Papua New Guinea’s Cocoa Board has launched a new farmers’ company to move small farmers from subsistence farming to running a small profitable business. The long-term aim of the new PNG Agriculture Company is to boost output, quality and farmer incomes, as Cocoa Board CEO Boto Gaupu explains.

The Cocoa Board’s Boto Gaupu. Credit: The National

Business Advantage PNG (BAPNG): Why is the Cocoa Board setting up this company?

Boto Gaupu (BG): The board wants to increase PNG’s share of the world cocoa market by creating a different, farmer shareholder business model which will move farmers from small-scale subsistence farming to running a small, profitable business, as well as profiting from the entire value chain.

Our aim over the next five years is to have at least 20,000 farmers as shareholders.

BAPNG: How will the PNG Agriculture Company work?

BG: Initially, PNGAC will be owned by a growing number of rural farming families in the cocoa industry in East New Britain Province, and, for an initial period, the Cocoa Board.

The company will provide incentives for farmers to move beyond subsistence farming to a more commercial operating environment. They’re eager to earn higher levels of incomes and create a future for their families but they don’t have the business acumen, and suffer from poorly-managed cooperative society structures that do not motivate them.

The new business will introduce strong governance and management systems, new technology, reformed training and extension processes, standardised production systems and will produce a consistent quality bean that can be differentiated in the market by the recognised flavour attributes of PNG cocoa.

BAPNG: How much support do you have from farmers?

BG: Well, the idea grew out of talks with many farmers throughout East New Britain Province. The Australian Government supported the PNG Department of Agriculture and Livestock by funding i2i Development, an Australian Indigenous company, to undertake initial consultations and provide ongoing business development. i2i General Manager, Brad Jackson, said that the strategy is providing an enabling environment and incentivising farmers to transition their mindsets from being subsistence farmers to small business operators.

The farmers agreed that developing a business and concentrating on providing consistent quality products will enable them to build confidence in the market and gain an ability to negotiate improved pricing and eventually participate deeper in the value chain.  The farmers will also begin to understand the link between good agriculture practices and production yield.

BAPNG: How will farmers benefit?

Cocoa tree in Papua New Guinea. Credit: RNZI

BG: Farmers will benefit from significant increases in yield in the first instance. As the market gains confidence that the processing of wet beans consistently provides quality dry beans, farmers will also benefit from increased prices.

The increase in the farming families as shareholders in the company will also enable improved economies of scale and scope, thereby reducing operating costs and improving profits (or the price the business can pay for wet beans).

BAPNG: Does this new model mean the PNG Agriculture Company could become involved in processing?

BG: The short answer is yes. Other growth opportunities will emerge through vertical integration of the supply chain. These opportunities include manufacturing and maintenance of production systems, commercialising nurseries, providing logistics, and labour contracting.

Once the business achieves sufficient scale, further downstream processing, such as production of cocoa butter or chocolate, will be possible.  This is especially so given the recognised fine flavour status of PNG cocoa and the increasing demands in the market for complete traceability of end products.

The company has a plan to expand the business across other geographical areas in PNG as well as to apply the business model across other agricultural commodities.