The currency of trade

The currency of trade – impact of currency fluctuations on the food industry

Keith Cheveralls

Of all the factors impacting U.S. dairy exports – and global of any product-currency fluctuation is among the least understood, yet can have the biggest impact. Europe has seen one of the most pronounced

one-directional currency moves in some time. The euro launched this past January at about 1.17 dollars per euro, and recently (late July) traded at 1.03 dollars per euro. In just six months, this has caused U.S. exports to cost nearly 14% more to European importers. For example, if you sold $50,000 worth of dairy products into Europe on Jan. 2, that shipment would have cost your European importer 42,735 euro. On July 20, that same shipment would have cost your European importer 48,543 euro, assuming all other costs remained consistent.

There is, however, good news. It takes a while for movements in exchange rates to change the way people do business. By the time they decide to make a change, the pendulum often swings the other way.

More good news for the U.S. is that markets for U.S. exports, even dairy products, are fairly broad. When some markets are weak against the dollar, others can be strong. In Japan, for instance, the yen was trading at 140-145 per dollar a year ago, versus late-July’s rate of about 120 yen per U.S. dollar. Just as Europe’s currency exchange rates may not be very hospitable, those in Japan and parts of Asia now are favorable.

U.S. dairy exporters should diversify their risks and look not just at Europe but also Asia and other parts of the world-assuming there is a comparable market and opportunity for their products.

Some exporting difficulties exist in our minds. USDA has said that U.S. companies tend to overestimate the difficulty; in particular, many are intimidated by the concept of paying and receiving in foreign currencies. It’s unfamiliar ground for many American businesses, while companies elsewhere in the world have more experience managing currencies.

U.S. dairy companies must be aware of the opportunities that come with being conversant in pricing in euros and other currencies. While helping a U.S. exporter, we discovered their Dutch business partner was consistently adding a percentage to its cost figures to cover what we call the “foreign exchange rate volatility factor.” Sure, foreign currencies fluctuate over time, but they move both ways. This company was always figuring in a disadvantage, when sometimes the exchange rate was working to their advantage.

Any company considering doing business overseas should understand foreign exchange. It’s a relatively simple concept, and there is a wealth of information available to you. Then you, as producer or exporter, can make intelligent business decisions that can- and likely will-lead to business growth.

COPYRIGHT 1999 Cahners Publishing Company

COPYRIGHT 2000 Gale Group