Does complexity produce quality?

27 Jul 2018


A constant concern of all businesses, whether urban or rural based, is that running their business is becoming increasingly harder as profit margins become tighter. Complicated business processes and regulations do not necessarily produce the high quality produce that consumers demand.

At the Horticulture Conference, held this week in Christchurch, the theme was: Our food story. The entire supply chain, from the vegetable garden and orchard to the supermarket shelf, was investigated in the conference sessions. There was a strong focus on what is required for future success, how to meet consumers’ demands, and how to achieve sustainability. The sessions also covered the complexities of doing business in New Zealand, including the analysis that has to be done to assess whether these increased complexities add value, or in fact just take profit and in the worst case scenario, make a business uneconomic.

An example of complexity that does just take profit is Auckland’s regional fuel tax. This new tax was allegedly never intended to be paid on off-road vehicles used in food production such as tractors, and equipment such as pumps. Unfortunately,these off-road uses were not exempt from the fuel tax when it was made law and the rebate system for claiming refunds is still being developed. So growers are paying a tax that is not intended for their growing activities and as yet cannot claim a rebate. When they can claim the rebate, scheduled by the New Zealand Transport Agency to be from 1 October 2018, they will need to spend time and money putting together their complex rebate claims. None of this adds to the value of the food they grow, it just adds to their costs.

The Government pledged as part of its election campaign to lift the minimum wage to $20 and hour by 2020. Done in equal steps, this will require increases of $1.75 per hour in 2019 and $1.75 per hour in 2020. All recent increases in the minimum wage have been in the 25 cents to 50 cents per hour range. To reach the $20 per hour by 2020, the incremental increases are high and the additional costs will have to be paid for by both growers and consumers. One of our members has done some analysis on the impact of this increase and they believe it will increase inflation by two percent. In many respects it will be self-defeating as, to pay for it the cost of food will need to increase, along with other costs, and so buying power will be decreased. An unintended consequence of these increases that our members are telling us is that the cost of bringing new staff into businesses on trial will increase and so there will be a reduced number of new entry level employees joining the workforce.

When the change in the minimum wage is combined with one of the proposals in the Employment Relations Amendments Bill, namely the loss of the 90-day trial period for businesses with more than 20 staff, this will reduce even further entry level employment opportunities. The 90 day trial has been a valuable tool for getting previously unemployed people into jobs andon to permanent jobs. Considerable effort is needed to give new workers who have been unemployed the work skills and pastoral support to move into full time employment.The 90 day trial and a reasonable minimum wage have enabled this. There are also other measures proposed in the Employment Relations Amendment Bill that I’ve identified in previous blogs that will not be growth or product quality enhancing.

The above examples represent how business is getting more complicated and costly for both urban and rural New Zealand. I do not think that any of these complications will add value, increase the number of permanent employees, or increase the quality of our produce. In fact, they will add cost that will make it more difficult for these businesses to survive, to employ New Zealanders, and to support our country’s financial, social and environmental sustainability.

- Mike Chapman, CEO