28/09/20007 - Global dollar trouble sinks profits

Processors worldwide, in most countries are hit by dollar trouble to different degrees. (Photo: FIS)

WEEKEND FEATURE: Global dollar trouble sinks profits

WORLDWIDE
Friday, September 28, 2007, 23:50 (GMT + 9)


Indian exporters are unable to compete with their Asian competitors such as China, Vietnam, and even Bangladesh and Sri Lanka, according to AJ Tharakan, president of The Seafood Exporters Association of India (SEAI). The Indian products are priced out in the major markets of the United States, Japan, and the European Union (EU) due to the strong rupee.

It is difficult for exporters to lower the price paid to fishermen or aqua farmers in line with the appreciating rupee, he said, as one of many industry representatives making the same complaints worldwide.

The US dollar is, despite it losing some weight, the most important currency in international trade for all sorts of commodities and products. Since 1 January it has lost 10.9 per cent of its value against the Indian rupee. Exporters who have joined long term contracts where the prices are pegged to the dollar are in trouble if no clause in the contract protects them against such large fluctuations to the currencies.

Value of 1 USD against other currencies 2004 – 2007

Country
Currency
01.01.04
01.01.05
01.01.06
01.01.07
25.09.07

Canada
CAD
1.297
1.2
1.164
1.166
1

Chile
CLP
611.4
575
514
532.6
514.1

China
CNY
8.287
8.286
8.075
7.817
7.518

EU
EUR
0.795
0.737
0.844
0.758
0.709

India
INR
45.69
43.47
45.19
44.12
39.77

Japan
JPY
107.4
102.44
117.68
119.11
115.07

S. Korea
KRW
1193
1076
1029
940
922

Morocco
MAD
8.841
8.506
9.366
8.508
8.047

Norway
NOK
6.67
6.07
6.77
6.24
5.52

New Zealand
NZD
1.527
1.393
1.464
1.421
1.343

Russia
RUB
29.25
27.73
28.75
26.331
25.016

Thailand
THB
39.7
38.84
41.08
35.95
32.22




US dollar vs. Indian rupee

However, the Indian seafood industry is now experiencing what exporters and importers in other countries have troubled over for years. Since 1 January the US dollar lost 10.9 per cent against the Indian rupee. In comparison the US dollar lost 13 per cent against the Norwegian krone this year, and since 1 January 2004 has depreciated 29.7 per cent against the Canadian dollar and 29.4 per cent against the South Korean won.




The Thai baht is strengthening fast, and just this year the US dollar has lost 11.6 per cent against it. Since 1 January, 2004 the value of the dollar has decreased 23.2 per cent against the baht.


Change in % against the US dollar

Currency
01.01.07
01.01.04

CAD
11.6
29.7

CLP
10.3
18.9

CNY
4
10.2

EUR
6.9
12.1

INR
10.9
12.1

JPY
3.5
- 9.3

KRW
3.5
29.4

MAD
5.7
9.9

NOK
13
20.8

NZD
5.8
13.7

RUB
5.3
16.9

THB
11.6
23.2



US dollar vs. Canadian dollar

In Canada the strengthening of the Canadian dollar reduced profits, and also put many companies into the red. It is difficult to increase prices nearly 30 per cent in three years just to cover changes in exchange rates.




US dollar vs. Thai baht

The effect of the weakening dollar is varying from sector to sector. Increasing prices on fuel is not only real increases. Some of the increase is due to the depreciation of the dollar. For a Thai processor selling the products in the domestic market, and basing production on imported raw material paid in dollar, is the situation not to bad. But large exporters like CP-Group exporting large volumes of seafood and poultry are getting paid in dollars. The same is happening for a company like The Union Frozen Products Co., Ltd. (UFP)

Exporters of canned tuna to the US market have been hit hard. Not only do they have to make US buyers pay more to cover the rapidly increasing value of the Thai baht, but also the cost of transportation is also up, especially in dollar terms. All this in the end has to be paid by US consumers.

For a company like UFP the situation is not totally gloom and doom. Much of the tuna canned by the industry is sourced worldwide, and therefore often paid in dollars. As the raw material is imported, it is mainly added value done in Thailand that is affecting the product price in dollars. However, at least two thirds of the increased product price in dollars will have to be recovered by lowering production costs, decreasing profits for the processor, as well as US importers and consumers.




US dollar vs. euro -The North Africa trawler fleet

For Morocco, Mauritania, and many other African countries the income from fishing licenses issued for foreign pelagic trawlers is putting good cash in the coffers. Luckily enough, many deals have been agreed upon in euros, especially in bilateral agreements with EU or European governments. The euro has also depreciated against many currencies, but the fall in the value of the euro is less against most currencies than what it is for the dollar.

This does not change the fact that countries issuing fishing licenses against a fixed fee per tonne of fish caught are loosing big money in the development in the dollar value. An increase in the fees is possible upon renewal of licenses. But high fuel costs are making many fuel intensive fisheries less profitable than before. There is a limit for how much the vessel owners will pay to continue fishing. Prices on small pelagic fish are fluctuating. The enormous herring catches in the Northeast Atlantic is putting pressure on sardinella. Importers in many main markets for the West-African sardinella catches are also settling their contracts in dollars.




US dollar vs. Moroccan dirham

Moroccan dirham has been hit less than many other currencies. The dollar has only depreciated 9.9 per cent against the dirham this year.




US dollar vs. Chilean peso and Norwegian krone

A winner in the currency game was for some time Norway. The Chilean peso was increasing faster against the dollar than the Norwegian krone. This made Norwegian salmon cheaper than Chilean salmon i dollar terms.




But this did not last very long, especially in the last couple of months the Norwegian krone has increased in value against most currencies in the world, as has the Chilean pesos, but to a lesser degree.




The reason is the fast growing economy in Norway. To cool down the consumers’ lust the Norwegian Central Bank has pushed the interest rates up by 0.25 per cent six times, just this year. The latest increase in the interest rate was Wednesday last week.

Now the Norwegian fishing industry is protesting, as they are getting less and less competitive. They have to pay the price of heat in the Norwegian economy, a situation resulting from very lax regulations of lending towards consumers. Until Norway has solved this trouble, the increased interest rates will increase the value of the krone further. Combined with a dollar in the middle of dive most finance experts expect to continue, the Norwegian seafood industry is facing tougher international competition.

The good news in the current situation is the fact that most free currencies are appreciating against the dollar. Processors worldwide, in most countries are hit by dollar trouble to different degrees. This is also what will make the world seafood industry continue as before. The US market may contract as local consumers change to local products, which should be more competitive against imported products.

US dollar vs. Japanese yen

A similar development has been seen in the Japanese market. The yen have seen much worse trouble than the US dollar. Since 1 January 2004 the dollar has strengthened nearly 10 per cent against the Japanese yen. Since 1 January this year the development has changed, and the dollar is down 3.5 per cent against the yen, despite the strength of the Nippon's currency.




By Terje Engoe
www.fis.com