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Papua New Guinea coffee industry faces a new cycle.

Papua New Guinea coffee industry faces a new cycle

One of the major events in history that influenced Papua New Guinea (PNG) to get into mass coffee production was timely advice from Dr. Y. Baron Goto of the University of Hawaii. In 1956 he visited the Highlands of New Guinea to discover that abandoned coffee plants thrived and were bearing heavily. At a practical demonstration he advised European planters that "You can not go wrong with coffee if you are conscientious coffee planters.

Indeed PNG is a country rich in all ingredients necessary to grow coffee without using fertilizer and agrochemicals - volcanic fertile soil, uniform weather pattern and almost free from major pests and diseases until coffee leaf rust arrived recently. Such were the conditions that PNG had in its favor.

Since the 1975 Frost, new investors entered the industry by either acquiring existing plantations from expatriates, mostly Australian post-war settlers, or landowners converting traditional owned land into medium scale commercial coffee production commonly referred to as 20 ha coffee projects. There are over 422 plantations and coffee projects covering 14,600 hectares located mostly in the central highlands.

Since the ICO introduced restrictions on further plantings in the 50's, commercial production in PNG was prohibited. All agricultural land leases prohibited any planting of coffee. It was lifted only in 1980 when legislative changes had to be made to repeal these restrictions. PNG had used these reasons in its negotiations for more quotas at the ICO because of the limitations brought about on PNG's production capacity.

Production had risen from 750,000 bags in the 70's to 1.2 million bags at the end of the 80's. Arabica accounts for 95 percent of total exports while five percent is Robusta. The rapid growth experienced in the last 15 years has seen a proportional growth in both the smallholder and plantation sectors. The smallholders, who grow about 500 trees using family labor virtually produce coffee cost-free. The main coffee region is the central highlands comprising the Eastern Highlands, the Western Highlands and Simbu. Because of the natural fertility of soil, no fertilizer or chemicals are used and therefore 70 percent of the national output which comes from the smallholders are almost free from any contamination. The demand for pure food is creating market opportunity for natural grown coffee for PNG roasters to market smallholder coffee under popular brand names like `Organic Grown Coffee' or `Goroka Coffee.'

Since the introduction of the quota system, at least one third of PNG's production has to be stockpiled. With production increase, surplus coffee excess to quota has risen to 50 percent of total production. A costly stock retention scheme involving 580 bags have to be administrated by the Coffee Industry Board in conjunction with registered exporters in 1988/89 coffee year to assist the growers.

Coffee leaf rust (Hemileia vastatrix) was first identified in 1986 and since then farmers have to incur additional costs of up to K150 per ha. The Coffee Research Institute, established recently at Aiyura, has set to task researching into better ways to farm with coffee rush and testing imported resistent varieties for distribution.

The ICO quota suspension in July 1989 has fueled further deterioration in the global coffee prices. PNG producers are now receiving prices 50 percent below cost of production. FOB prices average K1,200 (US$1,400) per ton reflecting a delivered in store price of K750 (US$870) per ton. By adding Coffee Board subsidy of K350 (US$410) per ton the final grower price is raised to K1,100 (US $1,300).

Growers in PNG enjoy a unique insurance scheme. They have been living off the Coffee Stabilisation Fund accumulated over the years. The Coffee Industry Board which administers the scheme pays up to K700 (US $820) per ton subsidy being sought to assist the industry.

At a recent Coffee Industry Conference attended by both industry and Government delegates the chairman of the Bankers Association in PNG, while highlighting the gloomy financial outlook, urged the managed sector to trim costs to tailor the circumstances the industry is faced. At the same forum a private accounting firm also revealed a survey which shows growers costs around K1,760 (US $2,044) per ton ex-plantation. The high cost farmers in the plantation sector average K2,200 (US $2,600) per ton ex-plantation while low cost farmers average K1,500 (US $1,700) per ton. Labor cost in PNG accounts for up to 35 percent of total field costs ranking among the highest compared with producing countries. If growers are to survive, costs may have to be sliced down to K1,100 (US $1,300) per ton. That Conference concluded on a high note calling for tough decisions to be made by all sectors across the board.

Meanwhile the country's main revenue earner, Bougainville copper mine has been closed for nearly a year due to exorbitant compensation demands by militant land owners. This has adversely affected the country's foreign reserves thus forcing the Central Bank to issue orders restraining commercial banks from lending money. One third of PNG's budget is funded by Australian aid annually which leaves the national economy vulnerable to cashflow problems should sources of internal revenue be affected materially.

Goldmine Boom

PNG is at the threshold of a mineral and petroleum boom particularly with three major gold mines now operating. A number of gold deposits discovered have yet to be developed and there are still more reports of new discoveries and gold rush. While the Government is pre-occupied with the mining sector, the agricultural industries are paddling through rough waters.

The country's rich agriculture, marine and forestry resources have not been fully developed and hold the greatest potential for economic properity. The Government realizes that it has to consider urgent rescue strategies for assisting its ailing commodity industries. While appreciating some support for high input production mode, the low input low output mode provides more scope for sustainable rural based cash crop production.

Because the entire population is dependent on subsistence farming, agriculture is and will continue to remain the prominent backstage for PNG to bounce off to modernization of its economy using the export earnings from the mineral boom. To avoid the tragedies of rapid development with abrupt disregard for human welfare as experienced in most developing countries, the population mass must be involved in the sharing of benefits at all stages. This can only be achieved through meaningful assistance for the rural farmers involved in commodity production through equal distribution of wealth from the mineral boom. At various forums coffee growers have reminded the authorities that mining and petroleum are exhaustible resources while agriculture will remain non-exhaustable and renewable resource, which is correct.

The 80's has been trying years for PNG overshadowing the prospects of a brighter future. The 90's do not appear to hold much hope for better things with the gloomy outlook forecasted. Things are certainly not going to be the same as they used to for PNG in the past.
COPYRIGHT 1990 Lockwood Trade Journal Co., Inc.
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Title Annotation:gloomy outlook for Papua New Guinea coffee trade
Author:Mitio, R.M.
Publication:Tea & Coffee Trade Journal
Date:Jan 1, 1990
Previous Article:Coffee in the next decade: upcoming trends.
Next Article:Super market for specialty coffee.

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