Cocoa

in crisis

COGOA is becoming a real quan dary for the Papua New Guinea government. The world price con tinues to drop, the stabilisation fund is out of money, but the government must keep the industry going at a time when the Bougainville crisis is eating deeply into its revenues.

Papua New Guinea has made a sub stantial investment in the cocoa industry in recent years, with both the quality and yield improved by the introduction of new hybrid varieties. About 13 per cent of the population depends on the crop for its livelihood, so cocoa is a major political consideration. The fact that one of the two major produces is the North Solomons Province which has been eco

nomically devastated by the Bougainville

copper mine closure (East New Britain is the other prime cocoa area) just makes the task of the national government in deciding on a future policy all that more difficult. It does not want to get dragged into permanent price support, but at the same time, the industry’s collapse would pose even greater problems.

The growers have done their bit.

Papua New Guinea exported 31,000 ton nes in 1985, rising to 37,400 tonnes in 1988.

The problem is that prices have fallen.

In 1985 the country received K 2021 per tonne of cocoa exported. In 1988 it was down to K 1221 and this year the price is unlikely to average more than KlOOO.

Back in the late 19705, prices hit K5OOO and above, and the government and in dustry then had the foresight to plough much of that money into a stabilisation fund. That fund ran out of cash in May, which is why cocoa has become an issue; a committee set up to recommend future policy will report to the national govern ment at the end of August.

Papua New Guinea cannot turn to the International Cocoa Organisation (ICO) for help, because that body is paralysed by the crisis in world prices. Meanwhile, most of the major producers have in vested in expanding production. In 1981 1.7 million tonnes was placed on the world market. Now the major growing nations (including Ghana, Cote d’lvoire, Brazil, Malaysia and Indonesia) push 2.33 million tonnes on to the World market. Demand has risen from 1.569 million tonnes to 2.08 million tonnes, but the lag in the latter’s growth has brought about a very high level of cocoa stocks about 54.6 per cent of a year’s require ments is now held in warehouses.

On the positive side, the world de mand for cocoa is continuing to grow

(compared with coffee, where health concerns have seen as easing of de mand). There are signs of the Eastern European and Japanese markets opening up for substantial volumes. But the fact that the size of the stocks overhanging the world market has never been higher does rather overshadow the good news.

There is no sign that countries are winding back on the cocoa production, although the World Bank has been knocking back projections to try and dis courage more planting. The latest West pac tropical product bulletin says prices are unlikely to recover much unless weather conditions deteriorate drastically in West Africa.

The unpredictable element is the stocks held by the ICO all 250,000 tonnes, which it bought in to try and maintain the price. There are certain pa rallels with tin a falling world price, vast over-production and an internation al body falling apart at the height of the crisis. The ICO cannot control its mem bership, and many of those members have refused to pay their annual fee to the organisation the fear now is that the ICO will start liquidating the cocoa stocks it holds, pushing them on to the world market just to earn some money to keep itself going. There is also con siderable unsold stock held by Cote d’l voire (held back to try and get the price moving upward) and by Ghana (about five months’ consumption). The Westpac report says these stocks dwarf any prob able changes in the demand-supply ba lance.

“It appears more likely that these stocks will be liquidated in the next year, resulting in a price collapse,” said West pac. More importantly, any such price collapse is unlikely to have an effect on production; cocoa, once established, re quires little additional cost to harvest.

Just across the border, Papua New Guinea faces greater competition from Indonesian cocoa growers. They are planning not only to step up production, but quality as well. That has immense implications, because one edge which Papua New Guinea has is that its cocoa is of high quality and better than most pro duced in West Africa. Recently, the chairman of the Indonesian Cocoa Asso ciation, Ibrahim Hassan, was reported as saying his country would concentrate on cocoa quality to make inroads in the world market. He said Indonesia would cope with world demand by improving quality and aiming at the same top end users who buy PNG cocoa. Most Indone sian coffee goes to the Netherlands.

The March 1989 trade figures from Port Moresby show that cocoa export volumes increased by 76 per cent to 8600 tonnes over the March 1988 quar ter. The increase was due to higher pro duction from rehabilitated cocoa planta

tions. Output is expected to increase further as more of the newly planted cocoa matures.

The government’s loan of Kl 5 million to the Cocoa Stabilisation Fund in May has enabled farmers to receive a K 528 per tonne bounty (on top of the K 750 per tonne they earn from the processors) but that money will run out by the end of October. And here is the govern ment’s quandry: it does not want to get itself into a situation of permanent price support, both for reasons of not setting a precedent for other crops and because it cannot afford the money with no re venue from Bougainville. The short term outlook for cocoa is poor, with several years of rock-bottom prices, and therefore the need for Papua New Guinea growers to be supported.

On top of that, about 45 per cent of the country’s cocoa comes from the same North Solomons province which is now in turmoil over the mine dispute and violence. The government is anxious to keep the lid on the province, but in a wider sense its whole policy has been to foster agriculture to keep people on the land and not drifting into Rabaul, Lae, Port Moresby and other towns to become urban poor. About 13 per cent of Papua New Guineans depend on cocoa for their livelihood. (Prime Minister Rabbie Namaliu himself having been a cocoa

producer).

The importance of cocoa transcends its role as an export commodity it is part of the cornerstone of government economic and social policy.

There is one other complication, too.

Cocoa and copra are complementary crops; about 90 per cent of cocoa pro ducers are also involved with copra, and the price of that commodity has also suf fered a major downturn in price over the last three years. The March quarter also showed a 17 per cent decline in copra exports.

The Bougainville Copper Ltd mine provides 40 per cent of Papua New Guinea’s export income, and 17 per cent of the national government’s revenue when the mine is in full production. The closure of the mine has made a catas trophic hole in state income. Namaliu can neither afford to prop up the cocoa growers, nor afford not to. □