The clock is ticking for food manufacturing businesses who are yet to comply with strict new country of origin labelling laws that came into effect mid-last year.
Food producers must update their labelling by July 1, 2018 to more clearly display where food was grown, processed and packaged. Those that fail to act in time will face stiff penalties.
Local dairy producer Bulla has moved early in adopting the new labelling regime, as has Simplot Australia, which manufactures Edgell canned goods and Chiko Rolls among other products.
But others in the food industry have criticised the changes, saying implementation is proving difficult and time consuming, and costs will run into millions of dollars, which will have to be borne by producers.
Why the change?
The laws were updated after a government review into country of origin labelling revealed that consumers found existing food labels “confusing or unhelpful,” and as a result of 25 Australians contracted Hepatitis A in 2015 from consuming imported frozen berries.
Australian foods will still display the kangaroo symbol but the proportion of Australian ingredients by weight must also be included in a statement or bar graph. However, some local food producers say they will be forced to use conservative estimates on their labels of how much of their product could be called Australian because of the seasonality and availability of ingredients.
Although the government has provided an online tool to help businesses put together labels that meet the new standards, far more is involved in complying with the requirements than a one-off design change. Many will need to acquire equipment and implement new production management systems, resulting in capex spend that could have been previously used to invest in growth.
Unfortunately, despite these challenges, there is no option to ignore the 2018 deadline.
Food manufacturers who fail to comply with the new labelling laws could be fined up to $1.1 million and $220,000 for a person. To top it off, companies could also face injunctions and compensatory orders, and may be ordered to correct advertising that is ruled to be misleading.
Companies found in breach of Australian Consumer Law may be exposed to legal action from third parties who have suffered loss or damage as a result of non-compliant labelling.
In short, food manufacturers simply must find the funds and resources to update their processes, technology and equipment.
What are the options in the food manufacturing industry?
Typically, manufacturers will either acquire the equipment outright by using cash reserves or shareholder equity, or going straight to the bank for a loan. There’s nothing wrong with this approach, however, if you need flexibility in your arrangement or labelling requirements change in the future, businesses will be restricted as a result of capital being tied up in the equipment.
Manufacturers could also look at refinancing existing equipment such as a SARB (sale-and-rent-back), giving the operator an immediate cash injection or by acquiring the equipment using an alternative capital solution.
Alternative finance is typically more flexible than a traditional loan. Yes, upgrades and maintenance can be added into the agreement, depending on what it is, but alternative finance can be so much more. It’s not just about giving a business an ‘off the shelf’ capital solution, it’s about understanding what the business’ challenge is, what they need to solve it and how we can get them there.
No two businesses are the same and nor should their finance solution be. What works for one business could be great, but for another it could only cause more problems. That’s why by working with an independent alternative capital funder, you not just get access to capital, but a tailored service to help your business.
At the end of the day, wherever the funding comes from, food and beverage manufacturers cannot afford to ignore the need to change. To stay competitive, keep products on the shelves, they must be ready to adapt.