Unpleasant truths in closure

Photo: ODT files
Photo: ODT files
There are  important facts people ignore or chose to ignore when discussing the planned closure of the Cadbury factory, writes Evan Tosh.

People ignore the fact the Dunedin Cadbury operation is no more than an annoying pimple on the Mondelez butt. It does nothing to enhance its international business.

Secondly, the Cadbury factory is just one of many casualties around the world in the battle to control the packaged manufactured food market. At the moment the extremely large, very efficient, very ruthless firm of Kraft Heinz Company is attempting to dominate by buying large but less efficient firms, and aggressively stripping them down to make them more efficient and to increase profits. The two main shareholders of Kraft Heinz Company are Warren Buffet's Berkshire Hathaway Inc, with 26.8% of shares and the Brazilian firm of 3G Capital, with 24.2%. Mondelez International does not have one large shareholder and about 78% of the shares are held by institutional investors.

Corporate greed and manipulation, fuelled by consumers' decisions to support ``brands'' are behind all these moves - and the moves are complex, and involve the shuffling of the ownership of old and well-known food manufacturers. Mondelez International was spun off from Kraft Foods in 2012, and then Kraft Heinz Co was formed in 2015 by the merger of the balance of Kraft Foods and Heinz. At the start of this year it was rumoured that Kraft Heinz Co was about to attempt to take over Mondelez, but in fact Kraft Heinz was after Unilever, another business mainly owned by institutional investors. This $143billion takeover (Mr Buffet says it is not hostile) has not yet been resolved. It is probably just a case of making an offer that cannot be refused, and the deal will be done.

In the meantime, Mondelez is possibly off the hook. But it is regarded as vulnerable because of its way of operating. To survive it needs to radically and drastically remove all underperforming operations and become more cost-efficient. In this business, every dollar of expense must be totally justified.

The manufactured food industry is cut-throat at every level. In this harsh, concentrated, but sweet world of comfort foods, the cost accountants rule - Cadbury in Dunedin is just one of the victims in this restructuring. Money is saved, jobs are lost, and the balance sheet is improved.

Thirdly, it must be remembered businesses like Cadbury, woollen mills, and other manufacturing industries that employed many people were viable in New Zealand only because of the protection offered by import controls and high tariffs. Back in those days, there was full employment, consumer items were expensive, and there was not much variety.

Then somebody in power followed the lead of Wealth of Nations by Adam Smith, which states: ``If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage.'' It was time for a change. New Zealand is a farm, not a factory, so protection was abolished.

Once again Adam Smith succinctly summed up the situation: ``Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it.''

These days, consumer items are relatively cheap, there is plenty of variety, but no full employment. Consumer pressure resulted in these changes. We, the voters, wanted more choice, more variety and lower prices, but the real price is higher unemployment, and more dairy farms and more agricultural pollution.

And then there is automation - 200 years ago, the economist David Ricardo wrote: ``I am convinced, that the substitution of machinery for human labour, is often very injurious to the interests of the class of labourers.''

This thought led Mr Ricardo to prophetically theorise: ``The one fund, from which landlords and capitalists derive their revenue, may increase, while the other, that upon which the labouring class mainly depend, may diminish, and therefore, if I am right, that the same cause which may increase the net income of the country, may at the same time render the population redundant, and deteriorate the condition of labour.'' The situation in Dunedin, and in the whole of New Zealand is living proof that Ricardo was right. Time and time again our politicians tell us that the New Zealand economy is growing, but at the same time it is shown that many individuals' conditions are deteriorating.

This, of course, is an unacceptable reality, especially for local body, and national politicians. Hence they pretend it is not happening, and go on and on about growth, innovation, information technology, and new alternative opportunities, in the hope that someone somewhere will wave a magic wand and reverse Ricardo's prediction. Let us hope this magician exists.

Evan Tosh, of Dunedin, is a former businessman.

 

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