Australian dollar decline: How does it impact dairy farmers?

The Australian dollar has dropped like a stone against the US greenback, providing mixed blessings for domestic dairy farmers.

Weaker inflation numbers have fuelled the Australian dollar’s downward trajectory, providing mixed blessings for dairy farmers.

At the start of 2023, the national currency bought 71 US cents but has been falling for most of the calendar year to now sit at 64 US cents against the American greenback.

Softer consumer price index numbers released by the Bureau of Statistics on Wednesday caused an accelerated sell-off of the Australian dollar before a slight rebound in the afternoon.

Economists say the strong American economy and sustained deflation in China are the twin factors behind the weaker Australian dollar.

Dairy Australia industry analyst Eliza Redfern said most trade-exposed products had been affected by the currency free fall, particularly those bought and sold on a spot basis.

“A falling dollar helps improve the competitiveness of Australian dairy exports by effectively making them more affordable to import,” she said.

“However, Australian product has been sitting at a significant premium compared to international product from particularly the United States and New Zealand.

“Weakening of the Aussie dollar will likely help reduce such premiums but Australian product will remain costly in comparison over at least the short term.”

The Australian dollar has dropped from above 70 US cents earlier this year.

The Hawke Government floated the Australian dollar shortly after winning power in 1983 and the currency tracked around the US 80 cents mark for most of the 1980s.

In October 2010, the Australian dollar reached parity with the American greenback and hit highs of more than $US1.10 during 2011 and 2012, placing pressure on Australian dairy and other agricultural exporters.

Ms Redfern said the weak Australian dollar would impact on farm purchasing for primary producers.

“There are likely to be some impacts on-farm — fuel costs are anticipated to rise further and there may be some additional pressure to fertiliser prices down the track,” she said.

Westpac economist Kelly Eckhold said a deflationary China had caused a multitude of headaches for dairy farmers on both sides of the Tasman.

“The recent steep decline in dairy export prices and general concerns about the Chinese economy may have interrupted this year’s recovery in business sentiment,” he said.

“However, the recent petrol prices may also have halted this year’s decline in pricing indicators and inflation expectations.”