A WAVE of insolvencies in horticulture's farm and packing sectors are tipped as a blowout in production costs collides with higher interest rates and declining consumer spending power.
Several years of labour shortages and leaping labour costs combined with recent seasonal setbacks, plus steep rises in fuel, fertiliser, freight and packaging expenses have left many growers short of cash reserves and struggling to keep up.
The Australian sector is not alone with its cost-price squeeze struggle, according to specialist business consultant, Michael Fingland, at Brisbane-based Vantage Performance.
Internationally, almost 60pc of horticultural produce was being sold at a loss, or at break even prices.
World-wide, retailers were proving highly reluctant to pass on rising supply costs to reflect true horticultural produce values because inflation was already hurting consumer spending power on multiple fronts.
Mr Fingland said spiralling costs and business pressures had already generated plenty of bad news headlines about collapses and closures in Australia's construction, retailing and discretionary food manufacturing sectors.
The 52-year-old frozen dessert brand favourite, Sara Lee, was the most recent big name to go into administration, this month.
The next insolvency wave was potentially ground level fruit and vegetable businesses, according to Mr Fingland.
Most farmers I've talked to in the horticulture sector said 2022-23 was the toughest year ... in the past two decades
- Michael Fingland, Vantage Performance
At very least, the chief executive officer at the business turnaround services company tipped a surge in voluntary exits from fresh produce farms in the next six to 12 months.
"Some industries have been in more strife than others in recent years, but the sector that's really concerning me at the moment is fruit and vegetable production and on-farm processing," he said.
"Most farmers I've talked to in the horticulture sector said 2022-23 was the toughest year on record, or at least in the past two decades.
"We feel quite a few are at breaking point."
Many producers were still reeling from two or three seasons of excessively wet growing conditions, including extensive floods in eastern Australia.
Peak grower representative body, Ausveg, agreed 2022 and 2023 had been tough for many, particularly those hammered by too much wet weather and big yield losses.
Farm input costs jumped an average 37pc in the two years to July, with fertiliser alone up 107pc and packaging, fuel and gas costs each up more than 55pc.
Yet, despite multiple challenges hitting farmers at the same time, Ausveg was not fearful of a rush for the door.
We're not seeing any broad scale indication of growers looking to leave.
- Lucy Gregg, Ausveg
"It's challenging at the moment with storms all around us, but supply and demand fluctuations are common in the perishable produce industry and farmers tend to be remarkably resilient," said national public affairs manager, Lucy Gregg.
"We're not seeing any broad scale indication of growers looking to leave, in fact, the medium to long term outlook for horticulture is very positive."
The Centre for International Economics projected the local industry's value to grow 22.5pc in the decade to 2030, to be worth almost $22 billion.
The prospect of a new food and grocery code to scrutinise market behaviour and efficiency gains from mechanisation and other production technology breakthroughs also promised to help the industry's advance.
However, Mr Fingland said while it was not a case of calling in the receivers right now, bankers were saying their ability to keep providing funding for stretched businesses was "constrained" in the current climate.
His firm of business recovery specialists believed many farm balance sheets lacked enough fat in reserve to keep riding out the sustained cost-price pressures they faced now.
"Bank lending help is declining because lenders are concerned that free cash flow is tight and many farms may be unviable in this climate," Mr Fingland said.
While food processors such abattoirs, dairy factories and canneries had struggled with similar cost stresses, including labour and staff accommodation shortages and high raw material and energy prices, these businesses had shown signs of stabilising of late.
"For farmers there doesn't seem to be a relief valve in sight," he said.
In addition to inflationary pressures, the rising cost of farm debt and ongoing labour shortage issues, the seasonal swing from last year's wet La Nina weather patterns to a hot, dry, El Nino cycle would now add to irrigation costs and heat stress losses.
Ironically, the past nine months had delivered a window of generally ideal growing conditions, subsequently resulting in an oversupply of some crops which, in turn, undermined wholesale prices.
Mr Fingland felt the abundance of produce and corresponding cost stresses had hit a wide array of vegetable categories from carrots and potatoes to beans, corn, leafy greens, brassicas and particularly tomatoes.
"It's hurting all the way through the sector, from family farms with $15 million turnover to some of the largest $300m or $400m operations hanging in there hoping their competitors will fall over first."
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