With the A$ currently retreating from the highs experienced in recent years, reviewing its impact on returns to Australian red meat exports provides valuable insight into the corrosive impact that the strong A$ has had upon the industry in recent years.

Meat & Livestock Australia economist Tim McRae this morning provides an informative briefing on the A$ and the impact it has on Australia’s export trade performance.

The past 12 years has seen the A$ steadily appreciate, climbing from an annual average low of US52¢ in 2001 to an annual average high of US104¢ in 2012.

“In recent years, this has placed huge stress on all of Australia’s exporting industries – with about two thirds of Australian beef production exported. Australia’s red meat exporters, processors and producers have all borne the brunt of the high A$,” Mr McRae said.

A strong currency will impact on returns to exporters through devaluing their returns in Australian dollars. For example, with the A$ buying US50¢, the sale of US$100 worth of Australian beef will translate into a A$200 return to the Australian exporter.

Similarly, when the A$ is at parity, the same sale will only lead to an A$ return of A$100, effectively halving the return received for the sale of the same product.

“That filters right back through the supply chain,” Mr McRae said.

To illustrate the impact that the appreciation of the A$ has had on returns, he highlighted global meat import prices over the period 2001 to 2012.

“In the US, consistently one of Australia’s largest export markets throughout the period, average imported prices for beef increased from US$2.55/kg in 2001 to US$4.71/kg in 2012 (GTA). This increase mirrors similar increases in imported meat prices across the globe over the period,” Mr McRae said.

“While meat prices increased significantly in US$ terms over the period, the return received by Australian meat exporters did not mirror this trend. For example, in 2001, with the A$ trading at an average of US52¢, the average price received for exported Australian beef was US$2.37/kg, which translated into a return of A$4.61/kg (GTA).”

“Fast forward to 2012, and keeping in mind the almost two- fold increase in global imported beef prices, the average price received for exported Australian beef was US$4.93/kg, translating into a return of A$4.76/kg.”

Despite imported beef prices almost doubling in value per kilogram since 2001, the appreciation of the A$ from US52¢ (2001) to US104¢ (2012) has prevented any significant rise in returns to Australian red meat exporters.

Recent devaluation

While the recent devaluation of the A$ throughout May has been welcome news for the industry, falling to around 96US¢,  it would need to continue to trade at these levels for several months for real tangible benefits to start to flow right through the industry, Mr McRae said.

“Indeed, while further falls in the A$ have been predicted by some currency analysts, possible closer to US90¢, there is also the possibility that it could reverse its trajectory and head back towards its very uncomfortable levels of recent years,” he said.