‘We should be worried': From peanuts to paper, Australia's manufacturing industry is in crisis
From cars and steel to clothing, paper, glass and now even peanut butter, the long decline of Australia's domestic manufacturing industry seemingly claims a new casualty every other week.
The numbers behind the headlines are stark.
According to the Australian Bureau of Statistics (ABS), in the year to June 2024, 5136 established manufacturing businesses — meaning those which had been in operation for at least five years — closed down.
National employer association the Australian Industry Group warns more up-to-date numbers will be even more dire.
'Australian manufacturing as a sector slipped into recession last year and is one of the weakest performing industries in Australia today,' AI Group chief executive Innes Willox said in a statement.
AI Group on Tuesday released new research highlighting the dire situation faced by Australian manufacturing as a result of 'soaring energy and input costs, skills shortages, trade risks and productivity'.
'Australian manufacturing and its almost one million employees face deepening risks unless urgent economy-wide reforms are undertaken to return the industry to growth and boost its falling productivity,' Mr Willox said.
'We should be worried. Manufacturing directly employs 930,000 people, generating over 12 per cent of our exports and 8 per cent of capex investment despite being only 5 per cent of GDP.'
Mr Willox said cost pressures on the sector were 'excessive', with input prices having risen 37 per cent in the five years since the pandemic, outstripping inflation of 22 per cent.
'They are paying 48 per cent more for gas than they were in 2019, threatening the viability of energy-intensive branches of manufacturing,' he said.
'We are seeing an increase in plant closures or reduced activity in key economic sectors due to energy cost pressures.'
Skills shortages are also taking a toll, with 61 per cent of trades and technician roles in the country currently difficult to fill. Trades account for 28 per cent of the manufacturing workforce.
'We also need to urgently address declining productivity in manufacturing,' Mr Willox said.
'Labour productivity in the sector has declined by 3.7 per cent over the past decade and overall productivity is down by 1 per cent. The malaise of declining productivity makes it harder for employers to deliver sustainable wage increases, and it weakens our international competitiveness at the very time trade disputes are under extra competitive pressure.'
Treasurer Jim Chalmers will host an economic reform roundtable in Canberra next month bringing together political, corporate, union and community leaders.
Mr Willox said the gathering would be an opportunity to 'begin a clear reform path around the issues of energy, workforce, productivity and international competitiveness'.
AI Group has previously warned Australia's 'unsustainable' taxpayer-funded jobs boom is masking critical weakness in private sector employment.
Nearly one in five workers in Australia is a government employee.
Last year, 80 per cent of all new jobs created were either in the public service or the 'non-market' sector — government-funded industries like education or healthcare, largely through the ballooning National Disability Insurance Scheme (NDIS).
Here are some of the victims of Australia's manufacturing crisis.
Peanut butter
Last week, Bega Group announced the closure of the 100-year-old Peanut Company of Australia (PCA), blaming 'sustained financial pressure' and ongoing annual losses of $5-10 million.
PCA and its predecessors have been based in the Queensland town of Kingaroy, dubbed the Peanut Capital of Australia, since 1924.
A phased shutdown of PCA's facilities in Kingaroy and Tolga will take place over the next 18 months, with up to 150 jobs at risk.
Bega acquired PCA in 2017 but said it had 'not been able to establish a sustainable business model' despite a 12-month strategic review and several attempts to sell the business.
The company said the shutdown comes amid growing challenges in the Australian peanut industry, including import competition, rising costs, falling production and better returns from alternative crops.
South Burnett Mayor Kathy Duff said it was a 'sad day' and 'devastating news for our region'. 'It has rocked our community, as Kingaroy is the home of peanuts and the silos are an iconic part of the region's history — that is why they are heritage listed,' she said.
Bega said it would continue to operate facilities in Crestmead and Malanda, along with its existing distribution network in Queensland.
Cars
Nearly a century of car manufacturing in Australia officially came to an end in October 2017 with the closure of Holden's Elizabeth factory near Adelaide, following Toyota and Ford out the door.
Mitsubishi had already closed its Australian plants in 2004 and 2008.
High local costs and rising competition from cheap imports made Australia's car industry unsustainable, and the refusal of the federal government to continue propping up manufacturers with millions of dollars in subsidies was the final nail in the coffin.
Then Prime Minister Malcolm Turnbull insisted it was simply due to 'changes in market taste' towards SUVs and small cars, and denied the federal government was to blame.
'People stopped buying the sedans being made in Australia,' he said. 'The manufacturers who've progressively closed their operations in Australia have made it clear it's not because of a failure of government subsidies.'
The car industry had argued that no country could sustain an automotive manufacturing base without some combination of tax incentives, import tariffs or government assistance.
'The Australian market is too small and the industry cannot fully exploit economies of scale,' Professor Abbas Valadkhani from Swinburne University of Technology wrote in 2016.
'It is very difficult to compete when labour costs in some Asian countries are only one-fourth of that of Australia.'
Tyres
Bridgestone, Australia's last tyre manufacturer, finally rolled out the door in 2010 after 45 years.
The Japanese tyre giant blamed the closure of its Australian and New Zealand factories on 'international competitive forces' that had made the operations 'no longer viable'.
Around 600 jobs were lost at the Adelaide plant, with another 275 in Christchurch.
'As the last tyre manufacturer in Australia and New Zealand, we have all worked hard over many years to avoid today's decision,' former Bridgestone Australia senior executive director Andrew Moffatt said at the time.
'However, the unfortunate reality is that Bridgestone Australia Ltd. can no longer commercially justify the continued operation of these facilities. We are proud of the fact that we have managed to keep these two manufacturing facilities open for so long and have provided employment and economic benefits to so many people over such a long period.'
US-based Goodyear had announced the closure of its last Melbourne factory, South Pacific Tyres, two years earlier.
The company also blamed Australia's high costs, saying the move would save it around $US35 million ($54 million) a year.
'Going forward, our efforts will be focused on increasing production of high-value-added tyres in low-cost operations to support growth in these segments in Asia-Pacific markets, including Australia and New Zealand,' Goodyear chairman and chief executive Robert J. Keegan said at the time.
Glass
Oceania Glass, Australia's last manufacturer of architectural glass, collapsed into insolvency earlier this year after posting a $1.2 million annual loss.
The Melbourne-based company had supplied glass for homes and offices since 1856.
'Our glass is featured in many of Australia's most iconic buildings, including the Australian Parliament House,' its website noted.
Oceania Glass, which employed 260 people, had previously complained to the federal government's Anti-Dumping Commission it was unable to compete with cheaper imports from China and Thailand, after tariffs were removed during the pandemic.
Australian Workers' Union Victorian secretary Ronnie Hayden warned in February that there would be a 'tsunami of cheap products dumped in Australia' if the commission took too long to investigate complaints.
'If we don't give the Anti-Dumping Commission more powers and more resources, then we are not going to be ready to deal with this, and there'll be a lot more factories closing down in the future,' Mr Hayden told the Herald Sun.
'It's glass but it's also like steel will be next. The steel industry are on the knees with the amount of steel that's been brought into the country, when we know we can make it here.'
Clothes
Australia once had a thriving clothing and apparel manufacturing sector, but those jobs have long since moved overseas to factories in Asia with only a handful of niche or specialist producers remaining.
The dismantling of Australia's protectionist tariff system beginning in the 1980s all but wiped out local industry, resulting in thousands of job losses as iconic names like Pacific Brands' Bonds and Berlei closed down their factories one by one.
In 1985, the textile industry employed 20,300 people while clothing and footwear manufacturing supported 71,900 jobs, according to the ABS.
At the time, imports only accounted for 25 per cent of the clothing sold in Australia.
Today, local manufacturing employs fewer than 1000 workers, and less than 5 per cent of Australian clothing is made in the country.
'Over the past decades, clothing and textiles manufacturing has declined to around 1.5 per cent of Australia's manufacturing output, as activities have been offshored to countries with cheap labour,' the Australian Fashion Council (AFC) said in a 2022 report.
'However, with increased automation, clothing and textiles can become more capital intensive, positioning Australia as a potential textiles manufacturing powerhouse, particularly for high-quality goods.'
The peak body noted that as a result of Covid, many Australian brands were 'now looking to manufacture locally to deliver vertical, sustainable and de-risked supply chains'.
Paper
Australia no longer makes its own white paper.
Opal Australian Paper, a subsidiary of Japanese paper giant Nippon, was forced to cease white paper production at its Maryvale mill in Victoria's Latrobe Valley in December 2022, leading to 200 job losses.
The company had been devastated by court decision a month earlier which crippled its ability to make paper.
Government-owned timber business VicForests lost a Supreme Court case which found it was not doing enough to protect endangered wildlife including two possum species, forcing it to scale back timber harvesting in parts of rural Victoria.
VicForests was a massive supplier for Opal Australian Paper and the company was unable to find a suitable replacement to continue producing white paper.
Opal announced a further 220 job cuts across Australia and New Zealand last year.
In a memo to staff obtained by the ABC, the company blamed 'a series of unplanned challenges' including Covid and rising energy costs, as well as 'market disruptions' from the cessation of white paper production that were 'continuing to severely impact Opal's financial performance'.
The Maryvale mill, one of the Latrobe Valley's largest employers, still manufactures brown paper products.
Steel
The Whyalla wipe-out may still arrive, just a few years later than forecast.
Australia's $29 billion steel industry is effectively on life support, after decades of decline in the face of rising costs and competition from Asian producers.
BHP's Newcastle Steelworks, which opened in 1914 and employed up to 16,000 people at its peak, closed in 1999 in what was, at the time, the biggest-ever blow to Australian industry.
While the broader industry employs some 110,000 workers, today there are just two steel producers, BlueScope's Port Kembla plant in NSW and the troubled Whyalla Steelworks in South Australia.
Whyalla was built by BHP in 1941, spun off as OneSteel in 2000 and renamed Arrium in 2012. It collapsed into administration in 2016 before being rescued by British billionaire Sanjeev Gupta's GFG Alliance in 2017, but promised upgrades to the plant did not eventuate.
The South Australian government again forced the Whyalla Steelworks into administration in February, citing concerns about underinvestment by GFG and the plant's financial viability. Administrators KordaMentha revealed in March the steelworks was losing $1.5 million a day, totalling $319 million in the seven months to January, before its collapse leaving $1.34 billion in debts.
A sale process is currently underway, with reports BlueScope has been granted a rare right-of-last refusal in the deal.
BlueScope, the country's largest steelmaker, was last year handed nearly $140 million by the federal government to upgrade its Port Kembla plant, as part of a $200 million rescue package that included $63 million for Whyalla.
In 2017, a parliamentary inquiry into the future of Australia's steel industry warned that rising power prices were affecting the viability of steel and other energy-intensive industries. 'The committee is concerned that without remedial measures and a tenable bipartisan plan to reduce energy costs, the future of the Australian steel industry remains in doubt,' the report said.
Plastics
Australia's largest plastics maker, Qenos, collapsed into administration last year, blaming multimillion-dollar losses amid soaring gas prices.
The Chinese-owned chemical manufacturer produced plastic resin products extensively used across household and industrial packaging. Qenos employed 700 people and operated plants at Altona in Melbourne and Botany in Sydney, which ceased operations earlier in 2023.
At the time, AI Group's Mr Willox warned the decision to place Qenos into administration 'reflects the erosion of key pillars of Australia's industrial landscape — and risks causing much more'.
'A whole range of industrial and commercial products depends on the flow of resources and materials between oil and gas producers, refiners, chemicals businesses like Qenos, intermediate manufacturers of products like food and beverage packaging, and downstream users like food processors,' he said.
'Any house in Australia will have multiple polyethylene products in it. The closure of the ExxonMobil refinery in Victoria in 2021, driven by age and the pressures of the pandemic, dealt a blow to Qenos and many other businesses in the industrial ecosystem.'
But Mr Willox said 'most of all, the long-term rise in natural gas prices eroded Qenos's competitiveness and its prospects'. 'Prices rose over the past decade because of the takeoff of LNG exports, the erosion of Southern gas production, and the lack of adequate planning to manage these long-foreseen developments,' he said.
Other Australian plastics and chemical manufacturers have gone under or moved operations offshore in recent years.
Adelaide-based wheelie bin maker Trident Plastics — one of the largest custom moulders in Australia — collapsed in 2023.
Rising gas prices and increasing international competition were also cited by Dow Chemical in its decision to shut its Altona plant in 2019.
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Jensen Huang, Nvidia CEO: This is a once in a lifetime opportunity for America to have AI technology leadership. This is a once in a lifetime opportunity for China to have AI leadership. And if we want to be a leader, we have to engage developers all over the world. We have to engage markets all over the world. Sam Hawley: So the best way to beat China at AI is to actually help China to compete. Have I got that right? Kyle Chan: Yes. Yes. The logic, it can be hard to parse out sometimes, but yes, this is one of the main arguments. Sam Hawley: All right. So, Kyle, Donald Trump, he's delivered this speech outlining the importance of the US dominating the AI market. Donald Trump, US President: America needs new data centres, new semiconductor and chip manufacturing facilities, new power plants and transmission lines. And under my leadership, we're going to get that job done. Sam Hawley: But as we mentioned, in China, it's full speed ahead. There really is a boom going on there right now, isn't there? Kyle Chan: Absolutely. Yeah. So, I mean, everyone now knows about DeepSeek and the DeepSeek moment. News report: The release of a high performing Chinese rival to chat GPT has sent shockwaves through the global tech sector and caused US tech stocks to fall. Kyle Chan: A Chinese AI model for the first time seemed to be almost on par with the US leading models. And this was done at a fraction of the cost in terms of compute. And this was done sort of in defiance of US efforts to put on export controls and to restrict Chinese compute capacity. But DeepSeek is really the tip of the iceberg. So there's a whole set of very competitive Chinese AI models. You think about Alibaba's Qwen, you think about Tencent, ByteDance. There's Moonshot, a whole host of startups as well. Most of these companies now, they all have their own sort of chatbot like chat GPT, where anyone can download the app or go to the website and just start chatting directly with the AI model, the underlying model itself. And so what's interesting is that it's not just one company or one startup per se. It's actually a whole sort of lineup, in a way, a Chinese team competing with the US one. Sam Hawley: And these AI apps, what they haven't needed, that chip that was banned, I guess, from being exported from the United States. China's done it on its own, has it? Kyle Chan: Well, yeah. So it's complicated because actually many of these Chinese AI companies, they do use Nvidia chips. They do, including the chip that was banned, the H20. At the same time, though, they're trying to experiment and test Chinese domestic alternatives, knowing very well that, you know, in the long run, they may no longer have access to Nvidia's GPUs. So there's a question right now within the Chinese tech community, Chinese AI policy about how hard to push for this domestic alternative versus to continue to rely on what are otherwise better performing Nvidia chips. Sam Hawley: All right. Well, Kyle, just unpack for me now. What's actually driving this AI boom in China? Because it has a lot to do with the Communist Party's backing of this, doesn't it, of the government's funding of it. Kyle Chan: That's right. So what's interesting is that Beijing is pouring resources into the entire, what I call the entire AI tech stack. So they're investing in not only chips, as we mentioned earlier, but in the rollout of data centres, often tied to renewable energy. They are investing in the development of foundation models. They have special local government AI labs. And then all the way to applications, especially in so-called hard tech areas like robotics and industrial automation. So you can see sort of this full range of support. And of course, at the very heart of this, I think is ultimately the emphasis on talent development and basic research. So a lot of the universities in China, many of them are producing really world class AI developers. Sam Hawley: And we've seen this before, haven't we? From the Chinese government when it wanted to boost the EV market. It did the same thing. It did the same thing with solar and it works. Kyle Chan: Yeah, that's right. They've tried this playbook before and they're going to try it again. But the funny thing is, yeah, AI is sort of a different beast. And so, you know, for example, just in the past year, we have this shift towards reason models. And that already has thrown a bit of a wrench into some of the industrial policy efforts that China has made in AI. So some of the data centre build out that was government backed. You know, there's a question now about whether that is fit for purpose with the shift towards this sort of new AI paradigm. And it could change again. So it's a fast moving space. Sam Hawley: All right. So, Kyle, there is this race going on between the United States and China to dominate AI development. But tell me, why is that so important? Why does it matter who wins this race in the end? Kyle Chan: So the AI race, I think, is especially important now because it has implications for economic growth, long term productivity. There's a sense both in the US and in China that AI could help boost a whole range of sectors. From education, health care, biotech, drug discovery, manufacturing services. So on the one hand, you have this sort of economic implication. On the other hand, there are military implications. So AI could be used for developing autonomous systems. You think about drones or swarms of drones that are able to navigate on the battlefield on their own. Or you think about missile defence capabilities that might use AI or satellite technology that might use AI. So there are both security and economic repercussions for, you know, the question of sort of who is ahead in the race for AI. Sam Hawley: Yeah. And I note that Sam Altman from OpenAI says he wants to make sure that democratic AI wins over authoritarian AI. What do you make of that? Kyle Chan: Yeah, that's right. I mean, it's an interesting idea because right now there's also this battle over sort of diffusion and who can get their models out into the world. And so it's not just a matter of, you know, who has the best model, but also which model is more widely used. And I think right now what's interesting is a lot of Chinese models are open source or at least open weights. That is people, companies, organisations, individuals can download these models and run them locally, run them themselves. And what this means is that a Chinese type of AI might end up diffusing more broadly, perhaps maybe outside of the U.S. into other countries. Sam Hawley: All right. Well, it's a fascinating battle. Kyle, what do you think? What's your prediction? Who's going to come out on top in the end? Kyle Chan: In a sense, I do see that with some of the industrial policy in China, with some of the government support, as well as perhaps more importantly, different sorts of attitudes towards AI in China. There are some surveys that have shown that people in China more broadly seem to be more open to adopting AI and see it as a more positive force in society. That could play a key role in rolling out and incorporating AI into more areas of life. So that's one area that I would watch very closely. Sam Hawley: Kyle Chan is a postdoctoral researcher at Princeton University and an adjunct researcher at the Rand Corporation. This episode was produced by Sydney Pead and Sam Dunn. Audio production by Cinnamon Nippard. Our supervising producer is David Coady. I'm Sam Hawley. ABC News Daily will be back again on Monday. Thanks for listening.
