John Nightingale, Managing Director, Agmark: Interview

Interview: John Nightingale

What are the major competitive advantages of coffee and cocoa from Papua New Guinea?

JOHN NIGHTINGALE: Demand for cocoa from PNG on the international market has remained strong, relative to other origins, due to the consistency of quality, its unique flavour and its traceability. We have some concerns that quality control standards have slipped, but our own internal controls remain very high.

PNG cocoa production could quadruple and we would have no trouble selling every bean, such is the demand, but production has fallen from a high of 56,000 tonnes in 2013 to 31,500 tonnes in 2014. This was due to an infestation by cocoa pod borers and the senility of many cocoa trees. Agmark has been at the forefront of the development of management strategies to combat pests by replanting trees with high-yield clones, spot spraying, harvesting regularly, maintaining rigid pruning regimes and improving cocoa block hygiene practices. East New Britain was the hardest hit province, with production dropping from over 20,000 tonnes to 4100 in 2013. This has removed more than PGK100m ($37.8m) from farmers’ pockets each year for several years. Traders margins have also been reduced, because the decline in production has eroded economies of scale.

How would you evaluate claims that traders’ margins are too high compared to those of farmers?

NIGHTINGALE: Many people make the assumption that farmers are kept at the low end of the chain. However, it is well known that farmers in PNG get over 90% of the world’s market price for cocoa. We are proud of the very short marketing chain that has evolved since the late 1980’s for PNG cocoa beans.

Considering the small size of the PNG cocoa crop, the number of exporters is far too many. Then is a continual cycle of those entering and those leaving after only a short time attempting to compete This proves that exporters do not make a huge profits. The only way for exporters to increase their incomes is through adding volume, while controlling the costs and overhead, which can be a real challenge in PNG.

In the case of Agmark, we buy cocoa from the farmers and sell it directly to chocolate factories, which involves a very short marketing chain. Indeed, most of the time traders act as banks to the growers and make it possible for them to turn their crops into ready-made cash. Note needs to be taken of price transferring by foreigner-owned or controlled cocoa exporters. This is highlighted within the Cocoa Boards own records. This price transferring benefits the sovereign wealth fund of another country. Despite their knowledge of price transferring, neither the Cocoa Board, Customs, nor the Bank of PNG have taken action to curtail this activity.

How will changes to government policy regarding licences for traders affect the industry?

NIGHTINGALE: The government has announced that it will not renew licences for traders unless they agree to invest in plantations covering a minimum of 10,000 ha. However, traders have been operating in this country for many decades. As a result, I doubt very much that investors would want to put their money in PNG if they were aware that there would be no exporter access through the private sector.

We were cocoa growers and we became exporters. Agmark is now a listed firm with 4500 shareholders and over 1500 employees, with about 2600 ha of land. So, it would be odd – to say the least – if we were no longer allowed to continue exporting from PNG. In general, there is not enough consultation between the cocoa board and the industry as a whole. It is possible to find people in Port Moresby dictating conditions for other regions that are impossible to implement on the ground. Further to this, the availability of land continues to be one of the biggest stumbling blocks for the growth of the agriculture industry in PNG, and I do wonder where the proposed 10,000 ha of land for each trader and exporter could come from.