Strong dollar takes bloom off exports

By ELLEN READ


Growing award-winning flowers is not enough if the rising New Zealand dollar makes it impossible to grow your business.

That's the message from flower exporter Andy Warren, one of many small exporters who warns that the soaring kiwi is jeopardising exporters' margins and their ability to invest in developing their companies.

"The difference of losing another 5 or 10 per cent [in currency exchange] is the money that you need to roll over to innovate," he said.

"Being a 'me too' exporter out of New Zealand is a waste of time. Unless you've got innovation you're wasting your time and the money to do that is being eaten up."

Warren, the managing director of Tauranga-based Bloomz, has just returned from the International Hortifair Amsterdam flower show, where his company won first prize for its flowers.

But despite that success, he says the strong local currency is making it harder to break into new markets and to find the money to reinvest in the business.

Bloomz exports to about 40 countries. Eighty per cent of its business is export, with US dollar trades accounting for around half of this, the balance being in euro, yen and the British pound.

"We do some of our production offshore and we pay for that in US dollars, so we are using a natural hedge," Warren said.

"That in itself has helped us, but now that it's gone over 60USc it really is starting to bite."

Bloomz also has currency hedging in place and, although that helps, it doesn't solve the problem.

"Hedging is only a sticking plaster because you can only take so much," Warren said.

The cost of hedging was huge for smaller companies - because they had to put up security to the bank to take out forward cover - and that caused a trade-off if too much capital was tied up, leaving little to put into the business.

"Then you say, what business are you in, breeding, production and commercialisation of flowers, or are you in currency trading?"

On the flip side of the currency equation, importers are paying less for products and less on freight (which is usually paid for in US dollars).

But Michael Dean, of Springfield Marketing, which imports specialised protective clothing and hardware from the US, China and Australia, is disappointed.

"We supply other distributors and retailers and we keep our prices coming down, but we do find that this is not common.

"Substantial companies are actually just capitalising on [the stronger currency]," Dean said.

For example, a specialist pair of gloves his company imports from the US at US$10 a pair used to be worth $25 locally.

An order Dean placed a week ago will be worth just over $18.

"It gives retailers a huge benefit and some of them are just creaming the profit," he said.

Dean sees the stronger New Zealand dollar as a chance for importers to bring higher quality products into the local market and establish them here while prices are low.

While the kiwi has settled at 64USc, US dollar weakness and vulnerability mean exporters are unlikely to get any quick relief.

A Reuters poll of 11 banks shows an average expected value of 63.1USc for the end of the year.

The kiwi has made a quiet start to the week but with the central banks here and in Australia due to make interest rate announcements this week, and US data on the calendar, there is plenty to focus on.

Locally, the market is divided on whether or not the Reserve Bank will raise interest rates on Thursday.