Food processors welcome energy price caps, but need long term fix

Dairy and vegetable food processors say a 12-month cap on gas and coal prices will help, but they need certainty beyond 2023.

The federal government’s plan to cap gas prices at $12 a gigajoule has been welcomed by dairy and vegetable processors, who have already seen prices double over the past year.

“Fonterra Australia is supportive of the Federal Government’s efforts to ease the energy crisis,” a company spokeswoman said.

“We’re still working through the detail and what it means for our business, but any relief on energy prices is a positive outcome for Australian farmers, food manufacturers and the dairy industry as a whole.”

But Japanese-owned tomato processing company Kagome says more needs to be done, given the cap will only buffer gas users against further price hikes until the end of 2023.

Kagome Australia chief executive Jason Fritsch said that while the price cap was good news for those companies without a 2023 energy contract, it did not deliver business a long-term solution.

“We welcome the action by the government to try to deliver price relief but I am a little disappointed that it is only for 12 months,” Mr Fritsch said.

“The real question is what it means for 2024. There is no way, from a risk management point-of-view, that we, like many other processors, can wait until this time in 2023 to decide our future, we have to be making a decision about 2024 in the first few months of next year.”

The energy-exposed processor had already signed a gas contract for 2023 for $4.2 million, or $8.20 a gigajoule. The $12 a gigajoule cap would increase its 2022 outlay by nearly a million dollars.

In dairying the hike in energy prices has been exacerbated by declining milk production, which is expected to fall from 8.55 billion litres in 2021-22 to an estimated 7.99m this season.

Processors have not been able to run their processing plants at anywhere near capacity and have also been hard hit by the global energy crisis.

Diesel price hikes have driven up transport costs, while gas, used in evaporators to make milk powders, has soared to record levels.

Saputo has already rationalised its transport fleet and announced the closure of its Maffra plant and its bulk powders production at Leongatha, both of which use huge amounts of gas in their evaporators.

The government has also promised to introduce a mandatory code of conduct for gas producers, overseen by the Australian Competition and Consumer Commission, which would focus on price transparency contract offer terms.

Kagome Australia CEO Jason Fritsch at his tomato processing plant in Echuca, 220km north of Melbourne, said while the cap on gas prices was welcomed it failed to provide business with long-term certainty. Picture: Aaron Francis/The Australian

Victorian Chamber of Commerce and Industry chief executive Paul Guerra also welcomed the announcement but said “it only provides short-term certainty”.

“It is crucial that these short-term measures compliment ongoing and consistent industry consultation that will lead to medium and long term certainty on supply and price. This will ensure business confidence,” he said.

Federal parliament is being recalled to vote on the gas and coal-price caps this Thursday, with the government still negotiating with the crossbench and Greens in the Senate.

Prime Minister Anthony Albanese announced a historic energy industry intervention on December 9. Picture: AAP Image Dan Himbrechts