Papua New Guinea’s agriculture sector has been adversely affected by the impact of COVID-19. But, according to a new report by ANZ Research, exports of agricultural commodities may rebound sharply next year.

Sustainable, traceable palm oil has become PNG’s largest agricultural export. Credit: NBPOL

The ‘sharp deterioration’ in the global economic environment due to the COVID-19 pandemic has adversely affected PNG’s agriculture sector, according to the government’s Mid-Year Economic and Fiscal Outlook (MYEFO). It noted that export production in the first half of the year was also affected by the ‘nationwide lockdown, which restricted farmers’ mobility to work their farms.’

The MYEFO report says production of palm oil – PNG’s largest agricultural export – recovered well in the second quarter of 2020. However, annual production forecasts remain lower by around six per cent compared with budget expectations.

‘The downgrade of the production forecast is attributable to lower demand from the global hospitality industry and lower crude oil prices that have negated the price advantage of biofuels.’

Coffee rush

Coffee prices, according to MYEFO, trended higher during the COVID-19 pandemic, reflecting limited production and supply, combined with increased consumption.

‘In the first four months of 2020, prices have risen by 24.7 per cent compared to the corresponding period last year. Demand support was from increased home consumption and panic buying.’

‘Good seasons underpinned by favourable weather and rising probabilities of La Niña should see PNG’s plantation crop volumes rise over the next two years.’

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Cocoa prices, meanwhile, reversed gains over the first half of 2020 because of concerns about demand from the Americas, Asia and Oceania.

‘With cocoa production and logistics being labour intensive, the containment measures to control the pandemic have resulted in labour immobility and, as a result, dwarfed cocoa output and supply,’ the MYEFO report says.

Prospects

According to ANZ Research’s recently-released Pacific Insight, the prospects for the agriculture sector next year are more positive.

‘Next year, we see exports increasing by 9.3 per cent underpinned by better global commodity prices and currency depreciation, both of which will facilitate stronger production and exports.’

Palm oil competes with soybean oil, notes the ANZ report, and tighter supplies of soybeans is expected to be positive for palm oil prices.

‘Palm oil demand is less sensitive to price changes than coffee or cocoa, and we believe demand will increase by 3–4 per cent in 2020–21 as pandemic restrictions are gradually eased.’

In contrast, cocoa prices are likely to be affected by weak demand, the report says.

‘With many countries facing a recession, falling income growth is likely to hit cocoa demand. In the second quarter of 2020, demand for grinds dropped in the range of 10 per cent year-on-year across Europe, US and Asia. The chances of a recovery in the coming quarters look slim. Stronger supply and weaker demand should saturate the market.’

Demand for coffee is also expected to be weak, the report notes. ‘Coffee demand is suffering under the pandemic. Work from home, lockdowns and restrictions have reduced café demand, albeit partially offset by an increase in home consumption.

‘Pandemic-induced recessions globally will particularly impact demand in low-income countries. So we expect demand to contract for the first time in 15 years by 1-1.5 per cent year-on-year for the 2019-20 marketing year which ends on 30 September.’

Higher rainfall, lower kina

The report says an anticipated La Niña weather pattern is expected to bring above average rains to West Africa, Asia, Australia and Papua New Guinea, which will be positive.

‘Good seasons underpinned by favourable weather and rising probabilities of La Niña should see PNG’s plantation crop volumes rise over the next two years. Should La Niña be strong, supply of coffee from Brazil and soybeans in Argentina and Brazil could be down in the coming season.’

‘This, combined with stronger prices and further depreciation of the kina, should facilitate stronger production and exports for PNG’s key agricultural commodities through to 2021.

‘We are forecasting the kina to depreciate by 5.7 per cent this year and fall to US$0.27 by December 2020 before declining a further 9.6 per cent to US$0.25 by the end of next year.’