Ag's large fall in small business productivity
OPINION: The primary sector has faced many challenges over recent years, with environmental and regulatory factors pushing businesses to adapt to survive.
Xero’s data calculates the dollar amount produced per hour worked for a typical worker in a small business, and reveals a challenging picture with New Zealand small business productivity a step behind Australia and the United Kingdom.
In the March quarter, small business labour productivity averaged $74.00NZD per hour worked, down from $75.30 per hour in the December quarter.
This is broadly in line with the prior six months ($74.50/hour) but remains below the long-term average of $76.30/hour, highlighting a continued period of muted productivity growth.
Bridget Snelling, Country Manager - Aotearoa New Zealand at Xero, said while its positive productivity was not substantially declining, the lack of meaningful improvement remained a concern.
“It’s disappointing we’re not seeing the kind of improvement needed to lift the small business economy,” says Snelling.
Productivity per employee also softened, averaging $9,168.90 per employee in the March quarter, down from $9,389.30 in the previous quarter, and sitting close to the long-term average of $9,137.00.
International Comparisons Highlight Gap
International XSBI comparisons show New Zealand’s small business productivity continues to trail Australia and the UK, reinforcing the scale of the challenge.
While performance between Australia and the UK has fluctuated in recent years, New Zealand has remained consistently behind both — underlining the importance of sustained focus on lifting productivity across the small business sector.
“Falling behind international peers like Australia and the UK is a reminder that lifting productivity needs to be a long-term priority,” says Snelling.
“The encouraging part is that there are clear levers — from digital adoption to skills and process improvements — that can help close that gap over time. Our small businesses can’t afford to sit still, this needs to be a priority.”
Industry Trends Show Clear Winners and Laggards
Productivity levels varied significantly across industries, with manufacturing, construction and real estate services continuing to rank among the most productive sectors, while hospitality remained consistently at the bottom of the rankings by a considerable margin.
These patterns are broadly consistent with international trends, although New Zealand tends to show greater variability given its smaller economy and industry mix.
Retail trade recorded the strongest improvement, with productivity rising 9.1% year-on-year over the past six months, significantly outpacing other sectors.
This growth reflects retailers increasing sales without a corresponding lift in hours worked — effectively doing more with the same amount of labour.
Regional Differences Reflect Local Economies
Regional productivity outcomes were also mixed, largely reflecting industry composition.
Manufacturing‑focused Hawke’s Bay recorded the highest productivity levels, while tourism-heavy Otago lagged behind other regions.
Encouragingly, Otago saw the strongest productivity growth over the past six months (+7.4% year-on-year), as tourism continues to recover and help narrow the gap.
“For small business owners, improving productivity isn’t just an economic concept — it’s a practical way to grow profits and lift wages, regardless of wider conditions,” says Snelling.
“There are clear opportunities here. Businesses that invest in the right processes, skills and digital tools are better placed to free up time, focus on customers, and drive growth.”
Focus Needed Across Policy and Business
Snelling says improving productivity will require continued focus from both government and business.
“Policy settings that support skills development, infrastructure and digital adoption play a key role in lifting productivity across the economy, while targeted attention in lower-performing sectors such as hospitality could help unlock further gains,” says Snelling.
“We recently released a survey looking at attitudes towards AI for small businesses, and we know they are already leaning into AI and digital tools to save time and work smarter - but confidence remains a real barrier to going further.
“At the same time, small business owners can take practical steps to improve productivity through refining operations and adopting technology. Digital tools — including AI-powered solutions — can automate time-intensive tasks, helping businesses focus more on generating revenue.”
