Dollar and dairy batter terms of trade

Dairy experienced its biggest quarterly fall since records began in 1950. Photo / Alan Gibson

New Zealand's terms of trade took a battering in the June quarter as the rise in the dollar hit export prices and dairy exports recorded their biggest price fall since at least 1950.

The terms of trade fell 9 per cent in the three months, the largest quarterly fall since March 1975 and the fifth consecutive quarterly fall, Statistics New Zealand (SNZ) said yesterday.

The terms of trade measure the varying quantity of imports which could be funded by a fixed quantity of exports.

The overall index is at its lowest level since September 2006.

The fall was due to export prices dropping 11.6 per cent, while import prices fell just 2.9 per cent, and meant 9 per cent fewer imports could be funded by a fixed quantity of exports than in the March quarter, SNZ said.

The 11.6 per cent fall in the export price index was influenced by the rise in the New Zealand dollar, which appreciated 8.7 per cent, according to the Reserve Bank's trade weighted index.

The drop in export prices was the largest since a 40 per cent fall in the June 1951 quarter which was influenced by a large fall in wool prices, SNZ said.

In the latest quarter the largest contributor to the fall in export prices was the food and beverages index which fell by 14.8 per cent. That was driven by dairy products prices which were down 24.1 per cent, and meat down 7 per cent.

The fall in dairy export prices was the largest quarterly decline since the series started in March 1950, SNZ said.

The latest dairy price fall brought the dairy products index to its lowest level since June 2007 and followed a 19.9 per cent drop in the March quarter and a 5.5 per cent rise in the December quarter.

In the June quarter, the dairy price fall was driven by a 22.8 per cent fall in milk powder prices, a 23.7 per cent fall in cheese, and a 25.7 per cent fall in butter.

For the year to June, dairy export prices fell 31.1 per cent, following a 57.5 per cent rise the previous year.

Overall export prices were now at their lowest level since the September 2007 quarter, SNZ said.

But the news was not all bad, with seasonally adjusted export volumes rising 7 per cent in the June quarter, mainly driven by a 23.7 per cent rise in volumes for dairy products, a 62.7 per cent rise in petroleum and petroleum products, and a 14.6 per cent rise in forestry products.

It was the third consecutive quarterly rise for dairy export volumes, following rises of 5.3 per cent and 15.7 per cent in the December and March quarters.

During the June quarter, skimmed and buttermilk powder volumes lifted 40.8 per cent, whole milk powder was up 16.2 per cent and butter was up 30.8 per cent.

Dairy volumes had been 46.7 per cent above the June 2008 quarter which was affected by drought in the North Island, SNZ said.

The 62.7 per cent rise in petroleum and petroleum product export volumes coincided with the start of crude oil exports from the Maari oilfield in April.

Fruit and vegetable export volumes lifted 13.5 per cent, aluminium was up 17.8 per cent, and meat was up 3.5 per cent.

Among the few sectors to record a drop in export volumes in the June quarter, non-food manufactured goods were down 1.8 per cent, wood manufacture was down 7.9 per cent, and fish dropped 7.7 per cent.

The import price index fell 2.9 per cent in the June quarter, with chemicals and related products down 7.9 per cent, machinery down 5.1 per cent, and electrical equipment and apparatus down 4.8 per cent.

Seasonally adjusted import volumes fell 1.9 per cent in the June quarter, the fourth consecutive quarterly fall.

That was despite a 36.3 per cent rise in cars, following two big quarterly falls, and a 41 per cent rise in capital goods.

In the year to June the terms of trade fell 13.1 per cent, following rises of 10.7 per cent and 2.3 per cent in the years to June 2008 and 2007, respectively.

The latest annual fall was the largest since June 1980.

HARD HITS
* Terms of trade: -9 per cent
* Export prices: -11.6 per cent
* Import prices: -2.9 per cent
* Dairy prices: -24.1 per cent

- NZPA