15 Mar 2016

Small firms starting to feel dairy pinch

8:04 pm on 15 March 2016

A survey has found more than one-in-five small and medium firms are feeling the effects of falling dairy prices.

The accounting software maker MYOB says 21 percent of firms reported their revenue had fallen, while 25 percent say consumer confidence was hit.

Organic Jersey cow and calf on a Rongotea farm.

MYOB says 21 percent of firms report falls in revenue. Photo: RNZ / Alexander Robertson

General manager of MYOB James Scollay said that meant about 100,000 businesses employing some 1 million New Zealanders were facing reduced revenue because of the dairy downturn.

"New Zealand is extremely reliant on the agricultural economy. It stands to reason that the rural sector would have taken a hit, but what we are seeing is that the effects of the dairy downturn are filtering through to the cities and other industries, slowing consumer spending and beginning to hit the bottom line of many SMEs."

Last week, Fonterra cut its forecast milk price payout for the second time in three months, from $4.15 a kilo of milk solids to $3.90 a kilo.

Some analysts estimate that up to one dairy farmer in four is in trouble.

The MYOB survey showed the primary sector was the hardest hit, followed by manufacturing.

In the primary sector, 45 percent stated consumer confidence was down, and 43 percent reported a downturn in revenue as a result of the dairy price, with more than half of those saying this effect was very negative.

In manufacturing and wholesale, 36 percent of SMEs saw their revenue returns decline, and 33 percent felt it hit consumer confidence.

Mr Scollay said retail and hospitality were also under pressure, and a third felt dairy prices had affected consumer spending.

"During the six years that the Business Monitor has been running, we have found the retail and hospitality sector to be the bellwether of the New Zealand economy. If consumer confidence is down in this sector it is highly likely we will begin to see spending decline across the whole country."

The effects are greatest in rural regions.

Mr Scollay says 39 percent of rural respondents stated that the dairy price was hitting consumer confidence and 34 percent saw a drop in revenue.

"While it is perhaps unsurprising to see that the rural regions are the most affected by the dairy price, it is worrying to note that 19 per cent of rural SMEs said the impact on their revenue was significantly negative."

Wellington and Auckland appear insulated so far, though Christchurch's firms are starting to feel the effects.

Get the RNZ app

for ad-free news and current affairs