Concerns for Australia’s food bowl after Australian government rejection of CCA’s SPC Ardmona pitch

Posted by AFN Staff Writers on 3rd February 2014
SPC Ardmona will not receive Government grants

The Australian Government’s decision not to invest $25 million as a one-off grant for CCA’s fruit and vegetable processing subsidiary SPC Ardmona has raised wider issues about global brand licensing arrangements.

Coca-Cola Amatil (CCA) said the Federal Government decision also meant that a potential $25 million grant from the Victorian State Government, which was conditional on a positive decision, would no longer be forthcoming.

CCA trade-off

CCA said it had strong investment plans for SPC Ardmona that were dependent on the receipt of both Federal and Victorian Government grants, and had committed to a further investment of more than $90 million to support the Government contribution.

The Company said its alternative plans for SPC Ardmona will necessitate a material review of SPC Ardmona’s carrying value and a write down of its assets, including brands and goodwill, the amount of which will be considered by the Board and announced on 18 February 2014, at CCA’s 2013 Full Year Results presentation.

The Pitch

Why did CCA think that the Federal Government would invest $25 million into CCA’s business? It appears that the pitch was that the Federal Government would save itself the cost of social welfare and unemployment benefits by investing a lesser sum in the CCA operation.

Stripped brand values

Some argue that CCA has stripped considerable value from SPC Ardmona by stripping out its valuable “Goulburn Valley” brand and transferring it into CCA’s own drink brands portfolio soon after its acquisition of the SPC Ardmona business.

It could also be argued that CCA missed the opportunity to capitalise fully with the Goulburn Valley brand on the growing trend among consumers to look for ‘local’ or ‘regional’ products, and the ‘fresh/healthiness’ trends in food marketing.  Australian Food News has previously reported that supermarket groups Coles and Woolworths have both engaged in strategies designed to demonstrate commitment to supporting Australian farmers and food manufacturers. Part of Woolworths’ ‘local’ strategy, in fact, involved a major contract with SPC Ardmona.

Divorce of brand value

The SPC brand, which grew hugely popular in the UK during the 1960s prior to Britain’s entry into the Common Market (now the EU) is still being used to sell processed fruit in the UK and EU, but uses fruit grown and packaged in Spain.

The fact that global companies can extract and shift value and generate licensing income-streams out of the acquisition of popular brands means a divorce between the location of the physical production from the place(s) where the licensing income-flows end up.

The SPC decision by the Australian government may be a big game-changer. But like other governments, the Australian Government has been slow in waking up to the bigger picture, which has also resulted in reduced company-tax revenues from international brands across the globe.

Back to the old arguments

The local Federal Liberal politician, Sharman Stone MP, arguing in favour of Australian Government support of SPC Ardmona, said that other than the 760 or more jobs at the fruit manufacturer that would be affected if the plant shut down, another 3,000 to 4,000 jobs in the region could be affected — including orchards, fruit-storage businesses, packaging business, businesses in transport and logistics.

She argued that welfare payments for the loss of that many jobs would be far greater than $25 million.

MP Stone said that once the industry was lost it would be difficult to get it back, and that, ultimately, SPC Ardmona’s situation did not come about because of “bad business” tactics, but because of circumstances outside of its control.

Outlook for SPC Ardmona and Goulburn Valley region

The Victorian State Government has said that the Federal Government’s decision was a “significant setback” for Goulburn Valley communities and Victoria.

Both the Federal and State Governments have previously promoted the Goulburn Valley as an important regional  food bowl for Australian future exports to Asia.  Over the past decade, governments at both Federal and State level have invested heavily in new irrigation infrastructure. Without a fruit growing industry, this infrastructure could be made redundant.

This infrastructure may enhance more opportunities for entrepeneurial interest in the Goulburn Valley or the SPC Ardmona operation itself, if CCA must decide now either to offload it or shut it down.

Apple and pear growers’ look to export opportunities

Fruit growers’ industry representative body Apple and Pear Australia Ltd (APAL) also expressed disappointment in the decision and “support for fruit growers as they face the future”.

“It’s a tough day for a lot of fruit growers in the Goulburn Valley who supply SPC Ardmona,” said John Dollisson, Chief Executive Officer of APAL. “We will be doing everything we can to support our growers there to help them plan for their future in the wake of this news,” he said.

The APAL said around 90 per cent of Australia’s pears and 40 per cent of Australia’s apples are grown in the Goulburn Valley region of Victoria, where the SPC Ardmona factory is located.

“While we are are disappointed with the Government’s decision, we have to look to the future and create new opportunities for growers,” Mr Dollison said.

“For example, there is huge potential for growers to diversify their pear production, plant improved varieties and aim to export their fruit — to make their businesses and their orchards more competitive and profitable,” Mr Dollison said. “We hope the Government will now look at other ways to support apple and pear growers so the industry can thrive and so we can continue to supply Australians and potentially the world with our world class fruit,” he said.