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Despite the recurrence of drought and despite a rising Australian dollar (AUD), the food industry in South Australia in 2006-07 contributed just less than the record $10 billion to the South Australian economy in 2005-06. Gross Food Revenue was $9.98 billion, down 0.2% from the previous year. Net Food Revenue, which deducts the value of imports included in Gross Food Revenue, shrunk by 4% to $8.03 billion.
The Food Scorecard provides a range of economic indicators with a traditional focus, over the decade of its production, on the South Australian Food Plan target of $15 billion in Gross Food Revenue by 2010. This target requires 7.9% growth over the 13 years from 1996-97 to 2009-10. With the publication of a South Australian Food Plan 2007-2010, a second major target has been added: 8% growth of Finished Food production until 2010.
The persistence into 2007-08 of both the drought and the strengthening AUD will limit the food industry’s capacity to make satisfactory progress towards either target.
A particularly troubling aspect of the current drought is the reduction in Murray River water allocations. This is especially impacting Riverland horticulture and dairying along the Murray. In response to these adverse conditions, rising food prices are already apparent, food import volumes are increasing and export volumes are decreasing.
Figure 1 shows the trends in growth of Gross Food Revenue in relation to the target growth rate and the historical growth rate.
To monitor performance against the above targets and to provide input to PIRSA and industry strategic planning, the ScoreCard team analyses performance at three stages in the food industry chain: the primary stage (agricultural, fishing and aquaculture), the Finished Food stage (packing and processing) and the consumption stage (hospitality and food retailing).
Changes in farm gate values in 2006-07:
Interstate exports of primary food products have shown a trend growth rate of 8% over the decade. The failure to capture the value-adding opportunity is a concern in sectors such as Dairy.
While the growth rate in Finished Food value from 1996-97 to 2006-07 was 3.7%, that in 2006-07 was less than 1%. Finished Food value increased from $4.01 billion to $4.05 billion, a $38 million increase. The rate required for Finished Food to achieve an overall 8% average growth to 2010 is now 9.3% per annum.
On the positive side, Finished Food production provides a stabilising influence on the industry. By comparison with the wide fluctuations in the value of commodity exports, use of SA primary food products by SA processors shows a very stable upward trend of 3.7%. Moreover, both Australian consumption and overseas export of SA Finished Food show stable upward trends of 3.0% and 5.7% respectively.
In 2006-07, the Value-adding Ratio (SA Finished Food value/SA use of primary food products) was 2.4. This ratio has oscillated around an average of 2.5 over the decade.
Emphasising the issue of stability raised in Section 3, food commodity exports decreased 22% ($154 million) from $708 million in 2005-06, while Finished Food exports increased 6% ($61 million) from $1,083 million. The trend growth in food exports was 5.7% for SA and 3.7% for the Rest of Australia. These trends include a levelling off since 2001-02 in response to AUD strengthening.
The market share of Overseas Imports has risen from 15.7% in 1996-97 to 16.7% in 2006-07, so the longer-term trend shows no significant threat to SA firms. However, AUD strengthening has increased the threat, with the 2.8% growth trend over the seven years to 2003-04 being replaced by an 11% growth trend since then.
There is no sign that, in aggregate, SA firms are substituting for imported products in the local market. This is not necessarily a bad thing, as many SA sectors export high-value products rather than compete locally at lower price points. For example, in 2006-07, the average price of seafood exports ($27/kg) compared favourably with the average price of seafood imports ($6/kg).
In 2006-07, total private investment in food and beverages decreased $24 million (5%) to $449 million. In the decade since 1996-97, investment in food and beverage has fluctuated but trended up slightly (2%). There has been slight trend growth of 1.6% in food-oriented private investment over the decade. Beverage-oriented private investment, on the other hand, grew rapidly in the wine boom years to 1999-2000, but has declined at a trend rate of 9.5% since then.
Food processing research and development increased by 6% in 2005-06, up $1.3 million. There has been a five-fold increase from $3.7 million in 1996-97 to $20.9 million in 2005-06. This has boosted SA’s share of national spending from 2% to 6% over that time.
The 2006-07 Food Scorecard has remained steady for Gross Food Revenue and Finished Foods in challenging environmental and trading circumstances. While Gross Food Revenue made no progress towards the target of $15 billion by 2010, it fell by less than 1%. The rate of growth required to meet the Gross Food Revenue target is now above 15% per annum. There should be a significant bounce-back after the drought breaks, but that will not be evident in the 2007-08 Scorecard.
For the Finished Food category from 2006-07 to 2010, a growth rate of 8% per annum was targeted. While the long-term growth rate in Finished Food value from 1996-97 to 2005-06 was 4% and that in 2005-06 was 5%, it slowed to less than 1% in 2006-07. The rate required for Finished Food to achieve the target is now 9.3% per annum. In the circumstances of back-to-back drought and a strengthening Australian dollar in 2007-08, the required rate of growth to 2010 may steepen further.
Employment in the food sector has declined marginally over the past decade. ABS Labour Force Surveys indicate that the number of full time equivalent (FTE) jobs across the food industry value chain in South Australia has fluctuated slightly over that time. Employment in 2006-07 was 133,300 FTE’s compared with 136,500 FTE’s in 1996-97. The main trends within the sector have been a decrease in employment in primary activities and an increase in wholesale/retail.
1 Finished Food is the term PIRSA uses for the product of the secondary stage of food production. It might be highly or minimally processed including, for example, on-farm or on-boat operations, such as packaging of lobsters for live export.