Is it governments role to protect jobs? --We ask because the issue of handing fruit processer SPC Ardmona a lazy $50 million to keep its Shepparton based plant running has become a major talking point. If youre not aware, owner Coca Cola Amatil [ASX: CCL] has asked the State and Federal Governments to chip in $25 million each to modernise its Shepparton fruit processing plant. CCL will invest $90 million. --Why wont CCL put in the whole amount? Because its return on invested capital wont make the investment worthwhile. Only $50 million in free taxpayers money will reward shareholders enough for the risk they are taking. --The Federal government yesterday rejected the request, a decision that has drawn plenty of criticism from parts of the mainstream media, and obviously, unions. --Why its not CCL copping the brunt of the criticism is amazing. --Maybe its because people instinctively realise profit seeking organisations wont invest money when they know the returns are sub-standard. Which is why they turn to the taxpayer. Apparently the government has a bottomless pit of taxpayers money and can provide subsidies when there are jobs on the line. --We dont think its the governments role to subsidise every (or any) inefficient plant or factory in Australia. But where it becomes tricky is when youre dealing with the actions of other governments, or industries that are not regulated in the same way as Australias. --Then you get arguments of cheap imports, not a level playing field etc. But it is what it is. The market is clearly voting by buying products that are cheaper than SPCs. The regulations, whatever they are, that dictate SPCs production clearly do not add enough value in the eyes of the consumer to make them switch to a higher priced product. Fruit is a commodity...and when its in a can its pretty much all the same...so price wins out. --We reckon the over-arching problem is prolonged underinvestment by CCL. From memory CCL bought SPC around 10 years ago. It paid a decent price, but the fruit processor has struggled ever since. A stronger dollar and rising labour costs since that time no doubt contributed to its woes...
Posted on: Fri, 31 Jan 2014 13:06:54 +0000
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