Australia charges that the governments of key competitors have worked to artificially keep their currency values lower; this includes the U.S., Japan and the European Union.
The high value of Australia’s dollar (AUSD) compared to other beef-exporting nations’ currencies is playing havoc with Australia’s competitiveness in the export game. The bottom line is that the higher value of Australia’s currency leaves many of Australia’s export customers in beef and sheep meat with reduced buying power.
According to the Big MAC Index, which measures the strength of the world’s currencies, Australia ranks 14th highest out of 58 currencies measured. Meanwhile, India, which boasts a herd of 326 million head and is the world’s largest beef supplier, ranks last at 58. Thus, its currency’s relative value sits 66% below the value of the AUSD, which is a huge competitive disadvantage for Australia.
On the bright side, the AUSD isn’t the most expensive currency among the world’s beef suppliers; in fact, 25% of total beef exports come from countries with higher currencies. This includes Brazil, Canada and Uruguay, over which Australia enjoys a 12% foreign exchange advantage.
The bad news is the AUSD sits, on average, 30% below other beef-supplying currencies that supply half the world’s export beef. These include India, the U.S., New Zealand, the European Union (EU), Mexico and Argentina. In other words, Australians fear it will be harder to play “catch up” with these cheaper currencies. One saving grace to Australia’s export hopes is that India is saddled with foot-and-mouth-disease (FMD) restrictions that prevent its products from key markets like the U.S., Korea and Japan.
Australia charges that the governments of key competitors have worked to artificially keep their currency values lower; this includes the U.S., Japan and the EU. In fact, Brazil pressed the World Trade Organization (WTO) in fall 2011 to consider measures to deal with currency “misalignments.” The WTO has yet to move on the matter, however.
Ironically, Brazil has been intentionally making short-term capital flows unattractive to outside markets to maintain the reduction seen in the country’s now record-low interest rates, as well as weaken the country’s currency, the real. Unfortunately, this doesn’t seem to be working with the MAC Index, which placed Brazil as fifth amongst the 58 economies measured, and thus even more uncompetitive than Australia.
In the world of currencies, Australia is a price taker, and its ability to compete with the “big boys” on currency manipulation is almost impossible. Last December, the U.S. announced it would keep quantitative easing policies (known as QE4) in place until U.S. unemployment falls below 6.5%. It now sits stubbornly at 7.9%, which guarantees, in effect, the excess printing of U.S. money for many years to come.
Australia’s competitors in beef exports and the impact of their respective currency values need to be looked at in terms of their FMD status. Among non-FMD suppliers, Canada is one of the few competitors over which Australia has the upper hand, while the U.S. and New Zealand have a clear advantage over Australia.
Among the FMD supplier’s currencies, India has an unbeatable advantage. Australia’s consolation is that it has a 12% advantage over Brazil and Uruguay, a status it hopes to maintain.
Australia may not be the cheapest currency amongst its meat export competitors, but it’s also not the most expensive. Australia needs to hold onto these small wins wherever and whenever it can.
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