SIMPLOT'S $16.5 million deal to supply supermarket giant Woolworths' frozen vegetables is unsustainable if the local processor's costs remain unchanged.
That's according to Simplot managing director Terry O'Brien, who joined Woolworths in announcing the deal near Port Sorell yesterday.
The three-year deal, which took 18 months to make, will see Simplot produce an additional 5100 tonnes of vegetables and could help secure the jobs of 280 employees at its Devonport plant.
It will help Woolworths source all Select brand frozen vegetables from Australia by May 2014.
Mr O'Brien said the deal was unsustainable for Woolworths if Simplot's costs remained the same. ``It's important Woolworths don't have to make this decision out of the goodness of their hearts,'' he said.
He wants to make its Devonport and Bathurst operations profitable to reduce the deal's cost for Woolworths.
``Simplot is in the fight of its life here in Tasmania,'' Mr O'Brien said.
The company's costs were high and escalating, he said.
Its deal with Woolworths will increase volumes for 155 farmers supplying vegetables for Simplot.
Woolworths supermarkets managing director Tjeerd Jegen admitted that the company had taken a commercial risk with the deal. ``It's the right thing to do for Australian manufacturing and agriculture,'' he said.
Woolworths had made the deal because customers asked for more local products, while it saw its Select brand tinned fruit volumes increase after deciding to source Australian-grown fruits.
Competition from budget supermarkets including Aldi meant Woolworths would absorb the Simplot deal's cost.
Tasmanian Farmers and Graziers Association chief executive Jan Davis urged consumers to seek products that were identifiably Australian-grown.