What impact will Australia’s increasingly muscular dollar play in future efforts to market food and beverage exports?

The chief economist at the Australian Trade Commission, Tim Harcourt, suggests a higher-value dollar should not deter exporters from pursing offshore sales, at least in the medium term.

“Australia’s export sector has thrived at higher nominal exchange rates than there are at present,” Harcourt says. “In the big picture, a moderately high dollar may not be cause for alarm. In fact, some market commentators consider the dollar has been too low for some time.

“In the minds of the financial markets and some exporters, there’s an important psychological level of 60 US cents and some people are worried about the dollar rising above this level.”

But before anybody panics, Mr Harcourt suggested there are four things to bear in mind about Australia’s “strengthening” dollar.

First: changes in the US–Australia exchange rate – more a function of the weakening American dollar than a reflection on Australia – indicate falling market confidence in the US and a fear of a “double-dip” recession. Uncertainty about possible economic effects from a conflict with Iraq is also a factor.

Second: Australia’s trade weighted index (TWI) is an important consideration, not just the bilateral Australian-US dollar exchange rate.

Third: There is a difference between “nominal” (as measured by the TWI) and “real” exchange rates. The real exchange rate – actually, the nominal rate adjusted for inflation differentials – is considered to be a more significant measure. A rise in the nominal exchange rate is less of a worry if Australia’s overall competitiveness is improving through higher levels of productivity.

Fourth: a high nominal exchange rate need not put the brakes on exporters in the medium term. Australia during the 1990s managed to grow exports in volume terms by about seven per cent a year while the Aussie exchange rate was 72 cents against the US dollar and 56 cents on the TWI.

“Exporting is a difficult process that relies on patience, trust, commitment and the building of relationships with suppliers and customers in overseas countries,” he said. “Australia’s export success can’t depend on exchange rates alone.”

Phil Rosser, senior manager of Trade Development at Sydney Ports, accepts that many commodities are traded in US dollars and may become more expensive for off-shore buyers. But he believes the growing imbalance between imports and exports will turn out to be more significant for Australia.

“The economy is strong so we’re drawing in imports like crazy – and exports have dropped off,” he said. “This is more than just the effects of the drought. Some export lines have fallen because there has been a drop in demand from overseas, like cotton. Cotton plantings were being reduced even before the drought set in because there was a lack of demand.”

But there were encouraging signs from the processed food and food preparation products sectors with export figures growing over those from the last couple of years.

“It’s a welcome move away from simply exporting commodities and concentrating, instead, on processing food products and value-adding,” he said. “From everything I’ve seen, that trend is holding up.”