Tougher times for farmers this year will push them to invest in improving productivity, which the country's largest listed rural services company, PGG Wrightson, says will underpin its earnings.
Around five years of rising world commodity prices boosted earnings in the $15 billion agricultural sector, but returns will decline afterprices peaked at record highs last May.
"It will be a tougher year. We're looking at a reduction in product prices in most of the sectors, certainly the sheep and beef sector," said PGG Wrightson chief executive Barry Brook.
Since last May's peak, the ANZ commodity price index has fallen 4.4 per cent. Agricultural income will fall 9 per cent in 2006 before a recovery in 2007, says the Institute of Economic Research.
Formed by a merger last year to take a greater share of a fragmented and competitive market, PGG Wrightson should benefit as farmers, unable to control the exchange rate or world commodity prices, spend on methods to improve output, says Brook.
"Farmers tend to react by looking at how they can offset any reduction in prices by improving performance or productivity, so they'll continue to invest and spend in things like regrassing." Farm supplies make up an estimated 44 per cent of revenue.
