Falling New Zealand Dollar Hurts Wool Producers

Queenstown, New Zealand, Jan. 22, 2009--New Zealand's wool industry is losing tens of millions of dollars as overseas buyers default on payments and exporters say they expect the crisis facing the industry to get worse, according to a story in the Southland Times.

Some buyers, particularly in India and China, are trying to cash in on the rapid fall in the New Zealand dollar by demanding contracts be renegotiated or defaulting on payment and walking away from orders already delivered, according to the NZ Council of Wool Exporters.

The buyers know that the global recession and the falling New Zealand dollar mean that if they abide by the contracts signed months in advance they are paying up to US$1 more a kilo than they would pay on the spot market.

The international commodity price for New Zealand wool had fallen from NZ$4.15 a kilo in September to about $3 the lowest for 14 years, Westpac economist Douglas Steel said.

Wool shipped to contracted buyers in other countries had been left on the wharves, leaving the New Zealand suppliers to either find another buyer at firesale prices or ship it home again.

The defaults have also had a serious knock-on effect: exporters were having difficulty getting insurance for credit, Wool Exporters Council executive manager Nick Nicholson said.

That was a major problem because banks would not supply credit to exporters without it.

The global recession was exacerbating the problem because retail sales of carpet were drying up.

A Christchurch-based wool exporter said overseas buyers were frequently trying to renegotiate cheaper prices.

Federated Farmers Southland president David Rose said the losses from defaults were being built into the wool prices.

"Basically it (wool) is worthless. I had a call from from a broker who valued my wool at $2.35 a kilo and I told him I'm not prepared to sell for that."

Wool Brokers Association national president Nick Redding said Southland Wool Brokers was still selling most of its wool but about 20 percent of farmers were holding on to to their clips in the hope the price would improve, he said.