I got interviewed by the ABC asking about an Australia Institute report that is coming out later today.
Australian farmers have lost $61.5 billion in export income since the mining boom pushed the Australian dollar to historic highs, a new analysis by The Australia Institute reveals.
Still beating around the bush: The continuing impacts of the mining boom on rural exports examines the rural sector’s export income from the beginning of the mining boom in 2003-04 until 2011-12.
The implication being that the mining boom has pushed up the value of the Aussie dollar. Now the Australia Institute report is going to be long on assertion and short on analysis – but that’s fine. What about the actual claim?
I don’t believe it. The Aussie is strong because of our high domestic interest rates relative to the rest of the world. The Aussie is strong because it has gained ‘safe haven’ status – rightly or wrongly, Australia is now one of three economies with AAA status from three ratings agencies. The Aussie is strong because we have had over twenty years of economic growth. The Aussie is over-valued IMHO right now and will be for some time – until the rest of the world gets its affairs in order.
If the mining boom was driving our currency to being over-valued why aren’t other mining economies currencies over-valued too? When I speak to my South African friends they’re not complaining about an over-valued currency.
Now here is a specious argument:
Our farmers are price-takers not price-setters. This has meant that the surge in the Australian dollar due to the mining boom has had the knock-on effect of reducing the value of their exports.
Miners are price takers too. If farmers face this knock on effect why not the miners? I suspect the report will be silent on that matter.
Now as Lord Keynes famously said, everything depends on everything else. Having a strong mining industry is good for Australia. Relative prices will change and signal that resources should exit some parts of the economy and migrate to other parts. Now some industries will suffer more than others – but it is the more marginal producers in all industries that are under the pump.