KEY POINTS:
Prime Minister Helen Clark has told farmers that exporters need to plan for a future where the dollar is higher.
In a reference yesterday to the need to extract more value from New Zealand's food industry, Clark said: "Smart strategies to lift the value of our agricultural industries also help them and our whole nation to prosper under a stronger exchange rate.
"Indeed to be a first-world, high-performing economy in the 21st century, we need to plan for a future in which higher exchange rates may well become the norm."
Clark told a Federated Farmers meeting in Wellington that Government-industry partnerships had a role to play in preparing New Zealand for such a trade environment.
"Government is a significant investor in science and research and can use the tax system to make private sector investment more attractive."
Her comments on the dollar follow a similiar message last month from Agriculture Minister Jim Anderton in the Business Herald.
Meat & Wool NZ economist Rob Davison agreed that the primary sector needed to consider the prospect of a consistently higher dollar.
In July, his organisation thought the average exchange rate would be US61c in the year to June - now it was looking at US63c.
He said financial markets seemed happy with the level of the kiwi against a background of solid economic activity and healthy public accounts. He assumed they were comfortable with where private-sector investment was going.
High interest rates were also supporting the dollar. Global factors, such as any faltering in the US economy, could further underpin the currency, and the ability to take forward cover was limited, Davison said.
But ANZ chief economist Cameron Bagrie believed an increasingly high dollar over time was not necessarily such a big threat to exports if it rose in an environment of higher productivity and better commodity prices.
He said 10 years ago he would have believed fair value for the dollar was about US58c. Now he thought it was US61-62c and in 10 years' time, he thought, it would be US64-65c.
But Bagrie said productivity gains could enable exporters to maintain dollar margins despite a higher kiwi.
