NZ foot-and-mouth scare shows economic risks

By Graeme Peters, Reuters, 15 June 2001

[Sorry, no URL, this came to me by email] WELLINGTON, June 15 (Reuters) - A rumour that the devastating foot and mouth disease had hit New Zealand's key dairy and meat industry highlighted how vulnerable the economy is to the infection, economists and government officials said on Friday.

The rumour, later found to be false, surfaced on Thursday and sent the New Zealand dollar reeling, even spilling over into the Australian dollar.

New Zealand has never had an outbreak of the disease, which devastated Britain and parts of Europe earlier this year.

The alarm was raised by a government veterinarian at a central North Island meat processing plant who spied ulcers on the tongue of a slaughtered cow.

The New Zealand dollar slumped more than three-quarters of a cent against both the U.S. and Australian dollars, although the Australian currency was also dragged lower.

By 0658 GMT on Friday, the kiwi was still trading almost half a cent lower at about US$0.4160 than before Thursday's rumour. The Australian dollar has recovered and at 0716 GMT on Friday was quoted around US$0.5250.

Economists painted a devastating scenario for New Zealand if there was an outbreak of foot-and-mouth.

The effects would not be limited to the NZ$12 billion a year in dairy and meat exports which account for 39 percent of New Zealand's overseas sales.

The South Pacific island nation of 3.8 million people relies heavily on agricultural exports and tourism.

"You could be looking at a 10-cent fall in the kiwi dollar," predicted Bank of NZ economist Tony Alexander.

"Interest rates initially go through the roof because of the risk premium, then they plummet because you're in recession, the share market obviously plummets, people leave the country -- pretty much one of the worst case scenarios for the economy."

The NZ Ministry of Agriculture estimated on its Internet site that the standard of living would slide and as many as 100,000 people would lose their jobs in a big foot-and-mouth outbreak. Tourism accounts for 14 percent of New Zealand's export receipts.

GOVERNMENT ASSURES MARKET

Finance Minister Michael Cullen on Friday repeated government assurances to the markets. "The alarm was a totally false one," he said.

Asked if the dollar should return to its pre-rumour levels, Cullen said: "Absolutely. There is no reason for the dollar to stay down because of this, it would be absolutely absurd."

The New Zealand stock market shrugged off the rumour, which occurred after the market closed on Thursday. By Friday's opening, stock traders were happy the rumour was false.

The British outbreak of foot-and-mouth, an incurable infectious virus affecting cloven hoofed animals, led to the slaughter of more than three million head of cattle and the loss of meat export markets and tourism revenue.

Foot-and-mouth already exists in parts of Asia, Africa, the Middle East and South America.

New Zealand had two reports that proved false on Thursday. The second was on the east coast of the North Island.

Agriculture officials say they check about 30 foot-and-mouth reports each year, but owing to the heightened awareness following the outbreak in Britain, they expected to check out as many as 50 reports this year.

Veterinarians have concluded the ulcers were most likely the result of a wound from the animal biting a fence or stick or from eating a hot or caustic substance, said Derek Belton, the Ministry of Agriculture's director of animal biosecurity. "Cows eat everything and the tongue is quite sensitive," he said, adding the alerts were not unusual.

Local investors saw the low currency on Friday as a chance to stock up on kiwis, but offshore brokers took their business elsewhere, one currency dealer said.

"It just spooked them. If you're...long you just go 'Why bother, I'd rather be in a different country'."

(Additional reporting by Lincoln Feast)

03:30 06-15-01

-- Andre Weltman (aweltman@state.pa.us), June 26, 2001