Last Updated on July 6, 2023
Interest rates can make or break businesses operating within the food supply chain. Central banks regularly adjust rates, so business owners should expect constant fluctuations. While it’s difficult to predict when there will be a spike, it’s important to prepare for future challenges regardless.
As governments and banks use high interest rates to regulate inflation and the economy, it’s up to business owners to adjust their operations accordingly and use more efficient methods to help manage day-to-day tasks. Capital can also be incredibly useful in this regard.
To weather storms, initiate growth, and capitalize on opportunities, check out Silo’s capital offerings. Silo offers businesses discreet and simple access to working capital, without the risk. With more capital, you can bridge cash flow gaps and feasibly scale operations to ensure your business thrives.
Nevertheless, let’s get into how interest rates impact the food supply chain and what solutions are available to businesses that must deal with them.
Table of Contents
What are interest rates?
Interest rates indicate the cost of borrowing money from a lender. The central bank sets and influences the rates that local or regional institutions can offer.
When interest rates are high, it’s best for businesses to save more and spend less. From an economic perspective, this drives down the demand for goods and curbs inflation. When inflation is at an all-time high, raising interest rates can help stabilize prices.
However, while this strategy can be effective for those purposes, it’s also harmful to the food supply chain because certain products will always be in demand.
What is the impact of high interest rates on the food supply chain?
As interest rates rise, it becomes more costly for businesses to borrow money. Increased rates disrupt the flow of capital and affect different segments of the food supply chain. This, in turn, makes it more challenging for companies to purchase inventory, expand operations, or make improvements to equipment or infrastructure.
This is problematic because there’s currently a global demand for products and not enough supply. Without expansion, consumers will continue to witness shortages and high prices for certain products.
Retailers sometimes rely on loans and credit to purchase products and manage cash flow. Without affordable interest options, retailers will no longer supply optimal levels that consumers demand. Companies must be able to recognize these challenges and adjust their business plans according to current circumstances.
Without adequate cash flow, high interest rates deter businesses from making strategic investments for future growth. While saving some cash in the present may be beneficial, it can ultimately impact the company beyond the current situation.
How to deal with high interest rates in the food supply chain
As a business in the food supply chain, there are ways to deal with high interest rates. Here are a few of them.
Increase capital
Increasing capital is the best solution for navigating high interest rates. When traditional ways of raising funds run dry, businesses should consider securing funds from alternative cash flow accelerators. Such options may include fintech platforms, grants, corporate bonds, venture capitalists, crowdfunding, peer-to-peer lending, and strategic partnerships.
When it’s too expensive to apply for loans with high interest rates, there are always other options. Consider seeking funding outside of regular lending methods to support current and future growth.
Cut costs
To avoid relying on loans with high interest rates, you may want to trim the fat of your business and evaluate where you can cut costs in the food supply chain.
Reviewing operations can be tricky, as it’s difficult to know what needs to be cut and what to keep. Consider going over your initial business plan, evaluating how current operations align with core values that may have been lost along the way. This can be helpful in removing operational processes that no longer contribute to the business’ success.
When you look at your business’ operations, take a look at production and administration. Ask yourself: are there areas that can be automated? In what ways can staff positions be streamlined to remove inefficiencies? During this time, it’s a great opportunity to also introduce new financial or resource planning software solutions.
Don’t forget to consider your current relationships with suppliers. Determine if there are opportunities to negotiate or if there are more affordable deals elsewhere.
Take advantage of deals
Currently, businesses are facing high interest rates from a series of economic setbacks. Businesses struggled in the pandemic and now that COVID-19 is no longer on people’s radars, demand for products is high, and so are the prices.
In such markets, when businesses are struggling, lenders, banks, and other financial institutions are more likely to offer deals that support a business’ success. For example, payment plans are a great opportunity to avoid paying the full sum of money owed upfront and instead paying in manageable installments.
Some suppliers will even offer a discount for long-term contracts and partnerships. Others may offer bulk purchasing.
Labor adjustments
Just as businesses are struggling, so are families and individuals. While some businesses may want to reduce their workforce, others might want to take advantage of the fact that many skilled workers are looking for flexible arrangements.
Consider hiring part-time or roles with flexible hours. This is both beneficial for people searching for non-full-time jobs and for businesses who do not want to hire an employee for the whole 40-hour work week.
High interest rates aren’t the end-all
While high interest rates can put your business in a tricky financial position, they’re not the end-all-be-all, and there will always be a solution to overcoming this extra financial burden.
By being proactive and adopting strategic and transparent solutions, businesses can adapt to future and current challenges. Remember, it’s important to be flexible because you never know when issues may arise.
