Agri-business projects seek to diversify output in PNG

Although the agriculture sector has some significant hurdles to overcome, this has not stopped a host of agri-business projects from sprouting up across the country in recent years. With the gradual inward flow of foreign capital and the adoption of farming-optimisation techniques, agri-business has the potential to be the new growth engine of Papua New Guinea.

Sector Support

Agriculture in the country faces a number of challenges, including fluctuations in supply, which is a result of a fragmented post-harvest system that lacks sufficient handling and storage facilities. Supply is also influenced by the fact that production is dominated by small, independent growers that are widely dispersed and have limited access to basic infrastructure, creating difficulties in accessing markets. The sector has also been negatively impacted by climatic and seasonal conditions in recent times, such as dramatic changes in temperatures, the onset of crop pests and disease outbreaks.

In a bid to support the structural development of agro-industry, the government has partnered with a number of international development agencies. One of the most established farming-optimisation schemes is the World Bank’s $55m Productive Partnerships in Agriculture Programme (PPAP), with additional financing for the project provided by the International Fund for Agricultural Development and the EU. The programme supports partnerships between farmers, NGOs, cooperatives and local businesses, and aims to improve the livelihoods of smallholder cocoa and coffee growers through the expansion of value chains by improving production and distribution methods. More than 20,000 smallholder cocoa and coffee farmers have benefitted from the PPAP since it began in 2010, with more than 3600 farms employing improved techniques by 2014.

In addition to the PPAP, the National Agricultural Research Institute (NARI) has taken proactive measures to improve value chains, foster the development of domestic markets and capitalise on export opportunities. To this end, the NARI has not only developed dozens of practices to enhance agricultural production, but in an effort to spur diversification, the publicly funded research organisation has also promoted the investment potential of food crops such as sweet potatoes, Irish potatoes and bulb onions.

Initiatives

While obstacles to far-reaching agriculture investment remain, PNG is home to a number of unique and successful agri-business ventures that have become a critical part of wider efforts to branch out and increase domestic offerings. Investments in new cultivation techniques are easing dependence on agricultural imports, while also working to diversify the export basket. Sector exports are currently dominated by four main crops that constitute 90% of shipment value: palm oil, coffee, cocoa and copra.

Innovative Agro Industries (IAI), a leading project development company head-quartered in Israel and active in PNG since 2011, completed its 9 Mile Agro Farm outside Port Moresby in 2014. The modern, highgrowth vegetable farm aims to fully replace imports of tomatoes, cucumber, capsicum and lettuce with quality, locally produced crops. Another project headed by IAI in Hela Province produces vegetables and 12,000 eggs per day, while the company also established the nation’s first modern dairy farm in Central Province in 2017, which is easing dependence on imports.

“The dairy farm has 700 cows. With 250 cows currently being milked, we produce 10,000-12,000 litres per day,” Illan Weiss, chairman and director of IAI, told OBG. “Infant industries partially rely on state support to ensure their products are competitive, therefore the government placed a 25% tariff on dairy imports. PNG citizens now have access to affordable local milk.” The farm has 175 ha of cultivated land growing stock feed for the cows, as well as a dairy processing plant.

Meanwhile, PBF Agro Business, a wholly owned subsidiary of PNG’s largest private equity firm, Pacific Balanced Fund, has two projects in the pipeline. The first aims to use integrated solar energy to produce fresh tomatoes, lettuce and strawberries on 20 ha of land near the capital. To be located just 5 km from the sea, the crops will be irrigated by converting sea water into fresh water. The second project will use steam generation to run a cool storage facility to extend the shelf life of fresh fruit and vegetables near the PNG LNG project, 20 km north-west of Port Moresby (see Energy chapter). The first project is expected to cost approximately PGK102m ($31.8m), while the projected price of the steam generation project is PGK94m ($29.3m). Both initiatives completed feasibility studies in August 2017.

Nucleus Enterprises

Although there have been a number of successful agri-business ventures in recent years, many obstacles remain to improving the operations of the majority of smallholder farmers. With a view to raising incomes and the standard of living in rural areas, employing the concept of a nucleus enterprise (NE) could benefit farmers without them needing to establish their own modern infrastructure. One prime example of this is in the oil palm industry, which operates under a nucleus farming model, and is by far the most developed and best-performing agricultural subsector in the country.

“The oil palm industry has shown what is possible if you involve the private sector,” Graham King, general manager of Hargy Oil Palms, told OBG. “Higher quality and productivity can be achieved by adopting the nucleus farming model.” Under the model, the sponsor of the project owns and manages an estate plantation – which is often located near a processing plant to reduce logistical bottlenecks – and purchases product from nearby farmers, while offering training to improve growing conditions.

A common approach to launching an NE is for the sponsor to begin with a pilot estate prior to introducing technology and management techniques to growers. While working with an NE bolsters the revenue stream of rural farmers, more could be done to give independent growers better access to financing. “Reforms are required to make it easier to obtain financing for greenland farming,” Weiss told OBG. “This is not only important for big companies, but also for small farmers who want to expand their businesses. Currently, they can only obtain a loan with a 20-30% interest rate, and it is impossible to generate a profit under such financing conditions. Bigger companies can get more attractive loans through banks, but the sector needs a better balance.”

Industry Potential

Obstacles indeed exist to making agriculture a modernised and efficient industry in PNG, but there are also plenty of reasons to be optimistic. Efforts to boost self-sufficiency, reduce imports, improve farm productivity, diversify crops and encourage investment in value-added processing will all lay the foundation for sustainable sector growth.