NZ’s Terms of Trade and the Dairy Sector

The Economist last week had an article on the strength of overseas demand for NZ’s dairy products which in turn has pushed up the terms of trade to a 37 year high – see graphic. Terms of trade is part of Unit 4 in the AS Level syllabus.

The terms of trade index measures the value of a unit of exports in terms of the number of imports it can buy, or the purchasing power of our exports. This is similar to comparing the number of sheep exports that will buy a typical imported family car, from one time to another.

The key points from the article:
– NZ is emulating Australia’s resource-driven strengths.
– April 2011 sees NZ’s biggest trade surplus in history – NZ$1.1 billion – 7% of GDP
– NZ accounts for 33% of world dairy exports – that is twice Saudi Arabia’s share of world oil exports.
– NZ will should look to move away from basic foodstuffs such as meat, milk and focus on processed food. In the supermarket NZ produce should move from the walls to the central aisles.

1 thought on “NZ’s Terms of Trade and the Dairy Sector

  1. Jay Kim

    Would this surplus be able to help pay off the large external debt that New Zealand has, or is the external debt not something to worry about considering the majority of banks in New Zealand are Australian owned?

    Reply

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