Tough call for exporter as kiwi rises

Murray Fenton says the meat industry is a particularly price-conscious sector. Photo / Steven McNicholl

A surging New Zealand dollar may force Auckland plastics manufacturer Adept to raise prices in the United States and Europe, despite the risk of losing market share.

Managing director Murray Fenton said exchange rates were causing the Morningside-based firm, which supplies plastic clips to the international meat industry, to make a loss on exports to Europe and "unsustainably low" margins on US sales.

The kiwi hit a post-float high of US82.6c this week, while it was trading at about €0.57 against the euro yesterday.

Fenton said the meat industry was a particularly price-conscious sector.

"Margins are small, and of course with anything with a small margin - even with high volumes - you're very subject to the [currency] effect."

Fenton said Adept was not experiencing the same difficulties with its exports of higher-margin medical products.

The company did not undertake foreign exchange hedging, but the kiwi's continuing strength was forcing him to consider that option.

"I probably could be convinced about it by someone who knows what they're doing."

Cliff Brown, of business advisory firm Bancorp, said the highs the kiwi has reached against the greenback this week would force many small-to-medium New Zealand exporters, which did not have hedging policies in place, to re-evaluate their thinking.

"[The current exchange rates] emphasise the value of hedging - particularly for exporters - if only because it buys them time ... which for an exporter is more important than for an importer because exporters have factories and fixed assets, wages and everything else to worry about," he said.

"If they suddenly find that their revenues aren't going to be what they thought they were going to be then all their business calculations are thrown out of time."

Forward exchange contracts involve a business "locking in" a set amount of currency with a bank based on the current spot rate.

Brown said firms should not be put off entering a contract based on the kiwi's present exchange rate against the greenback, as there was no "genuine economic reason" that it would not reach US90c.

"Exporters have to accept that, and if a kiwi-US at US90c is actually going to kill their business rather than just make life difficult for them then they really need to do something about it," he said.

Meanwhile, the New Zealand Manufacturers and Exporters Association chief executive John Walley said the Government and the Reserve Bank could not stand by and watch as the kiwi continued to appreciate.

He said there needed to be a new approach to monetary policy, which could include placing controls on the trading of the New Zealand dollar.