This article was originally published in the The Land.
Last week the Horticultural Code was put under the spotlight.
Large wholesalers were mistreating growers with fear mongering tactics and long payment terms. It’s an all too familiar case for the hundreds of thousands of Australian small and medium sized businesses who are subjected to the corporate bullying culture that arises from one systemic problem - market power imbalance.
In Australia, most industries are dominated by oligopolies – a state of limited competition, in which a market is controlled by small number of companies.
With such an imbalance of market power at the top of the supply chain, farmers and post farm-gate processors are being strangled for margin but most importantly cash flow.
So what is being done to fix the problem?
It depends on who you ask.
The government is working to roll out regulatory reform called the Prompt Payment Protocol that will supposedly encourage big business to pay suppliers on 30 days. It’s essentially asking big business to pass on their cheapest source of cash - cue dramatic drop in share price.
Regulatory reform will certainly drive awareness but more structural changes need to be introduced to deal with the main issue in the supply chain - cash flow.
Technological evolution is playing a big role in making supply chains operate more transparently. This in turn is driving innovation in financial technology and allowing large deposit holders to understand and price risk more effectively, enabling them to inject cash into supply chains where it’s needed. This means farmers and processors alike can capitalise on more competitive lines of credit without handing over the keys to the farm.
Cultural change driven by regulatory reform and industrial lobbying is an important first step but structural change is required to ease the pressures felt throughout the supply chain.
Big businesses need to shoulder responsibility and invest into infrastructure that opens up these supply chains to third parties that can help lubricate the engine. Only then can cash flow more seamlessly so pre- and post- farm gate businesses can survive and thrive.