Home > Exchange Rates, Growth > New Zealand – Resource Curse in reverse with falling dairy prices

New Zealand – Resource Curse in reverse with falling dairy prices

nz dairyI have mentioned the resource curse in previous posts especially those countries with natural resources. Below is an extract from a previous post.

Africa may have enormous natural reserves of oil, but so far most Africans haven’t felt the benefit. In Nigeria, for instance, what’s seen as a failure to spread the country’s oil wealth to the country’s poorest people has led to violent unrest. However, this economic paradox known as the resource curse has been paramount in Africa’s inability to benefit from oil. This refers to the fact that once countries start to export oil their exchange rate – sometimes know as a petrocurrency – appreciates making other exports uncompetitive and imports cheaper. At the same time there is a gravitation towards the petroleum industry which drains other sectors of the economy, including agriculture and traditional industries, as well as increasing its reliance on imports.

For New Zealand it seems to be working in reverse. New Zealand’s biggest export earner is dairy and with prices dropping by 23% since last year and the outlook of continued monetary easing from the RBNZ the dollar has dropped from US$0.77 on 27th April to US$0.67 today – a level not seen since 2010.

However, going against what the resource curse suggests, the weaker exchange rate will provide extra revenue for exports like the tourism industry which has been enjoying high numbers especially from Asia. Furthermore, there have been suggestions that it could surpass the dairy industry as the biggest earner of export receipts. There are further benefits for domestic companies competing against imports as the weaker dollar makes competing overseas goods more expensive relative to those produced in New Zealand.

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