Revealed: The industries set to fly and fall this year

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Revealed: The industries set to fly and fall this year

 

As Australian companies usher in the new year, business information analysts at IBISWorld reveal the five industries expected to soar and the five expected to sink.

 

The cotton growing industry is in for a bumper year in 2016, expecting rapid growth of 19.2%, according to analysts at IBISWorld. Other industries set to boom in 2016 include internet publishing and broadcasting, organic farming, houseware retailing, and university and other higher education.

However, some industries are in for a less than exciting year, as falls in global oil prices push down revenue for petroleum refining and petroleum fuel manufacturing. Revenue is also set to fall for diamond and gemstone mining, printing, and nightclubs.

The industries set to fly

 

 

Industries to fly

Revenue 2014-15

($ million)

Revenue 2015-16

($ million)

Growth

(%)

Cotton growing

737.5

879.0

19.2

Internet publishing and broadcasting

1,541.0

1,749.0

9.4

Organic farming

695.1

733.8

5.6

Houseware retailing

1,478.1

1,552.8

5.1

University and other higher education

28,618.6

29,649.0

3.6

 

 

Cotton growing in Australia

 

IBISWorld projects that the cotton growing industry will fly in 2015-16, growing by 19.2% to reach $879 million. The industry is expected to recover strongly from a poor performance in 2014-15, when revenue fell by 62.7%.

A marginal increase in global cotton prices coupled with increased cotton production is expected to contribute to this substantial revenue growth in 2015-16. Additionally, the area of available land for cotton harvesting is anticipated to increase by 52.3% and lint production is expected to increase by almost 11%.

According to IBISWorld senior industry analyst Spencer Little, “the cotton growing industry is highly volatile, with revenue movements ranging between 136.1% growth and 62.7% decline over the past five years.”

The industry is affected by factors such as global cotton pricing and weather, which dictate farmers’ decisions to grow cotton or a different crop. This exposure to weather patterns contributes to substantial changes in the amount of cotton grown nationally.

“Growing conditions are expected to be far more favourable in 2015-16, as the industry recovers from a woeful performance in 2014-15,” Little said.

 

Internet publishing and broadcasting in Australia

Over the past five years, consumers have continued to migrate towards the internet for services previously provided in newspapers, such as real estate, car and job advertising.

 “The ability to easily search with filters for specific results makes the internet the prime medium for these forms of advertising,” Little said.

Growing consumer demand is projected to drive revenue growth of 9.4% in 2015-16, to reach $1.7 billion. Strong growth is expected over the five years through 2015-16, with revenue increasing at a compound annual rate of 7.2%.

The main source of industry growth in the current year is expected to be the entrance of popular video streaming websites, such as Netflix, Stan and Presto. These players do not compete directly with other internet publishers and broadcasters. Rather, they are taking market share away from free-to-air and pay TV providers, as consumers grow tired of waiting for new content to be broadcast on traditional mediums.

The global brand recognition of Netflix has enabled it to enter the Australian industry with an in-built advantage over competitors. Netflix has built its local business using a completely digital marketing campaign, as there was no need for TV, radio or print advertising.

“Consumer uptake of Netflix has been very strong since its introduction into Australia in March 2015,” added Mr Little. “This is expected to contribute to strong industry growth in 2015-16.”

 

Organic farming in Australia

The organic farming industry is forecast to fly in 2015-16, with revenue expected to grow by 5.6% to reach $733.8 million. Demand for organic products in Australia and overseas has risen as consumers have become increasingly aware of the perceived health benefits and environmental effects of their food choices.

Rising health consciousness has contributed to the strong performance of organic farming. Other reasons consumers are turning to organic produce include a desire to avoid pesticides, environmental concerns and increasing accessibility.

“The industry is expected to continue to grow strongly as organic consumption becomes more mainstream,” Little said.

The nation’s two major supermarkets, Woolworths and Coles, now stock greater amounts and wider ranges of organic produce, making the purchase of organic products more convenient.

Australia has the largest area of organic farmland in the world, covering more than 22 million hectares. This is largely due to the vast amounts of land required for organic meat production, particularly beef, as animals need certified land to graze on and certification rules are strict.

According to Little, “beef has been a major growth product over the past five years for the industry.”

Farmgate revenue for organic beef cattle increased by almost 127% over the four years through 2013-14, according to the latest available data.

Australian organic farmers also produce poultry and pigs. Due to shortages of certified organic grains for livestock feed, grains account for the largest share of imported organic produce.

 

Houseware retailing in Australia

Over the past five years, demand for houseware products has grown due to a rise in residential building construction, an increase in new dwelling commencements and alterations to existing dwellings.

“Industry revenue growth has been further supported by rising household discretionary income, which has boosted consumers’ ability to spend on housewares,” Little said.

Housewares revenue is projected to grow by 5.1% in 2015-16, but by only 1.9% in 2016-17. The slower growth in 2016-17 can be attributed to a projected fall in consumer spending and a decline in residential building construction activity, amid fears of an oversupply in multi-unit apartments.

“Despite strong revenue growth over the past five years, industry profitability has been declining steadily, predominantly due to increasing price competition from internal and external competitors,” Little said. 

Extensive promotional activities and simultaneous price discounting have raised advertising costs and caused expenses to grow at a faster rate than revenue, narrowing profit margins. Nevertheless, over the five years through 2015-16, industry revenue is expected to rise at an annualised 3.7%, to reach $1.6 billion.

 

University and other higher education in Australia

Revenue in the university and other higher education industry is expected to grow at a compound annual rate of 4.6% over the five years through 2015-16, to reach $29.6 billion. Revenue is projected to rise by 3.6% in 2015-16, driven by increased student enrolments, including both domestic and international students.

In 2012, the Labor government removed caps on the number of Commonwealth-supported places that universities could offer. As a result, university enrolments are now increasingly driven by student demand. This change to government policy has boosted domestic enrolments.

Meanwhile, changes to student visa requirements have increased international student enrolments. The federal government introduced streamlined student visa processing (SVP) in 2012, which treats international students as low-risk immigrants, regardless of which country they are from. The immigration risk is transferred to the educational institutions.

“International student enrolments grew by 8.1% in 2014, driven by preferable student visa arrangements and a depreciation of the Australian dollar,” said Little.

As more funding is required for the rapidly expanding higher education system, international students present universities with an opportunity to boost revenue. International student enrolments are anticipated to rise over the next five years.

 

The industries set to fall

 

Industries to fall

Revenue 2014-15

($ million)

Revenue 2015-16

($ million)

Growth

(%)

Petroleum refining and petroleum fuel manufacturing

22,945.6

19,116.2

-16.7

Diamond and gemstone mining

438.4

380.1

-13.3

Contract mining services

11,944.2

11,191.7

-6.3

Printing

7,176.1

6,903.4

-3.8

Nightclubs

1,293.8

1,256.9

-2.9

Petroleum refining and petroleum fuel manufacturing in Australia

The petroleum refining and petroleum fuel manufacturing industry’s revenue is falling rapidly, with a decline of 16.7% expected in 2015-16 alone. Industry revenue is estimated to decline at a compound annual rate of 7.7% over the five years through 2015-16, to reach $19.1 billion.

According to Little, “the industry is struggling primarily due to intense and rising competition from new South-East Asian refineries.”

These operations typically have higher output and lower costs than Australian refineries. The advanced refineries are also able to meet Australian fuel standards and this trend has made the Australian industry more vulnerable to import competition.

Imports are estimated to account for 53.8% of domestic demand in 2015-16 and this is expected to rise to more than 55% by 2020-21. Imports have grown strongly over the past five years, which has contributed to the industry’s weaker performance. Competition from South-East Asian refineries has also led to the closure of two local refineries in Bulwer and Kurnell, contributing to the steep revenue decline in 2015-16.

“Falling global oil prices have also had a negative effect on revenue, leading to reductions in fuel prices,” added Little. Industry players have therefore received less revenue for their refined petroleum products.

 

Contract mining services in Australia

Contract mining companies provide support services for mining firms. Demand for industry services is typically driven by the relative cost savings and output advantages that mining companies derive from outsourcing these processes, compared to keeping production in-house. Industry revenue has fluctuated significantly over the past five years due to shifting operating conditions in the mining sector.

Contract miners generally have access to a large pool of mining machinery and equipment, and skilled employees to meet client needs. “The industry is highly dependent on trends in mining activity, particularly black coal and iron ore mining activity, as these are Australia’s largest resources in terms of both volume and value,” Little said.

As commodity prices have fallen, many mining firms have ceased expansion and exploration projects, and instead shifted their focus to production.

“This has been to the detriment of contract miners in the industry, as many services that were previously contracted out have been brought back in house,” added Little.

This trend is set to continue in 2015-16, contributing to a projected 6.3% decline in revenue to reach $11.2 billion. This follows on from a sharp 14.0% decline in revenue in 2014-15.

 

Diamond and gemstone mining in Australia

Revenue in the diamond and gemstone mining industry is forecast to fall at a compound annual rate of 4% over the five years through 2015-16, to reach $380.1 million. The industry’s performance has been volatile over the past five years, due to fluctuating production volumes and prices.

A significant drop in revenue in 2013-14 and another expected fall in revenue in 2015-16 are expected to underpin the industry’s poor performance over the period.

Australia is a major global producer of diamonds and industry players produce more diamonds than are needed in the local market. As a result, the industry is heavily export-oriented and industry players depend on global demand for diamonds. According to the Department of Industry, Innovation and Science, in 2013-14 export volumes of Australian diamonds dropped from 12.2 million carats to 10.4 million carats.

“Industry operators also face strong competition from imports, which account for a large proportion of total domestic demand,” said Little.

The exit of Kimberley Diamonds, previously a major industry player, is expected to negatively affect the industry’s performance in 2015-16. In July 2015, Kimberley Diamonds announced that it had ceased its local diamond mining operations at its Ellendale site and entered into voluntary administration. This exit is expected to cause a major dip in diamond production volumes and contribute to a 13.3% decline in industry revenue in 2015-16.

 

Printing in Australia

 

“Over the past five years, the rising prevalence of online platforms has negatively affected demand for printed advertising materials such as catalogues, brochures, leaflets, and booklets,” Little said.

Advertising materials account for the largest share of industry revenue, at more than 60%, but as consumers have increasingly shifted online to access content, advertising companies have also sought to advertise products and services to digital platforms.

As a result, printing industry revenue is projected to decline at a compound annual rate of 3.8% over the five years through 2015-16, to reach $6.9 billion. Demand for printed advertising material such as catalogues, brochures, leaflets, booklets and posters has declined as spending on advertising has been redirected to the digital space. These trends have led to a sharp decline in demand for industry services, with revenue expected to fall by 3.8% in 2015-16.

Competition from imports has also increased over the past five years, as offshoring can provide a cheaper alternative to domestic printing services. However, Little noted “lower quality associated with foreign printers and the high costs of transporting low-value and bulky publications over long distances, combined with the time-sensitive nature of many printing projects, has kept import competition low over this period.”

 

Nightclubs in Australia

According to IBISWorld analysts, the nightclub industry has had a tough couple of years.

Industry revenue is expected to decline by 2.9% in 2015-16, following sluggish growth of 0.3% in 2014-15. This is in contrast to the strong industry growth seen in the years 2010-11 through 2013-14. Weaker growth has largely been due to increased industry regulation and decreasing alcohol consumption among younger demographics.

Sydney’s strict lockout laws, introduced in response to drunken violence in the King’s Cross district, have precipitated the closure of several iconic nightclubs in Sydney’s CBD. Other nightclubs in the lockout zone have reported large falls in both revenue and profitability. These trends are expected to contribute to the industry’s declining performance.

Falling per capita alcohol consumption among younger demographics (consumers under the age of 30) has negatively affected the industry. This is one of the most crucial markets for nightclub operators and the industry has therefore been disproportionately affected by this trend. As a result, industry revenue has been dampened in recent years and is expected to remain subdued over the next five years.

“Favourable licensing laws and changes in consumer tastes have also increased competition from bar and pub operators,” Little said.

Melbourne and Sydney have both developed a strong bar culture, and consumer demand for these services has grown. This trend has diverted spending away from nightclubs in the industry over the past five years, contributing to the industry’s weaker performance in 2015-16.

For more information on these, or any of Australia’s 500 industries, visit www.ibisworld.com.au, or follow IBISWorldAU on Twitter.

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