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5 May 2008

Australian agribusiness cautiously optimistic about future

Signs of optimism among Australian agribusiness are being tempered by the spectre of rising costs reports the Westpac and Charles Sturt University Agribusiness Index released today.

The national Economic Performance Index (EPI), which measures business performance, employment and investment indicators, was 0.02, the first positive result in 18 months, and represented an improvement on the -0.06 result for the December quarter.

"This result shows that agribusiness is cautiously optimistic about the future," Westpac's Chief Executive, Regional and Agribusiness Banking, Graham Jennings, said.

Mr Jennings said that while Western Australia recorded the best result with an EPI of 0.11, all states reported an improvement on the December quarter except for Tasmania. South Australia and New South Wales recorded the lowest EPIs at -0.04 and -0.01 respectively.

The improvement was due to good results in business performance and capital expenditure as well as stable employment levels.

"The positive trend for the agribusiness sector as a whole was lifted by the performance of the upstream and downstream sectors, at 0.12 and 0.16 respectively," Mr Jennings said.

The upstream sector consists of businesses that supply agricultural producers while the downstream sector includes related transport, manufacturing, wholesale and retail businesses.

Mr Jennings said many businesses in the upstream and downstream sectors also service the mining sector and it likely that this has contributed to their better performance relative to the producer sector, particularly in Western Australia and Queensland.

The EPI for the primary producer sector was -0.01, indicating a far more cautious approach to the future.

"Climatic factors were identified as being an important influence," Mr Jennings said.

"This was reflected in the fact that areas most affected by drought or prolonged dry weather in eastern Australia, such as northern Victoria and southern and central New South Wales, recorded lower scores on the index."

In contrast, the Darling Downs and Wide Bay-Burnett divisions in Queensland; Far West and coastal divisions in New South Wales; southern and eastern divisions in Victoria; South East division of South Australia; Northern and Southern divisions in Tasmania; and all divisions in Western Australia except for the Central division reported a positive EPI.

The standout performer was the Lower Great Southern division of Western Australia.

"The optimistic signs for agribusiness are tempered by evidence of increasing costs across the board," Mr Jennings said.

"Operating costs continued to increase in the March quarter, and at a much higher rate than reported at the same time last year."

Inputs and materials as well as fuel were the major contributors to this increase.

Victoria reported the largest increases in operating costs.

"In this context, indications of business confidence are important," he said.

"Nationally, 72 per cent of agribusiness felt confident about the performance of their business over the next twelve months, a slight drop from 74 per cent in the December quarter."

At a state level the trend generally follows that for the EPI so that the best performing states of Western Australia and Tasmania also recorded an increase in business confidence. The exception was South Australia, which also recorded an increase.

By contrast, Victoria and New South Wales recorded the lowest level of business confidence, at 69 per cent.

According to Mr Jennings, these results emphasise that what happens with weather patterns and operating costs in the next few months will be critical.

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


About the Westpac & CSU Agribusiness Index
The Westpac & 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 2008 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 for business performance, employment and investment indicators. The overall national EPI for the March quarter was 0.02, the first positive result in six quarters, an increase from –0.06 in the December quarter and an improvement from –0.07 in the March quarter last year. The June 2008 quarter Westpac & CSU Agribusiness Index will be released in July 2008.