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The plastic billionaires forced to make everything more expensive · The Front

• 0:03
  Speaker 1: From The Australian. Here's what's on the front. I'm Claire Harvey.
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  Speaker 1: It's Thursday March twenty six, twenty twenty six. Israel believes
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  Speaker 1: it's joint assault on Iran with the United States has
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  Speaker 1: degraded the Iranian regime and caused chaos and ill discipline,
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  Speaker 1: with soldiers now refusing to launch missiles. Pope Leo has
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  Speaker 1: personally chosen a Catholic bishop from New South Wales to
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  Speaker 1: become an archbishop. He's also appointed Anthony randats So to
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  Speaker 1: a plum job in the Vatican. Those exclusives are live
• 0:37
  Speaker 1: now at Theaustralian dot com dot a U. We hear
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  Speaker 1: a lot about how the crisis in the Middle East
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  Speaker 1: is going to cause wild inflation or even recession, and
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  Speaker 1: today we're getting granular on exactly how a substance called resin,
• 0:54
  Speaker 1: which is made from crude oil, is critical for making
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  Speaker 1: plastic but thanks to the war, resin is running low
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  Speaker 1: around the world. That means Australian packaging companies are having
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  Speaker 1: to bump up their prices and that affects every product
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  Speaker 1: we buy. Our retail expert Eli Greenblat is here in
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  Speaker 1: just a moment. Eli Green Blad is a senior business
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  Speaker 1: reporter with The Australian and he's a resident expert on
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  Speaker 1: retail and that means he's very busy right now covering
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  Speaker 1: the impact on everything that we buy from the conflict
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  Speaker 1: in Iran. Everything that we buy is either in a
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  Speaker 1: cardboard box or a can or a bit of plastic wrapping.
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  Speaker 1: And it turns out that most of those wrapping products
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  Speaker 1: come from one of two Victorian billionaire families who are
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  Speaker 1: they Yes.
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  Speaker 2: Everything we touch and see has a component of oil
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  Speaker 2: and has plastic, and plastic is really made from resin,
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  Speaker 2: which is a biproduct of oil. And the families or
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  Speaker 2: the companies we're talking about really are Busy and just
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  Speaker 2: so very large packaging recycling companies and Packed Group which
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  Speaker 2: is owned by Raphael and Fiona Gaminda. Fiona Gaminda being
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  Speaker 2: the sister of Anthony Pratt from the prep Early and
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  Speaker 2: the owner of Busy and Pratt Industries, so they're very
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  Speaker 2: large packaging companies. Both of them together have tens of
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  Speaker 2: thousands of customers all over Australia and throughout the world
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  Speaker 2: who rely on their packaging, on their manufacturing to make
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  Speaker 2: the products that house their own products. And that could
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  Speaker 2: be fresh food, it could be packaged food, it could
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  Speaker 2: be dishwashing liquid, it could be medicines, vitamins, prescription drugs.
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  Speaker 2: So really that packaging is very important. And to make
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  Speaker 2: that packaging, you've got to have resin. And to have
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  Speaker 2: the resin, you need the oil. You need access to
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  Speaker 2: the oil first of all to make the resin, but
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  Speaker 2: you need access to that resin at a reasonable price.
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  Speaker 2: And that's becoming a problem now where these companies can't
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  Speaker 2: get access to that resin and if they can get
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  Speaker 2: access to the resin, is at an incredibly high price
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  Speaker 2: or a fast moving higher price.
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  Speaker 1: One of the intriguing things that this Iran war has revealed,
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  Speaker 1: i think ela is how little preparation there seems to
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  Speaker 1: be for some kind of disaster like this. In Australia anyway,
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  Speaker 1: we don't have a large stockpile of fuel. For example,
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  Speaker 1: we don't have a huge stockpile of diesel, despite warnings
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  Speaker 1: over the years that that's something that we needed to do.
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  Speaker 1: It's intriguing to me that this critical component of something
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  Speaker 1: that makes the economy go, I mean, nothing could be
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  Speaker 1: delivered without some form of packaging to anywhere, whether it's
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  Speaker 1: a home or a supermarket or a corner store. It's
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  Speaker 1: interesting that it's so quick for the resin to be
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  Speaker 1: in short.
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  Speaker 2: Supply, Yes, and so quickly. You look at other countries,
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  Speaker 2: We've got hundreds of days of oil supply, strategic reserves.
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  Speaker 2: I heard this morning, Try has got about one point
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  Speaker 2: three billion barrels of oil set aside. America has its
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  Speaker 2: own strategic reserve, and I think we've been caught shot absolutely.
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  Speaker 2: But of course you can also understand from a business
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  Speaker 2: perspective why that happens. These companies, whether they're manufacturers, retailers, wholesalers,
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  Speaker 2: whoever they are, they operate on very thin margins, and
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  Speaker 2: they operate on very thin inventory. They don't want to
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  Speaker 2: be sitting on high inventory because it costs them money. So,
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  Speaker 2: to take one classic example, if you're packed, or if
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  Speaker 2: you're busy, or if you're prat it doesn't really make
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  Speaker 2: sense for you to sit on warehouses full of resin
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  Speaker 2: or warehouses full of spare plastic. That's a cost you
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  Speaker 2: have to carry what you want. Are very fast moving
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  Speaker 2: supply chains that move at lightning speed, which means you
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  Speaker 2: can get those raw materials in very last minute, very quickly,
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  Speaker 2: so you can get them into your w house, turn
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  Speaker 2: them into finished goods, get them out straight away. Because
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  Speaker 2: every day that you're sitting on that resin or that
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  Speaker 2: plastic or that raw material costs your money. So no
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  Speaker 2: company really does that. And if you go down the
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  Speaker 2: supply chain, for example, Calls or Woolworths or ld all
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  Speaker 2: the independent supermarkets, they also don't want to be sitting
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  Speaker 2: on huge inventories of food and groceries. It just doesn't
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  Speaker 2: make sense and it's a cost of doing business, but
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  Speaker 2: they can't afford so in a normal environment, outside of
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  Speaker 2: war and outside of crisis, it actually works perfectly well
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  Speaker 2: and shows the benefits of a global supply chain where
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  Speaker 2: you can get in that raw material from the Middle
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  Speaker 2: East or Asia or Europe or Africa. You can get
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  Speaker 2: it in very quickly, fashion it up, turn it into
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  Speaker 2: a finished product, and sell it incredibly quickly. That makes sense,
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  Speaker 2: and it's good for the consumer because that keep costs down.
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  Speaker 2: But when that supply chain seizes up as it is now,
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  Speaker 2: you will be caught sure, and that happens to a
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  Speaker 2: lot of countries. And then we can talk about also fertilizers.
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  Speaker 2: We don't make fertilizers in Australia anymore. So it's great
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  Speaker 2: in Australia that we can feed ourselves five or six
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  Speaker 2: times over. We're great in terms of our food supply
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  Speaker 2: for domestic consumption. But if you don't have the fertilizer
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  Speaker 2: to grow the food, if you don't have the diesel
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  Speaker 2: to power the tractors and the harvesters to harvest the
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  Speaker 2: food the crops, then you're in trouble.
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  Speaker 1: Talking about self sufficiency and Australia being able to feed
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  Speaker 1: itself and to supply itself feels kind of old fashioned
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  Speaker 1: these days, Elios, As you say that the whole conversation
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  Speaker 1: is about lightning fast global supply chains. But do you
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  Speaker 1: think Australia is unnecessarily exposed to something like a conflict
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  Speaker 1: in the Middle East because we have really deprioritized local
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  Speaker 1: manufacturing so much of things like fertilizing.
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  Speaker 2: Yeah, it shows up, doesn't it. But so very few
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  Speaker 2: countries are self sufficient. I think America maybe, and that
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  Speaker 2: maybe through decades of planning and again that strategic reserve
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  Speaker 2: of oil, they still have a very strong manufacturing base
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  Speaker 2: with factories that actually make things, including cars that we
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  Speaker 2: no longer do. So they've been very smart in that,
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  Speaker 2: I think a lot of European countries again maybe because
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  Speaker 2: they've seen the impact of wars on their doorstep in
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  Speaker 2: their own countries, so they've prepared for that. And I
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  Speaker 2: think with Australia, I think we've just gone, perhaps where
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  Speaker 2: it makes sense for us where our competitive advantages lie.
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  Speaker 2: So there's no competitive advantage in Australia manufacturing cars or
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  Speaker 2: cutlery or matsticks or plastic materials. It just doesn't make
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  Speaker 2: sense anymore. It does make sense for us to manufacture
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  Speaker 2: software or cochlear ear implants, or maybe wine but not
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  Speaker 2: the bottles but the wine, or technology, or having AI
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  Speaker 2: data centers, that makes sense. But to make cars anymore,
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  Speaker 2: probably not to make fertilizer sadly, probably not. But then
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  Speaker 2: we need to have very strong supply chains to make
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  Speaker 2: sure we're ready if the crisis happens, which is happening now,
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  Speaker 2: but I think all countries are facing this. You know,
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  Speaker 2: New Zealand I think is in even a worse position
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  Speaker 2: than us. I remember during the COVID crisis there was
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  Speaker 2: a global shortage in carbon dioxide, which shocked me, like,
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  Speaker 2: how can it be a shortage in albon? Oh, we
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  Speaker 2: had too much Yeah, isn't it actually everywhere? Can't you
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  Speaker 2: just take it out of the atmosphere. It actually doesn't
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  Speaker 2: work that way, and it's just so silly, you know. Way,
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  Speaker 2: we had a shortage of the carbonated bubbles that go
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  Speaker 2: into beer, soft drinks, that kind of thing. We only
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  Speaker 2: had one or two plants in Australia that make that.
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  Speaker 2: New Zealand have got no plants that make commercial carbonated bubbles,
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  Speaker 2: so they actually had a shortage. It had to ration
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  Speaker 2: carbon dog sick it.
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  Speaker 1: God, is a bubble crisis.
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  Speaker 2: M Yeah. Again, of course when you dig deep into it,
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  Speaker 2: what you discover is that you need that carbonated water
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  Speaker 2: or those bubbles for hospitals which do a keyhole surgery
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  Speaker 2: actually uses that carbon so they're obviously a priority, not
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  Speaker 2: making beer. So this is actually a problem that's across
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  Speaker 2: the economy, across everything that we touch and see. While
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  Speaker 2: you've been the center of it, but the strait of
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  Speaker 2: her move shuts down, we're all in trouble.
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  Speaker 1: I had a very confronting conversation with my dentist recently.
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  Speaker 1: Eli was the usual thing like do you floss, yes,
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  Speaker 1: you do you eat a lot of sugar foods?
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  Speaker 2: No?
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  Speaker 1: And she said do you drink sparkling water? And I
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  Speaker 1: said yes, I have a soda stream at home and
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  Speaker 1: she said, oh, well you need to stop that. And
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  Speaker 1: I said, what this is my this is my last advice,
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  Speaker 1: is all I've got? And she said no, the acid
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  Speaker 1: that emerges in the carbonation process is bad teeth and
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  Speaker 1: erodesia amel. So maybe the bubble crisis was actually good
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  Speaker 1: for all of our teeth.
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  Speaker 2: Yes, and yes it could have been. That just shows
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  Speaker 2: him the tiniest thing that you don't think about, and
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  Speaker 2: resin being a pretty good example. But you may remember
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  Speaker 2: at the Global Food Forum last week that the Australian
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  Speaker 2: put on the Beaga cheese boss spoke about resin and
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  Speaker 2: how tough it is to get that resin, which is
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  Speaker 2: something we don't think about. But when you look at plastic,
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  Speaker 2: it's resin you'll see.
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  Speaker 1: Coming up. So is this how a recession starts? The
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  Speaker 1: thing that we're hearing from all of these companies is
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  Speaker 1: that ultimately we're going to have to pass this on
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  Speaker 1: to d end user, the consumer or the purchaser. Borrel
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  Speaker 1: Group is saying that about building supplies now, So if
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  Speaker 1: you're planning a renovation, it's going to be a lot
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  Speaker 1: more expensive. Of course, the packaging companies are going to
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  Speaker 1: part that onto Coals and Wilworths, who will be passing
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  Speaker 1: it on to us. At what point, though, do you
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  Speaker 1: think eli consumers continue to accept that will this be
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  Speaker 1: the subject of a negotiation? Say, you know, will Coals
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  Speaker 1: and will these be law being hard not to have
• 11:13
  Speaker 1: that cost passed on to them, you know, and ultimately
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  Speaker 1: not to have to pass it on to their customers
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  Speaker 1: because they are in a bit of a reputational crisis
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  Speaker 1: for other reasons.
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  Speaker 2: Anyway, I found the reasons.
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  Speaker 3: You're right, the consumer Watchdog and Coals are going head
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  Speaker 3: to head in the federal court and what's being labeled
• 11:30
  Speaker 3: the case of the century, the h trouble see alleges
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  Speaker 3: the supermarket giant duped shoppers with fake discounts.
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  Speaker 2: But it's a problem for Coals, Willies, all the supermarkets,
• 11:39
  Speaker 2: all the retailers, how much they pass on to the consumer.
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  Speaker 2: If they don't increase prices, then their profits suffer and
• 11:46
  Speaker 2: their shareholders get angry and the share priss falls. If
• 11:49
  Speaker 2: they do pass on the price to the consumer, that
• 11:53
  Speaker 2: preserves their profit margins. But then consumers get angry and
• 11:56
  Speaker 2: they made biless and it's a vicious circle. There will
• 11:59
  Speaker 2: be some nego and I think Coals and Woolies, Aldi
• 12:03
  Speaker 2: and Costco and all the other food and grocery retailers
• 12:06
  Speaker 2: will need to go to their suppliers and say you
• 12:09
  Speaker 2: need to work hard on cutting your own costs, that
• 12:12
  Speaker 2: you need to get efficiencies somewhere else, and Coals and
• 12:15
  Speaker 2: Wullies just to use them as really the leaders in this.
• 12:19
  Speaker 2: They will have to look their own businesses and cut
• 12:21
  Speaker 2: their own costs to try and make up some of
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  Speaker 2: the difference. But I think they will need to increase prices.
• 12:27
  Speaker 2: And we heard from Packed yesterday when they made their
• 12:31
  Speaker 2: statement that they've passed on the increase to their customers immediately,
• 12:35
  Speaker 2: so not delayed, but they've just immediately passed on Reese,
• 12:40
  Speaker 2: which is Australia's leading combing supplies business. They've passed on
• 12:44
  Speaker 2: prices to their customers immediately about thirty or percent. So
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  Speaker 2: they're the market leader. So if they've done it, that
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  Speaker 2: kind of gives permission, I suppose for everyone else to
• 12:54
  Speaker 2: do it because they're kind of making that lead. But
• 12:57
  Speaker 2: it will have been passed on and someone's going to
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  Speaker 2: pay for it somewhere.
• 13:07
  Speaker 1: These are the reasons why people say that oil shocks
• 13:10
  Speaker 1: lead to recessions. Do you think there's a recession over
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  Speaker 1: the horizon for US?
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  Speaker 2: Yeah, I think economists are certainly saying that and suggesting that.
• 13:18
  Speaker 2: I think our economies already just stumbling along. You don't
• 13:23
  Speaker 2: need much to knock it into negative territory. And of
• 13:26
  Speaker 2: course you need two negative quarters of economic growth to
• 13:30
  Speaker 2: define to make it a recession. So then what does
• 13:33
  Speaker 2: the government do. Do they increase their own spending or
• 13:36
  Speaker 2: that leads to inflation, which leads to more problems down
• 13:38
  Speaker 2: the track. You know, you think the odds of a
• 13:40
  Speaker 2: recession grows. And yes, we had that oil crisis in
• 13:44
  Speaker 2: the mid seventies, which leads to recession or leads to stagflation.
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  Speaker 2: So inflation and no growth or negative growth, that's going
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  Speaker 2: to be a problem. And you know, the consumer is
• 13:54
  Speaker 2: such a big part of our GDP, it's such a
• 13:57
  Speaker 2: big chunk, so that's going to be a huge problem.
• 14:01
  Speaker 1: Eli Greenblat is a senior business reporter with The Australian.
• 14:04
  Speaker 1: Thanks Elo, Thank you. Eli covers everything from Dominos and
• 14:12
  Speaker 1: Smiggle to Maya and Amazon, and you can check out
• 14:15
  Speaker 1: his unrivaled news breaking and analysis anytime at the Australian
• 14:20
  Speaker 1: dot com dot au