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NZ dollar set to gain vs. yen in 2015, hurting buttercup squash exporters

Monday 19th January 2015

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The New Zealand dollar is expected to gain the most against the Japanese yen this year, providing a significant headwind for buttercup squash exporters in their largest market, following an 8.5 percent rise in the cross rate last year.

Eight of 19 currency strategists, traders and economists surveyed by BusinessDesk picked the yen to be the weakest currency of New Zealand’s major trading partners in 2015 as Japanese Prime Minister Shinzo Abe attempts to revive the world’s third largest economy and boost growth.

That’s an unwelcome prediction for New Zealand’s squash industry, the nation’s fourth largest horticultural export, which sent almost three quarters of its overseas product to Japan in the year through November. Squash growers, who have just started harvesting this year’s crop and are facing lower yields due to drought, are eyeing diversification into other markets such as China to reduce their reliance on Japan.

A weaker yen “just takes profit off the bottom line and where it is sitting currently is pretty unsustainable long term,” said NZ Buttercup Squash Council business manager Matthew Spence.

“When the exchange rate got to that point where it is now against the yen, people look at their business costs and look for efficiencies but I think most of these guys have got to the point where they have got all the efficiencies that they can to offset any losses they get in the currency market but it is tough, it is real tough, they hurt.”

The council has stepped up its marketing efforts in Korea, its second-largest export destination, in a bid to boost demand for New Zealand squash in the Korean off-season ahead of looming tariff reductions.

So far it has spent $1.5 million of growers’ money on instore product promotions, a Korean consumer-based website and other public relations.

Once the free trade deal between the two countries comes into force, the squash industry is expecting a pick up in sales as the 27 percent tariff is removed over five years.

The industry is also targeting China where it gained phytosanitary access in October 2013. Asia’s largest economy accounted for less than 1 percent of New Zealand squash exports in the year through November.

The council sent a delegation to China in September last year and plans to use its powers under the Horticulture Export Authority Act to restrict exports to premium product to enhance margins.

“As soon as you hit the wholesale market in there, the game’s over, the value is gone completely,” Spence said. “What we are trying to do is set some parameters around the quality of product that goes into the market.

“China, across a range of primary produce, are prepared to pay a premium for safe food. On top of that, if you can get an organic product in there, you are off the Richter scale.”

Meantime, the kiwi is also expected to remain strong against the euro.

Seven of those surveyed by BusinessDesk picked the European common currency will be the weakest against the kiwi this year as the European Central Bank debates whether to launch a quantitative easing programme as early as this week to boost growth after the region slipped into deflation last year.

That would hurt exports of New Zealand venison, about 70 percent of which was sold into Europe last year, and comes after the kiwi’s 8.2 percent gain against the euro last year.

The BusinessDesk survey was taken between Jan. 12 to Jan. 15.

The New Zealand dollar is expected to fall to 76 US cents by the end of the first quarter, and to 73 cents by the end of calendar 2015, according to the median estimate of 21 responses. It recently traded at 77.79 US cents.

The US dollar is expected to be the strongest currency of New Zealand’s major trading partners this year, as the world’s largest economy improves, according to the survey.

Meanwhile, the trade weighted index will probably decline to 78.5 by the end of the first quarter and to 76 by the end of the year, according to the median estimate from 15 responses. It was recently at 79.26.

Just three of the 21 people surveyed expected the New Zealand dollar to reach parity against the Australian dollar this year. The New Zealand dollar was recently trading at 94.67 Australian cents and touched a record high of 96.52 cents this month as investors favoured the prospects of the local economy over that of Australia.

 

 

 

 

BusinessDesk.co.nz



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