There is strong evidence that innovation is a primary driver of a nation's economic growth. As Australia continues to compete in the global economy, it is imperative that businesses should be innovative to improve their performance. In this paper, we evaluate the status and main drivers of innovation in small businesses in the food sector in Australia. Discrete choice modelling and bootstrapping procedures are applied to a panel of firm‐level data collected through the ABS Business Characteristics Survey (2006–2007 to 2010–2011 for the Australian Bureau of Statistics’ Business Longitudinal Database Confidential Unit Record File) to investigate the factors affecting the likelihood of small food businesses to innovate. Results show that businesses are more likely to innovate if they collaborate, have higher information and communication technology intensity, and use science, technology, engineering and mathematics skills. We also found that small food businesses, even at the subsector level, do combine different types of innovation when innovating. The propensity to innovate also increases for small businesses that have flexible working arrangements, face moderate‐to‐strong market competition, operate overseas and seek finance through debt and equity. The relative importance of these factors was found to vary between agricultural and nonagricultural food subsectors.

This paper assesses the contribution of innovation persistence to surviving Australian firm growth performance over the period 2007–08 to 2013–14 with the added advantages that new firms, micro-sized firms and all industry sectors are included in our analysis. Over this period, firms with high sales and/or employment growth accounted for the majority of aggregate economic and employment growth in Australia, which is consistent with similar studies in other countries. Using a randomized, stratified sample from a firm population-level database that links administrative, tax and survey data, we created a matched, balanced sample of surviving firms to show that short-term persistent innovators (particularly young SMEs) significantly outgrow their less persistent and non-innovator counterparts in terms of sales, value added, employment and profit growth. Persistent innovators are more likely to be high-growth firms and more likely to introduce multiple types of innovation that are more novel. Our findings suggest that broad-based innovation policies may support successive waves of high-growth firms that help to sustain economic and employment growth in Australia.