Coconut Industry In the PNG Economy

December , 2017

I feel privileged to be invited as the Vice Minister for Agriculture & Livestock to deliver the key note address on this occasion of the launching of KIK Internet Website this afternoon.

Coconut in the Papua New Guinea economyThe coconut industry contributes to the PNG national economy through provision of employment and income for rural households;and generation of revenue from exporting copra, crude coconut oil (CNO), copra meal and virgin coconut oil (VCO) to overseas markets.

Employment and income

According to the 2011 National Population Census, 464,328 households are engaged in coconut activities in PNG to either generate income and/ or as food to sustain their livelihoods.

This represents 35% of the total households in PNG or an estimated 2.6 million people of the total population of the country.

From the above sum, 134,655 (29%) were engaged in cash generating activities whilst 329,673 (71%) were engaged for their own use.

The industry also comprises about handful of plantations of varying sizes, 18 registered exporters, three crude coconut oil (CNO) mills, one biodiesel plant producing about 720 tonnes of oil per year and 9 virgin coconut oil (VCO) mini mills.

The industry employs an estimated 20,000 people either on full time or part time basis and is associated with other service industries such as transportation, construction, manufacturing and banking services.

Export revenue

On average, the industry contributes over K126.5 million per year to the PNG economy through the export revenue it generates.

The KIK estimates that over 70% of this is usually transmitted directly to smallholder copra producers.

In 2015, the coconut industry ranked fourth in terms of revenue generated by major agricultural exports after palm oil, coffee and cocoa by contributing about 5% (K101 million), while oil palm contributed 57% (K1.086 billion) and coffee contributed 24% (K450.3 million) and cocoa contributed 13% (K243 million).

In terms of world coconut product trade, PNGs production and exports remain at an average of about 1.1% of the world market share.

Coconut industry trends

  • Total copra production

The copra production trend in PNG in the past 10 years shows that production continues to fluctuate. Production peaked in 2011 and declined sharply after that reaching its lowest level in 2013 but has recovered in the past two years to stabilise at over 80,000 tonnes.

Most of the production is from the smallholder sector due to the decline in plantation production over the years. The demise of the plantation sector led to a loss of about 19% of production, which the sector used to produce prior to deregulation of the Copra Marketing Board (CMB) in 2002.

The National Government’s long-term production target is to achieve 440,000 tonnes of copra by the year 2030 (GoPNG, 2010).

This target may be too ambitious; however is technically possible and depends largely on improving the productivity of the smallholder sector, adoption and utilization of new high yielding coconut varieties and management technologies, large-scale investment which can lead to expansion of new areas planted to coconut and revival of run down coconut plantations that are willing and are without land disputes.

The new Coconut Industry Strategic Plan 2016-2025 called for a renewed commitment, both by the industry and Government, in addressing current constraints being faced by small farmers in accessing appropriate technological innovations, provision of adequate level of farm credit to facilitate the purchase of desired inputs, and industry capacity building and strengthening support in improving their farm productivity levels.

Land mobilization and large-scale investment in the coconut industry and revival of the plantation sector are desirable to rebuild the coconut industry for the future and seriously pursue the DSP 2030 export target as well.

  • Copra production by province

Copra production has fluctuated between 60,000 tonnes and 146,500 tonnes from 2007 to 2016, in the past ten years.

Of the 13 provinces that grow and produce coconuts, only 6 provinces have actively produced copra in the past five years.

These provinces in order of the volume of production share are: East New Britain (169838 MT; 41%), ARoB (98,491 MT; 24%), Madang (83,883 MT; 20%), West New Britain (29,042 MT; 7%), Milne Bay (21,210 MT; 5%) and New Ireland (9,793 MT; 2.3%).

Copra yield and productivity

The average crop yield and the genetic potential yield of the improved planting materials indicate that productivity by smallholder farms is significantly below the genetic potential yield levels. For example, current average yield is 900 kilograms per hectare, which is 300 kilograms per hectare or 33% below the genetic potential yield.

The challenge is to determine how the productivity levels can be increased to narrow the divergence between the current average yield and the genetic potential yield levels. An increase of 50% from the current levels can contribute significantly to increasing the gross returns of farmers by a similar magnitude.

Cost of production

There is a lack of recent studies that have been done to estimate the cost of production (COP) of either plantation or smallholder sector. The last COP studies that were done in 2001 for plantations and for smallholders.

With increasing emphasis on the use of farm inputs and rising transport costs, it will be useful to also know the COP trends and income levels to estimate the profitability of smallholder farms and micro, small and medium enterprises (MSMEs) in the coconut industry.

Coconut product exports

Volumes

Copra export volumes averaged at 27,299 tonnes per year from 2007 to 2011 and CNO was 50,956 tonnes per year during the same period.

The highest copra export figure was 46,500 tonnes recorded in 2011, and for CNO the highest figure was 64,124 tonnes in 2008.

There were more CNO exports compared to copra from 2007 to 2011.

However, after 2011 copra exports have been higher compared to CNO. The major reason for this has been attributed to the destruction by fire of the Coconut Products Limited’s Toboi mill in Rabaul in 2011. The mill ceased production of CNO since then.

Exporters

There are more than fifteen (15) registered coconut product exporters in PNG, however only seven (7) have been actively exporting copra on a regular basis in the past six years.

In 2016, the major copra exporters were: Pacific Lama Traders, ENB Development Corporation, Coconut Products Ltd, Sankamap Exports, Kimbe Bay Shipping, AERO Ltd, and Samarai Murua Exporters.

There five (5) new exporters exported copra in 2016.

Export destinations

The two major traditional copra export destinations for PNG copra has been the Philippines and Australia.

However, in 2016, the major export destinations for PNG copra were Philippines 75%, Bangladesh 14%, Singapore 7%, and Malaysia 4%.

Export values

Between 2005 and 2015, coconut products export generated an average of K126.5 million per year. In the past six years, revenue peaked at K262 million in 2011 but declined thereafter reaching its lowest level at K39.8 million in 2014 but recovered in the past three years to about K131 million in 2016.

Export volumes of copra, CNO and copra meal remain almost stagnant in 2015 and 2016. The export revenues were higher due to the higher copra and CNO prices on the world market and the lower kina exchange rate over the period, which was conducive for copra and CNO exports.

Coconut product prices

Export and producer prices

The FOB price is the price received by exporters of the three products. Prices steadily increased in 2007 and peaked in 2008 and declined sharply in 2009 and increased steadily from 2010 to 2011 and declined till 2013. Prices have shown signs of recovering since 2014 and continued in 2015 and 2016.

The fair merchantable standard (FMS) price is the average price received by the copra farmers at the exporters or factory gate.

The exporter margin is what the export retains to cover their operating cost and profit margin. Between 2005 and 2015, the export margin has fluctuated significantly.

On average, the export margin is 28% for the period 2007 to 2016, which means that the average FMS price transmitted to producer is 72% of the export price.

The export margins have been unusually high in 2014 and 2015, capturing 48% to 44% of the FOB prices. This means that only 52% and 56% of the FOB price have been transmitted to producers. Without knowledge of the operating costs, it is difficult to justify the retention of margins in excess of 40% of the FOB prices by exporters.

Conclusion

As the Vice Minister responsible for the Coconut Industry, I will encourage the KIK Board and Management to implement the new Coconut Industry Strategic Plan 2016-2025 to the best of their abilities.

We will work as team to access appropriate National Government and Donor funding for the successfully implementation of the new pathway for the coconut industry in the next medium term.

Thank you for your attention and God bless.

HONOURABLE HENRY AME

Vice Minister for Agriculture & Livestock

Coconut Industry In PNG Economy

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