Rural Businesses Hope For Better Year in 2014

11 November 2013

RURAL BUSINESSES HOPE FOR BETTER YEAR IN 2014

Key pressures make going tough in 2013, but research indicates industry will get going

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New Zealand’s rural sector continues to find the going tough as it faces a high dollar, uncertain international markets and rising production costs. However, things are looking up, with more than double the proportion of SMEs expecting an annual revenue rise as had experienced one in the prior 12 months.

This is the finding of the latest MYOB Business Monitor, in which 39% of SME operators in the agriculture, fishing and forestry sector reported falling annual revenue, while only 15% saw revenue increase in the year to August. The sector’s growth was half the pace set by all SME’s surveyed, where 30% saw revenue increase.

MYOB General Manager Business Division James Scollay says the survey underscores some of the complex challenges facing the industries that lie at the heart of New Zealand’s economy.

“Although many parts of the economy have shown strong or stable growth in 2013, the rural sector continues to face a hard road. A range of pressures are still impacting the bottom line of agriculture, forestry and fisheries businesses, such as fuel prices, the high dollar and exchange rates,” says Mr Scollay.

“While there is much to be positive about for the SME sector as a whole this year, it has without a doubt been a more testing time for rural business operators. There’s good news on the horizon though, with 37% of agriculture, forestry and fishing SME operators expecting their revenue to increase in the next 12 months.

“A further 46% expect revenue to remain stable, while just 7% are forecasting a fall in revenue in 2014. The latter was the lowest proportion across all the industries we surveyed, along with finance and insurance.

“What this says is that although things haven’t been as good as we might have hoped in 2013, the primary sector seems set to turn a corner and enjoy a return to growth in 2014.

“We need to be mindful that the vulnerability from key pressures – many of them external – is still there, with rural business operators wanting more support, especially around the dollar. However, revenue is definitely heading in the right direction.”

Key pressures acute for the industry

The leading pressure for all New Zealand SMEs – fuel prices – is being felt most keenly in the rural sector, with a majority of business operators (58%) expecting fuel to place either ‘extreme’ or ‘a lot of’ pressure on their business in the next 12 months. This compares to just over a third (35%) of the whole SME group, highlighting the particular challenge of rising transport costs for the industry.

The high value of the dollar continues to put the primary industries under pressure as well. 41% of operators identify exchange rates as a putting significant pressure on their business in the coming year, compared to just 15% of all SME operators.

Top 5 pressures for the primary sector in next 12 months

Employment and pay stable

Despite the pressures, most primary sector employers are expecting to keep staffing levels constant over the next 12 months. Three quarters (75%) will keep the same number of full time employees and 76% will maintain the number of part time employees. Just 5% intend to reduce staff in each category.

Only a small number will increase pay rates, with 16% saying they intend to increase wages in the next 12 months. This isn’t far off the mark set by the whole SME sector, where 19% intended to increase pay.

High trust in the Government, though some policy concerns

According to the Monitor research, the National Government enjoys the highest level of trust in the primary sector for its handling of the economy, at 63%. Labour would be trusted by just 7% of the sector, followed by New Zealand First on 2% and the Greens on 1%. 20% stated they didn’t trust any party over the others to manage the economy.

“Politicians of all stripes need to be aware of some key policy platforms favoured by rural New Zealand,” says Mr Scollay. “Changing the way assets are taxed or the age of retirement will win few friends in rural areas, but they are keen to see our productive land stay in local hands as well as moves to rein in the Kiwi dollar.”

In an election, two-thirds (66%) would vote against the party that introduced a capital gains tax, as would 56% on the raising of the superannuation age from 65. 58% would vote for tighter controls on foreign purchases of New Zealand land and infrastructure, while 50% would on more Government intervention into the value of the dollar.

Loving the lifestyle

Despite the challenges of today’s trading environment, 70% of primary sector business operators are satisfied with their work/life balance, while just 13% are dissatisfied.

“Lifestyle is the key reason why many operators got into the industry, with 27% saying they started their rural business for a complete lifestyle change,” says Mr Scollay. “Among other leading reasons, 16% saw it as an opportunity to invest in the future, and 12% saw it as the chance to make money from a hobby or interest.”

In the interests of planning ahead to ensure a saleable business, 45% of primary sector operators have an exit strategy and half have already established the value of their business. Two-thirds of those (66%) made a comparative market valuation, 31% had a specialist, independent valuation, and 16% based the value on annual turnover. 10% just have a ‘gut-feel’.

“Businesses in the agriculture, forestry and fishing make up a significant level of New Zealand foreign exchange earnings, and contribute to the wealth and skills of many New Zealanders,” says Mr Scollay.

“The signs for the year ahead are brighter than the year previous, with the prospect of higher earnings across the sector, and more stability in terms of both revenue and employment.”

ENDS

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