Jamie Gray is a business reporter for the NZ Herald

Exporters see tough times ahead

Dairy, meat and wine industries anticipate toll on sales as British vote strengthens currency and upsets market.
The pound's weakness saw the NZ/sterling cross rate shoot to 53p yesterday from 48.45p just before the results of last week's poll. Photo / File
The pound's weakness saw the NZ/sterling cross rate shoot to 53p yesterday from 48.45p just before the results of last week's poll. Photo / File

New Zealand's primary product exporters are in for a tough period if the local dollar retains its new-found strength against the pound and euro following Britain's decision to leave the European Union.

The country's biggest export - dairy - is unlikely to suffer any direct impact from Britain's exit but the depressed euro could make the price of EU dairy products cheaper in a market already plagued with low prices and too much supply.

The meat trade is likely to be more vulnerable from a market access perspective and New Zealand winemakers, which count Britain as their second biggest market, will be casting a nervous eye over the very strong kiwi/pound cross rate.

Sterling rose a little in the Asian time zone but was still looking sick, having earlier fallen to US$1.3121, its lowest since September 1985, after Standard & Poor's took away the UK's triple-A credit rating.

The pound's weakness saw the NZ/sterling cross rate shoot to 53p yesterday from 48.45p just before the results of last week's poll. Over the last month the kiwi has firmed to nearly 64 euro cents from 61c.

Phil Turner, Fonterra's director of global stakeholder affairs, said apart from affecting currencies and global markets generally, the UK decision was unlikely to affect Fonterra's business in the short- to medium-term.

Only 0.26 per cent of New Zealand dairy exports by value go to the UK and 2.8 per cent to the EU as a whole.

For NZ's second biggest export - meat - the situation is more serious.

ANZ rural economist Con Williams said sheep meat and wine trade would find conditions challenging, particularly if, as some predict, the UK experiences a mild recession.

"In the medium-term, the complicating factor is how the UK will distinguish itself from the EU and what that will mean for meat market access in particular," he said.

Williams said while Fonterra was unlikely to feel a direct impact from Britain's exit, renewed weakness in the euro would make European dairy products cheaper on the world market which, added to the sector's overproduction problem, would maintain downward pressure on dairy prices.

The farmer-funded Beef and Lamb New Zealand and the Meat Industry Association said "Brexit" would have major implications for the industry.

"Our sheep and beef trade to both the UK and EU are inextricably linked through quota access and both are likely to be affected," Beef and Lamb chief executive Sam McIvor said.

The EU is New Zealand's most valuable market for red meat and associated products, accounting for over $2 billion in trade last year.

The UK is a major agricultural producer in its own right and much of this production goes to the EU under zero duties.

Last year, 90 per cent of the UK's sheep meat exports went to the EU. If the UK loses its preferential access, there will likely be oversupply in their own market, dampening demand for imports from New Zealand, Meat Industry Association chief executive Tim Ritchie said.

New Zealand Winegrowers chief executive Philip Gregan said exports to the UK and Europe were not subject to quotas system, unlike other primary products.

The UK is New Zealand's second biggest wine export destination, worth $380 million a year, while exports to Europe account for another $140 million. "Certainly the cross rate above 50p is getting pretty high," Gregan said, "and that will be a concern to the wineries."

- NZ Herald

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