Why cocoa has a future in PNG

Leading cocoa exporter Outspan PNG Limited has been in the country since 2000.
Business  reporter LEMACH LAVARI speaks to operations manager BASAVARAJ MASHETTY about the industry and the company’s future in Papua New Guinea.

Question: Can you give us an overview of Outspan PNG Limited? Mashetty: Outspan PNG Ltd is a subsidiary of Olam International Ltd. We are a cocoa exporter in Papua New Guinea. We have been working in the cocoa industry since 2000. We have expanded our reach to farmers in all cocoa growing regions over the past 17 years. We have presence in East New Britain, Madang, Morobe, East Sepik and Bougainville and we also have strong relationships with other exporters in East Sepik, Kimbe, Madang and ENB.
The workforce at Outspan PNG Ltd comprises dedicated individuals and strong teams that manage our origin cocoa business. We spend quality time with our team on capa-city building. Our aim is to empower Papua New Guineans to take leadership roles to build their capabilities and careers.
Outspan PNG Ltd combines Olam’s unique and unparalleled strengths at origin with a global market presence that is supported by research, information, analysis and futures market expertise.
Olam Cocoa is a fully integrated cocoa business. Olam Cocoa is an originator of cocoa beans, a globally leading cocoa processor and a world supplier of cocoa beans and cocoa products such as cocoa powder, cocoa mass, and cocoa butter.
Our team is a highly motivated group of 2400 cocoaholics who believe in the long-term success of the cocoa and chocolate industry. The cocoa business supports all relevant organisations and has board representation on many key bodies, including the Federation of Cocoa Commerce, World Cocoa Foundation, European Cocoa Association and the Cocoa Association of Asia.

Q: Outspan is the only Rainforest Alliance certified exporter in PNG. What does that mean and what are your views on sustainabi-lity in the cocoa sector?
Mashetty: The Rainforest Alliance is a non-governmental organisation working to conserve biodiversity and ensure sustainable livelihoods by transforming land-use practices, business practices and consumer behaviour.
The Rainforest Alliance Certified seal assures consumers that the product they are purchasing has been grown and harvested using environmentally and socially responsible practices. Rainforest Alliance’s sustainable agricultural standard contributes to improved farm sustainability for biodiversity, natural resources, farm productivity and resilience. It also contributes to the improvement of the livelihoods of farmers, workers and their families.
Furthermore, with lots of pressure on global warming all chocolate manufacturers are looking to source cocoa beans from sustainable supply chains. Our aim is to offer our customers consistent quality beans grown in sustainable environments. Our PNG sustainability initiatives are designed to work with farmers to help them understand PNG cocoa better as well as how they can improve yield and quality to add value and improve their livelihoods.
We have our own long-term sustainability programmes in Sepik and Madang, working with 3000 certified farmers. Portions of our profit margins are committed to sustainable programmes every year. Through these programmes our farmers get support to improve their cocoa yields through best management practices. We keep the farmers in these networks motivated through the annual payment of premiums. With these certifications we not only offer more consistent quality cocoa beans but also support future market prices. I’m sure our farmers in these programs will really reap the benefits when their cocoa production goes up.

Q: What is needed to improve the cocoa sector, especially in the process of fermentation?
Mashetty: I think PNG has one of the best processes to produce good fermented cocoa beans. But at times we have issues with smoky beans due to poor quality kiln pipes or driers. We are looking for different conventional cocoa drying methods. We are able to garner more information from our African team to understand drying methods such as solar driers because we are looking to use renewable energy (sunlight) for a long-term and sustainable business model.

Q: What are some challenges facing the industry?
Mashetty: Short-term we need to focus on how to sustain national PNG crop at 50,000 metric tons Crop has gone down to about 38,000 metric tons due to poor block management, low yielding, old cocoa trees and cocoa pod borer infestation.
Long-term objectives are to plant more trees and rejuvenate old trees with new high-yield CPB tolerant clones. Also to increase per hectare yield so that farmers can grow more cocoa and improve their livelihoods.
Q: Has Outspan partnered with any other organisation in PNG?
Mashetty: We work with the World Bank’s Productive Partnerships in Agricultural Projects (PPAP). Currently in East New Britain we work with 1500 farmers in upscaling and we also lead a group of 2500 farmers in East Sepik and Madang.
The objective of PPAP is to improve the livelihood of smallholder cocoa and coffee producers through the improvement of value-chain performance and sustainability in cocoa-producing areas.
In the cocoa sector, activities that support cocoa pod borer (CPB) management such as training on good farming practices; the production of improved planting material (nurseries and bud-wood gardens) to increase their availability for replanting; the promotion of and support for rotational replanting and cocoa garden rejuvenation; market-driven diversification of cocoa-farming systems; management of quality through the adoption of more efficient and environmentally-friendly post-harvest and processing technologies; training on activities that promote improved nutrition, financial literacy, HIV/AIDS awareness, gender and other cross-cutting issues which are key to improving the livelihoods of the farming households.

Q: Is there a need to review any of the government’s regulatory policies?
Mashetty: I think PNG has good regulatory policies. It’s good to have new reforms to suit industry dynamics on regular basis. It’s very important for the public sector to work collaboratively with the private sector to strengthen the cocoa industry.
We would like to thank the government’s initiative in getting all agricultural industries stakeholders together in the recent national agricultural summit. As government rightly identified agriculture is a major revenue contributor and needs more budget allocation and resources. In the recent summit we also heard that the government is looking into various successful models to invest in. With major intervention from the government ,PNG Cocoa has potential to increase its production.

Q: What are your views on global market trends for cocoa and how can PNG position itself to make the most of of those trends?
Mashetty: Global market is largely divided into three production areas – the USA, Africa and Asia. Currently, West Africa leads world cocoa production followed by the US. The US and Europe have the highest cocoa consumption. Both these markets are headed towards potential saturation points at this stage.
The next important emerging market is Asia. As per recent Asia market reports, chocolate consumptions in Japan, India and China have shown positive trends. Currently per cap consumption in Asia is about 100 grams per cap compared to four kilo grams in Europe and the US. China and India contribute one third (2.7 billion) of world’s population. A small percentage of per cap increase will lead to higher demand for beans.
PNG is the second largest cocoa producer in Asia after Indonesia. In long-term view, PNG cocoa beans have lots of potential to supply good-quality fermented beans in Asia. So there is a readily available market for PNG cocoa beans, but we need to strengthen our volumes to make that difference.

Q: What is Outspan’s future in PNG like?
Mashetty: PNG has huge potential to grow cocoa, it has huge land mass and fertile land. Currently, PNG produces about 1 per cent (38,000 metric tons) of the global production and contributes US$69 million (K215 million) to the gross domestic product.
The cocoa industry still needs major interventions from the government in order to facilitate new planting materials and low interest long-term agriculture loans. With current trends the industry can grow to 60,000 metric tons in the next five years, but with major interventions and focus, the cocoa industry can potentially grow to 100,000 metric tons in the next five years and has the potential to bring US$324 million (K1.1 billion) in foreign exchange.
It is also important to sustain good quality cocoa along with quantity. We will continue to provide competitive market access to PNG cocoa beans through certification and sustainability programmes.
In addition, our aim is to make PNG cocoa sustainable for future generations and we work with over 8000 farmers in our sustainability programmes with a substantial supply chain infrastructure.
We are working towards a goal of 100 per cent of our directly sourced volumes to be traceable and sustainable by 2020.