High dollar heralds tough times ahead – AGRIBUSINESS – SPECIAL REPORT
By Ed Charles
Currency
A HIGH Australian dollar means a healthy economy and a resources boom, but it signals tough times ahead for farmers.
BIS Shrapnel senior economist Matthew Hassan says the high dollar is bad for most exporters, aside from resources.
Most Australian businesses would be competitive at exchange rates of US65-66c rather than the high 70s, he says. The problem is that the high currency is being sustained for a long period.
Hassan says: “The rural guys have seen some pretty good commodity price rises. But it’s just been swamped by the currency rise.”
Every rise in the dollar means a cut in farm profits from the commodity sales and increased input costs from, for example, machinery, fertiliser and fuel.
The Australian Bureau of Agricultural and Resource Economics forecasts the total value of farm exports to fall by almost 2 per cent, from $27.7 billion to $27.2 billion in 2005-06.
Barley, canola, sugar, beef and wool exports will fall while earnings from wheat, cotton, wine, live sheep and dairy will increase.
To put it into perspective, rural exports were worth nearly $31 billion in 2004-05, 19 per cent of all goods and services exports.
Beef is the largest single export after minerals. It represents about 15 per cent of total farm exports and peaked at $4.49 billion in 2001 when the dollar was at its nadir. But a rising dollar meant exports fell until mad cow disease curbed US beef exports and, in Asia, demand shifted from chicken to beef because of avian flu.
Peter Weeks, manager of market information and analysis at Meat and Livestock Australia, says that for the first time a major change in the exchange rate hasn’t damaged export returns because of increased demand.
Weeks says: “Normally we’d see, for every 10 per cent rise in the dollar, about a 6 per cent fall in cattle prices in Australia and a similar decline in land prices. It’s not happening. It’s being offset by other things in recent years. The full impact of the rise in the dollar is going to be felt once the international (meat) markets return to some sort of normal trading pattern.”
Section: FINANCE