Smart food & beverage manufacturing is so much more than packaging

Therese Raft

Welcome to Navigating the New Normal – Grant Thornton’s podcast exploring trends in business and the marketplace.

I’m Therese Raft and I am joined by Tony Pititto, National Head of Agribusiness, Food & Beverage at Grant Thornton and Madina Aziz, Audit Partner with a range of food and beverage clients. Today we’re talking modern manufacturing and the food and beverage 10 year roadmap, an exciting opportunity to help propel Australian produce into the global marketplace.

Welcome Tony and Madina!

Tony Pititto

Thanks Therese and hello Madina.

Madina Aziz

Thanks Therese. Hi Tony.

Therese Raft

So the Modern Manufacturing Initiative has been careful to select areas of opportunity that were already areas of strength for Australia. Now, we already have an amazing reputation for food, don’t we?

Tony Pititto

Absolutely. Look, Australia's got a really a great international reputation for the produce that we produce. It's green and clean, and we command premium on international markets. Not only internationally, but also in Australia. And we are fortunate we are close to… we have close proximity to the Asian market. We are very much a trusted exporter and despite the glitches that we're experiencing in a few areas with our exports into China – it also gives the Australian producers, I think, an opportunity to diversify into new international markets. And you know, Australian manufacturers have really shown during COVID that they can be agile producers. And they've demonstrated a significant resilience during this period. And have been able to, I guess, pivot into other, different areas to keep the Australian economy really growing.

Madina Aziz

I think, yeah, agree we definitely have a competitive advantage in food exports. We have ideal climate and soil to produce a wide variety of quality, fresh food pretty much year ‘round. But there's also a significant amount of processed and value added food that we're famous for. Things like cereal, muesli, oats, nuts, organic food and other health foods. I think we typically associate our famous foods with the beef, our wines and so forth. So there's a lot of other areas that we are also quite well known for in the world. But there's still so much opportunity that can be leveraged off the good reputation that we have, so not only in value adding to the basic commodity foods we supply the world, but also tapping into new markets, as Tony mentioned.

Therese Raft

That’s a really good segue, because what I find really interesting about the roadmap is that they consistently talk about innovation, automation, digitisation, data analytics – very much associated with the processed foods. But that all very much sounds like, I guess, sugary foods, processed foods, fast foods?

Madina Aziz

I think you're right, Therese. I think when we instantly think those terms, we think about manufactured foods and associated capital expenditure. But it's a lot broader than that. It's about producing better quality product, establishing quicker delivery times, reducing waste. But it could even be bringing products, processes and designs to new and existing markets or value chains and customers. I mean, I recently had a client who manufactures a perishable product. Roughly has a three day shelf life. And when we were discussing the initiative, they thought they had missed the boat because they'd already spent quite a bit of money on a new state-of-the-art automated plant facility / plant line. But when we discussed what they're doing over the next 6 to 9 months, we uncovered that they were redesigning their product to extend its shelf life and considering frozen options as well as redesigning their packaging or individual packaging, and this was specifically undertaken to supply to a very large Australian customer, and that's a perfect example of innovation.

Tony Pititto

Yeah, that's a really good point, Madina. And I think you know another example of the innovation could be looking at provenance in terms of where the food comes from. And, you know, one particular area where this is important for instance, is in wine. And you know, we frequently have the situation where Australian, you know, overseas, where wine is deemed to be Australian - but in fact, it has been counterfeited as not Australian wine. And so the new technology, new innovation can help produces underpin the provenance of Australian wine because it's got a fantastic reputation overseas and we want to be able to protect that.

Therese Raft

That’s fascinating. I think many of us wouldn't assume that there'd be counterfeit wine floating around. Now, the vision is to double the value of Australia’s Food & Beverage manufacturing by 2030 – is that doable? And is it doable because we have a low base to build from?

Tony Pititto

Well, it is absolutely doable, and there are a number of ingredients that help underpin this. And Australia's exports have already been growing. And manufacturing has already been growing, so it's not as if it hasn't been growing recently. But you know, we have the necessary ingredients. As I mentioned the world's population, it’s expected to grow to 9.8 billion by 2050 so the demand is there. The food manufacturing sector is also closely aligned with the agricultural industry, which is aiming to increase its farm output to $100 billion by 2030. So that's, you know, 5% to 6% compound growth rate. Also, you know, food and beverage manufacturing in Australia is the single largest manufacturing sector, which accounts for about 28% of all manufacturing turnover in Australia. So absolutely doable. We have the ingredients and it’s very much so an achievable target.

Madina Aziz

I agree with Tony here. It's definitely doable and there's plenty of opportunity. And as we mentioned, particularly in the value add sectors. We have access to the raw materials. We have access to really great manufacturing capability across the country. So we've got some really good assets in Australia that we haven't fully tapped into. And on top of that, almost all the players are SMEs, so it's quite fragmented at the moment and operates in silos with a lot of duplication. And the sector can really excel here because value adding in Australia will actually generate a higher return and create more jobs.

Therese Raft

Now, I’m still trying to wrap my head around this, so perhaps you can help me a little bit. When the Government talks about incubation hubs and access to large scale end-to-end production facilities, does the sector, which as you say – many SME’s, very fragmented – do they really want to collaborate when they are so different and there are perhaps competitive advantages in going alone?

Tony Pititto

Well, look, integration and collaboration certainly has been difficult for the sector, given that you know, you have many diverse business types – as you've spoken about – many SMEs that make up the sector. So there are certainly definitely competitive advantages by going alone. But they're also benefits of scale that comes from collaboration, which would certainly lower production costs and improve efficiency. But it's important to understand that collaboration really can happen on a number of fronts within the sector. You know, collaboration could entail having access to pilot plants to test new products and the state-of-the-art equipment before undertaking significant investment that's required at an SME level. Collaboration could also be at the tertiary sector, where education skills required for the food & beverage sector are being met. It could come from government so that policy and regulatory settings for agriculture and food and beverage are aligned and centred within one Department. And it could also… collaboration could also be in Australia's regional levels by building a region's capability, its capacity and business, confidence to invest, innovate and scale-up. So there are a number of different ways collaboration can help in the sector.

Madina Aziz

I think Tony, a good example of that is the CSIRO who have been doing this sort of work assisting with food innovation for SMEs for a number of years. And some of their success stories has been around food production using significantly less amount of energy than normally required. Developing alternate cooking techniques as opposed to heat that extends shelf life, kills bacteria, moulds and, yeast, and so forth in fresh fruit and veggies. Or even developing alternate chilling methods or freezing methods; using spray chilling, for example, which doesn't compromise shelf life. So it's definitely been happening and I think the key is encouraging more of that innovation and collaboration.

Therese Raft

Wow, that's a lot of work that's going into our food! Now as a sector, it really is all about the trends in the marketplace and being able or being agile to respond to these trends. Is a smart food and beverage sector really going to be more able to respond more swiftly to those trends?

Madina Aziz

Absolutely. The more data and real time insight you have, the faster you can respond. And this is particularly true when you're tapping into international markets, when you're much further away from your product and even your customers. So businesses understanding what is selling, what isn't selling where it's selling. It really tells you something about where to refocus or focus your product development. And to do that, you actually need to have smart manufacturing as well as automation to reduce errors, enhancing product shelf life, supporting changes to packaging and reducing food waste.

Tony Pititto

Thanks, Madina. Look, I think the other benefit of being able to respond more quickly and you've touched upon this is reducing food waste, which is a significant problem not only in Australia but globally. You know, Australians waste about $20 billion per annum in food waste, or about 7.3 million tonnes per annum. So that's about 300 kg per person that we waste, which is about one in five bags of shopping, I guess. So, you know, by being able to respond more quickly and being able to produce the right food where consumers want that, and when they want that, then this is a great opportunity to be able to reduce, you know, the waste. And it's not only food. Packaging, as well. Australians throw away 1.9 billion tonnes of packaging per annum. Now, most of that would be in the food production area. Really, the numbers speak for themselves.

Therese Raft

Those are really staggering numbers, Tony. And is a really nice kind of segue into the next question I have, which is around supply chain. Because, I suppose in the wake of COVID, I think we can all very much agree that supply chain resilience is a very welcome addition to the food and beverage roadmap.

Tony Pititto

Yeah, well, certainly COVID – what it did show is that it did have a significant impact and really did disrupt not only the local supply chain, but also global supply chains, and movements within Australia. So we all saw that when the borders were shut. So I think this is an area that does require some assistance from the Government. And the Government has already commenced that by, I guess through its Government supply chain resilience initiative. So this is really a step in the right direction which, you know… This process looks to map and analyse where are our vulnerabilities, where are the opportunities in Australia's food and beverage factory supply chain? And how do we address those – you know – those opportunities or those weak spots within the supply chain?

Madina Aziz

I think I agree with Tony as well. When you have a combination of the labour restrictions, raw material or import sourcing constraints, plant and border closures, coupled with panic buying, for example, this put enormous pressure on the industry. And I mean, I certainly remember when canned vegetables and mincemeat were out of stock for weeks during the peak of the pandemic. So what we did learn was there were a lot of gaps in the supply chain and particularly these were around transportation, logistics, procurement and monitoring technologies. But I think it's important to highlight as part of the initiative, it's not only about building Australia's resilience and our agility, but it's also about domestic manufacturers playing an important role in global supply chains as well – and helping other countries meet their needs. So positioning us in Australia as a reliable supplier of quality products, Australia can take a real important role in helping solve global supply chain issues which naturally will flow onto our economy.

Therese Raft

That's a really good point for us all to remember. It's not just about the domestic supply chain. Now there's something that hasn't been touched on in the road map. But I'm sure anyone who buys groceries will be thinking about this. With an investment of the scale – even with government support – this will surely have a flow on to the consumers’ hip pocket.

Madina Aziz

Not necessarily, Therese. I mean, there's a number of things that influence the cost of food: cost of labour, seasonality, weather events. I mean investments should improve manufacturing efficiencies and costs in the long term, which help the stability and would ultimately allow food and beverage manufacturers to focus more on their customers. What they want, how they want it, better quality, fresher, faster. And of course, we've talked a lot about reducing waste, as well. And these large scale investments are usually viewed over the long term and not your typical 2 to 3 pay back periods, so the flow on effect is not necessarily exponential to the customer's pocket.

Tony Pititto

Thanks, Madina. Look, there's some really good points there. I think also, you know the Government's incentives to try and create food hubs – well, that's a way that you can reduce costs and share those costs across a number of manufacturers. And also, we need to remember that Australian produce and products do command a premium. We’re not the cheapest products, but we are the highest quality, and consumers are willing to spend a little bit more for excellent quality food.

Therese Raft

Now there's a lot of stuff happening, and this is all very much influenced by policy. And policy changes have in fact, been put on the agenda as an item to address in the next two years under this road map. What policies spring to mind that need to change to help support the vision for a thriving food and beverage manufacturing sector.

Tony Pititto

Look, I think the greatest or the most urgent issue that needs to be tackled is labour availability and flexibility. With the international borders being closed this is going to require some rethinking in terms of …ensuring that labour is available, not only in the regional areas. We've all heard about, you know, the lack of available labour in regional areas to pick our fruit and vegetables. But it's also within manufacturing. A number of manufacturing clients, including some of my clients, are experiencing real problems in being able to source labour. So I think that really does need to be tackled as a matter of urgency. I think the other area that does need focus on is, you know, we spoke about smart manufacturing and new technology manufacturing hubs. Well, that's going to require labour to be trained into these new manufacturing technologies and methods. So the training for our manufacturing sector really does need to be addressed so that it is state-of-the-art and is available for the sector. I think the other area that the government can assist is perhaps providing more support to our manufacturers to understand the non-traditional export markets. I mean, we've all read about the recent China trade issues. What it does show is that we do need to diversify, and so the Government's assistance here is really needed to help our SME’s take advantage of the non-traditional export markets. And look, you know, I think Government's done an excellent job over the last few years in terms of promoting the Free Trade Agreements. And I think, you know, that aspect really shows that it can have a positive impact on the sector.

Madina Aziz

I think Tony, a good example of non-traditional export markets is the current UK Free Trade Agreement, which is expected to be finalised in the next few months, which is definitely a step in the right direction by the Government and would be very beneficial to the food and beverage sector. At the moment our largest exports into the UK have been beef and wine, but it will open up a lot more for F&B broadly – for food and beverage broadly – particularly in other agricultural sectors, fruit and vegetables, dairy, cereal and grains, which we're already famous for. It will also be interesting to see how Australia and India agreements… which is set to recommence when negotiations were suspended back in 2015. A huge sticking point was around agriculture because half of India's employment is linked to that sector, and it's our biggest export. So it will be very interesting to see how this plays out.

Therese Raft

It's really interesting that you're talking about the UK because I think a lot of people would have thought “wow, trying to get fresh produce to the – literally the – other side of the world would have been quite a mean feat. So it'll certainly be interesting to see how that all pans out.

Well, Tony and Madina, thank you so much for your time. If I can put you both on the spot, are you both contactable on LinkedIn, email, phone if anyone would like to get in touch to talk more about the MMI and, or, the food and beverage sector?

Tony Pititto

Absolutely, Therese. You know, I’m on LinkedIn. And I’m really passionate about the sector so looking forward to having a chat to those that are interested.

Madina Aziz

Agree with Tony there, thanks Therese. Definitely contactable on LinkedIn, email or phone. So if you want to have a deeper conversation around the MMI or food and beverage sector, please feel free to reach out.

Therese Raft

Wonderful. Thank you so much, both.

Tony Pititto

Thanks Therese, thanks Madina.

Madina Aziz

Thanks, Tony.

Therese Raft

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