Dollar benefits yet to kick in

Chris Kelly

Sheep and beef farmers may not get any significant short-term benefit from the fall in the dollar as financially pressured meat exporters pocket currency gains for themselves, says the largest corporate farmer.

Landcorp chief executive Chris Kelly was reacting to comments from economists who said the recent plunge in the kiwi could help stave off retrenchment in a rural sector hurt by its earlier strength.

But Kelly said sheep farmers had suffered recently from sharp falls in farm-gate prices.

Meat and Wool New Zealand said the price of the most common grade of lamb plummeted from about $4.20/kg over October-November last year to around $3.30/kg in January and an "anecdotal" level late last week of $3/kg

Those falls were due to factors such as an earlier oversupply of heavier lambs and lower international prices. Beef prices, meanwhile, were reasonably steady.

Kelly said the drop in the price of lamb would adversely impact incomes given that most sheep farmers sold their lambs after Christmas.

Economists were right in theory that a dropping dollar could forestall retrenchment. However, Landcorp had found in the past that when times were tough for meat processors - as it had been recently - the benefits of the dollar's fall might not be fully handed on to farmers in the short term.

"The processors need to basically keep some of that windfall gain for themselves so that they can remain reasonably financially healthy," Kelly said.

"Putting all that together, I am not confident we will see the full direct benefit of the significant fall in the dollar passed on, at least for this financial year [to June]."

He hoped the falling dollar would help prop up farm-gate prices after that.

Meat and Wool economist Rob Davison said meat companies tended to use forward cover to protect their New Zealand dollar returns from exports. So it could take time for the full benefits of the dollar's drop to be taken into account when they set prices to farmers.

Meat companies Affco and PPCS agreed but stressed the currency's strength was just one of many factors taken into account when setting prices.

Affco chief executive Tony Egan said competitive pressures meant they could not choose to simply pocket currency gains. "We set a schedule every week - we're in a competitive environment."

PPCS chief operating officer Keith Cooper said the dollar's drop had already contributed to a rise in the price paid for beef.

However, lamb prices were generally less reactive to short-term currency movements because lamb was sold further ahead.

Cooper also said the lower dollar meant higher meat company costs for items such as oil.