Economic Update

After being returned to office following general elections in Papua New Guinea earlier this year, the government of Prime Minister Peter O’Neill has stepped up its drive to improve food sustainability and reduce foreign exchange outflows.

The administration’s focus on import replacement and food self-sufficiency should create opportunities for the food processing industry in particular, encouraging investment in downstream capacity.

The government plans to place investment funds, to be dispersed through the Supplementary Budget, with the state-owned agriculture investment company, Kumul Agriculture, which can then partner with local and international investors.

Richard Maru, minister for national planning and monitoring, told local media in September that the entity is soon expected to start receiving funds to invest in the sector.

According to local media, the plan to establish a state-owned investment vehicle for agriculture was first mentioned in 2015.

Government to mobilise investment funds, target agriculture

In particular, the government is looking to curb the island nation’s sizeable food import bill – reported to be as high as PGK4bn ($1.3bn) per year – by expanding the agriculture sector.

While PNG is self-sufficient in many fresh or semi-processed foodstuffs – rice being the key exception – it has to import much of its processed food, both for human consumption and livestock feed.

Speaking to local media at the end of August, Charles Abel, deputy prime minister and treasurer, noted that the rice import bill was the second-highest consumer of foreign exchange in PNG, after the fuel import bill.

Loi Bakani, governor of the Bank of PNG, also highlighted import costs as being a top concern.

“In particular, I am concerned about food imports, because it constitutes the highest demand for foreign exchange and it is not matched by any foreign exchange revenue from food exports,” he told an investment conference in Sydney, Australia in mid-September.

Courting downstream agriculture investment to generate export potential

In addition to boosting primary production, PNG is seeking investors in downstream value-added processing, which could create export potential.

Palm oil and coffee, among others, have been cited as examples, with processed goods both easier to freight than fresh, and able to generate far higher returns.

“We have water and very fertile land,” Maru told local media in mid-September. “What we have to do now is to mobilise the land, and then find investors who have the technology and the capital to partner [with] us to start investment in commercial agriculture in a very significant way.”

Recent investment in value-added growth areas

The agro-processing industry is already seeing an increase in investments that should help reduce the food import bill and improve sustainability. 

Agri-business firm Innovative Agro Industries is developing a PGK130m ($40.6m) dairy farm and processing facility outside Port Moresby, with production set to begin in November. When fully operational next year, the 5m-litre annual output from the plant is expected to cut up to PGK400m ($124.7m), or 10%, from PNG’s import bill.

An even larger investment is taking shape in West Sepik Province, around 30 km from the Indonesian border. Chinese investors signed a memorandum of understanding last December with the PNG government to develop a $3.8bn industrial park. Along with an industrial hub for processing steel and cement, the project – described as a long-term venture – features a processing cluster focused on fish, cassava, tropical spices and timber.

Fish is an area where PNG has significant potential for value-added processing. The country’s 2.5m-sq-km Exclusive Economic Zone is home to roughly 18% of the global tuna supply, according to a 2013 report by Pacific Tuna Forum, and an estimated 750,000 tonnes of the fish is caught each year in PNG waters.

While this represents a raw value of around $1.5bn, most of the value creation occurs during processing, which takes place offshore. Countries such as the Philippines and China generated an estimated PGK30bn ($9.4bn) in added value by processing raw tuna exports from PNG, the Manufacturers Council of PNG reported.

Agro-processing agenda part of broader bid to industrialise

Promoting value-added agriculture forms part of a broader national effort to increase industrial capacity in PNG.

Speaking at a recent conference on financial inclusion and innovation, Wera Mori, the minister of commerce and industry, said the government aimed to restructure the economy so that 70% of GDP was generated by sectors such as manufacturing, agriculture, fisheries and forestry, with the latter three all having strong downstream potential.

To help achieve this goal, Mori said the government would move to improve access to credit, introduce regulatory and supervisory reforms, and further promote micro-, small and medium-sized enterprises.