Producers hanging out for fall in kiwi

The dollar took a few tentative steps last week towards a reduction - tracking between 68USc and 69USc - that can't come soon enough for the primary industries. But they're not holding their breath.

Owen Symmans, chief executive of the Seafood Industry Council, says although local produce fetches a good price on international markets the benefit is being lost in currency conversion.

About 90 per cent of seafood produced is exported.

"The impact of the high exchange rate has really eroded away all of the profit from those relatively good prices," he says. "To the point that the industry is finding it extremely difficult to continue on a profitable line."

Symmans is getting reports of boats being tied up and smaller operators forced to sell out.

"It's not been easy. The longer it goes on the more difficult it becomes," he says.

"The combination of lower returns through the high dollar and the high costs with the rising price of fuel has put a real squeeze on a lot of people."

Fuel accounts for up to 30 per cent of operational costs for a fishing vessel.

Symmans is not calling for Government intervention "but certainly our seafood exporters would like to see a considerable downside to where it is at the moment".

Another industry feeling the squeeze is kiwifruit.

Tim Goodacre, Zespri chief executive, says the exchange rate has been a big factor in declining returns to growers.

Forecast returns for green fruit this year is $6.05 a tray - down from $7.10 last year. Gold fruit is $9 a tray, down from $9.43.

Goodacre estimates high exchange rates have cost growers 57c a tray for green fruit and $1.13 for gold compared with last year.

He would like to see exchange rates at a five-to-10-year average so the industry can take advantage of market prices that have in some cases improved.

"There's a general feeling the dollar will come off [its strong position] but that's been around for 12 months," he says.

"The question that no one seems to have answered clearly is when."

In the meantime, he says the industry is reviewing market strategy and looking for greater supply-chain efficiencies "in anticipation that one of the key detractors from our business - that being the strong dollar - could be something that's ongoing".

Nick Clark, Federated Farmers economist, says the argument is not as simple as low exchange rates equals more returns. In fact, a high exchange rate can keep down the operational costs of imported machinery and fuel.

"If the dollar was to fall sharply, you'll find the cost of a lot of imported goods will go up sharply and that will be bad for farmers as well."

Clark says high commodity prices have helped insulate farmers from the impact of high exchange rates.

Historically, exchange rates and commodity prices have tended to track together.

"One time it didn't work out in that way was around 2000-2001 when commodity prices increased quite markedly and the dollar was quite low," he says. "And that caused an incoming wealth effect and that's why provincial New Zealand did well during that period."

However, divergence of the two key economic drivers can also bring hardship.

"Next year, it may well be that commodity prices will continue to fall if the world economy slows and the New Zealand dollar may be kept high perhaps by the US dollar being driven lower or if our interest rates stay particularly high."

Although Clark adds that recent trade data could have a bearing on future movements.

Rob Davison, executive director economic service Meat and Wool New Zealand, says no one expected the exchange rate to stay at about 70USc for so long.

With 80 per cent or more of meat and wool products exported, he says the effect of foreign exchange must not be underestimated.

And although farmers may benefit from cheaper operational imports under a higher rate any saving is "swamped" by the impact on farm receipts.

After fixed costs, a 10 per cent increase in exchange rates results in a 17 per cent fall in farm-gate returns.

"I think the concern for farmers would be if the Reserve Bank here would have to raise interest rates because the economy is still running at such a high speed," Davison says.