15 Mar 2016

Businesses feel effects of dairy drop - survey

2:06 pm on 15 March 2016

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

Eftpos machine

The dairy downturn is hurting the wider primary sector, manufacturing and retail and hospitality businesses, according to MYOB's survey. Photo: 123rf

Accounting software maker MYOB said 21 percent of firms reported their revenue had fallen, while 25 percent said consumer confidence had been hit.

MYOB general manager James Scollay said that meant about 100,000 businesses employing roughly 1 million people 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 kilogram of milk solids to $3.90 a kilogram.

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

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

In the primary sector, 45 percent of respondents 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 said they had seen revenue returns decline, and 33 percent said they 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 were greatest in rural regions.

Mr Scollay said 39 percent of rural respondents stated that the dairy price was hitting consumer confidence, and 34 percent were experiencing 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 percent of rural SMEs said the impact on their revenue was significantly negative."

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

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