Rural businesses hit hard by rates and rising dollar

Rural businesses are being hit the hardest by rising interest rates and the soaring Australian dollar, according to the latest MYOB Business Monitor.

 

 

A survey of 1,000 Australian businesses found 10% of rural businesses are experiencing extreme pressure due to interest rate hikes, and 42% are suffering significant pressure.

 

MYOB chief executive Tim Reed says much of the attention on rate rises has focused on household mortgages, but the survey results show business owners are “really struggling to make ends meet”.

 

Sectors facing the most stress are agriculture, manufacturing, wholesale, finance and insurance.

 

“The ripple effect on mum and dad businesses struggling to repay loans and seeing customers spending less will mean fewer jobs, less investment and a greater likelihood of the Australian economy going backwards,” Reed says.

 

According to the survey, established businesses of 10 years or more are the most strained, followed by those operating between two to five years and start-ups.

 

Another survey, released by the Australian Chamber of Commerce and Industry, shows small business performance is lagging behind its larger counterparts.

 

Greg Evans, ACCI director of economics and economy, says small business sentiment and operating conditions have retreated to the levels not experienced since the December quarter of 2009.

 

“[This is] amidst the prospect of rising interest rates and uncertainty about the strength of the global economy,” Evans says.

 

“Continued weakness in sales and selling prices, coupled with the rising cost of labour and finance, has put a significant squeeze on small business profitability and is limiting small business’ ability to employ and undertake investment.”

 

Bernard Salt, head of property advisory services at KPMG, says rural businesses are facing multiple challenges going forward.

 

“The problem for the agricultural community is getting all the planets to align… which leads to a lack of confidence at the small business level,” Salt says.

 

“On the one hand, you have the end of the drought so that should be a positive for small businesses, meaning farmers, and anyone who supplies farmers with machinery, agricultural produce, etc.”

 

“On the negative side, you have the rising Australian dollar so the value of exports becomes far more competitive.”

 

“I think there are better times coming. I suppose the challenge in rural small businesses is to make sure you don’t bleed to death waiting for the good times to come.”

 

Salt says the other challenge farms face is succession planning, as the current generation of farmers starts to dwindle.

 

“It’s a very old workforce – farmers love the land and they won’t move from the land,” Salt says.

 

“Getting the baby boomers off the farm and getting the Gen Ys onto the land – this is one of the great challenges of the next decade. It’s a hard sell.”

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