A Quantitative Analysis of the Sources and Uses of Capital in the Hawaiian Food System: 2018-2019

Investigator:
Steven S. Vickner, PI (Arizona State University)

Contact Information:
steven.vickner@asu.edu

Funding information:
Arizona State University Knowledge Enterprise.

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Overview:
This study quantitatively analyzed all of the available sources and uses of capital in the Hawaiian food system to gain a deeper understanding of: 1) the market participants who supply capital; 2) the market participants who demand capital; 3) the range of capital products offered in the market; 4) any gaps in the market that may exist; and 5) how to improve the functioning of the market. This study began with a thorough definition of the food system in Hawaii followed by a visualization of financing trends in the U.S. food system. The study systematically addressed the wide array of diverse publicly-available data on sources of capital and also identified who used capital. The study also reviewed findings from a primary data collection effort on both the demand-side and supply-side of the market.

The Hawaiian food system was found to be both liquid and solvent which are considered internal strengths in strategic management parlance. However, in most cases, capital allocated to the Hawaiian food system was small relative to total, but that is entirely commensurate with the broader economic activity in Hawaii; the food system is small relative to the other sectors in the economy (Table 1). When the food system is redefined without traditional food retailing (e.g., grocery and tourism-centric restaurant sectors), it is actually miniscule relative to the other sectors in the economy. Hence this is a serious internal weakness without easy answers or policy recommendations. Numerous pro-growth and capacity-building activities come to mind for the food system, but suffice it to say, a concerted effort must be made to diversify the economy to improve resilience and sustainability. This study thus helped answer two of the classic three pressing strategic management questions – where are we now and where do we want to be – with more emphasis on the former than the latter. The most difficult question to answer in strategic management – how do we get there – is left to the stakeholders in Hawaii to best answer as they have the most skin in the game.

Regardless of size, capital markets adjust much faster than physical sectors of the economy. So as the food system eventually grows, so will capital allocated to it. A word of caution is noted here as there is some empirical evidence of an expected weakening of the income statement (e.g., decreasing top line and decreasing bottom line) as well as an expected weakening of the balance sheet (e.g., decreasing total and current assets, and increasing total and current liabilities) in 2020. Moreover, there does appear to be a slight but not insignificant perception of financial capital rationing generally, and credit rationing specifically, in the Hawaiian food system. Those gaps can be overcome through grants, donations, and subsidies (GDS capital products), as well as traditional loans through the SBA, USDA-FSA, etc. Ultimately, the exact mix of financial capital products – even the exotics – is unknown a priori, but can be influenced through sound public policy, industry engagement, and educational outreach initiatives.