Papua New Guinea: Sowing fortunes

The coming years pose considerable challenges to Papua New Guinea’s (PNG’s) agriculture sector as it continues to come down from the record highs it achieved in 2011. However, increased financial support from the government, as well as several planned infrastructure developments, should help the sector keep pace with overall economic growth.

Having grown 8% in 2011, the agriculture, forestry and fisheries industries grew just 0.8% in 2012, a drop brought about by declining global commodity prices. While the sector is expected to enjoy a partial rebound to 2.8% growth in 2013, the government expects real expansion to hit 3.5% in 2014, rising to 5.6% by 2017. Commensurate with this higher output is an expected 21% increase in value, from PGK4.07bn ($1.92bn) in 2012 to PGK4.92bn ($2.33bn) by 2017.

However, the sector’s fortunes remain subject to several critical issues, such as global commodity prices, transport bottlenecks that inflate production prices, as well as its position as the economic bedrock of PNG’s largely rural economy. Agriculture supports an estimated 80% of the population, accounting for 32.2% of GDP.

Loi Bakani, governor of the Bank of PNG, told investors in 2012, “The most effective way of counteracting the ‘Dutch disease’ phenomena is by developing traditional industries, and agriculture in PNG will be the preferred industry to concentrate on.”

The economy has benefitted from riding the largely Asian-driven growth in commodities since 2002, but the advent of PNG’s liquefied natural gas (LNG) advances since 2009 may have skewed the economy directly into the Dutch disease trap that it has sought to avoid, according to the World Bank. Agriculture has been no exception, enjoying prices in 2012 not seen since the late 1970s, but with commodity prices susceptible to global trends and currently declining, hard times are expected.

The impact is expected to be amplified by the reduced production of cash crops historically seen when prices fall, as well as the impact of tens of thousands of workers demobilised from the PNG-LNG project by 2014. Substantial portions of these are expected to return to their rural economies, particularly in the case of unskilled labour, unless new projects receive government approval and funding.

Yet the years ahead may also prove a defining point in the agricultural sector’s emergence, particularly for rural and informal economies, as the impact of critical developments are felt. While the sector has been the recipient of substantial government support under the National Agriculture Development Plan 2007-16, local-level budget disbursements outlined in the 2013 budget are expected to provide further support. Beginning this year, for example, some PGK1.49bn ($704.13m) is being disbursed in direct financing to the provinces, districts and local-level governments. While 10% is earmarked for support to the economic sector, including agriculture and fisheries, 30% is flagged for local infrastructure, such as roads and jetties.

PNG’s dilapidated transport infrastructure has long posed a critical bottleneck to competitive agricultural production and wider national economic development. Banking on LNG revenues from 2014 and front-loading budget disbursements, the transport sector is set to receive PGK1.6bn ($756.11m) in 2013 from direct government financing, development grants and loans. Targeting road, maritime and air transport modalities, rural economies can expect acceleration in connectivity to the wider economy, as well as reductions in transport costs.

In parallel, the proliferation of mobile network coverage across 70% of PNG’s 425,000 sq km has overcome market barriers presented by varied terrain. This has translated into direct benefits for farmers, such as mobile banking services, which have been widely embraced by formal economy workers in rural areas.

The past 12 months also saw legislative reform enacted in the Integrated Land Groups Act 2012 (ILGA), which has strengthened sale and lease frameworks relevant to customary lands. With 97% of land formally held under customary titles, strengthened legal frameworks contained within the ILGA will help the government release 20% of customary land for development by 2030.

While the legislation is still being field tested, it is expected to have a profound effect on the formal economy, whose development and expansions have been curtailed by land restrictions and unclear legal frameworks. If successful, this should also facilitate development of industrial facilities in PNG’s agricultural sector akin to the proposed $161m Free Trade Zone and the regional tuna processing centre at Madang’s Pacific Marine Industrial Zone.

These remain pipeline developments although they are unprecedented catalysts for sector-wide change. Near-term challenges remain unavoidable, but the sector that should emerge over the next five years will likely be far removed from today’s majority subsistence holdings.