Food and grocery manufacturing has been taken for granted

Speaking at the recent Victorian Farmers Federation symposium, Melbourne, Ms Barden said there was still work to be done to create a resilient and strong food and grocery manufacturing sector in Australia.

"Food and grocery manufacturing is an industry that has been taken for granted, with the community and governments generally lacking an appreciation or understanding of the depth and complexity of the supply chains that exist beyond the supermarket shelves," Ms Barden said.

Industry had become complacent, due to relatively stable geopolitical conditions, which had meant it had not worried about the availability of key product ingredients, she said.

"That's led to lean, just-in-time and globally connected supply chains, that have served customers well, over this period," she said.

But with industry reliant on China for key ingredients - such as enzymes and additives - and packaging, the Ukrainian war, the global Coronavirus pandemic, geopolitical tensions and disruptions to supply chains were having a long-term effect.

"Everything to do with making and distributing food and grocery products has been impacted by these disruptive events and contributed to inflation," Ms Barden said.

As a result, the industry had gone back to increased holdings of finished goods, as well as ingredients and inputs.

That had put pressure on warehousing and provision of such things as pallets, she said, while manufacturers had also been hit by oil shortages affecting plastics production.

"We are finding a significant shortage in timber pallets, the pallet pool had effectively stopped working - it's broken and that poses some significant risks for agriculture," she said.

"If a manufacturer can't get pallets they can't operate so that means they may need to slow down inputs coming into the plant."

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She said because Australia was a net agricultural exporter, it was assumed the country had strong food security.

"But we need to consider we eat steak, not steers, we drink processed milk and eat processed grain products," she said.

"For food security, we need not only a strong ag sector, but also we need a strong domestic food and grocery manufacturing sector.'

The sector planned to double in size $250 billion by 2030, with growth identified in the areas of export markets, increased value adding and catering for increased consumer demand for healthier choices and more sustainable products.

But Ms Barden said increased input costs were hurting the industry.

"Agricultural inputs, freight, energy and wages increased by 50 per cent to 2021, while wholesale prices only increased by 25pc - while food and grocery manufacturers undertook efficiency measures, they also needed to absorb a significant amount of that cost increase," she said.

"That led to a fall in the industry's profitability - profit fell from $8b to $5b, which led to stagnation in capital investment, which is really going to have an impact on the future of the industry.

"If this trend was to continue it would have significant negative repercussions for Australia's agriculture sector, which supplies a lot of produce into manufacturing.

"It would also impact on the security of domestic food and grocery supplies, especially given the outlook for ongoing geopolitical tensions and climate change impacts on global food production as well as issues such as regional migration."

She said it was expensive to make new, healthier choices and sustainable products, in a high inflationary environment.

"It's a real challenge," Ms Barden said.

Labour shortages were another challenge, as was the manual operation of much of the food supply chain.

"You would be amazed how much of the sector operates manually," she said.

A modernised manufacturing and supply chain was needed to ensure the sector had the right skills.

"We also just need core basic skills such as train and truck drivers, where we have significant shortages," she said.