Currency Devaluation Impact on Export Competitiveness

A local currency devaluation against the currencies most international seafood trade is actually invoiced in, predominantly US dollars and euros as discussed elsewhere in this glossary's currency risk content, generally improves an exporting country's price competitiveness in international markets, since the exporter's local-currency costs, labor, locally sourced feed ingredients, local infrastructure, effectively become cheaper in dollar or euro terms following the devaluation even without any change to the exporter's actual local-currency pricing or cost structure, a competitive effect that has historically driven measurable export volume increases following significant currency devaluation events in several major seafood-exporting countries. This competitive benefit is not unlimited or indefinite, however, since any imported inputs the exporter relies on, imported feed ingredients, imported equipment and spare parts, correspondingly become more expensive in local-currency terms following a devaluation, meaning the net competitive benefit depends on the balance between an operation's export-currency-denominated revenue and its import-dependent cost structure, with operations heavily dependent on imported inputs seeing a smaller net competitive benefit, or in severe cases a net cost increase, relative to operations relying more heavily on domestically sourced inputs not similarly affected by the devaluation's cost-increasing effect on imports. Domestic inflation frequently follows a significant currency devaluation, particularly in economies with substantial import dependency generally, and if domestic inflation erodes the devaluation's initial competitive benefit over time by driving up local-currency costs generally, the net export competitiveness gain can prove temporary rather than durable, meaning exporters and analysts evaluating a devaluation's strategic significance need to consider this dynamic, time-evolving inflation-adjusted picture rather than treating the devaluation's initial, point-in-time competitive benefit as a stable, permanent advantage. Buyers and importers in markets sourcing from a recently devalued-currency exporting country sometimes negotiate price reductions reflecting the exporter's now-lower underlying local-currency cost structure, meaning the devaluation's competitive benefit does not automatically and entirely accrue to the exporter alone but is often at least partially shared with or captured by buyers through subsequent price negotiation, depending on each party's relative negotiating leverage in that specific commercial relationship.