A shortage of shipping containers and a significant slow-down of components and parts coming from China to Irish manufacturers are just some of the impacts already being felt by Irish SME’s in the food and agribusiness sector due to coronavirus. This is another blow to the sector which is already vulnerable to Brexit, writes David Leydon, Head of Food and AgriBusiness with ifac.
Interconnected global supply chains impact on nearly every business and Irish food and agribusiness SMEs are beginning to feel the pinch from the coronavirus. Uncertainty levels are exceptionally high on a number of fronts. We are now seeing multiple impacts on SMEs across the country. The standout challenges include:
Uncertainty leading to challenges with suppliers and decreased demand from customers
Cashflow challenges beginning to appear
Managing staff through a period of disruption, fear and uncertainty
Our advice to company leaders is to quickly engage in the following steps. Some of these steps have been taken to prepare businesses for Brexit and this should help in getting the team unified on a course of action.
1. Scenario planning
Spending some time working with your team on the short and medium-term impacts the coronavirus virus could have on your business is time well spent. A ‘What if’ analysis is a good place to start. What if we cannot get certain component parts? What if customer demand slows down by 20%? What if a key member of the team has to self-isolate and isn’t available to the business? What if schools close for a period of time and our workforce has to remain at home as is the case for 16 million people in Italy today? Have you thought about the relevant scenarios for your business? This will help you put a viable contingency plan in place. Ultimately those companies who are best prepared are the companies who will recover quickest.
2. Cashflow management
With impacts on both the supply and demand side of many businesses, cash flow management is critical at this time. Modelling the potential downside impact should highlight vulnerabilities.
Seasonal fluctuations in your cash flow may be disrupted
Examining credit terms with your own customer base for potential bad debts
Postponing non-essential capital investment may be prudent
Taking these matters into account, you can communicate immediately with your lending institution and ensure you have the facilities in place to handle this difficult period.
Supply chains are stretched. Global shipping and container availability are impacting on the number of containers coming out of China with product. There are blind spots in supply chains and while it takes hundreds of parts to build a machine, one missing part can stop a production line and seriously damage productivity. Having alternative suppliers in place will show it’s true worth at this time. However, if taking on new suppliers at this time, be sure to conduct relevant due diligence. Some operators may look to take advantage of the current crisis.
Protecting your team by ensuring non-essential travel is paused is good practice. There are a host of video conferencing options, like Zoom and Skype, which are available to any business with broadband and a laptop. Conscious of the value of face-to-face communication, travel can resume when we have more clarity on the impact of coronavirus.
Your team will have fears about what is going to happen to the business. Communicating regularly is vital. Don’t allow information vacuums to develop. The CEO or MD needs to be regularly communicating with their team ensuring, as far as is possible, that staff know what is happening and how it will impact on them and their business. In the short-term costs may have to be borne, however, minding your team during this period will be remembered.
With customers and suppliers, communication at this time is vital. It will help you plan for the worst impacts and keep relationships strong while all businesses operate through this tough time.
It is also advisable to closely monitor the situation on the island of Ireland and the latest HSE, Government and World Health Organisation guidance. Providing hand sanitiser for employees and encouraging them to use it regularly and often is important.
What can Government do?
For most companies, the impact of coronavirus is much more pressing in the immediate term than Brexit. We believe that the SBCI Brexit Loan Scheme should be opened up to all businesses to help counteract the worst effects of this global crisis. To date, circa €50million of the €300m available under the SBCI Brexit Loan Scheme has been drawn down. Yesterday, 9 March, an initial package for business including €200 million in liquidity funding was announced. We are waiting to see the details of this package.
Secondly, Revenue needs to recognise that many companies will experience cash flow difficulties and may not be able to meet their statutory VAT and employer obligations. A level of understanding has to be shown here. Contact should be made with Revenue to agree a postponement of liabilities where the need arises. Acting now and being proactive is necessary.
Thirdly, we welcome the changes in the rules on sick pay, which will see Illness Benefit rise from €203 per week to €305 for those who have to self-quarantine.
Finally, Enterprise Ireland and all relevant State agencies must continue to make grant aid available for companies engaging in innovation and exporting. Coronavirus is not the only threat facing food and agribusiness SMEs and supports are needed for this sector to thrive in a difficult, uncertain world.