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Food and grocery manufacturing profitability has fallen from $8 billion to $5 billion over the last decade, leaving businesses at a “tipping point where they need to pass some of these costs through in order to remain viable,” Australian Food and Grocery Council CEO Tanya Barden OAM has told a CEDA forum.
Speaking on a panel about the outlook for global supply chains, Ms Barden predicted that inflation figures would reach double-digits by the middle of the year, presenting a growing challenge to industry profits.
“Over the last decade, food and grocery manufacturers have been really constrained in their ability to be able to pass through costs because of the retail concentration we have in Australia,” Ms Barden said.
While it was important to ensure vulnerable consumers remained protected through the support of organisations such as Food Bank, other consumers are making the decision to trade down from premium to lower value products , Ms Barden said.
“We have a huge diversity of suppliers in food and groceries, so consumers will just need to shop around more and be conscious of what specials are available, whether they want to buy premium or value products, because I think this is going to get worse before it does get better.”
The panel, moderated by CEDA Chief Economist Jarrod Ball and comprised of Ms Barden, Damien Bruckard (Head of Global Engagement at the International Chamber of Commerce) and Associate Professor Matthew Pepper (School of Business, University of Wollongong) were in firm agreement that supply chains needed to improve flexibility.
As volatility, uncertainty, complexity and ambiguity (VUCA) increased, businesses needed to shift away from ‘just-in-time’ models that struggled to adapt quickly to changing circumstances, Prof. Pepper told the panel. Instead, businesses needed to diversify and simplify their own supply chains while also embracing more efficient technologies, such as digitisation, he said.
Mr Bruckard told the panel that governments could facilitate the process by investing in improved road, rail and port infrastructure domestically and committing to open trade settings internationally.
“We see a case for governments to double down on the trade agenda. Those alternative approaches that we saw during COVID-19 – export bans on PPE, on vaccine production – it was disastrous, it just didn’t work and it can cost lives,” he said.