Rural Economy Index 3Q2013

Market Intelligence Report

CLA / Smiths Gore Rural Economy Index 3Q | 2013 Key points • • •

The recovery in the rural economy now seems firmly entrenched, and has spread from non-farming businesses to the farming sector.

The pessimism of 2012 has gone, and farming businesses now expect sales and profits to be higher in the next 12 months. Investment and employment expectations for the year ahead are more positive but remain broadly neutral. Seven of the eight indicators rose compared with 2Q2013.

Non-agricultural businesses continue to recover and expect growth. Sales and enquiries rose significantly over the past six months, and the businesses have even higher sales expectations. For the first time for over a year, more businesses expect to be profitable rather than make losses. Expected investment is higher and they expect to employ more people. Seven of our eight indicators rose.

40% 30% 20% 10% 0% -10% -20%

Actual sales over the past 6 months

Business enquires over the past 6 months

Profitability over the next 12 months

Optimism for your business over the next 12 months

Agriculture

Expected sales in the next 12 months

Expected order book in the next 12 months

All businesses excluding agriculture

Figures shown are net balances; an increase in net balance shows the proportion (or %) of businesses reporting a rise minus those reporting a fall.

Expected investment in the business in the next 12 months

1Q2013 2Q 3Q

1Q2012 2Q 3Q

1Q2013 2Q 3Q

1Q2012 2Q 3Q

1Q2013 2Q 3Q

1Q2012 2Q 3Q

1Q2013 2Q 3Q

1Q2012 2Q 3Q

1Q2013 2Q 3Q

1Q2012 2Q 3Q

1Q2013 2Q 3Q

1Q2012 2Q 3Q

1Q2013 2Q 3Q

3Q

1Q2012 2Q

1Q2013 2Q 3Q

1Q2012 2Q 3Q

-30%

Expected employment in the business in the next 12 months

What’s happened over the last six months Actual business performance

Actual business enquiries

More farming businesses reported rising sales than falls in sales for the first time in a year (net balance up to +6% from 0%). Sales greatly increased for nonfarming businesses (net balance up to +44% from +2%) compared with the previous quarter. So the recovery we first reported in 1Q2013 is continuing. 50% of non-farming businesses are now reporting higher sales, the highest level since the start of our survey.

Enquiries continue to rise for both farming businesses (net balance up to +10% from +2%) and non-farming businesses (net balance rising to +38% from +18%).

Actual sales over the past six months

Business enquiries over the past six months

Figures are net balances

Figures are net balances

Business enquiries over the past 6 months

Actual sales over the past 6 months

All figures are net balances.

All figures are net balances.

40% 40%

40% 40%

30% 30%

30% 30%

20% 20%

20% 20%

10% 10%

10% 10%

0% 0%

0% 0%

-10% -­‐10%

-10% -­‐10%

-20% -­‐20%

-20% -­‐20%

-30% -­‐30%

-30% -­‐30%

1Q2012 12Q1

2Q Q2

3Q Q3

1Q2013 13Q1

2Q Q2

3Q Q3

12Q1 1Q2012

Q2 2Q

Q3 3Q

13Q1 1Q2013

Q2 2Q

Agriculture

All businesses excluding agriculture

Agriculture

All businesses excluding agriculture

Agriculture

All businesses excluding agriculture

Agriculture

All businesses excluding agriculture

Key points have been ‘traffic light’ coloured, with falling indicators coloured red, stable amber and rising green

Q3 3Q

What businesses expect over the next 12 months The level of business confidence

Projected business performance

The perception of confidence or optimism is a good indicator of the short-term outlook for businesses.

The Index also looks forward at how businesses are expecting to perform.

The farming sector seems to have recovered from 2012 and is now optimistic about the future, with a net balance of +36%, up from +4%. It is now at its highest since our survey started.

The non-farming businesses are becoming even more optimistic and have fully rebounded from the drop in confidence in 1Q2013. The net balance of +68% from +41% in 2Q is the highest level we have recorded.

Expected sales in the next 12 months Expected sales in tbalances he next 12 months Figures are net All figures are net balances.

60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% -­‐10% -10% -­‐20% -20% -­‐30% -30% 12Q1 1Q2012

Optimism for your business over the next 12 months Figures are net balances

Op0mism for your business over the next 12 months All figures are net balances.

80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% -10% -­‐10% -­‐20% -20% 12Q1 1Q2012

Agricultural businesses now expect sales to be higher, the first time the sector has had positive expectations for a year (+34% from -4%). The rising optimism of the nonagricultural businesses continues to be reflected in expectations of higher sales (+62% from +25% in 1Q). So optimism is feeding through into higher sales expectations.

Q2 2Q

Q3 3Q Agriculture

13Q1 1Q2013

Q2 2Q

Q3 3Q

All businesses excluding agriculture

Agriculture

All businesses excluding agriculture

These trends follow through into expected order books. Farming businesses now expect orders to be higher in the next 12 months (net balance up to +20% from 0%). And more non-agricultural businesses expect growing order books (net balance up to +50% from +39%).

Q2 2Q

Q3 3Q

13Q1 1Q2013

Q2 2Q

Agriculture

All businesses excluding agriculture

Agriculture

All businesses excluding agriculture

Q3 3Q

Expected order book in the next 12 months Figures are netbook balances Expected order in the next 12 months All figures are net balances.

50% 50% 40% 40% 30% 30% 20% 20% 10% 10%

0% 0% -­‐10% -10% -20% -­‐20% -30% -­‐30% 1Q2012 12Q1

2Q Q2 Agriculture Agriculture

3Q Q3

1Q2013 13Q1

2Q Q2

All bbusinesses usinesses excluding agriculture All excluding agriculture

3Q Q3

Future Trends – Profitability, investment and employment

Expected investment in the business in the next 12 months Expected in the business in next 12 months Figures areinvestment net balances All figures are net balances.

40% 40%

Profitability Agricultural businesses now expect profitability to be higher in the next 12 months, the first time since 2Q2012 (net balance rising to +11% from -4%).

Profit expectations for non-agricultural businesses rose sharply, to their highest levels since we started this survey in 2012 (+48% from +5%).

30% 30% 20% 20% 10% 10% 0% 0% -­‐10% -10% -­‐20% -20%

Expected profitability over the next 12 months

-­‐30% -30%

Figures are net balances Profitability over the next 12 months

12Q1 1Q2012

Q2 2Q

All figures are net balances.

Agriculture

30% 30%

13Q1 1Q2013

Q2 2Q

Q3 3Q

All businesses excluding agriculture

Agriculture

40% 40%

All businesses excluding agriculture

Employment

20% 20%

The signs of optimism in terms of employment we reported in 2Q continue.

Farming business expect to employ about the same in the next 12 months (net balance -2% from +2% in 2Q) but more non-agricultural businesses now expect to employ more people (+20% from +11%).

10% 10% 0% 0%

-­‐10% -10% -20% -­‐20%

-­‐30% -30% 12Q1 1Q2012

Q3 3Q

Q2 2Q

Q3 3Q Agriculture

Agriculture

13Q1 1Q2013

Q2 2Q

Q3 3Q

All businesses excluding agriculture All bussinesss excluding agriculture

Investment Farming businesses continue to put investment decisions on hold as the net balance remains broadly neutral, at +6% from -4%, although it is rising. The investment expectations of non-agricultural businesses have levelled off but remain at their highest for over a year (net balance is +26% from +27%). 40% of non-farming businesses now expect to invest more compared with only 14% which will invest less.

Expected employment in the business in the next 12 months Figures areenet balances Expected mployment in the business in next 12 months All figures are net balances.

40% 40% 30% 30% 20% 20% 10% 10% 0% 0% -­‐10% -10% -­‐20% -20% -­‐30% -30% 12Q1 1Q2012

Q2 2Q

Q3 3Q Agriculture

Agriculture

13Q1 1Q2013

Q2 2Q

All businesses excluding agriculture

All businesses excluding agriculture

Q3 3Q

Taking part in the Index Any business located in a rural area can take part. It takes less than 2 minutes at your computer and costs nothing; in return, you will be sent and can use the results to support your business or sector. We only ask that the results are referred to as the CLA / Smiths Gore Rural Economy Index. So make a cup of tea, click on https://www.surveymonkey.com/s/CLA_Smiths_Gore_Rural_Economy_Index_4Q2013 and take part!

About the Rural Economy Index Interpreting net balances The Country Land and Business Association and Smiths Gore have developed the Rural Economy Index (REI) to provide a quarterly insight into the business environment of the rural economy.

A sample of agricultural and non-businesses from all regions in England and Wales are surveyed. The non-agricultural businesses include: Mining, quarrying, renewable energy or waste management

Hotels, accommodation, restaurants or food service

Public sector administration, education or health

Manufacturing

Transport, storage or communications

Other services (sports, arts, entertainment, recreation)

Construction

Financial services or property

Other

Agricultural and non-agricultural businesses are analysed separately as the sectors have different drivers. The businesses were asked questions about‌

...your actual sales over the past 6 months ...business enquiries over the past 6 months ...your profitability over the next 12 months ...your optimism for your business over the next 12 months ...your expected sales in the next 12 months ...your expected order book in the next 12 months ...your expected investment in the business in the next 12 months ...expected employment in the business in the next 12 months

As well as showing percentages of businesses reporting higher or lower sales, the REI uses net balances to show the direction and scale of change in indicators.

Net balance shows the proportion of businesses reporting a rise in actual sales (or optimism or investment etc) minus those reporting a fall. For example, +26% of agricultural businesses reported higher sales and -21% lower, so the net balance is +5%. This can then be compared with previous quarters.

For more information contact:

Dr Charles Trotman t 020 7235 0511 e charles.trotman@cla.org.uk

Rupert Clark Head of Management t 01798 345980 e rupert.clark@smithsgore.co.uk Dr Jason Beedell Head of Research t 01733 866562 e jason.beedell@smithsgore.co.uk