WEBVTT - The plastic billionaires forced to make everything more expensive

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<v Speaker 1>From The Australian. Here's what's on the front. I'm Claire Harvey.

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<v Speaker 1>It's Thursday March twenty six, twenty twenty six. Israel believes

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<v Speaker 1>it's joint assault on Iran with the United States has

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<v Speaker 1>degraded the Iranian regime and caused chaos and ill discipline,

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<v Speaker 1>with soldiers now refusing to launch missiles. Pope Leo has

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<v Speaker 1>personally chosen a Catholic bishop from New South Wales to

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<v Speaker 1>become an archbishop. He's also appointed Anthony randats So to

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<v Speaker 1>a plum job in the Vatican. Those exclusives are live

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<v Speaker 1>now at Theaustralian dot com dot a U. We hear

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<v Speaker 1>a lot about how the crisis in the Middle East

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<v Speaker 1>is going to cause wild inflation or even recession, and

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<v Speaker 1>today we're getting granular on exactly how a substance called resin,

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<v Speaker 1>which is made from crude oil, is critical for making

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<v Speaker 1>plastic but thanks to the war, resin is running low

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<v Speaker 1>around the world. That means Australian packaging companies are having

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<v Speaker 1>to bump up their prices and that affects every product

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<v Speaker 1>we buy. Our retail expert Eli Greenblat is here in

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<v Speaker 1>just a moment. Eli Green Blad is a senior business

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<v Speaker 1>reporter with The Australian and he's a resident expert on

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<v Speaker 1>retail and that means he's very busy right now covering

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<v Speaker 1>the impact on everything that we buy from the conflict

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<v Speaker 1>in Iran. Everything that we buy is either in a

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<v Speaker 1>cardboard box or a can or a bit of plastic wrapping.

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<v Speaker 1>And it turns out that most of those wrapping products

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<v Speaker 1>come from one of two Victorian billionaire families who are

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<v Speaker 1>they Yes.

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<v Speaker 2>Everything we touch and see has a component of oil

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<v Speaker 2>and has plastic, and plastic is really made from resin,

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<v Speaker 2>which is a biproduct of oil. And the families or

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<v Speaker 2>the companies we're talking about really are Busy and just

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<v Speaker 2>so very large packaging recycling companies and Packed Group which

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<v Speaker 2>is owned by Raphael and Fiona Gaminda. Fiona Gaminda being

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<v Speaker 2>the sister of Anthony Pratt from the prep Early and

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<v Speaker 2>the owner of Busy and Pratt Industries, so they're very

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<v Speaker 2>large packaging companies. Both of them together have tens of

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<v Speaker 2>thousands of customers all over Australia and throughout the world

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<v Speaker 2>who rely on their packaging, on their manufacturing to make

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<v Speaker 2>the products that house their own products. And that could

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<v Speaker 2>be fresh food, it could be packaged food, it could

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<v Speaker 2>be dishwashing liquid, it could be medicines, vitamins, prescription drugs.

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<v Speaker 2>So really that packaging is very important. And to make

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<v Speaker 2>that packaging, you've got to have resin. And to have

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<v Speaker 2>the resin, you need the oil. You need access to

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<v Speaker 2>the oil first of all to make the resin, but

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<v Speaker 2>you need access to that resin at a reasonable price.

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<v Speaker 2>And that's becoming a problem now where these companies can't

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<v Speaker 2>get access to that resin and if they can get

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<v Speaker 2>access to the resin, is at an incredibly high price

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<v Speaker 2>or a fast moving higher price.

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<v Speaker 1>One of the intriguing things that this Iran war has revealed,

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<v Speaker 1>i think ela is how little preparation there seems to

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<v Speaker 1>be for some kind of disaster like this. In Australia anyway,

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<v Speaker 1>we don't have a large stockpile of fuel. For example,

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<v Speaker 1>we don't have a huge stockpile of diesel, despite warnings

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<v Speaker 1>over the years that that's something that we needed to do.

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<v Speaker 1>It's intriguing to me that this critical component of something

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<v Speaker 1>that makes the economy go, I mean, nothing could be

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<v Speaker 1>delivered without some form of packaging to anywhere, whether it's

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<v Speaker 1>a home or a supermarket or a corner store. It's

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<v Speaker 1>interesting that it's so quick for the resin to be

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<v Speaker 1>in short.

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<v Speaker 2>Supply, Yes, and so quickly. You look at other countries,

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<v Speaker 2>We've got hundreds of days of oil supply, strategic reserves.

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<v Speaker 2>I heard this morning, Try has got about one point

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<v Speaker 2>three billion barrels of oil set aside. America has its

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<v Speaker 2>own strategic reserve, and I think we've been caught shot absolutely.

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<v Speaker 2>But of course you can also understand from a business

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<v Speaker 2>perspective why that happens. These companies, whether they're manufacturers, retailers, wholesalers,

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<v Speaker 2>whoever they are, they operate on very thin margins, and

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<v Speaker 2>they operate on very thin inventory. They don't want to

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<v Speaker 2>be sitting on high inventory because it costs them money. So,

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<v Speaker 2>to take one classic example, if you're packed, or if

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<v Speaker 2>you're busy, or if you're prat it doesn't really make

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<v Speaker 2>sense for you to sit on warehouses full of resin

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<v Speaker 2>or warehouses full of spare plastic. That's a cost you

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<v Speaker 2>have to carry what you want. Are very fast moving

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<v Speaker 2>supply chains that move at lightning speed, which means you

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<v Speaker 2>can get those raw materials in very last minute, very quickly,

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<v Speaker 2>so you can get them into your w house, turn

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<v Speaker 2>them into finished goods, get them out straight away. Because

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<v Speaker 2>every day that you're sitting on that resin or that

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<v Speaker 2>plastic or that raw material costs your money. So no

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<v Speaker 2>company really does that. And if you go down the

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<v Speaker 2>supply chain, for example, Calls or Woolworths or ld all

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<v Speaker 2>the independent supermarkets, they also don't want to be sitting

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<v Speaker 2>on huge inventories of food and groceries. It just doesn't

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<v Speaker 2>make sense and it's a cost of doing business, but

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<v Speaker 2>they can't afford so in a normal environment, outside of

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<v Speaker 2>war and outside of crisis, it actually works perfectly well

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<v Speaker 2>and shows the benefits of a global supply chain where

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<v Speaker 2>you can get in that raw material from the Middle

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<v Speaker 2>East or Asia or Europe or Africa. You can get

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<v Speaker 2>it in very quickly, fashion it up, turn it into

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<v Speaker 2>a finished product, and sell it incredibly quickly. That makes sense,

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<v Speaker 2>and it's good for the consumer because that keep costs down.

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<v Speaker 2>But when that supply chain seizes up as it is now,

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<v Speaker 2>you will be caught sure, and that happens to a

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<v Speaker 2>lot of countries. And then we can talk about also fertilizers.

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<v Speaker 2>We don't make fertilizers in Australia anymore. So it's great

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<v Speaker 2>in Australia that we can feed ourselves five or six

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<v Speaker 2>times over. We're great in terms of our food supply

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<v Speaker 2>for domestic consumption. But if you don't have the fertilizer

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<v Speaker 2>to grow the food, if you don't have the diesel

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<v Speaker 2>to power the tractors and the harvesters to harvest the

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<v Speaker 2>food the crops, then you're in trouble.

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<v Speaker 1>Talking about self sufficiency and Australia being able to feed

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<v Speaker 1>itself and to supply itself feels kind of old fashioned

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<v Speaker 1>these days, Elios, As you say that the whole conversation

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<v Speaker 1>is about lightning fast global supply chains. But do you

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<v Speaker 1>think Australia is unnecessarily exposed to something like a conflict

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<v Speaker 1>in the Middle East because we have really deprioritized local

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<v Speaker 1>manufacturing so much of things like fertilizing.

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<v Speaker 2>Yeah, it shows up, doesn't it. But so very few

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<v Speaker 2>countries are self sufficient. I think America maybe, and that

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<v Speaker 2>maybe through decades of planning and again that strategic reserve

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<v Speaker 2>of oil, they still have a very strong manufacturing base

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<v Speaker 2>with factories that actually make things, including cars that we

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<v Speaker 2>no longer do. So they've been very smart in that,

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<v Speaker 2>I think a lot of European countries again maybe because

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<v Speaker 2>they've seen the impact of wars on their doorstep in

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<v Speaker 2>their own countries, so they've prepared for that. And I

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<v Speaker 2>think with Australia, I think we've just gone, perhaps where

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<v Speaker 2>it makes sense for us where our competitive advantages lie.

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<v Speaker 2>So there's no competitive advantage in Australia manufacturing cars or

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<v Speaker 2>cutlery or matsticks or plastic materials. It just doesn't make

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<v Speaker 2>sense anymore. It does make sense for us to manufacture

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<v Speaker 2>software or cochlear ear implants, or maybe wine but not

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<v Speaker 2>the bottles but the wine, or technology, or having AI

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<v Speaker 2>data centers, that makes sense. But to make cars anymore,

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<v Speaker 2>probably not to make fertilizer sadly, probably not. But then

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<v Speaker 2>we need to have very strong supply chains to make

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<v Speaker 2>sure we're ready if the crisis happens, which is happening now,

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<v Speaker 2>but I think all countries are facing this. You know,

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<v Speaker 2>New Zealand I think is in even a worse position

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<v Speaker 2>than us. I remember during the COVID crisis there was

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<v Speaker 2>a global shortage in carbon dioxide, which shocked me, like,

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<v Speaker 2>how can it be a shortage in albon? Oh, we

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<v Speaker 2>had too much Yeah, isn't it actually everywhere? Can't you

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<v Speaker 2>just take it out of the atmosphere. It actually doesn't

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<v Speaker 2>work that way, and it's just so silly, you know. Way,

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<v Speaker 2>we had a shortage of the carbonated bubbles that go

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<v Speaker 2>into beer, soft drinks, that kind of thing. We only

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<v Speaker 2>had one or two plants in Australia that make that.

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<v Speaker 2>New Zealand have got no plants that make commercial carbonated bubbles,

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<v Speaker 2>so they actually had a shortage. It had to ration

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<v Speaker 2>carbon dog sick it.

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<v Speaker 1>God, is a bubble crisis.

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<v Speaker 2>M Yeah. Again, of course when you dig deep into it,

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<v Speaker 2>what you discover is that you need that carbonated water

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<v Speaker 2>or those bubbles for hospitals which do a keyhole surgery

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<v Speaker 2>actually uses that carbon so they're obviously a priority, not

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<v Speaker 2>making beer. So this is actually a problem that's across

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<v Speaker 2>the economy, across everything that we touch and see. While

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<v Speaker 2>you've been the center of it, but the strait of

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<v Speaker 2>her move shuts down, we're all in trouble.

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<v Speaker 1>I had a very confronting conversation with my dentist recently.

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<v Speaker 1>Eli was the usual thing like do you floss, yes,

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<v Speaker 1>you do you eat a lot of sugar foods?

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<v Speaker 2>No?

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<v Speaker 1>And she said do you drink sparkling water? And I

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<v Speaker 1>said yes, I have a soda stream at home and

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<v Speaker 1>she said, oh, well you need to stop that. And

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<v Speaker 1>I said, what this is my this is my last advice,

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<v Speaker 1>is all I've got? And she said no, the acid

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<v Speaker 1>that emerges in the carbonation process is bad teeth and

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<v Speaker 1>erodesia amel. So maybe the bubble crisis was actually good

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<v Speaker 1>for all of our teeth.

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<v Speaker 2>Yes, and yes it could have been. That just shows

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<v Speaker 2>him the tiniest thing that you don't think about, and

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<v Speaker 2>resin being a pretty good example. But you may remember

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<v Speaker 2>at the Global Food Forum last week that the Australian

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<v Speaker 2>put on the Beaga cheese boss spoke about resin and

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<v Speaker 2>how tough it is to get that resin, which is

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<v Speaker 2>something we don't think about. But when you look at plastic,

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<v Speaker 2>it's resin you'll see.

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<v Speaker 1>Coming up. So is this how a recession starts? The

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<v Speaker 1>thing that we're hearing from all of these companies is

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<v Speaker 1>that ultimately we're going to have to pass this on

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<v Speaker 1>to d end user, the consumer or the purchaser. Borrel

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<v Speaker 1>Group is saying that about building supplies now, So if

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<v Speaker 1>you're planning a renovation, it's going to be a lot

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<v Speaker 1>more expensive. Of course, the packaging companies are going to

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<v Speaker 1>part that onto Coals and Wilworths, who will be passing

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<v Speaker 1>it on to us. At what point, though, do you

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<v Speaker 1>think eli consumers continue to accept that will this be

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<v Speaker 1>the subject of a negotiation? Say, you know, will Coals

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<v Speaker 1>and will these be law being hard not to have

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<v Speaker 1>that cost passed on to them, you know, and ultimately

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<v Speaker 1>not to have to pass it on to their customers

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<v Speaker 1>because they are in a bit of a reputational crisis

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<v Speaker 1>for other reasons.

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<v Speaker 2>Anyway, I found the reasons.

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<v Speaker 3>You're right, the consumer Watchdog and Coals are going head

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<v Speaker 3>to head in the federal court and what's being labeled

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<v Speaker 3>the case of the century, the h trouble see alleges

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<v Speaker 3>the supermarket giant duped shoppers with fake discounts.

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<v Speaker 2>But it's a problem for Coals, Willies, all the supermarkets,

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<v Speaker 2>all the retailers, how much they pass on to the consumer.

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<v Speaker 2>If they don't increase prices, then their profits suffer and

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<v Speaker 2>their shareholders get angry and the share priss falls. If

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<v Speaker 2>they do pass on the price to the consumer, that

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<v Speaker 2>preserves their profit margins. But then consumers get angry and

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<v Speaker 2>they made biless and it's a vicious circle. There will

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<v Speaker 2>be some nego and I think Coals and Woolies, Aldi

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<v Speaker 2>and Costco and all the other food and grocery retailers

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<v Speaker 2>will need to go to their suppliers and say you

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<v Speaker 2>need to work hard on cutting your own costs, that

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<v Speaker 2>you need to get efficiencies somewhere else, and Coals and

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<v Speaker 2>Wullies just to use them as really the leaders in this.

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<v Speaker 2>They will have to look their own businesses and cut

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<v Speaker 2>their own costs to try and make up some of

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<v Speaker 2>the difference. But I think they will need to increase prices.

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<v Speaker 2>And we heard from Packed yesterday when they made their

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<v Speaker 2>statement that they've passed on the increase to their customers immediately,

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<v Speaker 2>so not delayed, but they've just immediately passed on Reese,

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<v Speaker 2>which is Australia's leading combing supplies business. They've passed on

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<v Speaker 2>prices to their customers immediately about thirty or percent. So

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<v Speaker 2>they're the market leader. So if they've done it, that

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<v Speaker 2>kind of gives permission, I suppose for everyone else to

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<v Speaker 2>do it because they're kind of making that lead. But

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<v Speaker 2>it will have been passed on and someone's going to

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<v Speaker 2>pay for it somewhere.

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<v Speaker 1>These are the reasons why people say that oil shocks

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<v Speaker 1>lead to recessions. Do you think there's a recession over

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<v Speaker 1>the horizon for US?

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<v Speaker 2>Yeah, I think economists are certainly saying that and suggesting that.

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<v Speaker 2>I think our economies already just stumbling along. You don't

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<v Speaker 2>need much to knock it into negative territory. And of

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<v Speaker 2>course you need two negative quarters of economic growth to

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<v Speaker 2>define to make it a recession. So then what does

0:13:33.240 --> 0:13:36.040
<v Speaker 2>the government do. Do they increase their own spending or

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<v Speaker 2>that leads to inflation, which leads to more problems down

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<v Speaker 2>the track. You know, you think the odds of a

0:13:40.960 --> 0:13:44.040
<v Speaker 2>recession grows. And yes, we had that oil crisis in

0:13:44.080 --> 0:13:48.200
<v Speaker 2>the mid seventies, which leads to recession or leads to stagflation.

0:13:48.679 --> 0:13:52.400
<v Speaker 2>So inflation and no growth or negative growth, that's going

0:13:52.440 --> 0:13:54.640
<v Speaker 2>to be a problem. And you know, the consumer is

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<v Speaker 2>such a big part of our GDP, it's such a

0:13:57.200 --> 0:14:01.800
<v Speaker 2>big chunk, so that's going to be a huge problem.

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<v Speaker 1>Eli Greenblat is a senior business reporter with The Australian.

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<v Speaker 1>Thanks Elo, Thank you. Eli covers everything from Dominos and

0:14:12.559 --> 0:14:15.920
<v Speaker 1>Smiggle to Maya and Amazon, and you can check out

0:14:15.960 --> 0:14:20.400
<v Speaker 1>his unrivaled news breaking and analysis anytime at the Australian

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<v Speaker 1>dot com dot au