Grocery prices spike amid soaring manufacturing costs

Soaring freight, labour and energy costs following Covid-19 induced border closures and supply chain disruptions has pushed up food manufacturing costs by 12.5 per cent.

Australian Food and Grocery chief executive Tanya Barden says Australian manufactures were battling high costs across logistics, labour and electricity. Picture: Nikki Short

Soaring freight, labour and ­energy costs following Covid-19-induced border closures and supply chain disruptions have pushed up food manufacturing costs by 12.5 per cent, according to new analysis.

The Australian Food and Grocery Council State of the Industry report, to be released on Tuesday, found the sector injected more than $144bn into the economy in 2021-22 but cost pressures on the domestic industry remain high.

The report – which represents a detailed analysis of Australia’s largest manufacturing sector – found that manufacturers were still affected by supply chain ­issues and high inflation left over from the pandemic.

Employment in the sector slipped 1 per cent in the past ­financial year, while capital investment across the industry ­remained almost stagnant at 1.6 per cent growth.

While investment in beverage manufacturing was up 55 per cent on the previous year, investment in food manufacturing contracted 12 per cent to just over $2bn.

Australian Food and Grocery chief executive Tanya Barden said Australian manufactures were battling high costs across logistics, labour and electricity, similar to regular Australian consumers.

She said the sector faced challenges to attract new investment in order to remain competitive with overseas companies “after a decade of stagnant investment”.

“The landscape has changed dramatically for food and grocery manufacturers with limited relief after three years of natural disasters, Covid disruptions and war in Ukraine,” Ms Barden said.

“We’ve also seen a shift away from ‘just in time’ supply chains to ‘just in case’ since the pandemic and manufacturers are now holding higher inventory levels to maintain supply which pushes costs higher.

“These are significant challenges for an industry that must attract new capital to embrace new technologies and remain competitive with offshore competitors after more than a decade of stagnant investment.”

The report says the overall value of the Australian food and grocery sector rose from $134bn to $144bn off the back of high domestic consumption and strong export growth.

Labour shortages and border closures can also be blamed for a dip in employment from 273,002 in 2020-21 to 270,661 in 2021-22.

The report pointed to data from the Australian Bureau of Statistics – which includes the cost of inputs used by manufacturers – which production costs in food manufacturing rose 12.5 per cent. At the same time, inflation rose 6.1 per cent across the same period.