Largest drop in terms of trade in a decade as dairy export prices sour

Lower export prices for dairy, meat, and logs in the September 2020 quarter led to the biggest drop in terms of trade since June 2009, Stats NZ said today.

Export prices fell in the September 2020 quarter, down 8.3 percent from its highest ever level in June 2020. This is the third largest fall in export prices since the series began. Import prices fell 3.7 percent, resulting in a terms of trade fall of 4.7 percent.

The terms of trade measures the purchasing power of New Zealand's exports abroad and is an indicator of the state of the overall economy. A fall in the terms of trade means the country can buy fewer imports for the same amount of exports.

"Export prices for dairy products fell 12 percent overall in the quarter," business prices manager Bryan Downes said.

"Global dairy trade (GDT) prices rose overall in the same period; however, the GDT only represents a proportion of the dairy products exported by New Zealand."

"Dairy values have been the most affected with a 16 percent drop in the quarter compared with a 3.3 percent fall in dairy volumes exported," Mr Downes said.

"Dairy is one of New Zealand's top exports, along with travel services, both of which have seen falls in value this quarter."

See COVID-19 keeps a lid on international travel for more on travel services.

Also contributing to the fall in export prices were lower forestry products prices, which fell 11 percent in the September 2020 quarter, following an 11 percent rise last quarter. Forestry products export volumes rose 27 percent in the quarter.

Meat prices also fell 8.8 percent in the quarter with beef prices down 7.4 percent and lamb prices down 10 percent.

Import prices fell 3.7 percent in the September 2020 quarter with a fall in electrical machinery and apparatus prices influenced by lower prices for laptops and television imports.

The Reserve Bank of New Zealand's trade weighted index (TWI) rose 3.4 percent in the September 2020 quarter, while the New Zealand dollar to US dollar exchange rate rose 7.2 percent over the same period. The trade weighted index (TWI) is a measure of the value of the New Zealand dollar (NZD) relative to the currencies of New Zealand's major trading partners.

"The New Zealand dollar rebounded from a fall last quarter which has had a downwards influence on both export and import prices," Mr Downes said.

Fuel

Petrol and petroleum products prices rose 0.4 percent in the September 2020 quarter. This followed a 35 percent fall in the June 2020 quarter. Petrol and petroleum volumes rose 25 percent in the September 2020 quarter compared with a 42 percent fall in the June 2020 quarter.

"Prices for primary fuels such as crude oil recovered significantly following a sharp 44 percent fall last quarter," Mr Downes said.

"However, this increase was offset as imports of processed fuels continued to fall in price, as low global demand led to a glut of processed fuel."

Volumes for primary fuels fell 2.4 percent while processed fuels rose 71 percent during the September quarter. Fuel values and volumes are not seasonally adjusted.

"The slight fall in volumes of primary fuels imports and spike in volumes of processed fuel imports reflect a shift to importing processed fuels rather than refining primary fuels domestically," Mr Downes said.

"The last time there was such a divergence in primary and processed fuel volumes was in the June 2018 quarter when the Marsden Point Oil Refinery was closed for maintenance and no primary fuels could be processed."