Coca-Cola Amatil to benefit from ‘locally grown’ focus

Wesfarmers’ (ASX: WES) supermarket chain Coles has announced a new contract with SPC Ardmona to source 100% of its canned peaches, pears and apricots from SPC.

The contract is not only a win for SPC — a division of Coca-Cola Amatil (ASX: CCL) — but also for fruit growers in the Goulburn Valley where SPC sources its fruit. The new contract is expected to lead to an additional 600,000 kilograms of fruit being purchased domestically that had previously been sourced internationally.

The Coles deal comes in the wake of a similar deal signed between rival Woolworths (ASX: WOW) and SPC for the supply of locally grown ‘home brand’ canned fruit. It appears the pressure from regulators, suppliers, farmers and consumers is having at least some effect on the major chains with Woolworths also recently agreeing to terms with frozen vegetable producer Simplot for 100% of the ‘Select’ range of frozen vegies to be sourced from Australian growers. The agreement with Simplot is expected to directly benefit 150 Australian farmers and was an acknowledgement that Woolworths customers “are passionate about great Aussie grown food.”

The apparent focus on catering to customers’ preferences for locally grown and produced food has obviously been a positive for Coca-Cola Amatil, and it could also benefit a number of other food producers. Listed companies that could benefit from an increased focus on locally sourced product for supermarket shelves and away from foreign imports include Tasmanian-based salmon farmer Tassal (ASX: TGR) and Victorian-based frozen sweet and savoury food producer Patties Foods (ASX: PFL).

Foolish takeaway

The investment theme of Australia being ‘Asia’s food bowl’ is a good one and a major reason some investors are focussed on food and agricultural companies. The opportunity for increased sales into Asia is indeed huge however the potential for improved domestic sales, particularly amongst the smaller players, should not be overlook either.

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Motley Fool contributor Tim McArthur owns shares in Tassal Group.

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