Simplot and McCain both announce cut backs, threat of closures

Posted by AFN Staff Writers on 5th June 2013

Two prominent Australian food manufacturers have announced they are feeling the pressure from a “very competitive food industry environment” and may forced to make closures and reduce grower contracts.

Simplot Australia Pty Ltd has announced that two of its vegetable processing plants are at risk of closure, while McCain Foods Australia has confirmed that four potato growers in Ballarat have been notified they will not be offered contracts for the upcoming harvest period in late October – November 2013.

Simplot plants at risk of closure

Simplot Australia today advised employees at its plants in Bathurst (New South Wales) and Devonport (Tasmania) are under threat of closure. The Company said this was due to “unsatisfactory financial returns arising from a very competitive food industry environment and unsustainably high costs associated with manufacturing in Australia”.

The Company said the plants, which have both in the Simplot business for many years, are currently not competitive in the face of much lower cost imported product alternatives. According to Simplot, the high Australian dollar, while not causing the underlying lack of competitiveness, exacerbates the issues facing the plants.

“The frozen and canned vegetable categories have been chronic profit under-performers for years, regardless of the value of the Australian dollar,” said Terry O’Brien, Simplot Australia Managing Director. He said that the Company’s immediate imperative was to seek “sustainable improvement opportunites” with key stakeholders to help return the plants’ financial performance to the required level.

Simplot said meetings are being scheduled with local, State and Federal government representatives, employees, unions, suppliers and growers to discuss profit improvement opportunities.

“If insufficient opportunities are identified, we will be forced to close our Bathurst plant after the next corn season. Our Devonport plant will be required to produce a five year improvement plan with satisfactory outcomes or face the prospect of a longer term (3 to 5 year) closure,” Mr O’Brien said.

Australian vegetable and potato growers’ representative body AusVeg has said it is “deeply troubled” by Simplot’s announcement, and has called for the Australian Government to re-evaluate the food processing sector.

Simplot Australia said its parent company, the US-based JR Simplot Company, “remains steadfastly committed to the Australian food manufacturing industry” and is seeking ways for its Australian operations to improve returns in the face of “significant structural changes in the dynamics of the Australian market”.

The announcement follows an intensive six-month review of Simplot’s supply chain operations in the vegetable category.

McCain cuts growers

Meanwhile, McCain Foods has announced that four potato growers in Ballarat will not be offered contracts for the upcoming harvest period in late October – November 2013 because of surplus potatoes from 2012 and lower customer demand for the local product.

“The company has a long-standing history with many growers in Ballarat, Tasmania and South Australia, and we are committed to maintaining those relationships where we can,” said Mr Farnell. “It’s important we give as much notice as we can for this year so growers can look for other opportunities. We believe six months before planting is sufficient notice in the circumstances,” he said.

McCain Foods said it has been in discussions with growers across Australia for the past three months over the tonnage available and individual requirements.

“Australian potato prices were still very high compared to cheaper processed imports, and it’s important for grower committees across Australia to take leadership roles in tackling reforms to reduce inefficiencies in the system, which is vital in making our industry sustainable and competitive,” said Gerry Farnell, McCain Foods Integrated Supply Chain Director for APMEA.

McCain Foods said it had discussed the threat of imports with grower representatives and Victorian and Tasmanian State Government officials over the last 18 months through a working party to tackle reforms. McCain Foods said it would continue to consult with grower communities in each State on improving industry efficiencies and the development of new technologies to make the industry sustainable.

“Only a decade ago, Australia’s potato growers were competitive and import-resistant, and this should be the number one priority for growers,” Mr Farnell said.

McCain has reduced potato contracts