Agriculture is a central pillar of Papua New Guinea’s economy. In 2019 it made up 25% of GDP and contributed to the livelihoods of 85% of the population. The country’s key crops include cocoa, coffee, copra, palm oil, rubber and tea, most of which are exported and form an important source of foreign exchange (forex) revenues. Since Prime Minister James Marape was elected in May 2019, he has stressed the importance of developing agriculture as part of an inclusive growth agenda, which aims to capitalise on PNG’s resource wealth to diversify the economy and develop new sources of employment and forex. Although the global spread of the Covid-19 pandemic is likely to slow down some of the country’s short- to medium-term plans, lower infection rates at the start of the outbreak showed promise for economic and social recovery. As of late July 2020, however, there was a sudden increase from 17 to 63 reported cases, with potential risks for the health care system and economy. Social-distancing measures and bans on movement have led to some disruptions in most sectors, including agriculture.
Structure & Oversight
Approximately 85% of PNG’s agriculture sector consists of smallholders and subsistence farming, with only 4% of arable land used for commercial purposes, suggesting significant room for growth. Through Kumul Agriculture – a state-owned enterprise formed in 2018 to oversee public interests in the sector – the government aims to bring this to 10%, or around 14,625 sq km. However, one long-standing challenge is the ambiguity around landownership rights (see Construction & Real Estate chapter). With 97% of land under customary tenure since independence was achieved in 1975, the government is able to lease customary land under the provisions of the Land Act 1996, leasing it back to commercial entities under special agriculture and business leases (SABLs) for periods of up to 99 years. Improper use of SABLs over recent years has demonstrated a need to revise the leasing model in order to unlock the sector’s potential, by removing obstacles to development and investment. In 2019 a draft plan was being developed by the Department of Agriculture and Livestock (DAL) – a public entity tasked with overseeing agriculture activities – to introduce the National Agriculture Sector Plan (NASP) 2019-29, which would address challenges such as landownership. However, as of June 2020 the strategy had yet to be implemented. Once put in place, the NASP will build on the National Agriculture Development Plan 2006-16, the country’s previous plan.
PNG’s agriculture sector is likely to be heavily impacted by disruptions caused to trade in key crops such as cocoa, with purchasing orders from major buyers like Japan and Singapore being postponed due to Covid-19. Meanwhile, with the restrictions on movement, cocoa farmers were not able to transport their produce to exporters, causing shipment delays and cancellations. Quarantines imposed for ships importing key staple foods such as wheat were also a concern at the start of the pandemic, blocking necessary supplies from being unloaded. Demand was also affected by consumers purchasing goods in bulk, leading to a slump in retail activity in the period that followed the beginning of the pandemic, as well as the accumulation of stock and inventory by producers (see analysis). As a result, manufacturers have been compelled to reduce prices and face revenue losses in order to clear excess inventory. The government provided emergency support to the sector in a move to mitigate the challenges of the virus. Some PGK600m ($177m) from the government’s PGK5.7bn ($1.7bn) stimulus package was reserved for agriculture, with PGK113m ($33.3m) allocated to district and provincial agriculture development and food security support programmes; PGK50m ($14.8m) to stabilise prices for cocoa, coffee and copra; and PGK41.5m ($12.2m) for subsidising freight costs. In addition to the challenges brought by the Covid-19 pandemic, the sector is contending with outbreaks of African swine fever and fall armyworm (FAW). FAW appeared in the Western Province in early 2020, threatening key crops such as maize, sugar cane and rice. African swine fever emerged in the Southern Highlands Province in March of the same year, killing an estimated 3000 pigs. Containment and control measures for both diseases were in force as of June 2020.
Prime Minister Marape has placed agriculture at the centre of his vision of economic diversification and sustainable development. The government sees PNG’s abundance of land and high proportion of subsistence farmers as an opportunity to attract investment and generate employment. It has set a target of reaching self-sufficiency in food production by 2025, which would significantly reduce the country’s import bill. The government has pledged PGK200m ($59m) annually for an agriculture incubation programme to help reach this goal.
In addition, the administration aims to boost exports of foodstuffs. If successful, this policy of reduced imports and greater exports will help to address the country’s chronic shortage of forex. To this end, freight subsidies have been introduced for locally-produced food crops to be transported to high-demand markets around the country. Initial support started with PGK3m ($884,800) in funding for Bismark Shipping for local food crops from the Highlands to be transported without cost to Lae and Port Moresby. Participation is restricted to local micro-, small and medium-sized enterprises. Such efforts can help reduce the problem of food waste. “PNG’s agriculture is generally highly productive, as it is a very fertile environment. However, most of the output does not get to where it needs to go,” David Davies, CEO of the global digital transaction platform AgUnity, told OBG. “There are often excesses of produce in many areas, and this can create considerable problems in the supply chain getting it to where it can be sold.” Waste levels in PNG can be as high as 50% of the actual produce, Davies added.
Concerted policy efforts combined with a high population growth rate are facilitating a shift among farmers who are increasingly looking to cater to local demand. “While the focus between 2005 and 2020 was mostly on growing cash crops for export, we are now observing a shift in favour of domestic agricultural food production,” Allan Tobalbal Oliver, senior agriculture specialist at the World Bank, told OBG. As result, output of export crops has registered a decline in recent years, with fresh produce emerging as a more attractive business prospect for farmers.
As with most countries, food supply chains in PNG were met with a number of disruptions due to Covid-19, particularly following the government’s ban on movement, which made it difficult for farmers to get their produce to market. While this challenge predates Covid-19 – due largely to inadequate physical and digital infrastructure – the crisis has highlighted the pressing need to develop agriculture supply chains to meet growing demand and food security goals. “The lack of sophisticated supply chains stem from many things, but the real effects are felt by the farmers, who are often preoccupied with simply getting products to the market, rather than focusing on optimising output,” Greg Worthington-Eyre, CEO of local rice and stock feed producer and distributor Trukai Industries, told OBG. The country’s more urbanised centres – such as the city of Port Moresby – were among the hardest hit by the disruption to food supplies, which led prices to soar in the early stages of the pandemic. Meanwhile, farmers in rural areas were left to deal with mounting stockpiles and the risk of spoilage. Government intervention and the easing of restrictions eventually allowed for normal food supply to resume, while the Independent Consumer and Competition Commission intervened to regulate prices. The Covid-19 pandemic has revealed the sector’s vulnerabilities. With over 80% of the population residing in rural areas and a lack of intermodal transport options, the need for long-lasting solutions has become a priority in order to ensure food security. The lack of cold storage capacity also means that any disruptions in supply chains are likely to result in spoilage, waste and a loss of revenue for farmers. The importance of enhancing cold storage capacity goes hand in hand with the need to ensure more reliable access to electricity, which remains sporadic, especially in the rural parts of the country. Efforts are under way to improve this, with a target of bringing electrification to 70% of the population by 2030, backed by the US, Australia, New Zealand and Japan (see Energy chapter).
The International Finance Corporation (IFC) is among those looking to help address matters of landownership in PNG. In 2019, as part of its plan to develop agri-business in the Markham and Ramu valleys, the IFC announced that it will map the 300,000-400,000 ha of land that make up those regions using remote sensing technology, with the ultimate goal of identifying opportunities for investment and development. Another recent newcomer to the Markham Valley is Grow Asia. Established by the World Economic Forum and the Association of SouthEast Asian Nations in 2019, the Grow PNG arm of the company is tasked with developing agriculture in the region by supporting smallholder farmers and addressing key issues such as land rights, financial inclusion and market access. The External Action for Support to Rural Entrepreneurship, Investment and Trade project, meanwhile, is a $91.23m, five-year initiative funded by the EU. It focuses on women, youth and climate change, and aims to improve the output of cocoa and vanilla, as well as fisheries. Support will be concentrated in East Sepik, West Sepik, Madang and Milne Bay.
The World Bank has been active in PNG since the late 1970s, and since 2010 has grown into one of the largest investors in the agriculture sector. The institution ran its Productive Partnerships in Agriculture Project (PPAP) from 2011 to 2019, and is preparing to launch the PNG Agriculture Commercialisation and Diversification Project (PACD), which will extend from 2020 to 2025. The PPAP aimed to enhance outcomes for smallholder growers of cocoa and coffee, covering around 104,000 farmers across 12 provinces, and the PACD will build on this by extending into three more value chains: spices, small livestock and coconuts.
International partners could also help accelerate growth in the sector through creating better opportunities for farmers to access capital. “Improving access to affordable credit would greatly improve the outlook for farmers – particularly smallholders,” Ilan Weiss, CEO of Innovative Agro Industry, told OBG.
The agriculture sector is yet to reach the level of sophistication seen elsewhere in the region. However, Covid-19 has demonstrated the role of digitalisation in overcoming many of the sector’s challenges, such as infrastructure and access to credit. AgUnity is one of the first companies in the country that is looking to address some of these concerns. It provides farmers with smartphones that are able to operate offline and act as small business accounting systems. The application records transactions and provides farmers with the necessary tools to trade their produce in a safe and accountable manner. “PNG is open to technological solutions and advancements. Although a lot of funding goes into agriculture, most of it is targeting practical learning such as teaching people how to grow cocoa or set up seedling nurseries,” Davies told OBG. “What is missing is the deployment of advanced technology to assist with the above.”
The introduction of such systems can also attract a greater number of farmers to the formal sector, as well as help to promote security and facilitate cashless transactions. “There is great opportunity to be explored,” Judah Waffi, acting chief investment officer of the National Superannuation Fund, commonly known as nasfund, and Chairman of Madang Cocoa Company – told OBG. “For example, using satellite technology to improve supply chains to reach farming communities, predicting weather patterns and accurately forecasting harvest and production yields, and then arranging transportation and collection, can help bring a great deal of organisation and efficiency to the sector.” Digital wallets, which are widely used in a number of emerging countries in the Asia-Pacific region, are still in their infancy in PNG. However, progress has recently been made in this regard (see Banking chapter). In early 2020 Digicel – PNG’s largest mobile network operator – introduced its Cell Moni Wallet through awareness campaigns nationwide. The digital wallet is available to all users who have registered Digicel SIM cards, and offers services ranging from deposits and withdrawals to local money transfers and bill payments. It is intended to be accessible to a wide range of users as it requires a basic mobile phone. As such, it could prove to be an effective means to stimulate commerce in rural communities without the need for a bank account.
Palm oil is among PNG’s most important products, generating high revenue and employment for more than 160,000 households. In 2018 exports stood at 614,300 tonnes and generated PGK1.2bn ($353.9m) in revenue. In partnership with the UN Development Programme, PNG’s government is working to establish the PNG Palm Oil Platform (PNGPOP) to enhance collaboration between communities and the private sector, as well as improve transparency. As is the case in many palm oil-producing nations, recent years have brought the industry under greater scrutiny due to unsustainable production practices. PNGPOP is designed to help companies and investors align production with international standards for best practices.
In recent years global policies against deforestation have led industry players – as such New Britain Palm Oil Limited (NBPOL), PNG’s largest employer and exporter of the commodity, and domestic producer Hargy Oil Palms – to adapt production in accordance with globally recognised sustainable certification standards. In 2019 NBPOL ranked second out of 99 companies on the Zoological Society of London’s Sustainability Policy Transparency Toolkit, which was developed to assess transparency in the palm oil industry.
The cash crop coffee is an important source of income for approximately 3.3m people and contributes around 6% of GDP, according to the DAL. It is also a key source of forex revenue, with exports reaching 52,100 tonnes and accounting for PGK487.9m ($143.9m) in receipts in 2018. Of PNG’s 22 provinces, 18 grow coffee, and Jiwaka, the Eastern Highlands, Simbu, the Western Highlands, Enga and the Southern Highlands contribute to around 95% of the country’s total coffee output. The sector is regulated by the Coffee Industry Corporation and has received significant support under the PPAP. For example, in 2019 the programme backed a new coffee factory in Kokopo, which aims to assist communities in diversifying crops and producing high-quality Arabica beans. The PPAP has also helped to set up an online Coffee Export Management and Facilitation System to streamline the processing of coffee exports.
Approximately 3.8% of GDP in PNG comes from cocoa. Production is carried out over 130,000 ha of land and the crop is mainly grown in the Morobe, Madang and Sepik provinces – which account for more than half of cocoa output – as well as in East New Britain and Bougainville. The livelihoods of approximately 1m people depend on the crop, which in 2008 experienced significant losses due to the cocoa pod borer pest. In the years since, the sector has struggled to resume the same levels of production. Nonetheless, cocoa remains an important cash crop and revenue earner, generating around PGK300m ($88.5m) annually.
More recently, low commodity prices have provided additional incentives to consider higher-value production through downstream processing rather than exporting cocoa beans in bulk. The Cocoa Industry Strategic Plan for 2016-25 steers the sector and aims to increase exports to 310,000 tonnes by 2030 and build a more sustainable cocoa industry.
According to Waffi, Covid-19 has spurred significant activity on the agri-business front. A number of companies are exploring more efficient ways of operating with cost-cutting measures, while others are looking at restructuring their businesses through synergy, mergers and acquisitions in the hopes of increasing profitability. “Prior to the pandemic, matters of efficiency and cost reduction were often not taken seriously,” Waffi told OBG. “Covid-19 has gotten people thinking critically about how business is conducted. There is a lot of activity happening, especially among larger players, including companies involved with production, logistics and even retail.”
A major project worth PGK44.85bn ($13.2bn) is expected to come on-line after an agreement was signed between the Eastern Highlands provincial government and Mckinley Asia PNG in June 2020. The project covers investment in smart agriculture and livestock projects, with work to be spread over two phases, the first of which will see the launch of a $2bn pilot project and the second of which will include an $11bn feasibility and construction phase. However, ongoing issues surrounding infrastructure, land rights and connectivity – not to mention security – will need to be addressed before the country’s significant investment potential can be reached.
PNG’s extensive fisheries segment covers around 2.4m sq km – the largest such zone in the South Pacific. According to the National Fisheries Authority (NFA), the entity tasked with regulating the segment, marine products generated PGK500m ($147.5m) in revenue in 2018. “Compared to agriculture the fisheries segment is very well organised,” Waffi told OBG. “The NFA has done a good job in promoting local fish and engaging with international partners and investors to identify markets and develop the value chain. Tuna alone generates more than PGK1bn ($294.9m) annually.” Furthermore, in 2019 the NFA launched the PNG Standards for Fish and Fishery Products to ensure that the segment adheres to international best practices in maintaining resource security, sustainability and safety standards. In another development which is expected to open up new markets for PNG’s products, in May 2020 the PNG Fishing Industry Association (FIA) was awarded the Marine Stewardship Council certification for purse-seine skipjack and yellowfin tuna fishery. The certification recognises and rewards sustainable fishing practices. According to Sylvester Pokajam, president of the FIA, the certification has the potential to generate up to PGK1.4bn ($412.9m) in export earnings.
Access to China’s vast market could significantly boost PNG’s fisheries exports in the coming years. In June 2020 Patrick Pruaitch, minister of foreign affairs and international trade, announced that China’s Customs administration had granted approval for PNG to export fisheries products to the country.
PNG’s commitment to place agriculture at centre stage and promote the socio-economic development of smallholder farmers bodes well for the future. Currently, the sector remains dependent on export revenues from key crops such as palm oil, cocoa and coffee, as well as fisheries, which makes it vulnerable to changes in commodity prices. Therefore, building resilience is important. The goal of reaching self-sufficiency in food production goes hand-in-hand with the need to develop self-reliant food systems and address the concerns posed by climate change.
Navigating transport and logistical challenges is also integral to encouraging the sector’s overall development. This long-standing concern has somewhat hampered value addition and has left supply chains in poor condition. The global spread of the Covid-19 pandemic in 2020 has served to further highlight these vulnerabilities. However, political determination and sustained support from development partners could potentially result in an era of rapid development for the sector.