Market Intelligence Report
CLA / Smiths Gore Rural Economy Index Q2 2012 Key points • • •
Confidence and optimism in the rural economy remains weak. Although the agricultural sector remains more buoyant than the rural economy in general, there are strong indications that optimism for the future is falling: seven of the eight indicators for farming have fallen compared with the previous quarter. Conversely, although starting from a weaker position, there are signs that non-agricultural businesses in the wider rural economy are becoming more positive with six out of eight indicators having risen compared with the previous quarter although the trend for anticipated investment remains worryingly negative. Clearly, trading conditions remain in a fragile state.
Figures shown are net balances; an increase in net balance shows the proportion of businesses reporting a rise in a measure minus those reporting a fall.
Key points have been ‘traffic light’ coloured, with falling indicators coloured red, stable amber and rising green
Actual business performance over the last 6 months Although actual sales dropped slightly for farming businesses, almost a third continue to report higher sales (net balance +32% from +36% in Q1). This is much more positive than sales for non-farming businesses, which remain stable at a net balance of +11% reporting higher sales.
A positive indicator is that enquiries over the past 6 months rose strongly for farming (net balance increasing from +1% in Q1 to +6% in Q2) and very strongly for non-farming businesses (net balance rising from +9% to +26%).
Actual sales over the past 6 months Figures are net balances.
Key points have been ‘traffic light’ coloured, with falling indicators coloured red, stable amber and rising green
Business enquiries over the past 6 months Figures are net balances.
The level of business confidence over the next 12 months
Projected business performance over the next 12 months
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 over the next 12 months. There is a significant difference in the expectations of the agricultural and non-agricultural sectors. Fewer agricultural businesses expect sales to be higher in the next 12 months, although the net balance remains positive, falling from +18% to +7%. Non-agricultural businesses continue to expect sales to be higher in the next 12 months, with the net balance unchanged +11% percent.
The results show that there are a number of factors that have come together to present a far more pessimistic picture for the second quarter than was the case for Quarter 1. The optimism of farming businesses has dropped significantly, from a net balance of +26% being more optimistic about the coming year to -1%. There appear to be a number of underlying reasons for this fall, including: • • • •
Expected sales in the next 12 months Figures are net balances.
The Eurozone crisis; Higher input costs; The lack of broadband; The lack of consumer confidence.
Optimism in non-farming businesses has risen, from a net balance of +4% in Q1 to +6% in Q2. Despite the rise, confidence remains fragile and the key factors affecting it are lack of consumer confidence, concern about the Eurozone crisis and lack of availability of borrowing.
The pessimism continues into expected order books. Farming businesses expect lower order books in the next 12 months; in Q1 they expected them to grow (net balance falling from +10% in Q1 to -9% in Q2). But the non-agricultural businesses continue to expect growing order books (net balance up from +6% to +9% in Q2).
Optimism for your business over the next 12 months Figures are net balances.
Key points have been ‘traffic light’ coloured, with falling indicators coloured red, stable amber and rising green
Expected order book in the next 12 months Figures are net balances.
Future Trends – Profitability, investment and employment over the next 12 months Profitability
Expected investment in the business in next 12 months Figures are net balances.
The survey confirms the difficult trading conditions being experienced in the rural economy for all businesses. There has been a fall in expected profitability for farming businesses (net balance down from +9% in Q1 to +1% in Q2) but more businesses continue to expect profits to rise than fall. Non-agricultural businesses expect profits to be lower in the next year (net balance remains at -3%) but at least expectations have not worsened.
Employment Profitability over the next 12 months Figures are net balances.
Employment expectations are stable and fragile rather than buoyant for both sectors. The net balance for agricultural businesses is down from +4% in Q1 to +1% in Q2. However, most positively, non-agricultural businesses continue to expect to employ more people in the next 12 months (net balance increasing from +2% to +3% in Q3).
Investment Business investment remains one of the key factors in seeking to boost the competitiveness of the rural economy. The importance of access to borrowing is demonstrated when agricultural and non-agricultural businesses are compared. Farming remains one of the most attractive sectors for lenders due to the high levels of collateral and relatively low default rates. The farming businesses continue to expect their investment to be higher in the next 12 months although slightly fewer of them do so, with the net balance falling from +11% to +10%. The tightening of lending and its impact on investment is much more apparent for non-agricultural businesses, an increasing proportion of which expect to invest less (net balance falling from -2% in Q1 to -17% in Q2).
Key points have been ‘traffic light’ coloured, with falling indicators coloured red, stable amber and rising green
Expected employment in the business in next 12 months Figures are net balances.
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_3Q2012 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.
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, +43% of agricultural businesses reported higher sales and -12% lower, so the net balance is +31%. This can then be compared with previous quarters.
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 next 12 months ...expected employment in the business in next 12 months
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