Healthy Profits – What are they ?

Where to Now?

Broadcast: 14/09/2013 9:19:53 PM

Reporter: Fiona Breen
Simplot – Birdseye brand vegetable processor – SAME LOGIC WORKS for ELECTRICITY – Even River Produced Electricity is NOT FREE.

Review to two factories was not good. As USA owners were telling TERRY O’Brien
turn the factories around or close them.

TERRY O’BRIEN, SIMPLOT AUSTRALIA:  “… They’re quite patient investors. They’ve put a lot of money into Australia over the 18-odd years that they’ve owned it. They really enjoy having the business down here and they haven’t been as demanding for returns that perhaps a public company would be. Being private, they have their own longer-term agenda, but at the same time clearly they have to get a return that makes some sense and mostly they need a return that allows them to reinvest and keep all of our assets and factories and everything up to standard…”

See Below for full transcript ::

Australia’s vegetable industry is in crisis with the nation’s last two frozen vegetable processing factories still under threat of closure. Imported frozen vegetables are taking the place of locally-grown products in supermarket trolleys and business is suffering.

Simplot’s future in Australia depends on what the new Coalition Government does to help keep the industry alive. More than 500 factory workers and 150 farmers are waiting on a decision and Simplot has promised to get back to them by the end of this month.

Fiona Breen travelled to Bathurst in NSW and to Devonport in Tasmania to talk to those fighting to keep Australia’s food manufacturing industry alive.

FIONA BREEN, REPORTER: This small group is a rare breed. Part of a declining number of farmers growing Australia’s vegetables. Today, onions are being planted in the rich, red clay soil of Tasmania’s northwest. It’s a miracle this planting is happening at all. These farmers have been distracted.

ROBBIE TOLE, DEVONPORT GROWER: We came together probably as a request from Simplot to help put a proposal together to help them remain viable and also for us to remain viable and we’ve had a good mix of growers on the group from north of Tassie down through the northeast down here, so we’re covering a wide range of areas and crops. So it’s been really positive.

FIONA BREEN: They’ve spent more time in meeting rooms than they have in the fields, pushing themselves out of their comfort zone to work up a strategy to secure their farming future.

STEWART MCGEE, DEVONPORT GROWER: We’ve presented to the Greens, Liberal, Labor, to the Department of Economic Development, the University Centre of Food Innovation, which is a new, relatively new thing. I think they will be very helpful to us. Enterprise Connect, very widely with our State and Federal politicians.

FIONA BREEN: The farmers flew into action in June when Simplot Australia’s chief, Terry O’Brien, announced its two big frozen vegetable factories in Bathurst NSW and in Devonport, Tasmania, could be closed. A combination of a high Australian dollar, soaring production costs and cheap imports flooding the local market was hurting the bottom line.

The dollar had opened Australia’s door to global suppliers, but shut the door on Simplot’s exporting arm. A review of the two factories wasn’t good and the American owners were telling Terry O’Brien to turn the factories around or close them.

TERRY O’BRIEN, SIMPLOT AUSTRALIA: They’re quite patient investors. They’ve put a lot of money into Australia over the 18-odd years that they’ve owned it. They really enjoy having the business down here and they haven’t been as demanding for returns that perhaps a public company would be. Being private, they have their own longer-term agenda, but at the same time clearly they have to get a return that makes some sense and mostly they need a return that allows them to reinvest and keep all of our assets and factories and everything up to standard.

FIONA BREEN: Other multinational vegetable processers have already pulled out of Australia.

TERRY O’BRIEN: One of its biggest competitors, McCain’s, closed its Tasmanian operation in 2009 and set up a factory in New Zealand. Hundreds of jobs were lost. Millions of dollars left the local economy. Heinz also shifted its vegetable processing to New Zealand. At this point in time you’re talking across just about every input, probably 30 to 40 per cent more expensive in Australia than in New Zealand.

Now, clearly they have some limit to their production capability. They probably couldn’t service the whole of Australia, so ultimately there’s still a place for Australian manufacturing against them. But we really have to strive to find a way to be competitive on a parity basis with New Zealand and I think they’re the main competitor for us in the vegetable business.

FIONA BREEN: Since June, Terry O’Brien has been on his own campaign trail, criss-crossing the country to rally support to keep Simplot’s vegetable factories open. He urged the Tasmanian farmers to get organised.

TERRY O’BRIEN: We’ve had a heck of a lot going on and, I mean, I can’t get the smile off my face because I’m so surprised at the reaction we’ve had and it’s been so positive. So I suppose all I’m saying is if three quarters of what we’ve got floating around in the air at the moment came true, we’ll probably go on and we’ll be OK, and we’ll commit to staying in that plant for some time.

If we can’t get all the main inputs over the line, then it probably won’t.

(Fiona Breen in a Chiko packaging factory)

FIONA BREEN: Simplot’s campaign to keep its factories open has highlighted the potential loss of Aussie brands like Bird’s Eye and Edgell, but it’s the threat to another Simplot Aussie brand that has captured people’s attention, and it’s this – the humble Chiko roll. In its heyday, the factory here in Bathurst was making 40 million Chiko rolls a year. The numbers have dropped to 10 million but it’s still a fish and chip shop staple.

The campaign by Simplot and its farmers gained some early traction with a couple of wins, but they proved to be hollow.

(Kevin Rudd meeting farmers)

KEVIN RUDD, EX-PRIME MINISTER: What do you grow, mate?

FARMER: Peas, potatoes.

KEVIN RUDD: OK, OK, that’s good.

FIONA BREEN: An 11th hour pre-election promise from Kevin Rudd for $10 million for farmers, and an $18 million pledge from Kim Carr to upgrade the factories.

(3 September 2013 Kevin Rudd interview)

KEVIN RUDD: We believe in investing in, and co-investing with good companies like Simplot because farmers have been supplying companies like this since the Second World War, it’s a good business and we want to see the agricultural services industry grow, and grow, and grow.

FIONA BREEN: The new Liberal Government, however, was more cautious during the pre-election circus. Tony Abbott flew into Tasmania’s north a couple of times but refused to be drawn on a deal to save Simplot.

(3 September 2013, Tony Abbott interview)

TONT ABBOTT, LIBERAL LEADER: Should we form a government after Saturday, I’m very happy to sit down with Simplot. I accept that they are a very important local employer; I accept that they are very important for the future of the agricultural sector of northern Tasmania, the vegetable industry of northern Tasmania, I absolutely accept that, but the time to talk with them is calmly, rationally, after an election, not to engage in some kind of pre-election auction.

FIONA BREEN: It’s not just the new government that Terry O’Brien is waiting on.

He’s hoping workers will be prepared to sacrifice to keep the company in Australia. Terry O’Brien is counting on a Holden-type deal with factory workers, to freeze wages and create more flexible conditions.

(Fiona Breen standing outside a Simplot factory in Bathurst)

In the heat of the season when the factories here in Bathurst and in Devonport are running six or even seven days a week, Simplot says it’s paying its factory workers about $50 per hour. Its competitors in New Zealand are paying about $20 an hour.

TERRY O’BRIEN: With our labour laws to run businesses around the clock, which you have to do for short periods of the time, that does bring with it quite high penalty rates, etc.

So the unit cost of labour when you compress it into a short part of the year is a lot higher than it would be if we had it spread throughout the year, like you can in some places.

(Terry O’Brien in factory talking to workers)

Don’t you miss any of them, will you? We get complaints when they’re not in there.

FIONA BREEN: Terry O’Brien has been up-front with Simplot’s 200-strong Bathurst work force. Without major change, the factory might not make it far past the next corn harvest, due in April next year.

TERRY O’BRIEN: It’s the harder part, for sure, and it’s got alternatives offshore.

Like we could go to Thailand as well and we could go to Italy, and there’s actually a big prize for us to do that and that’s what, you know, really putting the question mark over Bathurst because there are alternatives.

FIONA BREEN: Have you been seriously thinking about it?

TERRY O’BRIEN: Absolutely. And we’ve actually worked out what the price is if we do that. But the bottom line is, as I said before, our preference is to stay in Australia and have Australian product, so our preference is to get the competitiveness of our plant close enough that we can survive rather than just cut and run.

FIONA BREEN: Devonport employs 300 people. Both factories employ generations of the same families. Many have been with Simplot for 20 years or more. Both regions also have high unemployment rates and many workers would have trouble securing new jobs.

JENNIFER DOWELL, AUSTRALIAN MANUFACTURING WORKERS UNION: Obviously they’re under a lot of stress. I think particularly at Bathurst, it’s really difficult for them because the threat of closure is more imminent for the plant at Bathurst. They were told that they may not have another corn season after this one, and this one finishes in about April of next year.

So they’re really stressed and it’s terrible for them having to come to work under such uncertainty.

FIONA BREEN: Jennifer Dowell from the Australian Manufacturing Workers Union is also criss-crossing the country, visiting both Simplot work sites to talk to factory employees. She says any changes must be negotiated through the new enterprise agreement, which is due for renewal in February.

And while the union is prepared to start negotiating early, there’s little that can be fast tracked.

JENNIFER DOWELL: The issue is that at the end of the day it will be a difficult thing to try and negotiate. We have got a national agreement which covers five plants. We have spoken to workers in the plant and really before we can come to a landing on any position with respect to wage increases, we’re looking at getting a whole lot more financial information from the company and more information about what their plans for the future are, because you know, I really have a problem in talking to company about wage increases or non-wage increases with the threat of closures hanging over workers’ heads for months at a time.

FIONA BREEN: There’s pressure for Terry O’Brien to secure his deals with workers and with Government sooner rather than later. He’s due to travel to Idaho in the United States later this month to present his decision on the future of the two Australian factories. It’s now a waiting game for everyone, farmers and factory workers.

But it’s particularly difficult for people in Bathurst. The Bathurst factory, first built by the Edgell family in the 1920s, is most under threat.

TERRY O’BRIEN: Bathurst is the hardest plant to make sense of, because it’s got a very big footprint here and a lot of different products, and so ultimately we may not get Bathurst right up to the best outcome that we’d like. But provided we can get Devonport and Bathurst together to make sense for us as a category, a vegetable category, then most likely we would continue with both plants.

FIONA BREEN: The Bathurst factory manufactures 30,000 tonnes each year, including 20,000 tonnes of canned vegetables and 10,000 tonnes of frozen vegetables. 12 months ago, the company put in new robotics to pack and wrap the pallets of cans.

(Terry O’Brien talking to a worker)

TERRY O’BRIEN: And what about the big robot here, the palletiser, that’s going alright?

SIMPLOT WORKER: Yes, we had some issues with cogs breaking there, but overall we’ve now got over the issue of where the cogs are breaking. It’s come good.

TERRY O’BRIEN: You sometimes wonder how these plants ran before without these robots.

SIMPLOT WORKER: Yes, it’s doing a lot of labour.

TERRY O’BRIEN: A lot of backbreaking labour.



FIONA BREEN: Canning was the more profitable line, achieving better margins than frozen. But as imports fill the local supermarket shelves, prices and demand has dropped for canned vegetables.

Corn has become one of the cheapest canned products on the supermarket shelves and that’s not good for Simplot.

FIONA BREEN: The competitor, for example, on canned corn, is Thailand where they run two seasons of growing corn every year, so they have a lot more, a lot flatter production year than we do and of course their labour rates are a little different to Australia.

But in the main, you know, they do such huge scale out of Thailand that they can get a can of corn into the Australian market sort of almost equal to our cost.

FIONA BREEN: Each factory has its own particular set of rising utility costs. The Bathurst factory is struggling with a sharp rise in the cost of electricity.

Here in Devonport, the annual water bill has gone up more than 300 per cent to over $2 million.

Each plant uses a lot of water. In Devonport, water flows through just about every part of the factory, but none more so than the washing line, where machines work hard to get the thick, red clay soil off a load of carrots.

TERRY O’BRIEN: Our current annual bill’s around $800,000 and now they’re threatening 2.8.

FIONA BREEN: Per year?

TERRY O’BRIEN: Per year. And I can tell you have to sell a lot of green peas to make that $2 million.

FIONA BREEN: Both plants also use a lot of electricity. Each step of the freezing process takes a lot of energy. Power in NSW has gone up by more than 200 per cent.

As the threat of closure hangs over the two factories the supermarkets are still stocking their shelves and freezers. Vegetables from Thailand, China, New Zealand, and the Netherlands sit beside the local products. They look similar and they’re often cheaper.

SHOPPER 1: I suppose I just see what’s on special and what I need I just grab and off I go. Yes, I sort of don’t take time to read everything and get what I want.

SHOPPER 2: Price, more than anything. I mean, every penny counts at the moment so you’ve got to look for price more than anything.

FIONA BREEN: Many shoppers rushing in and out of the supermarket are unaware of the long-term effects of their decisions. Surveys suggesting shoppers want to buy Australian are not always reflected at the checkout.

SHOPPER 3: When I sort through the racks we see New Zealand products and other products packed here and supplied there and, yes, it’s a bit disappointing.

FIONA BREEN: It frustrates farmers.

Bathurst grower Jeff McSpedden has had to cut costs each year. He wants consumers to think more about what they’re buying.

JEFF MCSPEDDEN, BATHURST GROWER: People don’t realise that if processing goes offshore you will have to buy imported, and then depending on the dollar, if our dollar goes down there will be a real spike in food price.

FIONA BREEN: Jeff McSpedden is in a holding pattern. He’s grown corn for Simplot for 45 years. Each year his farm produces about 2,000 tonne of corn. After June’s announcement he’s had a rethink.

[Talking to Jeff McSpedden] Have you been holding off on buying any new equipment or getting ready for plantings because of this uncertainty surrounding Simplot?

JEFF MCSPEDDEN: It is. We made a decision when they made the announcement to actually run more sheep. So this year we’ve kept all our female sheep to actually increase our sheep numbers.

FIONA BREEN: Either way, a decision to close would see the McSpeddens and the handful of farmers in the Bathurst area take a big hit.

JEFF MCSPEDDEN: We don’t have a processing industry in this country and I can find someone with enough money, and that may even be in China or Asia in the Asian century, I would sell it to them and Australians will have to eat the cheaper imported product. And that’s not good for Australia because, you know, fresh fruit and vegetables is the answer to health.

FIONA BREEN: In Tasmania, farmers have been shaken into action. Simplot has asked them to cut costs and to try and get help to do that. It’s one of the first times the company and Tasmanian farmers have really come together. In the past, they’ve been at loggerheads over prices.

ROBBIE TOLE: I think times have changed and we needed to change and Simplot needed to change, and I would give them a lot of credit for the way they have now engaged growers, and I think we need to work together. I don’t think we can be fighting each other anymore. If we want to continue farming and be involved in agriculture I think we need to, as farmers, need to be involved further up the line, the line processing line.

FIONA BREEN: Their future will rely on some hefty government support to upgrade technology and equipment.

ANDREW CRAIGIE, DEVONPORT GROWER: There’s a pivot irrigator behind us. Now as that comes around onto different soil types they require different amounts of water, variable rate watering.

That technology also goes to fertiliser. Technologies within spraying where it’s not a blanket spray; it’s a targeted spray for crops. Anything that can reduce our input costs and actually give us a better yield are the things we really want to focus on.

FIONA BREEN: Food scientist Hazel MacTavish-West analyses the flavour and goodness of vegetables for businesses trying to better market their produce.

She’s worried that if Australia loses Simplot, farmers will leave the vegetable growing industry and the nation will lose the ability to feed itself.

DR HAZEL MACTAVISH-WEST, FOOD SCIENTIST: History tells us that in the past countries have gone to war and if they didn’t have a local home supply of food, they didn’t have that food. And I’d just be really nervous that such an important part of our diet in terms of nutrients and bulk, then had to come from other countries.

FIONA BREEN: Dr MacTavish-West has been commissioned by Horticulture Australia to come up with a database of health benefits vegetable producers can use to market and package their products. She’s analysed the vitamin levels in frozen vegetables and says 95 per cent of the vitamins remain during the freezing process. She’s worried that Australians don’t realise what’s at risk.

DR HAZEL MACTAVISH-WEST: We will not have the option of frozen Australian vegetables. We will have to buy imported produce. Imported produce by definition doesn’t make it bad, it just isn’t Australian and it isn’t supporting our very valuable horticultural industry.

FIONA BREEN: In the end, however, much of it will come back to the customer.

SHOPPER 4: Majority of times with all my canned goods and that, and everything else, I try to buy Australian. Goodness, they’re Chinese. So yes, so much for me buying Australian.

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