PNG moves to lower costs for agricultural exports: Report

New initiatives focused on building agricultural production capacity and lowering costs for goods carried overseas seek to move Papua New Guinea one step closer to becoming a more competitive, export-driven economy.

In July, Air Niugini Cargo, a subsidiary of the flag carrier, announced it would offer a 50 percent discount to firms transporting PNG-made products to export markets from mid-2019, increasing access to external markets for domestic suppliers, particularly in the agricultural sector.

In addition to lowering freight costs for staple exports like cocoa, coffee and coconut oil, which have been affected by an easing of commodity prices in the first half of this year, Gus Kraus, general manager of Air Niugini Cargo, said the initiative would open up opportunities for other local agricultural products with export potential.

At the same time, the carrier is moving to establish links with new markets in the Pacific region, announcing at the end of May that it will launch a direct service between Japan’s Narita Airport and the Federated States of Micronesia (FSM).

Under an agreement signed with the prime ministers of PNG, Japan and FSM, Air Niugini will operate a twice-weekly flight between Narita and Chuuk in FSM, from early September.

While the service will initially be for passengers, it has also opened up the possibility for PNG to export eggs, fresh vegetables and other locally made goods to FSM, Peter Christian, FSM’s president, said at the time of the announcement.

Developing production to boost local consumption and export potential

Securing market access for PNG-made products is part of the government’s National Trade Policy 2017-32, which seeks to steer the country towards a competitive, export-driven economy built on and supported by an expanding domestic market.

To achieve this, the government is focusing on developing the agricultural sector by boosting production and consumption of locally produced goods to reduce the country’s sizeable PGK4bn ($1.2bn) import bill, as well as realising export potential.

To this end, a number of projects are in the pipeline or nearing completion. For example, in February the first milk to be produced and processed at the Ilimo dairy farm outside Port Moresby, completed late last year, hit supermarket shelves.

Under a PGK130m ($39.9m) project developed by Innovative Agro Industry (IAI), a joint venture between Israel’s LR Group and the PNG government, the Ilimo farm will produce 6000 litres of milk per day initially and expects to double this amount over time, significantly reducing PNG’s reliance on milk imports from Australia and New Zealand, and saving some PGK400m ($122.2m), or 10%, off the import bill.

The project will also create 200 jobs initially, and more later on, in the areas of veterinary care, lab management, and production and processing management, according to IAI.

The company is also investing further down the supply chain, launching the Highlands Produce Depot at Nine-Mile in Port Moresby in late July. The facility will sort, package, store and distribute vegetables from smallholder farmers in the Enga Province and other Highland areas, easing the flow of goods to market and reducing food loss.

Meanwhile, PBF Agro Business, a wholly owned subsidiary of private equity firm Pacific Balanced Fund, has two projects in the pipeline that aim to utilise technology to boost food production.

The first, a PGK102m ($31.2m) development, aims to use solar energy to produce fruit and vegetables, along with facilities to desalinate seawater to be used for irrigation. The second, a PGK94m ($28.8m) initiative, will employ steam generation to run a cool-storage facility to extend the shelf life of fresh fruits and vegetables.

Tariff structure revised to support local production and import substitution

In addition to these developments, the government is applying fiscal measures to support local production and reduce the import bill.

Under the 2018 Budget, it fully suspended the Tariff Reduction Programme, in place since 1999, and raised levies on a range of imported goods that are produced locally – including eggs, meat and cooking oil – by between 2.5 and 10 percentage points.

As a result, excise duties from imports fell by 52 percent in the first half of the year, significantly lower than expected, though this was offset by stronger domestic excise collections, according to PNG’s Mid-Year Economic and Fiscal Outlook report.

“The lower half-year collection is linked to a higher-than-expected impact of the increase in import duty, which appears to have resulted in the substitution of imported excisable products in favour of local excise products,” the report said.

Changes in the local marketplace as a result of the revised tariff scheme are also expected to have an impact on the consumer price index, according to the report, being one of the factors that could push headline inflation to 5.9 percent this year, up from 5.4 percent in 2017.

This Papua New Guinea economic update was produced by Oxford Business Group. 

Press release