‘Chinese currency weakness could impact Irish agri-food companies’

The 7.5% fall in share values recorded overnight on the Shanghai Stock Exchange reflects nervousness in the market, according to Investec Ireland’s Ian Hunter.

It comes following the fall in the Chinese currency (Yuan) against major currencies with no current sign of support for the currency from the central bank.

This currency movement may well have some negative impact on Ireland’s agri-food economy if it remains unchecked, he said.

“Although not large, given the scale of their global businesses, this will be particularly the case for dairy companies such as Glanbia and the Kerry Group, with direct exposure to the Chinese market,” he said.

“China’s currency, the Yuan, has fallen in value against the euro which makes Irish food exports to the country more expensive while reducing Chinese buyers’ ability to pay for dairy and food imports

“Adding to the challenge facing Irish food companies is the international fall in dairy commodity prices that has been recorded, across the board, over the past number of months. Dairy-facing companies in this country are price takers, not price makers.”

Hunter said that the current downturn in the Chinese economy could also reduce the potential for Irish beef processers to export product into that market.

“Although we are looking at some economic slowdown in China it is far from bad news as Chinese GDP is forecast to grow by 6.8% in 2015, which is still impressive growth when compared to the US at 2.8% and Europe at 2.1%.

Hunter confirmed that given their global business footprints, exchange rate movements now have a bearing on the financial results reported by Irish agri food businesses.

“Glanbia is a case in point,” he said.

“The business recently announced a significant increase in earnings for the first six months of 2015.

“However, a proportion of this increase reflected better translation of profits generated in US dollars into the reporting currency (euro) than last year, given the recent strengthening of the dollar against the euro, rather than underlying like-for-like growth in the business.”

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