Weaker rand a double-edged sword for exporters

A warning to exporters in general and citrus fruit exporters in particular has just been voiced by Citrus Growers’ Association (CGA) CEO, Justin Chadwick. “Exporters from South Africa have watched the latest movement of the rand ‘With most export costs being priced in US dollars, the movement of the rand against it does influence costs.’ carefully, as a weakening rand has an immediate impact on the returns earned in the market,” he told FTW. And, he noted, the rand has weakened by 20% from May 2011 levels, although it has some way to go before getting to the levels experienced in mid 2002. That was an extremely volatile period. Over the years 2001/02 the rand exchange rate was on a roller-coaster ride, said Dr Gad Ariovich, chief investment officer of Anglorand Securities. “The currency fell by 37.4% in 2001,” he added, “recovered by almost 40% in 2002 and then appreciated a further 8% from the beginning of 2003 to early March. All these substantial fluctuations in the external value of the currency happened without apparent economic and/or political reasons.” So we’re not in such dire straits this time around, but a much weaker rand sets SA exporters in an equally weak position compared to how other currencies might be behaving. However, Chadwick’s market analysis seemed to show that citrus exporters might be faced with opposition that is also suffering from problematic exchange rates. “Looking at the major competing citrus exporter countries of Australia and South America,” he said, “we see that in most currencies volatility has been experienced since 2000. Argentina and Uruguay have been the most impacted in terms of exchange rate changes – with Argentina experiencing a major devaluation between 2001 and 2002, and Uruguay experiencing the same a year later.” Chadwick also noted that SA citrus exporters should not be so concerned about exchange rates in general, but should pay particular attention to the rand compared to the US dollar. “What is making the rand/US$ the one to watch is the reduced reliance on the euro and pound markets,” he said. “Since the year 2000, exports to euro/ GBP-denominated markets have been consistently less than 50% of total southern African citrus exports – with 2011 recording just 41% sent to these markets.” “With most export costs (in particular shipping) being priced in US dollars, the movement of the rand against it does influence costs – with a weakening rand having an influence on cost levels.” But this leads to a somewhat plus/minus scenario. “This cost impact is felt over a longer period of time,” Chadwick added, “whereas the rand weakness results in almost immediate increases in returns.”