Need To Hold Export Prices

Press, Volume CVII, Issue 31542, 2 December 1967, Page 10

Need To Hold Export Prices

One thing is fairly dear from inquiries that have been made of some exporters of New Zealand’s primary produce this week is that devaluation is no easy road to prosperity, and that the country could well lose something if exporters cut prices to make sales so that while more was earned in terms of devalued New Zealand currency, the real value of earnings in undevalued overseas currencies or of devalued currencies was less.

This point was made this week by the Minister of Agriculture, Mr Taiboys, when he said that where New Zealand was already selling her products successfully in overseas markets and selling as much as she could produce, exporters and the country would lose if prices were reduced. One meat exporting company executive put the position in these words: “It to vitally important for

New Zealand exporters to appreciate that they must obtain for the country the full benefits of devaluation. This means that prices in hard currency markets should be held in terms of those currencies and in the sterling area recent devaluations call for an increase in sterling earnings—in the United Kingdom for example by about a sixth.

“Expressed in New Zealand currency, this will re suit in added income, which in the first place will go through to the producers of export items. This is expected to stimulate production and to make farming more rewarding. “However, these earnings will also shortly be required to meet the additional internal expenses incurred by the country as a whole as a result of having to finance imports from overseas. These imports will of course, increase io cost in the United States and countries of the European Economic Community and In other countries with unaltered currencies by 20 per cent, and in the sterling area, in Britain in particular, by, initially, about 5 per cent. Some of the increased costs involved have already been announced such as freight and air fares.

'The important point to remember in this recent devaluation is that New Zealand’s present balance of payments is adverse—mainly because of the need to finance capital expansion—and any lowering of our overseas earnings expressed in pre-dc aluation currencies will only accentuate the position. 'The sterling area's devaluation in itself will not affect either the demand from, or the price level of markets not changing their currency values. There could well be pressure, however, from these markets for New Zealand to lower prices using the argument that producers will, in terms of their own money, be receiving higher returns. "In the United Kingdom buyers may raise their levels owing to the probable increase in the prices of competing lines. Obviously meat from sources other than countries following the United Kingdom’s devaluation will cost more, and probably Britain’s own internal cost levels will necessitate higher prices for domestic production. In the event of this happening New Zealand suppliers could expect a greater return in terms of sterling prices. “As already stated, however, this increase is essential to hold our overseas earnings in terms of pre-devalua-J tion prices.”

A point made during discussions this week about the greater competitiveness of New Zealand products after devaluation was that any action such as denuding supplies on the United Kingdom market by dumping on another market at a lower price could have been used before devaluation just as well as after devaluation. Devaluation has been followed by a renewal of activity on the small seeds market, particularly from the United Kingdom and Australia, according to a local trade source; This informant said, however, that as far as the North-

ern Hemisphere was concerned it was about the end of the buying season with shipments having to be made by about the begining of December to reach their destinations in time for the main sowing season. As far as Australia was concerned, he said, tire market had been limited to some extent by drought conditions. The merchant said that already part of the hoped-for increased margins had dis-, appeared under the impact of increased freight rates, and while it seemed likely that New Zealand stood to gain much better prices in Australia, this country and not New Zealand seemed to have reaped the benefit because of the competitiveness of New Zealand firms among themselves.

In tiie United Kingdom, the merchant said, devaluation should give New Zealand an advantage over competitors who bad not devalued, or who had not devalued as much as New Zealand, as New Zealand seeds would now be cheaper to buy from a United Kingdom point of view. A possibility resulting from devaluation was that New Zealand might be able to trade again in short rotation ryegrass with France, which had imposed a heavy duty on this grass.

An advantage stemming from the extra activity engendered at this time of the year was that it allowed stocks to be reduced, which should be reflected in a better tone when the new season’s crop came on the market.