It is no secret that the Australian food and beverage manufacturing sectors are suffering.
This has been well documented here by the Food mag team and also by the 2012 State of the Industry report, referenced here. The main reasons cited for causing hardship are the high exchange rate, the increase of private labels (in high proportion imported) and taxes. The recent introduction of a carbon price has been the latest addition to the sector’s costs.
According to a study commissioned by the AFGC, Impact of Carbon Pricing 2011, the effect of the carbon price is equivalent to reducing food and grocery’s operating profit by an average 4.4 percent before tax. The study identified the Meat and Meat Product, Diary Product and Paper Stationery and Other Converted Paper Product subsectors to suffer an impact on operating profit before tax equivalent to 11.6 percent, 11.5 percent and 15.6 percent respectively.
Edge Environment has undertaken a large number of Life Cycle Assessments (LCA) and has found that medium sized producers typically purchase goods and services which emit between 4,000 and 40,000 tonnes of greenhouse gasses in their supply chains each year. This translates to between $100,000 and $1m, using the current carbon price of $23 per tonne of CO2. While not all of this carbon is liable under the carbon price mechanism, some businesses may choose to absorb the cost associated with the carbon price, while most others will pass them on.
However, every threat also poses an opportunity, or at least it can be managed if it is understood and acted upon. The impact of carbon price is not evenly distributed across subsectors or along supply chains. As a general rule, businesses with energy intensive supply chains will face a higher impact. Businesses in these subsectors’ supply chains should make sure they understand their supply chain carbon liability, as upstream companies may chose (or be required) to pass on the carbon cost.
Understanding the carbon in your supply chain can deliver several benefits for your business and/or product. For example:
- You will be able to validate and prepare for carbon pass-through costs from suppliers. Again, not all carbon supply chains should have a price and companies will be in a stronger, better informed position to defend costs passed on
- Manufacturers/growers will understand their carbon liabilities on their agricultural division which could result in participation in the Carbon Farming Initiative and the generation of revenue from carbon credits
- You can substantiate the carbon cost that legitimately can be passed on to customers. A business that makes a good faith, reasonable approach to calculating the carbon price for their business has nothing to fear from the ACCC, which is watching these claims closely
- You can provide information and education on the real effects of carbon price in your supply chain and on your bottom line, including the ability to budget and forecast appropriately
- You will be able to develop products with the carbon cost in mind, considering such things as packaging, energy requirements and alternative supplies (inputs)
- You will understand that the carbon liability of a company sets the baseline for any reductions and applications to grants such as the Clean Technology Food and Foundries Grant.
Regardless of where a company is positioned in a supply chain, the old saying “information is power” is still valid. Carbon prices are another area of business which managers need to understand to ensure the competitiveness and viability of their brand.
Edge Environment is a research, consultancy and education business.
Jonas Bengtsson is director at Edge Environmental.