Rural areas feeling agricultural sector slowdown

Rural areas feeling agricultural sector slowdown

Almost a third of businesses in regions see revenues fall

Three quarters of agricultural businesses expect economy to decline

Businesses in New Zealand’s rural areas are already feeling the effects of a significant slowdown for the agricultural sector, according the latest MYOB Business Monitor survey of over 1000 businesses nationwide, which includes over 200 rural SMEs.

Over the last 12 months, just 18 per cent of rurally-based SME operators have seen their revenue rise, compared to the SME average of 31 per cent. Almost a third (32 per cent) have seen revenue decline in the year to August 2015 (25 per cent SME average).

The slowdown in the regions reflects an even worse performance among businesses in the agriculture, forestry and fisheries sector, with only 14 per cent recording a revenue increase in the last year and 38 per cent reporting falling income.

MYOB New Zealand national sales manager SME Solutions Scott Gardiner says the challenges seen in the agricultural sector, especially with the collapse of dairy prices, have reverberated quickly through the regions.

“These latest results are a good indicator of how quickly a downturn at the farm gate can have an impact on businesses in communities throughout rural New Zealand,” says Scott Gardiner.

“While the effects of instability in international markets, especially China, a slow down in Australia, and the fall in dairy prices have been well widely recognised as putting pressure on New Zealand’s farmers, it is troubling to see how fast that has rippled out through our rural business communities.”

“The sector is also highlighting that the effects are unlikely to be short term, with forecasts for the year ahead well below the SME average.”

Only 20 per cent of business operators in rural areas are forecasting growth in revenue over the next year, while only 16 per cent of those in the agricultural sector are expecting their revenue to improve in the next 12 months. Twenty-eight per cent of rural businesses are expecting a revenue fall, and 35 per cent of SMEs in the agricultural industry.

Pipeline work is also constrained in rural areas, with 21 per cent saying they have more work booked in the next three months and 17 per cent less. For agricultural businesses, 16 per cent have more work in the pipeline (compared to the SME average of 31 per cent).

Rural gloom puts dampener on confidence

Falling revenue in the rural sector is also reflected in significantly lower confidence in the overall economy. While half (51%) of all SME operators expect the economy to decline in the next year, 69 per cent of rural business operators and 76 per cent of agricultural businesses are forecasting a deterioration in conditions for the whole economy.

Fewer jobs, less likelihood of pay increases

In response to tightening conditions, there will be fewer new jobs in rural New Zealand this year. Just five per cent of operators say they will hire more full time staff and six per cent will take on more part timers – equal to the number who say they will reduce staff in both categories.

Only 15 per cent of rural sector businesses, and 14 per cent of agricultural operators plan to increase pay rates this year, well below the 20 per cent SME average.

Mounting pressures

Agricultural business operators are also feeling key pressures more keenly, with fuel (32 per cent), price margins (30 per cent) and exchange rates (27 per cent) the top three pressures expected for SMEs in the sector in the next year.

“Unfortunately, businesses in rural New Zealand, and particularly those in agricultural industries, are facing a tough time of it at the moment,” says Scott Gardiner.

“What is perhaps surprising about this data is how quickly SMEs based in rural New Zealand have seen the farm downturn hit their earnings.

“What we have seen in surveying the sector since the GFC though, is that businesses in the sector tend to understand the cyclical nature of their industry very well, and move quickly themselves to consolidate where necessary.

“This is the time when businesses need to focus on the fundamentals: get the systems right, keep an eye on both debt levels and the credit you’ve extended, work for the best deals from your suppliers, and keep in close touch with your financial advisors.

“It can be pretty lonely working in a rural business, and the important thing to recognise is that there is a lot of help and support available to help you mange through the tough periods, and get ready for the inevitable upswing.”

ENDS

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