Strong rand hits marginal businesses exporters forced to seek out niche markets

RAY SMUTS NOTHING CAN as starkly illustrate the South African exporter’s dilemma as the rand’s appreciation by 23% against the US dollar, 14% against the euro and 9% against the UK pound over the past year alone. Whereas South Africa exported marginally more fruit (1,9 million tonnes) during the 2003/’04 season than the 01/02 season (1,7 million tonnes) the average FOB difference in rand terms is R0,541 billion - a decrease of 11%. During the 01/02 season the average rand/dollar rate was about R9/dollar and the average FOB selling price for one tonne of all fruits US$360. The picture had changed somewhat a year later. The average rand/dollar was now in all probability R7/dollar and the average FOB selling price of one tonne of fruit about US$345. “The implication,” says Stuart Symington, CEO of the Fresh Produce Exporters’ Forum, “is that everyone in the perishable trade chain will need to sharpen their pencils in terms of costs if they wish to stay active in business.” What is more, a number of ‘financially precarious’ businesses (producers and exporters) will close their doors and depending on the severity of impact per farmer, retrenchments will be inevitable. “Many exporters will be holding onto the business at a loss in order to survive the rand and retain the customer, but this cannot be done indefinitely,” says Symington. He believes any marginal businesses that exporters have been clinging to will be lost and that a lot of businesses considered relatively safe in the past will become marginal. “Everyone in the value chain will need to prune costs to the bone to justify their existence. It takes a lot of hard work to relentlessly trim fat out of the trade chain, yet all savings can be fairly rapidly eroded by a rand on the march. This is discouraging when the country has been strongly encouraged to position itself for exports over the last eight years.” On a more positive note, Symington says one of the benefits of a strong currency is that exporters are forced to look for niche markets in order to receive better returns, while a tough rand will also make them look again at their local market which they may have been guilty of overlooking or ignoring in the past. “There are winners and losers in every movement of the rand, a fact of life not unique to this country.” He says the South African Reserve Bank has a limited number of instruments at its disposal to combat an unpopular rand, without necessarily intervening. “If we could have a weaker rand, say, R8/dollar with a lot of stability and predictability attached to it, I think the industry would be happy and no doubt the SARB as well.”