simplot, to improve efficiency in an attempt to absorb costs… Simplot’s announcement recognises that farmers have run out of room to continue to deliver efficiencies without returns,” she says.

 

Analyst surprise

On the other hand, industry analysts have expressed surprise at the decision — or at least the reasoning behind it.

IBISWorld’s senior industry analyst Naren Sivasailam told Smart Company that the level of imports is not necessarily high enough to warrant large-scale closures from such a major player as Simplot.

 

High costs? Not new…

This brings us back to Simplot’s focus on high labour costs. After all, it is not a new development.

John Brent is chair of Ausveg, the national peak industry body representing Australian vegetable and potato growers. Brent recently told the ABC that labour, power and water costs in Australia are too high, forcing food processors offshore.

Keen to demonstrate that they aren’t to blame for the food processing moves, supermarkets are also blaming unsustainable labour costs. Coles merchandise boss John Durkan told the Australian Food & Grocery Council’s annual conference recently, that Australia had the third-highest manufacturing labour costs in the world.

Also representing Coles, Robert Hadler told the ABC that food processors are heading to NZ to take advantage of lower wages. Australia pays its food manufacturing workers $10 more an hour than NZ.

Ford also blamed labour costs, amongst other factors, for its closures. President and CEO of Ford Australia, Bob Graziano, said, “Local manufacturing is simply unprofitable. Our costs are double that of Europe and nearly four times that of Ford in Asia.”

There’s no doubt that high labour costs have played a role in the Simplot’s decision. To quote Ausveg’s John Brent, “If you want a future manufacturing industry in Queensland or Australia, these things need to be reviewed and understood.”

 

Is Australian manufacturing in turmoil?

So is Australian manufacturing in turmoil?

We we can’t help but wonder if this is the whole story for Simplot or if it is a convenient excuse for what is really a problem with inefficient internal processes and manufacturing costs.

Only time will tell.

Jump forward 16 months, and the Australian Food and Grocery Council’s “State of the Industry Report 2014” has a rather happier story — albeit Australian industry has some work to do.

 

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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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