Federal Employment Minister, Eric Abetz, was out over the weekend explaining that the Government’s refusal to provide a $25 million “structural adjustment” payment to SPC Ardmona was because of its “overly-generous” labour conditions, which the Government claims is behind the food processor’s woes. From The Guardian:
…SPC Ardmona had the potential to return to profit if it looked at its cost structures and “help themselves in clearly difficult circumstances”.
Abetz said the company was wrong to agree to “over-generous” conditions for the workers in early 2013, pointing to a “shiny tin allowance” for forklift drivers as an indication of excessive conditions in SPC Ardmona’s enterprise agreement with workers.
He referred to a provision in the enterprise agreement that says: “Employees who are forklift drivers and who are stacking pallets of bright cans shall be entitled to an allowance of 50 cents per hour.”
Abetz said the “shiny tin allowance” was removed in 1991 when SPC Ardmona was in financial strife.
“Here we are 20 years later, the company allegedly in a bit of strife, and guess what? The shiny tin allowance has crept back into the enterprise bargaining agreement,” he said.
“Companies need to learn from their own history that they cannot keep going down the same route time and time again and not learn the consequences of doing so. I believe the cabinet decision was the right decision. Do I feel for the people of Shepparton? Of course I do. The uncertainty isn’t good. But at the end of the day that is the company’s responsibility, the union’s and the workers’ responsibility to come together to make sure that this enterprise succeeds.”
The troubles faced by SPC Ardmona go well beyond “overly-generous” workforce conditions, such as:
- The (still) high Australian dollar [the company was purchased by Coca-Cola Amatil in 2005 when the Australian dollar purchased $US0.75];
- Rising costs of production, due to a whole range of factors – not just rising labour costs but also reducing economies of scale, and a series of droughts and floods;
- Reduced export volumes, due to the above;
- Supermarket private label strategies, whereby the Coles/Woolworths duopolies have pushed down prices aggressively and sought cheaper imports (with some coming from heavily subsidised markets such as The European Union);
- Imports being used to improve the reliability of supply; and
- Decreasing domestic demand for tinned processed fruit.
Unlike the dying car industry, SPC Ardmona assistance is earmarked to be spent on re-tooling their plant so that it could produce higher-value goods, such as freeze-dried fruit, single-serve plastic cups, and squeeze tubes, which would be ideal for export to Asia’s emerging middle class. In addition to the requested $25 million grant from the Federal Government, $90 million of investment was to come from the parent company, Coca Cola-Amatil, with the Victorian Government also contributing.
If SPC Ardmona shutters as a result of the Government’s decision, then a whole range of fruit and vegetable producers in the Goulburn Valley Region would be adversely affected, not to mention many working in supply chain and associated industries. According to the Productivity Commission:
For many growers, their supply to SPC Ardmona generates between 80 and 100 per cent of their income, and so the reduced processing fruit intake has a large impact upon their businesses…
Nearly half are failing to pay their trade creditors on time; less than one quarter expect to make a profit in 2013-14; and of the 80 per cent that have some level of debt, half have debt greater than 50 per cent of their equity value.
The situation facing Victoria’s fruit growers is made worse by the fact that for many, the varieties they produce are unsuitable for fresh markets, given their fruit is grown on canning trees, which are distinct from fresh fruit available in supermarkets. Not only does the removal of canning trees require a significant upfront investment – money that is not available – but once these trees are gone, then the industry cannot be easily restarted. It will be lost for good.
Obviously, the closure of SPC Ardmona would, therefore, have dire impacts on the Goulburn Valley Region and Shepparton in particular. Estimates of total job losses in SPC Ardmona and associated industries could total 5,000 to 6,000 jobs, with the loss of tax receipts, welfare payments, and retraining dwarfing the $25 million investment from the Government.
As Business Spectator’s Rob Burgess points out, the requested $25 million from the Federal Government is also a pittance when considered alongside the Gillard government’s $1.8 billion flood relief package for northern Victoria in 2011, as well as the $1.2 billion of irrigation infrastructure specifically built in recent years around the fruit growing properties. Or, for that matter, Barnaby Joyce’s proposal this morning that the Government form a $7 billion bad bank for souring rural loans. Much of this investment will have been wasted if SPC Ardmona shuts and the horticultural industry is downsized.
There is a broader issue at stake as well. SPC Ardmona is Australia’s last fruit and vegetable processor. In a nation that aspires to be the food bowl of Asia, do we really want to lose the ability to process our own food and be reliant on imports instead? Further, do we want region centres like Shepparton to become welfare towns and shrink, placing even more pressure on Australia’s major cities?
MB is in favour of managing the structural adjustment to lower real incomes for the nation as the dollar falls and competitiveness is improved and no doubt rural communities should do their bit. The proposal this morning from Baranby Joyce to bail out farmers everywhere with a blanket bad bank looks much more like a bailout without cost benefit analysis. From The Australian:
AGRICULTURE Minister Barnaby Joyce has vowed to wage a “mighty battle” in cabinet to convince his colleagues to sign off on a $7 billion bailout of “distressed” farm loans and avert a “complete and utter financial meltdown”.
Addressing a packed crisis meeting of farmers in southwest Queensland on the weekend, Mr Joyce warned that rural debt in Australia had reached an unsustainable level of $70bn and that 10 per cent of it was unlikely to be repaid.
Mr Joyce told the farmers he supported calls for a Rural Reconstruction and Development Bank to be formed within the federal Reserve Bank to buy bad rural loans from the private sector at a discounted price.
The move would put Mr Joyce and other Nationals on a collision course with their dominant Coalition partner, which has recently shown its reluctance to prop up ailing industries.
But a pragmatic approach to managed restructuring is still needed and SPC Ardmona is a prime candidate for a good save given the cost benefit analysis.
The decision on SPC Ardmona is even more curious given it can’t be seen as purely ideological either. The Government’s pre-election pledge to provide Cadbury with a $16m grant to support tourism and manufacturing in Tasmania. But “It’s not a fair comparison” according to Eric Abetz, who just happens to be a Tasmanian-based minister:
“All governments from time to time decide to make a contribution for the purposes of regional tourism infrastructure and that was part of the Cadbury’s deal, reinstituting the Cadbury factory tours that used to be very popular, used to be a drawcard to Tasmania.
“When you’ve got an economy shot, as it is in Tasmania, that was seen as a reasonable endeavour by the federal government to assist in enhancing the tourism effort in our state together with helping the dairy industry and creating another 200 factory jobs.”
This is not the kind of pragmatism I’m referring to.
The SPC Ardmona board is set to meet on 18 February to decide whether it will continue in Shepparton. Let’s hope cooler heads prevail and a deal can be made. Otherwise, it will be a case of gross incompetence on the Abbott Government’s behalf.
