Papua New Guinea’s fertile soils are instrumental in the lives of the country’s residents, both as a source of income and nutrition. The agriculture sector has constituted between 25% and 40% of GDP over the last four decades, while supporting the livelihoods of around 85% of the population. Despite the sector’s importance, however, the evolution of farming has long been restricted by insufficient foreign investment, limited public spending of around 2% of GDP per annum, ambiguous land policies, major infrastructure gaps and a lack of access to credit at the smallholder level.
Positive Steps
To help the country reach its potential in this regard, policymakers are taking steps to boost access to credit for independent growers, advance import substitution and strengthen industry organisations. “Agriculture is the backbone of the PNG economy. It is not only the largest provider of employment, but it also offers the greatest potential for the economy as a whole,” Greg Worthington-Eyre, CEO of local rice supplier Trukai Industries, told OBG. “The government is starting to recognise this by providing a bigger budget for agriculture and giving the sector a central role in its national diversification strategy.”
One boon to the sector has been the Productive Partnerships in Agriculture Programme (PPAP), a development initiative launched by the World Bank at the beginning of the decade (see analysis). The programme brings together the private sector and local coffee and cocoa growers to boost the output and quality of those products, while increasing farmer income. It has also benefitted PNG’s growing portfolio of fair trade and organic goods. Another more recent industry development occurred in November 2017, with the first National Agriculture Summit held in Port Moresby. The event gathered public and private sector stakeholders to discuss opportunities and hurdles.
Trade Snapshot
Recent years have seen agricultural exports and imports grow in tandem. In 2016 exports totalled PGK2.02bn ($630.3m) and rose to PGK2.79bn ($870.3m) in 2017, according to data from the Bank of PNG (BPNG), the central bank. Food and live animal import costs, meanwhile, amounted to PGK681.1m ($212.6m) in 2016 and PGK1.07bn ($334.7m) in 2017.
Although PNG’s participation in the global agricultural market is hindered by high production costs, fragmented supply chains and the fact that the majority of smallholder farmers use little to no modern inputs, the country has carved out profitable niche markets. At present, agriculture exports are dominated by palm oil, coffee, cocoa, and copra and its derivatives, which together accounted for roughly 80% of agricultural shipment value in 2017. Other export crops include tea, cardamom, rubber, chillies and pyrethrum.
Major Earners
Palm oil, the nation’s top agricultural export earner, generated about 39% of sector export earnings over the 10 years to 2017. Shipping nearly 620,000 tonnes abroad in 2017 – the most so far this decade – the commodity provides income to more than 160,000 rural residents through smallholder palm oil farms. There are two major oil palm companies in PNG that are organised on the same model: a nucleus estate surrounded by a large number of smallholder parcels. With plantations in West New Britain, Ramu Valley, Milne Bay, New Ireland and Northern Province, New Britain Palm Oil Limited (NBPOL) is the larger of the two businesses, with a total palm oil land area of 83,000 ha, including one plantation in the Solomon Islands. Meanwhile, Hargy Oil Palms has around 10,000 ha planted across six different locations from the Ala River to past the East New Britain Boundary. The firm has plans to expand its total area under cultivation by around 20,000 ha by 2020, with 14,500 ha under plantation production and a further 14,500 ha of smallholder production. According to the Rural Industries Council, there are 21,085 smallholder farms involved in cultivating the crop, of which 14,887 are village growers.
Before the growth in palm oil, coffee dominated export flows, with more than 150 commercial operations – largely owned by foreign firms – in the early days of the industry. Today, after years of steady divestment in the segment, production is controlled by smallholder farmers who account for between 85% and 95% of the market. However, due to a lack of commercial awareness among rural growers, weak infrastructure and unstable commodity prices, the progress of PNG’s coffee industry has been limited, and many farmers opt to plant other crops when prices dip. According to a March 2017 report by the PNG Coffee Industry Corporation, production from 2007 to 2016 averaged 995,000, 60-kg bags per year, for an annual average of 59,700 tonnes. In the same timeframe, exports averaged 960,000 bags per year, or 57,600 tonnes annually. In 2017 coffee exports totalled 47,800 tonnes, according to the BPNG, down from a strong 68,000-tonne year in 2016 but up on the 42,800 tonnes exported in 2015. Nearly all the coffee PNG sells abroad is in green bean form, with about 1% roasted or ground.
Cocoa, meanwhile, composes around 17% of the agriculture sector’s revenue, according to a September 2017 government report, and PNG produces roughly 9% of the world’s fine flavour beans, the key ingredient in high-end chocolate. Cocoa is the country’s third-largest agricultural export, with annual average shipments of 37,800 tonnes between 2010 and 2017. Although it is grown in 14 states, East New Britain, East Sepik, Madang and North Solomon produce about 75% of the total harvest. However, output has witnessed periods of decline, most recently from the cocoa pod borer (CPB) pest, which led to a fall in production in East New Britain between 2008 and 2012 after it first appeared in 2006. East New Britain is the country’s top cocoa-producing province, accounting for 24% of total output from 2006 until 2015. While the industry as a whole has responded resiliently to the CPB, successive outbreaks have caused many smallholders to pursue other crops.
Accounting for 220,000 ha of land, or 1.86% of total commercially cultivated land, copra is PNG’s fourth-largest agricultural export. Major export markets for the crop include the Philippines, Australia and Bangladesh, while the top-three destinations for coconut oil are the Netherlands, Germany and the UK. The top copra meal export markets are Australia, New Zealand and South Africa. At present, 14 provinces see some planting of the crop, with a total of 409,417 households – or 1.5m people – involved in cultivating coconuts. In 2017 PNG exported 50,600 tonnes of copra, 7100 tonnes more than in 2016, and 16,200 tonnes of coconut oil, 1700 less than in the previous year.
Palm Oil Policy
Although palm oil represents the most lucrative sector earner, the lack of a national policy for the industry, coupled with ineffective oversight of land use under Special Agriculture and Business Leases, has increased the risk of deforestation, despite strong gains in sustainability efforts.
According to a June 2016 report by the UN Development Programme and the Forest Carbon Partnership Facility, PNG has the third-largest land area of plantations certified by the Roundtable on Sustainable Palm Oil (RSPO) in the world after Malaysia and Indonesia, and in 2014 it had the highest share of RSPO-certified area as a percentage of total palm oil land, at 93%. To further strengthen the nation’s palm oil reputation, efforts are being made to mitigate the negative impact of clearing land for planting. Aligned with the government’s long-term strategy to reduce deforestation and ensure the profitability of the palm oil industry, NBPOL and Hargy Oil Palms have made efforts to position the country as a global leader for sustainable palm oil production. Gains by NBPOL were recognised in June 2018 when it received the Sustainable Pathfinder Award from environmental NGO Rainforest Alliance.
Two recommendations were made in the June 2016 report that are expected to steer the industry as it moves forward. The first is to develop a national policy for sustainable palm oil, and the second is to establish PNG’s first multi-stakeholder palm oil platform to strengthen coordination, and help both develop and oversee policy implementation. As of the beginning of 2018 a national policy for sustainable palm oil had yet to be released; however, the need to introduce recognised sustainability standards is being made more urgent by the EU’s moves to phase out purchases of palm oil from certain areas due to its negative environmental impact.
Forestry
In addition to clearing concerns, logging activity is being monitored by the state. Nearly 90% of forestry exports have gone to China in recent years, but a slowdown in that country’s building activity and increased competition from wood composite and substitute products led to a 12% decrease in total forestry export value in 2017, Bob Tate, executive director of the PNG Forest Industries Association, told OBG.
Segment exports will also be affected by an upcoming policy shift. In the spring of 2017 Prime Minister Peter O’Neill announced that all log exports would cease by 2020 in a bid to build up domestic processing. “We will work closely with companies that are already operating in PNG to ensure that this particular industry produces enough through downstream processing to enable the growth of the housing and construction industry in our country,” he told local media in May 2017.
Lay of the Land
According to data from the PNG Resource Information System, there are over 117,000 sq km of cultivated land in the country. PNG is often described as having fertile soil, and one-quarter of the total landmass is used for agriculture; however, the rest is either too steep, too high in altitude or subject to too much rainfall. With the majority of land under tree cover, and international deforestation and sustainability agreements stipulating that there is to be no additional conversion of primary forest into commercial land, new agriculture projects struggle to find suitable parcels – a situation exacerbated by the lack of secure land tenure.
Geographically speaking, the Highlands are home to the greatest proportion of intensively cultivated land, with more than one-third of planted acreage in both Enga and the Western Highlands Province used at high intensity. Similarly, 43% of the 6112-sq-km land area of Simbu Province is used at very high intensity. The lowlands province of East New Britain, conversely, stands out as the only province in PNG where a significant area of forest land is used at very high intensity.
According to research by the Australian National University, 63% of the agriculture land used in PNG is located on mountains and hills, and this topography dictates how villagers select sites to cultivate. In general, soil on flatter land is more fertile, but often has poorer drainage in comparison. In the Highlands, for example, mixed vegetables are typically planted on flatter and more fertile land, while sweet potato is better suited to drained sites with a gentle to steep slope.
Tenure
In the legal realm, PNG recognises both customary and English common law land rights. Customary ownership is determined through a traditional mediation process, and, if handled appropriately, this type of tenure can benefit local communities. While there are difficulties in trying to identify all parties with an interest in a certain piece of land, the creation of Incorporated Land Groups (ILGs) has led to viable business options. Once an ILG is established, land can be leased to a company or the government, while the customary landowners that comprise the group receive royalty payments based on the activities conducted.
Official statistics differ, but it is estimated that 97% of land in PNG is customary, with the remaining 5% owned by the state. In an effort to utilise more land for agriculture and to generate revenue for local communities, more than 5.2m ha of customary land has been granted to investors via Special Agriculture and Business Leases (SABLs). After their initial launch in the early 1980s, SABLs became most prevalent in the Western Highlands, where they were used to increase the amount of coffee-growing land. The concept was then dormant for a while, until the palm oil industry employed the scheme to expand plantations on customary land in West New Britain during the 1990s.
While SABLs have helped to increase agricultural output and export revenues, poor administration and oversight of leases has created an environment of land grabbing and slash-and-burn practices, which has led to controversy and public disapproval. Following the findings of a Commission of Inquiry in 2013, the National Court nullified a number of illegally obtained SABLs and ordered the remainder to be converted to an ILG arrangement. Shortly thereafter the Voluntary Customary Land Registration (VCLR) scheme was created by the National Land Development Programme, with the PNG National Research Institute playing a key role. Under the VCLR arrangement, an ILG represents the customary landowners by making decisions about the use of the land and the application of revenues derived from it. Piloted in 2015, the VCLR scheme offers promise in resolving long-standing issues, although there are still concerns regarding the governance of ILGs. A key difference between an SABL and partaking in VCLR is that the latter arrangement does not allow the landowner to sell their land. “The main challenge to doing business in PNG is land availability, a process that is very complex,” David Alcock, CEO of PNG agri-business firm Mainland Holdings, told OBG. “Local landowners need to be engaged not only for the development of the land, but for the good of their families as well.”
Going forward, the view among industry stakeholders is that a solution must be found that frees up fertile land for sustainable use without harming local communities or creating unrest among customary owners. “If the government wants to attract investment, it first needs to acquire more state land,” Graham King, general manager of Hargy Oil Palms, told OBG. “The lack of secure tenure is a hindrance to foreign capital.”
Outlook
There is widespread consensus that local agriculture production has the potential to foster further economic growth and raise the standard of living among PNG’s poorest communities, yet establishing a secure land tenure framework and attracting increased foreign investment remain the largest obstacles to the long-term development of the sector. In terms of trade, palm oil, coffee, cocoa and copra will continue to dominate the export basket for the foreseeable future, while food imports are set to gradually decrease as key agri-business investments promote self-sufficiency and diversification of local production (see analysis).
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