Sunday, April 17, 2011

Papua New Guinea’s coffee industry: For the people, by the people

John Fowke
Our coffee industry began in a very small way, in the 1890s, soon after the arrival of Australian and German colonists, but it did not begin to grow large and to prosper until coffee became established in the Highlands in the 1950s.
Initially, in the mid-1950s, white settlers took up land purchased from willing sellers and established small plantations; around 100 of these, each of up to 150 acres in extent, although full development took time.
These were owner-managers, empowered more by enthusiasm for the place and the project in hand than by ready capital.
Most were burdened by loans from the time they established their farms until the big coffee-boom of the late 1970s, when almost all of them sold out to local landowner groups.
Today there is only one foreign-owned coffee-plantation operator in PNG, namely W.R.Carpenter Estates Ltd. Of Mt Hagen, owned by Malaysian interests.
Beginning in the 1950s, the developing plantations provided an example, a challenge which was soon taken up everywhere through the main highland valleys.
In the Bena Bena Valley, situated on what had been the original small airstrip and camp used by Jim Taylor and the Leahy brothers in 1933, a great nursery was established in 1952.
Whole communities, enemies and related clans together, travelled from the “het blo wara” and from the lower reaches of the river to till the soil and see the seed-beds established.
In 12, months they returned to receive allocations of tall, healthy seedlings.
In the meantime, they had been schooled in the setting-out, the draining and establishment of shade-trees on their small family-owned coffee blocks.
This went on in all the areas which were under the banner and surveillance of the Administration.
By far the greatest grower population today resides in the five highland provinces, where coffee is king in terms of local commerce and lifestyle.
As a well-known coffee man who has seen it all develop observed, “It’d be a sad old Highlands if we’d never been able to get coffee to grow here.”
A significant minority of coffee-growers, though, is well-established in both the mountainous and in certain low-altitude regions of several coastal provinces.
There is growing interest in establishing coffee in mountainous parts of New Britain, New Ireland, and more recently, in Bougainville, and the Coffee Industry Corporation is working with provincial authorities in these districts.
Thus our industry encompasses by far the largest group of smallholder or village-based cash-crop producers in the nation, in an industry which, whilst with a tendency to be unruly because of its free-enterprise and open nature, is an efficient one in terms of distribution of the gross export income received each season.
By way of contrast the palm-oil industry, dependant upon major foreign investment in the mills and plantations which provide centres of operations which draw product from so-called out-growers, the foreign-controlled company is king and the price for palm-fruit is set unilaterally without the effect of local competition, the central mill being the only buyer. However prices paid to coffee-growers reflect a competitive internal market with a great many aggressive players.
As well, coffee has been adopted seamlessly into the ancient subsistence-farming systems of our land, grown wherever there is the space and the people who want to grow it.
Here are no de-tribalised out-grower communities with all the social pressures and crime related to growing families with very limited land and limited employment opportunities.
Statistics tell us that 90% of the coffee exported from PNG comes from the smallholders, the subsistence-farming village-based sector comprising some 400,000 families conferring a direct, in-the-hand cash income to around 1.5 million people.
The declining plantation sector, faced with heavy pressures of cost and theft, buys and processes some 50% of its own exports of coffee in freshly-picked cherry form from neighboring small growers and the few remaining 20-hectare-scheme blocks.
Thus it actually only contributes about half of its statistically-recorded production of 10% of total exports from its own fields of coffee.
The annual production actually grown by the plantation sector is down to around 5 % of exports although with the added purchased fresh cherry, recorded production as shipped comes to something over 10% of total.
To explain further, many of the old plantations, taken over by local business groups and corporations in the late 70s have languished, defaulted on their loans, and have been effectively abandoned.
Whilst no maintenance is done the coffee which the trees produce is picked and sold by villagers and thus, physically and statistically-speaking, most of it enters the village smallholder sector.
Coffee, especially in the highlands provinces is as much a part of life as gardening, pig-raising and hunting, and is an equal contributor within the complex of inter-clan relations and traditional social observances.
It is instrumental in meeting modern needs within society; clothing, bus-fares, medical treatment, school-fees, as well as customary obligations and bride-price. Largely-speaking, and despite the industry’s efforts to encourage the formation of group-marketing organisations including a number of coffee co-operatives, the selling of coffee is typically executed by individual choice of time, place and buyer.
Despite this there are one or two emerging examples which are very encouraging; for instance the Kundiawa-based group managed by Brian Kuglame and supported by PNG Coffee Exports, who also support a large group of progressive growers near Goroka.
The work done over several years by Jerry Kapka’s Kongo Coffeee at Suave is impressive, and Monpi Coffee Exports of Goroka have invested a lot in time and money in encouraging farmer groups and factories to obtain certification under various price-enhancing marketing schemes.
These exporters are to the fore in engagement with the recently-announced World bank financed PPIP partnership scheme which will place much emphasis upon development of niche markets for smallholder coffee.
In the main, though, and as at present, coffee-sellers harvest, process and then sell or hold in storage according to each individual family’s plans of the moment.
Most coffee is sold either to self-funded roadside buyers who travel out to growing areas during the season, or is taken to centers where there are coffee factories, and sold directly to a factory.
Factories generally pay a bonus to defray the cost of transport in these transactions, and selling at the factory-door is encouraged by CIC for these reasons and for the reason that quality-assessment is usually more stringent at factories whereas roadside buyers are inclined to mix coffee of varying moisture contents and levels of defective beans.
Thus it may be seen that coffee is sold as and when the grower wants cash, and provided it is sold where more than one buyer or factory is present, fetches a competitive price, a price paid in full in a single transaction.This is an efficient market, although in its freedom it has problems related to evenness of quality, as intimated above.
The question of quality control will be addressed in a further article.
As to industry financing, PNG’s banks are historically opposed to lending to coffee-industry operators, considering with justice that the industry is an inherently risky one for lenders.
This is where PNG’s registered exporters come in, for they alone finance each season’s crop, a huge amount in hard currency.
This is something which is not widely known outside the industry.
Our exporters must not only be accomplished commodity-traders with good agents in consuming countries, they must also be able to trade effectively in the money-market, negotiating advances or loans from overseas and landing these when the ruling exchange-rate is favourable.
A knowledge of the money-market and the ability to hedge money transactions as well as coffee contracts against future rises and falls is an essential part of the trade.
If you don’t know how to do this you must have an arrangement with someone who does.
Exporting coffee is a complex, high-risk business, and a great many registered exporters have folded over the years.
Among these were the two largest, Angco Ltd., and Coffee International Ltd., plus many smaller entities.
Registered factories take forward contracts for tonnages from the exporters who will make advances which keep the whole trade rolling on a day-to-day basis.
Coffee is delivered to exporters and new contracts are undertaken; in this way the industry functions throughout the season, turning over product in its journey from grower to factory to point of shipment and on to its ultimate overseas destination.

NEXT WEEK: Who are the coffee exporters? Do Growers get a fair share? Do we really need 21 registered exporters and 53 registered factories? And what is the story about quality control and downstream processing? Look for answers in this blog.

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