A falling Australian dollar is good news for farmers.
The value of farm exports are estimated to increase by nearly half a billion dollars for every one US cent fall in the currency.
That’s the analysis of the Australian Bureau of Agricultural and Resource Economics and Sciences prepared for its annual conference in Canberra.
The fall in the Australian dollar against the US dollar is expected to have a positive affect on farm incomes because close to 65 per cent of agricultural production is exported, and mostly contracted in US dollars.
Between September 2014 and February 2015 the Australian dollar depreciated from an average of US94c to about US77c. It averaged US103c in 2012/13.
ABARES chief Karen Schneider says the currency’s decline is in response to the nation’s declining terms of trade and a narrowing differential in interest rates to other countries.
A further depreciation of the Australian dollar by one cent is estimated to directly increase the value of farm exports by about $490 million – all other factors remaining equal, ABARES says.
While this is partly offset by a decline in world agricultural prices and higher prices for imported fertiliser and machinery costs, the net increase in farm sector incomes is about $320m per one cent decline in the currency.
Farm exports earnings of $40.3 billion forecast for 2014/15 assumes an exchange rate of US83c.
At US77c now, National Australia Bank chief economist Alan Oster told the conference the currency is “where it should be” while he anticipates a further decline to US74c by the end of the year.