Kiwi’s strength hits meat returns

Red meat exporters and farmers have been warned the strength of the New Zealand dollar may play havoc with prices and returns this season, both trade receipts and at-the-gate prices.

One cause of the strengthening kiwi has been European Union uncertainty over the Brexit issue, which would affect what exporters got from the European market, Meat Industry Association chief executive Tim Ritchie said.

"This, in turn, affects the prices meat processors can pay farmers for their livestock.

"Volatility in exchange rates has already had a significant impact on meat exporters, which led to eroded margins in the last season,'' he said in a statement.

Late last week, the Reserve Bank highlighted major concerns it has for the country's exporters, because of the continuing strength of the New Zealand dollar.

Much of that strength lies in New Zealand having one of the highest official cash rates in the world, at 2.25%, which attracts investors here.

Mr Ritchie said exchange rate movements had a significant flow-on effect on to farm-gate prices.

"In some cases, prices in overseas markets have gone up, but gains have been wiped out by the exchange rate.''

Mr Ritchie said that there were estimates a 10% appreciation of the kiwi, against currencies in which meat was traded, resulted in about a 14% decline in the lamb price at farm-gate paid by processors, according to Beef + Lamb NZ's economic service.

"This year, the [exchange rate] volatility looks like it will get worse,'' Mr Ritchie said.

A year ago, the kiwi was worth 43p but was now 53p, having risen sharply against the pound since the Brexit referendum, Mr Ritchie said.

Similarly, in the euro zone, the kiwi was worth €0.56 a year ago, but it was currently trading about €0.64.

The global economic uncertainty was also affecting New Zealand's other main sheepmeat market, China, where a year ago the kiwi was worth ¥4 but it was now ¥4.7.

"The coming season means meat exporters are likely to face considerable headwinds from a volatile exchange rate once again,'' Mr Ritchie said.

Aside from the volatility in the exchange rates, it also meant it was not possible to provide farmers with an accurate picture of the actual price in overseas markets.

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