Potential for market-led agro development

Agricultural growth and development can be realised through the application of technology and enabling policy which result in changing the input-output relationships of agricultural products and their prices.
However, for this to be effective, it is necessary to have actual or potential market demand, either within country or overseas for agricultural product.
Market demand for agricultural outputs is considered to be a crucial catalytic agent in agricultural development.
The more than 80% of PNG’s population living in rural areas with access to land produce agricultural outputs for their own consumption and for the market.
The other 20% living in towns and urban areas have some disposable income to spend on market goods.
Only about 200,000 people are in paid employment with some disposable income. Much of this disposable income is spent on imported high value consumer items, with only a small amount available to be spent on locally produced agricultural products.
By contrast, in many developed countries, only about 20% or less of the population live in rural areas and produce food for the 80% who live in urban areas and create effective demand for internationally competitive agricultural outputs. This quite clearly suggests that there is a very small market demand for many PNG agricultural products within the country.
Therefore, it is imperative that market-led demand for agricultural products in both domestic and overseas markets is necessary to enhance agricultural growth and development in PNG.
The premise is that with expanded market demand, producers and others will take appropriate action in alleviating any constraints and exploring available opportunities so as to respond positively to such demand, thus contributing to agricultural growth and development.
There are various ways through which demand for PNG agricultural products can be expanded:
1. Improved agricultural technologies derived from scientific research, innovation and farmer adoption have great potential to increase agricultural productivity and, thereby, help farmers produce agricultural outputs at lower costs and sell such outputs at lower prices. The lower prices can lead to increased market demand for such outputs and thus stimulate agricultural growth.
2. To an extent, natural growth in demand can occur through increased population. PNG’s population is growing at an annual rate of 2.7% which will result in some growth in market demand for agricultural products. However, this growth is likely to be very small since most of the population growth will occur in the rural areas.
3. Demand for agricultural products can also be increased through increased income levels of consumers following successful adoption of income raising opportunities. Higher incomes may create higher demand for agricultural outputs. However, this will depend on the type of commodity and its status in the consumer’s consumption basket. Demand for staple crops may not increase by the same percentage as increase in income. Usually a major portion of increased income is spent on products considered superior or in the luxury category and these may well be imported products.
4. At present, most traditional export tree crops are coffee, cocoa and palm oil. Although the producers are price takers, they enjoy reasonable market demand in overseas markets. This is partly due to the quality of our products and partly to preferential quotas in the European market. However, this quota system may cease soon if current negotiations for extension are unsuccessful and PNG commodities will then be exposed to open international competition. If PNG is to maintain and improve its share in such an open market, these commodities will need to be produced with much higher efficiency in terms of improved productivity and quality.
5. Most food crops produced in PNG are perishable, bulky, have high volume for weight, and are seasonally produced. They, therefore, face a demand which is limited by timing, a low price range, low-income consumers and type of markets. Much is sold as fresh and raw produce in domestic, mostly local markets. These commodities need to be processed and preserved in appropriate forms to convert them into products with higher and more diversified demand in both domestic and overseas markets. Whilst the demand for undifferentiated commodities (eg sweet potato, taro, yam, coconut, etc) is low, demand for differentiated products (eg noodles, flour, oil, etc) can be high.
6 Products such as bio-fuel, bio-fertilisers, bio-pesticides, organically grown foods, and specific vitamin rich foods can also be targeted to meet or create demand, often in niche markets. There are several such products for which PNG has specific comparative advantage and these can be promoted.
7. Additional demand can also be realised through improvements in linkages between production and consumption, the integration of demand and supply, market efficiencies and improved or innovative market channels and systems. This will require better understanding of demand and supply parameters, projections and predictions in both domestic and overseas markets. There is also a need to have free flow of market information for competition, developed marketing infrastructure and facilities, entrepreneurship, understanding of international trade and attention to quarantine issues.
8. Besides the generation of additional demand, there is an immediate need to convert available demand within the country into realised demand. Cases in point are those of rice and livestock feed ingredients. Demand for these commodities can be enhanced many fold through improved technologies, training, material supply, improved marketing, post-harvest processing, credit availability and marketing efficiency.
In summary, robust market demand for agricultural products is basic for agricultural growth and development in PNG. Such demand needs to be assured in innovative ways through research, technology intervention, market development and appropriate policies.

Next week’s article will focus on linking farmers to markets.