Dire time as Simplot sickens Jan Davis Tasmanian Country column Tasmanian farmers were dismayed this week by Simplot’s announcement that its Devonport vegetable processing facility is under threat of closure. Most of them weren’t surprised, though, as it’s been like waiting for the other shoe to drop. Food processors and farmers alike compete in a ruthless global marketplace; and we can only be successful if we can remain competitive. We have been warning for years that continued cost increases are not sustainable without increases in farm gate returns. However, we’ve actually seen costs rising rapidly, while at the same time returns have been falling. Simplot’s announcement is essentially recognition that farmers have run out of room to continue to deliver efficiencies without returns; and that they’ve pretty much run out of options. Tasmanian farmers have worked tirelessly with processors including Simplot to improve efficiency in an attempt to absorb these cost hikes. We estimate that this has delivered around 7-8% annually in cost savings from farm to factory over the past few years; while at the same time returns at farm gate have fallen significantly. That simply can’t go on, and it’s no wonder that food processing plants have pretty much disappeared from Australia as rising costs priced them out of the market. A state government report released during the parliamentary estimates hearings this week confirms everything we have been saying. The report was undertaken by leading consultants (including KPMG) and is dated January this year in order to present ‘a baseline estimate of the time and cost of complying with state-based regulations’. The research covered off on three main areas: business time spent on regulation; external costs; and delay costs. The response was strong, with 2.1% of the state’s businesses (771) providing detailed input. The results tell an interesting story. Overall, the cost of complying with red and green tape in Tasmania was estimated to be 2.6% of gross state product. The good news is that this compared favourably with costs in other states (eg Queensland at 2.8% GSP) and with similar overseas benchmarks (eg up to 3.2% of GDP in the UK). The bad news is that, on almost every measure, compliance costs for the agriculture, forestry and fishery sector in Tasmania were rated as either the highest or in the top few highest categories. The survey data showed compliance costs for the sector totalled $336m pa. There as clear daylight to the next group, with the retail sector coming in at c$150m and the construction industry at c$133m pa. I’ll say that again – firms in the agriculture, forestry and fisheries sector spend $336m each year meeting the costs of government rules and regulations – more than twice the costs in the next industry sector. That’s almost 17% of the sector’s gross turnover - in an industry working on average margins of less than 5%; or almost $1m every day of the year. It gets worse, because the report has significantly under-reported farm compliance costs. It does not consider opportunity costs (eg lost income from land out of production because of offsets and set-asides); or care and maintenance costs (costs of environmental controls eg weeds, wallabies); or even the impact of the government’s failure to meet even basic neighbour costs (fencing etc). On a very conservative estimate, this would most likely double the cost burden. Round it to $500m – say half a billion dollars each year. That’s $1 in every $4 of the income (not profit, mind you) generated at farm gate or fishing wharf; or 15 minutes of every hour worked; or one person in every 4 employed. We have heard a lot over recent months about the Asian Century and the National Food Plan – and all the opportunities these will generate for agriculture. This will all come to nought though, unless governments address the real causes of the problems facing our farming and food processing industries, rather than attempting short term fixes of symptoms. Which brings me back to where we started. The problems we’re seeing have been exacerbated by the fact that low-cost imports have flooded into the Australia, often from countries that subsidise their farmers and turn a blind eye to behaviours that are illegal here. The massive power of the supermarket duopoly has added to industry stress, as ColesWorth have relentlessly focussed on lower prices at the expense of local producers. Rising input costs (including fuel, freight, power and labour) need to be contained, too. Tasmanian farmers are committed to continuing to work with Simplot to enable them to retain their processing capacity here for as long as we can. But, unless something changes, Simplot has now clearly signalled that may not be for much longer. We’ve been through major industry restructures before and, in time, we know farmers will adjust and learn to grow different crops. In the meantime, while that transition happens, things will be dire. Tasmanian processing vegetable growers supply about 50,000 tonnes of product to Simplot plant each year. This trade has traditionally underpinned many farm businesses. Importantly, it also underpins a significant part of many regional communities and the flow on impact filters through the whole economy. It is also time consumers recognised that if they want the best, they have to pay a bit more. We all need to learn that there has to be a true value placed on the things we produce here under the conditions we all expect for ourselves in this country. Otherwise, our future is grim. Contact Jan Davis 0409 004 228
Posted on: Thu, 06 Jun 2013 22:47:39 +0000
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