Australian Food and Grocery Council STATE OF THE INDUSTRY Essential information: facts and figures

Australian Food and Grocery Council STATE OF THE INDUSTRY 214 Essential information: facts and figures

CHAIRMAN S FOREWORD This is the sixth edition of the AFGC s annual State of the Industry series, providing key data on the food and grocery sector in order to inform rational and fact-based analysis and policy. The food and grocery sector delivers the essentials of life to every Australian every day. From bread and milk to toilet paper and detergents, salads and chocolate bars, these are the products that stock our pantries and the ingredients that go into our breakfasts, lunch boxes and dinners. They get there via a complex and increasingly efficient supply chain taking product from paddock to plate. The data in this State of the Industry report certainly underlines the resilience of the sector, contains some cause for optimism but also reinforces the ongoing challenge of staying competitive in a country with high costs and low margins. Turnover is up slightly but job numbers are down. This is a microcosm of the broader economy growth is below trend and unemployment is creeping higher. In the food and grocery sector the juxtaposition of growth and declining employment reflects the reality of companies automating to reduce labour cost and drive higher efficiency and productivity. Notwithstanding the decline, the sector still directly employs just under 3, Australians, almost half of those in rural and regional areas. It is vital to the nation s health and economic wellbeing. The historically and persistently high Australian dollar is biting, but so too are high input costs, retail concentration and highly restrictive, complex and overlapping regulatory structures. In response, our sector is undergoing a painful adjustment rationalisation of capacity, closure of smaller plants, and the drive for efficiency and scale. This report also shows solid export growth in processed food and beverages and a rising trade surplus in food. This trend is a welcome sign that the focus on market access and food export opportunities is paying off. Of concern is the flatlining of capital investment, at a time when we need an infusion of capital. Food and grocery processing relies heavily on patient capital investment and when there is a reluctance to re-invest regularly to keep pace with technology and its associated productivity improvements, a vicious circle occurs where re-investment lags and returns inch lower over time, and so, capital is even less likely to be attracted. We need a step change in investment, which requires consideration of carefully focused investment allowances or incentives within the tax system for a period that will provide an ongoing boost to activity, exports and jobs. As always, AFGC welcomes your input about this report and how we can make it even more useful and relevant to the food and grocery manufacturing sector in the future. Terry O Brien Chairman Australian Food and Grocery Council AFGC.COM.AU

AFGC CONTENTS Sustaining Australia The Australian Food and Grocery Council (AFGC) is Australia s peak national industry association representing the $114 billion food, beverage and grocery manufacturing industry. As Australia s largest manufacturing sector accounting for over one quarter of total manufacturing the food and grocery manufacturing industry is a vital contributor to the wealth and health of our nation. The Industry s products are consumed by 23 million Australians every day of the year. The AFGC s aim is for the Australian food, beverage and grocery manufacturing industry to be world-class, sustainable, socially-responsible and competing profitably, both domestically and internationally. The AFGC represents one of the few manufacturing sectors in Australia that continues to grow and has significant potential for even further growth into the future. We provide a strong, united voice from industry to government, NGOs, retailers/trading partners, industry groups and the media, as well as promoting the industry, for the benefit of members, across the wider community. The AFGC is respected for advancing scientific policies and research to support industry positions. As part of our advocacy role, we advance best practice policy, promote industry s views, and make submissions to governments on the development of policy and regulation affecting members. With industry facing many challenges, we help members stay competitive and well-informed on important issues including retailer margins, food regulation, labelling, supply chain and sustainability issues. The AFGC has been proudly representing the interests of Australia s largest manufacturing sector since 1995. For more information, visit www.afgc.org.au Section 1 Introduction 2 2 Essential facts and figures 3 3 Methodology 6 4 Industry turnover 1 5 Industry value-add 19 6 International trade 23 7 Employment 44 8 Capital expenditure and R&D 5 Appendix A Detailed industry definition 56 B Full list of products 58 C ANZSIC code mapping 65 D Data tables 68 E Glossary 69

1 INTRODUCTION 1 2 ESSENTIAL FACTS AND FIGURES This AFGC State of the Industry report is the sixth in the series. It consists of an extensive set of historical and updated data which collectively describes the broader food and beverage, grocery manufacturing and fresh produce sectors, as well as the important contribution they make to the Australian economy. The Australian food and beverage, grocery manufacturing and fresh produce industry (the defined industry 2 ) had a total turnover of $114 billion in the 212-13 financial year. Food and beverage processing contributed $91.6 billion, grocery $16.2 billion and fresh produce $6.2 billion. The defined industry represents 28.9 per cent of the total Australian manufacturing industry by turnover. In 213-14, the defined industry employed 299,731 people. The total employment in the defined industry consisted of 22,5 people employed in food and beverage manufacturing; 3,295 employed in grocery manufacturing and 48,936 people employed in the fresh produce sector. In 212-13, the combined industry value-add (IVA) for the food and beverage, grocery manufacturing and fresh produce sectors was approximately $31.3 billion. Food and beverage manufacturing contributed $24 billion of this total. In 213-14, total industry exports increased by 8.6 per cent and total imports grew by 6.1 per cent. This reduced the industry s trade deficit to $1.8 billion, which continued to contract for a second year in a row. It is also important to note that Australia s net surplus in food and beverages increased by 12.8 per cent to $8.6 billion in 213-14. Turnover recorded a.9 per cent growth in 212-13 and capital expenditure recorded only a marginal.3 per cent increase. Moreover, the industry s trade performance for 213-14 showed a strong improvement due to growth in exports for key industries such as meat and dairy manufacturing. These trends showed signs of strength and indicate a recovery in the defined industry. Notwithstanding this, rising commodity and energy costs remain significant challenges for the sustainable growth of the industry. Effective government policies and programs are essential to reduce the cost of doing business and streamline regulations thereby improving the competitiveness of the industry. Also, there is a need to facilitate greater investment in the food and grocery manufacturing sector to increase exports, particularly to Asian markets. 2.1 The industry The defined industry had a total turnover of $114 billion in 212-13. Food and beverage processing contributed $91.6 billion, grocery manufacturing $16.2 billion and fresh produce $6.2 billion. The inflation-adjusted value of industry turnover improved by.9 per cent in 212-13. The defined industry represents 28.9 per cent of the total Australian manufacturing industry by turnover. In 213-14 there were an estimated 27,469 businesses in the industry: 7,57 businesses in food and beverage manufacturing (7,469 businesses in 212-13); 1,353 businesses in grocery manufacturing (1,348 businesses in 212-13); and 18,69 businesses in the fresh produce industry (18,835 businesses in 212-13). These results show 183 fewer businesses in the defined industry compared with 212-13. 2.2 Industry value-add Industry value-add is a measure of the contribution of businesses within the sector to gross domestic product. In 212-13, the combined industry value-add for the food and beverage, grocery and fresh produce sectors amounted to approximately $31.3 billion. Food and beverage manufacturing contributed $24 billion of the total value-add, a.5 per cent increase over 211-12. 2.3 International trade The total value of international trade (imports plus exports) for the industry increased from 212-13 to 213-14 by 7.3 per cent to $55.9 billion. Australia s trade deficit in the defined industry is $1.8 billion (compared to $2.3 billion in 212-13), with total imports in 213-14 valued at $28.8 billion and exports valued at $27 billion. Australia remains a net importer of food, grocery and fresh produce. The trade deficit contracted by 2.9 per cent in 213-14 strengthening the industry s trade position. The real value of industry exports increased by 8.6 per cent to $27 billion in 213-14. Exports of food and beverages increased by 13.5 per cent from $19.3 billion to $21.9 billion and fresh produce increased by 15.8 per cent from $842 million to $975 million. Grocery exports decreased by 12.7 per cent from $4.7 billion to $4.1 billion. Trade surplus in the food and beverage sector of $8.6 billion in 213-14 has been growing at approximately 9 per cent annually over the last four years mainly due to growing exports across the same period. The real value of industry imports increased by 6.1 per cent to $28.8 billion in 213-14. Food and beverage and fresh produce imports grew by 13.9 and 23 per cent respectively, while grocery imports decreased by.6 per cent. Food and beverage imports comprised of 46.3 per cent and fresh produce accounted for only 2.1 per cent of total imports in the defined industry. Grocery products accounted for the largest share of imports at 51.6 per cent or $14.9 billion, of which the human pharmaceutical and medicinal product imports accounted for $1.5 billion, or 36 per cent of total imports. 1 All views expressed within this Report are those of the AFGC and other named authors. The AFGC acknowledges the assistance of KPMG in compiling and analysing the statistical data contained within this Report. 2 The food and beverage, grocery and fresh produce sectors together are classified as the defined industry in this report. 3

High levels of imports of human pharmaceutical and medicinal products continue to be the primary contributor to the trade deficit for the defined industry. However, significant growth in food and beverage and fresh produce exports contributed to the reduction in the deficit in 213-14. The increases in export value for processed meat, cheese and other dairy, and all fresh produce reflect growing optimism in the long term strength of the sector. Insight: The Policy Landscape As the Australian economy adjusts to the decline in mining investment and the prospect of falling living standards, combined with constraints on the capacity to boost productivity to offset declining terms of trade, the big challenge is finding the new drivers of growth. Overall, the continued stronger growth of exports in comparison to imports suggests improvement in the defined industry s competitiveness and the growing global demand for Australian food and grocery products. 2.4 Employment Employment in the defined industry has decreased marginally by 2,571 or.9 per cent from the previous financial year. In 213-14, the industry employed approximately 299,731 people, decrease from 32,32 in 212-13: 22,5 employed in food and beverage manufacturing (222, employees in 212-13); 3,295 employed in grocery manufacturing (3,529 employees in 212-13); and 48,936 employed in the fresh produce (49,773 employees in 212-13). Jobs and economic security are centre stage. Unemployment is creeping higher and economic growth is below trend. Job growth will only come from businesses having the confidence to invest and employ. For the Government the prospects for reforms to drive growth and investment rest with a raft of major policy reviews due to report this year or next. The Review of Competition Policy, White Papers on Energy and Agricultural Competitiveness, along with implementation of Commission of Audit findings, ongoing regulatory reform and the coming reviews of Tax and Federation all will be important. Reforms requiring legislative change will all have to run the gauntlet of a volatile Senate. A compelling narrative anchored in jobs, growth and investment to keep Australia s remarkable run of 22 years of continuous growth going will be pivotal. Uncertainty undermines confidence, but uncertainty related to the passage of key measures through the Senate is nothing new in Australian politics. 2.5 Capital expenditure and research & development (R&D) While the revenue of the food production and food service sectors gives an indication of potential demand for machinery, capital expenditure is a direct measure of downstream manufacturers spending on machinery and equipment. It is estimated that the food processing machinery manufacturing industry revenue grew from $965.3 million in 27-8 to $1.9 billion in 212-13, a compound annual growth rate of 2.4 per cent. 3 Capital investment in the food, beverage and tobacco product manufacturing industry reached $3.1 billion in 212-13, growing.3 per cent over the previous year. Investments continue in productivity initiatives such as automation and other cost reduction programs. The growth in beverage and tobacco manufacturing capital investment slightly outweighed the 3.5 per cent loss in food product manufacturing capital investment. 4 The total amount spent in the food and beverage sector on research and experimental development, increased from $513.9 million in 21-11, to $541.8 million 5 in 211-12, a growth of 5.4 per cent, representing.5 per cent of the defined industry turnover for that financial year. The sub sector with the largest expenditure on R&D was the dairy product manufacturing sector ($19.3 million). This Government like others before it, is quickly learning that the legislative process shifts policy from a science to the art of the possible through compromise and negotiation in the Senate. Ministers are having to adjust to the reality that a disparate group of independent and minor party senators hold the balance of power which effectively checks the government s legislative agenda. For industry, legislative bargaining leads to greater uncertainty, particularly as the constant threat of horse-trading, where senators seek to trade their vote to deliver for their own constituencies, can result in the creation of new and costly regulatory environments. Navigating this environment is by no means easy, and organisations must be prepared to commit to an ongoing engagement with the political and policy processes in order to minimise regulatory risk and maximize reform opportunities. This involves consistently evaluating and re-evaluating the various dynamics and accounting for the motivations of various players in predicting their actions. Understanding when and how to expend limited resources remains key. This can only be achieved through setting realistic expectations of success. This complex political environment presents both challenges and opportunities for industry, and representative organisations such as the AFGC. To have a positive impact on economic reform, and to minimise regulatory risk, successful organisations do four things: Develop a clear and realistic set of objectives to pursue; Constantly monitor the political environment and adjust their strategy accordingly; Establish strong relationships with key decision makers which are based on trust and integrity; and Crucially, know when and how to expend the limited resources at their disposal. An understanding of what constitutes success in an economic context is also important. Often it can mean convincing the government of the value in not acting for example, a decision not to regulate, or a government program where participation remains voluntary rather than mandatory. These things can represent significant cost savings to industry and help ensure that it remains competitive both in the domestic and international markets. Investment in the ongoing advocacy work which can reduce the risk of these kind of negative government interventions is a marker of success for organisations that operate in the political arena. 4 3 An updated IBISWorld report for the Food Processing Machinery in Australia was not available for 214, therefore, the industry report C2469, September 213 has been re-used for Section 8.1 this year. 4 The split between beverage and tobacco manufacturing was not available. 5 ABS notes that change in frequency of the Survey of Research and Experimental Development, Businesses from annual to biennial following the 211-12 cycle. Therefore updated data for catalogue 814. for 212-13 is not available. However, the data has been inflation adjusted for 213 dollars. Gary Dawson Chief Executive Officer AFGC 5

3 METHODOLOGY 6 The data and subsequent analysis provide a comprehensive report of the industry s turnover, employment, international trade, capital expenditure and R&D. Since the release of the State of the Industry 29 publication, the Australian Bureau of Statistics (ABS), which is the primary source for the data used in this report, has discontinued some aspects of its statistical reporting. Where this is the case, a footnote in the report details the new source used to update the figure or table and the difference between the two sources. In some instances, the ABS plans to re-introduce discontinued publications in the future. In the interim, it has released experimental estimates of key variables which have been used in parts of this report. In compiling this report, the most recent data available has been used to update the figures and tables. As a result, the data in some sections of the report are as up-to-date as 213-14, whereas some other figures are only updated until the year 212-13. Wherever possible, the figures and tables have been presented in a form comparable to the 213 report, although given data limitations, this has not always been possible. Due to the unavailability of data, some figures have not been carried forward into the State of Industry 214 report. A note has been made in the relevant parts of the report to alert the reader to these changes. Readers are advised to exercise caution when comparing data in this report that has been taken from an alternative source to that published in previous reports. Caution should also be applied when comparing data before and after the Australian and New Zealand Standard Industrial Classification (ANZSIC) code changes in 26. Unless indicated otherwise, this report uses the ANZSIC 26 terminology, and some older data had to be allocated to a more recent category of best fit. Moreover, in some cases, IBISWorld reports did not exactly match the ANZSIC 26 codes chosen for the figures and tables in this report. In such cases, the IBISWorld data was allocated to the category of best fit. The data for prior years will be adjusted for inflation each year the report is published. Therefore, the use of real data (inflation adjusted) in the report limits direct comparability with prior years reports. 3.1 Updating data in the charts and tables In order to facilitate consistency with the State of the Industry publications for 29, 21, 211, 212 and 213 when compiling the charts and tables for this report, re-estimates of the data have not been sought. However, it is important to note that the ABS and IBISWorld have made, in some cases, updates to historical numbers. In such cases, this report is based on the most recent estimates available. For more detail regarding these revised estimates please refer to the appropriate IBISWorld industry report or the ABS catalogue. Consult the explanatory notes within these source documents for a more detailed explanation of the methodology used in re-forecasting data. To ensure comparability of data in the figures and tables within this report, historical data has been adjusted for inflation until the most recent year for which data is presented. The inflation-adjusted figures are referred to as real values and are used in comparisons and growth calculations. 3.2 Defining the industry to be covered by the report Prior to commencement of this publication series, the industry sectors covered by the report had not previously been described collectively by industry or government agencies. Those selected for inclusion in the report share a number of common features at product and/or operational levels and consequently also in the business challenges they face. The definition used to determine whether industry sectors should be included was: Those industries that provide value-add to agriculture, food and other products for the purpose of producing everyday fresh and processed food, beverages and grocery products consumed and used by Australians. Products encompassed include packaged, shelf-stable food from all categories, fresh foods such as fruit and vegetables and non-food grocery products used by consumers for personal, home and pet care. These products share a number of distinguishing characteristics that enable them to be sensibly aggregated: they are all (generally) presented to consumers meeting strict product specifications; their integrity is assured through the use of sophisticated quality systems; they share the same supply chains; and they are purchased and used daily by consumers. Commodities (e.g. grains, live animals, etc.) not purchased by consumers directly were excluded from the report. Three broad groupings were identified consistent with this definition: food and beverage manufacturing; grocery manufacturing; and fresh produce production. Food and beverage manufacturing includes processed, packaged, shelf-ready food and beverages commonly found in supermarkets and other retail outlets, and the ingredients which go into their manufacture. It includes dairy, cereal and baked products, meat and fish products, and processed fruits and vegetables. It excludes, to the extent that ABS data does not include, products produced onsite in supermarkets such as onsite baking. Grocery manufacturing refers to non-food grocery manufacturing and it includes personal care, home care and pet care products. These products have been included because they share a common supply chain with food and beverage products and they face many of the same challenges such as high input costs. Fresh food production includes fresh produce such as fruit, vegetables, nuts and eggs. This category was included because the delineation between processed foods is becoming blurred (e.g. many fresh products are now presented to the consumer processed in some way, such as fresh-cut salads), and also because many farmfresh products are consumed directly without the need for additional processing (e.g. milling, refining, slaughtering, etc.). Indeed, the majority of these products are available year round and supplied to retailers subject to tight product specifications with their integrity assured by advanced quality assurance systems, much in the same way that processed food is handled. Data adjustments were made for fresh products (e.g. fruit, vegetables, etc.) to ensure there was no double counting of produce destined for downstream manufacturing processes. Unprocessed food and fibre commodities (e.g. wheat, coarse grains, live animals, etc.) were excluded from the definition, as was the value of the restaurant and catering sector. Tobacco products were also excluded from the definition. The ANZSIC codes were used to help define the industry as it was recognised that much of the data to be collected would be aggregated under these codes. Following a review of 62 industry sub-sectors defined in the ANZSIC codes, it was concluded that the industry is best-defined using 41 sub-sector codes. A full list of those sub-sectors considered in developing the final industry definition can be found at Appendix A. 7

Table 3.1: Sectors included in the industry definition Food and beverage ANZSIC Code Sub-sector The 4 sub-sectors included in the industry definition as shown in Table 3.1 cover almost 3 product categories. The production activities provide a good insight into the breadth of products produced or associated with the industry. Appendix B provides a detailed table of the activities associated with the industry. Grocery ANZSIC Code 3.3 Data collection The data presented in this report has been collected from multiple sources, which have been referenced as appropriate, notably Australian Bureau of Statistics (ABS) ABS data that provided a comprehensive assessment of the majority of the ANZSIC codes used to define the broader industry. Where publications were discontinued, appropriate replacements were selected and referenced where possible Other sources included: Sub-sector 1111 Meat processing 1524 Sanitary paper product manufacturing 1112 Poultry processing 1841 Human pharmaceutical and medicinal product manufacturing 1113 Cured meat and smallgoods manufacturing 1851 Cleaning compound manufacturing 112 Seafood processing 1852 Cosmetic and toiletry preparation manufacturing 1131 Milk and cream processing 1911 Polymer film and sheet packaging material manufacturing 1132 Ice cream manufacturing Fresh food 1133 Cheese and other dairy product manufacturing ANZSIC Code Sub-sector 114 Fruit and vegetable processing 121 Mushroom growing 115 Oil & fat manufacturing 122 Vegetable growing (under covers) 1161 Grain mill product manufacturing 123 Vegetable growing (outdoors) 1162 Cereal, pasta and baking mix manufacturing 131 Grape growing 1171 Bread manufacturing (factory based) 132 Kiwifruit growing 1172 Cake and pastry manufacturing (factory based) 133 Berry fruit growing 1173 Biscuit manufacturing (factory based) 134 Apple and pear growing 1174 Bakery product manufacturing (non-factory based) 135 Stone fruit growing 1181 Sugar manufacturing 136 Citrus fruit growing 1182 Confectionery manufacturing 139 Other fruit and nut growing 1191 Potato, corn and other crisp manufacturing 172 Poultry farming (eggs) 1192 Prepared animal and bird feed manufacturing 1199 Other food product manufacturing n.e.c. 1211 Soft drink, cordial and syrup manufacturing 1212 Beer manufacturing 1213 Spirit manufacturing 1214 Wine and other alcoholic beverage manufacturing Australian Bureau of Resource Economics, Australian Food Statistics and Australian Vegetable Growing Farms; AUSVEG; Dairy Australia, Situation and Outlook reports; Department of Agriculture, Price Determination in the Australian Food Industry; Department of Foreign Affairs and Trade, Composition of Trade Australia; Horticulture Australia, annual reports for Almond Board of Australia as well as Vegetable and Onion Industries; IBISWorld Industry reports; and Meat and Livestock Australia. 3.4 Data analysis A key issue during the collection and collation of the data, particularly when considering the financial value of the industry and its segments, was determining which activities to include and exclude, particularly when it came to fresh food products. This report applies a relatively simple rule based on whether the product was able to be considered a consumer product that is one which consumers could readily buy, take home and utilise. As such, the definition excludes farm products which require processing (i.e. milling, refining, slaughtering, etc.) prior to sale and use by consumers. For food manufacturing, total turnover includes pre-farm gate value (i.e. it is essentially an aggregate measure of the value of the goods up until the point of sale by the food manufacturer) but value-add only measures the value of the transformation that occurs during a defined stage of a product s life cycle (e.g. the canning of fruit). No attempt was made to disaggregate pre- and post-farm gate value due to the difficulty in identifying standardised data sources. In presenting data for the fresh food sector, pre-farm gate value, included as total turnover, figures are used. The report undertook a detailed analysis to determine the value of fresh produce that enters the food-processing sector versus the value that enters the fresh market, either through the wholesale, supermarket or greengrocer channel, to ensure that, as far as possible, the report avoids double counting. Throughout this report, adjustments are made in the fresh produce sector to reflect that, at the national level, around 74 per cent of all vegetables produced in 212-13 go fresh to market, with the exception of beans (98 per cent), green peas (39 per cent), potatoes (58 per cent), sweet corn (92 per cent) and tomatoes (97 per cent). Similarly, adjustments are made in the fresh produce sector to reflect that 81 per cent of all pome fruit and stone fruit, 46 per cent of all citrus fruit, 6 per cent of all grapes, 8 per cent of all tropical and other fruit and 91 per cent of all eggs go fresh to market. 6, 7 Aggregated and summarised data are presented as a series of graphs, pie charts and tables in a manner to facilitate comparison between industry sectors and between time periods, adjusted to the dollar value of the most recent year for which data was available. The data tables are available in a fully interactive version on the AFGC website (www.afgc.org.au). All other data sets may be obtained from the AFGC. Key fact Data adjustments were made for fresh products (fruit, vegetables, etc.) to avoid, as far as possible, any double counting of produce destined for downstream manufacturing processes. 8 Australian Competition and Consumer Commission; Australian Food and Grocery Council; 6 State based estimates were also used where available. 7 These estimates are based on multiple data sources and latest available from ABARE Australian Vegetable Growing Farms: An economic survey, and AUSVEG Domestic Markets Statistics. 9

4 INDUSTRY TURNOVER In 212-13, the combined turnover of the industry was $114 billion and was the primary purpose for approximately 27,469 enterprises in Australia. 8 Figure 4.1: Composition of the industry s turnover ($212-13) 9 14 12 1 8 6 4 Figure 4.2: Comparable sectors turnover ($212-13) 1 45 4 35 3 25 2 15 1 5 Food, grocery and fresh Total manufacturing sector Mining sector Transport equipment manufacturing Education and training (private) Arts and recreation services Agriculture, forestry and fisheries The Food and Grocery Industry Code of Conduct aims to regulate standards of business conduct and to build and sustain trust and co-operation in the food and grocery supply chain. Samantha Blake, Director Industry Affairs, AFGC 2 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Source: Based on ABS Catalogue number 8155. and 753. Key fact In 212-13, the industry grew by.9 per cent to $114 billion. Food and Beverage Grocery Fresh Produce Source: Based on ABS, catalogue number 8221., 8159. and 8155. As illustrated in Figure 4.1, the total turnover for the Australian food and beverage, grocery and fresh produce industry was $114 billion in 212-13. The industry turnover increased by.9 per cent in 212-13, continuing on the recovery path post the 7 per cent contraction in 21-11. Of the three broad industry sectors, the food and beverage sector contributes the largest proportion to total industry turnover ($91.6 billion or 8.3 per cent), followed by the grocery sector ($16.2 billion or 14.2 per cent), and the fresh produce sector ($6.2 billion or 5.5 per cent). The food and beverage sector grew by 1.2 per cent, the fresh produce sector grew by 12.3 per cent while the grocery sector contracted by 4.4 per cent. The size of the defined industry relative to others is shown in Figure 4.2. The manufacturing sector comprises a number of sub-sectors including the food, grocery and fresh produce sector; the textile, leather, clothing and footwear manufacturing sector; and the wood product-manufacturing sector. The food and beverage, grocery and fresh produce industry comprises a larger share, 28.9 per cent, of total manufacturing industry turnover compared to the previous year. 4.1 Food and beverage sector The food and beverage manufacturing sector in Australia comprises a large variety of product categories, each of which consists of a number of subcategories. In 212-13, the turnover of food and beverage manufacturing sector was $91.6 billion. The sector grew by 1.2 per cent in 212-13. Of the 12 sub-categories, six sub-categories contracted by an average 3.4 per cent primarily driven by declines in bakery product manufacturing and wine & other alcoholic beverage manufacturing during this period. This was in contrast to the 8.1 per cent average growth across the remaining six sub-categories including dairy product manufacturing which had the largest absolute growth, increasing 9.1 per cent. The dairy sector showed signs of recovery with a lower Australian dollar and more favourable weather conditions further supported by improved demand conditions and rising domestic consumption. 11 Key fact The food and beverage, grocery and fresh produce sectors account for over one quarter of the total manufacturing industry in Australia. 1 8 This estimate is based on total 213-14 enterprises from the most recent IBISWorld reports, some of which used new data sources relative to previous years. Data was also updated retrospectively in accordance with the respective source. 9 As outlined in Chapter 3, caution should be applied when comparing data before and after the 26 ANZSIC code changes. Please consider this for all subsequent figures and tables within this report. 1 Motor vehicle and motor vehicle part manufacturing is included as part of transport equipment manufacturing 11 IBISWorld Industry Reports C1131, C1132, C1133A 11

Key fact Meat and meat product manufacturing continues to comprise the largest share (24.6 per cent) of the total sector turnover, followed by dairy product manufacturing (14.7 per cent). Figure 4.3: Food and beverage manufacturing product groups turnover ($212-13) 1 9 8 7 6 5 4 3 2 1 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Meat and meat product mfg Dairy product mfg Fruit and vegetable processing Oil and fat mfg Grain mill and cereal product mfg Bakery product mfg Sugar and confectionery mfg Seafood processing Other food product mfg Soft drink, cordial and syrup mfg Beer mfg Wine & other alcoholic beverage mfg Insight: Industry Code of Conduct A breakthrough for suppliers After a year of negotiation the AFGC, Coles and Woolworths reached agreement on a comprehensive Food and Grocery Industry Code of Conduct - The Code - on 18 November 213. Work has continued since then to progress the Code through the government s regulatory review process with an intent to have it tabled in Parliament during 214-15. As a Prescribed Industry Code under the Competition and Consumer Act (CCA) The Code has been reviewed by Treasury and the Office of Parliamentary Counsel to redraft it in a form suitable for tabling, whilst remaining faithful to the intent of the industry agreed version. This Exposure Draft has now been subjected to public consultation. The Code aims to improve standards of business conduct and to build and sustain trust and co-operation in the food and grocery supply chain. It imposes clear obligations on retailers and lists a range of behaviours that are not permitted. At the same time the Code will support the rights of suppliers and retailers to freely negotiate terms and conditions of supply contracts without imposing unnecessary red tape. This is recognition of the practical reality that it is not possible to set rules for every set of circumstances within supply agreements, given the variety of products, suppliers and situations. Key fact Wine manufacturing and meat and meat product manufacturing continue to be the largest contributors to the number of enterprises operating in the food and beverage sector, contributing 24.9 per cent and 15.3 per cent respectively. Source: Based on ABS, catalogue numbers 8221., 8159. and 8155. Meat and meat product manufacturing continues to comprise the largest share (24.6 per cent) of the total sector turnover, contracting slightly by.7 per cent in 212-13. Dairy product manufacturing was the second largest at 14.7 per cent, increasing 9.1 per cent. Seafood processing comprises the smallest share (1.2 per cent) with a decline of 4.2 per cent in 212-13. 4.1.1 Number of enterprises in the food and beverage sector The food and beverage, grocery and fresh produce industry in Australia had approximately 27,469 businesses in operation during 213-14, 183 fewer businesses compared to 212-13. Of these businesses, about one quarter operated in the food and beverage manufacturing sector. Table 4.1 illustrates the number of enterprises operating in a number of food and beverage sub-sectors. Wine manufacturing continued to have the largest number of enterprises and was the primary purpose for approximately 24.9 per cent of businesses in the food and beverage sector. At the same time, meat and meat product manufacturing accounted for 15.3 per cent. What is being proposed are clear standards so that those elements in a supply agreement that could be subject to uncertainty and change are discussed up front, to allow both parties to agree on how costs and payments will be allocated. Suppliers are entitled to know where they stand and invest with greater security, which is provided by the Code. Samantha Blake Director Industry Affairs, AFGC Table 4.1: Food and beverage manufacturing sector number of enterprises Number of enterprises Sector 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 Meat and meat product manufacturing 1,116 1,79 1,58 1,144 1,148 1,142 1,134 1,148 Dairy product manufacturing 481 437 392 411 397 44 442 45 Fruit and vegetable processing 252 238 235 248 239 229 219 214 Oil and fat manufacturing 267 252 225 222 219 221 215 216 Grain mill and cereal product manufacturing 31 34 314 38 35 313 31 34 Bakery product manufacturing 1,62 962 934 963 941 867 842 814 Other food manufacturing 2,118 2,91 2,72 2,14 2,122 2,149 2,196 2,21 Soft drink manufacturing 79 77 76 76 77 76 77 77 Beer and malt manufacturing 123 168 157 164 196 192 23 27 Wine manufacturing 1,756 1,735 1,742 1,848 1,868 1,827 1,831 1,867 Total 7,555 7,343 7,25 7,488 7,512 7,456 7,469 7,57 Source: Based on Number of Enterprises, IBIS World Reports C1111, C1112, C1113, C1131, C1132, C1133A, C1133B, C1133C, C114, C115, C1161, C1162, C1171, C1172, C1173, C1181, C1182, C112, C1192, C1191, C1199, C1211A, C1211B, C1211C, C1212 and C1214. 12 13

Key fact The grocery sector turnover contracted by 4.4 per cent to $16.2 billion in 212-13. Key fact Human pharmaceutical and medicinal product manufacturing decreased by 1.8 per cent. 4.2 Grocery sector As shown in Figure 4.4, in 212-13 the turnover of Australia s grocery manufacturing sector was $16.2 billion. The grocery sector has seen a decrease of 4.4 per cent from 211-12 to 212-13. The data indicates that human medicinal and pharmaceutical product manufacturing remained the largest contributor (58.2 per cent) to the total turnover for the grocery sector but decreased by 1.8 per cent over the previous year. The human pharmaceutical and medicinal product manufacturing industry was hampered by the closure of a number of domestic manufacturing facilities and the opening of new facilities within the Asia-Pacific. 12 The polymer film and sheet packaging material manufacturing recorded the largest decline at 12.6 per cent or $276 million. Cleaning compound manufacturing experienced a decline for the second year in a row, decreasing a further 12.5 per cent. Both polymer film and sheet packaging material manufacturing and cleaning compound manufacturing were affected by competition from import markets, falling demand from downstream markets and market saturation for its products. 13 Figure 4.4: Turnover of the grocery sector by product group ($212-13) 2 18 16 14 12 1 8 6 4 2 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Sanitary paper product mfg Cleaning compound mfg Polymer film and sheet packaging material mfg Human pharmaceutical and medicinal product mfg Source: Based on ABS, catalogue number 8221., 8159. and 8155. Cosmetic and toiletry preparation mfg 4.2.1 Number of enterprises in the grocery sector There were a total of 1,353 enterprises in the grocery sector. The distribution of enterprises across the different product categories within the grocery sector is outlined in the table below. Proportions have remained relatively stable over previous years while the overall number has increased slightly. The largest number of enterprises is located within cosmetic and toiletry preparation manufacturing sub-category, which represented 36 per cent of the total number of enterprises in the grocery sector. Table 4.2: Grocery manufacturing sector number of enterprises Sector 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 Sanitary paper product manufacturing 48 46 42 43 4 41 45 48 Human pharmaceutical and medicinal product manufacturing 159 157 155 153 151 153 15 147 Cleaning compound manufacturing 282 3 47 429 44 39 38 385 Cosmetic and toiletry preparation manufacturing Polymer film and sheet packaging material manufacturing 48 44 453 479 487 489 491 492 318 33 312 298 325 29 282 281 Total 1,215 1,246 1,369 1,42 1,47 1,363 1,348 1,353 Source: Based on IBISWorld Reports C1524, C1841, C1851, C1852, C1911 4.3 Fresh produce sector The fresh produce sector recorded a turnover of approximately $6.2 billion in 212-13. This represents an increase of 12.3 per cent over the previous year. The vegetables category and tropical and other fruit category (including nuts, bananas, and berries) contributed the most to the growth, increasing by 1.6 and 22.5 per cent respectively, due to recovery from adverse weather conditions. 14 Figure 4.5: Fresh produce sector turnover by product group ($212-13) 8 7 6 5 4 3 2 1 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Vegetables Stone fruit Citrus fruit Eggs Source: Based on ABS, catalogue number 753. Pome fruit Tropical and other fruit and nuts Grapes Vegetables comprised the largest product group for the fresh produce sector, accounting for 45.3 per cent of total turnover. The largest growth was recorded in the tomatoes category along with significant growth in melons, lettuce and potatoes, whilst the onions category declined. Key fact Turnover in the fresh produce sector grew 12.3 per cent to $6.2 billion in 212-13. The Quality Assurance Auditing Forum supported moves to simplify auditing by recognising the commonality of critical food safety elements of QA standards which would then allow standardisation of reporting and the potential for integration of IT systems. Geoffrey Annison PhD. Deputy Chief Executive, AFGC 14 12 IBISWorld, Industry Report C1841, March 214 13 IBISWorld, Industry Report C1851, January 214 14 IBISWorld, Industry Report A123, July 214 and A139, January 214 15

4.3.1 Number of enterprises in the fresh produce sector Figure 4.6: Turnover of fresh vegetables ($212-13) 15 3 25 2 Of the approximately 27,469 enterprises operating in the food and beverage, grocery and fresh produce industry, over two-thirds (67.7 per cent) are involved in the production of fresh produce. The number of enterprises decreased by 1.2 per cent in 213-14. This decrease was reflected across most of the sub-sectors. Table 4.3: Number of enterprises in the fresh produce sector 15 1 Number of enterprises 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 5 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Vegetable growing 4,893 4,46 4,746 4,326 4,225 4,331 4,99 4,75 Apple, pear and stone fruit growing 15 2,371 2,196 2,27 2,26 2,135 2,111 2,13 2,58 Citrus, banana and other fruit growing 4,796 4,97 4,774 4,69 4,529 4,248 4,337 4,341 Asian vegetables Broccoli Carrots Melons Onions Tomatoes Beans (french and runner) Capsicums Lettuce Mushrooms Potatoes All other vegetables Grape growing 9,789 9,347 9,75 8,953 8,377 8,226 8,143 7,984 Egg farming 321 289 26 164 156 155 153 151 Total 22,17 21,145 21,8 2,393 19,422 19,71 18,835 18,69 Source: Based on IBISWorld Reports A122, A123, A13, A131, A136, A172 Source: Based on ABS, catalogue number 753. In 212-13, Queensland and Victoria s respective shares of the fresh produce sector turnover remained largely unchanged at 32 per cent and 26 per cent, while that of New South Wales increased from 16 per cent to 17 per cent. Figure 4.7: Fresh produce sector turnover by state (212-13) NT % ACT % WA 9% TAS 3% NSW 17% SA 11% VIC 26% QLD 32% Source: Based on ABS, catalogue number 753. 16 15 Due to changes in data capture for ABS catalogue number 753., revenue data for Asian vegetables, beans, broccoli, capsicum, lettuce and melons was not collected individually in 29-1. The data for these vegetables was collected in All other vegetables. For the 21-11 period, the data for Asian vegetables and melons was not reported separately and therefore was included in the All other vegetables category. For the 211-12 period, the data for Asian vegetables and beans was not reported separately and therefore was included in the All other vegetables category. For the 212-13 period, the data for Asian vegetables and Broccoli was not reported separately and therefore included in the All other vegetables category. 16 IBISWorld consolidated reporting of two of its previous categories: Stone Fruit Growing and Apple and Pear Growing into one report called Apple, Pear & Stone Fruit Growing from 213 17

5 INDUSTRY VALUE-ADD Insight: Quality and Safety Auditing reducing the burden One of the perennial issues facing the Australian food industry is the cost burden of quality and safety audits along the supply chain. Of course, the industry is a strong supporter of the preventive approach to securing food safety based on the well-established Hazard Analysis Critical Control Point (HACCP) framework and auditing as a critical element of ensuring that HACCP systems are implemented effectively. From a public policy perspective auditing can be separated into two broad areas: a) auditing of food manufacturing and handling management systems (i.e. food safety and quality programs) to ensure food is safe; and b) auditing of those systems to ensure a particular quality of product is produced. Many would argue that food safety is subset of food quality and broadly speaking they are right. But producing safe food is an absolute regulatory requirement, whereas many aspects of food quality are agreed contractually between supplier and customer, and are therefore, in essence, a commercial requirement. The corollary is that the regulatory requirement for food to be safe creates a commonality which all audits must address. The consequence is that if suppliers are serving many customers, each requiring periodic audit there is a high likelihood that duplication, if not replication, of auditing will occur. The issue was identified as source of inefficiencies and a cost burden across the food manufacturing sector in the report of the Food Processing Industry Strategy Group. 17 To address the issue the report recommended that the Australian Food and Grocery Council convene a forum to undertake a cost-benefit analysis of the current level of quality assurance (QA) auditing of the processed food industry and to develop recommendations of alternative options that reduce the regulatory burden on business retail and manufacturing without compromising food standards. An AFGC member survey conducted last year confirmed that there is indeed, a substantial level of duplication in QA auditing which very conservatively imposed additional costs on the industry of many millions of dollars. One survey respondent manufacturing a minimally processed product reported being audited seven times in a year with each audit being essentially the same and reporting the same result. And, of course, on each occasion the manufacturer had to pick up the costs. Clearly, at least for this business, and probably many more, a streamlining of auditing would be beneficial. Against this backdrop, in March 214 the AFGC convened a Quality Assurance Auditing Forum with participants from suppliers, foodservice, retailers, and auditing companies. The Forum agreed there should be further exploration of how mutual recognition of the food safety aspects of food safety and quality assurance auditing might be progressed. Importantly, the Forum also recognised that the value of QA auditing along the food supply chain should be enhanced, to the benefit of Australia s food industry and the consumers it serves. Thus the focus should not only be on cost reduction, but also on promoting auditing as a value-add process assisting all parts of the supply chain to meet both regulatory and commercial obligations in producing safe, quality food products. A mechanism for doing this is to ensure that the competencies of auditors themselves are maintained at the highest level with their skills and experience recognised and appropriately rewarded. This is critical to attracting high calibre professionals into the industry to maintain a pool of competent auditors into the future. The Forum supported moves to simplify auditing by recognising the commonality of critical food safety elements of QA standards which would then allow standardisation of reporting and the potential for integration of IT systems. Notwithstanding that, all agreed that it is a fundamental right of companies to develop and maintain their own auditing programs and request suppliers to engage within those programs as a part of commercial agreements. The AFGC is continuing its work in this area with the support of all in the supply chain. Geoffrey Annison PhD. Deputy Chief Executive, AFGC In 212-13, the combined industry value-add for the food and beverage, grocery and fresh produce industry was approximately $31.3 billion. Food and beverage manufacturing contributed $24 billion of value to the defined industry. Figure 5.1 Food and grocery sector industry value-add ($212-13) 35 3 25 2 15 1 5 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Food and beverage Grocery Fresh produce Source: Based on ABS, catalogue numbers 8159., 8221. and 8155. as well as IBISWorld Industry reports A122, A123, A13, A131, A139, A172 Industry value-add (IVA) is the measure of the contribution of businesses within each sector to overall gross domestic product. Australia s food and beverage, grocery and fresh produce industry comprises 31.9 per cent of total manufacturing by IVA. In 212-13, the combined IVA from the defined industry is approximately $31.3 billion, of which the food and beverage manufacturing IVA is $24 billion, grocery manufacturing is $4.3 billion and fresh produce is $3 billion. By comparison, the IVA from the transport equipment manufacturing 18 is $8.7 billion. Figure 5.2: Comparable sectors value-add ($212-13) 14 12 1 8 6 4 2 The Deloitte Access Economics report, Gas Market Transformations - Economic Consequences for the Sector, finds that under current policies and realistic gas price forecasts there will be a cumulative loss of output in the food, beverage and grocery manufacturing sector of $ 9.7 billion up to 221 and a loss of almost 3 jobs. Food, grocery and fresh Total manufacturing sector Mining sector Transport equipment manufacturing Education and training (private) Arts and recreation services Agriculture, forestry and fisheries Tanya Barden Director - Economics, AFGC Source: Based on ABS, catalogue number 8155. as well as IBISWorld Reports A122, A123, A13, A131, A139, A172 18 17 http://www.innovation.gov.au/industry/foodprocessingindustry/pages/strategygroup.aspx 18 Motor vehicle and motor vehicle part manufacturing is included as part of transport equipment manufacturing. 19

Key fact In 212-13, the food and beverage sector contributed $24 billion (76.6 per cent) to the defined industry s total value-add representing a.5 per cent increase over the previous year. 5.1 Food and beverage sector In 212-13, the food and beverage sector contributed $24 billion (76.6 per cent) to the defined industry s total value-add. This represented a.5 per cent increase in IVA for the food and beverage sector over the previous year. Figure 5.3 Industry value add by food product group ($212-13) 25 2 15 1 Figure 5.4: Industry value-add by grocery product group ($212-13) 6 5 4 3 2 1 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Key fact In 212-13, the grocery sector s industry valueadd decreased by 15.2 per cent reflecting a significant decline in human pharmaceutical and medicinal product manufacturing. 5 Sanitary paper product mfg Human pharmaceutical and medicinal product mfg 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Meat and meat product mfg Dairy product mfg Fruit and vegetable processing Oil and fat mfg Grain mill and cereal product mfg Bakery product mfg Sugar and confectionery mfg Seafood processing Other food product mfg Soft drink, cordial and syrup mfg Beer mfg Source: Based on ABS, catalogue number 8221., 8159. and 8155. 19 Wine & other alcoholic beverage mfg 5.2 Grocery sector In 212-13, the grocery sector s IVA decreased by approximately 15.2 per cent to $4.3 billion and represented 13.8 per cent of the total defined industry s value-add. In 212-13, 53.1 per cent of IVA for the grocery sector was primarily from the human pharmaceutical and medicinal product manufacturing subsector, which recorded a decline of 18.2 per cent along with significant declines across the other sub-categories such as cleaning compound manufacturing which declined for the third consecutive year. Decline in the total value-add for the grocery sector and more specifically human pharmaceutical and medicinal product manufacturing, may be attributed to the move of manufacturing activities offshore. 2 Cleaning compound mfg Polymer film and sheet packaging material mfg Source: Based on ABS, catalogue number 8221., 8159. and 8155. Cosmetic and toiletry preparation mfg 5.3 Fresh produce sector In 213-14, the IVA for the fresh produce sector was $3.1 billion 21, which is an increase of 1.4 per cent from 212-13. Growth was primarily driven by the two large sub-sectors that grew from 212-13 to 213-14 including vegetable growing that increased by 7.3 per cent and citrus, banana and other fruit growing (including tropical fruit) that increased by 3.4 per cent. Grape growing decreased by 11.8 per cent. Figure 5.5: Industry value-add in the fresh produce sector ($213-14) 45 4 35 3 25 2 15 1 5 Key fact In 213-14, the industry value-add for Australia s fresh produce sector increased by 1.4 per cent. 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 Vegetable growing Citrus, banana and other fruit growing Egg farming Apple, pear and stone fruit growing Grape growing Source: Based on IBISWorld Reports A122, A123, A13, A131, A139, A172 21 2 19 The industry value add of the beer manufacturing sector was not available for publication for the 29-1, 21-11 and 212-13 periods due to confidentiality arrangements. Therefore, the value was approximated by using the historic average relative to the wine and other alcoholic beverage manufacturing sector over the preceding five periods respectively. 2 IBISWorld, Industry Report C1841, March 214 21 Fresh produce data as per IBISWorld figures that are inflation-adjusted 214 dollars and based on the most recent (214) estimate of the Industry Value Added. 21

6 INTERNATIONAL TRADE Insight: Impact of rising gas prices on food and grocery manufacturing While the repeal of the carbon tax will provide some relief to energy costs, attention is now turning to the looming natural gas shortage and a forecast tripling of wholesale gas prices in the eastern states. Given food and grocery manufacturers are significant users of natural gas, particularly agribusinesses such as sugar refiners, meat processors and dairy processors, the forecast increase in prices will significantly hamper the competitiveness and viability of the domestic manufacturing industry. Given industry concerns about rising gas prices, and the lack of evidence to inform policy making, six major industry associations representing the bulk of Australia s manufacturing sector engaged Deloitte Access Economics (DAE) to undertake a detailed study. The DAE report, Gas Market Transformations - Economic Consequences for the Sector, finds that under current policies and realistic gas price forecasts there will be a cumulative loss of output in the food, beverage and grocery manufacturing sector of $ 9.7 billion up to 221 and a loss of almost 3 jobs. The report presents case studies that provide real illustrations of the impact of rising gas prices on profitability, risk profile and future investment decisions. It also notes that higher gas prices are likely to translate to reduced profitability and output given manufacturers limited ability to pass on cost increases. The report underlines the urgent need for gas market reform and greater gas production to cushion the impact of higher gas prices already being felt across Eastern Australia. The six industry associations that commissioned the report have called on governments, gas suppliers and pipeline operators to take an immediate and constructive approach to addressing the short and longer term impacts of the gas market transformation. This project has been highly effective in demonstrating that impending domestic gas shortages will have significant economic concern to future jobs, growth and competitiveness across manufacturing more broadly. Importantly it has also sparked greater recognition and collaboration from gas producers, pipeline providers, government and manufacturers with a view to addressing ways in which market based mechanism can be used to address this challenge. Tanya Barden Director - Economics, AFGC Key fact In 213-14, the real value of industry exports increased by 8.6 per cent to $27 billion. Strong growth in food and beverage exports in 213-14 narrowed the trade deficit. In 213-14, Australia s total international trade (exports plus imports) in the defined industry increased by 7.3 per cent to $55.9 billion. The real value of industry imports increased by 6.1 per cent. At the same time, industry exports increased by 8.6 per cent, albeit from a smaller base. This resulted in a contraction of 2.9 per cent in overall trade deficit to $1.8 billion in 213-14. The strong increase in exports demonstrates the sector s improving global competitiveness, supported by a weaker Australian dollar and growing global demand, particularly in processed meat, seafood and cheese and other dairy, where exports grew by 24.5, 23.1 and 19 per cent respectively. Figure 6.1: Industry sector imports and exports ($213-14) 25 2 18 15 1 14 1 5 5 2 Food and beverage Grocery Fresh produce Imports Exports Australia s trade deficit in the food and beverage, grocery and fresh produce sector is $1.8 billion, with total imports in 213-14 valued at $28.8 billion and exports valued at $27 billion. As can be seen in Figure 6.1, the grocery sector is driving the overall trade deficit, with exports valued at $4.1 billion and imports at $14.9 billion. Of the $1.7 billion deficit, human pharmaceutical and medicinal product manufacturing contributes $7.1 billion. Figure 6.2: Industry trade surplus/deficit ($213-14) 22 3 25 2 15 1 5-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 Imports Exports Trade surplus/deficit 22 22 The dotted line between the data from 28-9 and 29-1 indicates that data on either side of this line cannot be directly compared, due to changes in the ANZSIC classification. Please consider this for all subsequent figures in Chapter 6. 23

Insight: AFGC Market Insight Reports: China, Malaysia, Thailand With rising incomes and increasing consumer demand across Asia presenting export opportunities for Australian based food and beverage manufacturers, the Australian Food and Grocery Council (AFGC) with funding assistance from Austrade, commissioned a series of reports to deepen Australian industry understanding of particular markets. While Australian and international research has focussed on export opportunities for products such as dairy, meat and wine across Asian markets, there has been little focus on the opportunities for manufactured food products such as snacks, non-alcoholic beverages, and confectionary. The Market Reports are intended to provide insights into some of the opportunities that exist for specific manufactured food products in particular markets as a means of contributing to, and supporting the development of, better knowledge of export opportunities of manufactured food into Asia. The reports on China, Malaysia and Thailand are focussed on export opportunities for snacks, beverages, baked goods, and condiments. Opportunities Despite a decline in Australia s market share in each market and pricing pressures, foreign retailers and other buyers are seeking Australian product. So there are significant opportunities that exist for premium food and beverage products. While the focus has been on the huge demand for commodities like beef and dairy, there are opportunities for small orders and production runs of processed food products such as for retailer promotion events. This is a great opportunity for Australian SMEs to engage with China, Malaysia and Thailand. Challenges The strong Australian dollar coupled with high production costs means that Australian products are often some of the most expensive products in China, Malaysia and Thailand. Therefore product promotion, such as sampling and retail price promotions, is critical for success in each market. Exporters need to navigate relevant product registration, retailer listing processes, and labelling requirements for each country. Given our strict domestic standards and processes, Australian companies and products are often viewed favourably by foreign regulators but exporters need to ensure that they meet often very specific requirements (such as documentation) of foreign regulators Australia s top 1 trading partners for the defined industry in 213-14 remain the same as in 212-13. The United States remained the largest overall trading partner and also surpassed Japan as Australia s largest export market. Exports to Japan dropped from $3.2 billion to $3 billion. The greatest absolute increase in Australian exports to a single country was recorded for the United States, where exports rose by approximately $623 million up to $3.2 billion. In 213-14, the United States accounted for 11.8 per cent of total exports valued at $3.2 billion. Most of this increase occurred in the meat processing industry for which exports to the United States expanded 36.6 per cent to $2 billion, attributable to increasing demand and shortage in cattle herd supply in the United States, a depreciating Australian dollar and favourable agricultural conditions increasing Australian supply. The most significant increase in imports occurred in trade with New Zealand, where imports rose by $334 million to a total of $2.7 billion. This growth was spread across a number of import categories, with the greatest growth in Cheese and Other Dairy Product, Grain Mill Product and Other Fruit and Tree Nut Growing. Figure 6.3: Australia s top 1 trading partners for the defined industry ($213-14) $4 $35 $3 $25 $2 $15 $1 $5 $ USA China Japan Singapore Thailand Germany France Key fact In 213-14, the greatest increase of Australian exports to a single country was recorded for the United States, where exports rose by approximately $623 million to $3.2 billion. Examples of Specific Opportunities New Zealand United Kingdom Republic of Korea There is a growing focus on healthier food options across the three markets, including reduced sugar, salt and fat, allergen free, reduced sugar and more natural ingredients. In China, there is an opportunity for premium chocolates and biscuits with appropriate packaging to be marketed as gifts, as gift giving is an important element of Chinese culture. In Malaysia and Thailand, wealthy consumers are seeking premium quality chocolate products and are willing to pay for imported product. In Malaysia and Thailand, the demand for cereal bars and non-alcoholic beverages is expected to grow rapidly given the broad appeal to the large number of tourists, expatriates and increasingly wealthy locals. The market for table sauces is dominated by locally made products in each market however Western style sauces are becoming more popular and there is growing demand for new flavour combinations which build on local tastes. These market reports are the first publicly available reports on specific export opportunities for processed food and beverage exports. The AFGC welcomes feedback from companies on the usefulness of the reports and whether there is merit in further reports covering other countries and/or products. The Market Reports can be accessed from the AFGC website: www.afgc.org.au Michael Rogers, Manager - Agribusiness Forum AFGC Import Export 24 25

Key fact In 213-14, the Australian food and beverage, grocery and fresh produce exports earned $27 billion and accounted for 3 per cent of all manufacturing sector exports. Key fact Industry exports grew by 8.6 per cent or $2.1 billion to $27 billion. The total real value of international trade in the defined sector was $55.9 billion which accounted for 18 per cent of total international trade in the overall manufacturing sector in 213-14. Figure 6.4: International trade, sector comparison ($213-14) 25 2 15 1 5 Food, beverage, grocery and fresh Total manufacturing sector Mining sector Imports Transport equipment manufacturing Exports Education Agriculture, forestry and fisheries Source: Based on ABS catalogue 5368., ABS customised report and IBISWorld industry reports B, N and P 6.1 Exports In 213-14, the real value of industry exports increased by 8.6 per cent to $27 billion an expansion of $2.1 billion from the previous year. The real value of food and beverage exports increased by 13.5 per cent ($19.3 billion to $21.9 billion) and that of fresh produce exports increased by 15.8 per cent ($842 million to $975 million) whereas grocery exports decreased by 12.7 per cent ($4.7 billion to $4.1 billion) compared to 212-13. Figure 6.5: Australia s exports for the defined industry ($213-14) 3 25 2 15 1 Australia s top 1 export markets for each of the food and beverage, grocery and fresh produce sectors in 213-14 accounted for a combined 68 per cent of Australia s total industry exports, with countries from the Asia-Pacific region accounting for over half of the contributors within the top 1 export markets. Table 6.1: Australia s top 1 export markets ($213-14) Food and beverage Grocery Fresh Country $ Country $ Country $ United States of America 2,859,445 New Zealand 622,565 Hong Kong (SAR of China) 179,745 Japan 2,8,867 Republic of Korea 615,769 India 133,442 China 2,377,278 China 416,563 Singapore 7,79 Republic of Korea 1,42,29 Taiwan 38,332 Japan 65,14 New Zealand 1,192,8 United States of America 298,312 United Arab Emirates 6,473 Singapore 1,32,334 Malaysia 175,45 Indonesia 59,485 Vietnam 767,812 Hong Kong (SAR of China) 169,884 New Zealand 51,11 Hong Kong (SAR of China) 749,463 Thailand 149,577 Malaysia 42,477 Indonesia 74,232 Singapore 141,61 China 4,487 United Kingdom 681,463 United Kingdom 13,645 Vietnam 4,449 Other 7,293,147 Other 1,118,227 Other 231,685 Total 21,915,133 Total 4,146,339 Total 975,156 Victoria, Queensland and New South Wales are the three largest exporting states, contributing 31.4, 21.8 and 17.8 per cent respectively to total industry exports. Figure 6.6: Exports by state of origin (213-14) % 1 9 8 7 6 5 4 3 2 1 Food and beverage Grocery Fresh produce The AFGC Market Insight Reports provide insights on export opportunities for specific manufactured food products into China, Malaysia and Thailand. Michael Rogers Manager Agribusiness Forum, AFGC 5 Victoria Queensland New South Wales 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 South Australia Tasmania Re-exports No state details Western Australia Northern Territory Food and beverage Grocery Fresh produce 26 27

Key fact In 212-13, food and beverage, grocery and fresh produce exports accounted for 21.3 per cent of total industry turnover. During this period, 86.8 per cent of all fresh produce grown in Australia went to the domestic market. Total food and beverage, grocery and fresh produce exports for 212-13 were 21.3 per cent of total industry turnover for the same year. During this year: food and beverage sector exports represented 2.6 per cent of that sector s turnover grocery manufacturing exports represented 28.5 per cent of that sector s turnover fresh produce sector exports represented 13.2 per cent of that sector s turnover Hence, 86.8 per cent of all fresh produce grown in Australia went to the domestic market during 212-13. Figure 6.7: Exports versus turnover for each sector ($212-13) 1 9 8 7 6 5 4 3 2 1 Food and beverage Grocery Fresh produce Sector turnover (212-13) Exports (212-13) Table 6.2 and Table 6.3 show the industries with the 1 largest changes to export and import values in 213-14. In absolute terms, meat processing expanded most significantly by $2.1 billion or 24.5 per cent. A key driver for this expansion was the increase in demand for beef and veal by China and the United States and higher production and steady supply from Australia. Meat exports to China grew by 62.9 per cent to $1.5 billion with a growing middle class, changing palate and tighter local supply. Meat exports to the United States grew by 36.6 per cent to $2 billion as the US experienced shortages of domestic supply with drought and smaller cattle herds putting pressure on global pricing and supply. 23 Cheese and other dairy products exports expanded by 19 per cent or $43.4 million, of which, approximately $23 million can be attributed to increased exports to China. Exports for human pharmaceutical and medicinal product manufacturing decreased by $637.6 million or 15.9 per cent. The human pharmaceutical and medicinal product manufacturing industry was hampered by the closure of a number of domestic manufacturing facilities and the opening of new facilities within the Asia-Pacific. 24 Table 6.2: Top 1 Changes in Export Value ($213-14) Industry $ s FY 212-13 FY 213-14 Change Meat Processing 8,44,89 1,55,435 2,65,346 Cheese and Other Dairy Product 2,117,841 2,521,271 43,43 Seafood Processing 7,81 862,963 162,162 Other Food Product n.e.c. 526,179 593,821 67,642 Fruit and Vegetable Processing 1,548,67 1,581,452 32,783 Other Fruit and Tree Nut Growing 163,475 222,367 58,892 Cosmetic and Toiletry Preparation 418,334 47,996 52,663 Grain Mill Product 1,572,33 1,593,385 21,83 Prepared Animal and Bird Feed 992,874 735,119-257,754 Human Pharmaceutical and Medicinal Product 4,8,591 3,37,962-637,629 Imports for seafood processing increased by $36.3 million or 22.7 per cent and human pharmaceutical and medicinal products decreased significantly by $572.3 million or 5.2 per cent. Table 6.3: Top 1 Changes in Import Value ($213-14) Industry $ s FY 212-13 FY 213-14 Change Seafood Processing 1,351,163 1,657,415 36,252 Fruit and Vegetable Processing 1,827,913 2,75,881 247,968 Cosmetic and Toiletry Preparation 1,263,98 1,459,875 195,895 Polymer Film and Sheet Packaging Material 1,382,782 1,573,175 19,392 Cheese and Other Dairy Product 634,357 815,57 181,213 Confectionery 786,263 958,66 172,343 Other Food Product n.e.c. 1,296,23 1,43,144 16,914 Cleaning Compound 765,569 877,71 112,132 Grain Mill Product 384,69 482,597 97,988 Human Pharmaceutical and Medicinal Product 11,23,399 1,451,111-572,288 28 23 Red Meat Market Report, Meat & Livestock Australia August 214; Australian Cattle Industry Projections 214, Mid-year update, Meat & Livestock Australia, July 214 24 IBISWorld, Industry Report C1841, March 214 29

Australia is negotiating or has a range of trade agreements in place for eight of the top 1 export markets for Australia s food, beverage, grocery and fresh produce. Michael Rogers Manager Agribusiness Forum, AFGC 6.1.1 Food and beverage exports The majority of the defined industry exports continue to be from the food and beverage manufacturing sector, which accounted for 81.1 per cent or $21.9 billion of the industry s total export value in 213-14. Sector exports increased 13.5 per cent over 212-13. Australia had a trade surplus of $8.6 billion for the food and beverage manufacturing sector in 213-14. This was an increase from the real trade surplus of $7.1 billion in 211-12 and $7.6 billion in 212-13. Trade surplus in the food and beverage sector has been growing at approximately 9 per cent Compound Annual Growth Rate (CAGR) over the last four years since 21-11, mainly due to growing exports over the same period. In 213-14 the meat processing, cheese and other dairy product manufacturing and wine manufacturing sectors remained the top export activities in the food and beverage sector. Meat processing exports were $1.5 billion, an increase of 24.5 per cent over the previous year and comprised 47.9 per cent of total food and beverage exports. Prepared animal and bird feed manufacturing exports experienced the largest year-on-year decrease of $258 million or 26 per cent. Insight: Australia s market share of exports to Asia While there have been recent significant increases in food exports to China, it overshadows the fact that Australia s market share in China has continued to decline as a result of the fall in Australia s competitiveness, combined with strong competition from countries such as New Zealand that have signed a Free Trade Agreement (FTA) with China. Market share of China s total food imports 16 14 Key fact Meat processing exports continue to dominate Australia s food and beverage exports at $1.5 billion, an increase of 24.5 per cent over the previous year. Key fact Trade surplus in the food and beverage sector has been growing at approximately 9 per cent CAGR over the last four years mainly due to accelerating growth in exports over the same period. Figure 6.8: Australia s largest food and beverage exports by value ($213-14) 25 12 1 9 8 7 6 5 4 3 2 1 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 Meat Processing Cheese and Other Dairy Product Wine and Other Alcoholic Beverage Grain Mill Product Fruit and Vegetable Processing Prepared Animal and Bird Feed Seafood Processing Other Food Product n.e.c. Oil and Fat Confectionery 12 1 8 6 4 2 1993 1994 1995 1996 1997 Indonesia (%) 1998 New Zealand(%) Source: AFGC analysis of UN Comtrade Database (214): Food market Share. 1999 2 21 22 23 24 25 26 27 France(%) 28 29 21 211 Australia(%) 212 A review of Australia s market share of agri-food exports to six key Asian markets (Japan, Korea, China, Indonesia, Thailand and Malaysia) highlights Australia s declining position relative to other exporters (see graph on page 32). The relationship between Australia s declining global competitiveness and our falling market share is clearly evident. 3 25 Due to changes in ANZSIC classification, cheese and other product manufacturing (26 classification) and other food product manufacturing (26 classification) have replaced dairy product manufacturing n.e.c. and food manufacturing n.e.c. (1993 classification) from 29-1 onwards. As a result, figures prior to 29-1 are not directly comparable.. 31

Insight: Australia s market share of exports to Asia (cont) Australia s falling global competitiveness undermines Food Exports 14 As shown in Figure 6.9, Japan imported 21 per cent of Australian meat products and dairy products in 212-13. The United States was the largest importer of wine and other alcoholic beverage products from Australia in the same year. Figure 6.9: Value of exports and domestic industry turnover for Australia s top three food and beverage exports and share of exports by country ($212-13) Meat processing (%) 12 1 8 6 4 2 5 1 15 2 Australia s Global Competitiveness Ranking) 25 2 15 1 5 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Cheese and other dairy product manufacturing Other 27% United Arab Emirates 2% Indonesia 3% Taiwan 4% Singapore 4% Republic of Korea 1% China 11% Japan 21% United States of America 17% 25 16 26 27 28 29 21 211 212 212 14 Japan 24% Years 12 1 Other 35% Food Market Share in Key Markets (LH scale) Australia s Global Competitiveness Ranking (RH scale) 8 6 China 9% 4 Republic of Korea 3% Singapore 8% Source: AFGC analysis of World Economic Forum (213): Global Competitiveness, & calculations from UN Comtrade Database (214): Food market Share. 2 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Philippines 3% Thailand 4% Indonesia 7% Malaysia 5% Note: Food Market Share in Key Markets is average Australian export share in China, Japan, Korea, Indonesia, Malaysia, and Thailand. Food does not include live animals and bulk grains. Wine and other alcoholic beverage manufacturing Increases in regulation, inflexible labour arrangements, and poor infrastructure are the primary causes of Australia s fall from the top 2 competitive countries in the world (as measured by the World Economic Forum). In 26, Australia was ranked the 16th most competitive economy in the world and had an average 11 per cent market share of food exports in key Asian markets. By 213, Australia had fallen to 21st most competitive country and our market share had fallen to an estimated 6.5 per cent. 8 7 6 5 Singapore 2% Netherlands 4% Other 17% United States of America 26% Michael Rogers Manager Agribusiness Forum, AFGC 4 3 2 1 New Zealand 4% Hong Kong (SAR of China) 4% Canada 9% United Kingdom 21% 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 China 13% Exports Industry turnover 32 33

Key fact Grocery exports continued to be heavily dominated by human pharmaceutical and medicinal products. 6.1.2 Grocery exports Total grocery exports were dominated by the high value of human pharmaceutical and medicinal products ($3.4 billion in 213-14). The exports of the grocery sector as a whole decreased by 12.7 per cent to $4.1 billion in 213-14. Figure 6.1: Value of grocery exports ($213-14) 5 45 4 35 3 25 2 15 1 5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 Human pharmaceutical and medicinal product mfg Cosmetic and toiletry preparation mfg Sanitary paper product mfg Cleaning compound mfg Polymer film and sheet packaging material mfg In 212-13, 41 per cent of domestically produced medicinal and pharmaceutical products and 48 per cent of the cosmetic and toiletry preparation products were exported with China and New Zealand the largest value markets respectively. Figure 6.11: Value of exports and domestic industry turnover for Australia s top grocery exports and share of exports by country ($212-13) Human pharmaceutical and medicinal product manufacturing 12 1 8 6 4 2 Cosmetic and toiletry preparation manufacturing 12 1 8 6 4 2 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Exports Industry turnover Other 31% Hong Kong (SAR of China) 3% China 2% Republic of Korea 14% Malaysia 4% Taiwan 9% Thailand 5% United States New Zealand 8% of America 6% Other 3% Singapore 4% 6.1.3 Fresh produce exports The greatest value of fresh produce exports from Australia was from grape exports, which accounted for 24.3 per cent of total sector exports and increased by 24.7 per cent to $237 million in 213-14. The total value of fresh produce exports increased by 15.8 per cent from 212-13 to 213-14 ($842.4 million up to $975.2 million) primarily driven by expansion in both grape and other fruit and nut exports. China 4% India 4% Malaysia 4% United Kingdom 5% New Zealand 35% Hong Kong SAR of China)8% United States of America 6% 34 35

Figure 6.12: Value of Australia s fresh exports ($213-14) 35 3 25 2 15 1 5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 Fruit growing n.e.c. Grape growing Citrus fruit growing Vegetable growing Stone fruit growing Other fruit and nut growing* Table 6.4 Australia s top 1 import supplier countries ($213-14) Food and beverage Grocery Fresh produce Country $ Country $ Country $ New Zealand 2,2,512 United States of America 2,292,85 United States of America 189,534 United States of America 1,429,415 Germany 1,611,198 New Zealand 15,565 China 965,858 United Kingdom 1,15,81 China 62,46 Thailand 934,982 France 1,52,86 Turkey 28,753 Singapore 795,635 China 1,13,239 No Country Details 22,478 Italy 613,652 Switzerland 75,26 Mexico 15,318 France 528,785 Italy 74,719 Thailand 14,296 Malaysia 521,73 Belgium 598,53 Netherlands 11,259 United Kingdom 477,576 Spain 569,57 Italy 1,743 Argentina 423,935 Ireland 566,788 Peru 1,638 Other 4,46,393 Other 4,566,916 Other 87,749 Total 13,351,816 Total 14,868,38 Total 63,38 *The Other fruit and nut growing category is comprised of the remainder of the exports in the fresh produce sector. 6.2 Imports The total value of industry imports in 213-14 was $28.8 billion, an increase of 6.1 per cent from the real value of imports in 212-13. Fresh produce accounted for only 2.1 per cent of total imports. Food and beverage products comprised 46.3 per cent of total imports. Grocery products were the largest contributor to total imports at 51.6 per cent. Figure 6.13: Australia s imports ($213-14) 3 25 2 15 1 5 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 In 213-14, New South Wales and Victoria, were the two largest importers of food and beverage, groceries and fresh produce at 56.5 and 28.5 per cent respectively. This data represents the first point of entry of imports into Australia and does not take into account interstate shipping of imports. Figure 6.14: Imports into Australia by State and Teritiory (213-14) % 1 9 8 7 6 5 4 3 2 1 Food and beverage Grocery Fresh produce New South Wales Western Australia Tasmania Victoria South Australia Northern Territory Queensland No state details Australian Capital Territory Key fact Fresh produce imports as a share of food and beverage turnover decreased from 8.9 per cent to 7.7 per cent in 212-13. 36 Food and Beverage Grocery Fresh produce In contrast to Australia s top 1 export markets (which are predominantly based in the Asia Pacific region), it is interesting to note that the top 1 import supplier countries across all three product categories includes a number of European countries. However, the United States and New Zealand were the top two supplier countries for imports into Australia. Imports of fresh produce from New Zealand grew by approximately 6 per cent from 212-13. In 212-13 the proportion of imported fresh produce products to the total sector turnover decreased from 8.9 per cent in 211-12 to 7.7 per cent whereas that of food and beverage products increased slightly from 12.3 per cent to 12.5 per cent. Overall, the value of the defined industry imports as a proportion of industry turnover remained almost unchanged at 23.2 per cent in 212-13. 37

Figure 6.15: Imports versus sector turnover ($212-13) 9 8 7 Figure 6.17: Value of imports and domestic industry turnover for Australia s top three food and beverage imports and contribution to imports by country ($212-13) Fruit and vegetable processing 6 7 New Zealand 19% 5 4 6 5 Other 32% 3 2 1 Food and beverage Grocery Fresh produce Turnover (212-13) Imports (212-13) 6.2.1 Food and beverage imports The total value of food and beverage imports in 213-14 was $13.4 billion. Processed fruit and vegetable products remained the largest import category and amounted to $2.1 billion in 213-14 (15.5 per cent of total import value for this sector). Processed seafood accounted for $1.7 billion (12.4 per cent of total import value for this sector). Figure 6.16: Australia s largest food and beverage imports by value ($213-14) 2 4 3 2 1 16 14 12 1 8 6 4 2 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Seafood processing Turkey 2% No Country Details 4% Thailand 6% Taiwan 3% Indonesia 4% United States of America 4% Malaysia 6% Other 16% New Zealand 1% Vietnam 6% Italy 7% China 12% United States of America 11% Thailand 3% China 14% 18 16 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Vietnam 12% 14 Soft Drink, Cordial and Syrup 12 1 8 6 5 Uruguay 2% Germany 2% Switzerland 3% Other 1% 6 4 Italy 3% 4 2 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 3 2 Austria 5% United States of America 8% Singapore 58% Fruit and vegetable processing Oil and Fat 1 New Zealand 1% Seafood Processing Confectionery 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Other Food Product n.e.c. Cheese and Other Dairy Product Imports Industry turnover Soft Drink, Cordial and Syrup 38 ABS data suggests that Australia primarily obtained its processed fruit and vegetable products from New Zealand, China and the United States. It is also noted that processed seafood imports came predominantly from Southeast Asian countries such as Thailand, China and Vietnam. 39

6.2.2 Grocery imports While the grocery sector only accounted for a small part of the defined industry s turnover, it was responsible for 51.6 per cent of the defined industry s imports. This highlights the high dependence on imports to meet the demand for grocery products in Australia. Within the grocery sector, human pharmaceutical and medicinal products continue to be the largest import category, which accounted for 7.3 per cent of total sector imports in 213-14. Overall, grocery imports decreased in real value by.6 per cent from 212-13 to 213-14. The largest absolute change was seen in human pharmaceuticals, which decreased by 5.2 per cent or $572 million. Figure 6.18: Value of grocery imports to Australia ($213-14) 12 1 8 6 4 2 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 Human pharmaceutical and medicinal product mfg Polymer film and sheet packaging material mfg Cosmetic and toiletry preparation mfg Sanitary paper product mfg Cleaning compound mfg Over the past four years, Australia continued to import an increasing proportion of human pharmaceutical and medicinal products and polymer film and sheet packaging material than it produced domestically. In 212-13 imports for human pharmaceutical and medicinal products were valued at 114 per cent of the industry s turnover. The United States of America was a major source of human pharmaceutical and medicinal product imports to Australia. Unlike food and beverage imports, approximately half of the human pharmaceutical and medicinal products were imported from European countries. Figure 6.19: Value of imports and domestic industry turnover for Australia s top grocery imports and contribution to imports by country ($212-13) Human pharmaceutical and medicinal product manufacturing 12 1 8 6 4 2 35 3 25 2 15 1 5 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Polymer Film and Sheet Packaging Material 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 Imports Industry turnover Other 34% Belgium 5% Other 27% Republic of Korea 3% Germany 4% Taiwan 4% Ireland 5% Italy 6% New Zealand 4% Malaysia 9% United States of America 14% France 8% Germany 11% United Kingdom 8% Switzerland 8% Thailand 11% China 25% United States of America 13% 4 41

Key fact Exports and imports in minimally transformed food products increased by 15.8 and 23 per cent respectively in 213-14. 6.2.3 Fresh produce The 213-14 fresh produce figures indicate that there has been a 23 per cent increase in imports of fresh produce. The increase in imports for the sector was spread across all categories except vegetable imports, which decreased by 2.1 per cent. Figure 6.2: Value fresh produce imports to Australia ($213-14) 26 3 25 As noted earlier in Chapter 3 (and in previous editions), unprocessed food and fibre commodities (e.g. wheat, coarse grains, live animals, etc.) not purchased directly by consumers have not been included in industries covered by this report. Therefore, the minimally transformed category is equivalent to the fresh produce sector of the industry definition used in this report. Similarly, substantially and elaborately transformed categories are equivalent to the food and beverage sector of the industry definition. The figures below show the imports and exports of food and beverage products by level of transformation. 15 2 1 5 Exports in minimally transformed food products increased by 15.8 per cent in 213-14 whilst imports also increased by 23 per cent. Overall, trade surplus improved by 5.7 per cent, from $351.8 million to $371.8 million. This improvement was primarily driven by more significant growth in the vegetables and grape growing categories. Figure 6.21: Imports and exports of minimally transformed food products ($213-14) 8 6 4 2 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 Fruit growing n.e.c. Vegetable growing Grape growing Stone fruit growing Citrus fruit growing Other fruit and nut growing* *The Other fruit and nut growing category is comprised of the remainder of the imports in the fresh produce sector. 12 1 8 6 4 2 6.3 Minimally versus substantially and elaborately transformed imports and exports Food and beverage imports and exports can be classified by the degree of transformation the product undergoes prior to consumption. This distinction is reflected in the Australian data published annually by the Australian Government Department of Agriculture in Australian Food Statistics. -2 26-7 27-8 28-9 29-1 21-11 211-12 211-13 213-14 Trade surplus/deficit Exports Imports Australia s food exports and imports are categorised into three main categories: minimally transformed (such as fresh produce); substantially transformed (such as meat, dairy products, sugar, beverages and malt); and elaborately transformed (such as biscuits and confectionary). According to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) a significant proportion of Australia s food exports consists of unprocessed or minimally transformed food products, such as wheat, coarse grains, oilseeds, live animals and fish and shell fish, which have relatively low unit values. In contrast to Australia s food exports, the substantially and elaborately transformed products with much higher unit values comprise most food imports. The substantially and elaborately transformed food products typically comprise processed meat, processed seafood, dairy, processed fruit and vegetables, oil and fat, flour mill and cereal food, bakery products, sugar and confectionary. 42 26 The other fruit and nut growing category in the 26 ANZSIC classification does not include Citrus Fruits which signify a large proportion of the value of the fruit growing n.e.c. category in the 1993 ANZSIC classification. 43

Key fact Trade surplus in substantially and elaborately transformed food products increased by 12.8 per cent during 213-14. Trade in substantially and elaborately transformed food products (essentially the food and beverage sector) is at much higher levels than those of minimally transformed food products (the fresh produce sector). Exports in substantially and elaborately transformed food products increased by 13.5 per cent during 213-14, while imports also increased by 13.9 per cent. Overall, trade surplus increased significantly by 12.8 per cent from $7.6 billion to $8.6 billion. This was primarily driven by growth in exports of meat and meat product manufacturing sector. Trade surplus in substantially and elaborately transformed food products has been growing at approximately 9 per cent annually over the last four years mainly due to growing exports across the same period. Trade in substantially and elaborately transformed food products (essentially the food and beverage sector) is at much higher levels than those of minimally transformed food products (the fresh produce sector). Figure 6.22: Imports and exports of substantially and elaborately transformed food products ($213-14) Insight: Trade Negotiations With 6 to 7 per cent of Australia s agri-food production exported to foreign markets, international trade is a critical element for the Australian food, beverage and agribusiness sector. Rising incomes, changes in diet and increasing population across Asia continue to provide significant demand for imported food, including from Australia. While some companies may not be directly engaged in international trade, the activities of their Australian competitors can also have a significant influence on the Australian market. Australia is negotiating or has a range of trade agreements in place for eight of the top 1 export markets for Australia s food, beverage, grocery and fresh produce. The Abbott Government s election commitment to conclude the three North Asia trade agreements (Korea, Japan, and China) was welcomed by a wide range of industry players. Australia food exports to Korea, Japan and China were valued at more than $7 billion in 213-14. 1 Rank Country $m, 213-14 27 Trade Agreements United States of America 2 Japan 2,974,111 3,185,232 Bilateral Agreement in place. Also negotiating the Trans Pacific Partnership. Final Agreement being considered by Parliament. Also negotiating the Trans Pacific Partnership. 3 China 2,834,329 Bilateral agreement under negotiation. 25 2 15 1 4 Republic of Korea 5 New Zealand 1,866,474 6 Singapore 1,244,185 7 Hong Kong (SARof China) 2,42,18 Final Agreement being considered by Parliament. 1,99,92 Long standing bilateral agreement in place. Covered by the ASEAN Australia New Zealand Free Trade Agreement (AANZFTA). Also negotiating the Trans Pacific Partnership. Covered by the ASEAN Australia New Zealand Free Trade Agreement (AANZFTA). Also negotiating the Trans Pacific Partnership. 8 Taiwan 92,681 Negotiations with Taiwan a possibility over the medium term. 5 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 Trade surplus Exports Imports 9 Vietnam 879,621 1 Indonesia 849,13 Covered by the ASEAN Australia New Zealand Free Trade Agreement (AANZFTA). Also negotiating the Trans Pacific Partnership. Covered by the ASEAN Australia New Zealand Free Trade Agreement (AANZFTA). A bilateral agreement is under negotiation. The agreements negotiated with Korea and Japan are currently under consideration by the Australian Parliament. Trade negotiations with China continue with both the Australian and Chinese Governments publicly stating their intention to finalise an agreement this year. The Trans Pacific Partnership negotiations 28 continue with a stated goal to finalise an agreement in 214. A comprehensive and liberalising agreement has the opportunity to unlock international trade in the region. The Regional Comprehensive Economic Partnership negotiations 29 have recently begun with the expectation of relatively lengthy negotiations given the range of negotiating parties. Australia s bilateral trade negotiations with India and Indonesia are underway with opportunity for industry input as the scope of the agreements continue to develop. In the World Trade Organization (WTO), an agreement to implement a range of measures which would simplify customs and border procedures for all countries unravelled in July 214. The WTO and current multilateral agreements remain the framework for global trade, including the foundation of free trade agreements, however the ongoing difficulty to reach any new agreement is becoming a serious problem for the international trading system. With the expectation of new bilateral trade agreements in place with Korea, Japan and China in 215, the challenge for companies will be to unlock the commercial benefits from these agreements. The AFGC Market Reports (see separate insight) are an effort to identify the opportunity in key markets however there are also opportunities for Australian companies to better utilise the gains made under current and future trade agreements. While trade agreements can provide reductions in tariffs and the removal or expansion of quotas, a broad range of other issues have been identified as barriers to trade (including regulation, labelling, and differing procedures). These issues are broadly characterised as non-tariff measures. Across industry and government there is increasing recognition that these issues need to be addressed to support greater international trade. The AFGC continues to develop expertise and engagement on the wide range of international trade issues. The AFGC welcomes input from individual companies which supports industry advocacy to government. Implementation of the new bilateral trade agreements will be an exciting opportunity for companies to review export markets and take advantage of new market access openings. Michael Rogers Manager, Agribusiness AFGC 44 27 These figures refer to the total exports to the top 1 destinations for the defined industry and should not be confused with Table 6.1 which includes the Top 1 export destinations for each sector. 28 Between Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam 29 Australia, Brunei, Cambodia, China, India, Indonesia, Japan, Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam 45

7 EMPLOYMENT Key fact In 212-13, the defined industry contributed 33.7 per cent of all jobs in the manufacturing industry. Key fact The food and beverage, grocery and fresh produce industry employed more people than the mining and transport equipment manufacturing industries combined. The food and beverage, grocery and fresh produce industry in Australia employed 299,731 people in 213-14, a decrease of.9 per cent or 2,571 employed people compared to the previous year. Employment 3 in the defined industry has decreased by 2,571 people or.9 per cent from 212-13 to 299,731 people in 213-14. The largest number of jobs were located within the food and beverage manufacturing sector, which employed 22,5 people. This was followed by the fresh produce sector which employed 48,936 people and the grocery sector with approximately 3,295 employees. Figure 7.1: Employment in each of the industry sectors 31 Employed persons (') 35 3 25 2 15 1 5 More than half of all jobs were located in New South Wales (27 per cent) and Victoria (31 per cent), followed by Queensland (16 per cent) and South Australia (13 per cent). However, the share of New South Wales and Victoria declined from a combined 61 per cent in 212-13 to approximately 58 per cent in 213-14. Figure 7.3: Employment by State/Territory Employed persons at end of May quarter 214 (') 12 1 8 6 4 2 NSW VIC QLD SA WA TAS NT ACT Food and beverage Grocery Fresh produce Source: Based on ABS catalogue number 6291. (data approximated at three digit ANZSIC6 code level) 26-7 26-8 28-9 29-1 21-11 211-12 212-13 213-14 Food and beverage Grocery Fresh Source: Based on ABS catalogue number 6291. and IBISWorld Reports C1524, C1841, C1851, C1852, C1911, A122, A123, A13, A131, A139, A172) In 212-13 the food and beverage, grocery and fresh produce industry employed more people than the mining and transport equipment manufacturing industries combined and contributed 33.7 per cent of all manufacturing industry jobs. Figure 7.2: Employment in select Australian sectors (212-13) Number of employed persons at the end of June (') 1 8 6 4 2 Approximately 45 per cent of all employed persons in the defined industry worked in non-metropolitan areas in 213-14 declining from 49 per cent the year before. Figure 7.4: Employment by State/Territory and by metro vs. non-metro area Number of employed persons at end of May quarter 214 (') 1 8 6 4 2 NSW VIC QLD SA WA TAS NT ACT Metro Non-Metro Source: Based on ABS catalogue number 6291. (data approximated at one digit ANZSIC6 code level) Key fact Approximately 45 per cent of all employed persons in the defined industry work in non - metropolitan areas. Food, grocery and fresh Total manufacturing sector Mining sector Transport equipment manufacturing Education and training (private) Arts and recreation services Agriculture, forestry and fisheries Source: Based on ABS, Catalogue number 6291., 8155. and IBISWorld Reports C1524, C1841, C1851, C1852, C1911, A122, A123, A13, A131, A139, A172 46 3 Employment refers to the number of all persons employed irrespective of whether they are full-time, part-time or casual employees. 31 Food and beverage employment was recorded as of May 214. 47

7.1 Food and beverage The food and beverage sector employed approximately 22,5 people across Australia in 213-14, accounting for almost three-quarters of the defined industry. This constituted a.7 per cent decrease relative to 212-13. Meat and meat processing industry contributed approximately 45,8 jobs during 213-14, approximately 3,2 less than in 212-13. Dairy product contributed 14,4 jobs during 213-14, a decline of 5,6 compared to the previous year. Figure 7.5: Employment by product category in the food and beverage sector 32 Number of employed persons at the end of June ( s) 25 2 15 1 5 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 Meat and meat product manufacturing Dairy product manufacturing Oil and fat manufacturing Bakery product manufacturing Other food product manufacturing Food product manufacturing, nfd Seafood processing Fruit and vegetable processing Grain mill and cereal product manufacturing Sugar and confectionery manufacturing Beverage manufacturing Source: Based on ABS catalogue number 6291. (data approximated at three digit ANZSIC6 code level) 7.2 Grocery The grocery sector employed approximately 3,295 people in 213-14, which was.8 per cent less than the previous year. Human pharmaceutical and medicinal product manufacturing accounted for the largest proportion of employment in the grocery sector, employing about 14,35 people or 47.4 per cent of the total number of people working in the grocery sector in 213-14. Whilst employment in cleaning compound manufacturing decreased 2.8 per cent, employment in the polymer film and sheet packaging material manufacturing sector and sanitary paper product manufacturing grew by 1.5 per cent and.4 per cent respectively. Figure 7.6: Employment by product category in the grocery sector Number of employed persons at the end of June ( s) 4 3 2 1 26-7 27-88 28-9 29-1 21-11 211-12 212-13 213-14 Sanitary paper product mfg Human pharmaceutical and medicinal product mfg Cleaning compound mfg Cosmetic and toiletry preparation mfg Polymer film and sheet packaging material mfg Source: Based on IBISWorld Reports C1524, C1841, C1851, C1852, C1911 7.3 Fresh produce In 213-14 approximately 48,936 persons were employed within the fresh produce sector. This was 1.7 per cent less than at the end of 212-13. Although the fresh produce sector was the smallest contributor (5.5 per cent) to the total industry s turnover, it provided a significant 16.3 per cent of all jobs within the industry, which was more than the grocery sector. Vegetable growing, tropical and citrus fruit growing, and grape growing contributed the largest number of jobs in the fresh produce industry. The majority of the reduction in jobs in fresh produce can be attributed to the grape growing sub-sector (a decline of 4.1 per cent), primarily due to year to year fluctuations, difficult growing conditions and consolidation of the industry. Figure 7.7: Employment in the fresh produce sector Number of employed persons at the end of June ('s) 6 5 4 3 2 1 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 Vegetable growing Citrus, banana and other fruit growing Egg farming Apple, pear and stone fruit growing Grape growing 33 Source: Based on IBISWorld Industry Reports A122, A123, A13, A131, A139, A172 48 32 Food and beverage employment was recorded as of May 214. 33 IBISWorld consolidated reporting of two of its previous categories: Stone Fruit Growing and Apple and Pear Growing into one report called Apple, Pear & Stone Fruit Growing published in February 213. 49

Key fact The total value of food and beverage wages and salaries in 212-13 was $12.1 billion, an increase of.3 per cent over 211-12. 7.4 Wages and salaries As shown below in Figure 7.8, the total value of food and beverage wages and salaries in 212-13 was $12.1 billion, a marginal.3 per cent increase from 211-12. The biggest contributor was the meat and meat product manufacturing segment, followed by bakery product manufacturing. Figure 7.8: Wages and salaries paid by product category in the food and beverage sector ($212-13) 14 12 Figure 7.9: Wages and salaries paid in the grocery sector ($212-13) 3 25 2 15 1 1 8 6 4 2 28-9 29-1 21-11 211-12 212-13 Meat and meat product mfg Fruit and vegetable processing Grain mill and cereal product mfg Sugar and confectionery mfg Other food product mfg Beer mfg Dairy product mfg Oil and fat mfg Bakery product mfg Seafood processing Soft drink, cordial and syrup mfg Wine & other alcoholic beverage mfg Source: Based on ABS Catalogue Numbers 8155., 8159. 5 28-9 29-1 21-11 211-12 212-13 Sanitary paper product mfg Cleaning compound mfg Polymer film and sheet packaging material mfg Source: Based on ABS Catalogue Number 8155. and 8159. Human pharmaceutical and medicinal product mfg Cosmetic and toiletry preparation mfg The fresh produce sector increased the total level of wages and salaries from $1.82 billion in 212-13 to $1.84 billion in 213-14. The vegetable growing subsector recorded the largest increase of 5.9 per cent, with a 3.7 per cent decrease in the apple, pear and stone fruit growing sector. Figure 7.1: Wages and salaries in the fresh produce sector ($213-14) 2 Wages and salaries within the grocery sector decreased by 4.2 per cent to $2.5 billion in 212-13. The human pharmaceutical and medicinal product manufacturing sector remained the biggest contributor, responsible for approximately 56 per cent of the overall total wages and salaries in the grocery sector 15 1 5 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 Vegetable growing Citrus, banana and other fruit growing Egg farming Apple, pear and stone fruit growing Grape growing Source: Based on IBISWorld Industry Reports A122, A123, A13, A131, A139, A172 5 51

8 CAPITAL EXPENDITURE AND R&D It is estimated that the food processing machinery manufacturing industry revenue grew from $965 million in 27-8 to $1.9 billion in 212-13, a compound annual growth rate of 2.4 per cent. 8.1 Food processing machinery manufacturing in Australia 34 The food machinery manufacturing industry provides a proxy for the level of capital expenditure by the food and beverage industry. This industry comprises a wide range of food products manufactured in Australia, such as ovens, distilling equipment, canning and bottling machinery, cooling and freezing plants. It is estimated that the food processing machinery manufacturing industry revenue grew from $965 million in 27-8 to $1.9 billion in 212-13, a compound annual growth rate of 2.4 per cent. However, the industry has been subject to fluctuations over time. For example, growth of 6.4 per cent in 21-11 followed revenue declines of.2 and 2.6 per cent in 27-8 and 28-9 respectively when the global recession took its toll on demand for machinery and equipment. Employment increased at a faster pace growing by 19.8 per cent over the five years to 212-13, which included a marginal expansion of.3 per cent in the difficult year of 28-9 (see Table 8.1). As shown in Table 8.1, revenue is expected to grow at a compound annual growth rate of.6 per cent over the five years through 217-18 to a total of $1.12 billion. The forecast growth rate is based on observed trends such as increasing technological advancement, higher automation, downstream price increases, economic recovery over the next five years, introduction of new products and consolidation required in the industry to make new technological investments economically viable. Table 8.1: Food Processing Machinery in Australia actual and projected data 35 FY Revenue ($m) IVA ($m) Establishments Enterprises Employment Exports ($m) Imports ($m) Wages ($m) Domestic demand ($m) 24-5 921.9 282. 57. 486. 363. 194.8 99.9 199.5 1637. 25-6 927.6 292.7 495. 467. 289. 256.7 93.6 197.7 161.5 26-7 895.7 288.5 474. 447. 2827. 252.3 123.9 166.7 1667.3 27-8 965.3 293.4 48. 452. 2926. 24.5 786.5 173.8 1511.3 28-9 94. 294.2 473. 445. 2936. 178.5 888.6 176.8 165.1 29-1 938.4 3.3 466. 437. 2935. 187.8 73.5 188.2 1481.1 21-11 998.7 288.6 472. 443. 316. 166.8 725.9 199.2 1557.8 211-12 136.7 37.9 477. 447. 3443. 167.2 729. 215.8 1598.5 212-13 187. 326.1 479. 449. 355. 173.4 763.7 225. 1677.3 213-14 113.4 337.6 476. 445. 3589. 171.8 764.4 221.8 1696. 214-15 1125. 348.7 475. 444. 3639. 174.4 784.9 225. 1735.5 215-16 1153.1 355.6 479. 447. 3717. 178.7 812. 227.5 1786.4 216-17 1143.9 343.2 477. 442. 368. 163.9 739.5 225.9 1719.5 217-18 1117.6 342.9 48. 445. 3632. 165.8 816.6 223.9 1768.4 218-19 1159. 353.9 483. 448. 3696. 162.8 83.8 23.4 1827. 8.2 Capital investment (based on gross fixed capital formation 36 ) Capital investment in the food, beverage and tobacco product manufacturing 37 industry flat lined at $3.1 billion in 212-13 increasing only by a marginal.3 per cent from 211-12. Capital investment in food product manufacturing decreased 3.5 per cent from $2.5 billion to $2.4 billion. Capital investment in beverage and tobacco product manufacturing increased 16.2 per cent from $589.5 million to $685 million. Figure 8.1: Gross fixed capital formation ($212-13) 35 3 25 2 15 1 5 28 9 29 1 21 11 211-12 212 13 Food product manufacturing Beverage and tobacco product manufacturing* * The split between beverage and tobacco product manufacturing was not available. Source: Based on ABS catalogue number 8155. 8.3 Research and development In 211-12 the total amount spent in the food and beverage sector on research and experimental development was $541.8 million, an increase of 5.4 per cent over the previous year. The sub-sector with the largest expenditure on R&D was the dairy product manufacturing sector ($19.3 million), followed by meat and meat product manufacturing with $95.9 million. Significant growth was recorded in the sugar and confectionery manufacturing segment where estimated R&D expenditure rose by 56.1 per cent from $26.7 million to $41.6 million, while most other segments recorded a decline over the same period. The research projects supported by the Industry Transformation Training Centre (ITTC) address the specific scientific and technical objectives of the participating companies and train researchers to a business ready standard. Geoffrey Annison PhD. Deputy Chief Executive, AFGC Key fact Capital investment in food product manufacturing declined by 3.5 per cent from $2.5 billion to $2.4 billion. Source: IBIS World Industry Report C2469, Food Processing Machinery in Australia, September 213 52 34 An updated IBISWorld report for the Food Processing Machinery in Australia was not available for 214, therefore, the industry report C2469, September 213 has been re-used for Section 8.1 this year. 35 IBISWorld, 213, Industry Report C2469, September 213; Figures are inflation adjusted 214 dollars 36 Gross fixed capital formation is measured by the total value of a producer s acquisitions, less disposals, of fixed assets during the reference period, plus certain additions to the value of non-produced assets realised by the productive activity of businesses. It excludes intangible assets. 37 The split between beverage and tobacco product manufacturing was not available. 53

Key fact The total amount spent in the food and beverage sector on R&D was $541.8 million in 211-12, an increase from the $513.9 million in 21-11. Figure 8.2: Research and experimental development in the food and beverage sector ($212-13) 38 6 48 36 24 12 26 7 27 8 28 9 29-1 21 11 211 12 Meat and meat product mfg Dairy product mfg Oil and fat mfg Bakery product manufacturing Other food product mfg Wine and other alcoholic beverage mfg Source: Based on ABS, catalogue number 814. Seafood processing Fruit and vegetable processing Grain mill and cereal product mfg Sugar and confectionery mfg Soft drink, cordial and syrup mfg The table below outlines the published information on R&D for selected sectors. Insight: Australia Research Council Funding Innovation Food In 213 the AFGC in partnership with the University of Queensland was successful in securing funding from the Australian Research Council (ARC) to establish an Industry Transformation Training Centre (ITTC). The Centre, which is called Agents for Change, in partnership with a number of AFGC member companies supports 13 post-graduate and post-doctoral research projects in various food science and technology disciplines. The research projects, apart from addressing the specific scientific and technical objectives of the participating companies, are designed to train researchers to a business ready standard. They, in turn, will have the potential to move into the industry and become the high-calibre technical leaders required by food companies to maintain competitiveness through the coming decades. The Centre also builds on the AFGC/UQ partnership which commenced in 212 and directly supports better undergraduate student training in food science and technology. The ARC also awarded funds for the establishment of a number of other ITTCs including 1) at the University of Adelaide the Innovative Wine Production centre responding to climate change, water, market and economic challenges; 2) at Macquarie University the Molecular Technology Platform centre for enabling the next revolution in the food industry and 3) at the University of New South Wales the Advanced Technologies in Food Manufacture centre assisting Australia food processors to meet the increasing threats of international competition. The ARC sister program Industrial Transformation Research Hubs provided further funding for innovation in the food sector through 1) at the University of Melbourne a Dairy Innovation Hub for transformational research to underpin the future of the Australian diary manufacturing industry; 2) at the University of Auckland a Commercial development of Rock Lobster Culture Systems hub to support lobster aquaculture research; 3) at the University of Tasmania a Pathways to Market hub for transforming food industries through sensing, provenance and choice; and 4) at the University of Melbourne an Unlocking the Food Value Chain hub which will exploit new markets in ASEAN countries. Geoffrey Annison PhD. Deputy Chief Executive, AFGC Table 8.2: Industry R&D selected examples ($212-13) ANZSIC 21-11 211-12 26 Industry Code R&D ($m) R&D/Turnover R&D ($m) R&D/Turnover 111 Meat and meat product manufacturing 134.3.7% 95.9.4% 113 Dairy product manufacturing 14.1.8% 19.3.9% 114 Fruit and vegetable processing 39.9.7% 39.3.7% 116 Grain mill and cereal product manufacturing 52.7 1.% 32.7.6% 117 Bakery product manufacturing 49.2.6% 33.2.4% 118 Sugar and confectionary manufacturing 26.7.3% 41.6.5% 119 Other food product manufacturing 82.5.9% 17.8 1.% 1211 Soft drink, cordial and syrup manufacturing..% 6.4 1.2% 1214 Wine and other alcoholic beverage manufacturing 24.6.5% 21.6.4% 1841 Human pharmaceutical and medicinal product manufacturing 347.2 3.8% 38.3 4.% Source: ABS, catalogue number 814. 54 38 ABS notes that change in frequency of the Survey of Research and Experimental Development, Businesses from annual to biennial following the 211-12 cycle. Therefore updated data for catalogue 814. for 212-13 is not available. However, the data has been inflation adjusted for 213 dollars.s 55

APPENDICES Insight: Emerging Technology and changing consumer interface Technological and digital innovations are starting to transform, and in some cases even disrupt, the fast moving consumer goods (FMCG) and retail industry. This is leading to an exponential pace of innovation and change, impacting how, where and when we shop, how we engage with shoppers and consumers, the way we work across the value chain and how we develop responsive, agile and flexible supply chains to meet the demands. Locally and globally, FMCG is entering a period of rapid expansion of new channels to market and insight into shopper behaviours and preferences driven by technological innovation. The ways in which shoppers interact with retailers and brands will change fundamentally and at an ever increasing speed. Supply chains will be significantly and radically impacted, and a one size fits all supply chain approach will not be effective. Efficient, responsive and agile supply chains to service a multi/omni-channel approach to retailing will be required. In global terms, the United Kingdom (UK) has the highest level of penetration for online grocery shopping at this time, with 4 per cent share - forecast to rise to 6 per cent in 216. It should be noted however, that shares are averaged across a country and will vary considerably by region some centres in the UK have greater than 1 per cent 39 penetration of online grocery sales. Comparatively, Australia currently has only 1 per cent 4 penetration level of online sales. Even though Australia has a relatively low density of population, a large proportion of the Australian population dwells in a few major cities. Australians have also been quick to embrace smart phone technologies giving rise to the opportunity to scale for online grocery retailing in targeted areas. We anticipate further growth in online grocery retailing in the coming years. In consideration of these developments, AFGC conducted a member workshop in May 214 in Sydney and subsequently released a report to its membership entitled Emerging Retailer and Shopper Technologies and Trends based on workshop discussions and findings. The AFGC will continue to review the broader industry challenges and provide opportunities for its members to debate and discuss the impacts of multi/omni channel retailing and of the underpinning shopper and retail technologies. John Cawley Associate Director, Supply Chain & ECRA Australian Food and Grocery Council 56 39 A.T. Kearney 4 Ibid 57