Archive media release
10th May 2007
Drought conditions continue yet agribusinesses showing good resilience
Drought conditions continue to exert pressure on Australian agribusinesses, yet the sector is showing promising signs of resilience with 60 per cent of farmers confident about the year ahead, according to the second quarterly Westpac & Charles Sturt University (CSU) Agribusiness Index.
The results of the March quarter Westpac & CSU Agribusiness Index, which provides agribusinesses with detailed national and state-based overviews of business performance, show a ten per cent decrease in business confidence since the December quarter, due to less than satisfactory weather improvements, however capital expenditure and employment levels remain steady.
For Justin Smirk, Senior Agribusiness Economist, Westpac Economics, the Index results show farmers remain cautiously optimistic, with some planning modest increases in business investment.
"Agribusinesses expect to increase capital expenditure in the June quarter, suggesting that farmers are planning ahead on the basis of anticipated improvement. The demand-side fundamentals are good with strong rural commodity prices," Mr Smirk said.
"The fact that farmers remain relatively eager to invest despite current conditions is a vote of confidence in rural recovery and means the sector will be able to capitalise on strong demand more quickly once the drought eases."
However, Mr Smirk also cautioned that agribusinesses would also need to factor other external issues into their future plans once the drought was no longer the biggest contributor to poor performance.
"For example, beef exporters need to be wary of a rising Australian dollar," he said.
"Additionally, while it is hard to gauge the impact that the resource booms in WA, QLD and NT are having on agribusinesses, there is likely to be some negatives coming through the intense competition for skilled labour, materials, and even water. There may also be an impact from strong resources-related demand on a wide range of costs.
"Other cost factors are also critical. Agribusiness is particularly sensitive to oil-prices due to its reliance on petroleum-based fertilisers and high transportation costs."
The Westpac & CSU Index results measure an Economic Performance Index (EPI) between -1 and 1 for each state based on the average results collected from all regions. Key state and territory results from the March quarter include:
- Western Australia recorded a negative EPI of -0.03 for the March quarter. However, this represented the most substantial improvement of all states from the December quarter. WA expects the greatest improvement of all states into the June quarter with an expected EPI of 0.11.
- Queensland recorded strong performance in the northern regions with positive EPIs in the Far North (0.10), North West (0.21), Central West (0.04), Fitzroy (0.16) and Mackay (0.10) regions. Southern Queensland was more affected by poor climate conditions and featured negative performance. On average, capital expenditure increased state-wide with good expectations for investment in business improvements across the northern regions in both the March quarter and predicted into the June quarter.
- Tasmania was the only state, apart from the Northern Territory, to record a positive EPI this quarter with a 0.08 result and outlooks to the June quarter remaining stable.
- New South Wales' coastal areas recorded positive economic performance suggesting that recent rains have enabled agribusinesses to get back on track. There are also good predictions for the Hunter region with an anticipated 0.19 EPI for the June quarter. Moving into the June quarter, capital expenditure for coastal regions remains positive with good indications for renewed investment prospects.
- The March quarter results highlighted the effect January bushfires have had on local economies in Victoria, hindering drought revival initiatives. Goulburn, Gippsland and East Gippsland all reported decreased EPI results of -0.30, -0.25 and -0.17 respectively, with the largest drop in performance since the December quarter in Gippsland. Capital expenditure was maintained through the March quarter with positive exceptions in Loddon, Western Districts and Ovens and Murray where significant improvements were recorded.
- South Australia was again the state hardest hit by drought conditions nation-wide. However, there were marked increases from the December quarter in business confidence for the year ahead in both the Yorke and Lower North and Murray Lands regions, suggesting that agribusinesses are remaining strong in the face of poor performance. Local producers behaved guardedly and minimised capital expenditure. Overall, the EPI is expected to improve from -0.19 to -0.04 into the June quarter.
Commenting on the launch of the Westpac & CSU Index, Tim Harrington, Westpac's General Manager, Business Distribution, Business Financial Services said the March quarter results offer Westpac's bankers good indications of how weather conditions are influencing performance and how they can support their customers in the year ahead.
"The Westpac & CSU Index is such a fantastic tool for both our customers and our bankers to see how the industry is reacting at crucial seasonal moments. In this way, our bankers are able to offer the type of financial products best suited to their needs," he said.
"We understand that while the drought has had a wide influence on the agricultural industry as a whole, it is breaking at different speeds and different patterns nationally. Each state, and indeed region, has a unique set of needs at this moment, and will be facing individual challenges en route to a productive recovery. We want to see our agribusiness teams ready to meet these changing environments and help their clients to grasp new opportunities."
The June 2007 quarter Westpac & CSU Agribusiness Index will be released in August.
About the Westpac & CSU Agribusiness Index
The Westpac and CSU Agribusiness Index is a quarterly survey of Australia's Agribusiness sector conducted by the Western Research Institute of Charles Sturt University. A survey is conducted via a phone questionnaire with respondents drawn from the 48 statistical divisions of regional Australia with a mix of both primary producers, and businesses upstream and downstream of the agricultural sector. The March 2007 survey resulted in 1180 responses.
