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Australia Food and Drink Report Q2 2009
Business Monitor International, April 2009, Pages: 80
The Australia Food and Drink Report provides independent forecasts and competitive intelligence on Australia's food and drink industry.
Australia's economic prospects have continued to deteriorate as a result of the global slump, with the country having possibly already entered recession in Q408. Inevitably, this economic downturn has started to impact the country’s food and drink sector, as discussed in BMI’s recently published Australia Food & Drink Report for Q209. Global economic uncertainty has dramatically undermined consumer confidence and sharply unwound demand for non-essential food and beverage items. While falling global demand has weakened prices, bumper supplies – owing to farmers and manufacturers seeking to exploit record prices – have further exacerbated the situation.
Already a number of food companies have started to report poor results. In February 2009, Australian dairy firm Warrnambool Cheese and Butter Factory (WCBF) announced that net operating profits during its fiscal first half ending on December 31 2008 registered a drop of 93% year-on-year (y-o-y) to just US$1.4mn. The company was affected by lower dairy prices, which resulted in asset write-offs worth US$15.3mn. Also in February, it was reported that Goodman Fielder, an Australasian food group, announced that its profits for 2009 could fall by as much as 23% as consumers switch to cheaper options on the back of the global economic downturn. Meanwhile, according to a January 2009 report from Meat and Livestock Australia (MLA), lamb exports from Australia have declined during the last 12 months.
The sharpest decline was registered from the US market where exports fell by 17% to 36,854 tonnes. Turning to the drinks industry, the picture is no brighter. In March 2009, it was revealed that wine producer Australian Vintage registered a net loss of US$127.8mn for the six months to December 31 2008, compared with a net profit of US$643.0mn in H207. In fact, news coming out of the country’s wine industry is positively dismal, following the bushfires that ravaged the country. The fires most severely impacted the northwest of the Yarra Valley, affecting the St. Andrews, Diamond Creek, Steels Creek, Dixons Creek, Chum Creek, Yarra Glen and Coldstream areas. It is estimated that approximately 350 acres of vineyards may have suffered damage, with Yarra Yarra and Roundstone wineries completely ruined. This devastation to the vineyards will only further add to the woes of wine manufacturers who have been struggling under the impact of weak global demand and stagnant domestic growth. Wine exports by volume registered an 11% y-o-y decline in 2008, while the average value of wine per litre fell by 7.6% to AUD3.53 (US$2.31). Australian vineyards were still recovering from drought-stricken grape harvests in the last few years, with these fires exacerbating an already difficult situation.
While the economy will receive a boost from the wide range of policy measures unveiled in the first months of 2009, these are unlikely to prevent it from slipping into a more prolonged period of downturn. The slowdown will be led by falling rates of private consumption growth and investment, while low commodities prices will continue to have an adverse effect on the country's terms of trade. Clearly, the country’s food and drink sector is in for some difficult times ahead.
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