Exchange rate depresses rise in world grain price

Press, 29 January 1988, Page 13

Exchange rate depresses rise in world grain price

In spite of a feeling that the world grain market had bottomed out, New Zealand arable farmers were still receiving prices no better they were 12 months ago, said the chairman of the Arable Section of Federated Farmers. Mr Graham Robertson. International prices of milling wheat and malting barley had lifted significantly in the last six months as the world market appeared to be firming. said Mr Robertson. However, every time the international price rose, the strength of the New Zealand dollar eroded completely any benefit to New Zealand farmers. Most other export industries were suffering similar problems caused by the high exchange rate. It was eroding profitability in the horticultural sector, forcing beef prices down, had been disastrous to sheepmeat prices, and

was pushing down what had been very good wool prices. The options for farmers were very limited because prospects for all exports were affected by the strength of the dollar. Mr Robertson said the Government appeared to have a vested interest in keeping the New Zealand dollar at a high level. A high exchange rate would help to keep inflation down by making imports cheaper and depress the price of some components of the Consumer Price Index — such as fruit and meat — by making their export prospects poor. The high value of the Kiwi dollar was also allowing the Government to manage better the enormously high level of the nation’s external debt. “It seems the Government is fanatically obsessed with getting a low rate of inflation and managing its debt portfolio,” said Mr Robertson.

This would do enormous damage to the agricultural sector through low morale and a rundown in the industry’s resources in the form of stock numbers and lack of fertiliser application. Within the next decade, the world would be short of food but because of the rundown in New Zealand farming resource the industry would be unable to take advantage of the increased demand for agricultural produce. “One of these days when New Zealand needs foreign exchange exports we will see the Treasury dreaming up schemes once again to encourage agricultural production.” The world food shortage would occur because of the solid moves by several Governments to reduce agricultural surpluses in the Northern Hemisphere. This type of action would be sure to over-react and with the world’s population still ex-

panding at a tremendous rate there was nothing more certain than a shortage of agricultural production. “I am prepared to wager that sometime during the 1990 s the New Zealand Government will be trying to crank up agriculture again because the short-sighted policies of the present administration will have reduced agricultural output to a level below that required for New Zealand to service its overseas funds.” Mr Robertson said, however, that the Government had made some healthy changes to the economy, but that did not alter the fact that some significant damage had been done. The Minister of Finance, Mr Douglas, had conned the New Zealand public at the last election into giving an overwhelming mandate for the economic policies so nobody would have the guts

to stand up against him. “He has totally subdued the Opposition economically.” International grain prices had firmed about 20 per cent in the last six months because of a shortage of quality wheat and barley and declining production. The price of feed grains had not experienced anywhere near the same rise. A shortage of cereals was certain in the next decade, said Mr Robertson. Last year, for the first time for four to five years, wheat consumption was greater than production. Mr Robertson said he was confident that in the medium to long term farming would survive and become profitable again. The immediate problem was to enable farmers to survive the short term problems so they could be in a position to capitalise on the longer term improvement.