By Rebecca Thurlow
BATHURST, Australia--In this small Australian city--home to one
of the world's most fearsome street-racing circuits, with corners
bearing names like Hell and the Chase--a closely held U.S. company
is racing to save another stalwart here: food manufacturing.
Idaho-based J.R. Simplot has called for Australian government
support to help save products like the Chiko Roll--a deep-fried
pastry snack inspired by a spring roll that's long been a favorite
at sporting events Down Under. The chopped meat and vegetable roll
has, along with the firm's canning operations, become a victim of a
strong Australian dollar and high wage costs that make it difficult
to compete with cheaper imports.
It's a battle that is being replicated in towns across Australia
where food manufacturing is a major local employer. For global
producers, like Canada's McCain Foods Ltd. (MFD.YY) and Pittsburgh,
Pennsylvania-based H.J.Heinz (HNZ.XX), the outcome has been factory
closures and layoffs in Australia. Heinz's new owners, Berkshire
Hathaway Inc. and private-equity firm 3G Capital have also been
cutting hundreds of jobs across the U.S. and Canada, though mostly
office positions. Others like Coca-Cola Co.'s (KO) Australian
distributor, Coca-Cola Amatil (CCL.AU), want Canberra to lead the
industry's defense against cheap food imports, with tariff
protection and anti-dumping duties.
Simplot said Thursday it would lay off 110 staff and scale back
production at its Bathurst plant as it continues to lobby for
federal government support. It has requested a 30 million
Australian dollar (US$29 million) government grant to help upgrade
aging factories at Bathurst and another in Tasmania state. The
Tasmanian plant was spared job cuts after the state government
indicated it would offer financial assistance, the company said in
a statement.
"We're not just crying wolf and pretending to be poor here,"
said Silvio Tenci, who manages Simplot's Bathurst factory. "If we
don't face up to these issues of creeping costs and stiff
competition at our borders, I think manufacturing in these marginal
industries will vanish from Australia and move offshore."
Bathurst, with a population of around 33,000, is just the kind
of manufacturing hub the country's central bank has been trying to
revive by cutting rates eight times since late 2011. In August, the
benchmark cash rate was reduced to a record 2.5%, lower even than
in the depths of the financial crisis.
Unlike similar-sized towns in the country's resource-rich west,
which have benefited from a long resources boom powered by China's
voracious appetite for commodities, Bathurst, around three hours'
drive from Sydney, relies mainly on manufacturing and agriculture
to drive its local economy.
News of Simplot's cuts is a major blow for the town. Simplot is
the country's largest vegetable processing company by market share,
producing hundreds of thousands of tons of frozen and canned
vegetables each year. Company management said Thursday they hadn't
ruled out closing the plant altogether if its profitability doesn't
improve.
"A lot of families in Bathurst will be in strife if this
closes," said Harry Robertson, who has worked at the factory for
more than two decades, and oversees packaging of products like the
Chiko Roll.
A spate of recent food factory closures across Australia have
raised concerns that the agriculture business here could head the
same way as mining--where record volumes of iron ore and coking
coal dug out of the ground has contrasted with production cuts and
job losses at the nation's steel mills.
McCain Foods this month said it would close a potato processing
plant at Penola in South Australia state in December, blaming a
sharp jump in imports of frozen potato chips. Heinz last year
closed a factory producing tomato sauce in neighboring Victoria
state and moved production to New Zealand where wages are
lower.
"We can't keep exporting the raw commodities, we need to be able
to process as much as we can," Australia's Industry Minister Ian
Macfarlane said. "But we aren't interested in propping something
up--we want long-term solutions."
Australia has long held a goal of becoming a food bowl for Asia
as the global population increases to an estimated 9 billion by
2050 from 7 billion now. The country's food exports rose by 12%
on-year to A$30.5 billion in the financial year through June, 2012,
according to government data, the highest level in a decade, as
production recovered from a long drought and severe flooding. More
than half of those exports were to Asia. However, imports of food
are also increasing, hurting domestic suppliers.
The woes of food processors mirror troubles elsewhere in
Australia's manufacturing industry, where vast dollops of
government aid have been plowed into keeping industries like auto
making afloat, with limited success.
U.S. car maker Ford Motor Co. (F) said in May it plans to stop
producing cars in Australia from October 2016 with the loss of up
to 1,200 jobs, despite receiving millions of dollars in government
handouts.
Figures from the Australian Food and Grocery Council show that
nearly 5,700 Australian jobs were lost in Australian food and
beverage manufacturing in the last financial year.
Tony Latina, a fruit grower in Victoria recently bulldozed and
burned 4,000 pear and peach trees after Coca-Cola Amatil--29%-owned
by Coca-Cola--told 60 growers it could no longer take their produce
amid mounting losses.
"It has been a tough six months," said Mr. Latina, who had been
supplying the factory for nearly half a century. "The trees were 44
years old and had 50 to 60 years of prime fruit production left and
I had to remove every tree."
-Write to Rebecca Thurlow at rebecca.thurlow@wsj.com
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