Vast scope for agri-business expansion in Papua New Guinea

 

For the entirety of the island’s history, the vast majority of Papua New Guineans have been able to rely on the land and the sea to provide them with sustenance to meet their daily needs. Endowed with an astounding variety of fruits and vegetables, the average resident does not have to venture far from their front door to find a variety of healthy, nutritious produce. However, as more and more people continue to move to the towns and cities, the country has become increasingly reliant on imports to provide for these urban enclaves in spite of the abundance of food elsewhere.

Numerous Challenges

High production costs, inadequate infrastructure and a lack of private investment have all contributed to this paradox, rendering production and transportation of basic food staples impractical at best and unprofitable at worst. Because of inconsistencies in the supply chain, built-up areas located far from the agricultural production areas remain largely unable to secure a steady supply of domestically grown products with consistent quality. While a handful of projects have been bringing domestically grown products to market (often via charter flights) on a small scale, and larger retailers are making increasing efforts to buy locally, large-scale commercial production of food products has been largely missing from the market until very recently. “The biggest issue with PNG has been consistency,” Ilan Weiss, chairman and executive director of PNG-based agriculture company Innovative Agro Industry (IAI), told OBG. “Sometimes the shelf is full, but you go back the next week and it is empty – so it has been lacking in quality and consistency.” These challenges have so far proven too difficult to overcome in most areas of the country, although one growing agri-business has experienced a significant amount of success in its early days of operation. The IAI farm, which is located outside of Port Moresby at Nine Mile, has succeeded in filling this latent demand since March 2014 with a steady supply of organic produce grown in modern mechanised greenhouses.

The company has seen demand in the national capital district (NCD) for its locally-made products far exceed what the operation can produce, even after it boosted its output from six tonnes per week originally to as much as 13 tonnes per week as of May 2016. “PNG is extremely price-sensitive, but if you have good quality at a decent price you will never be able to sell enough of your product,” agri-business consultant Allan Bird told OBG. “That is what you have seen proven with this farm.”

Boosting Production 

Part of the Israeli-headquartered LR Group, which operates similar farming operations around the world, including in developing countries in Asia and Africa, IAI initially opened its Nine Mile Farm to supply a limited amount of fresh vegetables to Port Mores-by-based buyers. Without reliable market data and unsure of domestic demand, the company envisioned an initial production run of 5-6 tonnes of vegetables per week. Uptake of the products was swift, and the upper limit of demand has yet to be realised two years on as the company continued to boost its capacity in the ensuing years, with the operation now producing 12-12.5 tonnes of cherry tomatoes, capsicum, cucumber and lettuce for the Port Moresby market each week.

“We found that once you bring quality produce to the market, people will buy it and the demand increased. Being able to deliver on the same day you harvest or even one day old is a huge advantage on the market,” noted Weiss.

Historically, the primary challenge has been how to get produce from the fertile highlands to the capital in a cost-efficient manner before the products spoiled. The company was able to get around this by employing modern agricultural practices in greenhouses located much closer to the urban centres in areas, albeit in areas with much more unfavourable growing conditions than the prime highland growing regions. The company was also able to get around difficult land acquisition issues which frequently trip up larger agriculture projects by partnering up with the Jesus Christ Half Way House Church, which already had sufficient alienated land near the Port Moresby at the Nine Mile enclave. The convenient location near the capital city provides the company not only with short supply lines to urban vendors but also a large labour pool, which IAI utilises by sourcing 90% of its workforce from the local settlement.

In harnessing these advantages, the company has been able to offer products at substantially lower prices than imported goods. Imported capsicum, for example, sold for PGK40 ($13.65) per kg prior to the start of the Nine Mile farm but has since been reduced to around PGK15 ($5.12) per kg in NCD supermarkets, according to Weiss.

Diversifying Footprint

Encouraged by this success, the company has expanded its operations into other agricultural sectors across different regions of the country. IAI was able to capitalise on the activity surrounding the PNG Liquefied Natural Gas (LNG) project’s Hides gas field by developing an egg farm in the nearby rural town of Koroba starting in July 2014.

The Koroba Agro Industrial Centre was initially designed to mainly supply eggs to the PNG LNG project to the tune of around 4500 eggs per day, however, local demand has doubled this amount thanks to the low unit price and ease of transporting the product. Now in its second year of operation, the egg farm will have roughly tripled its initial planned capacity to 12,000-13,000 eggs per day upon completion of expansion in July 2016.

IAI has encouraged farmers to grow the feedstock by providing seeds – mainly maize – and agreeing to buy back any output at a premium in order to ensure supply. “The biggest challenge is feedstock because this is at least 70% of the cost, so you need the land to grow maize and soy,” noted Weiss. “If you have to import feed, you may as well import the animal.” According to the company, their poultry operations are now able to source up to half of their feedstock locally as of mid-2016. A third operation providing poultry meat and produce is set to begin operations in July 2016 in the town of Tari Piwa in the Hela Province. Although demand remains a question mark until production begins, the facility will have a capacity in excess of 100 tonnes of chicken and 200 tonnes of fruits and vegetables annually.

The firm broke ground on a new project in the Enga Province in mid-2016, in the remote town of Sirinki. This small-scale project is just 15 ha in size and will operate as a training and production farm supplying high-value crops such as berries to be transported via airfreight and chilled containers to Lae and Port Moresby. The PGK23m ($7.9m) farm is being developed in partnership with the Enga’s provincial government and is expected to begin operations by the end of 2016.

New Investments 

The most recent project is in the province of Southern Highlands and will include a frozen vegetable plant and agro-industrial centre, again purchasing from local farmers to supplement production from its own farm. With this new PGK13m ($4.4m) investment the company is further expanding its geographical distribution in the country after signing a new deal with the Southern Highlands provincial government in February 2016. William Powi, governor of Southern Highlands, stated that the two parties would cooperate to develop vegetable depots and distribution facilities along with marketing activities in addition to cultivating the produce in the province for sale locally as well as to outside markets, including abroad. This would further bolster the company’s efforts to use PNG as a distribution hub to serve other Pacific Island nations as IAI already supplies the four McDonald’s fast-food outlets in Fiji with fresh PNG produce.

Looking to further diversify, the company is also establishing a dairy farm in the Central Province intended to partially replace dairy imports. Ground on the 400-ha Ilimo Farm is expected to be broken by late August 2016, which will include 175 ha designated for growing Guinea grass and maize feed crops for the 500 milk cows on the farm. The first milk and other dairy products are expected to roll out starting within 18 months of initial development, with the possibility of doubling the number of producing cows depending on demand. Worth approximately PGK100m ($34.1m), the project will also include a modern dairy processing plant capable of churning out some 19,500 litres of milk daily.

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The Report: Papua New Guinea 2016

Agriculture & Fisheries chapter from The Report: Papua New Guinea 2016

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