Surging dollar heaps stress on exporters

Nelson exporters are resigned to living on the edge as the surging kiwi dollar wipes millions off their returns.

With the New Zealand currency powering through the US80c mark and showing little sign of slowing down, they have largely been powerless to protect themselves from the fallout, which has seen profit margins plunge and jobs come under threat.

Apart from tweaking their prices where they can and keeping an iron grip on their costs, many are hanging on in the hope the dollar will eventually weaken.

While farmers and log traders continue to do well from strong export prices, the exchange rate impact is set to be felt more strongly in Nelson which has the highest exposure to exports of any region in the country.

Lawrie Halkett, chief executive of the Richmond-based NZ Pine Manufacturers Association, said his members were finding it "really, really tough".

Some were laying off staff, while others had cut production and work hours, he said.

"I would call it a crisis, definitely."

Timber manufacturers and processors were being squeezed between rising log prices, driven by demand from China, and the high kiwi dollar and stronger shipping rates, which were making exporting often barely profitable, Mr Halkett said.

They were under severe pressure in key export markets, with cheap Chilean imports making business very difficult in Australia and flat demand and a weak American dollar reducing returns in the US.

In a bid to ensure the sector survived and grew, the association had sought a meeting with major forest owners next month to discuss ways to stop the $4 billion industry going through repeated "boom and bust" cycles, Mr Halkett said. A new business model based on longer supply contracts was needed to smooth out the big highs and lows in log prices which were preventing fresh investment in the industry.

Wakatu Incorporation chief executive Keith Palmer said the strong NZ dollar was causing "fear and trepidation" among exporters and had wiped out almost all of the gains from the world food index rising almost 40 per cent over the last year.

It had hit particularly hard the company's horticultural business, which was losing money despite good market prices, he said.

Wakatu's seafood and wine exports hadn't been as badly affected as they were premium products so could absorb the hit.

"Having said that, when we came into the mussel industry the kiwi dollar was at US42c. We modelled it on 60c because we thought it would not last at 42c, and now we've had to deal with it at 80c."

But Mr Palmer said he refused to let his managers use the currency as an excuse.

"We've got to reshape our businesses to cope with the new world, because if you don't you are going to go out of business."

This meant continuing to invest in new apple varieties and seafood products and taking foreign exchange cover, he said.

As one of the most traded currencies in the world, Mr Palmer said he believed the high dollar was here to stay and exporters would just have to adjust to it.

"I don't see it falling back, given that New Zealand is basically a food producer, the world food index has gone up 38 per cent and our terms of trade are the best they have ever been."

NZ Pipfruit Growers chairman Ian Palmer said orchardists had known from the start of this season that exchange rates were going to make it difficult for many of them to make money from their fruit.

"It's of serious concern but it's something we can't control. It's the reality of living in a global economy."

While growers – who had already cut costs to the bone – would not know what returns they would get until the end of the selling season, current exchange rates "don't inspire a lot of confidence", he said.

Federated Farmers Nelson meat and fibre spokesman Gavin O'Donnell said sheep and beef farmers were fortunate that strong commodity prices were helping offset the effect of the dollar as few could afford to take exchange rate cover.

High export prices for meat and wool were a real boost to morale after years of poor returns, he said, but farmers remained cautious and would use much of the extra cashflow to pay off accumulated debt.

Nelson Winegrowers Association chairman Mike Brown said exporting to major markets such as the US, Australia and Britain had become even tougher with pricing having to be done on a "worst-case scenario" in order to maintain some profit margin.

Few wineries had expected the kiwi dollar to go as high and were now in a "bit of a sorry position", he said.

With prices already under pressure from a global oversupply of wine, they had few options apart from developing new markets, such as China, where exchange rates were more favourable, Mr Brown said.