Subsidy means more cash flow

The Government’s initiative to subsidise the commodity prices of all commodity or cash crops in the country aims to revive agriculture as the backbone of the PNG economy and provide cash to farmers by bringing factory prices to the people. Business reporter PETER ESILA reports:

PAPUA New Guinea produces only one per cent of the total world cocoa production but its strength is on its exotic, fine or flavour cocoa quality status.
Last week in Maprik, East Sepik, Prime Minister James Marape announced a cocoa price subsidy and the price stabilisation for other commodities.
The Government’s initiative to subsidise the commodity prices is to revive agriculture as the backbone of the PNG economy, providing cash to the farmers by bringing factory price (door price) to the people (door price to farm gate).
According to Agriculture and Livestock Department data, PNG is classified as a 90 per cent fine flavour cocoa producer and supplies 1 per cent of cocoa in the world market with a contribution of K1.3 billion (13.2 per cent) in export revenue between 2014 and 2018.
The cocoa industry is largely made up of smallholders and is rural-based with 151,000 households (representing over two million people) in the coastal regions of 14 cocoa-growing provinces.
The number of households increases with the latest inclusion of smallholder cocoa production in Karamui in Chimbu, Jimi in Jiwaka and parts of Eastern Highlands.
Agriculture and Livestock Department’s price support project coordinator Otto Wangillen said cocoa was an international commodity traded in the world market.
Thus, cocoa price is determined by the world market based on supply and demand factors.
“PNG as well as other cocoa producing countries are price-takers and not price-setters,” Wangillen said.
“Through the normal world market determination, cocoa farmers receive the DIS (delivered in store) price from cocoa buyers in the conventional market.
“But cocoa farmers can earn more if they sell to high-end, specialty or niche markets. It is, therefore, important that cocoa farmers, especially fermentary/dryer owners maintain cocoa quality by applying correct post-harvest procedures as outlined by cocoa board in order to process high quality beans so that PNG maintains its reputation on the world market and sells at high end markets.
“Two international stock exchange for cocoa are the New York stock exchange (traded in US dollar) and the London stock exchange (trade in GDP)
“Determination in the New York stock exchange is normally used to calculate cocoa prices which are free-on-board (FOB) and DIS prices.
“FOB price is basically the price that is determined by stock exchange without subtracting or taking into consideration costs of operation to get cocoa to specified markets.
“The DIS price is price paid to registered fermentary/dryer owners (farmers) by exporters at the farm gate after subtracting operation costs such as wages, custom duties, National Agriculture Quarantine Inspection Authority fees, fumigation fees and profit margin.”
Wangillen, with officials from the PNG cocoa board led by extension programme manager Anton Varvaliu, visited farmers last Friday at the Wora village cocoa nursery, outside Maprik town, to buy wet cocoa beans at the new price. The previous price of wet bean per kg was K1.50. It is now K3.

The 18 farmers from Wora were the first to sell their beans under the new price.
Marape said: “We must increase export volumes and bring in foreign currencies to improve better the kina exchange rate and improve the income per capita.
“This price support will begin the journey for this country to become economically independent.
“For too long, we have relied on grants and loans and this has denied us to become financially independent.
“Government is fully supportive of the price stabilisation and will continue to improve on the process, meaning to continue to fund the programme and make necessary policy amendments where necessary to ensure such programmes are given every support possible.
“Through the programme, 85 per cent of the people living in the rural areas will be employed and pay taxes to the Government.
“The current percentage of people formally employed by the Government and private sectors that are paying taxes is less than 5 per cent – which is no more than 600,000 people.
“The tax base is very small, which means less than 5 per cent of the population is feeding the rest of the country.”
Maprik MP and Agriculture and Livestock Minister John Simon urged farmers to continue to produce and ensure quality was maintained. He wanted to see farmers earn more money.
Varvaliu said the cocoa growing households depended on cocoa as a main cash crop.
“However, the cocoa industry is constrained by the cocoa pod borer (CPB), an insect pest of cocoa which has adversely affected the cocoa industry, with low smallholder productivity and inconsistent production levels,” he said.
“Most cocoa farmers are scattered in isolated remote areas with poor access to markets, finance and extension services.
“The deteriorating market infrastructure (roads and jetties) and high freight cost affect most of the rural cocoa farmers.
“Furthermore, there is lack of commitment from lower levels of government to fund and implement cocoa programmes in their districts. Hence, the cocoa industry is now targeting nursery roll out, plantation rehabilitation and quality improvement and enhancement programmes.
“The industry also aims to improve market access infrastructure and subsidise air freight and capacity building for cocoa development and increase production in the provinces.”