Industry in focus: 5 challenges facing the Australian food and beverage manufacturing industry
From rising ingredient and packing costs to supply chain disruptions, the Australian F&B manufacturing sector is contending with challenges on multiple fronts. We outline the key challenges facing food and beverage producers, and how they can respond.
- Profitability is under pressure in the Australian F&B manufacturing industry as rising input, wage and freight costs squeeze margins.
- Supply chain disruption is contributing to freight delays, longer lead times and higher procurement costs.
- Inventory pressures are forcing manufacturers to balance lean stock control with customer demand.
- Late payments and long payment cycles are tying up working capital and limiting growth.
- Flexible funding solutions can help F&B manufacturers manage cash flow, protect margins and invest in growth.
The Australian food and beverage manufacturing sector is one of the country’s most important industries, contributing more than $131 billion to the economy each year and employing almost 300,000 people.
It’s also one of Australia’s strongest-performing manufacturing sectors. Grant Thornton’s latest Manufacturing Benchmarks report showed the sector outperformed the broader manufacturing industry in revenue growth.
However, rising ingredient, packaging, energy and freight costs, labour shortages and supply chain disruption are placing pressure on profitability for Australian F&B manufacturers, while weaker consumer confidence is making it harder to pass increasing costs on to customers.
At the centre of these pressures is a structural cash flow gap. F&B manufacturers need to pay suppliers upfront or on short terms, while waiting extended periods to receive payment from retailers. With costs rising and payment cycles stretching, each production cycle can place further pressure on working capital and net margins.
Climate volatility, geopolitical conflict, tariffs and unstable supply chains are exacerbating these issues, increasing the need for alternative suppliers, contingency stock and more flexible procurement strategies – raising costs further and complicating production planning.
While many of these pressures are outside of individual businesses' control, maintaining consistent cash flow and access to working capital can help food and beverage manufacturers protect margins and position themselves for future growth.
Here are five challenges facing the food and beverage industry – and three ways manufacturers can manage them.
At a glance:
Rising input costs were the top pressure facing Australian businesses according to industry groups.
Ingredient, packaging, energy and freight costs have all increased significantly over the past year.
Ongoing supply chain disruption is contributing to freight delays, longer lead times and higher shipping expenses.
The Australian Food and Grocery Council (AFGC) has warned that a “perfect storm” of global conflict, surging energy costs and domestic economic pressures is placing significant strain on Australia’s food and grocery manufacturers. Ai Group has also found rising input costs to be the top pressure facing Australian businesses in 2026.
These pressures are being felt across the full supply chain. Ingredient costs have increased significantly, with AFGC data showing wheat prices up 8% year-on-year and soybean oil prices up 52% year-on-year. Packaging inputs are also under pressure, with polyethylene and polypropylene prices rising sharply as a result of increased oil prices, sending up the cost of bottles, containers and food packaging.
Logistics costs are adding further pressure, with global shipping disruption contributing to freight delays, longer lead times and higher transport costs. According to the AFGC, container freight costs rose 22% year-on-year.
For food and beverage manufacturers, these rising costs create a direct margin squeeze, particularly when increased production and distribution costs cannot be passed on quickly or fully to retailers and consumers.
Sam RaltonOctet Direct Working Capital Solutions - Vic, SA, Tas
At a glance:
Consumer sentiment remains weak as cost-of-living pressures continue to affect household spending.
Food and beverage manufacturing revenue softened sharply in Q1 2026, according to Food & Drink Business.
Price-sensitive consumers and private-label competition from supermarkets are making it harder to protect margins.
Pressure on margins is being compounded by weaker consumer sentiment, as ongoing cost-of-living pressures continue to shape spending behaviour and reduce demand across parts of the food and beverage sector.
The Westpac-Melbourne Institute Consumer Sentiment Index fell 2.9% to 80.6 in June 2026, with consumers reporting increased pressure on household finances and growing concern about the year ahead. ANZ-Roy Morgan data shows just 17% of Australians say their family is financially better off than a year ago, while 54% say they are worse off.
This weaker demand is flowing through to manufacturers. Unleashed (an inventory management software provider) found food and beverage manufacturing revenue softened sharply in Q1 2026.
With consumers becoming more price sensitive, food and beverage manufacturers are also facing growing competition from supermarket private-label products, which BDO notes are often offered at lower price points.
Weaker consumer confidence can make it harder to increase prices or protect premium positioning, leaving food and beverage producers with less room to absorb rising costs and maintain profitability.
At a glance:
Rising costs and softer demand are prompting manufacturers to take a more cautious approach to inventory.
Food stock on hand fell from $463,000 in Q4 2025 to $252,000 in Q1 2026, according to Unleashed.
Holding too much stock ties up cash, while holding too little can limit production and growth opportunities.
Rising costs and softer consumer demand are forcing many food and beverage manufacturers to take a more cautious approach to inventory management. With cash tied up in ingredients, packaging and finished goods, holding too much stock can place significant pressure on working capital, particularly during periods of slower demand.
Recent data suggests manufacturers are actively reducing inventory exposure. Food stock on hand fell from $463,000 in Q4 2025 to $252,000 in Q1 2026, according to the latest data from Unleashed, while gross margins improved from 23% to 36% despite lower sales. This suggests food manufacturers are using tighter cost control and leaner inventory management to protect margins.
However, reducing inventory too far can also create operational risk. Manufacturers without sufficient stock may struggle to respond to fluctuations in demand or take advantage of new opportunities. The challenge for the F&B manufacturing industry now is finding the right balance between maintaining healthy cash flow and holding enough inventory to support production and manage demand.
At a glance:
Late payments are at their highest level in six years, according to CreditorWatch.
Manufacturing businesses wait an average of 43 days to be paid by large business customers.
Payment delays are limiting growth, with 24% of businesses saying they would expand if paid on time.
Late payments are putting pressure on working capital for food and beverage manufacturers. They’re not alone – businesses across Australia are contending with increasingly delayed customer payments.
CreditorWatch’s April 2026 Business Risk Index found late payments are at their highest level in six years, with GoCardless finding that 63% of Australian businesses are losing money to late payments. In manufacturing, the average payment time stretches to 43 days, according to Payment Times Reporting Regulator data.
This creates a structural cash flow gap for F&B manufacturers, who often need to fund the next production cycle before payment arrives for the last. That can delay ingredient purchases, constrain production capacity and make it harder to fulfil larger retailer orders, expand into new markets or invest in new equipment.
Indeed, GoCardless found that, if paid on time, 24% of businesses said they would invest in expanding operations, while 17% would hire more people.
At a glance:
Food and beverage manufacturing is Australia’s largest manufacturing employer, supporting around 237,000 jobs.
Workforce shortages continue to constrain production capacity, with businesses reporting persistent vacancies and increasing competition for skilled workers.
Rising wages, labour hire and training costs are placing additional pressure on margins.
Food and beverage manufacturing is Australia's largest manufacturing employer. This makes labour availability and workforce costs critical to the sector’s productivity, profitability and growth.
Ai Group's latest Australian Industry Index found workforce availability remained an ongoing constraint on capacity and growth. Businesses reported persistent vacancies, unplanned absences, higher labour and training costs, and increasing competition for skilled workers.
At the same time, wages were identified as the biggest barrier to business performance, placing additional pressure on margins at a time when input, energy and freight costs remain high.
“For food and beverage manufacturers, the challenge is twofold: managing rising labour costs while maintaining the skilled workforce needed to meet production demand and support future growth,” says Sam.
While the Australian food and beverage industry is facing pressure on multiple fronts, there are ways to navigate the challenges ahead. With the right funding solutions in place, food and beverage manufacturers can manage day-to-day cash flow, strengthen working capital and pursue growth opportunities with greater confidence.
With late payments and extended payment terms putting pressure on working capital, debtor finance – also known as invoice finance – can help food and beverage manufacturers access funds tied up in unpaid invoices.
“Rather than waiting weeks or months for customers to pay, manufacturers can access cash sooner to help bridge the gap between production costs and revenue collection,” explains Sam. “This can support day-to-day expenses such as wages, supplier payments and logistics costs, without constraining growth.”
When cash is tied up in ingredients, packaging and finished goods, it can be difficult for manufacturers to fund the next production cycle without stretching working capital.
Trade finance can help food and beverage manufacturers purchase ingredients, raw materials and packaging without relying entirely on cash reserves. This can be particularly useful when managing supply chain disruption or securing stock ahead of peak demand periods.
Sam notes that “Another advantage is paying suppliers upfront or faster can help manufacturers strengthen supplier relationships, creating opportunities to negotiate better terms or discounts.”
Many food and beverage manufacturers want to invest in growth but are being held back by late payments, rising wages and increasing input costs. Term loans can provide access to capital for equipment upgrades, facility improvements, automation projects and production expansion.
This can help manufacturers invest in innovation, productivity improvements and new product development without tying up valuable working capital needed for day-to-day operations.
Whether you’re managing rising input costs, navigating long payment cycles, funding inventory purchases or investing in growth, access to flexible working capital can help you keep your food and beverage manufacturing business running.
Octet provides tailored funding solutions for the food and beverage industry, including OctetDebtor finance, OctetTrade finance and term loans. These non-bank finance options offer a practical and proven way to navigate these challenges, providing immediate access to cash flow, flexibility to respond to demand and a more stable foundation for growth.
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Disclaimer: The above article content and comments are our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.