New research foreshadows tough times ahead for family businesses in key sectors of the economy.
Recent IBISworld data predicts falling earnings in the auto-electrical, motor vehicle parts and accessories, petroleum refining and fuel manufacturing, together with heavy industry and non-building construction sector.
The pastoral sector in particular is in for a horror year, according to research, with its revenues set to crash by a whopping 22.6 per cent, to settle at $7.6 billion, a significant drop from $9.8 billion last year.
George King, manager of Coombing Park near Orange, run by family business the Whitney Pastoral Company for the last 134 years, says he has never seen it as bad as this.
“This would be as hard as it has ever been,” King says. “Never in the history of the country has it been as hard as this. Something has to change to make it sustainable, everyone is living on equity. Most of the rural industry is living on equity, increasing the overdraft to pay the operating costs every year. We had to buy out other family members so it’s really tough. I can’t imagine it getting much tougher.”
His company has had to cut staff to stay afloat. “When my grandfather took over in 1944, he had 18 staff,” King says. “When I took over from my grandfather in 1996, we had five staff. Now I am here by myself.”
“We are getting the same price for cattle that we were 15 years ago and our costs have doubled and tripled in that time, it’s just getting leaner and leaner. The biggest problems we are having at the moment, apart from declining terms of trade since world war two and increasing costs, is the high Australian dollar and the drought in Queensland putting too many cattle on the market.”
Still, he is determined to hang on because rainfall cycles come with the territory.
“I'm a seventh generation Australian farmer,” he says. “It will all cycle. There are 50-year rainfall cycles, real estate cycles and stock market cycles.”
At the same time, he believes it has to get better, simply because it must and, as his family has found, it always has.
But how can he have this optimism given the projections?
“We always follow nine months behind America and they are having record beef prices, coming off a prolonged drought as we have just had,” he says. “At the moment, we’re not going to get any change in the cattle market until Queensland gets some rain because 50 per cent of Australian cattle numbers are in Queensland. Once Queensland gets wet, our prices should go up.”
As his forebears have done, King is changing the business to meet changing market conditions. At the moment, he is drumming up investment to take the business from breeding cattle, where they are sold at 250 kgs, to finishing them where they are processed at 450kgs and sold as beef to Japan and China. And, he says, there’s money to be made selling premium Angus beef to China. Indeed, WA’s largest red meat processor, family-owned V&V Walsh, has inked a $1 billion deal to provide frozen boxed meat to China. King is moving in that direction.
Peter Hughes, whose family has owned and run Hughes Pastoral Company since 1872, dismisses the IBISWorld forecasts. He reckons they’re 12 months out.
“We have had two years of well below average rainfall and I don’t think it goes much longer than that,” Hughes says. “Certainly the market is looking a lot better. It’s taken an awful battering for the last two years, the last two years have been atrocious but we are working our way through that.
The tough times have been reflected in Hughes’ bank account too. Hughes and his family sit at number 180 on this year’s BRW list of Australia’s richest 200 people with $280 million to their name. A comfortable position, to be sure, but the family lost $20m this year and sat at number 166 on the list last year.
Despite the wealth dip, Hughes remains upbeat.
“Your live export market is opening up, there’s plenty of demand out there and there’s another meat works coming on in Darwin and they’ll be looking for cattle. Even if it stays dry, it’s going to lift quite a bit.
“That’s what rural industries are all about, they’re all about cycles. They never run straight for very long. They have run badly for the last two to three years and we’re very excited about where we are going now.”
For family businesses in the pastoral industry, the IBIS forecasts are nothing new. But they say they have been there long enough to see the upside that forecasters miss.