2021 South Australian Food and Beverage Industry Census Report

SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

South Australian Food and Beverage Industry Census

2021

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Industry-government partnership for growth In a nationally unique model, Food South Australia works in partnership with the Government of South Australia with a shared goal of supporting industry-wide growth.

Food South Australia receives funding annually from the State Government, managed through the Department for Trade and Investment to support programs and activities to support this goal.

This research activity has received funding support through this Industry-Government Partnership.

Use of this material This report has been prepared by Food South Australia Inc. All use and/or quotation taken from the material contained in this document in any format, including papers, reports or opinions for any other purpose, must be attributed to Food South Australia Inc. Disclaimer While every effort has been made to ensure the accuracy of the information in this report, Food South Australia makes no warranties in relation to the information contained herein. No person should act on the basis of the contents of this publication, whether as to matters of fact or opinion or other content, without first obtaining specific independent professional advice in respect of the matters set out in the publication. Food South Australia disclaims any liability for any loss or damage that may arise as a consequence of any person relying on the information contained in this document. © Food South Australia Inc. 2021 Food South Australia Plant Research Centre Waite Campus 2B Hartley Grove URRBRAE SA 5064 www.foodsouthaustralia.com.au

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

A message from the CEO manufacturers, processors and producers in the 2020-2021 financial year. As such, it has undoubtedly been impacted by the COVID-19 pandemic which has changed our world so markedly. It is therefore even more significant that the South Australian food and beverage industry and community remains positively focused on the future, on growth, and on continuing to innovate to meet dynamic consumer demands in local, national and international markets.

The 2021 South Australian Food and Beverage Industry Census is conducted by Food South Australia to give our industry stakeholders an understanding of how the state’s food and beverage manufacturers are tracking against industry standards and to enable our industry to gain insights into our strengths, opportunities and challenges.

The information contained in this report can assist you to assess how a business compares against industry benchmarks in areas as diverse as business operations, product development, target markets, workforce development, and sustainability.

An understanding of our global and local environment is essential to provide all involved in the sector with important insights into current and future activities in food and beverage manufacturing for South Australia.

This census draws on data based on activity by food and beverage

Figures in this report are rounded to the nearest whole.

Food South Australia is the peak body for the food and beverage industry in South Australia and was established to support and sustain the industry through activities and programs developed to drive growth in markets, business capability and capacity, and industry connections. We have been conducting this benchmarking research biennially since 2014 across the whole industry. It remains the only exclusively food and beverage manufacturing focused census undertaken in South Australia.

This census is supported through the Industry-Government Partnership first established between Food South Australia and the State Government in 2010. This partnership has supported the development and delivery of a range of capability and market building programs for the sector, assisting businesses of all sizes, manufacturing all manner of food and beverage products as they each grow to achieve their business goals. I would like to thank the State Government for their support of this important activity and Food South Australia’s industry-wide growth programs.

Catherine Sayer

CEO, Food South Australia

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Table of contents Acknowledgements

i

A Message from the CEO

ii

Overview

1

Markets

5

Products

13

Doing business

17

Workforce

23

Sustainability

25

The 2021 South Australian Food and Beverage Industry Census was conducted in September-October 2021. The survey was distributed to 876 businesses and achieved a 12.67% response rate. Questions were based on business activities and results for the 2020-2021 financial year. iv

SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Overview

• 80% of South Australian food and beverage businesses surveyed are planning active growth over the next 10 years.

• 68% of manufacturers are targeting the premium market.

• 36% of businesses reported turnover over $5m for the 2020-2021 year.

Focused on the future The food and beverage industry in South Australia is a key contributor to the state’s economy and will continue to play an important part in achieving the state’s growth targets.

Grow organically (18%) Stabilise our business (6%) Exit the industry (6%)

The industry comprises predominantly small to medium sized businesses. The majority of businesses in the sector are privately owned.

Despite the disruptions of the COVID-19 pandemic, businesses in the food and beverage sector show significant confidence in the future, with almost all businesses planning for active and/or organic growth.

Plans for new product development also demonstrate strong confidence, with 94% of businesses planning to launch new products in the next two years and 95% reporting they will maintain or increase investment in new product development over that period.

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The next 10 years

Actively grow (70%)

SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

$10m + (26%)

Turnover 2020-2021

Up to $2m (54%) $2m - $5m (10%) $5m - $10m (10%)

Growing the pipeline South Australia has a strong record of innovative and entrepreneurial businesses growing to become household names and brand leaders. Just over half of respondents (54%) of businesses reported turnover of up to $2 million, while the number of businesses achieving turnover in excess of $10 million was slightly over 25%.

Leading global consumer trends

in the census (24%) are making products for the convenience market, which includes products such as ready meals, pasta and noodles, breakfast foods, deli products, oils and vinegars, honey and spreads. The next largest categories are beverages and fruit and vegetables, both at just under 18%, followed by seafood at slightly more than 15%.

Manufacturers are responding strongly to growing demand for products developed to suit specific consumer dietary and lifestyle requirements. Over 40% of businesses are targeting the ‘free from’ market, such as gluten free, dairy free and additive free products, with the next most active category of growth being plantbased foods at 29%. Targeted market segments over the next two years will continue to prioritise premium (57%), ‘free from (35%), plant-based (34%) and immune health (20%).

The activity in ‘free from’, plant-based, protein enriched, organic and biodynamic indicates the industry’s responsiveness to these consumer demands locally, nationally, and internationally, a trend that will support future resilience for the sector as consumer markets and needs continue to evolve.

Agile and responsive

South Australia continues to focus on the production of premium food and beverage products, with just over 68% of businesses developing and selling products aimed at this market.

The events of the last two years have revealed the strength and agility of the sector in South Australia as manufacturers here sought to offset the disruption to food service markets caused

by COVID-19 in early 2020.

Most businesses manufacture a range of products. Almost a quarter of businesses

Privately owned businesses can act rapidly to assess the risks and adapt.

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Product category Convenience

24%

Beverages

18%

Fruit and vegetables

18%

Seafood

15%

Bakery

13%

Dairy products and eggs

11%

Meat

9%

Confectionery

9% 0%

5%

10%

15%

20%

25%

30%

% of businesses

Strategies employed in 2020 included reviewing product size, packaging, and format to enable diversification or increased activity in alternative sales channels. These strategies assisted businesses to mitigate negative impacts on sales, while many businesses with high levels of activity in retail channels saw positive sales results through the initial period of the pandemic as consumers switched to online purchasing and engaged strongly with local brands.

The number of businesses manufacturing ambient goods has increased, with 57% of respondents indicating they manufacture products in this category.

Production of fresh fruit and vegetables and live seafood has dropped slightly on previous results, while chilled products has risen slightly from 40% in 2019 to just over 43% in 2021.

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Value-adding activity continues to be a focus for many businesses. Two thirds of businesses in the census (66%) are adding value through processes such as cutting, mincing, cooking, or par-cooking fresh produce and 22% of this group are portion sizing products (for example single serve). This trend is consistent with the rise in consumer demand for convenience products, including partially prepared ingredients and ready to eat meals.

This indicates additional value to the sector in South Australia as these value-adding activities translate into jobs and income staying within the state. Opportunities to grow valueadding activity and return may link to implementation of innovative food and beverage manufacturing technologies and the continuing development of a skilled workforce.

SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Specialty market segments - Current

vs Next two years

Premium

68% 57%

‘Free from’ (eg gluten free, dairy free etc)

40% 35%

Plant-based

29% 34%

Luxury

24% 24%

Organic

22% 17%

Immune health

14% 20%

Protein enriched

13% 19%

Babies / children

10% 11%

Active / frail aged consumers

5% 9%

Biodynamic

5% 3% 0%

10%

20%

30%

40%

50%

60%

70%

% of businesses

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Markets

• Food and beverage businesses typically sell to local markets first, then grow into national and international markets.

• International exporters continue to derive an average of 64% of their revenue from national markets.

• There has been rapid growth across multiple direct to consumer sales channels in both national and international markets.

• Freight costs, availability and access are driving up costs and increasing lead times for ingredient and packaging supplies.

The typical growth pattern for a food and beverage business is to start out selling locally and grow capability, capacity, and markets by expanding into state-wide sales in South Australia, followed by moving into national markets. Around half will scale up to international export.

and to indicate their market expansion intentions over the next two years. South Australia is, predictably, still the highestranking market for percentage of revenue, followed by New South Wales, Victoria and Queensland. Expansion intentions target Victoria as a priority, with New South Wales ranking second, followed by Queensland.

Almost 60% of respondents to the 2021 census indicated they only sell their products within Australia, while just under 3% of respondents to the 2021 census only sell to overseas markets. Of respondents currently exporting products to international markets, revenue from domestic markets still represents an average of 64% of their revenue.

The distribution of overall revenue across key international markets and target market intentions have changed significantly since the last survey, reflecting ongoing challenges to the supply chain and the global trading environment.

The 2021 census asked respondents to report on the percentage of their revenue by state for Australian markets

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In 2019, top ranking markets based on revenue were New Zealand, China, Malaysia, United States, Japan, Vietnam, Hong Kong, European Union, Middle East, United Kingdom and Singapore.

SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Ranked by overall percentage of export revenue for the 2020-2021 financial year, the 2021 census responses rank the top five markets as Japan, Hong Kong, Singapore, New Zealand and China.

In the 2019 census, respondents indicated their future export focus was on Singapore, China, Japan, Hong Kong, Malaysia, Vietnam, United States, United Kingdom, Republic of Korea, and United Arab Emirates. Responses to the 2021 census indicate a similar focus, with Singapore once again ranking as the top target market, followed by Hong Kong, United States, United Kingdom, Japan, Malaysia, China, New Zealand, the Republic of Korea, and the European Union.

Throughout the seven years Food South Australia has been undertaking this biennial census, the majority of businesses consistently report activity across multiple sales channels. This is a crucial factor in building resilience for the sector and has been a key factor for some food and beverage manufacturers seeking to withstand the severe shocks to the supply chain resulting from COVID-19.

Australian markets and sales channels In Australian markets, domestic retail is the most active channel. Within this channel, two thirds of manufacturers (66%) are selling their products to specialty stores including bakeries, meat and seafood stores, providores, delis, fruit and vegetable stores and liquor outlets.

Just over half (54%) sell their products through supermarkets, while 12% sell 1

through petrol and convenience outlets such as On The Run. A further 9% sell their products through outlets such as department stores and discount chains.

Domestic food service is a sales channel in which over half (59%) of respondents are also active. Within this channel, almost two thirds of sales activity (63%) is through the hospitality sector, comprising restaurants, cafés, clubs, motel/hotels, quick service restaurants (QSR), caterers, pubs, and function centres.

This channel was significantly impacted

by COVID-19 through 2020-2021.

However, as noted elsewhere in this report and identified in Food South Australia’s COVID-19 impact research through this period, a substantial number of businesses active in the food service channel diversified product offerings to grow sales through retail channels when their food service customers were unable to open1.

COVID-19 related restrictions on both businesses and consumers are also the likely driver behind the rapid increase in activity through direct-to-consumer channels. In 2019, approximately 10% of businesses surveyed had established their own e-commerce functionality and this represented 19% of their overall revenue across their Australian markets.

In 2020-2021, direct-to-consumer sales represented an average of 33% of overall revenue and more than half (59%) of respondents were utilising their own e-commerce functionality for direct-toconsumer sales.

Additional questions in the 2021 census also revealed a significant number of

Food South Australia, COVID-19 and the South Australian Food and Beverage Industry: Industry Impacts, Responses and Priorities for Recovery, 2021

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Percentage of revenue by channel for customers in Australia

Domestic retail

54%

Direct to consumer

33%

OEM / Industrial

30%

Domestic food service

26% 0%

10%

20%

30%

40%

50%

60%

Average % of businesses

businesses operating their own retail sales through a shopfront or ‘cellar door’ (39%), selling at markets (32%) and through online meal services such as Hello Fresh. This activity demonstrates both a spread of activity across channels and the presence of new businesses in the sector, where farmers’ markets, for example, are frequently used as a first step towards the formal retail channels.

The 2021 census investigated activity in the OEM (Original Equipment Manufacturer) channel2 for the first time.

Results show that there is significant activity in this channel, with 35% of respondents indicating they are contract manufacturing for other businesses and 23% are providing ingredients to other manufacturers. This represents a significant segment of activity and value to the industry. It also highlights a sector where the traditional consumer-facing 2

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brand and marketing strategy is not the focus; these businesses are engaged in business-to-business (B2B) marketing to grow their sales.

The South Australian food and beverage industry is characterised by a high level of trust and collaboration; both factors are important to successful B2B business growth. It is likely the significant level of private ownership of food and beverage manufacturing businesses in the state is also a contributing factor to innovation in this space.

OEM in the food and beverage sector, this term is applied to businesses that manufacture ingredients or parts of a product that are then sold to another business and sold under that business’ brand.

SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Percentage of revenue from sales

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Ranking 1.

South Australia (58%)

2.

New South Wales (14%)

3.

Victoria (12%)

4.

Queensland (8%)

5.

Western Australia (5%)

6.

Northern Territory (1%)

7.

Tasmania (1%)

8.

Australian Capital Territory (1%)

4

5 1

2 3

8

ACT

7

Expansion focus – next two years

8

Ranking

3

5 4

2 1

6

ACT

1.

Victoria (19%)

2.

New South Wales (17%)

3.

Queensland (14%)

4.

South Australia (12%)

5.

Western Australia (12%)

6.

Australian Capital Territory (9%)

7.

Tasmania (8%)

8.

Northern Territory (8%)

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Ranking by average percentage of export revenue 2020-2021 1.

2.

3.

4.

5.

Japan Hong Kong Singapore New Zealand China

6.

7.

8.

9.

10.

United States of America Malaysia Vietnam European Union United Kingdom

11.

12.

13.

14.

15.

Taiwan Middle East Republic of Korea Canada United Arab Emirates

16. Indonesia 17. India

5

1 2

3

4

International markets and sales channels The majority of international sales activity is to agents, brokers, and importers, representing an average of 75% of overall export revenue. Direct to retailer sales represent an average of 44% of overall export revenue.

Respondents indicated that an average of 41% of overall export revenue is derived through sales through third parties

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such as specialty retail distributors and consolidators, while specialty food service distributors/consolidators represent an average of 24% of export revenue for these businesses.

As has been seen in domestic sales channels, e-commerce activity has also jumped since the 2019 census, when it represented an average of 6% of overall export revenue, to 27% in 2021.

This reflects the rapid shift to direct to consumer sales strategies to offset

SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Expansion focus – next two years 1.

2.

3.

4.

5.

Singapore Hong Kong United States of America United Kingdom Japan

6.

7.

8.

9.

10.

Malaysia China New Zealand Republic of Korea European Union

11.

12.

13.

14.

15.

Vietnam Taiwan Indonesia United Arab Emirates Canada

16. Middle East 17. India

4 3 5 2 1

disruption to traditional established sales channels.

In addition to e-commerce channel activity increasing, exporting businesses are turning to a variety of additional strategies to develop and strengthen customer and market relationships while COVID-19 restrictions continue to hamper international travel. Just over half of businesses exporting to international markets indicated they are providing samples to customers supported by virtual

sampling sessions, while 41% of this group indicated they have content translated into languages other than English on their websites. When travel is permitted, 39% of this group normally invite buyers to Australia to participate in activities such as physical product experiences such as harvesting, custom blending and masterclasses to support their export activities. Almost a third of these businesses (32%) are augmenting their strategies with virtual product experiences.

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Supply chain disruption The cost and complexity of transport to market continues to be a challenge for South Australia’s food and beverage industry.

South Australian food and beverage manufacturers transport an average of 91% of their product to their Australian customers by road, while 27% is transported by air and just 9% is transported by rail.

Census respondents indicate sea freight is used for an average of 81% of their international freight business and an average of 54% of product is transported by air.

The impact of COVID-19 on traditional transport systems in international markets has been, and continues to be, a major concern to the industry.

Access to shipping containers, delays in shipping times and substantial cost increases are contributing to extended lead times for ingredient and packaging supply and adding pressure to cashflow and profitability. Exposures in trucking and shipping ports can lead to an abrupt reduction in the available workforce.

The pressure on the supply chain in both domestic and international markets has been further impacted by the rapid increase in e-commerce sales which also need to access transport networks for delivery.

SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Products • Almost a quarter of businesses in the sector are manufacturing or producing products for the convenience market.

• 94% of businesses plan to launch new products in the next two years and over 90% of businesses plan to maintain or increase investment in new product development over the next two years.

• 49% of respondents launched new products in the 2020-2021 financial year, while 51% intend to increase the number of new product launches over the next two years.

• Product development is strongly focused on ‘free from’, plant-based and health boosting products.

The 2021 census shows convenience foods as the leading product category with 24% of businesses in the census producing for this category, followed by beverages and fresh fruit and vegetables (both 18%), and seafood at 15%.

The 2021 census explored current activity in a number of rapidly growing market segments with potential to deliver strong growth for the sector. Forty per cent of businesses surveyed are targeting the ‘free from’ market, such as gluten free, dairy free and additive free products, with the next most active category of growth being plant-based foods at 29%.

Just over a quarter of businesses (27%) are also active in markets targeting consumer demand for products designed to deliver health benefits such as high

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protein or boosting immune health, and the same number are producing organic products. Respondents also reported activity in the production of health supplements and natural health care products.

This continues a trend identified in 2019.

Respondents to this census indicated plans for target market segments over the next two years will continue to prioritise premium (57%), ‘free from’ (35%), plantbased (34%) and immune health (20%).

Other categories indicated included sustainable products, provenance focused products (for example, all South Australian ingredients and First Nationsbased products), general health focus and nutraceuticals.

There is a strong appetite for product innovation across the South Australian food and beverage industry which,

SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

combined with strategic market and consumer segment selection and a strong understanding of both individual business and industry-wide strengths, positions the sector for successful growth.

Businesses are also undertaking their own desktop research and looking at the activities of their competitors.

Understanding consumers

The least accessed resource to inform new product development is formal market research services such as IBISWorld and Neilsen Data.

Previous research undertaken by Food South Australia indicated approximately 38% of businesses had diversified their product offering early in 2020 to offset disruption to food service sales caused by COVID-19, demonstrating the agility and responsiveness of the sector.

Accessing formal market research services, which are information rich in both current and future trend data, may be viewed as cost-prohibitive by some businesses, causing them to rely more on in-house resources and reactive rather than proactive research strategies.

The 2021 census explored the typical approaches and preferred sources of information being used to develop product development strategies.

The results show businesses are implementing a mix of strategies for new product development, with focus spread reasonably evenly between undertaking development of completely new products, product range extension (such as introducing new flavours or pack sizes), product category extension (such as introducing a new range as an extension of established business) and repositioning existing products for new market segments (for example, established snack products repositioned for the health market).

Influences on new product development come from multiple sources, with most businesses responding to customer feedback or product development requests (78%). Internal feedback is also a strong influence for just over half the census respondents (53%).

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Investing in product development The focus on active growth for the sector is supported by strong levels of activity and commitment to invest in new product development.

Despite the challenges to markets and cash flow caused by COVID-19, nearly half of respondents launched new products in 2020-2021.

Just under 60% of businesses (58%) are planning to increase their investment in new product development over the next two years, while 37% expect to maintain their current level of investment over that period.

Product launch activity is also set to be maintained or increased, with 51% of businesses planning to increase the number of launches over the next two years and 43% expecting to maintain their current level of activity.

Maintain current investment (37%) Decrease investment (5%) Increase investment (58%)

New product investment next 2 years

Maintain launch activity (43%) Decrease launch activity (6%) Increase launch activity (51%)

Product launch plans next 2 years

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Top food and beverage trends • Ethical, transparent and traceable food products • Plant-based foods • Customised food products for specific nutritional or diet demands • Immune health • Availability of food and beverages where and when consumers want to eat • Balancing science/nutrition with demand for natural products • Brand storytelling and consumer connection

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Doing Business • Raw ingredients and wages represent the largest costs to food and beverage manufacturers.

• More than 35 audit programs apply to food and beverage businesses.

• Audit costs represent an average of 3% of expenditure, incurring direct costs of up to $20,000 for 82% of businesses and additional indirect costs of up to $20,000 for 79% of businesses.

• The current focus of SMART technology uptake is extending shelf life and product development. Access to labour and capital are significant barriers to technology uptake.

’’

• All census respondents invested in equipment in 2021-2021. 73% recorded investment in building upgrades or redevelopment.

Expenditure The cost of doing business is a constant challenge across all industries and increases in expenditure on freight and water have been noted in the 2021 census, while other costs, including major expenses such as raw materials, wages and packaging, have remained relatively stable for most businesses.

Typically, most businesses spent 60-90% of their turnover on non-capex costs and under 20% on capital expenditure in the 2020-2021 financial year.

On average, the highest percentage of overall non-capex expenditure is spent on raw materials (25%). The next largest expense is wages (20%). Expenditure on these costs has not changed significantly from the 2019 census.

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The census revealed an increase in the transport (freight) costs, rising from 6% of overall expenditure in 2019 to just over 8% in 2021. This is likely reflective of the impact of COVID-19 and the subsequent pressure on supply chains.

Packaging costs (10% of overall noncapex costs) also appear to have remained stable, as have electricity and gas. Water costs have increased, rising from an average of slightly under 2% of expenditure in 2019 to just over 3% in 2021).

All census respondents indicated they had invested in equipment in the 20202021 financial year. Approximately 74% also reported investment in building upgrades or redevelopment, while just over half (57%) indicated investment in new buildings during this period.

SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

The cost of compliance Freight (7%) Marketing (4%) Electricity (3%) Food audits / compliance (3%) Water (3%) Gas (1%) Trade waste management (1%) Raw materials (25%)

Average cost (non-capex) 2020-2021

Wages (20%) Other (13%) Non-CAPEX purchases (11%) Packaging (9%)

The compliances required to sell food and beverage products range from core operations such as food processing and safety through to bespoke obligations at the individual customer level. The latter can be complex and can also change frequently. Retailers, for example, may change supplier compliance requirements as they strive to demonstrate they are meeting consumer expectations on everything from product traceability through to the manufacturers’ commitment to reducing their carbon footprint.

Most businesses must prove compliance with multiple audit programs. The jump in both complexity and cost is significant at the point in the business life cycle where a manufacturer scales up from selling at a farmers’ market, for example, to entering the strongly regulated environment of supply to major retailers. The impact of compliance also varies significantly based on the product category, key markets and sales channels.

For most businesses (92%), direct costs paid to comply with audits in 2020-2021 was up to $50,000. However, direct costs – such as fees – can effectively be doubled by associated indirect costs such as the required staff time and managing systems, staff and procedures to comply with multiple regulatory requirements. For 87% of businesses, the indirect costs paid to comply with audits in 2020-2021 was up to an additional $50,000. For some businesses (5%), internal compliance costs in 2020-2021 exceeded $100,000.

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Audits completed 2020-2021 HACCP

40

Export Registered

15

Safe Quality Food Institute SQF Certification

13

SA Water

13

EPA Accredited Licences

12

DAFF (formerly AQIS)

12

SA Health

11

Ethical audit (eg Sedex Smeta)

10

Boiler Certification

10

Coles QA

9

Woolworths QA

7

Sustainability

6

Halal / Kosher

6

Australian Certified Organic

6

Primary Produce Food Safety Scheme for Meat

4

ISO 22000

4

NASAA

3

Meat Standards Australia

3

HARPS / Freshcare

3

Dairy Safe

3

BRC

3

AusMeat

3

EU Standard

2

EPA Sustainability Licences

2

McDonald’s Supplier Workplace Accountability

1

International Organic Accreditation Service - IFOAM Certification

1

Global GAP

1 0

5

10

15

20

25

30

Number of businesses completing

19

35

40

45

SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Direct (external)

and Indirect (internal)

cost of audits 2020-2021

1%

$100,000 +

5%

$50,000 - $100,000

6% 8%

$20,000 - $50,000

10% 8%

$10,000 - $20,000

14% 15%

Up to $10,000

68% 64% 0%

10%

20%

30%

40%

50%

60%

70%

% of businesses

Almost two thirds of businesses (63%) invested between one and five days of staff time to prepare for and manage audit compliance in 2020-2021. For 20% of businesses, this requirement rose to more than 20 days.

Direct costs in the region of $20,000 per year may be a barrier to emerging businesses, as will the human resource requirement. As one respondent to the 2021 census commented, “the cost, time and loss of production [required for audits] makes us question whether we can afford to stay in business”. This impact is intensified by the current

employment environment as audit skills is an area in which businesses are finding it difficult to recruit employees.

The compliance environment for food and beverage manufacturers also demonstrates the crucial importance of access to industry-specific education in establishing operational and business systems, especially in South Australia where there are so many new and emerging businesses in the sector. The ability to establish themselves in such a way that growth includes smooth transition through increasingly complex compliance – particularly to service the

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

retail market – is integral to a thriving food and beverage industry for South Australia.

SMART technology is coming

The industry also faces challenges in ensuring production systems and ingredients can satisfy unregulated or poorly regulated consumer markets.

Implementation of SMART (SelfMonitoring Analysis and Reporting Technology) is not yet widespread across the food and beverage industry in South Australia. The strongest concentration of activity is in the application of these technologies to waste utilisation and reduction (26%).

There are many market segments that are not regulated. For example, the definition of ‘natural’ is completely up to the manufacturer. These claims, and health claims for products, frequently cause confusion for both manufacturers and consumers.

Manufacturers positioning their products for high potential growth markets face significant complexities in developing package claims that are compliant, and in segments where there is no accepted benchmark or certification process, such as sustainable products, this will continue to be an issue and a cost to the sector.

Given the speed with which high growth potential markets can emerge, there is a critical necessity for manufacturers to both be aware of this and have access to assistance at key points in the product development process to ensure claims can be verified.

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Only 10% of businesses are utilising SMART technology in relation to extending shelf life of their products, while 11% are applying this technology to product development.

The key challenges to implementation relate to cost and availability of the technologies in Australia. Census respondents cite access to capital, labour and third-party costs as barriers to uptake.

The industry is looking to SMART technologies to resolve issues with product shelf life. This need has been emphasised and accelerated by the disruption to the supply chain caused

by COVID-19 and the expectation that delays and access issues through the freight network will continue to impact the sector for the foreseeable future.

Consumer demand for low or no use of chemical preservatives is also a factor, as is access to suitable, affordable sustainable packaging solutions.

SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Uptake of SMART technology Yes (10%) Not sure (4%)

Extending shelf life

No (64%) Not applicable to my products (22%)

Yes (11%) Not sure (6%)

New product development

No (67%) Not applicable to my products (16%)

Yes (15%) Not sure (7%)

Waste reduction

No (64%) Not applicable to my products (14%)

Yes (11%) Not sure (7%)

Waste utilisation

No (66%) Not applicable to my products (16%) 0%

10%

20%

30%

40%

50%

60%

70%

% of businesses

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Workforce • More than 80% of food and beverage businesses are reporting difficulty in attracting employees.

• Skilled employees are needed across all areas of business, from production technology to processing skills, marketing and business systems.

• There is a diversity of strategies being utilised to both attract and retain employees.

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• Manufacturers are seeking flexible approaches to training, including formal and informal, with online, on-site and off-site, out of hours options.

Finding the right people Approximately two thirds (63%) of businesses in the food and beverage sector employ up to 19 people. Of this group, 8% have no employees, while half have up to four staff. This reflects the nature of the sector in terms of the predominance of small to medium sized, privately owned businesses, and is consistent with the business environment at state and national levels.

Over 80% of businesses reported they are experiencing difficulty in attracting employees, while a third (33%) said they are experiencing difficulty retaining workers. Other issues affecting employment growth include balancing the low cost/low skill baseline and introducing more highly skilled roles and the cost of labour.

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Respondents to the census commented the quality of available workers is a challenge. For businesses who traditionally have part time seasonal roles to offer, their ability to attract and retain their preferred quality of staff is also impacted by the fact that they are often not able to transform these roles into more attractive full time positions.

COVID-19 travel restrictions have cut off access to workers via migration programs and to international students and tourists seeking seasonal work, worsening the already difficult employment environment for the food and beverage sector. In some cases, the impact of the pandemic on cash flow has meant businesses cannot afford to recruit additional workers.

SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Access to training The food and beverage industry needs skilled workers across many disciplines, ranging from business skills to technology, compliance and specialised food and beverage processing and production skills.

Manufacturers are looking to introduce automation to replace dangerous, repetitive manual roles. This is being driven by both the ongoing shortage of available staff to employ in these roles and the continuing implementation of new technologies in the sector requiring recruitment of skilled staff in food and beverage production.

For 25% of businesses, there are challenges in facilitating upskilling or reskilling their staff. Most food and beverage businesses operate with lean teams and it can be costly to take staff out of production for training because of the impact this has on overall production.

The need for flexible training options was documented by Food South Australia through research into barriers to growth in 20174. The 2021 census results indicate manufacturers are seeking flexible approaches to training, including combinations of formal and informal, online, on-site and off-site and out of hours options.

This reflects the need to minimise disruption to production, and the diverse levels of education and background amongst workers in the sector, requiring flexibility to deliver training and encourage and inspire employees with potential to excel.

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There is an expectation that both employer and employee need to invest in the process for the highest chance of success.

Businesses in the sector are aware of, and interested in, accessing Government support schemes for training, however respondents noted the administrative complexity as a barrier to becoming involved.

Changing the culture The ‘same old’ approach to employment will not assist the industry to attract the talented and skilled people they require now and into the future.

Food and beverage manufacturers are turning to a range of strategies to resolve this critical challenge. More than a third of businesses (37%) are accelerating implementation of automation in roles where they are facing ongoing significant employee shortages. Almost half of the businesses surveyed are now actively recruiting outside the industry (40%).

Two thirds of census respondents (66%) indicated they were actively developing their company culture and 15% are offering incentive schemes to staff.

Just over 10% are offering equity in their business to attract and retain high calibre employees. Other strategies noted by respondents include paying above award rates, the cost of which is offset by reduced need to recruit and the associated time and costs for training new staff.

Food South Australia, 2017. Growth Through Innovation Strategy Research Project

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Sustainability

• 32% of businesses are unaware of the national packaging targets due to be implemented in 2021 and only 10% have completed implementation of strategies for compliance.

• Almost 40% of businesses are unaware of the 2030 national waste targets and under 5% of businesses have completed preparation to meet them.

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• Sustainability strategies implemented across the sector include responsible sourcing (25%), energy efficiency (21%), climate change (19%), water conservation (14%), and carbon footprint reduction (7%).

The focus on sustainability is one of the top industry and consumer trends around the world. Responses to the 2021 census indicate South Australia’s food and beverage manufacturing businesses are engaged in a range of strategies, predominantly focused on environmental sustainability.

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These include responsible sourcing strategies to achieve supply chain transparency and traceability, reducing and recycling waste, reducing carbon footprint, water conservation, energy efficiency and use of sustainable packaging.

Consumer and customer expectations are likely drivers for activity by businesses to address sustainability issues, however a significant proportion of the sector remains unaware of key national targets for sustainable packaging and waste reduction that will impact their businesses in 2025 and 2030.

Sustainable packaging Sustainable packaging is a critical issue for the sector, with national packaging targets set to be introduced in 2025. The 2021 census indicates only 10% of food and beverage manufacturers have addressed and completed their strategies for the use of sustainable packaging.

Access to suitable materials, and the broader challenges facing all sectors, and consumers, with access to packaging recycling and composting infrastructure are also affecting use of sustainable packaging for food and beverage products.

The majority of businesses appear to be at least investigating this issue, however the census results also indicate that just under a third (32%) of South Australian food and beverage businesses are not aware of the national packaging targets.

This situation represents a significant risk to businesses and the industry’s plans for growth.

This will be further impacted as increasingly rigorous requirements linked to sustainability strategies become more prevalent in key customer compliance programs.

National packaging targets • 100% reusable, recyclable or compostable packaging • 70% of plastic packaging being recycled or composted • 50% of average recycled content included in packaging • Phasing out of problematic and unnecessary single-use plastic packaging Source: Australian Packaging Covenant Organisation

Not applicable to my products (10%) Yes, already completed (10%)

Waste management Almost 40% of businesses are unaware of the 2030 national waste targets and under 5% of businesses have completed preparation to meet them.

Waste reduction is being addressed by 60% of businesses, while 14% are planning to address this and a further 14% of businesses have completed implementation. Completion of strategies for waste recycling is more advanced, with 21% having completed implementation of a strategy and 68% currently addressing or planning to address this challenge.

Yes, implementation underway (26%)

2025 National packaging targets

No, but intending to (22%) No, was unaware of the targets (32%)

National waste targets The National Waste Action Plan includes: • Reduction of total waste generated in Australia by 10% per person by 2030

Don’t know where to start (2%) Not relevant to business (10%) Completed (14%)

• 80% average recovery rate from all waste streams by 2030 • Significantly increasing the use of recycle content by governments and industry • Halving the amount of organic waste sent to landfill by 2030

Reducing Waste

Source: Department of Agriculture, Water and the Environment Currently addressing (60%) Planning to address (14%)

Not applicable to my products (4%) Yes, already completed (27%)

Don’t know where to start (2%) Not relevant to business (9%) Completed (21%)

Yes, implementation underway (20%)

2030 National waste targets

No, but intending to (39%) No, was unaware of the targets (10%)

Recycling Waste

Currently addressing (44%) Planning to address (24%)

SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Sustainability strategies Don’t know where to start (6%) Not relevant to business (7%)

Don’t know where to start (10%) Not relevant to business (19%)

Completed (26%)

Responsible sourcing strategies

Currently addressing (37%) Planning to address (24%)

26% of census respondents have completed implementation of a responsible sourcing strategy and 61% are currently developing a strategy or are planning to do so.

Completed (7%)

Carbon footprint

Planning to address (34%) Currently addressing ( 30%)

The concept of the carbon footprint has risen to prominence relatively recently and continues to grow in importance for consumers. Census respondents indicate a small percentage of businesses have addressed this to date (7%) and almost a third of businesses (30%) are currently addressing this challenge.

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SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

Don’t know where to start (4%) Not relevant to business (26)

Don’t know where to start (4%) Not relevant to business (10%) Completed (21%)

Completed (14%)

Water conservation

Currently addressing (37%) Planning to address (19%)

Water use by food and beverage businesses varies significantly depending on the products they make or produce.

More than half businesses surveyed (56%) are addressing, or planning to address, water conservation. 14% have already implemented strategies.

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Energy efficiency

Currently addressing (43%) Planning to address (22%)

Energy efficiency has been tracking as a cost concern to food and beverage businesses over several years. Although strategies have been implemented by just under a quarter of businesses (21%), there is considerable activity in this area with 65% of businesses currently addressing or planning to address this issue.

Not applicable to our business (9%) Yes (20%)

Climate change

No (39%)

No, but we are planning to do this (32%)

20% of food and beverage manufacturers already have a climate change strategy in place and 32% indicate they plan to do so. At present almost 40% of businesses are indicating they have no plans to develop a specific strategy for climate change.

Typically climate change strategies include reduction of carbon footprint, investigation of renewable energy and use of solar to manage energy efficiencies, water recycling and sustainable harvesting practices for meat and seafood businesses.

SOUTH AUSTRALIAN FOOD AND BEVERAGE INDUSTRY IN FOCUS 2021

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