Who will sink? Who will swim? These are the Aussie industries set...

Who will sink? Who will swim? These are the Aussie industries set to fly and fall in 2016

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The cotton growing industry is in for a bumper year in 2016, expecting rapid growth of 19.2 per cent, 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.

Which industries are set to fly in 2016?

Cotton growing

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

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 per cent, and lint production is expected to increase by almost 11 per cent.

Internet publishing and broadcasting

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,” explained IBISWorld senior industry analyst Spencer Little.

Growing consumer demand is projected to drive revenue growth of 9.4 per cent 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 per cent.

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 Spencer. “This is expected to contribute to strong industry growth in 2015-16.”

Organic farming

The organic farming industry is forecast to fly in 2015-16, with revenue expected to grow by 5.6 per cent 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 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.

Houseware retailing

Over the past five years, demand for houseware products has grown due to a rise in residential building construction, an increase in new homes as well as changes to existing homes.

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

Housewares revenue is projected to grow by 5.1 per cent in 2015-16, but by only 1.9 per cent 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.

University and other higher education

Revenue in the university and other higher education industry is expected to grow at a compound annual rate of 4.6 per cent over the five years through 2015-16, to reach $29.6 billion.

Revenue is projected to rise by 3.6 per cent 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 per cent in 2014, driven by preferable student visa arrangements and a depreciation of the Australian dollar,” said Spencer.

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.

Which industries are set to fall?

Petroleum refining and petroleum fuel manufacturing

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

Spencer noted that “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.

These advanced refineries are also able to meet Australian fuel standards and this trend has made the Australian industry more vulnerable to import competition.

Competition from South-East Asian refineries has 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 Spencer. 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 with keeping production in-house.

Industry revenue has fluctuated significantly over the past five years due to shifting operating conditions in the mining division. 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 Spencer.

This trend is set to continue in 2015-16, contributing to a projected 6.3 per cent decline in revenue to reach $11.2 billion. This follows on from a sharp 14 per cent decline in revenue in 2014-15.

Diamond and gemstone mining

Revenue in the diamond and gemstone mining industry is forecast to fall at a compound annual rate of 4 per cent 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.

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 per cent decline in industry revenue in 2015-16.

Printing

“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,” Spencer highlighted.

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

As a result, industry revenue is projected to decline at a compound annual rate of 3.8 per cent over the five years through 2015-16, to reach $6.9 billion.

Demand for printed advertising materials 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 per cent in 2015-16.

Nightclubs

The nightclubs industry has had a tough couple of years. Industry revenue is expected to decline by 2.9 per cent in 2015-16, following sluggish growth of 0.3 per cent 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 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.

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.

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