Wheat growers will notice the effects of the Asian currency crisis on their returns this year as important customers like South Korea, Indonesia and the Philippines lose buying power.
“It does have an impact on (farmers’) bottom line, because with the prices going down in the futures market … and everything being more skittish, it does have an effect,” said Rhea Yates, spokesperson for the Canadian Wheat Board.
“We have to look at likely smaller volumes to Asia. As a result, it means we have to be looking at other markets as ways to move the same volume of grain,” she said.
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For the first time in its history, the Canadian Wheat Board has extended $35 million (U.S.) in credit to South Korea for milling wheat because of its currency problems.
“I think there’s never been the same need before,” said Yates. “Right now it makes sense because our competitors are offering credit too. If we weren’t there, we would be losing sales there.”
The United States Department of Agriculture has extended $1 billion (U.S.) in credit to the country, while the Australian Wheat Board has given $36 million.
South Korea bought about 806,400 tonnes of wheat in 1996-97, well up from the 289,000 tonnes of wheat from Canada in 1995-96, but its average annual purchase over the past 10 years has been 981,000 tonnes, said Yates.
Indonesia bought 1.48 million tonnes in 1996-97.
The South Korean credit must be repaid 90 to 180 days after grain is loaded, said Yates.
The currency problems “may mean that we have to look at more credit, if the Canadian government is willing.”
She wouldn’t comment on whether other countries are seeking credit.
Sales to Japan have not been affected by the currency crisis, she added.
The tip of the Asian financial crisis iceberg became apparent on July 2, 1997, when Thailand stopped pegging its currency, the baht, to the U.S. dollar.
Central banks in Thailand, the Philippines, Mal-aysia and Indonesia have also pegged their currencies to the U.S. dollar.
The Asian tigers had attracted significant foreign investment. Until recently, the countries exported more than they imported. But governments spent too much money, encouraging banks to lend too much money, boosting domestic economies beyond what exports could sustain.
Billions in bail out
When currencies were unleashed to downward pressures, the International Monetary Fund stepped in with billions to bail out the countries in exchange for economic reforms.
What happens next is not clear. In Indonesia, analysts say, most publicly traded companies are facing bankruptcy unless the rupiah currency takes a turn for the better.
Feed mills have cancelled corn imports. Shoppers have cleared shelves. There are rumors of social unrest.
Economists predict the crisis will hinder U.S. economic growth this year because of fewer exports to the countries with currency problems, as well as after-shocks in other Pacific Rim countries.
