Support grows for the leading cash crop

First introduced over 120 years ago during the era of German colonisation, coffee cultivation and exportation as a cash crop has had a long and successful history in PNG. From its humble beginnings as an export to Australia at the turn of the 20th century, cultivation of the crop has grown over the years to elevate coffee to the second-most-valuable agricultural cash crop in the country. Riding a surge in global coffee prices in 2005, coffee sales even managed to surpass established export champion palm oil for a one-time lead in all agricultural exports.


Production since the beginning of the millennium has hovered around 1m bags per annum (one bag weighs 60 kg), according to data from the International Coffee Organisation (ICO). Annual fluctuations are generally related to weather and to a lesser extent commodity prices as some farmers raise output during boom years and cut back during bust cycles. A recent spell of unfavourable weather combined with ageing tree stock negatively affected output in 2012 and production was halved to just 717,000 bags – the lowest output on record since 1990 – from an all-time high of 1.41m bags in 2011. Following this dramatic swing, production rebounded in 2013, coming in at a more stable 828,000 bags.

Mild Arabica highland coffee is the main variety grown, making up 95% of domestic production. Arabica is typically used in higher-quality espresso products in EU markets of Germany, France, Italy and Switzerland as well as by US coffee giant Starbucks, whereas PNG’s lower-quality Robusta bean is generally processed into cheaper instant coffee.


While the country’s first coffee estate was established just outside Port Moresby in Warirata in 1897, current production is based in the Highlands region suitable to growing Arabica beans, and encompasses the Eastern Highlands, Western Highlands, Chimbu, Enga and Southern Highlands provinces. More recently introduced, Robusta bean varieties have since expanded coffee growth to include 15 of the 19 provinces in the country, with prime Robusta growing locations favouring lowland provinces of Morobe, Central, Gulf, Milne Bay, Madang, East and West Sepik, East New Britain and New Ireland.

Land Plots

Like much the agricultural sector, large-scale plantation growing is limited due to the fragmented ownership inherent in PNG’s customary land ownership system. As such, smallholders grow approximately three-quarters of all coffee in the country. The estimated 2.5m smallholder farms account for 72% of national production, according to the Coffee Industry Corporation (CIC), with each cultivating between 700 kg and 1000 kg of coffee per 1-ha plot each year. Unable to process the raw beans themselves, the smallholders then sell their output to larger commercial dry processers, of which there are 52 operating in PNG with five new licences issued in 2013.

Plantations with a combined area of approximately 15,000 ha contribute another 24% of domestic production, with each plantation operating farms with an average size of 300 ha. The remaining 4% of output is derived from 632, 20-ha blocks, a holdover from the 1970s World Bank developmental scheme intended to boost coffee output in the country.


In addition to issuing licences for manufacturing, exporting, processing and building permits in the sector, the CIC is responsible for industry promotion, research coordination, education and training, lobbying and quality control. Because the CIC is a state-owned enterprise with the government’s Independent Public Business Corporation (IPBC) holding a 25% stake, the CIC also receives state funding. This budget was substantially boosted in 2014 to PGK32.4m ($13.2m), up from just PGK7.2m ($2.9m) the previous year, according to the 2014 budget issued by the Treasury Department. Of this, PGK11m ($4.5m) was allocated to cover coffee price subsidies with another PGK7m ($2.8m) each earmarked for the CIC Freight Surety and the Coffee Rehabilitation and Development programmes. Future annual budgets for the CIC are projected to total PGK32.2m ($13.1m) in 2015 and PGK32.8m ($13.33m) in 2016.

Cashing In

As PNG’s second-largest cash crop behind palm oil, coffee is a major source of foreign currency for the country, but remains highly vulnerable to the dramatic commodity price swings that have characterised the market in recent years. Export revenues generated during the 2011 bumper crop, for instance, totalled PGK927.4m ($377m) and ranked second of all agriculture exports only to palm oil at PGK1.5bn ($609.75m), and well ahead of cocoa at PGK320.3m ($130.2m), copra oil (PGK173.9m, $70.7m) and even exceeding a record high of PGK732m ($297.56m) from the timber industry, according to data from the Bank of PNG. Revenues from coffee shipments trailed off along with production in 2012 for a total of PGK478.5m ($194.5m) with first quarter 2013 exports at PGK46.1m ($18.7m). All told, 1.42m bags of coffee were shipped during the 2011/12 crop year, well above the 880,000 bags exported the previous year and double the 715,000 bags in 2013, according to ICO data. The primary purchaser of PNG coffee is Germany, followed by Australia, the US and Japan.

While the record harvest and exports certainly contributed to the spike in 2011 revenue, commodity prices also played a major role. After the ICO’s composite indicator price measuring the global commodity price for coffee rose steadily throughout 2010 from 126.80 US cents per pound (USc/lb) in January to 184.26 USc/lb in December that year, the trend continued to an eventual peak at 231.24 USc/lb in April 2011 before receding to 189.02 USc/lb by the end of the year. As demand softened in 2012, prices continued to fall nearly to 2010 levels at 131.31 USc/lb by December 2012 and trailed off through mid-2013 to a low of 100.99 USc/lb in November 2013.

Weather Woes

Just when things were looking particularly grim for coffee growers the world over, uncertainty over how weather would affect Brazil’s output in 2014 sent prices back up to 170.58 USc/lb by April 2014. Much of this rebound was fuelled by disruption to the Brazilian crop due to droughts in early 2014, leading analysts to reduce forecasts for 2014/15 production and speculate that quality and quantity of coffee could be negatively affected through the 2015/16 growing season. The future outlook was further thrown into doubt due to the US Climate Prediction Centre estimating a more than 50% chance of El Niño occurring in the 2014 summer. If this proves correct, warmer weather in Brazil could bring excessive crop-damaging rains during the harvest, while reduced rainfall would have a negative impact on Robusta production in Vietnam, Indonesia and PNG, according to the ICO. As a result, Arabica coffee prices saw strong gains in April 2014, rising more than 4% on the month to their highest levels in over two years.

Next Step

As the country moves forward with its plan to diversify its economy, the coffee industry is well placed to capitalise on its traditional position as a primary cash crop. Though the industry has had its ups and downs in recent years as inclement weather, vacillating commodity prices and ageing trees have contributed to swings in production, both the government and private stakeholders are making efforts to further expand the sector going forward.

Some of government programmes enacted in recent years to boost the sector include the freight surety scheme facilitated by the PNG Defence Force under the District Road Improvement Programme. Although ultimately unsuccessful due to problems distributing its PGK40m ($16.26m) budget, the initiative sought to bypass the logistical challenges of trucking coffee from remote locations in the Highlands by airlifting products to export points using government cargo planes. More successful schemes have been launched over the years with the assistance of international donor aid such as the Smallholder Support Services Pilot Project funded in part by the Asian Development Bank, which ran from 2004 to 2009 in a bid to enhance coffee extension and skills training for farmers. More recently, in March 2014 the World Bank approved $30m to extend funding for the Productive Partnership for Agriculture Project (PPAP) which works with some 60,000 PNG coffee and cocoa farmers to increase yields and boost quality. Additional funding for the ongoing project is also being provided by the EU ($6.4m), the government ($4.5m) and the private sector ($10m). After contributing PGK15.4m ($6.26m) to develop administrative infrastructure for the PPAP in 2013, the PNG government expects new planting on the project to begin in 2014 and has budgeted PGK11.9m ($4.8m), PGK12.2m ($5m) and PGK12.5m ($5.1m) annually to support the project through 2018.

As a result of greater efficiency in the industry, the Treasury Department forecasts coffee export revenues hitting PGK278.6m ($113.25m) in 2015 and rising each year to PGK391.3m ($159m) by 2018. This would make coffee the third-most-valuable agricultural export behind palm oil and forest products. To achieve this, export volume is expected to rise from 43,500 tonnes in 2015 to 58,100 tonnes by 2018.

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The Report: Papua New Guinea 2014

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