Market Intelligence Report
CLA / Smiths Gore Rural Economy Index Q3 2012 Key points • • •
The expectations of rural businesses have completely reversed since the start of the year. Optimism in the agricultural sector is falling: actual sales are down and more businesses expect falling profitability. Optimism for the next 12 months has switched to negative from neutral. Six of the eight indicators fell compared with the previous quarter. In contrast, non-agricultural businesses are becoming more positive and expect sales, profits, investment and employment to be higher in the next year. All eight indicators rose. 44% 36%
34%
32%
31%
29%
29% 26%
26%
25%
18%
5%
15%
11%
11% 11%
9%
11%
9%
6% 3% 0%
4%
10%
9% 6%
7%
6%
1%
11% 10%
12% 9% 4% 1%
0% -3% -3%
-1%
3% 2%
-2% -5%
-7%
-9% -14% -17% -24%
... your actual sales ... business enquires ... your profitability ... your optimism for ... your expected over the past 6 over the past 6 over the next 12 your business over sales in the next 12 months months months the next 12 months months
Q1
Q2
Q3
Q1
Q2
Q3
Agricultural business (green) 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.
... your expected order book in the next 12 months
... expected ... expected investment in the employment in the business in the next business in the next 12 months 12 months
What’s happened over the last six months Actual business performance
Actual business enquires
Actual sales dropped significantly for farming businesses to only +5% reporting higher sales (net balance down to +5% from +32%). This has switched from being more positive than sales for non-farming businesses to more negative, as a net balance of +25% of non-farming businesses reported higher sales.
Enquiries over the past 6 months dropped for farming (net balance down to +3% from +6%) and they continue to rise for non-farming businesses (net balance rising to +29% from +26%).
36% 32%
29% 26%
25%
Actual sales over the past six months
Business enquiries over the past six months
Figures are net balances
11% 11%
Figures are net balances
9% 6% 3%
5% 0%
Q1
Q2
Q3
Q1
Q2
Q3
Agricultural business (green) Non-agricultural business (blue)
Key points have been ‘traffic light’ coloured, with falling indicators coloured red, stable amber and rising green
Q1
Q2
Q3
Q1
Q2
Q3
Agricultural business (green) 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 at how businesses are expecting to perform. There is a significant difference in the expectations of the agricultural and non-agricultural sectors. Agricultural businesses now expect sales to be lower in the next 12 months, as the net balance has switched from positive to negative (-7% from +7%). The optimism expressed by the non-agricultural businesses is reflected in expectations of higher sales, up to +34% from +11%.
While optimism and expectations are rising for non-farming businesses, the farming sector has dropped back from positive expectations for the next year to a negative outlook, with a net balance of -14% from -1% in Q2 and +26% in Q1; this is partly due to the poor harvest and difficult conditions for sowing next year’s crops, and rising cost of livestock feed. Optimism in non-farming businesses has risen significantly, to a net balance of +44% from +6% in Q2.
34%
18% 11% 11%
Expected sales in the next 12 months
7%
Figures are net balances 44%
-7%
Q1
Q2 Q3 Q1 Q2 Q3 Agricultural business (green) Non-agricultural business (blue)
26%
Optimism for your business over the next 12 months Figures are net balances
4% 6% -1%
These trends follow through into expected order books. Farming businesses continue to expect a fall in orders in the next 12 months (net balance up to -5% from -9% in Q2). But significantly more non-agricultural businesses expect growing order books (net balance up to +29% from +9% in Q2).
29%
-14% Q1
Q2 Q3 Q1 Q2 Q3 Agricultural business (green) Non-agricultural business (blue)
Expected order book in the next 12 months
10%
9% 6%
Figures are net balances -5% -9%
Q1
Q2 Q3 Q1 Q2 Q3 Agricultural business (green) Non-agricultural business (blue)
Future Trends – Profitability, investment and employment 15%
Profitability There has been a complete turn around. Agricultural businesses now expect profitability to be lower in the next 12 months, as the net balance has switched to negative from positive (-24% from +1%). The optimism and higher sales expected by the non-agricultural businesses is reflected in expectations of higher profits, up to +31% from -3%.
11% 10%
Expected investment in the business in the next 12 months
0%
Figures are net balances
-2%
-17%
Q1
Q2 Q3 Q1 Q2 Q3 Agricultural business (green) Non-agricultural business (blue)
31%
Employment Expected profitability over the next 12 months
9%
Figures are net balances
1% -3% -3%
There are signs of optimism in terms of employment as both farming and non-farming businesses expect to employ more people in the next 12 months. The net balance for agricultural businesses is up to +9% from +1% in Q2. Non-agricultural businesses continue to expect to employ more people in the next 12 months (net balance increasing to +12% from +3% in Q2).
-24% Q1
Q2 Q3 Q1 Q2 Q3 Agricultural business (green) Non-agricultural business (blue)
Investment Farming businesses are putting investment decisions on hold as the net balance has fallen to 0% from +10%. Non-agricultural businesses have switched in the quarter from expecting to invest less to investing more (net balance up to +15% from -17% in Q2).
Expected employment in the business in the next 12 months Figures are net balances
12% 9% 4% 1%
Q1
2%
3%
Q2 Q3 Q1 Q2 Q3 Agricultural business (green) 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_4Q2012 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:
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