Global food giants issues warning about high costs of manufacturing in Australia

Global food suppliers including Mars, Nestle and PepsiCo have ­issued stark warnings about the cost of manufacturing in Australia, citing sky-high energy bills and accelerating wages.

Confectionery and food giant Mars has warned on the high cost of manufacturing in Australia.

Global food suppliers including Mars, Nestle and PepsiCo have ­issued stark warnings about the cost of manufacturing in Australia, citing sky-high energy bills and accelerating wages, to cast doubt on the Albanese government’s Future Made in Australia aspirations.

Joined by other major grocery producers such as Procter & Gamble and Unilever, the sup­pliers say Australia is one of the costliest countries in which to do business.

Gas bills up 300 per cent, ­accelerating wages and freight ­increasing 11 per cent per annum for the past three years have put a strain on profitability for multinational manufacturers, the global giants have argued, which in turn will constrain their ability to pay higher wages and invest in staff, equipment and machinery.

The US-headquartered Mars says its six manufacturing sites in Australia are among the most ­expensive to run in its global network of more than 130 factories in almost 70 countries.

“Australia is known as an ­expensive place to manufacture food products locally,” Mars said in a submission to a Senate ­inquiry into supermarkets.

“Our Mars Australia manufacturing sites are among the most expensive in the global Mars network. This is attributed to wages, cost of local raw supplies and lengthy supply chains to reach Australia with imported materials and ingredients.”

It comes as the Albanese government recently launched its ambitious Future Made in Australia Act that through massive investment, subsidies and a mix of public and private spending will seek to develop the ­nation’s manufacturing capabilities, develop new industries and replace imports.

However, the global food and grocery manufactures have warned that Australia’s existing manufacturing base, as well its ­capacity for innovation, investment and employment, was being weakened by the weight of ­excessive costs.

Kellanova, the multinational owner of snack food and cereal brands such as Kellogg’s, Nutrigrain and Pringles, said Australia was a “challenging” place to do business. It added that it wanted to manufacture food in Australia but high costs threatened its operational viability.

“It is increasingly challenging to operate a food business in Australia, particularly with local manufacturing operations,” said Kellanova in its Senate submission. “With ageing capital equipment and facilities, it is imperative that we have the ability to operate a viable and profitable business in Australia, so that we can fund investment in our facilities and capabilities.”

Gas prices, especially, were singled out for complaint, with the world’s biggest packaged food company, Mars, revealing its gas prices had increased 106 per cent in the past two years. Beverages and snacks giant PepsiCo said it had experienced a 300 per cent increase in the price of gas – the primary energy used in its Australian manufacturing facilities.

These costs, from wages and energy to freight and supply chains, were undermining the ability to invest in manufacturing sites and innovate, the leading global food and grocery manufacturers warned.

Most cited the high cost of manufacturing in Australia, casting a shadow on ambitious federal government desires to build up the nation’s base of factories.

“The ambition to do and make more in Australia is laudable but we need to get the basics right,” Innes Willox, chief executive of the national employer ­association, the Ai Group, told The Australian.

“We need to develop a coherent and cohesive framework that encourages businesses to invest in Australia.”

Mr Willox said there was no doubt Australia was a high cost country.

“And those costs are what drives businesses to invest overseas rather than here,” he said. “These high costs include comparatively high wages, tax, ­energy, insurance and stifling regulatory and compliance burdens. The industrial relations rigidities are a clear barrier to employment and drive costs up.”

PepsiCo said that in recent years, supply chain disruptions, global conflicts, weather events and natural disasters had caused significant challenges, leading to higher costs in producing, transporting and selling packaged foods in Australia. “Inputs critical to operating our business, including energy and fuel and packaging, all ­increased substantially,” it said in its submission.

Consumer goods company Unilever said its manufacturing and warehousing costs had ­increased by 29.5 per cent and 16.4 per cent respectively since 2019 due to rent rises, wages and energy.