Media

27 April 2009

Agribusiness is showing signs of being one of the few bright spots for Australia’s economy over the past summer in spite of fires, extreme temperatures and floods.

Upstream and downstream sectors showed positive results and agribusiness operating costs rose at the slowest rate on record in the March 2009 quarter, reports the tenth Westpac and Charles Sturt University (CSU) Agribusiness Index.

"The performance of agribusiness was helped by solid prices and exports for many agricultural products and a slow rise in the inflation rate affecting operating costs," says Westpac’s Chief Executive, Agribusiness, Graham Jennings.

"The greatest challenge in going forward now is the uncertainty the sector is facing in yields and pricing after a difficult summer."

Across Australia, the operating cost index was at 0.28 in the March 2009 quarter, down from 0.42 in the December 2008 quarter and a peak of 0.74 in the June 2008 quarter.

"All states reported a lower inflation rate for operating costs on last quarter at the lowest or equal lowest cost increase on record," says Mr Jennings.

The quarterly survey is used to calculate the Economic Performance Index (EPI) based on the average of results for business performance, employment and investment indicators. The EPI ranges between -1 (worst result) and +1 (best result) where a "satisfactory" result is when the EPI is zero.

The March 2009 EPI of –0.01 was slightly lower than the +0.02 recorded in March 2008 and above the -0.07 level recorded two years ago in March 2007.

"The lower inflation rate for agribusiness operating costs is mainly due to falls in the prices for fertiliser, chemicals and fuel, with increased labour availability a factor too. Interest rates have also fallen. Westpac is now offering the lowest interest rate on bill based business loans in forty years," Mr Jennings said.

"Agribusinesses increased their capital expenditure in the March quarter, with the majority spending on equipment and machinery and expecting to increase their spending in the June quarter."

Mr Jennings says that agribusiness is a mature and resilient sector and experienced business operators understand how to manage production costs to agriculture’s cyclical nature with a long-term outlook.

"Business confidence fell slightly in the quarter, but 64% of businesses are still confident for the next year, and both upstream and downstream businesses are performing positively," he says.

"Our local bank staff are telling us that some agribusiness sectors and some districts are actually performing very well."

The outlook for the next quarter is positive, with Australian agribusinesses expecting their economic performance to improve in the June 2009 quarter and the EPI expected to lift to +0.04.

"This is the time for annual reviews and cash flow assessments as we come off the back of a tough summer and plan requirements for the year ahead," says Mr Jennings.

"Lower input costs are increasing activity. With low interest rates and a lower inflation rate, Australian agribusinesses have the opportunity to meet the challenges from the global economic slowdown head-on, including investing prudently to ensure they are in a position to respond to the opportunities that will arise as the global economy emerges from these very tough conditions."

For the latest Westpac and Charles Sturt University Agribusiness Index, visit www.westpac.com.au/agribusiness.