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Dairy price effect still hurting NZ SMEs

5 October 2016

Dairy price effect still hurting NZ SMEs

The dairy downturn is still having an impact on small to medium enterprises in many parts of the country, although there are definite green shoots in the economy according to the latest MYOB Colmar Brunton Business Monitor Survey.

More than one third (34 per cent) of all agribusinesses have been affected by low dairy prices in the past six months, with 12 per cent saying the impact is ‘very negative’.

For the many businesses connected to the agricultural economy, that remains a problem. Compared to a national average of 39 per cent, just 25 per cent of rural SMEs saw their revenues improve in the last 12 months, according to the latest Business Monitor, and 24 per cent reported a decline in income over the period.

Looking forward to 2017, fewer rurally-based businesses are also expecting gains, with a third forecasting revenue growth over the next 12 months, compared to 42 per cent of all SMEs

At a national level, 13 per cent of all local SMEs saw a negative effect on revenue from the fall in dairy prices and 17 per cent reported an impact on consumer confidence. While the overall numbers have reduced since the March survey, the recovery is not even – with most main centres bouncing back stronger than the regions and rural areas.

In Auckland, only seven per cent of businesses reported a negative impact on revenue and 10 per cent on consumer confidence from lower dairy prices. In Wellington, just one per cent of local businesses noticed that their revenue was affected.

However, in the dairy producing regions the fall in prices continues to have significant repercussions, with 40 per cent of SMEs in Taranaki, 29 per cent in the Waikato and 19 per cent in Canterbury seeing their revenue hit.

Compared to the other main centres, the influence of the downturn is much more pronounced in Christchurch, with 31 per cent of local businesses saying consumer confidence is down because of low dairy prices.

MYOB Head of SME Ingrid Cronin-Knight says while it is great to see the economy doing well, in the North Island centres in particular, it can be easy to miss the impact low dairy prices are having on local businesses.

“If you’re not directly affected, it can be easy to think that the dairy price problem is coming to an end and that the lingering effects aren’t particularly widespread,” says Ms Cronin-Knight.

“While we’ve recently seen some recovery in dairy prices, it is important to recognise that many farmers are still struggling – and that is still putting pressure on the rural economy in particular.”

“We are extremely fortunate that our economy has diversified with growth in our tourism sector, manufacturing and construction industries underpinning the high levels of performance we are currently seeing in the SME economy.” says Ms Cronin-Knight.

“But we do need to consider what can be done to support the tens of thousands of Kiwi enterprises that depend on the success of the rural economy, and ensure that with good systems, service and support from all the partners, providers and agencies involved in the rural sector, they can be in the best possible shape to weather the downturn and take advantage of any improvements in the market.”

“For any SME owners who are doing it tough, we suggest talking to your advisors and getting good cashflow management solutions in place. A clear view of how your business is tracking will help you make the decisions necessary to get through.”

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