High costs a challenge for Palm-Oil Industry

THE high cost of production coupled with deteriorating infrastructure and unavailability of basic utilities like communication and power are some of the major challenges faced by the palm-oil industry, a major exporter warned.

Chief director of the Palm Oil Council of Papua New Guinea, Ian Orrell, said looking back PNG has experienced lower commodity prices before; but with a stronger kina than we see. 

He said currently things today have become critical.

“The production costs in PNG are now very high. For example the cost of producing a tonne of palm oil in PNG is now about twice that of neighboring Indonesia. 

“This means that there is a greatly reduced capacity to buffer against low commodity prices and a strong kina than was the case in the past. A major factor impacting production costs is the burden of failing transport infrastructure like roads and bridges - in particular the many thousands of kilometers of small feeder roads that smallholder producers are dependent upon. 

“The costs associated with getting agricultural produce to markets, or processing facilities, is crippling. There are many farmers effectively cut off entirely from accessing the markets for their produce. In addition we struggle with extremely high fuel and energy costs, high labour costs, high domestic shipping costs, poor communications infrastructure, slow and inefficient regulatory processing. Production-related locally-sourced goods and services are about 200 per cent more expensive than the same in neighboring Indonesia”, he said.

The two main factors that affect the income from growing palm oil for both plantations and smallholders alike are the world price of palm oil and the value of the PNG Kina against the US dollar. Palm oil, as with many other agricultural commodities, is traded in US dollars. 

The effect of the strength of the Kina is often overlooked, but it is nonetheless extremely significant. 

Mr Orrell as a short to medium-term ‘emergency’ measure said government should also look at ways of directly reducing agricultural production costs. 

“Options could include transport subsidies for agricultural produce, subsidising farm inputs such as fertilizers and agricultural tools and equipment, and reducing the cost of agriculture-related financial credit. 

“If any assistance strategy is implemented, it is important to ensure that such support goes directly and efficiently to actual farmers and agricultural producers,” Mr Orrell said.

ONE PNG/POST COURIER