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Monday, 24 February 2014
Page: 621

Dr STONE (Murray) (19:01): I rise to pay tribute to all who are a part of the fruit-processing industry of Australia. Probably some 90 per cent of these people and their enterprises are located in my electorate of Murray. Others—for example, navy-bean growers and sugar producers—are far away in Queensland. Only one Australian fruit processor, SPC Ardmona, remains in business in 2014. It has survived where others have collapsed, victims of the policy failures of successive governments, both state and federal. But soon, I anticipate, these failures will be addressed by us and they will be something of the past.

The failures of successive governments include the costly and ineffective Australian antidumping regime and the failure to use the WTO-sanctioned emergency safeguard measures, which could be in place while the month after month of analysis of antidumping claims churn its way through the commission. The crippling overvaluation of the Australian dollar, which killed export competitiveness and triggered a flood of cheap, often dumped, imports has also made a victim of too many Australian manufacturers. Then there is the massive market power of the two biggest supermarkets in Australia, who control over 80 per cent of the retail grocery business, making it almost impossible for the suppliers to have any chance of competing for better prices. These supermarkets' strategies of relentlessly growing their market share through more profitable home-brand offerings on their shelves, aided by obscure country-of-origin labelling, poor at-border food safety inspection and weak antidumping protection mean that, in Australia, our fresh and manufactured food suppliers are up against it. And these supermarkets compete with ever-cheaper prices, with the losses borne by their overpowered suppliers.

Then there continue to be the massive increases in energy costs, exacerbated by the carbon tax and carbon equivalent tax on refrigerant gases. Between 2010 and 2013, SPCA's sales revenue, net of discounts, per unit of product sold decreased four per cent—as I say, squeezed by the supermarkets—while the unit cost to make and sell increased by around 22 per cent, reflecting the huge increases in energy and other non-wage input costs. How could any of our manufacturers survive in such a perfect storm? In the case of SPC Ardmona, there were also 10 years of the worst drought on record, from 2001, followed by the worst year of floods on record, which inundated some orchards for up to 12 months.

You will not be surprised for me to tell you that, for a succession of recent years, Coca-Cola Amatil, an Australian owned company, the parent of SPC Ardmona, has carried the losses of this, the last remaining fruit processor in Australia. It has just been announced, the write-down of losses from SPCA for last year was an accumulated $400 million. You could have seen other companies walk away with such losses, at the demand of their shareholders. I want to commend Coca-Cola Amatil for understanding the icon status of the last remaining fruit processor but also its great future prospects if only it can get through the perfect storm that I have just described.

SPC Ardmona management in April 2013 had to walk into their growers' orchards, their kitchens or the small offices attached to their cool stores—and some of these family orchards have been with the same people for generations, since they arrived from places like Italy, Macedonia, Greece, Albania, Turkey and, more recently, the Punjab. They had to face these orchardists and tell half of them that they could not take any fruit from their orchards anymore, not a single tonne.

More than 50 growers in the Goulburn and Murray valleys then faced, as you can imagine, extraordinary financial distress and, for some, collapse. They knew that flooding the fresh fruit market with their canning varieties of fruit was not an option, and they had to find the funds to bulldoze their apples, pears, peaches and apricots or continue the costly business of spraying, pruning and picking the trees but with no returns. This continues to be a very dark time for those families and the hundreds of workers in the small-town communities which depend on their enterprise. I want to express my deepest sympathy for those who still have this terrible financial problem to overcome, where they have no market for their varieties, which were developed for canning.

The remaining 50 or 60 families with orchards developed for fruit processing—covering hundreds of hectares, with cool stores and equipment and highly developed irrigation systems—were informed by SPC Ardmona that they would only have half of their fruit taken in the next season, with very few firm prospects for the future. Imagine the extraordinary distress that occurred with over 100 orchard families in April last year being given this shocking news.

Obviously, all of our orchardists who have developed for the processing industry face enormous difficulties, with the same drastic employment impacts on the districts and towns where they lived. We thought that was the worst of it because, with the huge reduction in the amount of fruit to be taken, at least the factory could limp along, but there was worse to come.

Let me tell you about SPC Ardmona.    Australia's largest and now last-remaining fruit processing enterprise began with the establishment of two grower cooperatives—the Shepparton Preserving Company established in 1917 and Ardmona established in 1921. In 2002, SPC and Ardmona merged and in 2005 the processor was purchased by Coca-Cola Amatil when the Australian dollar was at about 60c against the US dollar. The parent company had changed its name from Amatil in 1989. Let me stress: it is not a subsidiary of the multinational Coca Cola. It is not an American-owned company; rather, among other enterprises, it has a franchise to sell Coca Cola product in defined regions.

Australia's fruit processing sector has always been an innovator, with the Tatura trellising system developed for orchards now used throughout Australia and with Ardmona being the first manufacturer in the world to develop single serves and to put preserved fruit into resealable plastic packaging. SPC Ardmona is often referred to as 'the cannery' but in fact it is a highly innovative and mostly plastic packing enterprise in the Goulburn and Murray valleys.

The growers who supply the fruit and tomatoes for SPCA have been benchmarked as highly productive, in particular the tomato growers who are benchmarked as some of the best in the world. For convenience and efficiency, these growers are concentrated within a 50-kilometre radius of the factories. They grow over 80 per cent of Australia's pears and apples and most of the country's apricots, peaches and plums. This is the food bowl of Australia, especially if you focus on the fruit food bowl. The orchards take advantage of the flat topography, fine Mediterranean climate, good soils, excellent road transport infrastructure and water security provided by the Goulburn-Murray system, the oldest irrigation network in Australia.

The federal government committed $1.216 billion in 2011 to modernise this irrigation system in order to serve the fruit and dairy industries of the Goulburn and Murray valleys better. The Victorian state government recently invested another $l billion into this irrigation system. The towns of Cobram, Kyabram, Mooroopna, as well as the City of Shepparton are dependent on the fruit manufacturing industry, in all over 150,000 people, but directly employed in the factory are over 800 people and directly linked to those 800 people are another 5,000 or 6,000 jobs. This is the equivalent of Holden in Adelaide or Alcoa in Geelong.

Given it takes four to seven years, depending on the variety, to grow a new fruit tree to a stage of commercial production, once people have bulldozed their orchards, they do not come back. You cannot afford it, you do not have the time to wait for the trees to re-establish, especially when you are carrying debt from 10 years of the worst drought on record and especially when SPCA has not been able to pay you very much for the last few years of your fruit production. The tragedy is that from April 2013, with contract cancellations, 25 per cent of the fully productive pear trees in this area were bulldozed and since then another 60 per cent or 300 hectares of the canning peaches. This is a catastrophe that most other nations in the world would be shocked to hear about. How could a country, through market failure, through no fault of the manufacturers themselves, be bulldozing highly productive fruit trees, knowing they would not return? Growers had no other option but to try to avoid a phytosanitary crisis for their neighbours growing fresh fruit varieties or, alternatively, they did not have the means to keep spraying the trees to manage pests and then to bring in the pickers and pruners. Calls on the state government of Victoria for help with these costs fell on deaf ears.

A perfect storm had descended on Australia's last fruit manufacturing industry and little of this perfect storm could be deflected or influenced by Coca-Cola Amatil, SPC Ardmona or the growers, their cool store operators, their transport industry, the makers or their cans and plastic containers and cardboard boxes, Visy, the pickers, the pruners or the packers. All were powerless to influence what seemed to be the only rational outcome to save further losses for the parent company shareholders and that was to close the whole business down, literally to turn the Murray and Goulburn valleys into a desert.

In April 2013, the management of SPCA was changed and they did not close down, but did what they could do with business restructuring. SPC currently employs 840 FTE staff—528 full-time and 921 seasonal workers—at its three factories in Kyabram, Mooroopna and Shepparton. The vast majority of SPCA's workforce is in Shepparton and the decision was taken that the Mooroopna and Kyabram factories would shut down. Seventy-three trade qualified maintenance workers who had not been able to agree on new productivity and flexibility measures saw an announcement in December 2013 that these positions would all be outsourced. The vast majority of the other food preserver workers at SPCA, some 767, have a living wage of, on average, $53,000 per annum, not a huge amount. The award wage for this group is some $27,000 per annum. It was not possible for them to be pushed back down to their award wage and for them then to be able to feed their families and pay their mortgages. The average wage increase agreed in the food preservers EBA by SPC Ardmona from 2010 to 2013 was 2.4 per cent per annum, which was lower than the negotiated food industry average of four per cent per annum and lower than the national average wage increase of 3.4 per cent. So their wage increases were way below the national and their own industry standards. One hundred and ten weekly EBA positions—that is, 29 per cent of the total—at SPCA were made redundant between 2011 and 2013. You can imagine the pain of that 30 per cent of the workforce no longer with their positions.

The salaried headcount was reduced by 31 per cent during the same period. This was a very painful but significant workforce restructuring and downsizing made by the management in an effort to maximise efficiency and so save the industry. So the orchardists suffered, the workers suffered, but they understood this was one measure they could all take in trying to save the last Australian fruit processing industry.

It is not correct to say that SPC Ardmona had not made major changes to workforce size, conditions and entitlements or that they paid exorbitant wages compared to national or industry standards, or that their problems stemmed from wages. That is what the Productivity Commission concluded on page 75 of their 12 December 2013 report Safeguards inquiry into the import of processed fruit products. They said that labour costs are 'a relatively minor contributor' to total costs and SPCA is 'suffering serious injury'.

I have already said that SPC Ardmona's earnings before tax had been significantly eroded and had declined by over 25 to 30 percentage points between 2010 and 2013 for their key domestic processed fruit categories. The business wrote off more than $300 million in the last several years. This year it has announced a further write-down of $400 million. The response of the shareholders in not closing this sector has therefore been magnificent. But what to do? The industry had restructured its workforce, reduced it by 30 per cent and removed off their payroll those with whom they could not negotiate. They understood that to survive they had to innovate, and they have done that with some magnificent new products. But that innovation required new machinery and retooling the factory, given that it was to consist of one factory campus instead of three. These new products require very different equipment.

SPCA, supported by their parent company Coca-Cola Amatil, embarked on a four-pronged strategy. The first was to request an innovation co-investment grant of $25 million from both the Victorian government and the federal government which would be matched by $90 million from Coca-Cola Amatil to invest exclusively in the new equipment and retooling. Remember, I just referred to the huge losses that Coca-Cola Amatil's shareholders had been taking. So to invest $90 million into this significantly damaged industry was an enormous step for them to take. The Commonwealth chose not to extend this support, but with a $22 million grant from the Victorian government and $78 million from Coca-Cola Amatil there is now $100 million to retool and buy new equipment to manufacture the new products, which have been doing so well in their trials. This is going to give us a real, new chance of having a market beyond the reach of the supermarkets. These new products can be put into the fast-food sector, it is hoped, and repositioned into the export market as the dollar begins to retreat.

The cheating at our borders with dumped imports also has to be addressed. If there was fair play in pricing, SPCA estimate that in regard to the dumped tomatoes from Italy, if the up to 20 per cent margin was applied as tariffs or duties then they would immediately experience a 25 per cent improvement in price competition with those dumped products—a significant amount. SPCA took a case against Italian tomatoes and South African peaches to the Anti-Dumping Commission, expecting fair outcomes. Of course they did not receive that in the case of the South African peaches. The Anti-Dumping Commission found there was dumping, but they used a different methodology to that applied in the case of the tomatoes. They used the weighted average instead of the transaction methodology. They said the margin on the dumping of the South African peaches was only two per cent. They refused to do anything to support SPCA. New Zealand used a different methodology, and immediately reintroduced antidumping actions against South African peaches, thereby protecting their industry.

In the case of tomatoes, not even our great Anti-Dumping Commission could turn its back on a dumping margin of up to 20 per cent on Italian tomatoes into Australia. However, it has now been 11 months since SPCA brought this case, and still we do not have an outcome. The minister has not received the final recommendations from the Anti-Dumping Commission asking that these duties be imposed for a period of time. How can an industry like SPC Ardmona compete with this massive dumping and the super cheap prices of other products coming into Australia? We are supposed to have fair play. We were supposed to have a strengthened antidumping regime from Labor. I am pleased that our minister is going to make sure that the Anti-Dumping Commission improves its game, reduces the time it takes to look at these cases and reduces the costs imposed on Australian industry trying to get a fair outcome.

We also have to address our flawed labelling laws that allow dumped product to come in disguised as something else under the heading 'Made of local and imported ingredients'. We have to have a better food safety inspection regime. At the moment, canned peaches from China are entering this country with lead levels double the Australian allowable limits. I am deeply concerned that those canned peaches in their three-kilo tins are still being snapped up by the food services sector, particularly in government procurement outcomes where the cheapness of the food is the most important factor in keeping the hospital, the aged-care facility or even the Defence Force canteen afloat. We have to address all of these fundamental issues.

We also have to make sure that when a company like Coca-Cola Amatil does the hard yards with its own restructuring and innovation, that Australian government competition policy is changed so that the supermarkets cannot take advantage of their market power to drive down prices to their suppliers and to put their product into home brand generics, which kills innovation and new product development in branded product. We have to make sure our antidumping regimes work and our quarantine inspection services are based on real concerns about Australian food safety. All of that is important. It must occur. The good news is that SPC Ardmona will be continuing to produce some of the best food in Australia and the world. (Time expired)