Market Intelligence Report
CLA / Smiths Gore Rural Economy Index Q1 2013 Key points •
Rising unemployment, shrinking profits and plummeting confidence has thrown the rural economy to the brink of a further recession.
•
Agricultural businesses are faring worst. The optimism they had in 2012 has gone, due to bad weather, poor harvests and the rising price of livestock feed. The Index’s measure of optimism has fallen by 40% compared with this quarter last year. Their sales have fallen in the past six months and they now expect orders, sales and profits to be lower in the next 12 months. They anticipate employing fewer people. All of the eight indicators fell compared with 3Q2012.
•
Non-agricultural businesses are also less optimistic although they still expect higher profits in the next year despite their actual sales shrinking over the last six months and the number of business enquiries falling. Hopes for higher employment also faded with fewer non-agricultural businesses expecting to employ more people in the next year. All eight of our indicators fell. This points to weaker growth in a stagnating economy. 36%
34%
32%
31%
29% 26%
25%
29% 26% 18%
11% 11%
9%
9%
15% 10%
9% 6%
7%
10%
1%
11% 10%
9%
-1% -7%
-9% -14% -14%
-16%
-12%
-5%
1%
-3% -2%
12%
9% 4%
0% 0% -3% -3%
-5%
-5%
11% 11%
9%
9% 6% 4%
6% 3% 0%
5%
16%
3% 2%
-5%
-9% -13% -17%
-24% -28%
... your actual sales over the past 6 months
... business enquires over the past 6 months
... your profitability over the next 12 months
... your optimism for your business over the next 12 months
Q1 Q2 Q3 13Q1 Agricultural business (green)
... your expected sales in the next 12 months
... your expected order book in the next 12 months
Q1 Q2 Q3 13Q1 Non-agricultural business (blue)
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
... expected employment in the business in the next 12 months
What’s happened over the last six months Actual business performance
Actual business enquiries
Actual sales dropped significantly for farming businesses with more farmers reporting falling rather than rising sales (net balance down to -5% from +5%). The switch has been more dramatic for non-farming businesses which have switched from positive to negative, as a net balance of -9% of non-farming businesses reported higher sales.
Enquiries have dropped for farming over the past 12 months (net balance down to -5% from +3%) and they fell sharply for non-farming businesses (net balance falling to -16% from +29%).
26%
36%
29%
32% 25%
Actual sales over the past six months
Business enquiries over the past six months
Figures are net balances
Figures are net balances
11% 11% 5%
13Q1 -9%
6%
9% 3%
0%
13Q1 -5%
13Q1 -5%
Q1 Q2 Q3 13Q1 Agricultural business (green)
13Q1 -16%
Q1 Q2 Q3 13Q1 Non-agricultural business (blue)
Key points have been ‘traffic light’ coloured, with falling indicators coloured red, stable amber and rising green
Q1 Q2 Q3 13Q1 Agricultural business (green)
Q1 Q2 Q3 13Q1 Non-agricultural business (blue)
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 to how businesses are expecting to perform. There is a significant difference in the expectations of the agricultural and non-agricultural sectors. Agricultural businesses continue to expect sales to be lower in the next 12 months, as the net balance remains negative (-12% from -7%). The greater optimism expressed by the non-agricultural businesses is reflected in expectations of higher sales, although by fewer businesses (+16% from +34% in Q3).
The farming sector continues to have a negative outlook, with a net balance of -14% from -14% in Q2 and +26% in 2012Q1; this is partly due to the poor harvest and difficult conditions for sowing next year’s crops, and rising cost of livestock feed.
34%
After the rise in 2012Q3, optimism in non-farming businesses has dropped back significantly, to a net balance of +9% from +44% in Q3.
18%
Expected sales in the next 12 months
13Q1 16%
11% 11% 7% 13Q1 -12%
Figures are net balances 44% -7%
Q1 Q2 Q3 13Q1
26%
Agricultural business (green)
Optimism for your business over the next 12 months Figures are net balances
4% 6%
13Q1 9%
-1%
Q1 Q2 Q3 13Q1 Non-agricultural business (blue)
These trends follow through into expected order books. Farming businesses continue to expect a fall in orders in the next 12 months (net balance down to -13% from -5% in Q3). And the balance of non-agricultural businesses expect growing order books (net balance down to +10% from +29% in Q3). 29%
-14% 13Q1 -14% Q1 Q2 Q3 13Q1 Agricultural business (green)
Q1 Q2 Q3 13Q1 Non-agricultural business (blue)
Expected order book in the next 12 months
10%
6%
9%
13Q1 10%
Figures are net balances -9%
-5%
Q1 Q2 Q3 13Q1 Agricultural business (green)
13Q1 -13%
Q1 Q2 Q3 13Q1 Non-agricultural business (blue)
Future Trends – Profitability, investment and employment 15%
Profitability Increasing numbers of agricultural businesses now expect profitability to be lower in the next 12 months, as the net balance becomes more negative (-28% from -24%). Non-agricultural businesses continue to expect higher profits, although the net balance has fallen to +9% from +31%.
Expected investment in the business in the next 12 months
11% 10%
13Q1 9%
0%
Figures are net balances
13Q1 -3%
-2%
-17%
Q1 Q2 Q3 13Q1
Q1 Q2 Q3 13Q1
Agricultural business (green)
Non-agricultural business (blue)
31%
Employment Expected profitability over the next 12 months Figures are net balances
13Q 9%
9% 1% -3%
-24%
Q1 Q2 Q3 13Q1 Agricultural business (green)
-3%
The signs of optimism in terms of employment we reported in 1Q2012 are fading. Farming businesses expect to employ fewer people in the next 12 months (net balance falling to -5% from +9% in Q3). Non-agricultural businesses continue to expect to employ more people in the next 12 months but the net balance has fallen to +2% from +12% in Q3.
13Q -28% Q1 Q2 Q3 13Q1 Non-agricultural business (blue)
Investment Farming businesses continue to put investment decisions on hold as the net balance remains broadly neutral, at -3% from +0%. Non-agricultural businesses continue to expect to invest more, although the net balance is down to +9% from +15% in Q2.
Expected employment in the business in the next 12 months Figures are net balances
12% 9% 4% 2%
1%
3%
13Q1 2%
13Q1 -5%
Q1 Q2 Q3 13Q1 Agricultural business (green)
Q1 Q2 Q3 13Q1 Non-agricultural business (blue)
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_smithsgore_rural_economy_index_2Q2013 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-agricultural 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:
Charles Trotman t. 020 7235 0511 e. charles.trotman@cla.org.uk
Rupert Clark Head of Management Division t. 01798 345980 e. rupert.clark@smithsgore.co.uk Dr Jason Beedell Head of Research t. 01733 866562 e. jason.beedell@smithsgore.co.uk