tag:theconversation.com,2011:/au/topics/spc-ardmona-5694/articlesSPC Ardmona – The Conversation2014-04-23T04:35:22Ztag:theconversation.com,2011:article/252612014-04-23T04:35:22Z2014-04-23T04:35:22ZNo-frills alternatives are helping our favourite brands survive<p>Only a few years ago jokes about home brand products were quite common. Having a blue and white or red and white dinner meant enjoying generic brand fare that night around the table. </p>
<p>But the recent intensification of <a href="http://www.bandt.com.au/features/coles-vs-woolworths-the-battle-of-the-mega-marts">the supermarket wars</a> has seen the introduction of more sophisticated and aggressive branding strategies by Coles and Woolworths. </p>
<p>Most recently the retail war went to another level with Woolworths signing a <a href="http://www.stockandland.com.au/news/agriculture/agribusiness/general-news/woolies-signs-threeyear-bread-deal/2695567.aspx">3 year private label bread deal with current private label supplier George Weston Foods</a>, which gives both supplier and retailer more certainty in their marketing and operations strategies. </p>
<p>The supermarket war has never just been about the market share held by Coles and Woolworths. It has also been the perfect opportunity for the retailers to attack premium or name brands by introducing several brands in many categories. </p>
<p>And brand name producers, aware of the growing difficulties of competing against supermarkets, are quietly tweaking their business models.</p>
<p>More recently introduced generic products look and taste nearly the same as the premium brand offerings, but with a significant price advantage. In other words, they are <a href="http://journals.ama.org/doi/abs/10.1509/jmr.11.0467">copy cats</a>, trying to take advantage of the <a href="http://onlinelibrary.wiley.com/doi/10.1002/9780470479216.corpsy0481/full">minor but noticeable difference</a> and the differential threshold that exists in all of us and in all <a href="http://www.animal-science.org/content/75/6/1521.short">products we consume</a>. That is, if we can notice this difference, then we will probably also notice the difference in price, product, place and promotion between brands as well. </p>
<p>The supermarkets aim to steal market share from premium bands and move to an overall market share of roughly 20-25% for home brand products in each category. Some <a href="http://www.afgc.org.au/2020-industry-at-a-crossroads-report.html">have predicted this may even rise to 40-50% by</a> 2020. </p>
<p>This would mean billions in new revenue for the supermarkets, and with an increased market share, more influence to put pressure on the margins of the name brands. The viability of name brands depends on wide profit margins – <a href="http://www.smh.com.au/business/heinzs-pain-is-online-retails-gain-20111122-1nsdh.html">if they go so can entire product lines</a>. </p>
<p>Without that profit, these companies are not able to invest in new production technologies, premium product ingredients or the marketing that helps differentiate their brands from others.</p>
<h2>Don’t fight it, feel it</h2>
<p>Name brand producers are now realising that home brands will not cede market share quickly. Competing directly with new premium home brand offerings could mean a lengthy price war with an uncertain result. </p>
<p>Instead, another solution has dawned: the business model is being adapted to accommodate making home brand products for supermarkets and then offering a premium brand.</p>
<p>By controlling the production of the home brand, these producers can also make sure it tastes significantly different to the premium brand offering, which makes up most of their market share. Some consumers will always prefer, and pay for, the taste of the name brand over that of the home brand.</p>
<p>Producers make money two ways – profits on margin and profits on turnover. Rarely is both possible. But by producing the supermarkets’ home brand products alongside its premium offering, name brand manufacturer can make the margin profit on the name brand product, keep the brand value high on the books, and make a nice profit from a high volume, low margin strategy on the home brand product. </p>
<p>This model makes it difficult for other name brand producers to knock the company out of the market because of the strength in volume and in margins, even if the margin strategy is essentially a niche offering.</p>
<p>This means supermarkets are now some producers’ best friends, giving them the opportunity to not just access the market but to also make profit two ways without harming the name brand.</p>
<h2>Such good friends</h2>
<p>For supermarkets, this change has meant a greater control in the supply chain than ever before as suppliers now no longer see them as competitors but very valuable customers. They can start raising the margins and volume as new generic brand product lines are introduced, stretching further and deeper into key categories. </p>
<p>This makes home brands very valuable customers of the suppliers. Retail outlets with already very small market share such as Aldi and Metcash, will be placed under further pressure on prices as the larger retailers can use volume and margin to target them, even if they introduce their own generic brands or use unknown brands to take market share at the low end of the price spectrum. </p>
<p>Core ingredient suppliers like farmers will also feel sustained pressure on their own margins as long-term contracts give very little room to move and not much incentive to invest in their business operations.</p>
<p>Then there is the danger of the taste between name and home brands no longer being able to be discerned or noticed by consumers, which would mean at the end of the day that price would probably win and therefore the home brands would obliterate most of the share of the name brands. </p>
<p>And for us humble consumers? Well whilst we still remain loyal to the name brands by nearly two thirds, more and more are willing to put up with a “close enough is good enough approach” that will see the continued growth of the generic brands.</p><img src="https://counter.theconversation.com/content/25261/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Hughes does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Only a few years ago jokes about home brand products were quite common. Having a blue and white or red and white dinner meant enjoying generic brand fare that night around the table. But the recent intensification…Andrew Hughes, Lecturer, Research School of Management, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/228502014-02-16T19:13:08Z2014-02-16T19:13:08ZSPC Ardmona’s bailout is crucial given China’s food safety record<figure><img src="https://images.theconversation.com/files/41542/original/nsmmmp2y-1392353282.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">In 2008, Chinese baby formula and milk products were tainted
with melamine, killing six babies and hospitalising many more.</span> <span class="attribution"><span class="source">EPA/Wu Hong</span></span></figcaption></figure><p>SPC Ardmona’s <a href="http://www.abc.net.au/news/2014-02-13/victorian-government-announces-package-for-spc-ardmona/5257564">$22 million lifeline</a> from the Victorian government seems to have saved Australia’s largest food packaging company.</p>
<p>Yet the firm’s <a href="http://ccamatil.com/InvestorRelations/ASX/2014/SPCA%20announcement.pdf">recent tribulations</a> are a reminder of why I regularly choose to buy products at the supermarket that are more expensive than the alternative. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/41554/original/dsvkhvv2-1392362420.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/41554/original/dsvkhvv2-1392362420.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=388&fit=crop&dpr=1 600w, https://images.theconversation.com/files/41554/original/dsvkhvv2-1392362420.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=388&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/41554/original/dsvkhvv2-1392362420.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=388&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/41554/original/dsvkhvv2-1392362420.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=487&fit=crop&dpr=1 754w, https://images.theconversation.com/files/41554/original/dsvkhvv2-1392362420.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=487&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/41554/original/dsvkhvv2-1392362420.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=487&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Local produce: Victorian workers and politicians have rallied behind the SPC brand.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>One reason is that Australian food standards are generally world-class when it comes to the amount of contamination allowed from metals such as lead and cadmium. Although it is not always possible to police this perfectly, these standards allow a high degree of confidence that Australian food is free from contamination.</p>
<h2>Contamination issues</h2>
<p>The story is different elsewhere. In China, for example, the past decade has seen a host of food-contamination issues. Besides the notorious <a href="http://www.scientificamerican.com/blog/post/why-is-melamine-in-baby-formula-you-2008-09-24/">melamine baby formula scandal</a>, there were also rice products with <a href="http://online.wsj.com/news/articles/SB10001424127887324787004578494583962413470">toxic levels of cadmium</a>, and vegetables tainted with <a href="http://www.scmp.com/news/china/article/1267541/heavy-metals-poison-vegetables-pearl-river-delta">other industrial heavy metals</a> such as lead, chromium, zinc and nickel. </p>
<p>In March last year, up to <a href="http://www.theguardian.com/world/2013/mar/29/dead-pigs-china-water-supply">16,000 diseased pig carcasses</a> were found rotting in Shanghai’s Huangpu River, after a crackdown on black-market sales of substandard meat prompted the animals’ owners to dump them. </p>
<p>There have also been fears over <a href="http://www.scmp.com/article/440079/firm-uses-human-hair-soya-sauce-breakthrough">soy sauce made using human hair</a>, and slaughtered sheep <a href="http://www.news.com.au/lifestyle/food/pond-water-injected-into-chinese-sheep/story-fneuz8wn-1226796188856">injected with filthy pondwater</a> to boost the weight of the meat.</p>
<h2>Rapid growth, but at what cost?</h2>
<p>Last year, my colleagues and I released a <a href="http://sydney.edu.au/arts/ciss/downloads/CISS_Food_Security_Policy_Report.pdf">report</a> on the state of food security in Asia. It highlighted serious environmental issues related to China’s food supply, stemming in part from the chronic pollution of China’s water and farmland. </p>
<p>Among other things, it showed that China’s rampant economic growth has come at a severe cost to its environment, effectively turning its rivers and lakes into industrial dumping grounds. As a result, 90% of groundwater in China is polluted, 65% severely so, with contaminants such as pesticides, fertilisers, and petrochemicals. </p>
<p>According to China’s Vice-Minister for Land and Resources, <a href="http://news.xinhuanet.com/english/china/2014-01/22/c_133066345.htm">3.3 million hectares of agricultural land are moderately or severely polluted</a>, an area roughly the size of The Netherlands. This results in the contamination with heavy metals of 12 million tonnes of grain per year; an amount greater than the entire cereal production of Japan. </p>
<p>Along China’s vast coastline, 68,000 square kilometres of coastal waters are now classified as severely polluted. <a href="http://www.chinadaily.com.cn/cndy/2013-03/21/content_16326460.htm">Figures</a> from China’s National Marine Environmental Monitoring Centre show that in 2012, some 17 million tonnes of pollutants flowed through 72 of China’s rivers, including 93,000 tonnes of oil and a staggering 46,000 tonnes of heavy metals such as lead and cadmium. </p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/41577/original/xfkqfsq7-1392381211.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/41577/original/xfkqfsq7-1392381211.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/41577/original/xfkqfsq7-1392381211.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=395&fit=crop&dpr=1 600w, https://images.theconversation.com/files/41577/original/xfkqfsq7-1392381211.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=395&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/41577/original/xfkqfsq7-1392381211.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=395&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/41577/original/xfkqfsq7-1392381211.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=496&fit=crop&dpr=1 754w, https://images.theconversation.com/files/41577/original/xfkqfsq7-1392381211.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=496&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/41577/original/xfkqfsq7-1392381211.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=496&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A woman collecting water from the Yangtze River, China.</span>
<span class="attribution"><span class="source">Lu Guang/Greenpeace</span></span>
</figcaption>
</figure>
<p>The deadly combination of food, water and air pollution in China has led to a dramatic increase in the number of <a href="http://news.xinhuanet.com/english/china/2013-09/11/c_132712669.htm">“cancer villages”</a>, where high rates of cancer have risen in line with water and soil contamination. </p>
<h2>Poor track record</h2>
<p>This is not to say that all Chinese canned food is necessarily contaminated. Nor does it suggest that it is only China facing these issues. India, Bangladesh and Vietnam, to name a few, are also facing serious challenges to clean up pollution and contamination. </p>
<p>But for importers of Chinese food, China’s track record on food safety, and its systemic problem with severe and chronic pollution, should raise serious concerns. </p>
<p>Several reports have shown how deadly chemicals have infiltrated the Chinese food system, such as through the <a href="http://www.sciencedirect.com/science/article/pii/S0269749107003351">use of waste water</a> to irrigate crops, and the <a href="http://www.sciencedirect.com/science/article/pii/S0308814612018602">presence of pesticides</a> in market food. A <a href="http://www.tandfonline.com/doi/abs/10.1080/10643389.2012.671738?journalCode=best20#preview">2012 review</a> of the extent of lead contamination in China concluded that “the problem of lead pollution in China is a global problem”. </p>
<p>Of greatest concern to Australian consumers of canned fruit should be a <a href="http://www.sciencedirect.com/science/article/pii/S0956713513005719">recent study</a> in Zhejiang province, showing that oranges, grapes, pears and plums were contaminated with levels of chromium, copper, cadmium, mercury and lead well in excess of Chinese safety standards. It is worth noting that Chinese safety standards allow twice the level of lead permitted in Australian fruit.</p>
<p>Although <a href="https://theconversation.com/spc-ardmona-and-the-cheap-chinese-food-challenge-22579">a recent article in The Conversation</a> suggested that the label of “cheap, dumped and frequently contaminated” attached to Chinese food is a shortsighted view, I would argue exactly the opposite.</p>
<p>China is attempting to make changes to the amount of pollution in its food chain, and clean up its environment. Yet the reality is that as the pressure for food and water continues to ramp up, food contamination is also likely to increase. </p>
<p>China’s environmental problems border on insurmountable, and when combined with systemic corruption in environmental monitoring and the greater profits to be gained from industrial output over agriculture, it makes for a bleak long-term outlook.</p>
<h2>What does this mean for Australia?</h2>
<p>China is already Australia’s largest supplier of prepared fruit. According to data from the UN Food and Agriculture Organisation, Australia imported just 3,000 tonnes of packaged Chinese fruit in 2001, rising to 27,000 tonnes a decade later. As a comparison, <a href="http://www.pc.gov.au/__data/assets/pdf_file/0018/125181/sub039-fruit-safeguards.pdf">statistics prepared for the Australian Productivity Commission</a> show that SPC Ardmona sold just over 36,000 tonnes of packaged fruit in 2012.</p>
<p>Australia’s last fresh fruit cannery is <a href="http://www.abc.net.au/news/2014-02-13/victorian-government-announces-package-for-spc-ardmona/5257564">safe for now</a>. But its demise would have caused a shortfall in packaged fruit that would need to be sourced from overseas. Given that China is Australia and the world’s largest supplier of prepared fruit, it’s likely that much of the shortfall would be sourced from China. </p>
<p>The challenges facing SPC Ardmona highlight the risks confronting both Australian food producers and consumers. The steady increase in cheap food imports means that Australian producers of food face an increasingly uneven playing field: one in which it is harder every day to stay profitable.</p>
<p>For Australian consumers, the increase of food imports from countries facing severe contamination issues - such as China - creates a difficult choice between the superior and more expensive Australian product and the often much cheaper import. Unfortunately, there are far too many consumers who are unaware of the potentially serious risks to their health of buying the import. </p>
<p>In <a href="http://www.news.com.au/finance/tony-abbott-says-no-taxpayers-money-to-rescue-spc-ardmona/story-e6frfm1i-1226814102074">denying federal assistance</a> to SPC Ardmona, Prime Minister Tony Abbott has said he wants to signal the end of the corporate “free ride”. But he should bear in mind that the consequences of leaving Australian food manufacturing by the roadside are far greater than any short-term economic agenda.</p><img src="https://counter.theconversation.com/content/22850/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christopher G. Baker does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>SPC Ardmona’s $22 million lifeline from the Victorian government seems to have saved Australia’s largest food packaging company. Yet the firm’s recent tribulations are a reminder of why I regularly choose…Christopher G. Baker, Research Analyst, Centre for International Security Studies, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/225872014-02-06T03:19:51Z2014-02-06T03:19:51ZThe next move for SPC Ardmona: rethinking the business model?<figure><img src="https://images.theconversation.com/files/40748/original/ywwy6g36-1391574074.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The future is uncertain for SPC Ardmona, but alternate models provide food for thought.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>The failure of Victorian fruit cannery SPC Ardmona (SPCA) to secure A$25 million from the federal government has led to <a href="http://www.stockandland.com.au/news/agriculture/agribusiness/general-news/sour-taste-for-shepparton/2686504.aspx?storypage=0">heightened fears</a> about the future of the company and the Goulburn Valley fruit growers who supply it. </p>
<p>The response from SPCA’s parent company, <a href="http://ccamatil.com/InvestorRelations/ASX/2014/SPCA%20announcement.pdf">Coca-Cola Amatil (CCA)</a> to last Thursday’s decision is that it “will necessitate a material review of SPCA’s carrying value, and a write down of its assets including brands and goodwill”.</p>
<p>For the growers, this illustrates the risks of depending on markets controlled by large and remote corporate interests that are exposed to global competition. The federal government’s position, applied consistently in this case, is that if your product can’t compete then you need to do something else – your problem.</p>
<p>So what if SPCA does close? The major market channels for fresh fruit are fully supplied and demand is static. Export, the traditional solution for Australian farmers facing this situation, <a href="http://www.depi.vic.gov.au/agriculture-and-food/horticulture/fruit-and-nuts/fruit-industry-profile">is certainly possible</a>, but competition is stiff.</p>
<p>Or orchard land could be used for something else. The dairy industry is keen for more product, but that would represent a loss of economic and skills diversity in the region. Besides, not every fruit grower wants to milk cows, <a href="http://www.stockandland.com.au/news/agriculture/agribusiness/general-news/sour-taste-for-shepparton/2686504.aspx?storypage=0">nor are their farm sizes or infrastructure suitable</a>, so there would be social dislocation with this option too.</p>
<h2>Innovating the food system</h2>
<p>If we have passionate growers who want to keep growing, and passionate eaters interested in more than the price of food, can they be connected in new ways?</p>
<p>The <a href="http://gvfoodcoop.com.au/">Goulburn Valley Food Co-op</a> (GVFC) has been exploring this idea for the last two years. It arose from the closure of the Heinz tomato factory in Girgarre in 2011 and despite several <a href="http://www.theage.com.au/national/never-say-die-20130706-2pj60.html">setbacks</a> it brought two products successfully to market in 2013: a pasta and tomato sauce meal, and a <a href="http://www.theaustralian.com.au/executive-living/pear-shaped/story-e6frg9zo-1226809371000">pear cider</a>. </p>
<p>GVFC has pioneered the concept of “virtual factories”. Rather than developing their own processing facilities they have contracted with existing underutilised factories to produce products that are branded by their producers, but then marketed via GVFC networks, and with its imprimatur. The regional provenance and community values that GVFC represents are something that some consumers value and are prepared to pay for.</p>
<h2>Scaling up</h2>
<p>GVFC is part of a much wider set of experiments in “alternative food networks” that aim to provide new options for growers and consumers. Farmers’ markets and <a href="http://www.foodhubs.org.au/">food hubs</a> are other examples. The standard criticism is that they constitute tiny and finite “niches” in the market. This is a valid and important point. SPCA is expecting to process 150,000 tonnes of produce in 2014, whereas GVFC has so far managed to process and sell less than 100 tonnes.</p>
<p>GVFC’s public officer Les Cameron recognises the challenge, but doesn’t believe it is insurmountable: </p>
<blockquote>
<p>“We’ve shown that a market does exist for credible and superior quality regionally-branded products. I don’t think we should pre-judge what the ultimate size of that market could become. If we move to distribute the cider nationally we’d scale up into the thousands of tonnes pretty quickly.”</p>
</blockquote>
<h2>Back to the future?</h2>
<p>A GVFC media release this week states that “If Australia is to have a viable food processing industry, we need SPCA”. But Les is clear that their business model needs to change: </p>
<blockquote>
<p>“They’ve continued basically with a ‘grower-forward’ model. The fruit arrives, you put it in cans, and wait for someone to buy it. What is needed now is a customer-driven model where you can move nimbly to make new products that people want. We got our cider from concept to bottle in six weeks.”</p>
</blockquote>
<p>The investment in retooling and innovation that the federal government funding was to support is needed to reconfigure the factory for this change. But perhaps the money can come from elsewhere. Les Cameron again: </p>
<blockquote>
<p>“The good news is that raising $25 million is a straightforward task. When negotiating with Heinz we were offered well over $18 million from various investors provided we were taking the Girgarre tomato plant over as a going concern. SPCA is a light year ahead of where Heinz was at that stage.”</p>
</blockquote>
<p>GVFC is interested in exploring possibilities for “a new form of private public partnership” with SPCA and CCA, that might see the Goulburn Valley community own a stake in the factory again, as in its <a href="http://spcardmona.com.au/about-us/our-rich-history">earliest days</a>. GVFC says a number of conditions would need to be in place for such a venture to succeed, including community representation on the board, and an on-going commitment to innovative and short-run products.</p>
<p>Cameron says action is needed from the federal government too: </p>
<blockquote>
<p>“The Abbott government has said they will be "getting the regulatory settings right so that industry can succeed”. The first effort must be to change the “country of origin” labelling laws so that food labelled “Made in Australia” means what ordinary consumers think it should mean – food that is grown here and processed here.“</p>
</blockquote>
<p>CCA and SPCA haven’t yet responded to the community buy-in idea, and why should they? What’s in it for them? That depends how much value they see in the ethical and socially-embedded innovation, branding and marketing reach that GVFC has demonstrated.</p><img src="https://counter.theconversation.com/content/22587/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Santhanam-Martin is a member-supporter of the Goulburn Valley Food Co-op, but is not active in the organisation and receives no financial returns from it.</span></em></p><p class="fine-print"><em><span>Emily Ballantyne-Brodie operates a design studio called Sustainable Everyday and consults on designing local food systems. She receives scholarship funding for her research from Queensland University of Technology (QUT). </span></em></p>The failure of Victorian fruit cannery SPC Ardmona (SPCA) to secure A$25 million from the federal government has led to heightened fears about the future of the company and the Goulburn Valley fruit growers…Michael Santhanam-Martin, PhD Candidate, The University of MelbourneEmily Ballantyne-Brodie, PhD Candidate in Design and Health & Food Systems Designer , Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/225792014-02-02T19:40:52Z2014-02-02T19:40:52ZSPC Ardmona and the cheap Chinese food challenge<figure><img src="https://images.theconversation.com/files/40274/original/td48dh4s-1391140651.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A shift towards fresh food and improved consumer protections in China provides opportunities and threats for Australian food producers.</span> <span class="attribution"><span class="source">dcmaster/Flickr</span></span></figcaption></figure><p>The political lobbying accompanying the government decision to withhold financial support from SPC Ardmona has overshadowed the big structural issues facing Australia’s preserved food industry.</p>
<p>The two major issues are the shift of market demand towards fresh food and the role of Chinese imports. </p>
<p>The decline of SPC Ardmona’s cannery business is not an isolated event. Heinz closed its cannery business in Goulburn Valley in 2012, Windsor Farm closed in Cowra, and only a few small players remain, mainly in NSW and WA. </p>
<p>Imports, mainly from China, have been singled out and demonised as “cheap, dumped and frequently contaminated”. This is a short-sighted perspective.</p>
<p>China is a big global player in international agribusiness. Chinese importing of fresh food provides opportunities for Australian exporters, but at the same time Chinese exports of canned food compete with Australian products in the local domestic market and in traditional export markets.</p>
<p>The “cheap, dumped and frequently contaminated” label will not stick for long. </p>
<h2>China is stepping up consumer protection</h2>
<p>While China’s canned food will remain cheap because of economies of scale and because canning technology is not much different in Australia and China, contamination is being addressed more seriously in China with new laws and regulations expected. The flow-on effect will mitigate Chinese consumer dissatisfaction with local food standards, but also improve the quality and safety of Chinese export products.</p>
<p>In January, China’s Supreme People’s Court announced an 18-clause guideline on how to handle civil disputes regarding food, drugs, cosmetics and dietary supplements. </p>
<p>The new guideline, together with an updated version of the consumer protection law, will come into effect on March 15, World Consumer Rights Day, and signal a new wave of regulatory action from the government to tackle China’s food safety problems. It gives consumers backing from the courts to sue manufacturers and retailers of unsafe food. Advertisers and publishers can be sued even before any actual harm is inflicted. Celebrities who endorse substandard products can also be sued if consumers feel they have been misled.</p>
<p>Since the milk powder scandal of 2008, much as been done to alleviate public anxiety and improve practices in the food industry. The Food Safety Law, replacing the outdated Food Hygiene Act, came into effect in 2009 and includes provisions on risk assessment methods, unification of food safety standards, improving supervision, and imposing tougher penalties on violators. </p>
<p>In March 2013, China’s State Food and Drug Administration (SFDA) was renamed to China Food and Drug Administration (CFDA) and elevated to a ministerial-level agency directly under the State Council, in an attempt to consolidate power and streamline regulation of food and drug safety.</p>
<p>The new guidelines change the balance of power between consumers and producers and rely less on local government enforcement. One challenge facing China in food safety regulation is that law enforcement and implementation at the local level do not match the original intent of the law and central policies. With clearer procedures on how to protect their rights, consumers are given more say on food safety. This will increase food producers’ opportunity cost as consumers are now more willing and able to participate in the monitoring process.</p>
<p>Previously, producers and manufacturers had an incentive to sacrifice quality in order to maximise profits, because the chance of being caught and penalised was low. But consumers and social media now play a much more active role in monitoring food safety and have successfully put pressure on the government to enforce food safety standards</p>
<h2>Australia has a head start</h2>
<p>While enforcement will work for the corporatised food export sector, China’s highly fragmented food industry will continue to face problems because of the scale of monitoring required. Almost 80% of the half a million food companies in China are classified as “cottage industry” with ten or less employees. </p>
<p>Like in Australia, there are social reasons to keep small producers afloat. Along this complex supply chain there is a need to balance the interests of producers, markets and consumers. China’s first policy document of 2014, the No.1 Central Document, underscored the importance of rural reform and the development of modern agriculture.</p>
<p>For Australian agribusiness, this entails opportunities and challenges. Chinese producers will for the foreseeable future not be able to satisfy the demand of urban middle class consumers for top quality food. Australia, in competition with New Zealand, has a head start in this market with an enviable and hard to replicate reputation for clean and fresh food.</p>
<p>On the other hand, Chinese exports will become more competitive in the preserved food market, in particular in such traditional segments as canned food, putting more pressure on Australian producers in those market segments. For SPC Ardmona and its supply chain, the farming communities in the Goulburn Valley, this will require a radical rethink of traditional products and a switch to new product lines.</p><img src="https://counter.theconversation.com/content/22579/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The political lobbying accompanying the government decision to withhold financial support from SPC Ardmona has overshadowed the big structural issues facing Australia’s preserved food industry. The two…Hans Hendrischke, Professor of Chinese Business and Management, University of SydneyWei Li, Postdoctoral Fellow, Business School, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/226472014-01-31T06:05:03Z2014-01-31T06:05:03ZNo sacred cows: Productivity Commission targets Toyota<figure><img src="https://images.theconversation.com/files/40284/original/h8ssxn52-1391146932.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Productivity Commission has recommended the car industry should receive no additional government funding.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Ford and Holden gone. SPC Ardmona in jeopardy. Toyota under threat.</p>
<p>The Productivity Commission’s (PC) <a href="http://www.pc.gov.au/__data/assets/pdf_file/0006/132981/automotive-position.pdf">position paper</a> on automotive industry support fires a clear shot across the bows of the manufacturing industry. No industry sector can consider itself an untouchable sacred cow, strategic asset or Aussie icon.</p>
<p>No industry is indispensable. No firm is too big to fail.</p>
<p>Don’t play chicken with this Productivity Commission. Or with this federal government. Because in this game of Russian roulette, as Holden discovered, all six chambers are loaded.</p>
<p>Although the final report is not due until March, the future painted by the PC is stark: Toyota should receive no additional funding; the industry’s future is in doubt, given the high costs of manufacturing in Australia, compared with China and Southeast Asia; the Automotive Transformation Scheme (ATS) should not be extended beyond 2020; state and federal governments should kill the Automotive New Markets initiative after it is ramped down in 2015-16; and the Green Car Innovation Fund should be aborted following its closure, scheduled for 2014-15.</p>
<p>The PC further argues that the Commonwealth and state governments should abolish their purchasing policies that require them to buy cars made in Australia.</p>
<p>And, in a recommendation that harks back to the 1990 federal election, the PC also argues that the A$12,000 import duty on used cars should be removed. Which is one way Australian consumers can indirectly subsidise the Japanese new car industry. Or buy a bunch of <a href="http://autowini.com/en/main.do">used South Korean cars</a>.</p>
<p>Used car imports drive more nails into the coffin of the Australian automotive components sector. Even in the absence of local car makers, some parts manufacturers would have sufficient scale to build, say, braking and suspension components for imported Mazdas, Kias, Toyotas, Nissans and Hyundais.</p>
<p>But not if used vehicles are imported. The volume of used parts available, while cheaper for the consumer and insurance companies, would render local manufacturing of components unviable.</p>
<p>To be scrupulously fair, the PC has been consistent in its approach to industry assistance for over a decade. Its <a href="http://www.pc.gov.au/projects/inquiry/auto/docs/finalreport">2002 car industry report</a> sought tariff levels of 5% by 2010. The 2008 <a href="http://www.pc.gov.au/__data/assets/pdf_file/0008/80765/automodelling.pdf">PC research report</a> recommended the cessation of auto industry assistance by 2015. It was sceptical of the Rudd government’s proposals for increased assistance, and its economic modelling for the Bracks report was pessimistic.</p>
<h2>From top gear to negative gearing</h2>
<p>The PC estimates that around $30 billion (in 2011/12 dollars) in assistance has been provided to the auto industry between 1997 and 2012. That equates to around $1.875 billion per annum on average.</p>
<p>The Federal Chamber of Automotive Industries (FCAI) claims the Australian auto industry generated A$160 billion in turnover in 2011, or more than 10% of GDP, plus 50,000 jobs directly employed within the industry.</p>
<p>By contrast, as a 2013 <a href="http://grattan.edu.au/publications/reports/post/renovating-housing-policy/">Grattan Institute report</a> found, property investment generates A$6 billion in rental losses annually and A$7 billion in tax breaks per annum, comprising $2.4 billion in negative gearing and A$4.5 billion in capital gains tax (CGT) exemptions. The bottom line cost to the federal budget is estimated at A$4.4 billion to 5 billion per annum.</p>
<p>If the Commonwealth were to be ungenerous and start asset/means testing pensions by including the family home, the Grattan report estimates that the full extent of government largesse could be as much as A$36 billion per annum.</p>
<p>Only <a href="http://www.theage.com.au/national/talks-test-the-water-on-negative-gearing-change-20110420-1doxq.html">1.2 million Australians own one investment property</a>. Only around 300,000 own three or more.</p>
<p>The PC argued in 2004-05 in response to the inquiry into first home ownership that negative gearing, and associated tax relief, should be reformed. The Howard government demurred. In 2011, the Gillard government <a href="http://www.theage.com.au/national/talks-test-the-water-on-negative-gearing-change-20110420-1doxq.html">dipped a cautious toe</a> into the negative gearing reform waters, but found the temperature unbearable.</p>
<p>Governments always have the privilege and the luxury to afford protection, subsidies and assistance to whichever sectors they choose. As the last 14 years have shown, Commonwealth governments have rained manna from heaven on the groups that will re-elect them. Or will shower their political party with donations.</p>
<p>Miners, property investors, the car industry, unions, the banks and the construction industry have been major recipients of this taxpayer funded largesse. The Abbott government has demonstrated it is committed to removing manufacturing industry assistance.</p>
<p>But the Coalition government’s reform agenda cannot be taken seriously if it is selective about the industries it chooses to cut loose. The inequities in Australia taxation system, comprising costly, market-distorting, inefficient negative gearing and CGT exemptions, are embedded structurally within the Commonwealth budget.</p>
<p>If the Abbott government is serious about root-and-branch reform, it needs to consider all industry sectors that receive subsidies, tax exemptions and myriad rebates.</p>
<p>The car industry is a politically easy target. But Canberra is not likely to find the vested interests of the property investment class such a pushover.</p><img src="https://counter.theconversation.com/content/22647/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Remy Davison's Chair is funded by the European Union Commission.</span></em></p>Ford and Holden gone. SPC Ardmona in jeopardy. Toyota under threat. The Productivity Commission’s (PC) position paper on automotive industry support fires a clear shot across the bows of the manufacturing…Remy Davison, Jean Monnet Chair in Politics and Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/225742014-01-31T03:02:12Z2014-01-31T03:02:12ZSPC Ardmona decision is fiscal policy disguised as industry policy<figure><img src="https://images.theconversation.com/files/40265/original/dm2g9k3s-1391132143.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Prime Minister Tony Abbott and Industry Minister Ian Macfarlane have drawn a line in the sand on industry assistance...or have they?</span> <span class="attribution"><span class="source">Alan Porritt/AAP</span></span></figcaption></figure><p>Announcing the decision to refuse assistance to SPC Ardmona, Industry Minister Ian Macfarlane <a href="http://www.smh.com.au/federal-politics/political-news/spc-ardmona-pm-rejects-request-for-help-20140130-31pqn.html">said:</a> </p>
<blockquote>
<p>“I think it is a clear delineation of where this government believes we need to go with industry policy”. </p>
</blockquote>
<p>Coming so soon after the government’s decision not to extend assistance to Holden, it’s clear we now have a government seriously committed to a free market ideology, and which is taking a tough line on requests for industry assistance.</p>
<p>That simple interpretation, however, is belied by the prime minister’s <a href="http://news.smh.com.au/breaking-news-national/abbott-pledges-millions-for-cadbury-201308%2028-2sph9.html">promise</a> of a grant of A$16 million for the Cadbury factory in Hobart. Perhaps that can be written off as an election promise made on the run. Tony Abbott and Kevin Rudd were both making rash promises during the election campaign.</p>
<p>But beyond that, the Abbott government has deliberately made two costly concessions to industry requests for assistance. </p>
<h2>Picking winners</h2>
<p>One was its promise to retain a concession in fringe benefits tax arrangements, allowing an employer-provided car to be assessed at a very low rate for tax purposes, even if it is not used for work. The concession dates to 1986 when around 80% of cars sold in Australia were Australian-made. It was a form of assistance to the car industry. </p>
<p>Now almost 80% of cars sold in Australia are imports: most of the assistance therefore would be going to the Japanese and German car industries. The main Australian beneficiary of the concession, costing around A$450 million a year in forgone tax revenue, is the salary packaging industry, which having learnt that the previous government intended to scrap it, lobbied hard for its retention.</p>
<p>Another government concession to industry lobbying is its plan to <a href="http://www.propertyobserver.com.au/industry-news/coalition-water-down-burdensome-fofa-reforms/2014013067444?utm_source=po&utm_medium=aida&utm_campaign=latestnews">reverse</a> reforms to the financial advice industry, legislated by the previous government, which require financial advisers to disclose ongoing commissions and to act always in the best interests of clients. </p>
<p>Before these reforms were implemented <a href="http://www.ricewarner.com/images/newsroom/1374717972_Rpt%20The%20financial%20advice%20industry%20post%20FoFA%202013.pdf">actuaries</a> calculated that loose regulation of the industry was allowing consumers to be overcharged an average of A$900 each. Reversal of this reform will restore an easy income flow to the industry. </p>
<p>Both reforms are to be scrapped by the Abbott government, without any explanation why accountants helping clients to avoid tax or financial advisers living off commissions on sales are more worthy of assistance than people making cars or packaging fruit.</p>
<p>The A$25 million once-off assistance sought by SPC Ardmona is trivial compared with the ongoing cost of industry assistance, estimated by the <a href="http://www.pc.gov.au/annual-reports/trade-assistance/2011-12">Productivity Commission</a> to have cost A$10 billion in 2011-12. That’s around A$1000 a household.</p>
<p>This A$10 billion splits three ways: $5 billion in direct budgetary outlays, $4 billion in tax concessions (i.e. revenue forgone), and $1 billion in the cost of tariff protection. (This cost of tariff protection is a net cost. In round figures tariffs grant $8 billion in assistance to manufacturing, while costing $7 million to other industries).</p>
<p>In fact, the Productivity Commission in its regular assessments of the cost of industry assistance is conservative. It does not count budgetary and other support for the private health insurance industry. Nor does it count support for superannuation in the form of tax concessions and compulsory levies. </p>
<p>There are measurement problems in estimating how much of this support for health insurance and superannuation counts as industry subsidies and how much is personal benefit, but it’s clear that like all other industry subsidies they come at a cost and help direct our expenditure towards certain industries, the finance industry in the case of health insurance and superannuation, and away from other areas.</p>
<h2>Budget jitters</h2>
<p>Ardmona and Holden suffer the misfortune that their assistance was to be in the form of budgetary outlays, which, in the current fiscal environment, is where most attention is directed. Had Ardmona’s assistance been in the form of a tariff it would have been an unnoticeable A$5 or so on our household’s annual supermarket bill, and we would never have noticed it if it was in the form of a tax concession.</p>
<p>The notion that the Coalition government is holding out against industry assistance does not hold up. Its concerns seem to be more about reducing reported public expenditure than about winding back industry assistance. This expenditure emphasis puts manufacturing and related industries under the spotlight, but allows other industries, particularly those in the finance sector, to go on enjoying very generous and distorting subsidies. This is in spite of warnings from the <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2117753">Bank of International Settlements</a> that an over-sized finance sector can stifle economic growth.</p>
<p>When economists warn about the costs of “picking winners” in industry policy, they are reminding us that benefits for certain industries come at a cost to other industries and consumers. Perhaps if we weren’t so generous to the finance sector firms like Ardmona SPC wouldn’t have to beg for assistance.</p><img src="https://counter.theconversation.com/content/22574/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian McAuley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Announcing the decision to refuse assistance to SPC Ardmona, Industry Minister Ian Macfarlane said: “I think it is a clear delineation of where this government believes we need to go with industry policy…Ian McAuley, Lecturer, Public Sector Finance , University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/225902014-01-30T19:48:17Z2014-01-30T19:48:17ZGrattan on Friday: Abbott government has the trumpet out, and not just to blast the ABC<figure><img src="https://images.theconversation.com/files/40204/original/m33t3kp8-1391083695.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Government has sent messages to business and the ABC, this week.</span> <span class="attribution"><span class="source">AAP/Alan Porritt</span></span></figcaption></figure><p>The Abbott government has been firing rhetorical bullets at friends and enemies alike in the last few days. Some employers are weak-kneed. The ABC is unpatriotic.</p>
<p>On the face of it, there’s little in common between the Coalition’s industry policy salvoes and its assault on “Auntie”. Look more closely and you’ll find a couple of threads.</p>
<p>Both are attempts at strong-arming. In each case, there’s internal division on the issues.</p>
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<p>As the political year begins in earnest, the economic “dries” have again shown they are in the ascendancy, with Thursday’s decision to refuse SPC Ardmona’s bid for a $25 million handout. Coming on the heels of the government’s tough line on Holden, Liberals who feared Abbott would be a soft touch for companies must be reassured.</p>
<p>The Prime Minister did indicate early on that his government wouldn’t be inclined to corporate welfare. Saying no still comes hard. In the news conference on the SPC Ardmona decision he went on and on without actually spelling out that there wouldn’t be any money. That was left to Industry Minister Ian Macfarlane – who’d been sympathetic to the company.</p>
<p>Abbott declared the decision laid down “an important marker”. The government would set the best climate for business but business itself must lead restructuring.</p>
<p>The government has done the right thing in resisting the cannery’s call for aid; it has made a convincing argument that parent company Coca-Cola Amatil has the responsibility and wherewithal to deal with the situation. But the hard line is politically difficult because the fruit cannery is an iconic Australian brand.</p>
<p>It wasn’t just on SPC Ardmona that the government sent out its stand-on-your-own-feet message to business. It announced it would intervene in court to back Toyota workers being given a vote on changes to their conditions.</p>
<p>And Workplace Relations Minister Eric Abetz bluntly told employers generally they need to do more of the heavy lifting in industrial relations.</p>
<p>Addressing the Sydney Institute, Abetz said that as shadow minister he’d been disappointed “to see weak-kneed employers caving in to unreasonable union demands and then visiting me, advocating for change in the system. And now as minister this phenomenon has unfortunately become even more frustrating.”</p>
<p>The government not only believes in principle that employers should take greater responsibility and say no more often. Having promised to make only limited changes to the workplace law in its first term, it also needs them to behave more robustly in an effort to lift productivity and employment.</p>
<p>As it tries to stiffen employers’ backbones and influence their behaviour, the government praises as well as exhorts and criticises.</p>
<p>Abbott dwelt at length on what Coca-Cola Amatil had already done to restructure SPC Ardmona, while also saying the cannery workers’ over generous conditions (but not their wages) needed to be cut back by redoing the enterprise agreement.</p>
<p>It was rather ironic to hear Abbott more than once put the weights on David Gonski, chairman of Coca-Cola Amatil, to get things sorted. That would be the David Gonski whose school funding scheme has given the Coalition some grief.</p>
<p>“David Gonski is not going to let the workers of SPC Ardmona down,” Abbott said. In other words, if everything goes wrong and people lose their jobs, it won’t be Tony’s fault. It will be David’s fault. It’s a nice try but politics doesn’t quite work like that.</p>
<p>With the ABC, where the government would also like to see a change in behaviour, there is no encouraging talk, just what amounts to sledging.</p>
<p>“A lot of people feel at the moment the ABC instinctively takes everyone’s side but Australia’s,” Abbott said on Wednesday, when sympathising with shock jock Ray Hadley’s dubious claim that he had to endure tougher rules than the national broadcaster.</p>
<p>“You would like the national broadcaster to have a rigorous commitment to truth and at least some basic affection for our home team, so to speak,” Abbott said.</p>
<p>The government is still furious at the ABC partnering Guardian Australia to publish the revelations about Australian spying in Indonesia, as well as angry at its recent reporting of asylum seeker claims that they had been mistreated by the Navy. More generally, there is a strong anti-ABC feeling in sections of the Coalition, with critics condemning it as left leaning. This is despite the high level of community trust in the ABC shown in surveys.</p>
<p>So what can the government do? It can cut the ABC’s funds. It can seek to cancel, as it is signalling it wants to do, the ABC’s Australia Network contract to televise into Asia.</p>
<p>Beyond that, with jawboning it can try to affect ABC editorial decisions by creating a climate in which the decision makers and journalists become more cautious.</p>
<p>Crudely put, it can try to get change by intimidation. Its efforts are backed by a virulent anti-ABC campaign from Murdoch’s News stable in particular. Sydney’s Daily Telegraph reported Abbott’s comments under the front page headlines “The ABC of Treachery. PM brands national broadcaster un-Australian”.</p>
<p>Now the ABC and SBS are to face a study of their efficiency, announced on Thursday by Communications Minister Malcolm Turnbull. Turnbull emphasised that this would not be looking at editorial matters but at cost effectiveness and the like. It will be done by the Communications department assisted by Peter Lewis, who formerly worked for Seven West. Turnbull has had the review – to report in April - in mind for some time.</p>
<p>Turnbull does not agree with the Abbott public onslaught on the ABC. He made that clear in comments to Fairfax Media and told the 7.30 program: “I’m not going to be drawn into a discussion about the Prime Minister’s remarks yesterday,” although he did note “there is nothing in [provisions governing the ABC] that says it should be nationalistic”.</p>
<p>Although he has been critical of some editorial decisions, especially the ABC partnering on the spy story, Turnbull is a friend of the ABC – its most highly placed friend.</p>
<p>Superficially, the review looks like the prelude to a funding squeeze, and it may well end up being that. Turnbull concedes that the broadcaster would be caught up in an across the board government cut.</p>
<p>On the other hand, if the review comes out basically favourable to the broadcaster, it could strengthen Turnbull’s hand against those in the government who would like to give the ABC a big haircut. That is, if he is up for the fight.</p>
<iframe src="https://www.podbean.com/media/player/audio/postId/5043189/url/http%253A%252F%252Fmichellegrattan.podbean.com%252F2014%252F01%252F30%252Fkim-carr%252F" width="100%" height="100" frameborder="0" scrolling="no"></iframe><img src="https://counter.theconversation.com/content/22590/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan has a regular spot on ABC Radio National breakfast.</span></em></p>The Abbott government has been firing rhetorical bullets at friends and enemies alike in the last few days. Some employers are weak-kneed. The ABC is unpatriotic. On the face of it, there’s little in common…Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/140842013-05-28T04:43:29Z2013-05-28T04:43:29ZAre we allowing our fruit industry to wither?<figure><img src="https://images.theconversation.com/files/24519/original/6gds5b69-1369713071.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Our fruit industry is struggling against cheap imports - but should we be doing more to protect our "food bowl to Asia"?</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>The sight of Victorian fruit farmers bulldozing surplus trees due to the loss of supply contracts is a dramatic way to illustrate the quandary facing both Australian industry and growers.</p>
<p>In April Victorian fruit processor SPC Ardmona, owned by Coca-Cola Amatil, announced it was dramatically cutting its requirements for locally-grown fruit.</p>
<p>More than half of the 150 current peach and pear suppliers were told none of their crop will be required in 2014. Growers are now looking for Federal Government assistance to <a href="http://www.weeklytimesnow.com.au/article/2013/05/01/568486_horticulture.html">bulldoze 750,000 surplus trees</a>, while SPC Ardmona has <a href="http://spcardmona.com.au/en/media-room/whats-new?article=/SPC-Ardmona-seeks-support-for-growers">called on the government to impose emergency tariffs</a> on imports to protect the local industry. </p>
<p>SPC Ardmona <a href="http://spcardmona.com.au/en/media-room/whats-new?article=/SPC-Ardmona-seeks-support-for-growers">partially blames a high Australian dollar</a> which has <a href="https://www.tai.org.au/file.php?file=/media_releases/PB%2047%20Still%20beating%20around%20the%20bush.pdf">hit rural markets hard</a>. </p>
<p>But also says it cannot compete against the supermarkets’ overseas-sourced “private label” products. “We are competing against products from countries that have considerably lower labour and production costs and arguably lower quality standards than we have in Australia,” Managing Director Peter Kelly said. </p>
<p>There has been <a href="http://link.springer.com/article/10.1007/s10460-012-9410-x">increasing recognition</a> that supermarkets have become the most powerful actors in the global food trade.</p>
<p><a href="http://link.springer.com/article/10.1007/s10460-012-9409-3">Jane Dixon and Bronwyn Isaac’s research</a> explores in detail the problematic and paradoxical role of supermarkets in the Goulburn Valley’s food economy. </p>
<p>While the use of <a href="http://link.springer.com/article/10.1007/s10460-012-9407-5">imported produce in supermarkets’ home brand products</a> benefits consumers through lower prices, they destabilise the regional agricultural economy and undermine a sense of community by displacing locally owned grocers and butchers.</p>
<p>Part of the issue facing Goulburn Valley growers is historical. Simply, an industry that formerly blossomed under protectionist and interventionist agricultural policies is now facing the realities of global free trade and competition.</p>
<p>The first fruit growers association was formed in the Goulburn Valley in 1891, with the Shepparton Fruit Preserving Company (SPC) established in 1917. In 2002 it merged with the Ardmona Fruit Products Co-Op Ltd to become SPC Ardmona and was acquired by Coca-Cola Amatil in 2005.</p>
<p>Up until the 1980s, the industry was cushioned by protectionist policies; but slowly, Goulburn Valley growers have been put under increasing pressure by international markets. </p>
<p>But the market forces argument ignores several factors. </p>
<p>There is the problem of what happens to the families and communities whose livelihoods have been underpinned by this industry for a century or so. </p>
<p>Johanna’s current PhD research with Victorian orchardists identifies a widespread sense of pessimism and frustration in a system that is dominated by supermarkets and in which growers are constantly under pressure to adhere to stringent quality assurance guidelines over which they have little control. </p>
<p>City of Greater Shepparton Mayor Jenny Houlihan <a href="http://www.mmg.com.au/local-news/shepparton/rallying-behind-spc-ardmona-1.49107">said at a recent community rally</a> “SPC Ardmona is vitally important to our local economy, and it is also part of our identity”. </p>
<p>In our view the growers are there as a result of previous public policy decisions, and so the public, via the apparatus of Government, is to some extent accountable for what happens to them. </p>
<p>Also, we are regularly told we are moving into an era of global food scarcity, with Australia <a href="http://asiancentury.dpmc.gov.au/white-paper">well-placed to benefit</a> by supplying high-quality food to our neighbours. Perhaps the Goulburn Valley situation lends weight to the argument that we are actually [poorly prepared to become Asia’s food bowl](http://www.stockjournal.com.au/news/agriculture/agribusiness/general-news/food-bowl-reality-check/2656704.aspx?storypage=2 “).</p>
<p>It seems curious that we would allow this industry to wither. The existing complex system of skills, knowledge, infrastructure and supply chain relationships will be much harder to recreate in the future if they are permitted to unravel now.</p>
<p>The challenge is to navigate a path forward whereby the assets of the Goulburn Valley orchard industry are protected, and deployed into an economically viable future. So who should be doing what, if this is to be achieved?</p>
<p>Johanna’s current research indicates growers fare better when they produce multiple products, including a range of both different crops and different varieties, and when they supply multiple buyers and markets, including beyond the dominant retail supply chain. That is a strategy that warrants further investigation from growers and their industry bodies.</p>
<p>SPCA has been vigorously pursuing an innovation and diversification strategy to try to find profitable products and markets, as <a href="http://link.springer.com/article/10.1007/s10460-012-9407-5">documented by Libby Hattersley and colleagues</a>, and this needs to continue. This has included developing world-first new packaging technology such as single-serve plastic cups, and resealable plastic jars, as innovations on traditional canning technology. They have also established partnership agreements with overseas companies in order to gain access to new sources of supply and new markets.</p>
<p>There is a good case for Victorian Government involvement given its aim to <a href="http://www.premier.vic.gov.au/media-centre/media-releases/3915-coalition-aims-to-double-food-and-fibre-production.html">double Victoria’s agricultural production</a>, and the priority strategies identified in the Goulburn Valley Subregional Plan, part of Regional Development Victoria’s <a href="http://www.rdv.vic.gov.au/victorian-regions/hume">Hume Strategy for Sustainable Communities</a>. </p>
<p>There is also a case for Federal Government involvement, in particular on moderating the power of the supermarkets. We watch keenly the <a href="http://www.smh.com.au/business/supermarkets-face-lifechanging-decision-on-code-of-conduct-20130502-2ivv6.html">current negotiations</a> between the supermarkets and the Australian Food and Grocery Council.</p>
<p>Growers, communities, industry and government all have a role to play in charting a way forward for this industry. Let’s get on with it.</p>
<p><em>This story has been altered since publication to correct an error in the first par which mentioned citrus farmers. Crops affected are peaches and pears. The mistake was made by an editor.</em></p><img src="https://counter.theconversation.com/content/14084/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jane Dixon's research was funded by the ARC.</span></em></p><p class="fine-print"><em><span>Johanna Christensen and Michael Santhanam-Martin do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The sight of Victorian fruit farmers bulldozing surplus trees due to the loss of supply contracts is a dramatic way to illustrate the quandary facing both Australian industry and growers. In April Victorian…Michael Santhanam-Martin, PhD Candidate, The University of MelbourneJane Dixon, Senior Fellow, Australian National UniversityJohanna Christensen, PhD candidate , The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.