Interview: James Rice
Where do opportunities exist in the fast-moving consumer goods (FMCG) segment?
JAMES RICE: The greatest opportunities in FMCG lie outside the big cities of Port Moresby and Lae. The highest potential for demand is on the islands and in the countryside, especially in western areas. Some 80% of the country’s population is centred around Mount Hagen, yet our current sales in that region are only around 15%. The region has great opportunity and I see potential for us to double sales in five years. Many other companies in the sector have similar ambitions. Papua New Guinea’s economy will remain roughly the same size in 2020, but there is room for growth if we work hard and look at widening sales distribution.
Products with the greatest growth potential are cheap items, characterised by low cost and high volume. For example, PGK1 ($0.29) bars and biscuits are popular throughout the nation and are sold in large quantities. Due to their low price, security is of less importance in this product line than in others, where shipments are of higher value. Competition comes not from illegal duplication but from foreign products that do not pay income tax, goods and services tax, and import duties.
What challenges do manufacturing companies face, and how can they be overcome?
RICE: The government can play an important role as facilitator by providing proper roads and transportation. In addition to being essential for distribution, roads are the blood vessels of an economy; without roads, there is no access to education, jobs or health care. Due to the latent state of transportation infrastructure and the difficult nature of the country’s topography, distribution costs account for up to 13% of net sales, whereas in many other countries this accounts for less than 5%.
Moreover, there is a major shortage of talent and key competencies, especially in the middle-aged demographic, which would normally occupy middle management and sales leader positions. The younger generation is better educated and ready to develop the country, but lacks the required experience.
Finally, there is very low economic activity in packaging in PNG, most of which therefore comes from China and Malaysia through intermediaries such as Singapore and Australia. Since the current manufacturing industry is relatively small and not focused on export, packaging machines are not economically viable. If the country were to grow the scale of production and start exporting more, these economies of scale would also attract more activity and increase the number of jobs.
How can industry stakeholders work together to improve agricultural output and value addition?
RICE: Local farmers need relatively little to start a small business: some seedlings, training, and equipment for fermentation and growing are enough to raise cacao trees on a family farm. However, major growth comes from scaling, which can ramp up production, quality and consistency. The land for this is available and fertile, but capital is difficult to find and leverage efficiently. A key enabler of a scale increase could be more local companies purchasing products in larger quantities.
Many products are exported raw, which loses the country a lot of value. PNG exports coffee beans and palm oil, but imports ground coffee and cooking oil. There are several refining stages for many products that could be done in the country, each adding more value and creating jobs and economic activity.
An advantage PNG has is that most of our produce is organic, grown in high-quality soil and sustainable, with many producers having an excellent relationship with the farmer where they buy their feedstock. In many countries, people are willing to pay more for such high-quality and sustainable products. As such, the country could and should be the exporter of these products. However, there is a lack of infrastructure and access to markets. It is the responsibility of the government to ensure these are in place for the private sector.
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