Movements in exchange rates and interest rates are important
determinants of the financial performance of Australian broadacre farms. This is because of its export orientation. The majority of farm outputs and about 30% of farm inputs are internationally tradeable. The domestic price of farm outputs and tradeable inputs move in the opposite direction to the change in the exchange rate. If the exchange rate falls, the prices of farm outputs and any imported inputs will rise and so will the prices of domestically produced inputs which are sold in competition with imported inputs.
EXAMPLE
Farmers have been partially insulated from a weakening of world commodity prices by the depreciation of the Australian dollar over the last few years. ABARE has estimated that for each 1% fall in the exchange rate, broadacre farm cash incomes can rise by about $550 on average in the year of the change.
In the study it was found that the farm incomes in the intensive cropping regions and the northern beef pastoral regions are the most affected and the incomes of sheep pastoralists and those farmers in the high rainfall areas are the lest affected.