Terms of trade hit 40-year high

JAMES WEIR
Last updated 12:04 02/12/2013

Relevant offers

Farming

Decision thwarts Ngai Tahu dairy plans Rural women point water woes finger at townies Farmer injured by bull Farmers urged to pay up for $2m dairy hub Council and farmers work together New farming group leader targets meat reform Success lies with harvesting beet Farming couple controlling their own destinies More fire bans expected after recycling surge Farming within limits poses challenges for dairying

Rocketing dairy export prices pushed New Zealand's terms of trade to their highest levels in 40 years in the September quarter, which is seen as a strong support for the economy.

Dairy exports were the star performer, but prices were also up for meat, wool, food and drinks and forestry products.

During the three-month period, dairy export prices rose 24 per cent to their highest levels since 2008. Dairy product prices are now 46 per cent up on a year ago, though dairy export volumes fell in the quarter, as a result of last summer's drought.

In much stronger than expected results, Statistics New Zealand figures out today show New Zealand's merchandise terms of trade rose 7.5 per cent in the September 2013 quarter.

The terms of trade is a measure of the buying power of exports - an increase means New Zealand can buy more imports for the same amount of exports.

ANZ Bank economists said the high terms of trade were a "major support factor" for the economy. While most of the boost had come from dairy, better prices for other sectors such as meat and forestry suggested a "more widespread" support to regions and other sectors, ANZ said.

While higher prices and the easing of the drought were good news, the high New Zealand dollar remained a "major obstacle" to the wider tradeable sector, ANZ said.

The New Zealand dollar moved up this morning to US81.64c, from US81.3 at the start of the day, but is down from a recent peak of US84 early last month.

Westpac Bank economists said that while the terms of trade might edge a little higher yet, they expected increased global supply to weigh on key commodity prices next year, with softer export prices to lead the terms of trade lower in 2014.

Market expectations were for the terms of trade to improve about 3 per cent, but export prices were stronger than economists had forecast.

The latest increase in the terms of trade was due to export prices for goods rising more than import prices, led by dairy but also boosted by higher prices for meat, up 6.8 per cent, wool , up 8.1 per cent, and forest products, up 7.9 per cent.

"Dairy export prices helped lift the terms of trade to their highest level since 1973," Statistics NZ prices manager Chris Pike said. "Both the terms of trade and export prices have been on the rise since the start of this year, reflecting higher dairy prices."

In the latest quarter, the price of total exported goods rose 8.9 per cent, while seasonally adjusted export volumes fell 2.1 per cent. Both price and volume were strongly influenced by dairy products.

Ad Feedback

Prices for imported goods rose 1.2 per cent in the September 2013 quarter, after four consecutive falls.

Oil and petrol products were up 3.1 per cent, contributing the most to the overall increase in import prices due to higher prices for crude oil.

ANZ said resilient domestic demand saw import volumes up 5.6 per cent, with a big jump in mechanical and electrical machinery.

- Fairfax Media

Special offers
Opinion poll

What is the main issue for farmers in the upcoming General Election?

Environmental policies that stigmatise farmers and erode income.

The high exchange rate.

Slow progress in upgrading rural broadband.

Rural communities under-represented in Parliament.

Vote Result

Featured Promotions

Sponsored Content

rural digi editions 4/9

Digital editions

Read our rural publications online