Oil Palm in Papua New Guinea

Palm oil has been PNG’s most valuable agricultural export since 2000, when it overtook coffee in this role. Palm oil exports averaged K420
million per year from 2004 to 2006, which was 30% of the value of agricultural exports for that period. Oil palm production has expanded at a much greater rate than other export tree crops. However, a smaller proportion of the rural population is engaged in growing oil palm than for the other major export and domestically marketed crops. Approximately 130 000 settlers or villagers derived income from selling oil palm in 1995 (4% of the rural population). In 2007, the Oil Palm Research Association estimated that about 166 000 people (3% of the rural population) lived in households that produced oil palm. Many other people derive income directly or indirectly from the PNG oil palm industry, including those working on the nucleus estates.

Four economic products are derived from the fruit of the oil palm: crude palm oil, palm kernel oil, refined palm oil and palm kernel expellent. Of these, crude palm oil is the most significant in terms of export volume and value. Oil palm is grown exclusively in lowland locations, up to a maximum altitude of 200 m. It is cultivated in areas where mean annual rainfall ranges from 2000 mm to 4200 mm. The production of palm fruit is mildly seasonal in West New Britain Province, with about 60% of the crop harvested in January to June each year.

Adoption and history

Although oil palm has been grown in PNG since the 1920s, commercial development did not commence until 1967 with the establishment of a private sector/government joint venture at Hoskins in West New Britain Province (WNB). This is now the largest oil palm development in PNG. Other large projects are at Bialla (WNB), Popondetta (Oro Province), Gurney and Sagarai (Milne Bay Province), along the coast south-east of Kavieng (New Ireland Province) and in the Ramu and Markham valleys in Madang and Morobe provinces. All these developments are based on a nucleus estate and smallholder (NES) model, in which a commercially operated estate produces oil palm and also provides a market, processing and technical services for smallholder producers who cultivate oil palm on land adjacent to the nucleus estate.

Initially the smallholder component of the NES model was based on a land settlement scheme (LSS) system, which granted settlers 99-year leases over blocks of at least six hectares on land purchased from customary owners. However, no further land settlement schemes have been undertaken since the mid 1990s due to a shortage of land for further settlement and problems associated with the system. An important issue is the number of people living on blocks of a fixed area. Population density on blocks in the Hoskins LSS has risen from 6 persons/block in the early 1970s to 13 persons/block in 2000, and it is predicted that there will be 20 persons/block by 2011. This rising density is leading to a number of problems, including social instability, conflict over allocation of labour inputs and income, and disputes over inheritance of the blocks.

The existing LSS system has been supplemented by the village oil palm (VOP) system, which provides smallholders with blocks of two or four hectares on customary-owned land, with a Clan Land Usage Agreement giving the blockholder security of tenure and usage rights over the land. The three oldest NES developments, at Hoskins, Bialla and Popondetta, have nucleus estate, LSS and VOP components, while the newer NES developments in New Ireland and Milne Bay provinces have only nucleus estate and VOP components.

With no further land available for land settlement schemes since the mid 1990s, many migrants have entered into informal arrangements to access customary land in the oil palm-growing areas of West New Britain Province. These arrangements are known as customary purchase blocks. Such plantings were providing a growing proportion of fruit from smallholders for the mills in the Hoskinsarea by 2007.

The latest trend in oil palm development on customary-owned land is for landowning groups to form companies that lease customary land to oil palm plantation companies in exchange for rent and royalties. This system is known as the mini estate system. It is used by New Britain Palm Oil Limited, Higaturu Oil Palms, Milne Bay Estates Limited and Poliamba Limited in West New Britain, Oro, Milne Bay and New Ireland provinces respectively. Most new plantation development since the late 1990s has been on customary land, with extensive plantings in West New Britain Province in particular using this form of land tenure.

Distribution of production and planting

Both smallholder and plantation production are dominated by the Hoskins project area, which, in 2007, contributed more than half of total national production. Popondetta and Bialla are the next most significant project areas in terms of production, followed by Milne Bay and New Ireland. Although the Hoskins project area accounts for the greatest volume of smallholder production, the Bialla and Popondetta project areas have the largest smallholder components as a proportion of total NES production.

In 2007, 70 000 ha (55% of the total area) was planted to oil palm on plantations (including mini estates) and 58 000 ha planted on smallholdings (distributed between 5100 LSS blocks and 12 400 VOP blocks). In 2007, the Hoskins project area accounted for half of the total area planted to oil palm on plantations. Hoskins also had the largest area of smallholdings, although Popondetta and Bialla also had significant areas of smallholder oil palm plantings.

Levels of production

Exports of crude palm oil have increased exponentially since the early 1970s, because of an expansion in both smallholder and plantation production. During the 1980s, smallholder and plantation production of oil palm fruit were approximately equal. However, the establishment of the NES project areas in Milne Bay and New Ireland provinces, which have relatively insignificant smallholder components (4% and 14% of production in 2007 respectively), has caused plantation production to increase at a greater rate than smallholder production since the early 1990s. Plantations continue to dominate production: in 2007 they accounted for two-thirds of total national production.

The volume of fresh fruit harvested has continued to set new records in most years, exceeding two million tonnes for the first time in 2006. More than 360 000 tonnes of palm oil with an export value of K430 million was extracted from this fruit. The provisional value in 2007 (K670 million) is much greater, the outcome of particularly high world prices and increased production.

Yield of fresh fruit bunch per hectare varies between locations and over time. However, accurate comparisons are not possible because data on area planted include both mature and immature palms. Thus yields calculated from the total production and total area planted underestimate yield from mature palms. Nevertheless, available data indicate that smallholder yields are considerably lower than those for plantations. An average yield for mature plantation palms is about 30 t/ha; for settler blockholders it is about 18–20 t/ha; while village oil palm is less again at about 10 t/ha. There are considerable yield data from experimental plantings at Dami in West New Britain Province. Experimental yields are typically 30–32 t/ha and up to 40 t/ha.

Processing, exporters and markets

Each of the NES project areas has at least one palm oil mill, which process fresh fruit bunch (FFB) produced on both plantations and smallholdings. The FFB is processed to produce crude palm oil and palm kernel. Three of the five project areas also have facilities to further process palm kernel into palm kernel oil and palm kernel expellent.

New Britain Palm Oil Limited (NBPOL), which operates the Hoskins NES, is one of only a handful of oil palm producers in the world that operates commercially viable breeding and germplasm export programs. In 2007, about 4 million seeds were sold by NBPOL. These are supplied to all the plantation operations in PNG and exported to a number of countries, particularly Indonesia, but also to Malaysia, Sri Lanka, Thailand, the Philippines, Honduras, Cameroon, Solomon Islands and Vanuatu. Export of seed generates significant income for the company. Demand from Indonesia is especially large and NBPOL anticipates exporting about 20 million seeds in 2008.

The NES companies maintain a monopoly on purchasing FFB from smallholder producers. Prices are calculated according to a formula devised by the PNG Palm Oil Producers’ Association. The formula is based on export prices, and the transport costs and oil palm extraction rates of each NES project area. Prices paid to smallholder producers therefore vary among project areas. A large number of smallholder producers have received credit from the Rural Development Bank or from the NES companies, and repayments are deducted from the payments that smallholders receive for fruit.

The European Union is the sole export market for PNG’s palm oil, with the United Kingdom the biggest buyer.

Future prospects

The area planted to oil palm continues to increase as existing projects expand and new projects commence. New Britain Palm Oil Limited is undergoing an accelerated planting program, with 3000–5000 ha of new plantings planned each year for several years. This company has announced plans to increase its plantings in PNG to about 65 000 ha. The new plantings are on the north coast of West New Britain Province on the Talasea Peninsula and west of there between the Kulu and Via rivers. Land is accessed through agreements with local landowning groups, and palms are planted on both plantations and in village-operated blocks. Hargy Oil Palms Limited is also increasing plantings in the Bialla area of West New Britain. As well as these formal arrangements for new plantations and village oil palm, it is likely that the area planted under informal tenure arrangements by migrants in West New Britain, and possibly elsewhere, will continue to expand rapidly while the price remains high.

A number of other projects have commenced in PNG in recent years. Ramu Agri-Industries Ltd began planting oil palm in the Ramu Valley in 2003, and had planted 6500 hectares by early 2008. A mill with a capacity of 25 000 tonnes of crude palm oil per year commenced processing fruit in early 2008. An associated village oil palm scheme in the Markham Valley in Morobe Province commenced in 2006, with initial plantings of 100 ha, with 2 ha per household. The village component in Phase 1 of the project consists of 750 ha and can be expanded to 1500 ha.

Plantings commenced by 2007 in several other smaller projects in the Bereina area of Central Province (Mekeo Hinterland Oil Palm) and in the Aitape and Bewani areas of Sandaun Province. Feasibility studies for further projects have been conducted in other locations, including on the Sepik Plains north of the Sepik River in East Sepik Province, near Madang town, and on north-west Bougainville Island.

Oil palm is PNG’s most efficient agricultural industry, with yields among the highest in the world. The global price rose rapidly from a low point in 2001, to about US$430/tonne in 2004, and had climbed to US$1100 by early 2008. Recent increases have been in response to strong demand by developing countries, particularly China, India and Pakistan; a slowdown in global production growth in 2007; and increased use of competing vegetable oils for biofuels. The World Bank predicts that the price will peak at about US$900/tonne in 2008 and will then decline until 2015. These prices will be more than sufficient to provide good returns to the efficient PNG oil palm industry.

Given current and future plans for expansion, PNG production is likely to continue to increase in the medium term. The high prices being realised in 2007 and 2008, and possibly beyond, mean that palm oil will continue to generate more export income for PNG than any other export crop. However, the limited availability of suitable environments for oil palm is likely to restrict further expansion after around 2030.

One thought on “Oil Palm in Papua New Guinea”

  1. Hi, is there any job opportunities for graduating students in biology and chemistry?

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