Trade imbalance?

Food industry chiefs have repeated their calls for urgent attention from the Governments about the state of the trade balance in the food and grocery industry, with the release last week of the peak grocery manufacturer Australian Food and Grocery Council’s (AFGC) annual “state of the industry” document. AFGC sounded the alarm bells on the state of the trade balance, which for the first time has seen Australia slip to be a net importer of food and groceries.

AFGC is a peak body for food manufacturers. It represents companies that import the grocery raw materials, ingredients and processed food items, and so is effectively calling for the government to do something to correct the practices of its own members!

The release led to quite a bit of mis-reporting of the state of the food industry itself, due to a confusion in several reports of all that is “grocery” is not necessarily “food”. Food and groceries also includes medical and pharmaceutical products, of which we are net importers to the tune of $5.3billion. In non-food groceries, we have a total trade deficit of just over $8billion, which has in fact slipped out only $1billion in the past 5 years.

These are manufactured products. It is a bit late for a wake-up call that Australia is uncompetitive in grocery and consumer goods manufacturing.

Let’s be clear about what the numbers actually show. The figures are for processed foods only, so commodities such as bulk grains and livestock exports are excluded. Australia was a net exporter of processed food and beverages to the tune of about $5.4billion in the year to June 2010. But the size of that trade surplus has been gradually coming down, and was more than $10billion five short years ago. Imports of food and drinks have been rising at the average rate of 6% for that period, while exports have been knocked around in 2010 by our stronger dollar, and prior to that by drought. Volumes have declined slightly.

The news is not all bad. The value of dairy exports fell sharply in 2009/10 because the Australian dollar was about US20c higher than it was in the previous year. Dairy exports held up in the prior couple of years with high commodity prices, despite a small decline in exportable volumes as drought cut production. The value of beef exports was also hit by the dollar, lower beef production and lower processing throughput – ironically because a lot of rain in the major northern production areas slowed cattle getting to markets. Wine exports also fell with the glut conditions in world markets, while prices to Australian exporters of wine have been declining for many years as more of the world’s trade becomes commoditised and is forced to compete with cheap producers.

The weaker spots are horticulture, seafood and other processed foods, where the reliance on imports are increasing. Processed fruit and vegetable exports have gradually increased over the past 5 years – the trouble is the imports of these lines have expended at a faster pace. And we can’t catch anywhere near enough seafood to feed Australia.

The AFGC report is worth a read, but much of the analysis in the book about changing values of industry sectors is based on two-year-old numbers. If Governments are to do something better for the food industry, quicker numbers would be a start!