Issue No.09 AUSTRALIAN PACKAGING - HOW COMPETITIVE? KEY POINTS: In recent years the Australian packaging industry has been criticised for being high cost, thereby eroding the competitiveness of the users of packaging. Much of this criticism lacks substance. Nowadays, the Australian packaging industry is outward looking and export-oriented to an unprecedented degree. It is winning an increasing amount of the global packaging market. The increasing international focus - and success - of the Australian packaging industry suggests that its domestic operations are competitive and, at the very least, not all that far short of international best practice. Success overseas is dependent upon a company's Australian operations being up to the mark. There is, however, no room for complacency. The focus on winning international business will continue, requiring the Australian packaging industry to constantly monitor its performance against the standards of international best practice. The Australian industry will continue to be under pressure to provide its customers with cost competitive and innovative solutions while maintaining the highest levels of quality and service. Important issues remain to be addressed, many of which are being considered by the Agri-Food Council, of which Garry Ringwood, President of the Packaging Council, is a member. Australia's small and fragmented market means smaller production runs. Rationalisation of container sizes, an issue currently under examination in Australia, would assist in reducing unit costs. Government policies, practices and regulations can also have a significant impact on the competitiveness of Australian packaging. If the provision of these services - transport, power generation, the waterfront - falls short of the mark then the drive to achieve cost competitive packaging will be impeded. The future of the Australian packaging and processed food industries are inextricably linked. For both industries the high growth rates are to be found overseas. Export success for the processed food industry will flow through to packaging. The Australian packaging industry plays a substantial national economic role. It contributes significantly to GDP; employs, directly and indirectly, over 50,000 people; has a capital investment of approx. $7 billion; and achieves annual sales of over $5 billion. In Australia, over 60% of packaging is used by the food and beverage industry. That industry is of critical importance to the packaging industry. Many of Australia's processed food companies are now focussed on expanding their export markets, particularly in the Asia Pacific region. The Role - and Record - of Australian Packaging The quality of Australian packaging is a key influence on the success of the product it contains. High quality packaging is a pre-requisite for any Australian company or industry aiming to compete extensively on the international market. In his remarks in October 1994 to the Annual Packaging Awards Dinner, Senator Schacht, Minister for Small Business, Customs and Construction noted that the "innovation and excellence of Australia's packaging industry has been fundamental to the success of many other industries....this applies especially to the food industry". In recent years, the Australian packaging industry has come under attack from some parts of the processed food industry for being high cost, thereby eroding their export competitiveness - and import replacement capacity. While, in some quarters, the criticism has been very elegantly stated, the case is not supported by a full examination of the facts. Some of the arguments have been selectively presented. It is, for example, very easy to select a particular price for a particular package in a particular overseas market that is operating under distressed conditions, and use that specific circumstance to quote against the Australian industry in general. The issue is far too complex, and important to be dealt with in a lop-sided manner such as this. On the score of innovation and efficiency, the packaging industry stands up well and in several areas has, in fact, led the world: • Australia and New Zealand were credited with the birth of modified atmosphere packaging in the 1930's by exporting fresh bulk meat to the United Kingdom in an atmosphere rich in carbon dioxide. • Australia was the first country in the world to convert exclusively to retained tab can ends for beer and soft drink cans. • Australia has pioneered and developed the concept of geometric packaging to optimise the efficiency of transport and distribution systems. • Australian corrugated board is now amongst the lightest available in the world and has contributed greatly to our international competitiveness. • The packaging industry is generally on target to meet its national recycling targets and, in some areas, has a record close to the world's best. Notwithstanding its record of achievement a number of important issues that affect competitiveness need to be addressed. The industry can do a better job in taking initiatives with its downstream customers to solve problems jointly and explore opportunities. Many of these issues are being addressed by the Commonwealth Government's Agri-Food Council, to which Garry Ringwood, President of the Packaging Council has been appointed. One argument advanced is that the concentration of ownership now evident in the packaging industry is reducing competitive pressures and contributing to increased prices. The response is twofold. Firstly, increasing concentration is a feature of the packaging industry worldwide and not just in Australia. Secondly, far from weakening competition, this increasing concentration is part of the process of ensuring that Australia has a world class, competitive industry. Given the capital and investment required, there are real limits to the number of different producers of the same type of packaging that a market Australia's size can support - if those producers are to be of international standard. Like most manufacturing industries in Australia, some parts of the packaging industry suffer on account of scale. This means that the discounts attainable from long production runs are probably not available to users of packaging to the same extent as in the United States and Europe. The Key Issues As with most things the real situation is a little more complicated. Among the range of issues which need to be addressed are the following: • The Agri-Food Council, in a paper prepared for a recent meeting, identified the need for a "redoubling of efforts to remove trade distortions in the region on the one hand, and better focussed and integrated strategies for offshore development on the other." • "Clean Food" is a significant selling point for Australian processed foods. Guaranteeing the quality of our processed food exports is an area where Australia is lagging. The international market is demanding that producers understand consumer preferences, meet increasingly tight health and safety standards and guarantee quality across the range of products through "built-in" assurances. • Market access problems in a number of countries are restricting the export of Australian processed foods and need to be tackled on a bilateral basis. A number of Asian countries maintain prohibitively high or escalating tariffs on processed food imports while others employ non-tariff measures such as import licensing and sanitary standards. • The cost of Government-provided services is a significant element in the price of packaging. It is worth noting the importance to the packaging industry of the process of introducing reforms and competitiveness into Government-provided services such as the waterfront, power generation and transport. If the packaging industry is to be world competitive then so also must be these government services. • Technological research and development is an important aspect in boosting Australian exports. Australia's ability to get fresh produce into major overseas markets at significantly reduced costs due to better packaging could prove to be a major export earner for the food industry. The development of Modified Atmosphere Packaging (MAP) is a case in point. It will allow exporters to use sea freight rather than air freight to substantially reduce the landed cost. The above list is not exhaustive but it does illustrate that the problem is a multidimensional one and needs to be tackled as such. Only by addressing all aspects - poor investment performance in the overseas food sector, inadequate guarantees of quality, the efficiency and cost of government services, market access as well as delivering quality, innovative packaging at competitive costs - will Australia achieve the level of food and horticultural exports that we are capable of. THE PACKAGING COUNCIL OF AUSTRALIA'S POSITION Ten years ago, Australian packaging companies, by and large, would not have seen themselves as "players" in the international market. Their increasing success on the international stage suggests that while there is always room for improvement they have come a long way in the last decade. There is, however, no room for complacency. The packaging industry is not exempt from any examination to ensure that it is delivering internationally competitive packaging. The industry must be prepared to benchmark its own performance against worlds best practice if it is to compete in local and overseas markets. Through quality accreditation, continuous improvement and employee involvement the industry is already encouraging its employees to deliver world competitive outcomes. To maximise the prospects for success, these basic principles need to be applied right through the packaging chain, including the suppliers of goods and services to the industry. The export drive by Australia's processed food and horticultural industries is of direct interest to the Australian packaging industry. It will create new openings and markets for Australian packaging. Both industries need to work together to maximise the opportunities for growth. Read other Issues Papers: No.01 - "Combustion with Energy Recovery" No.02 - "Life Cycle Analysis" No.03 - "Managing Packaging Waste in Europe - Lessons for Australia" No.04 - "Waste Management " No.05 - "Litter" No.06 - "Mandatory Deposits" No.07 - "Excessive Packaging" No.08 - "Recycling" No.10 - "The Packaging Council of Australia" No.11 - "Mandatory Minimum Recycled Content" No.12 - "Eco-Labelling" No.13 - "Packaging - Ten Trends for The Next Ten Years" No.14 - "Packaging - It's Essential Role" No.15 - "The Internet - What it Means for Australian Packaging" No.16 - "Single, Active, Post-Materialistic, and Grey?" No.17 - "Digitisation in Printing - Implications for Packaging" No.18 - "Australian Packaging: Issues and Trends"