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11 February 2008

Agribusiness results are in and Economic Performance Index is up

The Westpac and Charles Sturt University Agribusiness Index has reported its first positive business performance result since its inception in 2006, with 74% of agribusinesses nationally feeling confident about the performance of their business over the next 12 months.

Graham Jennings, Westpac's Chief Executive, Regional and Agribusiness Banking, said there were many factors contributing to the positive trend.

"Confidence is not only improving at a farm level. Upstream and downstream regional businesses are all reporting a rise in business confidence with 81% downstream, 77% upstream and 73% in the producer sector indicating a positive 12 month outlook," he said.

Business confidence improved in all states with positive results recorded in Tasmania, Western Australia, Victoria and Queensland.

The overarching Economic Performance Index (EPI) has also increased to -0.06 from -0.12, to which business performance, employment and investment indicators contribute. The outlook for March 2008 Quarter is for a positive EPI, a first since December 2006.

"Business confidence in agriculture has been understandably low across the country for some time, and although this survey was carried out prior to the extensive January rains that fell across a lot of the country there had been sufficient rain fall to turn around the overall negative outlook," Mr Jennings said.

"We have seen agribusiness trend towards a higher level of confidence in December, but not at these levels, and there has been a 10% increase on September 2007 quarter levels.

"It's a great sign for business and one that the Index predicts will continue to rise."

Mr Jennings said indicators are also high for typical agricultural growth strategies with expectations that capital expenditure, employment and stock levels are predicted to rise into positive territory for the first time in more than 12 months.

"At a stocking level, the Index predicts by March 2008 that producers, upstream and downstream businesses will be into the positive range for the first time," he said.

The factors keeping agribusiness below the positive sector in December 2007 include climate and the increasing cost of doing business.

"While profit levels are still negative at -0.17, there has been a significant improvement from -0.37 in the September 07 Quarter," Mr Jennings said.

Operating costs continue to increase and the 2007 December quarter increases are the highest recorded since the Index was first published in 2006. 47% of agribusiness that reported an increase in operating costs cited fuel as the most significant factor in increasing costs.

"The outlook for Australian agribusiness in the coming March quarter is generally positive with increases expected in business performance, investment and employment," Mr Jennings concluded.

Westpac Senior Agribusiness Economist, Justin Smirk said the Index reflected the mood of the Australian agricultural sector, with five consecutive months of record world commodity prices shown in business confidence ratings.

"This time it is not just global production pushing prices higher, but strong demand growth from the developing world," Mr Smirk said.

"Rising incomes are resulting in a significant increase in the demand for livestock products and this in turn has seen the demand for animal fodder explode.

In addition, Mr Smirk said government policies to stimulate biofuel production, particularly in the US, are pushing grain demand higher still.

"All up, this is the best global framework for agricultural prices for a very long time," Mr Smirk concluded.

Westpac is also expressing its confidence in the regional and agribusiness sectors with employment of regional and agribusiness staff growing to over 530. To contact your local Westpac Business or Agribusiness Banker, phone 1300 134 979.

For a copy of the latest Westpac & CSU Agribusiness Index visit, www.westpac.com.au/agribusiness


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 December 2007 survey resulted in 1200 responses.

The Westpac & CSU Agribusiness Index produces an Economic Performance Index (EPI) between -1 and 1 based on the average of results. Sitting at -0.06, the national EPI is higher than the previous Index and higher than the same period for 2006. The March 2008 quarter Westpac & CSU Agribusiness Index will be released in April 2008.