Confidence surveys show that after a positive start to the year, many businesses are struggling to deal with a combination of factors that are driving down their confidence to invest further in their own business, such as upgrading equipment or innovating. Two bank surveys show confidence is the lowest it’s been for 10 years, and the downturn in spending is having a negative effect on the economy.
In the surveys, business leaders pointed the finger at changes to employment law and the continuing increase in compliance costs and regulation.
Food and grocery businesses are in the thick of this storm of increased costs. In fact, they’re likely feeling the effects more than most, especially when it comes to the increase in compliance costs and regulation. And when you consider the part the sector plays in the economy – the biggest manufacturing sector by income (44%), producing $34 billion in domestic sales, $31 billion in exports, and directly or indirectly employing 400,000 people – that’s not good news.
Recent changes to employment law are a big contributor to compliance costs. They include: amendments to the Employment Relations Act around agreed work hours, union access, 90-day trial periods, and collective agreements; changes to the Companies Act around governance, registration and reconstruction of companies; new responsibilities under the Health and Safety at Work Act; new hazardous substances regulations; changes to paid parental leave; pay day payroll reporting; leave for domestic violence; changes to the minimum wage.
It’s not an exhaustive list, but there’s a lot there. No one disagrees with improvements around health & safety, domestic violence leave, or paying people more (we all want that so long as it and the relativity flow-on can be afforded) but it adds up to time and cost for business. Someone has to pay.
Then there are the fees and taxes that accompany all other compliance. Most of those paid by the FMCG industry – exporters, importers, growers and harvesters, processors and handlers, and those in food safety – come courtesy of laws and regulation overseen by the Ministry of Primary Industries, and include the Food Act, animal products, dairy, and fisheries.
July 1 is a date many FMCG businesses don’t look forward to because that’s when most new fees take effect. This year these included increases around border surveillance and food safety inspection resources. Of course, we need to protect ourselves against pest intrusion, and to produce safe food to sell to the world, so no argument there, but they all add up. Let’s also not forget the 3.5c/litre rise in petrol tax.
Another ongoing cost is what shipping companies charge importers and exporters for delays in loading or unloading containers. It’s called demurrage, and it ranges from $50 to $100 per container per day – a cost of hundreds of thousands of dollars to the industry. It could be solved by more border surveillance resources and more efficient ports.
By themselves, all this regulation and compliance is not onerous, but together they are a big cost.
The Employers and Manufacturers Association sums it up like this: “On one hand, businesses are being urged to improve productivity, but on the other there is an increasing focus on compliance with government requirements that individually might be manageable, but together exponentially increase compliance workload.”
Some costs can be absorbed, but most must be passed on, and that means in the price of goods. It’s a fact of life that everything that affects the food and grocery industry will have a consequence in higher food and grocery prices.
When you add in outside influences, such as the swine flu outbreak in China that forced the slaughter of 30 million pigs and pushed up the price of bacon, there’s not a lot of respite on the horizon from higher prices.
(originally published in FMCG Business magazine, August edition)