Published: 12/04/2018
The IUF has written extensively about the risks of the 3G model, which flourished in the food processing sector when interest rates were near zero creating a situation where companies like Kraft Heinz could borrow virtually free money. However, the United States Federal Reserve has planned to “lift short-term rates by a quarter of a percentage point three times in 2018 (in March, June and December);” now, companies’ short-term debt obligations are coming at a higher cost.

Wall Street investors are now punishing companies with high levels of floating-rate debt (debt whose interest rates fluctuate with the market). Most of these companies have sacrificed innovation and workforce investment while using cash to buy back stock, issue dividends and service debt. When interest rates were near zero, short term investors liked the 3G style model due to the lofty dividends and returns. However, now the model’s short comings are becoming increasingly apparent.

The possible impacts for workers of these higher interest rates are varied. Kraft Heinz has struggled to grow its business without the use of mergers and acquisitions; where it cannot grow its sales to offset rising interest costs, it will look to cut other costs to compensate. It will also likely look for areas to automate certain functions currently performed by its workforce where it believes cost savings via automation outweigh worker productivity.

To the extent possible, IUF affiliates should try to bargain with Kraft Heinz over the introduction of any new technology mitigating its potential impacts (e.g. worker retraining, etc.). Workers should also be organizing to counter the inevitable cost-cutting offensive, including developing approaches to bargaining over the introduction of new, job-destroying automated technologies.