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High Aussie dollar dampening record global prices

30 June 2008

DESPITE global agricultural commodities at record prices – as the latest Westpac-NFF Commodity Index reveals prices 16% higher than a year ago – Australian farmers are beset by soaring farm input costs, persistent drought, labour shortages and a dollar that keeps climbing.

Westpac’s Senior Agribusiness Economist, Justin Smirk said with Australian farmers exporting 61% of everything they produce, the rising Aussie dollar is crimping returns.

“As one of Australia’s most trade-exposed sectors, farming has been slugged by the ever-strengthening dollar – peaking over US$0.96 in May. The US dollar value of the farm index is up 34% on a year ago but the 15% rise in the AUD has significantly impacted those gains. The rise in the Australian dollar follows continued robust demand for Australia’s major export commodities, improving investor appetite for risk and the ongoing buoyancy in the Australian economy.

“A strong Australian dollar not only puts pressures on our export returns, but it also stimulates the imports of commodities such as pork, fruit and vegetables.

“One of the key factors driving the strength in the Australian dollar against the US currency is the noticeable weakening of their economy, where unemployment is rising, industrial activity is moderating and the housing market is in an extended downturn.”

While the struggling US economy is pushing the Aussie dollar higher there has also been significant movement against the currencies of Australia’s major agricultural commodity export destinations.

NFF Vice-President Charles Burke noted: “A much larger appreciation of the Australian dollar has taken place against key currencies for agriculture, including South Korea and Indonesia, which are major destinations for beef and dairy.

“Meanwhile, our dollar has depreciated against the Japanese Yen and the European Euro. After weighting the currency impact according to the major export destinations of Australian agricultural produce, the actual currency impact for agriculture is an appreciation of approximately 10% since May 2007.

“The NFF calculates that every 1% appreciation in the Australian dollar equates to a $190 million erosion of farm incomes, resulting in the high Australian dollar costing our farm sector over AUD$1.9 billion since May 2007.

“Australian farmers are listening to the concerns of global consumers over higher food prices. However, the reality is that rising input and transports costs are a global phenomena compressing margins and lifting the underlying price of food.”

Compared with April 2008 levels, global prices in May decreased for Barley (-0.5%), Wheat (-13.3%), Cotton (-4.0%), Canola (-1.8%), Sugar (-5.7%), Wool (-7.9%), and Dairy (-2.1%). Only Beef (0.2%) recorded a marginal increase in the global price. The overall weighted index decreased by 1.9% during May, taking it to 16.1% above year-ago levels.

[ENDS]

The Westpac-NFF Commodity Index is weighted according to the value of Australian agricultural exports and includes only rural commodities – unlike other price indices that are overshadowed by oil, mineral and energy prices. It provides daily movements based on prices of Australia’s eight key farm exports – wheat, barley, beef, wool, cotton, sugar, dairy and canola – in both $US and $A.

Media Enquiries: Brett Heffernan on (02) 6273 3855 or 0408 448 250.

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