The low Australian dollar of recent years has helped to mask the parlous state of some large rural industries that have been facing deregulation, industries like sugar and dairy.
A year or so ago the Australian dollar was around US 50 cents. That made our exports competitive on world markets, and for those rural commodities that are traded on the world markets in US dollars, Australian producers were receiving A$2 for every US $1.
The low Australian dollar has been partly the result of Australian foreign debt, but also because the US dollar rose strongly for 20 years as foreign investors poured money into the soaring US stock market. Australian foreign debt remains high, but the bubble has burst on Wall Street and the US dollar is likely to go into a long slow decline.
This should be good news for Australia. Economists agree that a strong Australian dollar should have more advantages that a low valued dollar.
Unfortunately, the rural sector – weakened by years of deregulation and a flood of cheap, highly subsidised imports, and now drought – was able to tread water, while the Australian dollar was declining. But the sharp rise of about 20% in a year, is cutting into returns to farmers.
The Australian dollar is now worth almost US 60 cents and is expected to rise to US 63-68 cents.
While economic commentators are saying that sugar cane farmers should be pleased at the rise in the world raw sugar price from US 6 cents/lb about a year ago to over US 8 cents/lb currently, the fact is that sugar is traded in US dollars. This means that most of the price increase has been offset by the rising Australian dollar.
Most of Victoria’s dairy product is exported, traded on world markets in US dollars. Every US 1 cent rise in the Australian dollar wipes 2% of the value of dairy exports.
