Dairy prices affecting over one fifth of NZ SMEs

Dairy prices affecting over one fifth of NZ SMEs

More than one-in-five small and medium enterprises across New Zealand are feeling the effects of falling dairy prices, according to leading accounting software developer MYOB.

A snapshot result from the latest Business Monitor research commissioned by MYOB and undertaken by Colmar Brunton, found that 21 per cent of the more than 1,000 SMEs surveyed stated their business’ revenues were negatively affected by the dairy price. Even more concerning is the 25 per cent of SMEs that said general consumer confidence has been directly hit.

Across the country, it means that approximately 100,000 businesses employing upwards of one million New Zealanders are facing reducing revenue because of the dairy downturn. MYOB General Manager James Scollay says that the results show a significant impact on the New Zealand economy.

“We are producing these results in advance of the full MYOB Business Monitor economic report as we felt it was important to highlight just how widespread the effects of farm-gate returns really are,” he says.

“New Zealand is extremely reliant on the agricultural economy. It stands to reason that the rural sector would have taken a hit, but what we are seeing is that the effects of the dairy downturn are filtering through to the cities and other industries, slowing consumer spending and beginning to hit the bottom line of many SMEs.”

Effects not confined to rural regions

Although Wellington and Auckland appear insulated from the effects on revenue, the garden city has seen an impact and consumer confidence is waning across the country.

Hit hardest of all the main centres was Christchurch. When asked, “To what extent has the dairy price affected your business in terms of revenue?”, a quarter of all businesses in the city reported a negative impact on their revenue and 26 per cent stated consumer confidence was down as a direct result of the dairy price.

The Capital was the least of the major cities impacted, with only ten per cent of SMEs stating their revenue returns were affected by the dairy price, and nine per cent seeing a reduction in consumer confidence. In Auckland, although revenue returns have not been affected too strongly (14 per cent), 21 per cent of businesses in New Zealand’s largest city said they were seeing a negative effect on consumer confidence.

Outside of the cities, 39 per cent of the MYOB Business Monitor’s rural respondents stated that the dairy price was hitting consumer confidence and 34 per cent saw that negative change in their revenue.

“While it is perhaps unsurprising to see that the rural regions are the most affected by the dairy price, it is worrying to note that 19 per cent of rural SMEs said the impact on their revenue was significantly negative,” says Mr Scollay.

Primary and manufacturing sectors hardest hit, retail feels the pressure

The primary sector is taking the greatest hit of all the industries, with 45 per cent stating that consumer confidence was down. This negative effect was reflected in revenue returns for the sector also as 43 per cent reported a downturn as a result of the dairy price, with more than half of those saying this effect was very negative.

Outside of the primary industries, the manufacturing and wholesale sector was the next most affected. 36 per cent of SMEs in this sector saw their revenue returns decline due to the dairy downturn, and a third (33 per cent) felt it negatively impacted on their consumer confidence.

The price of milk solids has also made a direct hit on the revenues of the retail and hospitality (24 per cent affected) and logistics (23 per cent) industries in New Zealand. Notably, a third of retail and hospitality businesses felt dairy prices had affected consumer spending.

“During the six years that the Business Monitor has been running, we have found the retail and hospitality sector to be the bellwether of the New Zealand economy. If consumer confidence is down in this sector it is highly likely we will begin to see spending decline across the whole country,” says Mr Scollay.

“It is important that the decline in revenue and consumer confidence in the dairy industry is not considered in isolation. What the MYOB Business Monitor results have shown is that dairy prices have a major impact on the whole economy, and particularly in key industries such as retail and hospitality,” says Mr Scollay.

MYOB will be releasing information from the full report in the coming weeks, including insights into business performance and attitudes in areas such as profitability, cash flow, pipeline, technology usage and the government.

ENDS

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