Magazine article New Zealand Management

No Longer on the Sheep's Back

Magazine article New Zealand Management

No Longer on the Sheep's Back

Article excerpt

Exporters became nervous, as the kiwi dollar inexorably rose towards US$0.70 in March. The squeeze on their margins tightened further, over the next few months, and the kiwi nudged over US$0.80 before events overseas late in July triggered a sharp drop to US$0.76-US$0.77. Even so, the dollar had not appreciated that much at the peak of previous cycles since the currency was floated in 1985.

Not surprisingly, the value of the country's exports decreased 3.8 percent ($331 million) in the June quarter, following an increase of 0.9 percent ($79 million) in the March quarter. Only four of the top-10 export commodity groupings recorded increases and the quarterly trade balance was a deficit of $9.3 billion.

Treasury analysts nevertheless saw no signs of the strong dollar doing much harm to export receipts. Exports were weaker than expected in the June quarter, Treasury acknowledged in its monthly review of the economy in August, "but so far there is little sign of widespread adverse effects from the strong exchange rate, although some industries may be affected more than others".

Treasury noted that export values were down 3.8 percent from March. But the fall was mainly due to an eight percent fall in the value of meat exports, largely because of a fall in price.

Only some export categories appeared to be adversely affected by the strengthening of the exchange rate, Treasury said. It cited the examples of timber and seafood exports, both of which experienced a fall in price and value.

But the dairy boom has tended to disguise the extent to which primary producers are feeling the pinch. Dairy products, by far the country's number one export revenue earner, accounting for around 20 percent of total exports, and prices for dairy products on international spot markets "have rocketed into unprecedented territory since October 2006", the Ministry of Agriculture and Forestry enthused in its latest 'Situation and Outlook for New Zealand Agriculture and Forestry' report. "This has lifted expectations for the farm-gate dairy payout in the coming 2007/08 season." MAF is forecasting dairy payouts of between $5 and $5.50/kilogram of milk solids for the next four dairy seasons, based on the expectation that international dairy prices will remain higher than prices in recent years, but not as high as prices at June this year.

Dairying is booming because the doubling of international dairy prices in the past year has far outpaced the rate of exchange-rate appreciation.

But other parts of the primary sector have not enjoyed a similar boom and the great bulk of the export sector is under pressure from the high exchange rate. …

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