With strong natural advantages in agribusiness, Papua New Guinea has good soil and abundant rainfall. Because most of its fertile land is farmed using traditional methods, much of its output is organic or de facto organic. As consumers across the world demand better-quality foods, PNG’s remoteness and relative lack of industrial development and industrialised agriculture could see it well placed as a supplier of clean, high-valued food products.
The country is already a major exporter of agricultural products. Its three top sellers on international markets are palm oil, coffee and cocoa, which account for 80% of its agricultural exports, according to Business Advantage. PNG also grows a wide range of other products, such as sweet potatoes, fruits and vegetables, but these are mostly consumed locally. In all, agriculture represents around a fourth of GDP, according to PwC, with about 85% of the population involved in farming. Most cash crops are grown on estates, though smallholders also play a significant role, selling into the markets through the plantations or commodity boards.
Palm Oil
Palm oil is the nation’s number-one agricultural export commodity. Development started in the 1960s with the support and encouragement of the World Bank. While palm oil and its derivatives were a fairly minor export through the 1980s, overseas sales spiked in the 1990s, when it became the top agricultural export. Growth since then has been exponential. In 1971 the country produced 3000 tonnes of palm oil, according to the US Department of Agriculture. In 2013, it produced 630,000 tonnes, with all exports going to EU markets.
PNG is still a relatively small player in the global palm oil market. With an estimated 1% market share, it is number six globally, after Indonesia, Malaysia, Thailand, Columbia and Nigeria. The potential, however, is vast. Current production takes place on 150,000 ha of land, but there are another 5.1m ha estimated to be capable of growing the crop. Large estate developments under way include the Illiwawas project in East New Britain, Ramu in Madang, Bewani in Sandaun, and Turubu in East Sepik, on top of existing ones such as Poliamba in New Ireland and Kula Oil Palm in Milne Bay (both run by Cargill) and Higaturu in Northern Province (run by New Britain Palm Oil).
The structure of the sector is unique. After years of consolidation, it has just two producers: New Britain Palm Oil, listed locally and in London, and Hargy Oil Palms. The former holds the vast majority of acreage and accounts for most of the country’s production. Both are certified by the Roundtable on Sustainable Palm Oil. Nearly 800,000 smallholders are also involved in the sector. Research shows palm cultivation and processing to be highly profitable: smallholders receive 10 times the returns from palm oil than from cocoa, for instance.
Coffee
One of PNG’s most promising agricultural sub-sectors is coffee. An early 2014 World Bank report said that the country’s coffee is some of the best in the world (a Sihereni Coffee Estate product got third out of 30 in a US competition). The bank and others believe that PNG coffee, with its high quality and rarity, can achieve global recognition and significant share in Western niche markets.
According to the World Bank, however, investment will be needed to make this happen. The coffee trees in the country are getting old, a good deal of coffee growing knowledge has been lost and assistance from extension services has greatly diminished over the years. According to one local coffee expert, farmers lack a basic understanding of the business. Many still believe that payments to them are solely a function of weight, for example, so they often bring unripe coffee to the exporter.
PNG used to be major player in the international coffee markets, producing 27% of the world’s coffee in the early 1970s, while coffee production accounted for around a third of the economy. According to the World Bank report, the sector has since declined significantly. PNG now produces 1% of the world’s coffee. The commodity nevertheless remains an important part of the economy. The country is estimated to have 500,000 coffee growers and 2.5m people dependent on them. In order to reverse the decline, the World Bank and the International Fund for Agricultural Development are investing $46m in the sector. Partnerships are being formed with coffee growers to improve their crops and output and to improve sustainability.
Other locally made agricultural commodities include cocoa, spices, rubber, sugar, cassava and nuts. Cocoa from PNG is of a very high quality, according to Business Advantage, and it can be grown organically. It represents around a fifth of the country’s agricultural exports, but the majority is grown by smallholders. Efficiency is low, and cocoa has faced severe challenges in recent years. In 2007, for example, the sector was hit by an infestation of the cocoa pod borer, from which the cocoa producers have yet to fully recover. Investments are now being made in crop maintenance and increasing inputs in order to improve yields. The cocoa sector is also a target of World Bank funding.
Sector-Specific Challenges
According to Business Advantage, the growth in agribusiness has been slow, both due to some problems faced by industry in general and to others more specific to the sector. Poor transport infrastructure and lawlessness make it hard to move, store, market and sell goods. As with all enterprises in the country, agribusiness faces challenges with the general cost of doing business.
Topography, and other natural barriers to growing and moving goods, only make things harder. Much of the land is unusable or hard to reach. According to the New Agriculturalist, an online industry journal, only 25% of the country’s land can be farmed.
Another snag surrounds the use of land. Special agricultural and business leases (SABLs) were designed to allow landowners to lease their property to the state, which would then lease it to agricultural developers. The aim was to help PNG achieve its full agricultural potential. However, SABLs have turned out to be highly problematic. A commission of inquiry first launched in 2011 found that 5m ha were improperly leased through the programme.
Some progress has been made in addressing this. In May 2014 the National Court declared a 38, 350-ha SABL null and void. The land in question, located in Collingwood Bay, had been in use by Malaysian logging and palm oil companies under leases issued in 2012, but it was found that much of the land was under customary ownership, and that not all of the lawful stakeholders had given their consent. Some observers say that improper transfer and use of land in the country is a major problem. According to Fred Pearce, author of “The Land Grabbers”, 11% of the country was leased out in less than 10 years.
Prime Minister Peter O’Neill has weighed in on the issue. In a radio interview in May 2014, he called the leases “scams” saying that foreign logging companies have used them to gain control of property by claiming an intent to undertake agricultural projects. In June 2014, at a special meeting of the National Executive Council, O’Neill directed the Department of Lands and Physical Planning (DLPP) to cancel all SABL titles that were acquired improperly or issued corruptly. A month later, the DLPP annulled 34 of them, based on the findings and recommendations of the commission.
Achieving A Balance
While almost all the land is held under customary ownership, all people in the country have access to land. A November 2013 study by Alice Martin-Prevel at the Oakland Institute, a US-based environmental think tank, argued that land ownership is very equal and that the traditional ways of farming are efficient and sustainable and tend to result in stable returns for the farmer.
Despite these strengths, customary ownership does not work well with agribusiness, and the country has been pushing to reduce this type of tenure. The Medium Term Development Plan 2011-15 calls for the reduction of customary ownership by 20%, a transformation that has proved controversial.
Even when SABLs are used properly, and not just as a cover for logging operations, the lives of local residents do not necessarily get any better, argue these researchers. They say that the payments residents receive under such leases do not match the earnings they lose in the transfer of property. As Martin-Prevel writes in her study, “The Oakland Institute’s recent field investigation reveals that most SABLs have resulted in large-scale logging operations with no further investment in the territory. In fact, even in locations with longstanding agriculture projects (mainly oil palm plantations), the researchers found that the situation in the villages did not improve. In plantation areas visited by researchers, local populations still lacked access to basic infrastructure and services. Implementing new mechanisms to increase the land leases for foreign investors is therefore not a guarantee for rural development. Besides, the cost of giving up on the current customary right systems may be higher than expected.”
Read More from OBG
