The Financial Cycle of Life

22 May 2020 The Financial Cycle of Life image

Getting the COVID recovery right falls to all the small to medium sized businesses around the country, be they urban or rural based.  It is a fallacy to think the Government will provide the recovery.  

That said the Government does have a vital enabling role. Not only for the growing number of unemployed, but also for the businesses that employ them.  If you’ve been down the main street in any of our towns and cities lately you will notice empty shops.  Enterprises that paid taxes and employed our people are going out of business.  There is a massive downward spiral of economic enterprises gripping not only New Zealand but the world.  The question on everyone’s lips is: how do we get out of this downward spiral?

The rural sector is no different from what is happening in town.  The difference is that you can’t see the empty paddocks as easily as empty shops.  As with any financial crisis, there are survivors, and there are those that will really struggle.  The reality of the global economy is that we need people to be able to buy our produce.  To be able to buy our produce, people need to be employed.  We are now facing significant unemployment not only of those who worked in the small to medium sized businesses but also the owners of those businesses.

To be successful in business, you need a high appetite for risk. You need to innovate and be energetic.  But most of all, you need confidence that your business will be successful.  You need certainty that your business has a future.  For growers, that means you have the belief that there will be consumers out there who will buy your product and pay a fair price for it.  Plants take weeks to be ready for harvest.  Decisions not to plant now will, therefore, affect supply in a few months’ time.

This is where both consumers and the Government has a role. By giving businesses and growers confidence that people will buy their produce, it gives enough certainty to keep their doors open and planting crops to provide us with food.  Consumers need to buy our product.

But Governments have a more complex role.  Managed debt levels and sufficient cash flow are what every business needs.  The smaller the business, the smaller the buffer to weather financial crisis such as the COVID one we are in today.  Tax relief is always welcome, but to take advantage of tax relief, you need a viable business.  So what Government needs to do is put in place measures that allow small to medium sized businesses to continue trading, continue producing their products and continue employing people.  A viable business means that the business owner and their employees can also purchase goods and keep other businesses operating.

So what is needed from the Government is (1) debt support with interest holidays paid for by the Government and (2) direct cash injections to enable planting and stock purchasing.  These measures will keep people employed, keep the economy moving and is, therefore, money well spent – productive money.  In the United States, for example, to give this certainty to fruit and vegetable growers, the US Government is directly buying their produce and committing to medium term supply contracts.    

Retailers also have a role.  Now is not the time to squeeze your suppliers.  It is the time to maintain healthy margins and to give your suppliers confidence that their product will continue to be sold.  When it comes to food that is good for your health in this COVID crisis, it is not the price that is important; it is the need for everyone to have access to healthy food and for the entire supply chain to be supported with reasonable pricing and margins.  

The reason why consumers, the Government and retailers have the above-described roles is that if, for example, growers don’t have enough confidence and stop planting vegetables, then everyone suffers.  Consumers will not get access to healthy food, retailers will not have anything to sell, and the Government will need to pay out more unemployment benefits.  

In the economic cycle of life, the key ingredient is keeping the small business operating.  Keeping these businesses open is now a very urgent and pressing call for action from the Government and retailers. Don’t let New Zealand down. Don’t let small to medium sized business fail, do what is required to keep New Zealand open for business.

Mike Chapman, Chief Executive