The Australian government announced an investment of its own today. Coca-Cola Amatil's (ASX: CCL) SPC Ardmona reported that the federal government is willing to invest $25 million in the failing food processing business – as long as the State Government of Victoria throws in their own $25 million bailout.
"An investment package of this scale will be game-changing for us," said Managing Director Peter Kelly in a statement today. If both governments go for gold, Coca-Cola Amatil has also agreed to "significantly invest" in SPC Ardmona and keep its Shepparton operations open until at least 2020.
According to Kelly, the government's decision could impact the future of Aussie food sourcing as we know it. "Minister Carr's announcement confirms the Federal Government's intentions to invest in the future of not only our business, the largest remaining fruit and vegetable processer in the country, but the Australian food processing industry as a whole."
Foolish takeaway
With more than 10 Australian food processors downsized or liquidated since 2009, it's hard to think of a $50 million investment as anything more than a temporary fix for a failing sector. But SPC Ardmona may actually have more up its sleeve than rotten fruit. A high Australian dollar (the darker side of the natural resource boom) has killed export opportunities, while cheap imports have flooded into Aussie's own markets.
There are two things that could signal a turnaround for SPC Ardmona. The first is the ongoing anti-dumping investigations for foreign fruits in Aussie markets. Australia's Anti-Dumping commission is currently researching the validity of these claims and, if guilty, imports could be hit with taxes to keep local produce competitive.
The second is a shift in consumer preferences. Woolworths (ASX: WOW) agreed last month to switch $7 million of fruit sourcing from overseas to SPC Ardmona, citing customers who "have clearly told us that they want us to support Australian producers and manufacturers wherever possible." The grocery store already sources most its canned fruit from SPC Ardmona, and this latest move signals another uptick in demand for local Aussie produce.
For the moment, the decision rests with Victoria government officials. Their ruling could make or break Coca-Cola Amatil's failing fruit business, and investors will need to keep a close watch for new developments in the weeks to come.
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More reading
- Woolworths sources $7 million of local fruit from Coca-Cola Amatil
- Coca-Cola fruit business could get a fresh start
Motley Fool contributor Justin Loiseau has no position in any stocks mentioned in this article. You can follow him on Twitter @TMFJLo.
