Fair Exchange?

17 June 1997

Recent commentaries by industry analysts on the effects of exchange rates on farm returns have tended to focus on particular time frames, and highlighted the adverse impacts on different commodity sectors.

In an article in the 1997 "Situation and Outlook for New Zealand Agriculture" - "Exchange rate impacts on farm income: The facts" - Ronnie Horesh and Dr Ram SriRamaratnam have tried to take a more balanced approach, and to consider longer time frames, taking in a range of periods one of which begins before the New Zealand dollar was floated.

The article looks at changes not only in overseas prices, but also at the effects of changes in the value of the New Zealand dollar against the different currencies paid for the range of New Zealand exports.

The main conclusions of the authors are that:

  • Over the past three years in particular, the appreciating New Zealand dollar has made life difficult for New Zealand farmers; all the CTWIs ("commodity trade weighted indices") have appreciated by more than 18% in that short period. Over the same period, beef has been hit by a "double whammy", the beef TWI has risen by 28%, while the overseas beef price has fallen by 33% - it is no surprise, therefore, that schedule prices for beef farmers are down by 42% in the three years ended December 1996. Real returns have fallen even further.
  • Over the longer term it is kiwifruit that has suffered most; prices to New Zealand growers have halved in the past 12 years. This collapse is largely due to a similar fall in the world price. While the New Zealand dollar fell against the currencies of the main kiwifruit importers, other factors have ensured that returns to growers have closely followed the world price.
  • In the 12 years ending December 1996, however, only apples have been hard hit by the rising New Zealand dollar. The apple TWI has risen by 24% in that period. Kiwifruit, cheese and wool have all benefited from marked falls in their CTWIs.
  • The impact of a high New Zealand dollar is mitigated over the short to medium term, but usually only to a small degree, by the extent to which an increase in its value reduces farmers’ input costs. Modern farms typically spend around 8% of their revenue on purchased inputs. Those inputs that are imported should become cheaper, as the value of the New Zealand dollar rises.

The 1997 Situation and Outlook for New Zealand Agriculture was published today, available from MAF and Bennetts Bookshops.



Last Updated: 09 September 2010

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