09/02/2009 - 11:16

WA agribusiness performance hits a high

09/02/2009 - 11:16

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Agribusinesses in Western Australia are enjoying the flow on effects of better seasonal conditions with the best business performance results nationally, according to latest figures from the the Westpac and Charles Sturt University Agribusiness Index.

Agribusinesses in Western Australia are enjoying the flow on effects of better seasonal conditions with the best business performance results nationally, according to latest figures from the the Westpac and Charles Sturt University Agribusiness Index.

The Economic Performance Index (EPI) for agribusinesses in WA rose by 4 basis points to +0.12 in the December quarter, the sixth consecutive quarter of satisfactory or positive economic performance and the highest EPI recorded for WA.

It was also the highest EPI for all states in the December quarter.

Primary producers recorded their best-ever results in the Index's history, at +0.10. The EPI is based on the average of survey results for business performance, employment and investment indicators.

"Agribusinesses in Western Australia continue to perform at high levels, aided by strong business performance, higher employment, sustained capital expenditure and a slower rate of increase in operating costs," Westpac chief executive agribusiness banking Graham Jennings said.

The business performance of agribusinesses in WA rose by 10 basis points from +0.06 in the September quarter to +0.16 in the December quarter, while employment rose by 3 basis points to +0.07.

"Capital expenditure in Western Australian agribusinesses remained very positive, particularly for the cropping industry and notably in the Central, South-Eastern and Upper Great Southern regions, reflecting the confidence WA agribusinesses have in the future demand for food," Mr Jennings said.

"Westpac is seeing a lot of finance requests for machinery as primary producers catch-up after delaying purchases in the last few years. The industry is showing confidence with this investment and we share this outlook for agribusiness in Western Australia."

Westpac and CSU Agribusiness Index survey co-ordinator and CEO of CSU's Western Research Institute, Tom Murphy, notes business confidence, separately recorded in the survey, improved this quarter.

"In Western Australia, 69 per cent of agribusinesses felt confident about the performance of their businesses over the next twelve months, which is an improvement on the 65 per cent in the September quarter," Mr Murphy said.

"Business confidence has been helped by a lower rate in operating cost increases.

"As we are seeing with inflation around Australia, the rate of increase in agribusiness operating costs in Western Australia is slowing, aided by lower costs for fuel, freight, fertilizer and chemicals.

"When we asked about any plans to change business practices, given the challenging economic environment ahead, agribusinesses reported they were likely to reduce spending and would seek to diversify where possible, but they were unlikely to sell their businesses."

State Summary

- The Survey results were positive in all of the eleven statistical divisions in WA, an improvement on the September survey. The South Eastern and South West statistical divisions moved from a negative EPI to a positive EPI in the December quarter.

- The South Eastern division recorded the best EPI in WA at +0.26 in the December quarter and also the greatest lift in EPI for the state (up from -0.02 in the September quarter). The Central division was also a strong performer, at +0.21, virtually the same as in the September quarter. The South-West division recorded a significant lift in EPI, up seventeen basis points to +0.11, after recording the state's lowest EPI in the September quarter.

- The lowest EPI in the December quarter was recorded for the Lower Great Southern statistical division at +0.07.

- Operating costs rose at a slower rate in all statistical divisions in WA except for the Central division in the December quarter compared with the September quarter. The most significant slowdown in operating cost increases was in the South Eastern division, where the index fell by thirty-seven basis points to 0.28.

- Profitability in the downstream sector (retail agribusinesses) in WA was the strongest in two years, helped by a lower rate of increase in operating costs, although stock levels increased. While operating cost increases for primary producers were at the lowest rate since March 2007, profitability was reported to be less than satisfactory for the ninth consecutive quarter. In the upstream sector (suppliers), operating costs increased at a slower rate than in the September quarter and profitability improved.

- Business confidence improved in all three sectors, with the downstream sector the most confident about the future (at 88%, up from 78% in the September quarter). Confidence among producers lifted (up to 68% from 63% in the September quarter), as did confidence among the upstream sector (to 72% from 69%). While business confidence in the Upper Great Southern division lifted in the December quarter, it remains at a low 51%, compared with between 68% and 75% for all the other statistical divisions.

"With operating cost increases stabilising, agribusiness is now willing to invest for the longer term in spite of the challenging economic environment," Mr Jennings said.

"Such investment needs to be done cautiously and with appropriate advice, and of course remains largely dependent on suitable rainfall at the right times."

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