Made in PNG: showcasing Papua New Guinea's Produce and Producers 2011 by Business Advantage International

Made in PNG Showcasing Papua New Guineaâ&#x20AC;&#x2122;s produce and producers

2011

Manufacturing

Agribusiness

Forestry

Fisheries

www.madeinpng.com

Contents Foreword by Murray Woo, Chairman of the Manufacturers Council of Papua New Guinea............................... 4

FEATURES PNG and its productive sectors ....................................................................................................... 6 Mining and gas are by no means the only industries in which Papua New Guinea has considerable natural advantages. In fact, the country’s economic future will equally depend on the expansion of its promising agriculture, fisheries, manufacturing and forestry sectors.

Selling PNG’s produce to the world............................................................................................... 11 How PNG products and commodities are reaching markets around the world.

PNG’s manufacturers seize the moment............................................................................... 14 Our unique survey finds PNG’s manufacturers talking openly about the challenges and opportunities in their sector.

SECTOR PROFILES featuring the best of PNG produce Manufacturing............................................................................................................................................. 18

Agribusiness................................................................................................................................................26

Fisheries..........................................................................................................................................................34 Forestry...........................................................................................................................................................38

RESOURCES Map of PNG’s provinces and their produce......................................................................... 22

Made in PNG directory of useful contacts and information ...................................42 Manufacturers Council of PNG members.............................................................................42

This publication was made possible through the support of the following organisations:

Foreword

Foreword by Murray Woo, Chairman Manufacturers Council of Papua New Guinea Welcome to the inaugural edition of Made in PNG, your guide to the wide array of goods and foods grown, processed and produced in Papua New Guinea—and the people who produce them. Papua New Guinea’s dynamic mining, petroleum and gas industry is perceived to overshadow its other major industry sectors in the eyes of the business world. In fact, it is the Pacific nation’s other productive sectors—agribusiness, fisheries, manufacturing and forestry—that provide most Papua New Guineans with their livelihoods.

‘Made in PNG aims to raise awareness of PNG’s productive sectors among buyers and key decision-makers locally and around the world‘ These downstream-processing sectors provide essential diversity in the country’s economy. As well as supplying import replacements for many products, they provide export and business opportunities for both investors and buyers. The penetration of overseas markets by PNG produce such as cocoa, coffee, palm oil, tuna, shellfish and spices is gathering momentum each year. Demand is increasing too for PNG’s sustainably-produced forest products, while the country has by far the largest manufacturing base in the Pacific. This is a clear indication that PNG is shifting from being an exporter of unprocessed goods and materials to being a genuine value-adder. Made in PNG aims to raise awareness of PNG’s productive sectors among buyers and key decision-makers locally and around the world and provide them with an invaluable single reference. While PNG remains a relatively high cost environment in which to do business, I’m sure you will agree once you have read through these pages that it offers some exciting business opportunities, and that there is some great news to tell the world about what we make and produce. The Manufacturers Council of Papua New Guinea remains pivotal to achieving a favourable business environment in PNG. With your support, the MCPNG will continue to assist businesses in leveraging many more opportunities in the future.

Made in PNG is published by Business Advantage International Pty Ltd, Level 27, Rialto South Tower, 525 Collins St, Melbourne, Victoria 3000, Australia, tel +61 3 9935 2977, fax +61 3 9935 2750 www.businessadvantage.co This publication is available free online at www.madeinpng.com. Additional printed copies can be purchased for AUD$35.00 (incl GST and postage) from the above address or by emailing info@businessadvantageinternational.com.

Published in partnership with the Manufacturers Council of Papua New Guinea. Business Advantage International would like to thank Chey Scovell and Murray Woo of the Manufacturers Council of PNG, Paul Barker (PNG Institute of National Affairs), the PNG Investment Promotion Authority, Alan McLay (Lae Chamber of Commerce and Industry), Robyn Ekstrom and Geoff Fahey for their kind assistance on this project. Special thanks to Pacific Islands Trade & Invest for access to its image library.

© Copyright 2011 Business Advantage International Pty Ltd Project Director: Robert Hamilton-Jones (rhj@businessadvantageinternational.com) Publishing Director: Andrew Wilkins (aw@businessadvantageinternational.com) Editorial: Samantha Magick, Jacqueline Bennett Design: Alicia Freile Cover images: Pacific Islands Trade & Invest, K K Kingston, Ramu Agri Industries, Cloudy Bay Sustainable Forestry, PNG Tourism Promotion Authority/David Hannan 4

Printed in Papua New Guinea by Moore Printing (www.moore.com.pg) DISCLAIMER Made in PNG is a general guide to some potential business opportunities in Papua New Guinea’s productive sectors and is not designed as a comprehensive survey. The opinions expressed herein are not necessarily those of the publisher and the publisher does not endorse any of the businesses or products featured, nor does it accept any liability for any costs or losses related to dealings with entities mentioned in this publication. Readers are strongly advised to pursue their own due diligence and seek relevant advice before making any business or investment decisions.

F e at u r e Papua New Guinea not only produces commodities, but increasingly also manufactured goods. Credit: K K Kingston

PNG and its productive sectors Mining and gas are by no means the only industries in which Papua New Guinea has considerable natural advantages. In fact, the country’s economic future will equally depend on the expansion of its promising agriculture, fisheries, manufacturing and forestry sectors.

hile prominent projects such as the US$15 billion ExxonMobil-led PNG LNG project and Xstrata’s Frieda River gold mine may dominate business headlines internationally, behind the scenes there is increased diversification in the Papua New Guinea’s economy and business opportunities aplenty. The Pacific’s largest economy is a country blessed by rich soils, reliable rainfall and warm climate—ideal growing conditions for a wide range of agricultural commodities. It also has a 2.4 million square kilometre exclusive economic zone that contains about 10% of the world’s tuna catch, as well as many other marine species. Its forests are also largely intact at a time when other forests in the Asia–Pacific region have become drastically depleted, while steady economic growth has seen the emergence of a manufacturing sector focused on both import replacement and exports.

mean that chemical fertilisers and intensive farming methods tend to be unnecessary. Thus, much of PNG’s agricultural produce is eligible for organic certification, provided the road to certification can be navigated successfully. Major agricultural commodities produced in PNG include coffee, cocoa, palm oil, rubber, copra, tea and spices, which are being exported to Europe, the United States, Asia and neighbouring Australia and New Zealand. Most have been traditionally exported in their least processed form, but increasingly value is being added onshore, whether it be as roasted coffee beans, coconut oil or pure vanilla extract. In the case of palm oil, pioneering producer London Stock Exchange-listed New Britain Palm Oil Limited (NBPOL) has not only become the first company in PNG to offer customers a ‘fully traceable, sustainable, ethically produced palm oil product,’ but has done it in a way that has overcome the barriers to large scale plantations that can be caused by PNG’s traditional land ownership arrangements. In PNG, most land is customarily owned, which tends to mitigate against large scale agricultural plantations. In a practice first introduced for the mining industry, land in West New Britain Province was ceded to the State by its traditional owners and then leased to NBPOL, which has thus been able to achieve some scale in production. In addition, local smallholders have been integrated into the production process through the provision by NBPOL of grower extension services—a practice now also prevalent in cocoa and coffee production. While this process requires, in the words of Jamie Graham, General Manager of NBPOL subsidiary Ramu Agri Industries, ‘time,

‘Large scale agribusiness is not only possible in PNG, but profitable’

A natural centre for agriculture

While there is some urban drift in its population, Papua New Guinea has not yet experienced the rapid urbanisation of its Asian neighbours. The bulk of the country’s 6.1 million people still live in its remote highlands, and an estimated 85% of PNG’s population is involved in traditional subsistence farming in some form. PNG is largely self-sustaining in fresh fruit and vegetables. Smallholders typically grow food to feed themselves and their communities, and then grow commodity crops on spare land to obtain cash for such necessities as school fees. Rich soils and good rainfall 6

MNG P a n u&f ai tcst up r iondgu c t i v e s e c t o r s

investment and patience,â&#x20AC;&#x2122; the rewards are considerable. NBPOL has not only expanded its plantation holdings in PNG by some 50% over the past two years, but it has also replicated its business in the neighbouring Solomon Islands and in 2010 opened a palm oil processing facility in Liverpool, England, to fulfil growing demand for its palm oil in Europe. In so doing, it has shown that large scale agribusiness is not only possible in PNG, but profitable.

The move to onshore fish processing

Papua New Guinea has always had plenty of fish, especially tuna, in its waters, but until relatively recently its main income from the sea

came from fees charged to overseas fisheries companies for licences to fish in PNG waters. This has all changed remarkably over the last decade, as the plentiful supply of low-cost labour, provincial and national government encouragement, and local and overseas entrepreneurs have combined to turn PNG into an increasingly important fish processing centre. With only 15% of Papua New Guineans employed in the formal sector, onshore processing is generating much needed employment in such coastal centres as Lae and Madang. At the same time, PNG is multiplying the value of its catch many times over, which is criticial given the resource is finite and must be managed within the wider

Through its refinery in the UK, New Britain Palm Oil Limited is the first company in the world to offer fully traceable, segregated RSPO-certified palm oil and food ingredients. Credit: NBPOL

F e at u r e

With the costs of importing high, all these products and much more besides are now made in PNG. At the same time, a new consumer class has emerged as participation in the formal economy has grown. International companies such as Nestlé, Coca-Cola Amatil and Singapore-based Asia-Pacific Breweries not only have a sales presence in PNG, but also manufacture a range of food and beverages for the local market. Many local manufacturers also source their packaging locally, from companies like K K Kingston, which recently attracted a major investment from the International Finance Corporation, the World Bank’s private sector division. So much is now made locally—from noodles to printed magazines and cleaning fluids—that the PNG Manufacturers Council has been able to launch a successful ‘PNG Made’ campaign to educate Papua New Guineans on which products are locally made (see box). Notably, because of the rapid internationalisation of PNG’s economy through its contact with the demanding resources sector, the quality of PNG-made goods is often as good as any import, making goods made in PNG often suitable for export markets as well as import replacement. n

Processed PNG timber is now being manufactured into a wide range of products. Credit: Cloudy Bay Sustainable Forestry

confines of PNG’s international fisheries management obligations (such as its membership of the Parties to the Nauru Agreement, often described as the ‘OPEC of tuna’). International market access is also improving. At the beginning of 2011, the European Union reconfirmed duty free access to the EU market for PNG fish products. With a landmark Pacific Marine Industrial Zone gazetted for Madang Province and new processing and canning plants being established in Morobe Province, there is likely to be both increased capacity and greater scale in PNG’s fisheries sector in future— something that will benefit all operators.

Sustainable forestry

While many surrounding countries have drastically reduced the size of their native forests over recent decades, PNG’s forests still cover some 65% of the country. The country has an estimated sustainable timber yield of three million cubic metres per annum—a target that has yet to be reached. Under the management of the PNG Forestry Authority, the government agency that oversees the sector’s development, round log exports of old growth timber are being phased out in favour of downstream timber processing and plantation timber —something that is supported enthusiastically by the peak industry body, the PNG Forest Industries Association (PNGFIA), which is introducing its own certification system for forest products. Thus sawn logs, veneers, processed timber and even pre-fabricated wooden buildings and furniture are becoming the forestry sector’s new exports. At the same time, PNG’s forestry sector also has potential to generate income from forest conservation and replanting under future international climate change regimes. As the PNGFIA’s Executive Director Bob Tate has observed, ‘the easiest, quickest and most costeffective way for climate change abatement is to plant trees.’

‘PNG Made’ campaign gathers momentum Over the last couple of years the Manufacturers Council of PNG (MCPNG) has stepped up its ‘PNG Made’ campaign that encourages PNG consumers to buy locally made products. The scheme centres around the ‘PNG Made’ logo, that acts as a mark to give consumers confidence that the local goods they are buying are of good quality. To qualify for use of the ‘PNG Made’ logo, 50% of a particular product’s cost of production must have been incurred in PNG. ‘The use of the logo is not a right of membership,’ explains the Manufacturers Council’s Chief Executive Officer Chey Scovell, ‘participating businesses must also submit a sample of the product to the Council for approval and commit to producing it to the highest standards.’ A wide range of locally produced goods display the logo, ranging from food and beverages, to garments and industrial products. This increased promotion has primarily been through TV advertising and was funded by leading local manufacturers and a grant from the Department of Commerce and Industry. During 2011 MCPNG plans to diversify into other media such as print and radio to maintain the campaign’s momentum

Local manufacturing base grows

The growth of PNG’s formal economy over the past decade, closely connected to the growth of the mining and petroleum sector, has created demand for new constructions of all kinds. This has not just benefited PNG’s timber producers, but has also provided demand for a range of manufactured industrial and building products, from processed steel to paint, cement, and industrial chemicals. 8

The PNG Made logo is found on an increasing number of goods sold in PNG. Further information: www.pngmade.com

P NG & i t s p r o d u c t i v e s e c t o r s

Expanding the nation’s infrastructure As a developing country, Papua New Guinea lacks much of the infrastructure that developed nations take for granted, but investment in new infrastructure is under way. As PNG’s economy has grown, so the condition and capacity of its roads, ports, power supply, airports, water supply and telecommunications network has become ever more of an issue for business. The situation is exacerbated by the country’s extreme terrain (which effectively prevents the building of a large road network or a single national power grid, for example) and high rainfall. The situation is improving, however, thanks to a combination of improved government investment, development aid, and investments from the Asian Development Bank (ADB) and private investors. Undoubtedly, the stand-out success has been PNG’s telecommunications sector. Opening up the mobile phone market to genuine competition has led to key players Bemobile and Digicel building genuinely national mobile networks. This has in turn led to an explosion in services that can be delivered at a low cost via mobile phones, such as mobile payments and banking (see box on page 10 for an example). Further deregulation of the sector is likely see expansion and more competition of fixed lines and broadband, which are currently expensive and only available in major towns. The PNG Government has also announced plans for a National Broadband Network. PNG has good shipping connections to the Asia–Pacific region. The ADB-sponsored Tidal Basin project, which is expected to go into construction phases at the end of 2011, will significantly expand and improve PNG’s busiest port, Lae. PNG Ports, which runs the country’s 16 major ports, is also upgrading and extending facilities in Lae and Port Moresby as well as introducing x-ray facilities. This work is vital if PNG is to develop its export capacity. PNG’s 9000km of roads, in particular the vital Highlands Highway that connects PNG’s rural highlands to the port of Lae, are in continuous need of repair. The PNG Government has signalled its intent to eventually seal all roads, while the ABD has committed US$400 million to assist with construction and maintenance over the next 10 years. The problems with power generation and supply mean most companies in PNG have their own on-site power generators. State enterprise PNG Power has recently reached agreement with superannuation fund Nambawan Super to enable further investment in Port Moresby’s electricity grid, while there are a number of hydro-electric projects being planned. Finally, with only small parts of the country traversable by road,

PNG is more reliant on air services than possibly any other country in the Asia–Pacific region. A 10-year US$640 million program supported in part by the ADB is currently rehabilitating and maintaining PNG’s 21 airports. It is hoped that a planned Public Private Partnership (PPP) framework may trigger additional private infrastructure investment.

Port Moresby docks

P NG & ITS P RODU C TIVE SE C TORS

Banking services reach PNG’s rural population With mobile phone use now widespread in PNG, the country’s largest bank is aiming to bring financial services to the ‘unbanked’ in PNG’s rural areas for the first time—an initiative that is expected to drive small business development. PNG-based Bank South Pacific (BSP), the Pacific’s largest bank, will this year ramp up its rural banking program, in an effort to stimulate economic activity in Papua New Guinea’s rural areas. BSP’s Head of Rural Banking Paul Thornton says the bank aims to mobilise at least 200,000 new customers over the next three years. The first branch of the new network opened in Kwikila as part of a pilot in September 2010, with two branches in the Eastern Highlands following. If the pilot is successful, the program will be rolled out across the country in 2011. ‘[The aim] is really to get the money out from under the mattress,’ Thornton says, stating Bank of PNG statistics that some K900 million in cash is in circulation around the countryside, but only about K200 million of that is in banks. Rural banking will give people a safe haven to place their surplus funds, and provide opportunities for financing local agricultural producers and entrepreneurs, says Thornton: ‘Once people have a bank account, you start building a financial history. Banks like information and in the absence of any information it is hard to make valid credit decisions. We think by

placing these branches in the districts, money will circulate within the local areas and that will help develop small and micro-business opportunities for people.’ The project has the financial support of the International Finance Corporation, also an investor in BSP. ‘Access to banking services is critical for poor households and smaller rural enterprises to boost productivity, create jobs, and reduce poverty,’ said Lars Thunell, IFC Executive Vice President and CEO.  ‘In Papua New Guinea, more than 90 percent of adults lack such access, which denies them opportunities to improve their lives. IFC is supporting BSP Rural to help extend the reach of financial services to rural areas.’ A range of banking services will be delivered via mobile phone provider Digicel’s network, now a feature of most major rural communities . ‘Digicel’s GPRS rollout has made it possible for us to do all sorts of things,’ says Thornton. As part of the effort, BSP is also conducting financial literacy training during field days in order to sign up customers and show them how to use their plastic debit card. BSP is also looking to install more EFTPOS terminals using wireless facilities in 2011.

Lars Thunell, IFC Executive Vice President and CEO (second from right) meets some locals, including BSP’s CEO Ian Clyne (left) and BSP Rural’s Paul Thornton (third from right) during his February 2011 visit to PNG. Credit: BSP

F EATURE

Credit: Cloudy Bay Sustainable Forestry Ltd

Selling PNG’s produce to the world PNG produce and products continue to find new markets overseas.

urrently, the vast bulk of PNG’s exports are raw or partprocessed commodities such as coffee, cocoa, palm oil and timber, although there is an increased emphasis on value-adding prior in export. The way to market differs depending on the produce.

Commodity exports

PNG coffee’s major markets are Europe and the United States, with the larger international coffee companies accounting for the bulk of green bean exports. Several PNG coffee companies, such as Kongo Coffee and Carpenter Estates, are now exporting roasted beans to achieve higher prices. PNG’s largest palm oil producer, New Britain Palm Oil Limited (NBPOL), also exports unrefined produce to Europe but has taken the step of building its own palm oil refinery in the United Kingdom—close to its major European customers—in order to add value. As demand for sustainably produced palm oil rises, NBPOL’s continued export success will be underpinned by its certification by the Roundtable on Sustainable Palm Oil. Another major commodity, cocoa, currently supplies around two per cent of the global market and there is potential to increase production significantly. Meanwhile, spices such as vanilla, pepper and mace are being processed and packaged for sale internationally by companies like Paradise Spices and Pacific Spices. In the fisheries sector, much of PNG’s tuna catch—estimated to be between 100,00 and 150,000 metric tonnes—is taken directly from the waters of PNG’s exclusive economic zone by foreign-owned purse seine vessels and landed in Korea, Japan, Taiwan, the Philippines and China. Meanwhile, round logs and sawn timber continue to be the major forms of forestry export, with China, Japan, Korea and Vietnam the largest export markets.

Valueadded exports

While PNG’s manufacturers are largely focused on meeting rising local demand, exports are occurring in specific niche areas. S P Brewery now exports its signature S P Lager Beer to neighbouring Queensland in Australia, for instance, while Paradise Foods sells its biscuits and snacks across the Pacific Islands—one of several PNG manufacturers to do so (K K Kingston, Woo Textile and PNG Taiheiyo Cement are some others). Melanesian neighbours

the Solomon Islands, Vanuatu and Fiji are particularly common destinations for PNG-manufactured products. Meanwhile, companies such as Lae Builders and Contractors, PNG Forest Products and Cloudy Bay Sustainable Forestry are leading the way by showing that round logs need not be PNG’s only timber-based exports. All produce wooden furniture for export, while the latter two also produce prefabricated wooden buildings. With new forestry leases in PNG requiring an element of value-adding from 2011 onwards, more PNG timber products are likely to be exported in the future. Notably, tuna canned or loined in PNG is being exported by a fastgrowing local fish processing industry, particularly to Europe, where PNG tuna has free market access. There is also a small but notable niche market for PNG handicrafts.

Export assistance

In addition to the PNG Investment Promotion Authority, which helps promote PNG exporters, an important role is played by Pacific Islands

Papua New Guinea’s export markets 1. Australia

5664.2 million kina

2. Japan

1743.2

3. Philippines

880.5

4. Germany

610.8

5. South Korea

463.9

6. China

413.9

7. Singapore

341.3

8. Spain

334.9

9. Great Britain

164.5

10. United States

163.7

11. Netherlands

157.5

12. Malaysia

122.9

13. Italy

112.1

14. Hong Kong

108

15. Indonesia

82.7

Source: Bank of PNG (2009 figures)

f e at u r e

Papua New Guinea’s non-mineral exports Commodity

million kina

Palm oil

714.3

Forest products

476.8

Coffee

460.3

Cocoa

337.3

Marine products

232.9

Copra oil

87.9

Rubber

Tea

18.4

Copra

12.4

Other

160

Source: Bank of PNG (2009 figures)

‘While PNG’s manufacturers are largely focused on meeting rising local demand, exports are occurring in specific niche areas’

The fourth edition of the handy Papua New Guinea Exporters Directory has just been released. Published by the PNG Investment Promotion Authority, the new edition of the directory profiles export businesses from across PNG’s four regions. Further information: www.ipa.gov.pg.

acting CEO, the ‘True Pacific’ quality campaign itself is being kept under wraps ahead of a mid-2011 launch, but he was able to reveal to Business Advantage that the project will target three areas of produce—fresh produce, spa and body products, and long-life products. ‘PNG coffee is renowned, and it has some good spices and long-life products too,’ he notes. ‘The project started off as a “country of origin” marketing exercise, but the market research we commissioned in 2010 soon revealed that saying goods were from the Pacific wasn’t enough: they also had to be of good quality. So, we’ll be focusing on value with the campaign; on quality rather than quantity.’ While the targets of the campaign will be New Zealand consumers and retailers, Cocker says the Pacific quality mark has the potential to be rolled out in other markets once established. n

Trade and Invest (PT&I), the trade promotion agency of the Pacific Islands Forum Secretariat. ‘When you talk to buyers, importers, distributors their concern is with quality and consistency. No matter who is supplying, those will always be the issues,’ notes Caleb Jarvis, PT&I’s Trade Comissioner. ‘Coming out of the Pacific and PNG there are some excellent products. But like anywhere else there can be problems with supply and consistency. It is important PNG exporters meet international market needs. PT&I can assist exporters through the provision of services focused on research, packaging, labelling, customised buyer visits and attendance at relevant trade events.’ PT&I facilitates introductions between PNG producers and buyers overseas and has already made significant progress in areas such as premium cocoa exports for chocolate manufacture and the marketing of spices and essential oils. ‘We are working with businesses, consolidators, cooperatives who help prepare it, grade it, package it, label it and export it and get it ready for domestic and international markets,’ says Jarvis, who sees the Northern Hemisphere as PNG’s major agricultural export opportunity: ‘In agribusiness—cocoa, coffee, palm oil, copra—all roads lead to the Northern Hemisphere. The real demand is there.’

PNG’s trade treaties

Selling to consumers

The Pacific Agreement on Closer Economic Relations (PACER) www.forumsec.org PACER is designed to encourage free trade between the countries of the Pacific Islands Forum, including Australia and New Zealand. Negotiations are under way to create an enhanced version of PACER, dubbed PACER Plus, which once realised will also replace SPARTECA.

Not surprisingly, given PNG’s reliance on commodity exports, its produce has a low profile with consumers overseas, although this is changing. Chocolate manufacturers in Australia and Europe are now selecting prime PNG cocoa for ‘single plantation’ gourmet chocolate bars, while specialist roasters are also marketing PNG Fairtrade coffee, with the country of origin and even the plantation prominently displayed. Likewise, PNG’s premium dried spices can now be found in specialty stores internationally. Interestingly, a pilot scheme to develop a ‘true Pacific quality’ mark aimed at consumers is currently being conducted in New Zealand by the Pacific Cooperation Foundation with seed funding from New Zealand’s Ministry of Foreign Affairs. This project will promote the goods of PNG exporters who meet the ‘True Pacific’ quality criteria to New Zealand consumers, alongside goods from five other Pacific Islands. In January 2011, seven unnamed PNG enterprises were assessed. The project will employ a variety of marketing activities, including social media, trade marketing, consumer events and advertising, to promote the goods under a ‘True Pacific’ quality brand and encourage niche retailers to retail the goods. According to Chris Cocker, the Pacific Cooperation Foundation’s 12

Papua New Guinea is party to a number of advantageous trade agreements that give its exports preferential access to markets all over the world. Here’s a brief summary. Papua New Guinea–European Union Economic Partnership Agreement (EPA) http://trade.ec.europa.eu/doclib/docs/2010/january/ tradoc_145672.pdf PNG signed an EPA with the EU in 2009, which was ratified by the EU in early 2011. This bilateral agreement provides free market access for PNG exports to the EU and simplified Rules of Origin for processed fish. The South Pacific Agreement on Trade and Economic Cooperation (SPARTECA) www.worldtradelaw.net/fta/agreements/spartecafta.pdf SPARTECA provides duty-free market access for PNG (and other Pacific Forum countries) exports into Australia and NZ.

PNG and Australia Trade and Commercial Relations Agreement (PATCRA) PATCRA allows duty free access for PNG products into Australia. Melanesian Spearhead Group Trade Agreement (MSGTA) Members: Papua New Guinea, Solomon Islands, Vanuatu and Fiji www.worldtradelaw.net/fta/agreements/msgfta/pdf The MSGTA facilitates free trade, with some exemptions, between PNG and its Melanesian neighbours. Research conducted by Julia Tijaja

S e l l i n g P NG ’ s p r o d u c e t o t h e w o r l d

Spotlight

Making the most of the beans

Robert Hamilton-Jones talks to one of the founders of Jasper Coffee, which roasts and packages gourmet Papua New Guinean coffee. About three years ago, I stumbled upon an attractively packaged coffee in my local deli in Geelong, Australia. It was of PNG origin, although it was actually roasted and packaged in Australia by Jasper Coffee. I was amazed at how good it tasted. I had drunk some very good coffee on my trips to PNG, but nothing quite like this. The inception of our Made in PNG publication provided me with the ideal chance to try to discover Jasper’s secret. ‘Our Niugini Okapa coffee derives from a relatively small area in the Southern Highlands of PNG that has been certified as Fairtrade organic,’ says Wells Trenfield, who co-founded Jasper Coffee in 1989. ‘But before we place an order with our broker we always put several samples through an exhaustive tasting process.’ Once ordered, a consignment will subsequently arrive in so-called green bean form, meaning each coffee cherry or ‘bean’ has already been pulped, immersed in water then dried in the sun. As a result, the roasting of the beans is carried out in-house, at Jasper’s state-of-the-art roastery in inner Melbourne. The company’s website suggests this is a very meticulous process: ‘At our Roasting Bench, we capture copious points of data throughout the roast program, to analyse every roast of every bean, every day.’ Thus the quality of Jasper’s end product seems founded not just on ‘sourcing the highest quality Single Origin AA Arabica’ coffee

beans, but also putting them through this ‘alchemy of roasting’. Despite operating exclusively at the gourmet end of the market, the company’s client base now includes hundreds of cafes, retails stores and offices throughout Australia. While these days Jasper Coffee sources coffees from ‘every corner of the globe’, Wells Trenfield says they’ve produced organic PNG ever since they started out in 1989 and now offer no less than five different PNG coffees. He goes on, however, to sound a cautionary note about the perception of PNG coffee in the global marketplace. ‘Australia knows PNG so it’s much easier to market PNG coffee there. However, most PNG coffee goes to the USA and Germany and just becomes part of a blend. PNG also produces very good tea, for instance from the Wahgi Valley, but there is little or no awareness of PNG as a tea producer internationally.’ Jasper Coffee’s wholehearted and sustained commitment to PNG implies that the country’s so-called green gold can match it with the best coffees on earth. But my discussion with its roasting wizard highlights there is a world of difference between a first-rate commodity, and a premium product. Robert Hamilton-Jones is project director at Business Advantage International.

Further information: www.jaspercoffee.com

F EATURE Lae Biscuit Company Ltd’s new factory in Kamkumung, Lae. The vacant lot adjacent will soon be occupied by another of PNG’s fast-growing manufacturers, K K Kingston. Credit: Lae Biscuit Co

PNG’s manufacturers seize the moment Business Advantage’s wide-ranging survey of PNG’s manufacturers found soaring domestic demand is boosting revenues and driving substantial new investment, in spite of operational challenges.

‘W

e have experienced a growth rate of about 15% per annum over the past five years,’ says Michael Kingston, General Manager of manufacturing firm K K Kingston. ‘As a result, we are now bursting at the seams and so have purchased 10 hectares of land to build a new production and distribution centre.’ K K Kingston may be one of the resounding success stories of PNG’s manufacturing sector, but in many ways it is also highly representative. The company, set up in 1972, shares traits with many of PNG’s larger manufacturers. It is based in PNG’s industrial capital of Lae (with a smaller production site in Port Moresby), is comparatively diversified and supplies predominantly the domestic market. The company is not unique in its commitment to a major expansion program. When it completes its relocation to Kamkumung on the outskirts of Lae, KK Kingston will become neighbours with the Lae Biscuit Company that inaugurated its new facility in April 2010.

Spreading their wings

Lae’s K65 million factory represents a landmark for the company. ‘It has enabled us to double our Lae workforce as well as improve the quality of our product,’ explains Chief Executive Officer Ian Chow. ‘We’re also planning to expand our Port Moresby facility where we currently employ another 200 or so people.’ PNG’s manufacturers are certainly spreading their wings. S P Brewery, which dominates the PNG beer market, is close to completing a K94 million expansion program, including a new brewing facility 14

in Lae, while Coca-Cola Amatil has invested more than K4 million in a CO2 plant in Lae and will be spending over K30 million on a state-of-the-art production facility and supporting renovations in Port Moresby. Paradise Foods has aggressive plans for further expansion and extensions to their wide product range. The manufacturer of biscuits, snack food, corn chips and noodles is PNG’s oldest food manufacturing business and is 100% nationally owned.

Wave of investment

This wave of investment is being underwritten by an array of blue-chip institutions. SP Brewery’s largest shareholder is multinational Asia Pacific Breweries, while its largest local shareholder is one of PNG’s two powerful superannuation funds, Nambawan Super, which also owns 80% of Paradise Foods. Meanwhile, major agribusiness company Mainland Holdings has just sold a substantial stake to PNG’s other superannuation company, NASFUND. As for K K Kingston, its growth is being underpinned by significant investments it recently received from the regional Kula Fund and the private sector arm of the World Bank (the IFC). Most remarkably of all, New Britain Palm Oil Limited, the star of PNG’s agribusiness sector, completed a suitably stellar IPO on the London Stock Exchange (it is also listed on Port Moresby’s stock exchange) in 2008 before acquiring a controlling stake in PNG’s major sugar and beef producer, Ramu Agri Industries. This kind of blue-chip international interest in PNG’s productive sectors could scarcely have been imagined even a decade ago. If it is a measure of how far the country in general and the sector in particular

MNG P a n’u s fm ac a tnuurfiancgt u r e r s s e i z e t h e m o m e n t

have come, it also implies a widespread belief that strong growth will be maintained in the long term.

Industrial parks

‘There has been a significant shift of economy over the past seven or eight years, with annual GDP growth in excess of 5%,’ says S P Brewery’s General Manager Stan Joyce. ‘We see continued growth in the beer market for the next 10 years and we believe that the LNG project will, not so much directly but indirectly through the flows that it creates here, be quite strong.’ Of course, PNG is very much a developing economy. Viewed through the lens of a beer glass, that equates to a per capita beer consumption of just 10 litres per year compared with 20 litres in South East Asia and 75 litres in Australia. PNG’s manufacturing sector reportedly employs around a quarter of the formal workforce and is responsible for anything between 6% and 11.5% of GDP. This provides the PNG Government with a strong incentive to protect and develop this sector. It is also keen to encourage import substitution to improve its balance of trade position. Indeed, its Medium Term Development Strategy prioritises the need to develop the country’s downstream processing industries and identifies industrial parks as a central plank of the strategy by which this will be achieved. However, its goodwill is tempered somewhat by political forces: external pressure to liberalise international trade and internal pressure to keep the cost of living down and keep the lid on PNG’s galloping inflation rate.

US$27 million in a footware factory in Port Moresby. As one executive at another multinational manufacturer in PNG pointed out, PNG can be a formidably expensive place to set up a manufacturing business at present. For a start, land is at a premium

Logistical challenges

Despite the flurry of investment from existing manufacturers, there has been a conspicuous lack of foreign investment in new operations (with the exception of PNG’s fisheries sector—see page 34), although as we went to press a Chinese firm announced its intention to invest

PNG’s then-Governor-General Sir Paulius Matane congratulates Lae Biscuit Chairman Sir Henry Chow (right) at the opening Lae Biscuit Co Ltd’s new factory in April 2010. Credit: Lae Biscuit Co

F EATURE

in Port Moresby and Lae. Rents in the capital are sky-high by any standards and are said to have doubled in Lae in the past two years. Also, PNG’s productive sectors present a very tough operating environment even for those who know the market inside out. Even the bestresourced firms must pick their way through a minefield of logistical challenges daily, pushing up costs and reducing efficiency. ‘A significant expense in doing business in PNG is K K Kingston General Manager, security and vehicle repair Michael Kingston and maintenance,’ says CocaCola Amatil General Manager Colin McVea. ‘Fluctuations in power supply and at times regular power cuts require heavy investment in backup generators to run our manufacturing facility.’ Water supply is also erratic, as even guests at Lae’s business hotels can testify. What is an inconvenience for a hotel guest, however, is downtime for most manufacturers. ‘We go through about 30,000 litres a day of water, and we had no option but to invest in a back-up supply system even though it represented a big investment,’ says K K Kingston’s Michael Kingston.

Positive note

On a positive note, a range of infrastructure projects are in the pipeline, including one to increase the capacity of PNG’s largest port of Lae (see page 9). For the time being, however, severe congestion there means that manufacturers need to stock excessive quantities of raw materials to ensure their production output can be maintained. Michael Kingston puts this in perspective: ‘When I talk to people internationally, they can’t believe the volumes of stock we have to hold. Ten stock-turns a year might be conservative; we are currently working on just four.’ This situation also encourages manufacturers to be as self-sufficient as possible. ‘We try to produce all of our packaging onshore,’ says Ben Frame of diversified manufacturers Laga Industries. The Lae-based company, which is majority owned by PNG conglomerate Steamships, is in the process of installing new equipment to produce plastic in-house, as well as a plastic bottle producing facility, as part of its entry into the unlabelled bottled water market.

employers criticised its scale as being too sudden and unaffordable. Nearly two years later, the consensus among the manufacturers we spoke to was that it had simply encouraged them to increase the level of automation of the production lines to the detriment of local employment.

Quality products

These factors also make PNG’s manufactured goods less competitive internationally. However, progress is being made in the export arena, primarily within PNG’s own region. As MCPNG President Murray Woo explains, ‘Given that PNG has the largest domestic market in the Pacific region, its manufacturing sector enjoys certain economies of scale that provide opportunities for our manufacturers to export products to smaller markets in the region.’ In particular, the neighbouring Solomon Islands represents a quasidomestic market for PNG goods (for more on exports see page 11). But such a high-cost environment also begs the question why foreign firms elect to produce onshore for the PNG market rather than simply exporting to PNG, and how locally owned producers fare against imported goods. Japanese-owned PNG Taiheiyo Cement has operated PNG’s only cement plant since 2000. Makoto Kagamida explains that it is precisely the combination of raw materials imported from Japan and a strong local manufacturing presence that enables his firm to provide the best possible quality of product to its customers. ‘We put extensive effort into quality assurance beyond anything a cement importer could do,’ he says.

Customer service

Global paint manufacturer Dulux has maintained a manufacturing presence in PNG for more than four decades. National Sales Manager Doug Bell says that around 80% of what they sell in PNG is produced onshore. He has no hesitation in identifying speed to market as a key benefit: ‘We get a lot of customised orders for larger projects and need to be able to produce on-demand with a short lead-time.’ Customer service is also cited by Mal Lewis, CEO of Hornibrook NGI, as a selling point for his fabricated steel business. ‘If someone sources from offshore but an error occurs, perhaps in the drawings, what happens then? We can easily intervene to fix the problem. In one case, I am sure we made more money fixing the string of problems that arose from a job that was done offshore than we would have if we’d done the work in the first place.’ Of course, local manufacturers are also protected by tariffs on certain imported goods. However, these have dropped considerably since PNG’s accession to the World Trade Organisation in 1996. According to Chey Scovell of MCPNG, ‘PNG presently ranks in the top 10% worldwide for low tariffs, an anomaly considering our state of development.’ The MCPNG’s position is that further tariff reductions should be linked to the amelioration of the high-cost environment in which local manufacturers operate. This wish was granted, temporarily at least, in the 2009 national budget when a moratorium on tariff reductions was imposed. However, negotiations underway for a new PACER Plus trade agreement, to underpin trade between the Pacific Islands, Australia and New Zealand, could put pressure on the moratorium S P Brewery’s GM, Stan Joyce to be lifted.

This kind of blue-chip international interest in PNG’s productive sectors could scarcely have been imagined even a decade ago.

Demand for skills

If PNG’s mining and petroleum boom is a major factor in the revival of its manufacturing base, the interests of the two sectors do not always coincide. One example is that manufacturing firms are losing skilled workers to the resources sector. ‘The mining companies are sucking up some of our best workers,’ concedes Ian Chow of Lae Biscuit Co., ‘although some of them do come back again after realising they don’t like living in the bush.’ Naturally, increased demand for skills is also pushing up wages. ‘We’re under no illusions about salaries in the current environment,’ one manufacturing executive told Business Advantage, ‘we stay competitive or we lose our staff.’ Further wage pressure was applied in 2009 when, in a controversial move, the PNG Government more than doubled the country’s minimum wage to K2.29 an hour. While an increase was long overdue, 16

MNG P a n’u s fm ac a tnuurfiancgt u r e r s s e i z e t h e m o m e n t Credit: MCPNG

Major challenge

Unsurprisingly, the low-tariff environment provides a major challenge for local manufacturers, especially when non-compliance is factored in. ‘We struggle with parallel importing in PNG, where cheap imports enter from Asia,’ says Colin McVea of Coca-Cola Amatil. ‘The established duty should apply, however we have found that sometimes goods are under-declared. We employ over 800 people directly and source some raw materials locally and as such, we’d like to see more done to support local industry.’ The MCPNG recently revved up its ‘PNG Made’ promotional

campaign (see page 8) to promote quality local goods. So what is the attitude of PNG consumers towards locally produced products? ‘We have had an established “PNG Made” campaign for several years now and I believe we are succeeding in creating a “PNG Made” identity,’ says Colin McVea. ‘There is support for what we are doing and the reasons behind it. Papua New Guineans are very proud of their country and what they have done over the years. They are quite parochial about “PNG Made”. I don’t think we realise how powerful the brand and logo really is.’ n

Sector profile

Manufacturing Even those who are familiar with the PNG economy might be surprised at the range of goods that the country produces.

uch of PNG’s manufactured produce is aimed at a domestic consumer market that is growing so rapidly— albeit from a low base—that many local manufacturers are struggling to meet demand. Many producers also cater to the business-to-business market, especially the booming mining, petroleum and construction sectors. Given PNG’s wealth of natural resources, it is little surprise that downstream processing plays an important role in the manufacturing sector. Examples include the loining and canning of fish, converting local timber into plywood, roasting coffee and even the refining of gold. At the same time, the potential exists to significantly expand the scale and scope of downstream processing. In global terms, PNG’s manufacturing sector is small and has a high cost of production. Naturally, this acts as a barrier to exporting, and yet

Laga Industries is the largest ice cream manufacturer in the South Pacific, retailing under the ‘Gala’ brand, with 35 tied ice cream parlours in PNG supermarkets. Steamships has a 65% stake in Laga Industries, with the remaining 35% held privately. Credit: Laga Industries

local producers are increasingly finding new markets, particularly in the neighbouring Solomon Islands and other Pacific Islands, but even in Australia and New Zealand (see page 11 for more on PNG exports).

Asserting PNG quality

There is certainly no doubting the ability of PNG to produce high quality goods, be it S P Lager (that has penetrated the fiercely competitive Australian market), industrial products from KK Kingston

‘There is certainly no doubting the ability of PNG to produce high quality goods’ The world’s largest food company, Nestlé SA, produces its Maggi branded noodles at its state-ofthe-art facility in Lae principally for domestic consumption. Nestlé Oceania brands include Nescafé, International Roast, Nesquik, Milo, Maggi, Nestlé Carnation, and Nestlé Peters Ice Creams and Sunshine. The coffee for its Nescafé Niugini Blend coffee is sourced from local farmers.

Manufacturing

(currently undergoing ISO 9000 certification) or the stylish furniture produced by Cloudy Bay Sustainable Forestry. Multinationals such as Nestlé SA, Coca-Cola Amatil and Dulux manufacture their renowned brands in PNG, while local manufacturers Paradise Foods and Moore Printing have gained international acknowledgment for their model operations (see case studies on page 20). Asserting the quality of local products to the domestic market is at the heart of the Manufacturers Council of PNG’s ‘PNG Made’ campaign, where only locally-produced goods that meet with the Council’s approval are entitled to display the ‘PNG Made’ logo. Though most members of the Council are PNG-owned, several are wholly or partly owned by international companies.

Important contribution

PNG’s manufacturing sector reportedly employs around a quarter of the formal workforce, while its contribution to GDP is estimated at

The range of goods produced in PNG • Beverages: beer, soft drinks, vodka •B uilding: pre-fabricated building (wood/steel), roofing materials, cement, plywood •F ood: biscuits, snacks, noodles, baking products, canned meat/fish, smallgoods • Handicrafts: pottery, embroidery • Household items: furniture, beds, mattresses, cooking utensils • Industrial products: chemicals, water tanks • Packaging: aluminium cans, corrugated cardboard • Paints • Personal care products • Printing: offset and digital • Refined petroleum • Textiles: footwear, school uniforms

between 6% and 11.5%. Much of PNG’s existing manufacturing sector is centred around Lae and, to lesser extent, Port Moresby. The PNG Government is seeking to encourage local production by offering incentives and concessions to manufacturing enterprises. Incentives include export sales exemptions and wage subsidies (see box). The government is also attempting to address the factors limiting growth of this sector, particularly infrastructure problems such as road maintenance and upgrading around Lae (see page 9). n

Incentives for manufacturers The PNG Government offers a number of incentives to help develop the local manufacturing sector. For example: • Industrial plants not previously used in PNG are eligible for increased depreciation up to 100% of cost. • The initial year accelerated depreciation allows faster writing down of the capital cost of certain new assets. • Double-deduction for export market development costs for goods made in PNG, or where PNG labour cost exceeds 10% of the sale price of the product. • Profit made from export sales of certain PNG-made goods qualify for company income tax exemptions for the first three years. A different formula applies for exemptions for the next four years. • A duty drawback rebate paid to exporting manufacturers when they export goods of the same value as the amount of duty already paid on the raw material. • Companies manufacturing new products may receive a subsidy payment of 10-40% for up to five years based on a percentage of the relevant minimum wage for each full-time local employee. Source: PNG Investment Promotion Authority

Sector profile

100% PNG-owned Paradise Foods makes a wide range of snacks and biscuits at its two factories in Lae and Port Moresby.

Moore Printing is PNG’s leading printing company. Its equipment includes two 5-colour Heidelberg presses equipped with electronic closed loop colour control, a digital imaging bureau and digital printing facilities.

Credit: Manufacturers Council of PNG

Credit: Moore Printing

Case study

Two model PNG manufacturers

Towards the end of 2010, Aureos Capital (which operates the Pacific’s only private equity fund, Kula Fund II), hosted a management development programme in Port Moresby for 20 managers from businesses in its Pacific Islands investment portfolio. Included in the programme were site visits to two model PNG manufacturers, Paradise Foods and Moore Printing. ‘Both companies embody the qualities Kula is seeking in investee companies, including strong commitment to developing local management teams, high corporate governance and environment, health and safety standards and innovative product development,’ notes Aureos Capital’s Andrew Crompton, explaining why the two companies were handpicked for the exercise.

PNG’s premium printer Moore Printing Limited was an investee company of the Kula Fund between 1999 and 2003, and a visit to its Badili printing plant reveals the kind of efficient, clean and modern operation that one would expect from a premium printing operation anywhere. Its 1100 square metre main press room, which includes two five-colour Heidelberg presses, is climate controlled (essential if you’re handling paper in the tropics) and highly secure (enabling Moore to handle commercially-sensitive and government jobs). A quality approach to the printing process is evident everywhere, from the electronic Closed Loop Colour control (CPC) which provides precise automation of colour management on the press, to the many quality control systems in place for monitoring waste, on time delivery, make ready hours and so on. In addition to its offset printing operation, which includes a prepress department, Moore also has a digital imaging bureau service responsible for the daily processing of thousands of personalised documents and statements for some of PNG’s most respected companies. Equipped with high speed Xerox printers, document scanners and some very clever software solutions, Moore provides laser printing, mail processing, security printing, digital colour printing, and even document archiving services. Also evident in any tour of Moore’s plant is the almost total reliance on local Papua New Guinean labour—almost all of the 240 staff are locals. This reflects a firm belief that PNG workers have what it takes to perform in skilled roles and it’s also indicative of Moore Printing’s commitment to on-the-job training.

‘There’s no excuse for manufacturers in PNG not to be world class and companies such as Paradise Foods, Coca-Cola and S P Brewery to name a few have proved this for many years,’ says Moore Printing’s General Manager David Doig. ‘PNG workers are just as keen as anyone else in the world to learn and work to the highest standards, it just requires the right level of desire, determination and commitment from management to get them there.’

PNG’s largest food company Paradise Foods Limited, by contrast, is PNG’s oldest established food manufacturer, with operations dating back to the early 1930s. Formerly known as Arnott Biscuits (PNG) and owned by US company Campbells Soups, it was purchased in 2007 by local superannuation funds Nambawan Super and Comrade Trustee Services Limited and re-named Paradise Foods. The 100% PNG-owned, the company employs over 600 staff, with sales offices throughout the country and two factories, in Lae and Port Moresby. It manufactures a wide of range of foods for local consumption, including corn chips, shortbread, biscuits, noodles and snackfoods, and soon its own PNG-sourced pure chocolate. Its location means it is able to source many of its inputs, such as sugar, palm oil, milled flour and packaging, locally. Like Moore Printing, Paradise Foods is committed to quality on both products and processes. Food safety is paramount and its factories are Hazard Analysis Critical Control Point (HACCP) certified (it is the first PNG manufacturer to be accredited to HACCP standards). Such accreditation permits exports into developed markets with high food standards such as Australia and New Zealand. Nor is the company resting on its laurels: ‘We had a record year in 2010,’ says Managing Director David Peate. ‘The market will continue to grow and we have to expand our portfolio of products to meet the demands of the developing market.’ Paradise invested US$6 million on new warehouse facilities during 2010. Paradise Foods brands such as Arrow, Paradise, Morobeen and Hi Way are household names in PNG, making Paradise PNG’s largest food manufacturer. Increasingly, its foods are also finding their way into other Pacific markets such as the Solomon Islands and French Polynesia.

Manufacturing

Case study

Coca-Cola Amatil

Coca-Cola Amatil’s (CCA) five production lines in PNG include sparkling beverages, water, cordial and fruit juice. The Coca-Cola Amatil Group operates in five countries, including Papua New Guinea, where it manufactures more than 60 beverages locally, and employs over 800 staff. CCA have invested in excess of K4 million in a CO2 plant, which will soon be commissioned, and is building a state of the art manufacturing facility along with renovations at its Port Moresby site at an investment of over K30 million. CCA PNG General Manager Colin McVea says the investment in PNG shows the company’s commitment and facilitates long term expansion plans. The Port Moresby manufacturing facility for development this year will be a showcase for PNG as it will be the first of its kind in the CCA Group and the Coca-Cola System worldwide. ‘Coca-Cola Amatil is committed to Papua New Guinea through employment and investment with plans for expansion in the not too distant future,’ says McVea. ‘Being a major manufacturer in Papua New Guinea brings forth pride when one can place the “PNG Made” logo on our products.’

Credit: Coca-Cola Amatil

Taubmans Living Proof Silk is manufactured in PNG by Akzo Nobel. Incorporating Teflon, which makes walls smooth and washable, Living Proof Silk is an extremely durable and stain resistant paint making it ideal for high traffic areas. Credit: Akso Nobel

Papua New Guinea’s Provinces & THEIR key produce

MANUS Marine products

WEST SEPIK (SANDAUN) Gold, copper, forestry, marine products

EAST SEPIK Fisheries, forestry, vanilla, cocoa

INDONESIA

MO MASE

Bismarck Sea

MADANG Fish processing, sugar, nickel, cobalt

ENGA Gold, silver

WESTERN HIGHLANDS*

Mount Hagen

Coffee, tea

SOUTHERN HIGHLANDS* Oil/gas

CHIMBU (SIMBU)

Goroka

Coffee

EASTERN HIGHLANDS

HIG HLA NDS WESTERN PROVINCE

Coffee

GULF

Copper/gold, forestry, aquaculture

Madang

Oil/gas, marine products

SOUTHE RN

Gulf of Papua

Lae

MOROBE Manufacturing, logistics, coffee, livestock, fish processing, forestry, gold, copper

CENTRAL Fisheries, forestry, gold, rubber

Daru

NORTHERN (ORO PROVINCE) Palm oil, coffee, cocoa, copra

Port Moresby

Torres Strait AUSTRALIA

*In July 2009, PNG’s Parliament passed legislation to create two new provinces by 2012: Hela Province (in Southern Highlands) and Jiwika Province (Western Highlands).

NATIONAL CAPITAL DISTRICT Manufacturing, logistics

www.businessadvantage.co

Kavieng

NEW IRELAND Gold, marine products, forestry, palm oil, cocoa, copra

Kokopo

EAST NEW BRITAIN Cocoa, copra, forestry, gold, organic spices

Kimbe

WEST NEW BRITAIN Palm oil, forestry

N EW

GUINEA

I S L A NDS BOUGAINVILLE (AUTONOMOUS REGION) Copper, cocoa, copra

Solomon Sea

Coral Sea Alotau

MILNE BAY Copra, coffee, cocoa, spices, marine products, gold, forestry, oil palm

Sector profile

Case study

DuluxGroup PNG

DuluxGroup PNG manufactures over 70% of its coatings products locally. Its brands include Dulux paints, Selleys home improvement products and Cabot’s wood care products. DuluxGroup PNG also supplies industrial chemicals—including water treatment, boiler and cooling chemicals—and geo textile fabric products for road, mining and civil works under the Chemnet brand.

Recently completed Port Moresby office buildings sporting fresh coats of Dulux paint Credit: DuluxGroup PNG

The Australian-owned DuluxGroup (PNG) Pte Ltd has operated in Papua New Guinea since 1963. It now employs over 100 people with headquarters in Lae, a branch in Port Moresby, and trade depots in Kimbe, Kokopo and Madang ‘The needs of our customers are at the core of everything we do and it’s been the reason for our growth,’ says DuluxGroup PNG General Manager Simon Vandestadt. The DuluxGroup Protective Coatings business manufactures and supplies quality protective coatings to mine sites around PNG, including OK Tedi, Lihir and Porgera. Coatings available include, etch primers and alkyd enamels through to epoxy

Manufacturing

primers and topcoats, zinc rich coatings, chlorinated rubber, acrylic and polyurethane topcoats, micaceous iron oxide coatings, and specialist high performance systems such as polysiloxane, polyurea, and heat resisting product lines. DuluxGroup is increasing its emphasis on sustainability. Vandestadt says, â&#x20AC;&#x2DC;we are increasingly seeing a demand for water-based paints, as opposed to traditional oil-based paints, because they dry faster, are gentler on the environment and far easier in terms of clean-up.â&#x20AC;&#x2122;

DuluxGroup prioritises product knowledge training (at the Dulux Academy), and offers services such as specification writing, site inspections, and project management, with particular reference to difficult tropical conditions, along with colour, general painting and decorating advice. Within PNG, expert advice is provided on everything from substrate preparation, through to application methods and maintenance scheduling. It also stages an annual Architecture and Builders Expo, aimed at strengthening its network of local architects, builders, contractors and resellers.

K K Kingston manufactures a wide range of chemical, plastic and paper products. Its range of polyethylene Tuffa Tanks have a wide range of uses, including for garbage bins, pontoons, septic tanks and even in telecommunications pits. Credit: K K Kingston

Manufacturing showcase Pipemakers LAE Address Ibis Street, PO BOX 1024, Chinatown, Lae, MP, Papua New Guinea

PVC Pressure and Drainage pipes

Used for fresh water, waste water, drainage or vents. Made to comply to AS/NZS standard. Available in different pressure classes and diameters up to 150 mm for intended application.

Tel +675 472 2254/ 472 1368 Fax +675 472 0453 Email pipelae@datec.net.pg

Blueline Polyethylene Water Pipes

Most suitable pipes for PNG, because they are flexible, fast & easy to install. Made to comply to AS/NZS standards. Available in reels from 50 up to 300 meters in length in 8 standard diameters up to 90 mm.

PVC Electrical Conduits

Made to comply with AS/NZS conduit standard. Available in medium and heavy duty classes in different diameters up to 150mm to suit your application.

Sector profile

Palm oil is PNG’s fastest-growing agricultural export. Credit: NBPOL

Agribusiness While agriculture is critical to Papua New Guinea’s domestic economy and gross domestic product, it still has a way to go to reach its full potential. But PNG’s growing reputation as an organic producer could open up new opportunities and niche markets.

il palm, coffee and cocoa are the three most valuable cash crops, together representing almost 80% of PNG’s total agricultural export values. Other agricultural products include copra, spices, sugar and tea. Livestock—especially beef, poultry and pigs—also plays a significant role, particularly in the local market. PNG’s agricultural sector has a number of competitive advantages, including high seasonal rainfall, good quality soil and low-intensity methods. The absence of pesticides and artificial fertilisers presents opportunities for PNG to position itself as a leading organic producer. PNG is also developing its Fairtrade potential, particularly in the coffee and cocoa sectors.

Important contribution

Agriculture accounts for more than 25% of Papua New Guinea’s GDP. About 85% of PNG’s people are engaged in food production at the subsistence level. They grow hundreds of food crops, fish for food and breed domestic animals. The Asian Development Bank estimates K7500.2 million (US$2805 million) was generated by PNG’s agriculture sector in 2008.

Challenges

Palm oil

Palm oil is now PNG’s most valuable export crop, generating 30% of agricultural export dollars between 2004 and 2006. The value of palm oil exports in 2007 (provisional) was K672.2 million (US$255.4 million), a steep increase over the preceding year because of high world prices and higher production. About 55% of the oil palm is grown on estates, and the industry directly supports about 20,000 smallholder families. The oil palm is turned into four products: crude palm oil, palm kernel oil, refined palm oil and palm kernel expellent, which is used for stockfeed. All PNG palm oil is exported to the United Kingdom and the European Union. Three major schemes—Hoskins, Bialla and Popondetta—produce most of PNG’s palm oil and all operate their own mills. The Hoskins project area contributed more than half of total production in 2007. Newer projects are underway in Milne Bay and New Ireland.

‘Organic certification is the quickest and easiest way of adding value to the same coffee’

However, the commercialised performance of the agricultural sector over the past decade has been modest. Expansion of agribusiness has been inhibited by inadequate and poorly maintained transport infrastructure, marketing issues, and law and order problems. The 26

commercial use of customarily held land is also legally complicated, although PNG’s national and provincial governments are taking steps to address this constraint. With the exception of oil palm, plantation production of all cash crops has declined over the past 30 years, although, as the authors of the recent book Food and Agriculture in Papua New Guinea state, production of export crops by villagers has increased. This speaks to the potential of agriculture with improved management and investment.

Agribusiness

The inside view

Alan McLay

Lae Chamber of Commerce and Industry President Alan McLay provides a personal view of PNG’s agricultural potential. While mineral and gas production are travelling very well at the moment, it has long been realised that agriculture is the real future of Papua New Guinea. Before mining, agriculture provided PNG’s economic backbone, initially with copra, cocoa and rubber plantations but later with smallholder developments. Agriculture is still a major part of the economy and rural people across the nation rely on income from the sale of produce to pay for their basic needs, including the allimportant school fees. In spite of its rich potential, government schemes to provide assistance in the agricultural sector have been largely ineffective. Little extension work has been carried out and smallholders have been left on their own to cope with new crop developments, the onset of diseases and pests, to determine on-planting requirements and marketing and so on.

Agriculture is still vital for the nation and will be even more important when the mineral developments tail off. While there are still some large estates, most agriculture is carried out by smallholders and nearly all of the rural people’s requirements are still met by the sale of produce. The private sector provides much of the stimulus needed for the sector’s growth, presenting a market for smallholder produce particularly coffee, cocoa, chicken, palm oil, rubber, spices and cattle. PNG’s Government must use the recent economic boom to find the means to assist the agriculture sector by providing more resources and manpower. Field extension work is essential to help the rural people with methods of planting the best crops, controlling pests and diseases, and marketing the produce.

The fertile Markham Valley near Lae is one of PNBG’s most productive agricultural regions.

Sector profile

Case study

Ramu Agri Industries

Sugar, beef and oil palm are the three platforms on which Papua New Guinea agricultural company, Ramu Agri Industries (RAI) is based. Expansion is planned for all three, following the company’s September 2008 acquisition by New Britain Palm Oil Limited (NBPOL). Ramu Agri Industries’ General Manager Jamie Graham says RAI’s broad strategy is to ‘continue to produce sugar for the country’s needs, expand and develop oil palm, and intensify the beef enterprise.’ In a market where per capita sugar consumption was an estimated 6.8kg in 2009, Ramu Sugar is one of PNG’s most recognised brands. Global firm Booker Tate is now managing operations for Ramu Sugar in Madang Province, from planting through to packaging, which has streamlined the business. Jamie Graham expects growth of sugar production to be incremental, as previous to acquisition there was insufficient capital investment in machinery and crop maintenance: ‘In the last three-to-four years, Booker Tate has been focusing on improving the age profile of the cane and working on getting the yield up. That is the strategy there.’ Unlike sugar, palm oil is a comparatively new product for RAI, but new owner NBPOL has operations in five areas of PNG, the Solomon Islands, and a new refinery in Liverpool in the United Kingdom.

Ramu Agri Industries is PNG’s largest sugar producer Credit: Ramu Agri Industries

Graham says planting of palm oil has increased from 7,000 hectares when NBPOL took over in 2008, to just over 10,000 hectares in 2010. He says there are plans to expand plantations and operations at the local palm oil mill. ‘It’s currently running at 30–35 tonnes an hour,’ Graham says. ‘Next year we want to get that to 45 tonnes an hour.’ At the end of 2010 palm oil was US$1,200 a tonne—approaching a 10-year high. ‘Demand is far outstripping supply, ‘says Graham. ‘Our strategy is to produce sustainable, traceable palm oil—which we are doing in West New Britain and Ramu—where both operations are certified by the Roundtable on Sustainable Palm Oil (RSPO).’ Given about 55% of beef consumed in PNG is currently imported, Graham says there’s also great potential in the company’s beef operations. RAI produces high quality supermarket beef products for the top end of the market. The focus is on improving pastures, improving the amount of water available to the animals with the purchase of a deep drilling rig, and eventually moving to smaller pastures. ‘We have commenced a program where we plan to improve 500 hectares a year, which is quite ambitious. We are working on improving the breed by bringing in bulls from the West New Britain operation. We have an ambitious artificial insemination program,’ Graham says. The company is also looking at embryo transfers once quarantine protocols are finalised.

Agribusiness

PNG cocoa is valued for its high cacao flavour.

The Coffee Industry Corporation (www.coffeecorp.org.pg) provides statutory oversight of the industry, as well as research and grower support. It is also empowered to buy and sell coffee. PNG produces about one million bags of green coffee beans annually (annual world production is currently about 125 million bags). It exported coffee to 29 countries in 2006, with the major coffee markets being Germany, the United States, Japan and Australia. PNG’s slightly fruity beans attract a reasonable price, typically slightly below the price for Columbian coffee. The key coffee-producing provinces are Western Highlands and Eastern Highlands, which between them account for more than 80% of production. Goroka in Eastern Highlands Province is the major commercial centre for coffee, and the headquarters of several of the larger coffee exporters and the Coffee Industry Corporation. The three major international coffee companies operating in PNG are Switzerland’s Ecom Agroindustrial Corporation Ltd (represented in PNG by Monpi Coffee Exports Ltd) and Volcafe (local subsidiary PNG Coffee Exports), and Germany’s Neumann Kaffee Gruppe (local subsidiary New Guinea Highlands Exports). Key local coffee producers include Mainland Holdings, Carpenter Estates (a subsidiary of the diversified WR Carpenter Group) and Coffee Connection, and Kongo Coffee in Simbu Province. Because of its longer packaged life, most coffee from PNG is exported as green beans. However, according to the Coffee Industry Corporation, there are seven companies that roast beans in PNG. These include Carpenter Estates, which markets its premium roasted coffee under its Sigri brand and Kongo Coffee. PNG’s rich soils, warm climate and high rainfall make it unnecessary for widespread use of fertilisers and intensive farming methods. ‘In PNG, they genuinely grow organically,’ notes Alyosha Reilly, General Manager of Mainland Holdings’ coffee division. ‘Farmers do almost nothing to the crop except harvest it.’

Credit: Pacific Islands Trade & Invest

In 2007, plantings also commenced in Central Province and in Sandaun Province. New Britain Palm Oil Limited (NBPOL) is Papua New Guinea’s largest oil palm plantation and milling operator. It has more than 75,000 hectares of planted oil palm plantations, a further 5000 hectares under preparation for oil palm, eleven oil mills and two refineries. NBPOL also has a palm oil refinery in Liverpool, England, to meet the demands of European Union food manufacturers. NBPOL says an extension of its refinery to handle products for confectionery manufacturer Ferrero should be operational in 2011. Chief Executive Nick Thompson says they are pleased with the quality of oil produced at the factory, and the demand going forward: ‘The demand for fully traceable and certified sustainable palm oil is growing steadily and more and more food manufacturers continue to contact us as part of their intention to bring forward their commitments to using traceable and certified sustainable palm oil.’ NBPOL’s Dami Oil Research Station produces oil palm seed and researches breeding programs. The company exported four million seeds in 2007, mainly to Indonesia. Ramu Agri Industries only recently entered the oil palm sector (see box on page opposite), with its first shipment to Europe in 2008, and is now part of the NBPOL group. General Manager Jamie Graham says this part of their business is moving apace, with its palm oil holdings now at just over 10,000 hectares.

Coffee

Coffee is one of PNG’s major agricultural exports, contributing about US$150 million annually to the country’s GDP. Two varieties are grown: robusta in the coastal areas and arabica in the Highlands. There are approximately 64,000 hectares under coffee across 14 of PNG’s provinces, most managed by smallholders. It is estimated that 2.5 million Papua New Guineans rely on coffee as their main source of income. 29

Sector profile

About 40% of PNGâ&#x20AC;&#x2122;s population relies in part on coffee for their livelihoods. Credit: ADB/Ian Gill

PNG produces just under 1% of the worldâ&#x20AC;&#x2122;s coffee. Credit: Mainland Holdings

An increasing number of coffee producers are roasting prior to export. Credit: Pacific Islands Trade & Invest

Credit: MCPNG

Agribusiness

This is providing an opportunity for companies such as Coffee Connection to market PNG coffee as organically certified. This certification, plus the sale of coffee under the internationally recognised Fairtrade brand, has the potential to enable growers to achieve higher prices. The coffee sector does face challenges, however. PNG’s strong tradition of customary land ownership mitigates against large plantations with their better economies of scale, while poor roads and high rainfall in PNG’s Highlands region often prevent the coffee crop getting to port in a timely manner. Also, the requirements of organic certification can often be beyond the capacity of smallholders. The coffee export business is also a cash-intensive business, with most companies advancing cash payments to their growers to ensure supply. Given these challenges, Alyosha Reilly believes the major opportunity in PNG coffee is to help growers get higher yields from their crops and organic certification through offering extension services. ‘Organic certification is the quickest and easiest way of adding value to the same coffee,’ he says. Mainland Holdings has been working with groups of growers in Morobe Province, with the assistance of the Secretariat of the Pacific Community, while the World Bank recently established a K67.5 million (US$25 million) fund under its Productive Partnerships in Agriculture project to assist PNG’s coffee and cocoa smallholders.

Cocoa

PNG cocoa has between 75% and 85% fine cacao flavour, and PNG is one of the few countries where cocoa can grow organically. Cocoa generates about 22% of the value of PNG’s agricultural exports, with a value of K345 million (US$134 million) in 2008. More than 65% of the crop is produced by rural households and the rest on plantations. The PNG Cocoa Board is responsible for regulating and developing the cocoa industry, and for supporting research and extension services. Regulatory responsibilities include quality control, issuing of export licences and fermentaries registration. There is also a push to explore downstream processing opportunities such as cocoa liquor and cocoa butter. The PNG Government has targeted 100,000 tonnes of cocoa exports by 2016. The ability to reach this target depends on improving the yield of smallholders. The average cocoa production per family in PNG (300kg dry cocoa beans per hectare per year) is low, although Bris Kanda model farmers, for instance, have more than doubled this by applying Integrated Pest and Disease Management practices, including annual pruning. The destination markets for PNG’s cocoa (in order of size) in 2006 were the US, Belgium, Malaysia, Singapore, Indonesia, Thailand, Germany, UK, China, Netherlands, Switzerland, France, Australia and New Zealand. The Papua New Guinea Directory of Exporters 2010-2011 lists 25 cocoa exporters. NGIP Agmark, a diversified agribusiness, is the largest of these exporters by a wide margin, exporting approximately 70% of PNG’s cocoa crop directly to the world’s largest chocolate manufacturers. NGIP Agmark listed on the Port Moresby stock exchange in July 2009. Established in late 2006 and funded by the New Zealand Agency for International Development (NZAID), Bris Kanda Incorporated is a rural enterprise development program to promote economic growth in the rural areas of the Huon Gulf District in Morobe Province. Bris Kanda General Manager Lukis Romaso says the program has funding for another six years and aims to become one of the highest cocoa producers in the country within two to three years. Bris Kanda is looking for export markets and a marketing partner. It plans to test market 25 tonnes of dry beans in Germany after its sample beans impressed a chocolate producer there. The cocoa pod borer, which has caused damage in Asian plantations, is also a perceived threat. It appeared in East New Britain in early 2006 and has now reached Bougainville.

Spotlight

he sweet taste T of success

Australian chocolatier Dean Morgan of Zokoko is one of an increasing number of gourmet chocolate makers discovering that the fine cocoa flavour of Papua New Guinean cocoa makes excellent gourmet chocolate. Dean Morgan’s search for PNG cocoa started with a call to Pacific Islands Trade and Invest to source coffee beans for his coffee roasting business. Soon he was looking at other PNG spices and then cocoa for his ‘bean-to-bar’ chocolate-making business, Zokoko, which supplies high quality chocolate to Sydney’s top restaurants and cafés. ‘Pacific Trade and Invest were fantastic. We’re looking for something a little bit different—fine flavour cacao which is either organically certified or at least sustainably produced,’ says Morgan, whose company already manufactures chocolate with cocoa sourced from countries such as Bolivia and Ecuador. ‘PNG cocoa has a dominant cocoa note on the finish and a nice fruit note up front. It makes good plain chocolate and even better milk chocolate.’ Morgan has now sourced cocoa from PNG suppliers such as Agmark, the Komgi organic community in East New Britain and Induna Cocoa and works closely with growers to ensure that the fermentation and drying processes in PNG produce cocoa of a consistent quality. The Papua New Guinea name features prominently on the chocolate bar label. The origin of the cocoa used in the finished chocolate bars is a clear selling point with connoisseurs, as Morgan explains: ‘The market for PNG chocolate is definitely there. We’re not in a position to compete with the Cadburys and Nestlés of this world, so we focus on quality. All our labelling is down to plantation level, like wine. We even include the vintage and batch numbers on the label.’ The higher price Zokoko is able to charge for its premium chocolate has not only allowed investment in additional plant to boost production; it also means there is more money to share with the PNG grower. This will undoubtedly help encourage even more farmers to grow this increasingly important agricultural commodity.

Credit: Zokoko

Sector profile

Romaso downplays the threat of the cocoa pod borer for now, saying it is a risk only in the PNG islands, not in Morobe Province, and that ‘Indonesia has been living with the pod borer for 20 years and is still one of the top producers of cocoa. If Indonesia can manage it, PNG can manage it by getting farmers to be committed to good block management and appropriated farming practices.’ Opportunities lie in improving the quality of PNG cocoa and finding niche markets. For instance, Australian-based chocolate manufacturer Zokoko is one of an increasing number of overseas producers of speciality single origin chocolate, in this case 66% cacao chocolate using cocoa from a variety of PNG suppliers (see box on page 31).

Copra

In PNG, three products are made from the nut of the coconut palm: copra, copra oil and copra meal. Most of the production is by smallholders and concentrated in New Britain, followed by Madang, New Ireland and Bougainville. There are two large copra mills operating in Madang and Toboi, outside Rabaul, plus several very small operations producing copra oil. In 2008, most copra in PNG was processed into copra oil and exported to Europe, by companies like W R Carpenter (PNG) Ltd and Coconut Oil Production Madang Ltd and Essential Extracts Ltd. High-value coconut products such as virgin coconut oil, coconut cream, timber and biofuel offer PNG’s industry some longer-term possibilities, if governance and investment strategies can be resolved. A portion of PNG 260,000 hectares of coconut palms also needs rehabilitation or replanting.

Spices

Vanilla has been the most lucrative of spice exports to the US, Europe and Indonesia in recent years although it has been subject to dramatic price fluctuations. It requires a move to centralised curing, rather than the village-level curing being undertaken, if it is to survive. Other spice crops include black pepper, cinnamon, nutmeg, patchouli and turmeric, plus a range of essential oils. Pacific Spices, based in Rabaul, has 218 certified organic producers and 1500 conventional farmer suppliers. CEO Mickey Puritau says

Mace

they opened the first processing plant of its kind to produce oil of vanilla and pure vanilla extract in 2010. Pacific Spices exports to Australia, the US, Taiwan, Japan and some European countries, cultivates a local market and also sells online. ‘The potential is quite huge with the market we’re looking at now and the new markets are opening to us,’ Puritau says. Other exporters in this sector include Port Moresby-based company Paradise Spices and Mainland Holdings, which is establishing a vanilla processing plant with investment assistance from the Australian Government’s Enterprise Challenge Fund. Amruqa in East New Britain produces organically certified and conventionally grown spices such as cardamom, pepper and nutmeg.

Livestock

The key commercial livestock in PNG are pigs, chickens and cattle, and livestock contributes 13% of total domestic food production. Mainland Holdings is PNG’s main chicken producer, selling fresh and frozen birds plus eggs. It expects domestic demand to increase by 25%, driven by economic activities in other sectors. It is investing in chicken sheds and expanding its growers’ network to meet the expected demand. Ramu Agri Industries is focusing on improving its cattle production while Trukai has established an agricultural division that focuses on cattle farming.

Other crops

About 10% of tea produced in PNG is used locally, with the rest exported to Russia, Germany, the United Kingdom, the US and other markets. The only exporter is WR Carpenter and Co, which has five estates. The tea is grown without any chemical pesticides, and around 10% is packed in value-added form. Much of the local demand for rice is met by Trukai, which operates a rice-processing mill in Lae and also exports rice to the Solomon Islands and Australia. Between 7000 and 10,000 tonnes of sugar are exported each year, when there is a surplus to domestic needs. Ramu Agri Industries is the only commercial cultivator, based at Gusap–Dumpu in the Ramu Valley of Madang Province. The domestic sugar industry is protected from imports by a tariff of 70%, which is due to drop to 40% in 2012. n

Black pepper Credits: Pacific Islands Trade & Invest

Cardamom

Agribusiness

Mainland Holdings’ saltwater crocodile farm is the world’s largest, with 40,000 crocodiles. Skins are exported while crocodile meat is consumed domestically. Credit: Ramu Agri Industries

There is increased demand for poultry in PNG’s domestic market.

Tea is grown for local consumption and export. Credit: MCPNG

Credit: Mainland

AGRI b u s i n e s s s h o w c a s e Ramu Agri Industries LTD Address Tel

PO Box 2183, Lae 411, MP, Papua New Guinea +675 474 3299 (ext. 279)

Ramu Sugar

Fax +675 474 3295 Email spople@rai.com.pg Website www.nbpol.com.pg

Ramu Premium Beef Ramu Sugar is a household name in Papua New Guinea. Our sales are purely domestic and we supply sugar directly to retailers, as well as major international food and beverage brands operating in PNG. Our sugar matches the domestic taste with its small percentage of molasses retained. Our sugar factory also produces 300,000 litres of bio ethanol, most of which is exported to Australia and Singapore.

The completion of the Ramu Agriculture Industries Limited feedlot during 2009 allowed 1,000 cattle to be fed for 120 days prior to slaughter. Good efficiencies and standards in the abattoir combined with the feedlot have resulted in improved quality of the beef that in turn commanded better prices.

Sector profile

Credit: PNG Tourism Promotion Authority/David Hannan

Fisheries Tuna, reef fish and shellfish are all in abundance within Papua New Guinea’s exclusive economic zone.

apua New Guinea is responsible for 10% of the world’s tuna catch, the commercially most important fish found in its 2.4 million square km exclusive economic zone. The country’s tuna fleet caught 213,316 tonnes in 2009, with foreign boats catching an additional 256,367 tonnes. Tuna and other commercial fish are exported to Hong Kong, Japan, Australia and the European Union, the latter under an Economic Partnership Agreement that gives it tariff free access to the EU trading zone. ‘Demand for tuna is big in Europe, which alone is a US$7 billion market,’ notes Pete Celso, Chairman of the PNG Fishing Industries Association. ‘A similar agreement is currently being negotiated with the United States.’ PNG’s coastal fishing industry produces mainly prawns, lobsters, barramundi, beche-de-mer, trochus shells, pearl shell, and green snail. Inland fish farms are underdeveloped with commercial farming of trout and carp undertaken by a few farmers in the Highlands region.

Growth in onshore processing

The bulk of locally landed tuna is either canned or loined for export, although the industry is also able to rely on a healthy local market. Onshore tuna processing exists in Lae, Madang and to a lesser extent in Port Moresby and has been the focus of increasing interest from foreign investors, mostly from the Philippines, Taiwan and Thailand. The sector is likely to be transformed by the ongoing development 34

of the Pacific Maritime Industrial Zone in Madang (see box on page 37). This zone will include tuna canneries, tuna loining plants and vessel servicing. There are also moves to encourage more offloading of offshore fisheries catches for domestic consumption.

Industry’s contribution

The Asian Development Bank (ADB) says fishing was responsible for 2.7 % of the GDP of PNG in 2006 and exports of fishery products accounted for about 10 % of all exports in 2007. Access fees paid by foreign fishing vessels represent 0.62 % of all government revenue and tuna fisheries account for about 1.2 % of the total number of formal jobs in the country, many of them for women.

Government encouragement

‘Demand for tuna is big in Europe, which alone is a US$7 billion market’ The sector’s challenges include regional purse seine tuna vessel overcapacity, effective surveillance, lack of market access, unavailability of credit facilities, fuel excise, the limited capacity of fisheries staff and inadequate onshore support facilities. The National Fisheries Authority (NFA) has launched a program

Fisheries

Key players in PNG’s fisheries Growth in PNG’s fisheries sector is the result of robust foreign investment, particularly from Asia. Here we profile some of the key players RD Tuna PNG is a Philippines-owned tuna fishing and cannery operator in Madang. It has an existing facility, and is developing another property, incorporating a private wharf, cold storage, a fish processing facility and ice-making plants. The new facility serves as a docking and trans shipment area for the 45 fishing ships/vessels that RD operates within Papua New Guinea. Locally it sells its product under the Diana label. The International Food Corporation has been making and distributing Besta canned mackerel in PNG since 1992. It now employs more than 400 people and makes 6000 cans of mackerel per day. IFC makes its cans in-house, dresses and cleans its own fish, cans and pressure cooks its products. Unused portions of the fish are processed at a K3.5 million (US$1.3 million) fishmeal processing plant. Chief Executive Rosedean Zaily Dzulkfli says IFC has also embarked on an onshore tuna processing project under its diversification programme. Production began in October 2010 with 5% to be sold locally, and 95% exported overseas as tuna loin. Frabelle Fishing Company owns and leases purse seiner vessels, and inaugurated its own tuna loining and canning plant in Lae in 2006. Frabelle is a vertically integrated operation, and includes can making, printing and canning. Locally Frabelle’s product is sold under the name Isabella, although 80% is exported to the EU under the preferential access deal. Frabelle is also working to improve its traceability as this is becoming more of an issue in the international market. Frabelle is currently building a new canning plant in a joint venture with Philippine-based Century Canning and Thailand-based Thai Union Corp, a subsidiary of Thai Union Frozen Products PCL (TUF) under the name Majestic Seafood. It will reportedly be the largest canning operation in the southern hemisphere, processing a projected 350 metric tonnes per day and employing 6000 people once it starts operations at the end of 2011.

Frabelle president Engr Augusto Natividad has emphasised in The National newspaper the need to control costs at the new plant: ‘While we have the raw material here, we still have to compete with all other canneries all over the world. The market is the world.’ The National Fisheries Authority says the entry of the Thai Union into PNG’s sector will change things for the better, as they have transformed Bangkok into a global tuna centre. South Pacific Seafood is a 75% PNG-owned/ 25% Philippinesowned company which has announced plans to invest in fishing port facilities in Central Province, West New Britain, Morobe, Milne Bay and Manus. ‘This project is going to have a huge impact on the communities along the Central Province coast where the fishing zones are located. We are looking at transferring skills and knowledge to local fishermen to handle fishing vessels and all other traits involved in fishing and marketing,’ says SPSC chairman and managing director Wilson De Vera. Work is about to start on the K150 million (US$55.8 million) Labuta, Morobe port, which is a joint venture with the Morobe Fisheries Management Authority and indigenous landowners. Ailan Seafoods Ltd is a fish processing company based in Kavieng, New Ireland Province that specialises in buying reef fish, snapper, mackerel, crayfish, lobsters, bêche-de-mer, and trochus shells, which it processes and exports in frozen and chilled form. Ailan also farms saltwater fish such as milk fish and grouper in sea cages, and fillets fish for export. Managing Director Reinhard Mangels says there has been plenty of interest in their products, particularly at the seafood shows Ailan targets in Belgium and Japan.

Canned tuna is produced both for export and local consumption. Credit: IFC

Sector profile

to improve surveillance of illegal fishing, fleet safety and resource monitoring for fisheries. In an attempt to support aquaculture for income and as a food source, the National Agricultural Research Institute (NARI) is encouraging the use of local materials as a feed source for pond fish, and is looking at establishing mini-hatcheries. Pilots are running in Morobe, Western and Central Provinces. PNGâ&#x20AC;&#x2122;s Government is working to increase local participation in the sector, at all stages of production, from catch and harvesting to downstream processing for export. The Government is also looking at privatisation opportunities in its coastal fishing sector, including handling, processing and marketing of fisheries products, craft

construction, repairs and maintenance, engine sales, ice and fishing equipment sales. A range of incentives are offered to investors in the fishing sector. â&#x20AC;ŻExpenditure on new plant or articles for commercial fishing activities qualifies for a 100% accelerated depreciation deduction. Profits made from the export sale of canned, loined and smoked fish are exempt from company income tax for the first three years of export and additional concessions apply for a further four years thereafter. Investors may also qualify for double deductions for export market development costs and staff training. n

Credit: MCPNG

Credit: R D Tuna

Fisheries

Pacific Marine Industrial Zone Looking forwards, the flagship of Papua New Guinea’s fisheries industry will be the US$300 million Pacific Marine Industrial Zone (PMIZ). This 215-hectare site 30 kilometres north of Madang will provide wharfing, berthing, processing and other facilities and infrastructure to national and regional fishing operators. The initiative is a response to challenges in the industry identified by PNG’s government, including the high cost of production, logistics problems, high cost of freight, infrequent shipping port calls, and limited manpower supply. By creating economies of scale, it aims to make PNG’s industry genuinely internationally competitive. ‘There are vast opportunities to expand and achieve scale and thereby minimise the cost of production,’ notes R D Tuna’s The Pacific Marine Industrial Managing Director Pete Celso, who is also Chairman of Zone aims to create scale for the PNG Fishing Industries Association. PNG’s onshore fish processors Madang already houses RD Tuna’s canning facilities. Credit: R D Tuna PNG’s government wants to make the site the major processing centre for PNG’s tuna catch and fish caught in other Pacific Island waters. PNG’s Government has secured a K202 million (US$71 million) concessional loan facility for construction from the Export-Import Bank of China. The PNG government itself has provided K30 million (US$11.28million) to kick-start the project. Additional funding will be sought from other multilateral partners, such as the World Bank, International Finance Corporation and Asian Development Bank. Shenyang International Economic and Technical Cooperation Co. Ltd of China will build the park. Once the PNG government develops infrastructure on the site, operations will be undertaken by the private sector. Proposed infrastructure includes auction halls, dry docks, an ice-making plant, cool rooms and blast freezers, net repair facilities, fuel depots, commercial buildings and residential facilities. Environmental impact assessment of the site is underway, site clearing has occurred, and the government says a number of fishing industry players have indicated their interest in setting up in the PMIZ. The IFC is helping the PNG Government with drafting of new legislation to establish special economic zones such as the Pacific Marine Industrial Zone, with incentives likely to be significant.

Fisheries Showcase International Food Corporation Address PO Box 1334 Lae, MP, Papua New Guinea Telephone +657 472 0655 Fax +675 472 7123 Email sales@ifc.com.pg marketing@ifc.com.pg Website www.ifc.com.pg

Besta Tuna

Besta is a high quality premium brand of canned mackerel. It is available in 15oz (425g), 7oz (200g) and 5.5oz (155g). Besta is proudly produced and distributed in Papua New Guinea and neighbouring Pacific Islands by International Food Corporation Limited. The company also produces Besta canned tuna for both local and international markets.

Sector profile

Credit: R H Group

Forestry Change is underway in Papua New Guinea’s forestry sector, as the industry begins a gradual transition from export logging to producing processed products and plantation timber.

NG produces a range of forest products, including furniture, plywood and prefabricated buildings for both domestic and export markets. Processed timber products are exported to Australia, New Zealand and PNG’s South Pacific neighbours. Veneer is mainly sold to China and South Korea. Plantation products account for about 15% of exports. For the time being, exports are primarily in the form of round logs. The Bank of Papua New Guinea reports that 1,809 thousand cubic metres of logs were exported in 2009, with an average export price of K212 (US$82) per cubic metre. The average export price of logs has continued to increase since then, to K263 (US$102) per cubic metre in the September quarter of 2010, driven predominantly by demand from China.

Major contributor

In total, forestry contributes about 7% to PNG’s gross domestic product plus millions of kina in taxes, landowner royalties, infrastructure development and work for more than 10,000 people. Most of PNG’s log exports go to eleven Asian countries: 89% to China, followed by Japan, Korea, India, the Philippines, Taiwan, Thailand and Vietnam. Eighty-four percent of PNG’s landmass is covered by forest, and 14 million acres of this are potentially production forests. More than 60 commercial species of timber exist in the country, falling into three broad categories; major hardwoods, commercial hardwoods, and major conifers. Amongst the most valuable of the major hardwoods is kwila and rosewood. Commercial hardwoods have export potential but suffer some unreliability of supply.

Ltd’s sawmilling, plywood, and manufacturing at Bulolo, Morobe; PacRim Hardwoods (PNG) Ltd’s sawmilling and timber exports in Port Moresby; Rimbunan Hijau (PNG) Ltd’s export logging, downstream processing and other interests, PNG-wide; Stettin Bay Lumber Co. Ltd’s export of logs, sawmilling and plantations in West New Britain Province; and Turama Forest Ind. Ltd’s log exports from the Gulf Province.

New policy promotes value-adding

Since January 2010, government policy has dictated that all newly approved forest projects must contain a strong element of downstream processing. Producers already generate sawn timber, veneer sheets, plywood and processed timber exports, but these sectors will receive much greater emphasis. PNG Forest Authority (PNGFA) Managing Director Kanawi Pouru explains companies will have time to make the transition:

‘Government policy has dictated that all newly approved forest projects must contain a strong element of downstream processing’

Major industry participants

Major industry participants include Cloudy Bay Sustainable Forestry Ltd’s logging, sawmilling, and timber sales in Port Moresby; Innovision (PNG) Ltd at Makarpa, Western Province; Open Bay Timber Ltd’s export of logs and plantations in East New Britain; PNG Forest Products 38

Cloudy Bay Sustainable Forestry made the door frames for this bistro in Port Moresby’s award-winning Airways Hotel.

Forestry

The inside view

Kanawi Pouru, Managing Director, PNG Forest Authority

The forestry industry has bounced back since the global financial crisis. Our two biggest markets remain Australia for sawn and processed products and China for round logs. Australia will shortly introduce new regulations for importing timber products based on legality and chain of custody. We’re keen to understand those new standards and specifications so PNG operators can meet them and it doesn’t affect trade between the two countries. It’s also an issue with China. While they consume much of the wood from PNG domestically, some of it is used in manufactured products for Europe and the United States, where there are requirements for due diligence and proof of origin. We consider carbon trading as an opportunity, although the climate change agenda seems to be very fluid and keeps changing. The mechanics of how it will operate have not yet been worked out but the idea seems to have been embedded well. In line with the policy on downstream processing that the National Government instituted last year, we’re reviewing what

‘In 2011, we will be working to review projects that are currently in operation and trying to realign them in accordance with the Government’s new direction. It will be a transitional period of five or six years—it’s not going to be a sudden switch-over.’

Opportunities for expansion

Other opportunities for further expansion of PNG’s forest industry include the increasing domestic demand for timber and

support the Authority can offer. Through that process we will be able to put in a firm time schedule that enables the industry and investors to start making those adjustments without hitting their income and profits really hard. Plantations are also part of this policy. For new plantations, if we can help to secure the required land for planting then we will be able to see growth. The government has made it clear that institutions like the Timber Industry Training College in Lae need to also recognise the government’s policy shift and train people in all phases of processing, wood shedding, treatment operators and so on. All this training is being done but may need to increase in capacity to cope with the needs of the industry. There is a lot of job creation now, and perhaps it now opens up more opportunities for cottage industries that can process wood to specifications. A lot of Papua New Guineans own their own homes, but they need furniture. These are the opportunities.

wood products driven by PNG’s major new resources projects, establishing plantations, and forest enhancement under climate change protocols. With five major producers already, or in the process of becoming independently certified for legal origin and chain of custody, new export opportunities should arise in markets requiring third party verification such as Australia, the US and European Union. n

Sector profile

Key players in PNG forestry Cloudy Bay Sustainable Forestry Cloudy Bay Sustainable Forestry holds the first 100% downstream processing licence to be issued by the PNG Forest Authority. The company is developing a 35-year Forest Management Area Project in the Cloudy Bay area, some 250 kilometres south-east of Port Moresby. The 148,900 hectares will see selective logging of trees with an annual allowable harvest of some 60,000 m3, supplying sawn wide boards from a new sawmill in Bam to its wood processing centre on the outskirts of Port Moresby. Cloudy Bay Sustainable Forestry’s downstream processing capacity includes milling, planning, dressing, moulding, kiln drying and pressure treating. Its joinery division produces exotic furniture and kitchen units, and its building division makes prefabricated homes and offices. About 200 people are employed in Cloudy Bay, and the Port Moresby wood processing centre employs 140. Cloudy Bay Sustainable Forestry runs an apprenticeship program in the welding, mechanics, building and sawmilling trades. The Project Development Agreement will also see it invest about K48 million (US$18.6 million) in infrastructure including schools, health centres, churches, bridges, roads and a police station. Cloudy Bay Managing Director Mike Janssen says growth will come in the area of timber framing and joinery, and in future in the export of environmentally certified value added timbers. ‘We are a small company and we will always be in a niche market’ he says. ‘Particularly in joinery, we are in the high end of the market, we are not going to be making garden furniture. We have just commissioned a new sawmill to add to our first in Cloudy Bay. Our processing plant is being expanded in 2011 to cope with the fourfold increase in volume due to the new saw mill. ’ Janssen says the company’s operations will undergo independent environmental auditing aimed at acquiring Forest Stewardship Council (FSC) certification. ‘Our aim is that we have a 35-year concession and in 35 years we’ll come back and get the same yield as we did the first time around. We are a PNG company and we are here for the long run.’

Rimbunan Hijau Rimbunan Hijau (PNG) Group (R H) is by far PNG’s most influential forestry player, expanding from its inception as a small forestry operator in 1989 to become the country’s biggest exporter and manufacturer of timber products, with interests in shipping, aviation, media, retail and property development. It employs close to 7,500 people across the country, the majority of them in its forestry operations. R H is a wholly-owned subsidiary of Malaysian company Rimbunan Hijau. It operates concessions in East and West New Britain, Gulf, Milne Bay and Western Provinces through a series of group companies, and has four downstream processing lines including sawn timber, kiln drying, veneer and plywood processing operations. R H’s four sawmills are at Kamusie in Western Province, Teredau in Gulf Province, Edeveu sawmill and Central sawmill in Milne Bay, which is a 100% downstream processing facility. It has a timber processing facility in Panakawa, Western Province (pictured below), which produces high quality timber veneer and plywood. R H products are exported to China, Taiwan and South Korea, among other markets, and it is one of PNG’s largest exporters, apart from the minerals sector. The company says it has contributed approximately K80 million (US$30 million) to Papua New Guinea’s GDP every year since 2002. R H has also spent more than US$100 million on infrastructure in rural areas since 1993. This includes roads, bridges, community and education facilities and health facilities. Managing Director James Lau believes that success is set to continue: ‘Future prospects for Rimbunan Hijau’s forestry business look promising, as the largest processor of forest products in Papua New Guinea, Rimbunan Hijau is well positioned in regard to value adding and we expect to maintain our leading position.’ Lau says R H is conforming to environmental and sustainability requirements: ‘We have introduced a timber legality and traceability verification system in Papua New Guinea and are currently expanding the system to our other forestry operations.’ R H is also exploring opportunities in timber and oil palm plantations.

Some of Cloudy Bay’s quality wooden furniture. Credit: Cloudy Bay

R H Group’s plywood factory in Western Province Credit: R H Group

Forestry

PNG Forest Products Since its beginnings as a gold mining company in 1932, Bulolobased PNG Forest Products has evolved into one of PNG’s leading timber and plywood producers. It has been exporting plywood and timber products and kitset buildings to Australia, New Zealand and Vanuatu for over 30 years. PNG Forest Products uses 100% renewable plantation pine in the production of prefabricated houses, dressed timber and mouldings, treated power poles, export high grade plywood and veneers. PNGFP Building Systems ‘Kitset Buildings’ range from 30 square metre prefabricated houses to much larger community halls, schools, commercial centres and office blocks and are exported right across the South Pacific region. Its plywood products include

Prefabricated cabins by PNG Forest Products Credit: PNGFP

marine and furniture grade plywood, concrete form ply, general structural grade plywood, and wall and ceiling linings. PNG Forest Products supplies PNG Power with its poles. All its timber meets local and Australian quarantine and building standards. The company also operates two hydro power stations at Baiune with a combined capacity of 5.5MW that supply the total power requirements for the company township of Bulolo, plus Wau and Highland Products at Zenag. PNGFP employs over 1500 people in its forestry and interests in the retail sector and cattle farming. Its clients include Lihir Gold, New Britain Palm Oil, Oil Search, AusAid, and PNG’s national and provincial governments. In acknowledgement of timber market sensitivity to wood legality and origins, PNG Forest Products was recently audited as a step to becoming Timber Legality Traceability Verification-accredited. It sources almost its entire log input into sawmill and ply mill operations from sustainable, plantation grown wood. The main species harvested are Hoop pine, Klinki pine and Caribbean pine. SGS Switzerland has also audited PNG Forest Products on behalf of the Forest Stewardship Council (FSC) for chain-of-custody compliance and Forest Management Certification, and all its export timber products carry FSC certification.

Resources

Made in PNG Directory Useful Contacts Government Department of Agriculture and Livestock www.agriculture.org.pg Investment Promotion Authority of PNG Tel +675 308 4444 www.ipa.gov.pg Ministry of Commerce and Industry Tel +675 3277 350 www.dci.gov.pg National Agriculture Quarantine & Inspection Authority PO Box 741 Port Moresby NCD Tel +675 3112 100 naqia@dg.com.pg www.naqia.com.pg National Fisheries Authority Tel +675 3090 444 www.fisheries.gov.pg Papua New Guinea Custom Services Tel +67 5 3226 983 veronica_siove@global.net.pg Papua New Guinea Forest Authority Tel +675 3277 800 www.forestry.gov.pg

Industry Lae Chamber of Commerce and Industry Tel +67 5 4722 340 lcci@global.net.pg Manufacturers Council of PNG Tel +675 321 7143 pngmade@global.com.pg

PNG Chamber of Commerce Tel +675 3201 988 pngcci@global.net.pg The Port Moresby Chamber of Commerce & Industry Tel +67 5 3213 077 bizcentre@pomcci.org.pg www.pomcci.com

Information Resources Business Advantage Papua New Guinea PNG’s international business and investment guide, published annually. www.businessadvantagepapuanewgu inea.com The PNG Investors’ Manual A handbook for investing and doing business in Papua New Guinea. www.pomcci.com The National PNG’s national daily newspaper, which also publishes the annual Papua New Guinea Yearbook (ISSN 1726-121X), a useful reference. www.thenational.com.pg The Post Courier PNG national daily newspaper www.postcourier.com.pg The PNG Exporters Directory Biennial publication by the Investment Promotion Authority outlining the industry sectors in PNG and who’s who in the exporting arena. www.ipa.gov.pg

Pacific Islands Trade & Invest Pacific Islands Trade & Invest is the international trade and investment promotion arm of the Pacific Islands Forum Secretariat (PIFS) based in Fiji. Its offices in Auckland, Sydney, Beijing and Tokyo are entrusted with the task of promoting export and investment and the broader economic interests of Pacific Islands Countries. It works with exporters in the Pacific Islands to successfully promote their products and services, including tourism, and attract investment into the Pacific Island Countries. Its activities include: •A ctively promoting and connecting export-ready Pacific Island businesses and their products to overseas markets • Supporting exporters and tourism businesses to connect with international buyers for their products and services • Introducing potential investors to businesses in the Pacific Islands • Providing export promotion support, business advice and technical expertise. Sydney: +61 2 9290 2133 Auckland: +64 9 529 5165 Beijing: +86 10 6532 6622 Tokyo (Pacific Islands Centre): +81 3 3268 8419 www.pacifictradeinvest.com

PNG White Pages PNG’s online telephone directory includes business and government phone numbers. www.whitepages.com.pg

Manufacturers Council of Papua New Guinea members Members can be contacted through the Council on email pngmade@global.net.pg. 21C Ltd Akzo Nobel (PNG) Ltd Amalgamated Knitwear Industry Ltd Amalpack Ltd Awute Coffee Producers Atlas Steel PNG Barlow Industries Ltd Belltek Chemicals Ltd BMF Organic Products Ltd British American Tobacco (PNG) Ltd Chin H Meen & Sons Ltd Coca-Cola Amatil (PNG) Ltd Colgate Palmolive (PNG) Ltd Colorpak Ltd City Pharmacy Ltd Damba Ltd t/a Prima Smallgoods Esar Ltd Frabelle (PNG) Limited GRG Business Publications Globe Manufacturing Ltd Goodman Fielder Int’l (PNG) Ltd Goroka Coffee Roaster Ltd

Highlands Products Ltd Hugo Canning Ltd Imprint Copy Centre Ltd International Food Corporation Ltd ICBM Corporation InterOil Refinery JKT Lim Ltd K K Kingston Ltd Kokoda Tailoring Ltd Kongo Coffee Limited Koyasi Printing Ltd L & C Pacific Enterprise Ltd Lae Biscuits Co. Ltd Lae Builders & Contractors Ltd Lae Packaging Industries Ltd Laga Industries Ltd Lohberger Engineering Ltd M & S Tsang Ltd Mainland Holdings Limited Markham Culverts Ltd Metals Refining Moore Business Systems (PNG) Ltd

NCI Packaging (PNG) Ltd Nestlé (PNG) Ltd New Guinea Footwear Hornibrooks NGI Ltd NGI Steel Ltd Niugini Steel Corporation Orica (PNG) Ltd Paradise Food Ltd Paradise Organic Spice Ltd Pacific View Multimedia Pacific Foam Ltd Pacific Industries Ltd Panamex Pacific (PNG) Ltd Pelgen’s German Smallgoods Ltd Pipemakers Ltd PNG SALT Industries Ltd PNG Taiheiyo Cement Ltd PNG Brothers Grocery Pryde Furniture Ltd PNG Forest Products Q N Q Investment Ltd Ramu Agri Industries Limited R & P Signs Limited

R D Tuna Canners Ltd Rimbunan Hijau Timber Processing Ltd Roots Organic Products Incorporated Senpack Ltd South Pacific Post Ltd S P Brewery Ltd Steel Industries Ltd Super Value Stores Ltd Starland Limited Threadneedle Ltd Treid Pacific (PNG) Ltd Trukai Industries Ltd Vitis Industries Ltd Wimble & Co. Ltd W R Carpenter & Company Estates Wong Tim & Co.Ltd Woo Textile Corporation Ltd

Listing correct as of 1 November 2010