Family businesses, as we know, are the nation’s main employers, so to the extent that a currency war is aimed at lifting employment, and is not simply being fought on the dining table by economic theoreticians with textbooks and toy soldiers, then it must be designed to improve the profit margins, and thus the propensity to hire, of family businesses.
So this week your intrepid war correspondent went in search of the grateful beneficiaries of General Stevens and the Reserve Bank War Room.
Inconveniently, the currency has not fallen since Tuesday’s assault on the rate of interest and sits stubbornly above US78c, where it was on Monday. But not for long: two months ago Mr Stevens declared that US75c is the goal, so presumably he will cut the official interest rate until that’s achieved.
Monetary policy is only beneficial on balance -- there are losers as well as winners. For example those living on interest take a wage cut at the same time as those living with debt have more money to spend; those who don’t travel abroad do better than those who do.
And among the nation’s family businesses there are importers being blown up at the same time as exporters prospering. Currency war is presumably based on the notion that there are more of the latter than the former, but whether that’s true or not remains a matter of conjecture.
In my brief foray into the battlefield this week I found two losers and a winner, not that I’m suggesting for a moment that two-thirds of Australia’s family businesses are importers. But a lot of them definitely are.
My winner from the declining currency is the Kelly family of Booleroo, a little town “nestled in the foothills of the rugged and picturesque Flinders Ranges” (as their website waxes).
The Kellys manufacture farm equipment on the sixth generation family farm, and specifically an item called the Disc Mulch Chain (pictured) which sells for between $60,000 and $125,000 depending on the size.
Peter Kelly started making machinery about 30 years ago, when the wool market fell over and he had to start cropping. He wanted to broaden the rotations and plant peas, so he built his own pea harvester, plus one for his neighbour.
Then a few other neighbours wanted one, and before he knew it, he’d made 30 of them and sold them for $200,000. This, he realised, was a better lark than farming.
He then turned his hand, and workshop, to prickle chains, which are used to level the soil after tillage. What if he used heavier chains -- would it do the tillage as well? The answer was yes, and so the Kelly Disc Mulch Chain was born.
His son Shane came into the business in 2002 and in 2006 they started selling the things in the United States, since when sales there have been growing at 30 per cent a year. Last year they sold 250 units in the US, more than five times what they sold in Australia, plus 40 into Canada. The business now has a full-time marketing manager in Kansas City and full time non-family CEO in Australia.
Shane Kelly (his father has now retired) employs 50 people in Booleroo, which seems a lot for a business turning over less than $3 million.
But they’re getting a margin of about 8 per cent and more importantly that’s now been improved significantly by the currency devaluation.
Kelly won’t be pocketing the higher margin, it will be going into lower prices: his plan is to lift exports to the US to 500 units a year from the current 250, and to hire more people in Booleroo to make them.
So mark him down as a standard-bearer for the Reserve Bank’s currency war.
Blaise Vinot, on the other hand, is having an entirely different time of it. He runs a secateurs business called Felco Australia, and owns 30 per cent of it with the Swiss parent, and manufacturer, Felco.
“It’s like a bushfire has gone through the business,” he told me yesterday.
The sudden 25 per cent appreciation of the Swiss franc three weeks ago, when the Swiss National Bank abandoned its peg to the euro, has cost Vinot’s business $250,000.
“Costs went up 15 per cent and our margin fell 25 per cent, just like that. It’s a massive problem.”
Felco sells all types of pruning equipment, but mainly secateurs, which Blaise Vinot describes as the “Rolls Royce of secateurs”. You can get them for $5 at the hardware store, but Felco’s sell for $100.
Of course it is Vinot’s misfortune to be in business with the Swiss, whose currency has appreciated more, and more quickly, than any other.
Does he put the price up to recover his margin? Well, that’s hard since the product is already so expensive. And the other thing holding him back from that is surprising: retailers are happy to raise the price, but they don’t want to lower it again, so as a supplier you get stuck with a price that’s too high later.
His plan is to put the bushfire metaphor to use: “when there’s a bushfire, the community pulls together and helps each other. Well, I have a community of suppliers, couriers, utilities, landlord, retailers and customers, and I’m saying to them -- I need your help.”
Felco Australia only employs five people at its office in Oakleigh, Melbourne, but that’s the only job those five people have, and Blaise is not planning to lay any of them off.
“We already run very lean. Any leaner and no one could take a holiday, and also we need to provide a service to our customers.”
So chalk Blaise Vinot up as a casualty of the currency war, although happily no one will lose their job.
My second importer is a Sydney business called Forestry Tools, started 13 years ago by an investment banker with UBS, and before that JP Morgan, named Chris Smith, and his wife Jeannie.
Chris and Jeannie started planting trees at Nambucca Heads, just south of Coffs Harbour, while Chris was still at UBS, and started importing their own forestry tools to work the trees. Then they saw there was a gap in the market for the tools, and started selling them as well.
One thing led to another and the business gradually transformed from forests to forestry tools. They kept reinvesting the profits and had to move the business out of their house and into a warehouse at Roseville in Sydney.
Now they supply 22,000 customers around Australia and stock 1,500 products, selling to councils and state governments, as well as a lot of contractors.
They have 40 suppliers around the world and set their prices once a year, figuring that there are swings and roundabouts with currencies – sometimes you win, sometimes you lose.
Except this year, the Smiths are losing big. The devaluation so far has cost them 15 per cent off their margin and if the dollar stays where it is, prices will have to go up 10 per cent. Needless to say none of these products is made here so they can’t buy locally and spend Australian dollars.
Chris and Jeannie Smith are not casualties of the currency war -- far from it -- but they have been squeezed. Costs will have to be cut.
Likewise with thousands of other businesses around Australia -- especially retailers stocking imported products instead of locally made ones.
But then, that’s whole idea: for every loser there’s 1.1 winners, roughly, maybe … Glenn Stevens hopes.