THE PRESS THURSDAY, JUNE 3, 1982. Lamb for oil dollars

Press, 3 June 1982, Page 16

THE PRESS THURSDAY, JUNE 3, 1982. Lamb for oil dollars

The New Zealand Meat Board has done well to make arrangements to sell its lamb to Iran. The negotiations v/ere drawn but over a long period and were complicated by the offer of an oil-for-lamb deal. What matters most is that the lamb was actually sold. The sale brings money into New Zealand and it will remove some of the uncertainty from the international market for New Zealand meat. While the deal was hanging in the balance, buyers might well have taken the view that sooner or later New Zealand would have to sell the lamb that it was holding and, because of the quantities in which New Zealand deals, a lot of lamb might be going cheaply. Since a contract is signed, there is no reason for anyone to believe that New Zealand is going to be left holding a lot of meat. The sale may also help to improve slightly the prices that New Zealand is receiving on other markets.

The deal did not prove to be traditional barter. The description given by the Iranians of a back-to-back deal is more apt. The new Iranian meat trading organisation, the Government Trading Corporation, recently replaced another State meat trading organisation. This corporation signed a deal to import lamb from New Zealand and, at the same time, the National Iranian Oil Company signed a contract to sell oil to a broker. The broker has arranged a revolving credit facility in American dollars. In turn, Iran will pay New Zealand for the lamb in American dollars. The Meat Board came into the oil part of the deal by finding a broker who was acceptable to both the Iranians and to New Zealand.

The broker is taking the risks from any movement in the price of oil. Had the Meat Board taken possession of the oil, the board would have had the problem of disposing of the oil, including shipping it, and would have borne the risk of the oil losing its value between purchase and reselling. The board would have also had the opportunity to make some money if the oil rose in value; but the Meat Board declined to get into the risky business of speculating on the international oil market.

This procedure still leaves the question of why New Zealand had to be the gobetween for the Iranian Government and the oil broker. After all, Iran has sold its oil in the past without the assistance of the New Zealand Meat Board. The answer embraces several reasons. The main reason was the surplus of oil at a time when Iran wanted income from oil to pay for its imports. Last year Iran was selling

enough oil to pay for its imports. About the end of the year the oil glut was at its height. Iran, fighting a war and still developing rapidly, found that its income had dropped. Iran’s main interest lay in persuading buyers to take Iranian oil in preference to the oil of any other country. The oil market favoured buyers and Iran wanted to make sure of selling its own oil, which it was exporting in greatly reduced quantities compared with the volume a few years ago. The proposal for oil-for-lamb surfaced as a way of ensuring that a prospective exporter to Iran would prefer Iranian oil. Such a proposition, of course, required an enthusiastic exporter, one very keen to make sales in Iran. The Iranians apparently had the theory that, because of the fluctuating price of oil, mostly downwards in this period, traders would be anxious to settle a deal quickly and dispose of the oil quickly to avoid losses. However, it was not at all clear precisely what the Iranians were proposing or what they meant by a back-to-back deal. Rumours were abroad that Iran had completed a number of such deals, all of which needed to be examined to try to discover just what had happened.' Most of the reported deals proved to be still awaiting conclusion.

Another hitch occurred. The price of oil on the spot market rose again and Iran was less enthusiastic about the oil-for-lamb deal. More recently however, the Iranians’ interest in the oil-for-lamb deal revived and the Meat Board negotiators, having settled a number of important matters such as who was the appropriate person to deal with over meat and oil, finally signed the agreement.

Several conclusions may be drawn from the experience. The most obvious one is that Iran continues to want to buy a large quantity of lamb. The second is that, even in dealing with large quantities of produce, the customer is always right. In this instance it meant that the Meat Board had little or no choice; it had to accept the deal or sell no lamb to Iran. Much depended on bringing the negotiations with Iran to a successful conclusion. This element probably gives most cause for reflection. New Zealand has been dependent on large single markets for its agricultural produce in the past. Although New Zealand is less dependent on single markets today, the Iran deal, now happily concluded, is a reminder that the country is still vulnerable as a seller and is highly sensitive to success or failure in the Middle East.