Ridesharing, organic farming among sectors to watch in 2019

Written on the 9 January 2019 by Business News Australia

Ridesharing, organic farming among sectors to watch in 2019

Market research group IBISWorld has put ridesharing services at the top of its list of growth industries to follow in Australia this year, with booms also expected for LNG, organic farming, software publishing and foreign banks.

With an estimated revenue in Australia of $157.6 million in 2017-18, the ridesharing industry starts from a lower base than the other industries highlighted but is forecast to see highest growth in 2018-19.

"This year the standout industry performer is expected to be Ridesharing Services, with forecast revenue growth of more than 80%," says IBISWorld senior industry analyst Kim Do.

IBISWorld emphasies the sharing economy is playing an increasingly important role in the Australian marketplace, with ridesharing as a key example due to strong demand for convenient and cost-efficient inner-city transport.

The fundamentals are positive for the sector too, with rising smartphone penetration and the benefits of decreased regulation over the past five years. In 2018, the Northern Territory became the final state or territory to legalise ridesharing services.

Relaxed laws have encouraged any international ridesharing companies such as Ola, Taxify and DiDi to enter the domestic market and compete aggressively with Uber.

"To compete with Uber, these companies have offered heavily discounted rates for consumers and attractive commission rates for drivers," says Do. 

"Despite rising competition, revenue for the Ridesharing Services industry is still expected to grow by 81.7% in 2018-19, to $286.3 million."

The company forecasts revenues for liquified natural gas (LNG) production in Australia will rise by 39.3 per cent to $43.5 billion, while other sectors set to thrive include organic farming (+18.2 per cent; $2.16 billion), software publishing (+11.5 per cent; $4.1 billion) and foreign banks (10 per cent; $20.2 billion).

Do says the software publishing sector is set to continue benefiting from greater adoption of software-as-a-service (SaaS) distribution models.

"Greater reliance on cloud computing has boosted the popularity of SaaS distribution models, as they allow publishers to offer interconnected systems on the cloud, giving clients access to services anywhere they have access to an internet connection," she says.

"Atlassian Australia 1 Pty Ltd is the largest player in the industry and develops issue-tracking software and collaboration software used by enterprises and software developers globally."

However, the recently passed Telecommunications and Other Legislation Amendment (Assistance and Access) Bill 2018 is expected to dampen industry growth, as some clients may become wary that Australian software publishers are no longer able to guarantee secure environments for databases and communications.

IBISWorld highlights much of the growth in organic farming will come from organic livestock and poultry farming, however growth will still be strong for the organic fruit and vegetable segment which has historically dominated the sector.

"We expect demand for organic products both in Australia and internationally to continue growing strongly as consumers increasingly consider the health benefits and environmental effects of their food choices," says Do.

"In addition, improved presentation and product quality, particularly of fresh produce, will further boost demand for organic products over the year.

She mentions demand for organic livestock and poultry have soared over the past five years.

"This surge in demand is expected to continue, with revenue for the Organic Livestock and Poultry Farming industry expected to grow by 26.3% in 2018-19, outpacing anticipated revenue growth of 15.7% for the Organic Crop Farming industry over the same period."

Elsewhere in agriculture, IBISWorld is bearish on butter and dairy manufacutring in Australia, with expectations the sector's revenue will fall by 7.7 per cent in 2018-19.

"Butter and butter-related product manufacturing accounts for approximately one-quarter of total industry revenue," says Do.

"The amount of butter manufactured has decreased significantly over the past two years as demand for other dairy-based products, such as milk powder and full-cream milk, have reduced the availability of milk fat for the industry.

"To make matters worse, falls in the global prices of butter and anhydrous milk fat are expected to further erode industry revenue."

Drought in Australia has also reduced the supply of milk, with the industry facing the unusual and negative combination of both falling volumes and prices.

The bullish outlook for foreign banks in Australia is driven by an anticipated rise in interest rates on retail and business loan products, with an overall tightening in lending standards across the banking sector, especially in the wake of the Financial Services Royal Commission.

"Interest rate hikes are expected to be driven by funding cost pressures both locally and abroad," says Do. 

"The gap between the Bank Bill Swap Rate and the cash rate has widened since the start of 2019 on the back of pressure from rate hikes overseas and a weaker Australian dollar. In particular, higher interest rates in the United States have pushed up funding costs for banks in overseas bond markets," she says. 

Overall, foreign banks industry have grown over the past five years despite the low interest rate environment for the majority of the period. Increasingly globalised businesses and investments have driven the industry's growth over the period, with several Asian banks establishing subsidiaries and branches in Australia. 

Other industries whose revenues IBISWorld expects to decline include diamond and gemstone mining, hydro-electricity generation, toy and game retailing, black coal mining.

"These contractions reflect the changing landscape of the Australian economy and are in response to issues such as changing consumer behaviour, diminishing resources and environmental awareness," explains Do.

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