Papua New Guinea - Agricultural services review

1)ocurnent ot The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. 3161-PNG COUNTRY SECTOR REPORT PAPUA NEW GUINEA AGRICULTURAL SERVICES REVIEW (TWO VOLUMES COMBINED) VOLUME I - RECOMMENDATIONS VOLUME II - ANNEXES January 30, 1981 Projects Department, Agriculture Division II East Asia and Pacific Regional Office This document has a restricted distribution and maN be used b) recipients only in the performance of their official duties. Its contents may not otherwise he disclosed without World Bank authorization.   PAPUA NEW GUINEA FOR OFFICIAL USE ONLY AGRICULTURAL SERVICES REVIEW Table of Contents Page No. PREFACE . i . . . . . . . . . . . . . . . . . . . . . . . . . . . VOLUME I: RECOMMENDATIONS A. Background I. THE ROLE AND ORGANIZATION OF AGRICULTURE . . . . . . . . . . 1 Agriculture in the Economy . . . . . . . . . . . . . . . . 1 The Structure of Agriculture . . . . . . . . . . . 1 . . . Economic Policies . . . . . . . . 2 . . . . . . . . . . . 2 Agricultural Services . . . . . . . . . . . . . . . . . . 3 II. PERFORMANCE AND PROBLEMS IN THE AGRICULTURAL SECTOR . . . . 3 Production and Value . . . . . . . . . . . . . . . . . . . 3 Investment . . . . . . . . . . . . . . . . . . . . . . . . 5 Constraints in the Estate Sector . . . . . . . . . . . . . 6 Smallholder Problems .... . . . . . . . . . . . . . . . 7 Decentralization . . . . . . . . . . . . . . . . . . . . . 8 Extension and Research . . . . . . . . . . . . . . . . . . 8 Manpower, Planning and Budgeting . . . . . . . . . . . . . 8 B. Recommendations III. OVERVIEW AND SUMMARY . . . . . . . . . . . . . . . . . . . . 9 Principles ..... . . . . . . . . . . . . . . . . . . . 9 Summary of Recommendations . . . . . . . . . . . . . . . . 11 IV. THE ORGANIZATION AND MANAGMENT OF DPI. . . . . . . . . . . . 14 A National Agricultural Council. . . . . . . . . . . . . . 14 A National Agricultual Advisory Council. . . . . . . . . . 15 Regional Support Units . . . . . . . . . . . . . . . . . . 15 Provincial Rural Development Officers . . . . . . . . . . 16 Reorganization of Central DPI. . . . . . . . . . . . . . . 16 Coordination with Other Departments . . . . . . . . . . . 17 Administration and Staffing . . . . . . . . . . . . . . . 19 Housing and Offices . . . . . . . . . . . . . . . . . . . 20 Divisional Administration. . . . . . . . . . . . . . . . . 20 Data Storage . . . . . . . . . . . . . . . . . . . . . . . 20 Staff Travel . . . . . . . . . . . . . . . . . . . . . . . 21 Job Descriptions and Salaries . . . . . . . . . . . . . . 21 | This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -2- Page No. V. POLICY FORMULATION AND PLANNING . . . . . . . . . . . . . . 22 National Level Planning .22 Use of Strategic Objectives. . . . . . . . . . . . . . . . 22 NPEP Documentation and Review . . . . . . . . . . . . . . 23 Provincial Planning . . . . . . . . . . . . . . . . . . . 23 A DPI Five-Year Development Plan .23 VI. AGRICULTURAL EXTENSION SERVICES . . . . . . . . . . . . . . 24 Extension Division .24 Regional Units .25 Provincial Organizations . . . . . . . . . . . . . . . . . 25 Livestock and Fisheries Extension . . . . . . . . . . . . 26 Field Credit Services .26 Development Programs .27 Information Branch .27 VII. RESEARCH SERVICES .27 Research Organization .28 Field Stations .28 Liaison with Extension Staff . . . . . . . . . . . . . . . 28 Evaluation of Research Programs . . . . . . . . . . . . . 29 Industry-organized Research . . . . . . . . . . . . . . . 29 Research Priorities .30 Labor Productivity Research . . . . . . . . . . . . . . . 31 A Research Services Subproject . . . . . . . . . . . . . . 32 VIII. MARKETING OF EXPORT CROPS . . . . . . . . . . . . . . . . . 32 DPI Commodity Purchasing .32 Quality Control .33 Price Stabilization .33 Coffee Board Management Levy . . . . . . . . . . . . . . . 34 Copra Two-Payments System .34 IX. ENCOURAGEMENT OF THE PRIVATE SECTOR . . . . . . . . . . . . 34 The Estate Sector .35 Land Legislation and Administration . . . . . . . . . . . 37 Private Sector Services .38 Negotiations with Investors . . . . . . . . . . . . . . . 38 National Investment Priorities Schedule (NIPS) . . . . . . 38 Monetary and Related Policies . . . . . . . . . . . . . . 39 Replanting Incentives .39 Export Taxes .40 Import Substitution ................. .. . 40  -3- Page No. APPENDICES 1. Proposals for Further Work. ................. 41 Five-Year Agricultural Development Plan.41 Manpower and Training Review.42 Preparation of a Support Services Project. . . . b..c.v. 43 Review of the Estate Sector . . . Industry45 Tree Crop Replanting Levies and Subsidies. .46 Research on Land Policy Issues.47 Review of DPI Marketing Section Operations.47 Quality Control of Export Crops. . Service48 Job Descriptions and Salary Rview of DPIC.48 Exchange Rate Policy and the Export Sector.48 Import Substitution Studies .49 2. Production and Exports of Major Crops. ........... 50 FIGURE 1: Draft Organization for DPI ....... ....... 18 VOLUME II: THE ANNEXES A. The Departmnent of Primnary Industry: Organization, Staffing and Management B. Policy Formulation and Planning Appendix 1: 1980 NPEP Allocations by Strategic Objectives Appendix 2: Government Spending in Primary Industry Appendix 3: NPEP Implementation, DPI, 1978 and 1979 C. Agricultural Research Services D. Crop Production and Extension Services Appendix 1: Outline of an Improved Extension Service E. Marketing and Credit F. Investment Incentives and Constraints G. Land Tenure   PREFACE 1. This review was requested by the Government of Papua New Guinea (PNG), particularly as a result of concern at the recent disappointing production performance of the agricultural sector and at low levels of maintenance and reinvestment within the sector which col ~e affect future production. This concern related especially to the tree crop export industries, largely in the estate sector. There was also widespread concern over the standard of services being provided to agriculture and the lack of progress in achieving government objectives, including that of increasing food production. 2. The terms of reference for the mission /1, which visited PNG from May 21 to June 13, 1980, were to review and evaluate the structure and effectiveness of services available to the agricultural sector and assess local capacity to develop appropriate strategies and policies and prepare projects in the sector, and to make proposals to Government for strengthening these services. In order to limit its tasks in a short visit, the mission focussed on the tree crop subsector but did not confine itself to this area if the opportunity to broaden the enquiry presented itself. 3. In PNG the mission held discussions with staff of most of the agencies involved with the agricultural sectors. These included, inter alia, the Department of Primary Industry (DPI), the National Planning Office (NPO), the Department of Finance, the PNG Development Bank (PNGDB), the Public Services Commission, the University of PNG, the Departments of Lands, Commerce and Decentralization and the National Investment and Development Authority. Outside the government sector, discussions were held with small farmers, planters, management agencies, marketing agencies, industry boards, banks and other firms providing services to the sector. Various members of the mission made visits to 9 of the 19 provinces where they were received by provincial officials and field staff. At the conclusion of its stay in PNG the mission was honored by a meeting with the Prime Minister, Sir Julius Chan. 4. A draft of the report was issued in October 1980 and sent to Papua New Guinea for review. The reactions of staff in the various Divisions of DPI, and in NPO, Finance and PNGDB where elicited by two members of the mission /2 who visited Port Moresby in December. The major changes made to the report as a result of those meetings are that a few factual errors in /1 The mission and their principal responsibilities were: John Cleave, Chief of Mission; Alice Galenson, Central and Provincial Planning, Marketing and Incentives; Brian Gray, Research (Bank); Phillip Judd, Extension; Kenneth Woodward, DPI Organization and Planning and Land Tenure (Consultants). /2 John Cleave and Alice Galenson.  - ii - the draft have been corrected; a summary of recommendations has been added (paras. 3.07-3.18); the proposed content of a Manpower and Training Study has been enlarged upon (Appendix 1, paras. 3-5); and footnotes have been added to bring the report up to date, particularly in regard to initiatives already taken by government. The most important of these arise from the 1981 budget speech of the Minister of Finance, delivered on November 4, 1980. 5. This report consists of two parts. Volume I comprises a brief background to the agricultural sector and its problems, a summary of the mission's comments and recommendations, and some suggestions for further work (Appendix 1). It is addressed principally to the Government of PNG rather than the Bank. It does not, therefore, include any more background than is needed for reviewers to understand the setting. Volume II is a series of Annexes based on the subject papers prepared by individual mission members on their areas of responsibility, in which the arguments are more fully developed. The reader interested solely in the broad thrust of the mission's views could confine his or her attention to Volume I. 6. Inevitably this report presents an outsider-s view. However, many of the positions the mission has embraced originated from people in Papua New Guinea, and in this the mission was most fortunate, for it found a wealtb of experience and ideas on which to draw, and wcAl articulated views to test. It wishes to acknowledge the patient help, courtesy and hospitality of all those in government and the private sector who so unstintingly gave of their time and knowledge and who in so many ways helped the mission in its task and made its stay in Papua New Guinea both pleasant and rewarding.  PAPUA NEW GUINEA AGRICULTURAL SERVICES REVIEW A. Background I. THE ROLE AND ORGANIZATION OF AGRICULTURE 1.01 Agriculture in the Economy. The agricultural sector in PNG contri- butes roughly one-third of gross domestic product. Agricultural exports contribute over 40% of total exports, or over 50% if forestry products and fish are included./l They are the only major exports from PNG outside of the copper concentrate produced by one large mine, and so are of great importance to the balance of payments. Within the sector, three tree crops - coffee, cocoa, and copra - contribute about 90% of the export earnings for agricul- tural goods. On the import side, food imports make up close to one-quarter of total imports and provide about one-quarter of domestic food consumption. A large proportion goes to the major urban centers, Port Moresby and Lae. 1.02 Agriculture is even more important for employment and incomes than it is for output or the balance of payments, since the copper mine operates as an enclave and employs few people. Some 85% of the population live in rural areas, and most of them are engaged to some extent in agricultural activities. 1.03 The Structure of Agriculture. There are three basic modes of agricultural production. The subsistence sector, which contributes an estimated 40-50% of total agricultural output, encompasses most of the rural population, as well as some urban residents, although probably less than 5% of the population relies exclusively on this means of support. Second, most of the rural population is also engaged to some extent in the commercial sector, producing cash crops on smallholdings for the domestic market and for export. The first experience in the market for many people is through the sale of surplus subsistence production; and even when they have started to produce for sale, they usually maintain some subsistence cultivation and move in and out of the market in response to relative prices. A few smallholders are organized around nucleus estates (notably in oil palm), and some others have formed groups to purchase and operate plantations formerly owned by nonnationals. Third, there are some 500-600 export-oriented plantations on which many Papua New Guineans work for wages./2 These /1 Further references to the agricultural sector will exclude forestry and fishing unless otherwise specified. /2 Estimates of agricultural employment vary widely, but they give at least an order of magnitude. One estimate is that approximately 385,000 self- employed smallholders are engaged in export crop production and about 45,000 people work for wages in the sector. This compares with esti- mated nonagricultural wage employment of roughly 150,000.  - 2 - plantations, which were mostly owned by nonnationals, are gradually being taken over by nationals, or by the Government as a first step in transferring them to national ownership./l The Government also participates to a small extent as a partner in the development of estates. 1.04 Agriculture figures prominently in the Government's priorities for investment. The national development strategy articulated in 1976 called for an emphasis on rural development as the major source, in the medium term, of employment and income, and the three National Public Expenditure Plans (NPEP) that have come out since then have reflected this orientation. Within the public sector, the prospect is for steady but modest growth in the real level of total government spending. Over the next few years, this is likely to be about 3% per year, permitting an annual increase per bead of population of under 1%. The share of total government spending going to the recurrent activities of the Department of Primary Industry /2 (DPI) has been stagnant over the past few years at just over 6%O. However, other government spending on the development of primary industries is almost as much again, taking the 1980 appropriation for primary industry spending to about 11-1/2% of total government appropriations. 1.05 Economic Policies. The Government maintains an economy which, in terms of trade and monetary controls, is very open. The balance of payments situation is sound, and the Government maintains a hard currency strategy which helps contain inflation and the growth of money wages. Tariffs are relatively low and recourse to quantitative import restrictions rare. Nonetheless, economic nationalism is an important part of government policy. Investment by foreigners is controlled by NIDA; the employment of foreigners is controlled by the Departments of Labor and Foreign Affairs; the ownership of land by foreigners is restricted. The objective of these controls is to increase the involvement in the economy of PNG citizens both as proprietors and employees. 1.06 The Government also has egalitarian goals regarding the distribution of income within the Papua New Guinean population. It has attempted to moderate the rate of increase of wage differentials between the higher and lower income earners. It has also promoted the ownership of buinesses by groups rather than individuals. Geographically, as well, it has attempted to channel additional resources into areas which are relatively backward in /1 This policy is now being questioned, with a new emphasis on developing new production by nationals in both the smallholder and plantation mode. The term 'nationalV refers to citizens of PNG. -National ownership- is not State ownership. /2 The "primary industries" are agriculture, livestock, forestry and fisheries.  - 3 - economic terms. In the light of disappointing rates of economic growth, however, recently greater emphasis has been put on growth in the agricultural sector, and there has been some shift from the distributi -al emphasis for the sector to more growth-oriented goals. The Prime Minister stated in a recent speech that for the next ten years increased productivity must be the primary goal in the agricultural sector./l 1.07 Agricultural Services. Services to the sector are provided by many organizations from both the government and private sectors. Within Government, DPI is the most active. It operates at national level and in the 19 provinces into which the country is divided. At the national level, it is responsible for developing policy in the sector and provides a range of services including research, specialist technical advice, marketing, planning, management and economic services. It also maintains quarantine services, and represents PNG at relevant meetings of international organizations. The extension service was made a provincial responsibility with the creation of provincial government in 1977. It is directed principally at the subsistence and cash crop activities of smallholders. 1.08 Private sector organizations are involved in most aspects of the industry including production, input supply, management, financing, processing, transporting and marketing. In the oil palm industry, a government/private joint venture is also responsible for research. 1.09 Industry or commodity boards have been established by statute for the copra, coffee, cocoa and rubber industries, and government has formed corporations to undertake food marketing, plantation management, and pyrethrum processing. The PNG Development Bank (PNGDB), which is a statutory government institution, has a special role in providing credit for smallholder agricultural development. Other government departments, especially the Department of Lands, Surveys and Environment and the Department of Commerce and Industry assist in the incorporation of agricultural businesses and securing land. The National Investment and Development Authority (NIDA) has a role in promoting investment and assisting potential investors in defined priority areas. II. PERFORMANCE AND PROBLEMS IN THE AGRICULTURAL SECTOR 2.01 Production and Value. In recent years the nominal value of PNG's major agricultural exports has risen over 400%. Even deflating to eliminate general price increases, the purchasing power of these exports rose by some 150% from 1973 to 1979. This result is, however, largely the result of /1 Sir Julius Chan, "State of the Nation," address to the National Parliament, June 24, 1980.  - 4 - VALIET OF MAJOR AGRI'rULTITPAL TrXPnpTS (YV000,f.o.b.) (a) (b) (c) (c)/(a) 1973 1976 1079/a 7 CofEee 23,395 100,160 124,996 534 Cocoa 11,175 39,137 60,872 545 Copra and oil/b 13,065 20,341 58,761 450 Rubber 1,993 2,653 3,497 175 Palmi oil 1,148 6,776 14,441 1,25P Tea 2,048 5,114 7,932 390 Total 52,823 174P181 270 549 512 Total 1973 Terms/c 52 823 119,139 130,226 243 /a Preliminary figures. /b Copra oil data for July-June year. /c Deflated by the International Price Index. buoyant prices for key crops: over the same period PNr production of several of these crops has either fallen or stagnated. In spite of good prices, production of copra, cocoa and rubber is below the levels reached in the early 1970's. Palin oil production is slightly up, but is a newj industry expanding from a small base and is still of minor importance. On the other hand coffee and tea production have been expanding steadily. Imports of food, principally rice, canned fish, sugar and maat, have about doubled in real terms as demand has increased. 2.02 This performance has not, however, been uniform across the sector. While production of major crops on smallholdings has increased steadily in recent years, that on largeholdings has been erratic and overall has seriously reduced in the period since independence. Given this performance,  SMALLHOLDER PRODUCTION (MT) (a) (b) (c) (c)/(a) 1973-74 1976-77 1979 % Coffee (green beans) 24,382 27,195 33,069 135 Cocoa 11,195 11,905 14,363 128 Copra 54,051 60,494 65,606 121 Rubber 248 554 555 223 Oil Palm (ffb) 98,722/a 90,721 108,438 110 Tea n.a. 235 188 - /a 1974-75 PLANTATION PRODUCTION (MT) (a) (b) (c) (c)/(a) 1973-74 1976-77 1979 % Coffee (green beans) 9,702 7,521 14,104 145 Cocoa 18,067 13,524 11,238 62 Copra 72,696 74,958 62,978 87 Rubber 6,051 3,868 3,688 60 Oil palm (ffb) 50,115/a 58,524 57,769 115 Tea 3,862/a 5,390 6,278/b 163 /a 1974-75 /b 1978 it is not surprising that employment on largeholdings has fallen from about 52,000 in 1970 to under 45,000 at present. 2.03 Investment. Not only has production in the large-scale sector been poor in recent years but private investment in primary industry has also been disappointingly low. This applies particularly to tree crops. Coffee is the only established estate tree crop in which the rate of replanting has been sufficient to maintain production in the long run, and this rate has dropped steadily in the last five years. Indeed, apart from oil palm which was essentially established in the 1970s, the private investment rate has declined throughout the decade, even in money terms, and in some years showed a net disinvestment (Annex F). The data do indicate a more healthy replanting situation in the smallholder sector, but they  - 6 - reflect plantings in 1976, prior to decentralization, when the extension service was more experienced and better supported. Recent observation suggests that standards of maintenance and replanting on many smallholdings are in urgent need of attention, though the deterioration may not yet be reflected in production. AREAS AND REPLANTING OF MAJOR CROPS Largeholdings Smallholdings Area New plantings Area New 1976 1976 1979 1976 Plantings (HA) (%) (%) (HA) (7) Coffee 6,600 6.7 5.0 40,600 6.7 Cocoa 54,900 1.9 1.6 73,300 18.7 Coconuts 89,300 1.6 0.3 167,300 9.0 Rubber 7,700 1.0 0.8 n.a. n.a. Tea 3,200 0.2 - n.a. n.a. Source: Annex F, Tables 1, 2. 2.04 Constraints in the Estate Sector. The factors causing the decline in production and investment in the largeholding sector are fairly clear, and have been recognized in PNG. Principal among these is the operation of the Plantation Redistribution Scheme, established in 1974 to facilitate the acquisition of foreign-owned estates and their transfer to traditional landowners. As conceived the scheme was particularly intended to meet the demands of nationals who were short of land for subsistence production, was expected to operate for a limited period, and as far as possible priority was to be given to acquisition of undeveloped alienated land. However, the legislation which emerged in the haste and urgency of the achievement of Independence has proved deficient, and, largely because of PNGCs complex land tenure system, little transfer of acquired plantations to customary owners has taken place so that production could continue under new control. Moreover, uncertainties on whether and when the remaining estates would be acquired, and shortcomings in the valuation system on acquisition, have resulted not only in little reinvestment and maintenance taking place in the estates but in some cases serious neglect and the withdrawal of essential management. 2.05 This situation has been aggravated by the level of wages paid in PNG. Minimum rural wages are legislated and are at a level which is not only several times the earnings typically possible for self-employed smallholders but are also high by Pacific region standards and markedly higher than those in many countries producing similar export crops. However, there is no evidence that rural labor productivity is higher in PNG than elsewhere.  - 7 - 2.06 On the other hand there are a number of features of the economy which at least do not inhibit privately financed development in the sector. Export taxes on agricultural produce are nominal and car be suspended when world prices are low. Internal price stabilization schemes, which are applied to most of the export crops, are usually held to be an incentive rather than a disincentive, although this may depend on producers view of their future tenure. The quality controls on exports and industry regula- tions appear to be reasonable although some would bear examination. Govern- ment-s open economy, free enterprise, philosophy creates a general atmosphere conducive to private investment, and - although it could be revised to more emphatically encourage tree crop investment - governments- National Investment Priorities Schedule (NIPS) does hold the door open to foreign investment. Finally, although sometimes questioned, there is no clear evidence that the hard currency strategy has been a major disincentive. As a relatively small supplier to the world market PNG is a price taker and can sell all of its production. While a policy of slow but steady appreciation of the kina will have a long-term impact on the competitiveness of PNG-s products, given the large international price increases of the past decade, profit margins in PNG have probably not been squeezed. Other factors appear to have been much more important influences upon production than the exchange rate. 2.07 Probably the most important factor within the control of government for encouraging new investment in the estates in PNG is to restore long-term security of tenure for investors: "security" in this context not implying an inviolate and perpetual right to a landholding, but a convincing guarantee that any acquisition of alienated land would be at a free market valuation or its equivalent to provide a full discounted return on all productive investment, including maintenance, in the estate. 2.08 Smallholder Problems. Important though they are, largeholdings are not the only, nor even the dominant, area for concern in PNG. Of greater long-term significance is the smallholder sector, both for its production potential and for its strategic importance in meeting the country's Eight Aims which may be summarized: (a) to increase the proportion of the economy under local control; (b) a more equal distribution of economic benefits; (c) a decentralization of economic activity; (d) an emphasis on small-scale indigenous business; (e) self-reliance, which implies, inter alia, an improved balance of payments position; (f) increasing the local revenue base; (g) an increase in the active participation of women; and  - 8 - (h) government involvement where necessary to achieve these desired developments. 2.09 The rural population in PNG is in a state of transition, emerging from systems in which agricultural production was entirely for family subsistence to embrace production for sale. Considering how recent exposure to markets has been for most of the rural population and how limited access still is in many parts of the country, the pace of change has been remark- able, the responsiveness of PNG smallholders proven. But while adequate incentives are no less a necessary condition for development and production of smallholders than of estates, there are additional constraints in the smallholder sector which need to be faced and overcome if its potential is to be realized. It was these problems, and in particular the provision of adequate support services, with which the mission was largely concerned in its review. 2.10 Decentralization. The creation of provincial governments envi- saged the sharing of responsibilities and resources between national and provincial authorities to provide for greater control at a local level over the amount and type of services provided. In the case of DPI, responsibility for extension services and local planning and implementation was transferred to provincial government, while central DPI was to provide technical advice to the provinces on all aspects of primary industry. Although this was a logical division of responsibilities, the organization of DPI has not been sufficiently adapted to take account of the change. Changes are needed in recognition that policy powers are now shared between a national Minister for Primary Industry and 19 provincial Ministers for Agriculture; that the provincial DPI extension services are administratively independent of national DPI; and that a major function of national DPI should be the support of provincial extension services. 2.11 Extension and Research. The operation of the extension services in the field leaves much to be desired. Many staff are engaged in a range of activities only marginally related to extension work, there are only limited extension programs, and there is little supervision of extension activity. 2.12 Agricultural research in PNG over the past 30 years appears to have been adequate in the areas dealt with. However, there is a need to improve the conversion of research results into useable extension advice, and new efforts are needed to redress recent declines in research resources, and to keep up with world wide advances in plant breeding. To adapt to the growing dominance of the smallholder in agricultural production, research priorities need to be reviewed and programs adapted. 2.13 Manpower, Planning and Budgeting. The decentralization process, begun shortly after independence, has been complicated by a number factors. There were frequent changes of senior staff postings resulting from loss of  - 9 - expatriates and expansion of the national public service. In consequence, many public servants have little experience with their current positions and responsi;bilities. 2.14 Concurrently, the role of the National Planning Office was being expanded and a more rigorous scrutiny at national level of spending proposals introduced. Although commendable in their objective, these appear to run somewhat counter to the thrust of decentralization, and have made new demands on the limited planning and implementation manpower in DPI. Given the need for agricultural growth to provide income and employment for the large majority of the population for many years to come, it could be argued that this sector should receive a higher proportion of government resources, and certainly the objectives adopted for determining priorities favor the allocation of an increasing share for the development of primary industries. However, currently a major problem has been the inability of DPI to expend the funds available to it. B. Recommendations III. OVERVIEW AND SUMMARY Principles 3.01 The key concern for the agricultural sector in PNG today is, with due regard to distributional objectives, how to encourage more resources to flow into the sector, and how to increase the productivity of existing resources in order to promote more rapid development of the sector as a whole. This is largely a structural question: the areas for concern are more the allocation of resources and the organization of services than product pricing in particular or incentives in general, with the important exception of the removal of uncertainties over the future of estates. The structural issues can be resolved into three broad questions: (a) What should be the respective roles of government, para-statal organizations and the private sector in agricultural production and the provision of services to agriculture? (b) What should be the relationship between the central and provin- cial governments in the provision of planning and implementation services to the agricultural sector? (c) What should be the relative roles of plantation mode and small- holder production in the future of Papua New Guinea. 3.02 It is recommended that government consciously encourage the pri- vate sector to engage in the provision of agricultural services whenever  - 10 - possible, thus releasing its own scarce resources for areas where it is difficult for private business to capture a return. In particular govern- ment should emphasize services to smallholders and food crop production, leaving estate crop services to the private sector, including industry boards. This should include areas of research and as much marketing as possible. 3.03 The provincial structure is an essential and lasting feature of the country, the creation of which changes the role of central government. Central DPI and other departments are not currently geared either organiza- tionally or in outlook to fulfill what should be their prime role, to assist the provinces in carrying out their allocated functions. It is, therefore, recommended that a reorganisation of the divisions of DPI take place to emphasis this role; that advisory and technical assistance services be decentralized as far as possible (principally to a level corresponding to the former Regions); and that regular policy and executive level meetings between central and provincial personnel be instituted to provide coordi- nation and feedback on areas of mutual concern. 3.04 Plantation mode and smallholder production in PNG are generally complementary to each other rather than competing. Government's strategy should be to develop each according to its comparative advantage. A short- run increase in the rate of agricultural growth can best be achieved by relatively simple, if politically bold, measures to restore the confidence of foreign investors in the estate sector, and these steps should be taken. The longer run future of the country undoubtedly rests with todays smallholders who, however, may - and should be encouraged to develop into diverse organisational forms: family farms, limited or clan groups, outgrowers to nucleus estates, or owners of professionally managed estates. 3.05 In the interests of efficiency, as far as possible, market forces should continue to be allowed to operate in determining the pattern and area of production and the level of services to agriculture. However, within the constraint that overall the agricultural sector will generally have to be able to be self supporting, simply because it is so large and important in the economy, the discrete use of subsidies to help the development of underpriviledged areas or sections of the population should be accepted. In many cases subsidized services, e.g., for marketing and credit, can be obtained most efficiently by paying the private or quasi-private sectors to provide them. 3.06 In sections IV through IX these principles are enlarged upon in the form of detailed recommendations. They should be viewed as a basis for discussion and policy formulation within PNG. Given the resource constraints, government in general and DPI in particular needs to take more definite steps than heretofore to set priorities for action, and this would apply to the ideas expounded below. In particular the extent and timing of adoption of many of the recommendations will depend on the availability of manpower and training facilities. It is understood that the manpower and  - 11 - training review, recommended in the report, is already being planned by DPI. This move is strongly endorsed. It is to be hoped that high priority will be given to establishing the key training facilities (or F'eking overseas training positions as appropriate) shown by the review to be needed. As an interim measure maximum use should be made of bilateral or international technical assistance to provide skilled personnel on contract. Summary of Recommendations 3.07 The mission's recommendations have been grouped for convenience into six sections dealing in turn with: the organization and management of DPI; policy formulation and planning; the extension services; research services; marketing of export crops; and the encouragement of the private sector. The key points are summarized in the following paragraphs and developed in sections IV through IX. 3.08 The Organization and Management of DPI. The interrelated recommen- dations in this area are aimed in particular at meeting needs arising from the establishment of provincial governments. It is proposed that a National Agricultural Council (NAC) comprising the national and provincial Ministers of Primary Industry and Agriculture be created and meet regularly to establish policy; and that, at the senior civil service level, a National Agricultural Advisory Council (NAAC), comprising central division heads and Provincial Rural Development Officers (PRDOS), he created both to service NAC and to resolve implementation problems. To improve the technical support to the provincial services it is proposed that as far as possible DPI specialist staff should be decentralized, located in appropriately defined regions. A further major recommendation is for restructuring central DPI into functional divisions including separate extension, crop research, and development service divisions, and that consideration be given to the creation of an additional Deputy Secretary position within DPI, one deputy to oversee the technical areas of DPI work and the other the service functions. Other recommendations concern improved staff training programs and personnel policies. 3.09 Policy Formulation and Planning. Increased use of sectoral programs, rather than strategic objectives, as a means of allocating planned public expenditures to national departments and to provinces is proposed. An enhanced role is seen for the National Planning Office (NPO) in assisting departments and the provinces to plan and prepare projects; for the latter it is proposed that NPO post planning teams to regional centers. Some further simplification of NPEP approval and monitoring procedures would free NPO resources for this function. It is proposed that DPI give high priority to the preparation of a (say) five-year development plan in the context of which there should be a systematic evaluation of DPI-s ongoing activities and a review of priorities.  - 12 - 3.10 Because of the need to associate planning with decision-making bodies, preparation of the plan could best be carried out by a policy secretariat which should be established to service the NAC and NAAC (para. 3.08). It is suggested that this be provided by the Planning, Economics and Marketing Division (PEM) which would, however, need strengthening to effectively take on these tasks. 3.11 Agricultural Extension Services. There are four principal recommendations for strengthening agricultural extension services: (a) that an Extension Division be formed in central DPI to provide a section with the specific function of assisting and guiding the operations of the extension service, and providing staff training, extension programming assistance, technical advice, and extension literature; (b) that close support to the provincial extension staff be provided by the establishment of regional support units answerable to the Extension Division; (c) that steps be taken to facilitate the withdrawal of provincial extension staff from as much as possible of their nonextension tasks - credit supervision, marketing, enforcement, statistics collection and development work - to allow them to concentrate on their prime function; and (d) that the training and visit (T&V) system of extension, which appears to be particularly appropriate to PNG conditions, should be tried out on a pilot basis in one or two provinces. 3.12 Research Services. Although dealing in particular with tree crop research, the mission voiced a general concern at the lack of planning of agricultural research activities and coordination among them. It recommends the creation of a single research organization under the control of a Director of Research, supported by a small central technical unit charged, inter alia, with improving liaison between research and extension staff and providing continuous monitoring of the appropriateness of the research program in the light of extension feedback. The unit would help formulate new research proposals and priorities to be reviewed by a regular - probably bi-annual - meeting of senior research and extension personnel, and would also have responsibility for translating research results into practical extension advice. 3.13 Most technical staff should continue to be on field stations. It is desirable that the focus of such stations work corresponds to the agro- ecology of the surrounding areas and to the geographical coverage of the extension service. It is, therefore, recommended that major research centers, supported by a system of substations and adaptive field trials, be established  - 13 - in each of the regional administrative areas used to provide decentralized extension support to the provinces (para. 3.11(b)). It is further recommended that the tree crop industries (for which this is particularly feasible) be given every encouragement to fund and carry out their own research, under government supervision, thus freeing government's resources for other purposes. 3.14 Research priorities need to be reviewed in conjunction with the preparation of the five-year plan, with particular consideration given to the need for food crop research, smallholders farming systems research, soil surveys and land use planning and, for tree crops, to plant breeding, the use of high yielding varieties and their nutrition, and pest and disease control. 3.15 Marketing. In line with the recommendation that extension workers should concentrate on that primary function (para. 3.11(c)), and because private operations would be more efficient, it is suggested that as far as possible, private buyers be induced to take over the marketing activities of the extension services. To do this, some measure of support payment to private buyers would be needed, and, to establish what level could be justified, the present costs to extension of marketing work should be calculated. Reviews are also proposed of current approaches to quality control in the main export crops, of the possibilities of cross-borrowing among stabilization funds to reduce the overall funding needed to achieve reasonable internal price stabilization, and of options for the use of STABEX funds available to PNG. 3.16 Encouragement of the Private Sector. The recommendation that DPI divest itself of marketing activities is in keeping with the general principle that maximum advantage should be taken of private participation in production and the provision of services and that government policies and actions should encourage such participation. To this end, the mission endorses the major recommendations of the 1979 Committee of Review into the Plantation Redistribution Scheme in which the important elements are to encourage main- tenance and reinvestment in estates by providing assurance to owners that an decision to acquire an estate will be based on the genuine need of the traditional landowners, that the acquisition price will be a fair market price, and that realistic notice be given of an intention to acquire. To do this, the PRS legislation would need to be repealed, and could be replaced by a relatively minor amendment to the Land Act. 3.17 A survey of unused alienated land, to be followed by feasibility studies of means of developing such land, is urgently needed. Early atten- tion is also needed to building up the country's land administration capacity, a critical constraint on new development being the lack of staff to identify developable land, deal with claims, survey, and issue leases.  - 14 - To encourage potential new investors, it is suggested that some reclassifica tion of the National Investment Priorities Schedule (NIPS) be undertaken, particularly for tree crops. 3.18 Further Work. An Appendix to the report makes some proposals for further work, including, inter alia the preparation of a five-year Agricul- tural Development Plan; a manpower and training review; the preparation of a support services project including research, extension and training components; a review of the estate sector to identify priority areas for redevelopment; a study on land policy; and a review of tree-crop replanting levies and subsidies. Provision of funds for such tasks has been made in the Third Agricultural Credit project, a loan for which is expected to be approved in 1981. IV. THE ORGANIZATION AND MANAGEMENT OF DPI 4.01 DPI and the provincial agricultural extension services dominate goverrnment eftorts in agricultural development and their effectiveness is crucial to the performance of the sector. The management structures of thes organizations have not been comprehensively reviewed since the decisiua - o- made to establish provincial governments. The mission believes that several organizational changes should be made to accommodate this and other developments. 4.02 A National Agricultural Council. At the policy level, responsibi- lity for primary industry is shared between the national Minister for Primary Industry, who is responsible for a range of matters of national application, and the provincial Ministers, who are responsible for the operation of exten- sion services. On the one hand, there is a need for extension activities to conform to any policies or constraints imposed from the national level and to maintain some consistency in the type of service provided. On the other, there is a need for the national DPI organization to be responsive to any need for assistance which arises in provinces and to consider the extension implications of national policy issues. 4.03 There is clearly a need for all involved ministers to consult each other regularly and as a group./l No arrangements have yet been made for /1 A decision to form a National Agricultural Committee was announced in the Budget Speech on November 4, 1980. It is to comprise the Prime Minister, as Chairman; the Minister for Primary Industry, Alternate Chairman; and the Ministers for Finance, National Planning and Lands. In August 1980 the Minister of Primary Industry and the provincial ministers met in the first of what is to be an annual conference. At the same time a meeting of PRDO's was held. While this last would not appear to fully meet the proposal of para. 4.04, clearly Government is taking major steps towards establishing a framework for policy development and coordination, and it is understood that steps are to be taken to formalize the role of Assistant Secretaries in the PRDO's meetings.  - 15 - such consultation. It is recommended that a National Agricultural Council (NAC) comprised of all ministers of Primary Industry and Agriculture, be established and meet regularly. Meetings once, or even twice, per year would be appropriate but the decision on frequency of meetings shoull be made by those involved in the light of their workloads and logistical considerations. It is desirable, however, that some regular timetable should be adopted, not only because the membership of the NAC would require long notices of meetings if full attendance is to be achieved, but also because there is always a danger that ad hoc meetings will be deferred. Meetings of a Nlational Agricultural Council should be so timed that they can be a key element in the planning cycle for the sector providing an essential input into the planning and budget cycle. 4.04 A National Agricultural Advisory Council. Within the DPI public service there is a similar need for regular, formal contact between national and provincial management. At headquarters the need for contact between top management of the various divisions has been recognized and a Standing Committee formed to provide an appropriate forum. If Provincial Rural Development Officers (PRDOs) were added to the Standing Committee, the expanded committee could perform at the public service level the function the NAC would perform at the political level. It is recommended that the Standing Committee be expanded in this way to form a National Agricultural Advisory Council (NAAC). One of its major functions would be the identification of issues and preparation of material for consideration by NAC. In addition, it would consider issues which did not require referral to NAC. 4.05 It is recognized that membership of the NAAC will be about 30 and that this will cause problems in terms of cost of attending meetings, ensuring full participation in discussion and finding times convenient to all members. However, these problems could be reduced by appointing working subcommittees to deal with particular issues. Division by commodities, for example, would permit some reduction in numbers. In addition, with a capable and active secretariat (para. 5.09) many issues could be resolved outside formal meetings by telephone or by circulating written material. 4.06 Regional Support Units. At this stage of PNG's development, it is not possibIe to provide the full range of technical specialist and other support services to each province. Nevertheless, if the extension services are to be effective they must have access to such support. Some specialist staff of central DPI are located outside Port Moresby, but the vast majority are based at headquarters. This gives rise to problems of access, of high cost of travel to provinces, and consequently of the staff getting out of touch with the extension service and field conditions. It is recommended that as many of these specialist staff as possible be relocated to regional centers. The specialist staff at each region should include at least one economist to provide planning assistance to all provinces in his region. Rabaul, Madang, Mt. Hagen and Port Moresby would appear to be suitable  - 16 - regional centers but in selecting centers account would need to be taken of the availability of housing and office accommodation. This move, combined with other clhanges recommended in the extension and research services, should lead to the extension services having more accessible and responsive support and to central DPI having a better appreciation of extension issues. 4.07 This proposal seems to be in line with thinking on more general aspects of decentralization within the Administrative Improvement Programme of the Public Service Commission (para. 4.15). Should other departments also establish regional support centers, the benefits to DPI of relocating some of its staff to regions would be enhanced. 4.08 Provincial Rural Development Officers. The operation of extension services is a Provincial function and PRDOs are responsible for their effective operation. They are administratively separated from the central DPI organization and the position entails heavy responsibilities. In recent years, many of the more experienced and capable PRDOs have been brought to headquarters on promotion to positions which seem to be less important than PRDO positions. 4.09 It is recommended that the level of PRDO positions be reviewed and consideration given to raising their status approximately to that of headquarters Assistant Secretaries. It is also recommended that the national public service retain a strong involvement in the appointment of PRDOs. This should ensure that the most able officers available in the country are appointed and that a secure career can be offered to people accepting PRDO appointments. Consideration might also be given to a systematic rotation of PRDOs between provinces (postings of about three to four years might be appropriate to ensure mobility and the periodic injection of new ideas into provinces, without unreasonably rapid turnover) and the establishment of a clear policy that success in provincial posts opens the way to high-level promotion. 4.10 Reorganization of Central DPI'S A rearrangement of divisional responsibilities within DPI should be considered with several objectives in mind: first, to strengthen and formalize links with the provincial organi- zation; second, to avoid overlapping functional responsibilities as far as possible; and third, to create a balance of size and responsibility between the divisions. To these ends it is recommended that : (a) A separate crop extension division should be established. Its function should be assisting the Provinces in their extension roles and facilitating necessary support from other areas of the central DPI organization; (b) A separate crop research division should be established. The present crop research effort is fragmented and its unification under one management would facilitate the mounting of multi-disciplinary research programs; and  - 17 - (c) A separate development services division should be created. It would have responsibility for national development projects, for dealing with potential investors, for field development (as o-posed to general extension) work and for the multiplication and distribution of planting material. 4.11 As a consequence of these changes, the Agriculture and the Policy Review and Coordination (PRC) Divisions would cease to exist in their present forms. The provincial liaison functions of PRC would become the responsibility of the Extension Division and the policy review function could appropriately be transferred to the Planning, Economics and Marketing Division./l The present Agriculture Division would be split among the three new Divisions to be created. The mission noted the existence of the International Cell and Liaison Officer, but did not review their functions and responsibilities. During any reorganization, it is suggested that consideration be given to incorporating such positions into a functional divisional structure. 4.12 In the current operation of DPI there appears to be an unreason- ably heavy burden of supervision and leadership on the Secretary and Deputy Secretary. Two measures are proposed to ease this load. First, considera- tion should be given to the separation of forestry activity from DPI. It is appreciated that there is a general desire within Government not to create new departments, but in this case the organization is already separately housed, has its own Minister and operates fairly independently of the rest of DPI. The existing arrangement of the Secretary of DPI answering to two Ministers is in fact anomalous and there would be advantages both to DPI and to the Office of Forests if it became responsible directly to the Minister for Forests. To provide some balance between the agricultural and forestry portfolios there may also be merit in combining fisheries activities with forestry: the mission was not able to consider this question in any detail, but suggests it as an issue to examine. 4.13 In addition, consideration should be given to the creation of a second position of Deputy Secretary for Primary Industry. The two Deputies would divide responsibilities between what might be termed the technical divisions (Livestock, Fisheries, Crop Research and Crop Extension) and the service divisions (Planning, Economics and Marketing; Management Services; Development Services; and Education and Training). The resultant organization is presented diagrammatically in Figure 1. Clearly the details of any reorganization can only be developed by DPI; it is hoped, however, that these proposals will provide a basis for fruitful discussions. 4.14 Coordination with Other Departments. There are many government agencies involved in some way in, or affected by, agricultural development. There are few formal arrangements for coordinating the activities of these /1 Towards the end of 1980 a policy secretariat was created, but within PRC. It now awaits the endorsement of the Public Service Commission.  PAPUA NEW GUINEA Agricultural Sector Review Draft Organization for DPI for Discussion Minister for Primary Industry National Agricultural .Council |National AgricultuLral |--------------- Secretary Advisory Council I Dputy Secretary ||Deputy Secretary|l Crop Crop Management Planning Education Development Livestock Fisheries Research Extension Sevcs EconomiesTringSvce | (Technical) l l (ServServices Marketing T Sv s D  - 19 - different agencies and most of the existing arrangements, including interdepartmental committees, are little used for dealing with issues affecting agricultural development. In addition to a reactivation of such committees, steps should be taken to allow the National P] rning Office (NPO) to take a more active coordination role to ensure consideration by affected bodies of all expenditure and policy proposals (para. 5.02). Currently, the approach is a passive one: proposals are circulated among Departments which are expected to react if they identify an area of duplication or conflict with their own plans. However, many Departments are strained by staff shortages and do not respond promptly to opportunities to comment on proposals. Their contribution could be increased if NPO were to identify, for their attention, issues affecting their interests and by the use of ad hoc meetings, possibly called by NPO. The result should be better prepared proposals and a reduction of the ill-feeling and inefficiency which results from interagency conflict during project implementation. Other recommendations regarding planning (paras. 5.03-5.05) would, if adopted, free NPO staff time to accept this more demanding role. 4.15 Administration and Staffing. There are serious and long-standing problems in the staffing and administration of the PNG public service that affect DPI. The problems are well recognized in PNG and were comprehensively documented in 1979 by the ToRobert Committee which inquired into administra- tive problems in the public service. Following the report of that Committee, an Administrative Improvement Programme was established within the Public Service Commission. The most serious problems identified were in the areas of personnel and financial administration; other shortcomings noted included inadequate training programs, lack of administrative skills, high staff turnover, poor supervision and insufficient leadership. 4.16 These problems stem from inexperience and limited training of staff and only gradual improvement can be expected. Within this constraint, however, improvements could be achieved in the short-term through simpli- fication of procedures and clarification of responsibilities. Some programs have been initiated already. The potential for gains in these areas is probably large and would justify outside assistance to be engaged where it would permit more rapid progress. In training programs, priority should he given to staff who in turn will have a training or supervisory role so that maximum impact can be achieved from limited training resources. 4.17 Within DPI, the effects of failure to overcome personnel problems are visible at all levels of the organization. The Deputy Secretary and most of the Assistant Secretaries are performing their duties on an acting basis. These positions should be filled substantively as soon as possible: in most, if not all, cases it appears that the incumbents could be appointed to the positions in which they are acting. If substantively appointed they will be able to provide more vigorous leadership and make necessary changes, secure in the knowledge that they will be able to ensure full implementation.  - 20 - 4.18 The administrative arm of central DPI, the Management Services Branch, is also affected by many acting appointments, especially among the section heads, and has many vacancies. Priority should be given to filling the vacancies in this branch, so that the Branch can work on filling vacancies throughout the Department. 4.19 Housing and Offices. Lack of housing limits the ability of DPI to locate its staff where it wants them. This, too, is a problem affecting the whole public service and a committee is investigating it. High priority should be given to implementing any practical solutions which the committee is able to recommend. The key constraints appear to be lack of serviced building allotments and lack of funds. A detailed assessment of the availability of housing in various centers will be needed if Government were to proceed with the recommendation to establish regional support centers (paras. 4.06, 4.07). In some centers DPI may be able to avoid the problems of building houses in towns by using land on its own stations. The location of staff on these stations would also improve communication and coordination between staff from different sections of the Department. 4.20 There are plans to put all DPI headquarters staff in a single office building. The present scatter of the Department makes intra- departmental communication difficult and time-consuming. Offices in one location would assist greatly to reduce this problem. 4.21 Divisional Administration. In the absence of adequate adminis- trative support, highly qualified technical staff have to spend considerable time on administration. This applies to divisional and branch heads as well as officers in charge of DPI field stations. Contributing to this situation is the present central control of administrative staff and functions. There would be advantage in having administrative staff appointed to Divisions and research stations. The supervision of these staff by those who have requested their services should prove more effective than pool-type arrangements and a more responsive administrative service should result. Staff appointed in this way would also become familiar with the work of the organization and this should assist them in carrying out their duties. 4.22 Data Storage. Systematic data storage and retrieval systems in the economics, planning and research areas are lacking with the result that past work is inaccessible and in danger of being lost, especially with the high turnover of staff. Studies and research programs need to be catalogued and manuscript work published. There are many possible approaches to retrieval in all of these areas, including the use of a mini-computer which is easy to operate and inexpensive. The system could be shared with NPO which has a similar need for systematizing retrieval of planning data. It is recommended that the feasibility study be undertaken of the best approach to storing research, economic and planning data.  - 21 - 4.23 Staff Travel. To do their jobs effectively many DPI staff must travel between centers and/or carry out field patrols. Staff complained that the travel votes within DPI - for transport and for accommodation and subsistence allowances - have become chronically inadequate in the face of budget cuts with the result that full use cannot always be made of available staff. The mission was unable to determine how far this complaint is justi- fied but recommends that the travel votes be reviewed to ensure that they are in line with staffing levels and job requirements. 4.24 Most road transport is dependent on vehicles supplied by the Plant and Transport Authority (PTA), but vehicles are not always available when required. Mloreover, experience with central pools elsewhere suggests that a more economical and efficient approach to providing transport for advisory and technical services is to make maximum use of officers own transport for which they are paid a mileage allowance. It is difficult to assess how far this approach should be extended in Papua New Guinea where travel between centers must typically be by air, but it would be worth reviewing./1 4.25 Job Descriptions and Salaries. It is recommended that a complete review of job descriptions should be undertaken. Many are already out of date and more would be obsolete if the recommendations of this report on reorganization were accepted. A review should take account of the need to keep the duties of each position consistent with the training and experience of the staff likely to be available. A clear statement of duties would also assist in such matters as estimating the budget requirements for such items as stores, transport and travel, and would permit a proper assessment of salaries. The salaries of public sector technical staff were reviewed in 1979, although the stimulus for that review was discontent in the power and telecommunications industries and DPI was not represented on the salary committess. However, the recommendations of the committees left the way open for further changes. In the light of the number of national staff resignations and the results of expatriate recruitment efforts, it is recommended that the salary question be studied following the rewrite of job descriptions. The task would require a significant commitment of manpower, and it is one in which the use of personnel consultants would both expedite the work and provide wide experience and skills. /1 At the same time the mileage rate structure and level of subsistence allowances should be reviewed. The mission received reports, which it was not able to substantiate, that the mileage allowances which are currently paid are unrealistically low and are a disincentive for eligible officers to use their own transport on official travel, and that as a result of inflation subsistence allowances are inadequate to cover cost.  - 22 - V. POLICY FORMULATION AND PLANNING 5.01 The lack of clear policy guidance was advanced by DPI staff at headquarters and in the field as an impediment to achievement. Notwithstand- ing the financial and staff constraints described above a clearer definition of policies and priorities would permit more productive use of the resources which are available. The following recommendations apply to planning and policy formulation both in a government-wide context and within DPI. 5.02 National Level Planning. The National Planning Office (NPO) has overall responsibility within the Government for planning. It acts as the secretariat for the National Planning Committee of Cabinet and is responsible annually for the preparation of the government's main planning document, the National Public Expenditure Plan (NPEP). Operating departments and agencies are responsible for preparing projects for consideration for funding through the NPEP. NPO ensures that submissions are of the required standards and ranks them for ultimate consideration by the National Planning Committpe. 5.u. Highly detailed work is required by deDartments in preparing XQ J a.id by G ii 1G dssessing and screening projects and in monitoring implementation. While the procedures adopted usually result in comprehen- sive documentation of spending proposals, they also impose preparation burdens on departments weak in preparation capacity. The procedures estab- lished are admirable in themselves but - in spite of some recent moves to simplify them - seem too sophisticated for the current situation in PNG, and still do not guarantee full coordination of departmental planning. It is recommended that NPO divert some of its resources away from the detailed evaluation and monitoring work and concentrate more on helping departments to plan and on coordinating departmental planning (para. 4.14). DPI and other departments are short of planning and project preparation expertise and more involvement by NPO staff in project preparation would facilitate their own appraisal work./l Recommendations in paras. 5.04-5.06 should result in a lowering of the NPO staff requirements for project appraisal and screening and free resources for these other functions. 5.04 Use of Strategic Objectives. The nine "strategic objectives" used in the planning process are a comprehensive statement of political priorities. They provide a basis for making a broad division of resources between production, welfare, administrative and training goals, but are probably less useful for allocating expenditures to the achievement of separate objectives than is implied by the extent of their use in current planning procedures. The main difficulty stems from the fact that most expenditure proposals would contribute to the achievement of two or more /1 "Appraisal" is used here in the sense employed by the Bank denoting ex ante assessment of project impact. "Evaluation" is employed by by the Bank for ex post evaluation.  - 23 - objectives and their allocation to any one could be arbitrary. Although there does not appear to be a problem at present, there are dangers that some projects (and this danger is particularly acute for agricultural projects) could be unfairly assessed and rejected simply ecause of their designation as directed at a single objective, whilst projects which would otherwise be accorded lower priority but which happen to be written to embrace several objectives are accepted. 5.05 NPO is proposing greater use of sectoral programs in the NPEP, reflecting broad areas of departmental activity. This approach should enable more flexible and appropriate use of the strategic objectives than does the allocation of predetermined projects to objectives. An important secondary benefit would be a reduction in the volume of NPEP paperwork both within departments and in NPO. A change in emphasis in this direction would also give departments the expenditure ceiling and policy guidelines which they need if they are to use their limited planning resources wisely and would give appropriate emphasis to projects which form parts of programs instead of to those which address unrelated activities, as tends to happen at present. 5.06 NPEP Documentation and Review. NPO is currently reviewing NPEP procedures with a view to simplifying them. This review is strongly endorsed and it is hoped that it will result in the raising of the financial ceilings above which more detailed feasibility studies are required. Other reductions in processing by NPO would also be feasible. It should not be necessary to review all project expenditure as often as the quarterly reviews currently carried out. In addition it would be desirable to dele- gate more of the responsibility for monitoring to the implementing agency. 5.07 Provincial Planning. Part of the assistance to departments in planning (para. 5.03) should be provided to provinces. DPI and other Departments have not yet effectively decentralized support services, and shortage of planning capacity is particularly acute in the provinces. It is suggested that NPO post planning teams including appropriate sectoral specialists to regional centers to assist planning, each in 4-5 provinces. The regional location would have advantages in terms of travel cost and access: more importantly, the role of these staff would be more clearly understood by the provinces than appears to be the case at present. 5.08 A DPI Five-Year Development Plan (Annex A, Para. 38). DPI lacks a comprehensive statement of policy objectives and a work program which would achieve these. There is a pressing need to review the possibilities for growth in the sector, the key constraints facing it, and the role of DPI in the sector's development. It is recommended that a development plan for (say) the next five years be drawn up. This should be a priority item for the limited planning resources immediately available. It is recognized that it would be advantageous to have completed a number of the policy studies suggested in this report before drawing up a development plan. However, they will take some time to complete and as any plan should be reviewed and  - 24 - updated from time to time, there would be little gain in delaying the establishment of a framework for the detailed development of its parts. One reason for suggesting haste is that the concentration of DPI planning efforts on NPEP projects appears to have resulted in the neglect of systematic evaluation of DPI recurrent activities. However, these latter remain financially important for the Department and a general review of activities and priorities is urgently required. Such a review should take place in the context of, although separate from, the five-year development plan. The early preparation of the plan would also enable DPI to take full advantage of an increased emphasis on sectoral programs (para. 5.05). 5.09 If planning is to be effective it must be linked to decision- making bodies. For this reason, it would be appropriate that the Planning, Economics and Marketing Division (PEM) provide the secretariat for the NAAC and NAC (paras. 4.02-4.05). Procedures should be adopted which ensure that the secretariat has the opportunity to evaluate all policy and spending proposals to be considered by these bodies, and the staffing of the secretariat would need to be appropriate for the function. Currently, the PEM division is seriously understaffed and cannot fully discharge its existing responsibilities. 5.10 The addition of the NAAC/NAC secretariat function, the preparation of a five year plan and the need to provide additional planning help to provinces would make it imperative to recruit additional experienced economists. The transfer of some positions and personnel from PRC division would assist but would not be enough even to fill existing vacancies. Steps should be taken to bring PEM up to strength immediately. In the longer term, an establishment review would be desirable, but recruitment should not wait for a review to to be completed. VI. AGRICULTURAL EXTENSION SERVICES 6.01 Agricultural extension services are one of the major responsi- bilities handed over to the provinces in 1977. Few changes in organization and management have been made to accommodate that change which has lead to an increasing separation of the extension function from the rest of DPI services. At the same time the need for coordination and guidance has grown. This mission had only a limited time and exposure to PNG field conditions. Its proposals for bridging the gap between the provinces and DPI and for strengthening extension operations are therefore in part drawn from experience in other countries and are proposed largely as a basis for further exploration, discussion and trial. 6.02 Extension Division. The headquarters organization of DPI presently has no section with the specific function of assisting and guiding the activities of the extension service. With the handover of extension responsibilities to the province a need for a return to a functional  - 25 - structure to overcome the apparent isolation of the provincial extension services from the rest of DPI has emerged. It is recommended that an Extension Division be established in the national DPI organization. Staff should include specialists in extension training, extension programs, relevant technical subjects, publications and information, and the Division should have its own administrative unit. 6.03 Regional Units. It is also recommended, for reasons outlined in paras. 4.06 and 4.07, that regional support units be established by national DPI. These would embrace the same types of expertise as the headquarters organization, with the exception of publications and information services. These units would be answerable to the Extension Division and would work within a defined program to visit and assist extension staff in the four or five provinces within their region. 6.04 Provincial Organizations. Under existing circumstances, extension officers are required to assist in a range of other activities unrelated, or only marginally related to their extension work. Thus they are engaged in credit, marketing, regulatory, statistics and development work, all of which reduces the time they have for their proper role as extension agents. The posting of specialist staff to do much of this work would result in improved performance in extension. The withdrawal from other services could not be complete - in a number of areas there is too little work to justify specialists - but it should be examined how far the extension service can be returned to its basic functions. Marketing and credit work in particular should be and could be separated. The implications of the latter for PNGDB are explored below (paras. 6.09-6.10). 6.05 An approach to extension termed the training and visit (T&V) sys- tem would be particularly appropriate for major areas of Papua New Guinea, although it is recognized that the required middle-level staff commitment would necessitate a gradual adoption of the system, and it would not be easy to apply to all areas because of sparse population and difficult transport conditions. It is, therefore, recommended that initially plans be drawn up for introducing only a pilot T&V system in one or two provinces. It could be externally financed as part of a research/extension project or an area development project (see also para. 7.10). 6.06 A model arr-lo;gement for a T&V approach in PNG is presented in Annex D, Appendix 1. It calls for a strengthening of the provincial extension teams by the addition of an extension program officer and an extension training officer, whose duties are described in Annex D, Appendix 1, para. 7. The approach is aimed at using existing contact staff but increasing their effectiveness by setting priorities and concentrating their efforts in a regionally defined and supervised series of programs for which they are continuously trained. The system would involve: (a) forming groups of farm households as the focus for extension agents visits;  - 26 - (b) developing closely supervised and monitored programs of visits by the extension personnel, backed up by specialist support, geared to the local farm cycle; and (c) programming frequent and regular training sessions for the staff at all levels of the extension hierarchy in preparation for the visits. 6.07 Within provinces, it would be desirable to aim for an extension worker: farm household ratio of about one extension worker per 500 households which would be divided into about 10 groups of 40-60 households. Within groups, a group leader and one assistant per 5-6 households would be appointed to work closely with the extension officer. Programs would be established so that extension workers spent one day per fortnight with each group, leaving one working day per fortnight free for training and programming for the subsequent fortnight-s activities. An organization chart for this approach is given in Annex D, Appendix 1, Chart 1. 6.08 Livestock and Fisheries Extension. The mission did not study livestock and fisheries services. It is understood, however, that much of the mixed farming which is practised involves small-stock, mainly pigs and poultry, most work on which could be carried out by general extension officers with appropriate training and advice from specialists under the T&V approach. In areas of high concentration of smallholder cattle projects, however, a specialist livestock officer could be appointed to the district and work with appropriate agricultural extension officers. There may also be reason to make exceptions in the case of freshwater fishponds. If they become popular in a particular area, a fisheries specialist could be appointed to work with a number of general extension workers, preferably on secondment from the fisheries division. 6.09 Field Credit Services. As part of the general move to allow extension officers to concentrate on extension, it is recommended that PNGDB develop its own capacity to deal with smallholder borrowers at the field level. This is currently a responsibility of DPI extension offices who act as agents of the PNGDB. There are constraints on the extent to which this could be achieved in the short run. PNGDB field staff would need some agricultural training and they would have to be recruited in competition with DPI and private agricultural businesses. The importance attached to PNGDB remaining commercially profitable will also limit the amount it can spend on the promotion and administration of small agricultural loans. 6.10 The requirement for field credit officers will vary from place to place and time to time according to the amount of each crop development and borrowing activity. In some areas, one credit officer might be required for every two or three extension offices, in others none may be needed. As a first step PNGDB should probably aim to recruit field officers at an average rate of about one per 10,000 farm families. This would involve twenty odd  - 27 - staff and would cost about K300,000 per year./l This additional cost represents PNGDB's net profits during 1978 and 1979 and would not, in the short term at least, generate any additional income. It would be inconsistent with its statutory obligation to act in a commercially prudent manner for the PNGDG to incur these costs unless there we-a some means of defraying them. It is therefore recommended that PNGDB approach the government for assistance to cover the specific costs of undertaking small- holder development work which is, in the short-run, sub-economic. 6.11 Development Programs. There are significant differences between general extension work and the operation of special crop development programs such as the coffee development program. Staff involved in crop development work do not need the breadth of knowledge of an extension worker. The need for crop development work in a particular area will also vary over time as particular programs are initiated and completed. Staff, therefore, need to be mobile, and move to new areas and learn about new crops according to demand. It is, therefore, recommended that a separate cadre of crop development staff be established. It should be part of the Development Services Division. Whether they should be part of central or provincial staff is a matter for discussion between central and provincial governments, although for reasons of mobility and to make best use of a service the demand for which will vary widely between provinces and over time, it may be preferable for them to be central staff. 6.12 Information Branch. The provision of information and visual aids is an important part of the extension service. Within DPI, extension staff are probably the most frequent users of the services of the Information Branch and extension staff should have a close involvement in the release of information for public consumption. It is, therefore, recommended that the Information Branch become part of the Extension Division when it is established. VII. RESEARCH SERVICES 7.01 Agricultural research remains a responsibility of the central DPI. The mission reviewed the organization of agricultural research as a whole (excluding fisheries and livestock research), but in evaluating research programs and services confined itself to the tree crop subsector. Generally the technical quality of tree crop research which has been done in the past has been high and the mission's main concerns have been inadequacies in the planning, direction and evaluation of programs, problems of staffing and administration, links with extension services, and the need to increase Government's concentration on the smallholder sector. /1 This figure is based on PNGDB's own unit cost estimates, and includes costs of housing and transport. However, PNGDB's calculation of the total cost of reassuming all the functions carried out by DPI extension staff is some 50% higher.  - 28 - 7.02 Research Organization. The agricultural research efforts of DPI are presently dispersed among different section of the Agriculture Division. Experiments take place on ten research stations. The separate sections are controlled by the Assistant Director of the Agricultural Division who has a wide range of responsibilities other than research. The lack of a separate controller of research and a single research organization is not conducive to coordination of activities or the conduct of cooperative programs involving several scientific disciplines. It is, therefore, recommended that a Crop Research Division be established under the control of a national Director of Research. The Director should be supported by a few centrally based specialists, but the bulk of technical staff should he posted to field stations. 7.03 Field Stations. It is desirable that field research corresponds to the main agro-ecological zones of the country so that it can be relevant to conditions in the surrounding areas, and for there to be some correspon- dence between the geographical coverage of the research and extension organizations so that strong links between the two can be forged. The use of the former four regional administrative areas as a basis for providing decentralized support to the provinces for extension services suggests that a major research center should be located within each of the former regions with responsibilities which, with marginal adjustments as needed, should cover the region. Kerevat and Aiyura stations should serve as two of the major research stations; two more would need to be established. Each would be controlled by a Regional Director of Research. The stations would maintain close contact with the four or five provinces served by the center and staff would maintain close liaison with the provincial extension service. This would be facilitated by the establishment of a system of substations for adaptive field trials and through which wider environmental coverage could be provided. There should be an economist based on each major regional station to undertake investigations of local farm systems and, drawing on these, to work with technical personnel and the extension service in planning, evaluating and deriving recommendations from trials. 7.04 Liaison with Extension Staff. Inspite of ad hoc efforts to strengthen them, the links between extension and resear-cFstaff are at present weak, a situation to which the lack of clear organizational structure and leadership has no doubt contributed. There is a need for the research division to give specific attention to the need for liaison with extension in order on the one hand to translate research findings into economically viable and useable extension advice and promote its use, and, on the other hand to identify farmers- concerns for guidance in formulating research programs. It is recommended that staff be provided at two levels to meet these needs. At headquarters, a unit should be established in the Crop Research Division to interpret research results, produce recommendations and feed them to extension staff and other interested parties in a form suitable for application to farmers. This unit should also be involved in the formulation of new research proposals derived from reports by extension workers and for the evaluation of ongoing work. It should include an economist. The unit should also act as a secretariat for the Director of Research. To ensure local conditions were fully reflected  - 29 - the unit should liaise closely with regional field stations, on which a research worker should be assigned to the task of liaison with the local extension service, training institutes and visiting farmers. The establishment of a regional extension unit based on the station (para. 6.03) should enhance the role and effectiveness of this officer. 7.05 Evaluation of Research Programs. A research program needs to be regularly reviewed to ensure that it continues to reflect priorities: that new areas of concern are identified and accommodated, lines of ongoing research reappraised and if necessary modified, and programs which have achieved their objectives are replaced. There has 'been very little such evaluation of research programs in Papua New Guinea: this is a serious shortcoming of the service. It is recommended that a regular - probably biannual - meeting of senior research and extension personnel be established to review the research program with respect to priority, technical soundness and progress. An important part of the work of the headquarters unit proposed in para. 7.04 should be to provide a secretariat for this review, building on its continuous monitoring of the program and on extension feedback. The unit should publish an annual report on the status of research items. It should also be involved in establishing and running that part of the data storage and retrieval system (para. 4.22) which concerns research results. 7.06 It was noted that in a number of cases research results had not been written up due to the departure or transfer of research personnel. To avoid such situations in the case of expatriate researchers, consideration should be given to making the satisfactory write-up of their work a condition of payment of a gratuity at the end of a contract. In the case of national staff it is important that adequate lead time be given to reassignments and that moves be made conditional on an adequate handover of work. The headquarters unit should be responsible for monitoring these conditions. 7.07 Industry-organized Research. Oil palm research has been carried on effectively by the industry and steps are in train to formalize this arrangement. This effort has allowed government to avoid using its scarce resources on this crop. Other tree crop industries could also be more self-reliant in regard to research. In particular, the cocoa, coffee and rubber industry organizations, which are already showing interest in operating their own research, should be encouraged to do so. As well as freeing government resources for other purposes, this strategy places the onus for research where it rightfully belongs - on those whose livelihood depends on it - and may on balance be expected to increase the overall mobilization of the national resource. In other countries there are examples within the tropical tree crop industries of research being conducted in this way with outstanding success. It is recommended that government encourage the development of industry-organized and funded research in all the major tree crops and provide assistance in terms of finance, land and other resources during the establishment period. If conditions merit it Government could also contribute finance to the program on a continuing basis. Government should maintain a "watchdog" role in  - 30 - regard to these programs to ensure that research continues at a satisfactory level in periods of depressed prices and that the interests of the nation as a whole and smallholders in particular are protected. A government share in financing would provide leverage in this role. 7.08 Research Priorities. There is a need for a broadly-based and detailed review of the existing research effort to define priorities in order to ensure the most advantageous deployment of limited resources. This should be carried out as a precursor to the periodic review in conjunction with the preparation of a 5-year Agricultural Development Plan (para. 5.08). Among priorities are: (a) Food Research. Food production has high priority in government objectives, but this has not yet been reflected fully in government research programs. Greater use of industry-organized research (para. 7.07) would free government research resources for other purposes and it is recommended that some of these be used to expand the food crop research program. Investigations in this area would be particularly well suited for implementation by national researchers who are familiar with traditional food production systems. Research needs in relation to food crops have been reviewed by H. M. Groszman, who has recommended a general strengthening of the administration and organization of the research effort as well as the appointment of horticulturists to all field stations. His recommendations are endorsed. (b) Farming Systems Research. Almost all smallholders producing cash crops continue to grow food crops as well, frequently in complex cropping patterns, the advantages of which are not well understood. It is recommended that research efforts be directed increasingly towards farming systems in the major agro-ecological areas, rather than concentrated on single crops. This recommenda- tion and that in para. 7.08(a) above implies a greater concentra- tion on the smallholder sector by government researchers while commercial agricultural producers accept more responsibility for their own research (para. 7.07). The economists proposed to be posted to regional research centers would play an active role in farming systems research (para. 7.03). (c) Soil Survey and Land IJtilization Work. The demand for soil survey and land utilization work is already substantial and will be increased further when a 5-year Agricultural Development Plan is prepared (para. 5.08). Staff cannot cope with the existing volume of work and brief reconnaissance surveys are being used where more detailed work would be more appropriate. The Land Utilization Section is negotiating with the CSIRO of Australia to carry out a national land use survey and has proposed a significant increase in staff. Both of these initiatives are supported. If no steps are taken to increase soil surveying capacity, the feasibility of  - 31 - sound development planning and the review of the estate sector and unused alienated land (para. 9.05) would be prejudiced. (d) Tree Crop Priorities. Growing conditions for tree crops in PNG are excellent in the right areas. Tree crop research has been generally adequate over a 30-year period, but recent reductions in resources have affected performance and the following research fields have been identified as being of high priority. (i) Plant Breeding. PNG has not taken full advantage of the plant breeding advances made in other countries. A wider range of planting material should be introduced, especially in cocoa, coconuts and coffee. In many cases, programs could be limited to local screening for disease resistance and yield. In the case of coffee, a more extensive breeding program would be necessary. The introduction of new planting material would have to be conducted with strict regard to quarantine requirements. Such a program could form part of an agricultural services project (para. 7.10 below). (ii) Nutrition of High Yielding Varieties. Soils on which tree crops are grown in PNG have been generally of sufficient fertility to produce satisfactory yields with the varieties used. Newer varieties already in the country and others which should be introduced have much higher yield potential. The achievement of this potential will be dependent on adequate plant nutrition and they will often have higher nutritional requirements than existing varieties. It is recommended that trials be set up to monitor the performance of the newer varieties in different cultural situations and assess the desirability of using fertilizer. (iii) Pest and Disease Investigations. Past entomological and pathological work has produced effective methods of controlling most of the plant pests and diseases in PNG, especially those related to tree crops. However, because of staff shortages work in these areas has declined. It was reported, for example, that the pathology section was unable to devote any staff to serious diseases observed in food crops. It will be especially important to have adequate entomology and pathology services available if new planting material is to be imported. It is recommended that priority be given to filling vacancies in the two sections. 7.09 Labor Productivity Research. The high cost of labor relative to comparable costs in competing exporting countries is a cause for concern in the tree crop industries (para. 9.16). It is important in these circumstances to maximize the productivity of labor. Among the approaches to dealing with this problem is the development and encouragement of management and cultural  - 32 - practices which could increase the productivity of labor. These should be investigated within the tree crop research program, while analysis of the costs and benefits of piece-rate payments should be handled by PEM. 7.10 A Research Services Subproject. The general strengthening of research services which has been recommended could be achieved in the content of a defined investment project. It is recommended that such a project be prepared. It could be combined with the proposed pilot extension services project (para. 6.05) and submitted for international financing. VIII. MARKETING OF EXPORT CROPS 8.01 The marketing of the major export crops, which is regulated by their respective marketing boards, appears to be reasonably efficient and well managed. Coffee and cocoa marketing is handled by private companies, cooperatives and private truckers while copra is purchased directly by the Copra Marketing Board. The marketing of fresh foods for the domestic market, however, appears to have serious organizational, financial and transport problems which are a factor in the continuing importation of foodstuffs for the major cities (para. 2.01). This deserves further review but was not covered by the mission. The comments in this section refer to export crop marketing and the few areas where Government intervenes. 8.02 DPI Commodity Purchasing. DPI buys commodities in areas where private interests have not provided adequate services, usually because the volumes involved have been too small to justify operations in remote areas. The DPI service is operated by extension staff in addition to their other duties. It involves an indirect subsidy to the producers - in staff time and transport costs - which has been justified on infant industry grounds. There is strong argument for ensuring a market outlet is available but the service is not necessarily best provided in the present manner, and it is not justified regardless of cost. At best, civil service organizations tend to be inefficient in commercial operations and certainly in Papua New Guinea government financial procedures are cumbersome and totally unsuited to marketing. Further, because it appears to be costless, the DPI service may be cutting out potential private participation: at the least, it will be difficult to judge when commercial operations could start. Perhaps the most serious grounds for proposing a review of the present system, however, are that from an extension service viewpoint marketing is an unwanted responsibility which diverts staff from their principal function. It has been suggested (para. 6.04) that as far as possible extension staff should be relieved of such work. It is recommended instead that the subsidy element in DPI marketing be calculated and that in suitable cases private buying be encouraged by offering direct subsidy or other assistance as necessary to make provision of the service worthwhile. It should be possible in most cases to have the service performed privately for less than the present cost to government. It would still be necessary for DPI to monitor the service to ensure that prices were fair and the service  - 33 - adequate. In some cases where it is not possible to get private interests to take over, the service should still be provided if it is being used, but efforts should be made to streamline procedures and keep the involvement of extension taff to a minimum. 8.03 Quality Control. There are a number of restrictions and regula- tions in force designed to maintain high quality in export produce. These regulations have costs to the industries concerned and in administration. If they are not necessary to ensure that PNG maintain its position in the market place they should be abolished. Examples of restrictions can be found in relation to dry coffee processing facilities and cocoa fermen- taries. There is also doubt as to whether administratively determined dif- ferentials in prices paid for different grades of copra reflect real differ- ences in its market value. Prices should be used to encourage production of the appropriate quality: but this is not necessarily the highest quality. It is recommended that an expert study should be commissioned of appropriate approaches to quality control in the main export crops. 8.04 Price Stabilization. Government has established price stabiliza- tion funds for the three major export crops - coffee, copra and cocoa - oper ated by the respective industry boards. These funds reduce the impact on output and incomes of commodity price fluctuations and thereby also on the economy as a whole. The stabilization approach is strongly endorsed by the mission. However, some reduction in the level of funds required to achieve given amount of stabilization internally could be achieved by allowing some borrowing among funds for different industries. While it would probably be preferable for this to be done indirectly, through the Bank of PNG or the government, the alternatives need further review before a policy is formulated. Another possible means of maintaining the integrity of the funds in times of low prices would be to draw on the STABEX funds for which PNG is eligible. No policy has yet been formulated for the use of the funds and in the absence of specific plans, funds would simply be channelled into government revenue. It is recommended that options for the use of STABEX funds should be reviewed and a policy formulated. 8.05 It is not clear whether bounty payments paid from the coffee and cocoa stabilization funds would be passed on fully to producers,/l but the situation will be more complex for these crops than in the copra industry (which has already paid bounties) as there are more buyers involved and prices are not set administratively as they are for copra. It is recommended that plans be made for DPI to monitor farmgate prices when bounty payments for coffee and cocoa commence to ensure that the benefits reach the producer. /1 The first payments on both cocoa and coffee were made after the mission's visit and the working of the system is not yet clear.  - 34 - 8.06 Apart from oil palm and rubber (which already has some form of stabilization in its marketing arrangements) the crops which do not have stabilization funds are of relatively minor importance. The mission did not examine them in any detail. The variability of prices and its effect on producers in these commodities needs to be assessed, and if stabilization is required consideration should be given to establishing a multi-commodity board. This may be the only way of providing stabilization at reasonable cost. 8.07 Coffee Board Management Levy. Unlike the cocoa board, the coffee board does not have a separate levy to provide for board operating expenses. While this is not causing any serious problems, it is considered that the Cocoa Industry Board arrangement is the more logical and should be adopted by the coffee industry. The adoption of a mnanagement levy should be accom- panied by a prohibition on the use of stabilization moneys for Board oper- ations. This arrangement would control the expenditure of the Board and at the same time provide it with a more secure source of funds during periods of depressed prices. 8.08 Copra Two-Payments System. Copra prices are paid in two install- ments; an initial payment of 90% of the estimated price and a second payment based on actual Copra Board receipts paid pro rata on copra produced over the year. The second payment may be made as long as 18 months after the date of sale, and in the case of copra marketed through traders, it would appear not to reach the producers. This arrangement seems both cumbersome and inequitable compared to paying out the entire price in one payment. Given the facilities to sell forward and the Board-s monopsonistic position in the market, the risk and possible consequences of error in setting the price to producers seem slight. Any surplus or deficit accumulating as a result of this practice could be compensated by adjustment of prices in subsequent months. IX. ENCOURAGEMENT OF THE PRIVATE SECTOR 9.01 One of the principles adopted in the formulation of these recommendations is that maximum reliance should be placed on the private sector, not only for a rapid increase in the production of key commercial crops, but also for the provision of services both to its own large-scale developments and to smallholders, thus releasing central and provincial DPI resources to concentrate on the vital smallholder sector. Private concerns are already important in marketing and input supply for estates and smallholders; an increased interest of commercial crop industries in research under government overall supervision should be encouraged (Annex C, para. 71 et seq.). The most pressing need is, however, to encourage reinvestment and maintenance in production by estates.  - 35 - 9.02 The Estate Sector. Policies related to the estate sector were reviewed in 1979 by the Committee of Review into the Plantation Redistribution Scheme (PRS). The PRS was established by legislation enacted in 1974 to facilitate the acquisition of foreign-owned jstates and their transfer to descendants of the customary landowners. The Committee was formed following concern that investment on plantations had been negligible, that the production performance of the sector was poor, and that the PRS had not been effective in transferring ownership of acquired plantations to the customary owners. 9.03 The Committee made a number of recommendations, the main ones being: (a) that the PRS legislation be repealed and replaced by a relatively minor amendment to the Land Act; (b) that the valuation method be made more commercially realistic and not subject to bureaucratic or political discretion; (c) that transactions be on a normal commercial basis as far as possible and reliance on statutory acquisition be minimized; (d) that more information should be collected on the size and location of plantations and the identity and attitudes of their owners toward purchase, with a view to formulating a systematic approach to plantation purchase; (e) that Government should establish a company to buy and redevelop plantations prior to their eventual sale to groups of Papua New Guineans; (f) that plantation management be strengthened by the encouragement of experienced private management companies, by strengthening the government-owned National Plantation Management Agency (NPMA) and by much greater efforts to train Papua New Guineans in plantation management. It sought through its recommendations to create a climate of management and investment security and to encourage redevelopment of existing plantations and the development of vacant land. 9.04 The mission generally endorses these recommendations which have not yet been acted upon. They should go a long way towards allaying the fears of foreign estate owners and creating a climate which will encourage maintenance and reinvestment. The important elements in this are to provide assurance that a decision to acquire an estate will be based on the genuine need of the traditional landholders and that the acquisition price will be a fair market price, reflecting the potential return on all investment in the property incuding current maintenance and inputs needed to optimize yields.  - 36 - A realistic minimum notice of intention to acquire (for most crops probably about 3-4 years) would be an additional encouragement to the present oper- ators: this would only be workable iF acquisition transactions were on a commercial basis, however. For any new estate development which Government may wish to encourage, presumably on a joint venture basis, some guarantee of a minimum period of tenure would be necessary in addition to a free market valuation in the event of eventual takeover. 9.05 For the productive running of acquired estates the recommendations on increased training of Papua New Guineans in plantation management is especially important. The development of estate managers is, however, a complex task requiring initial aptitude for the work, technical knowledge of agriculture, and management ability. Such development is most likely to occur in a situation where there is good on-the-job training combined with formal training in technical and managerial skills. It is recommended that arrangements which could provide for this development should be studied and proposed for financing as part of an agricultural support services project such as outlined in Appendix 1, para. 3. It is also recommended that the survey of existing plantations be extended to cover unused alienated land, and that terms of reference for the proposed study should call for evaluated proposals to government on methods of developing or redeveloping it. This would require the involvement of staff of the Department of Lands, DPI, and possibly NPO. In addition, however, outside consultants would be required if reasonable progress were to be achieved. It would be done in two phases, the first involving the identification of the locality, area, ownership, and capability of land, and the drafting of general guidelines, based on model development budgets, for the usage of various categories of land. The second phase would involve feasibility studies for development of land identified during the first phase as having priority for development. These feasibility studies would need to be of high enough standard to serve as a basis for attracting loan finance or investor interests. 9.06 This study is the most important suggestion arising from the PRS Committee's report. The Government is presently unable to formulate a firm policy on the estate sector because it does not know what land could be available or precisely what estate development could do for PNG in terms of employment, incomes and revenue. It cannot make firm pronouncements on future plantation acquisition because it does not know how many plantations are close to villages which are short of land or whether there is other undeveloped alienated land which could meet their needs. It is recommended that phase one of this survey should be mounted as a matter of urgency. While it is appreciated that the type of staff which DPI and the Department of Lands will be required to provide for the survey are already fully committed, their temporary removal from other pressing duties would be justified in the case of this work which should prove of lasting benefit to both Departments.  - 37 - 9.07 The joint venture corporate model used to develop the oil palm industry in PNG appears to have been particularly successful, satisfactory both to government and to the investors. The performance of the industry is impress4ve. This type of ownership structure has advantages over the 100% state ownership structure which was proposed by the PRS Committee for estate redevelopment. It is difficult for governments to manage, or control management of, commercial operations and the most effective control is the incentive to produce profits which an organization has when it has a substantial equity investment. In terms of minimizing the input required from DPI, it is also important that arrangements are made so that management can be trusted to manage effectively with a minimum of supervision. 9.08 Land Legislation and Administration. It is recommended that the proposals of the PRS Committee regarding land legislation be implemented (para. 9.03). It is also to be hoped that the land legislation which is being prepared to deal more comprehensively with customary land, and in particular to provide for registration of customary land, will be completed and enacted quickly. However, while this is important, it should not be expected that legislation alone will bring rapid improvement in terms of the availability of land for agricultural development. 9.09 The Department of Lands is suffering from severe manpower short- ages and it is unlikely that registration of customary land could proceed on any scale even with improved legislation. Moreover, the need for nationwide legislation in order to provide security for smallholder loans is by no means conclusively established. In many areas, loans are not required. In areas where they are, it may be cheaper for government to accept the lending risk than to incur the cost of registration. It may also be a more practi- cal approach: rarely in conditions such as found in PNG can a bank repos- sess and dispose of or use traditional land even if it has been registered. Similarly, the promotion of new development in the estate sector is not immediately dependent on land registration: there are considerable areas of unused alienated land available. The most critical constraint is the unavailability of staff to identify parcels of land which should be made available for development, deal with claims of ownership, survey it and negotiate and issue a lease. 9.10 Since land administration is presently a greater constraint to development than land legislation, it is recommended that urgent attention be given to this area. In particular, the policy and research area of the Department of Lands is handled by only two staff. This shortage of staff is reported to be contributing to the slowness in completing legislation. Similarly, the national projects unit, which among many other duties, would have the task of locating land for development and dealing with potential developers has only two staff. The number of staff available to these two sections is totally inadequate for the functions for which they are responsible. More generally, surveying and particularly drafting capacity is strained and requires strengthening.  - 38 - 9.11 With research capacity in the Department at a very low level, research which could have important benefits in developing sound land laws and administrative systems is not being done. It is unlikely that the Department itself could undertake a large volume of research and consideration should be given to arranging for organizations such as the Institute for Applied Social and Economic Research (IASER) to undertake projects on a contract basis. Part of the cost of such studies could be met from the funds being made available in the Bank-assisted Third Agricultural Credit Project. A list of topics is suggested in Annex G, para. 65. 9.12 Private Sector Services. The private sector already provides a range of services, but there are a number of areas of government activity which could be carried out to a greater extent by private enterprise. They include the production of planting materials, management, agricultural research and marketing. As a general rule, government should, unless there is an explicit decision to provide a subsidy, charge producers the full cost of such services which it provides to allow efficient private enterprise to operate at the same or a lower price and earn a profit. In cases where it is desired to subsidize a service, consideration should be given to arranging for a private organization to provide the service and receive a subsidy from government. If businesses are to gear up to provide such services, they will need the assurance of long-term contracts and permission to hire nonnational staff if necessary. In all cases, DPI would need to continue to monitor the provision and pricing of services to ensure that no unreasonable advantage is taken of any privilege granted. 9.13 Negotiations with Investors. In order to proceed with large-scale developments at an accelerated rate, DPI will need to increase its capacity to deal with potential investors. Foreign investors will need assistance in making contacts and gathering technical and financial data. While overall support can be expected from NIDA and the Department of Finance, agricul- tural investors will need help from people with a knowledge of PNG agricul- ture and the industry in question. In preparing for negotiations, it will be necessary for DPI staff to make detailed appraisals of proposals. DPI would also normally be represented on the board of agricultural companies in which government has a shareholding. These responsibilities presently fall on the Development Section of the Agriculture Division which, it is recommended, should become part of a Development Services Division (para. 4.10). If it is decided that estate scale development is to proceed at an increased pace, the Division will need strengthening with additional staff. 9.14 National Investment Priorities Schedule (NIPS). Government's attitude to foreign investments in particular industries is spelled out in the NIPS, which is revised annually. It classifies activities as "priority" in which foreign investment is actively sought, "open" in which foreign investment would normally be permitted but which are not regarded as top priority, or "reserved" in which foreign investment would not normally be permitted. None of the agricultural tree crop industries which were the focus of mission attention, and several of which it regards as ideal for  - 39 - expansion, are in the "priority" category. Oil palm, rubber, and cocoa as "selective nucleus estate developments only" are in the open category. It is appreciated that the "open" category does not prevent foreign investment. However, given that it is desirable to involve additiona' foreign investors in these crops (para. 3.04), they should be promoted to the "priority" category in order to give potential investors the clear impression that their participation on suitable terms would be welcomed. 9.15 Monetary and Related Policies. PNG has iaaintained a hard currency strategy /1 as a means of controlling inflation and the growth of money wages. There has been speculation concerning the net effect of this strategy on both the export sector and on import replacement. Debate on the issue has not as yet become intense, probably due to the generally favorable commodity prices which have prevailed since the strategy was adopted. It is recommnended, however, that in order to be prepared for less favorable conditions, the Government should commission a study of the links between the exchange rate, domestic inflation and industry competitiveness. The study should also encompass the possible need for measures such as input subsidies if any negative impact from the hard currency strategy is identified. 9.16 A related issue is the link between the consumer price index (CPI) and money wages. Recent wage agreements have provided a mechanism for the limited but automatic incorporation of CPI increases into the wage structure. In the longer term, this may prove detrimental, especially to the tree crop export industries which must compete with countries in which the cost of labor is not so directly affected by inflation. Consideration should be given to possible ways of improving labor productivity so that the direct link between wages and thie inflation rate is lessened (para. 7.09). Greater use of piece rates is one method by which unit wage costs could be contained without necessarily adversely effecting the estate labor force. 9.17 Replanting Incentives. There is evidence of inadequate replanting of tree crops (para. 2.03). There are clearly a number of reasons for this in the estate sector, but the problem is not confined to large-scale operations. In the smallholder sector also, although new planting is proceeding, existing stands in urgent need of replanting were identified. The Government is considering a number of steps to increase investment and has recently reintroduced a tax holiday for new businesses. More comprehensive measures may be needed, however, for both the estate and the smallholder sectors. It is recommended that the government commission a study of the need for incentives and possible forms of incentives, including but not limited to guaranteed loans, reduced management fees and replanting /1 The strategy aims to maintain the value of the Kina vis-a-vis a basket of the currencies of PNG-s major trading partners. This has the effect of making imports relatively cheap, thereby restraining the CPI which is heavily influenced by imports.  - 40 - grants. The study should also consider possible means of financing any incentives it recommends, including industry levies. The Malaysian cess on producers to finance the costs of replanting would be a good example to review. 9.18 Export Taxes. Nominal export taxes are levied on all tree crops in times of satisfactory prices. The taxes avert criticism which might occur if the agricultural sector were not taxed, but are low enough to have negligible effect on output. Pressure to increase these taxes appears inevitable as the direct taxation base is reduced with the replacement of expatriates with nationals at generally lower wage scales, but Government should continue to resist any such demands. The Government has given a general undertaking to suspend the taxes when industries are suffering depressed prices. This policy is logical and has been generally well accepted by the private sector. It would be better accepted if the element of uncertainty surrounding the suspension of the tax were removed. It is recommended that formulae to trigger the suspension of export taxes be developed, adopted and publicized throughout the industries. 9.19 Import Substitution. The production of food to reduce dependence on imports has high priority among the agricultural sector objectives. To encourage the private sector in this area Government has, in the recent past, imposed quotas on rice imports and tariffs and bans on fruit and vegetables. As a general tule, tariffs are preferable to quotas or bans for controlling imports and providing encouragement to local producers, not least because this would reduce the risk of creating food shortages./l If tariffs are used, it is recommended that fixed value per unit rather than percent ad valorem tariffs be used. Percent tariffs are least effective when prices in supplying countries are low, which is when effective measures are needed most. This situation would apply especially to fruit and vegetables, the prices of which are very unstable. An alternative approach would be to subsidize local production and/or marketing on an infant industry basis. 9.20 Such incentives are necessary conditions for both smallholder and large-scale developments. In neither case, however, are they likely to be sufficient in themselves. To encourage new production, smallholders in particular will need initial development assistance and continuing extension advice, market information, and a marketing service. The first two would be provided by DPI, the last by the private sector (with, if needed, direct incentives from Government in the early stages). An effective approach to encouraging large-scale development is for Government to fund and initiate a feasibility study on the basis of which private investment can be offered a majority interest in the development. /1 Currently, tariffs would not be effective in the case of rice, however, since the price of locally produced rice is already well below that of imported rice because of its poor quality.  - 41 - Appendix 1 Page 1 PAPUA NEW GUINEA AGRICULTURAL SERVICES REVIEW Proposals for Further Work 1. As indicated in both the Report and its Annexes, further study is needed in a number of areas. Some work is within the capacity of government to execute, other will require the combined efforts of government staff and outside consultants or hired specialists. Some ~300,000 has been earmarked for studies and similar work in the World Bank funded Third Agricultural Credit Project, scheduled for approval in 1981. It is recommended that consideration be given to using these funds for the items summarized below. The proposals are in suggested order of priority. 2. Five-Year Agricultural Development Plan. There is a pressing need for a systematic examnination of the development of the agricultural sector and the likely role of DPI over (say) a five-year period. The plan should assess the possibilities for growth in the sector in relation to the key resources and constraints and in thie context of the achievements of national objectives. Constraints and resources to be considered should include: (a) labor (including competition from other industries and limitations on internal migration); (b) skilled manpower (including management and training facilities); (c) agricultural inputs and their distribution; (d) credit and savings; (e) markets and marketing services; (f) transport infrastructure; (g) land availability and tenure; and (h) business structures. Projections of potential output shioulct be made, targets set (preferably on a provincial basis), and action necessary to overcome the most limiting constraints defined. In particular, the implications of the production targets for the level of DPI services required should be established and this converted to staffing levels and funding which DPI would need to achieve targets. DPI should take the lead in preparing the plan, with technical assistance if needed, but should liaise closely with NPO, and coordinate throughout with other concerned Ministries at the highest level.  - 42 - Appendix 1 Page 2 3. Manpower and Training Review.fi An assessment of the needs of the agriculture-related sectors for trained personnel, of the measures required to fill these needs, and of the implications of so doing, is of the greatest importance to the rational planning of agricultural development in PNG. The survey should cover the next 20 years on an indicative basis and the next five years with more precision and detail. It needs to consider professional, technical, vocational and administrative personnel requirements in agriculture, livestock, forestry and fisheries; to embrace extension, nonextension field work, research, administrative and training/educational cadres; to cover the public, quasi-public and private sector demands; and to assess the phasing of these demands over the survey period. 4. Within this framework, a survey would have four distinct components: (a) an assessment of existing manpower. This should determine numbers available by function, skills and experience; identify establish- ments and staff ceilings; identify vacancies and estimate wastage rates; and establish the causes of both. The productivity of existing staff resources should also be assessed and the causes of below capacity performance determined. Possible causes are: inappropriate professional/technical staff ratios; inadequate retraining; shortages of transport, offices, housing, or equip- ment; poor promotional and job-satisfaction opportunities and incentives; or inadequate recurrent budgetary support. (b) an estimate of the 20-year demand for manpower. This must be an assessment of the effective demand for the various categories of manpower. It calls, therefore, on the one hand, for estimates of rural population growth; prediction of changes in the structure of the agricultural sector and of farming systems; agreement on appropriate approaches to extension, research, input supply and other functions; an assessment of the relative values of existing levels of qualification (degree, diploma, certificate); and agreement on suitable support-staff:farmer ratios. On the other hand it requires an assessment of the long-range revenue raising capacity of the country and feasible levels of budgetary allocation to the agriculture sector. This will clearly be easier within the framework of the next five-year plan, and increasingly tentative in the longer-term perspective, particularly in an open economy heavily dependent on the future of the world markets. (c) an assessment of the country-s present capacity to supply trained manpower, the current throughput, and the constraints on expansion. The review should study sources of trainees; wastage and failure rates in training; the costs of training different categories and levels of staff; the appropriateness of curricula for the envisaged work roles; the adequacy in quantity and quality of teachers, administrative support and equipment; and appropriate- ness of budget allocations for the tasks set. /1 In his budget speech in November 1980, the Minister of Primary Industry announced that he had initiated such a review.  - 43 - Appendix 1 Page 3 (d) a detailed and quantified assessment of the measures which need to be taken to close the gap between the projectci effective demand and the expected output from existing training capacity. This should include measures to upgrade existing personnel, to develop in-service and on-the-job training opportunities, and to establish new pre-service training capacity. It should include recommendations on the measures needed to ensure a supply of national trainees from the educational system, on steps to reduce wastage at all levels, and on the use to be made both of overseas training institutions and expatriate manpower over the planning period. Most important it should establish a phased investment program for new training institutions and for modifications to existing centers, including housing, transport, demonstration farms and other support investments; make recommendations on curricula, staffing and appropriate incentive levels for teachers and trainers; and determine the role which non-government institutions should play in the future development of skilled agricultural manpower. 5. An effective manpower and training review can be an extremely important input into policy making and development planning, even where hard statistics are scarce, projections tentative, and the end result, therefore, only indicative. Such a review is a deceptively complex under- taking, and to obtain the coverage indicated above could be a costly under- taking. It is, therefore, strongly recommended that the lead in the design and conduct of a survey be taken by experienced consultants with a proven record in this area, and that prior to the contract being let a full under- standing be reached with the consultant of Government's priorities in and hopes for the study, and realistic terms of reference drawn up. It may be desirable to undertake the review in two phases, leaving the qualitative aspects, including curricula content, for the second phase. Either way, a conscious effort will need to be made to provide the consultants with the full support of DPI and other extension, research and training staff. 6. Preparation of a Support Services Project. The weaknesses identified in the planning, research and extension services of DPI could be overcome in part by an internationally financed agricultural support services project which would complement the agricultural credit project recently appraised for World Bank assistance. It should include a training component, the definition of which would emerge from the review of manpower and training in the sector (paras. 3-5 above). 7. Improved planning and policy formulation capacity is critical to effective operation of DPI. Policy guidance at a level which is meaningful and intelligible to staff at all levels of DPI is lacking and this fact will continue to affect performance of the operational arms of the Department if not remedied. The constraint is lack of staff. A planning component should be prepared which would identify, justify and cost the following items:  - 44 - Appendix 1 Page 4 (a) incremental staff salaries (preferably separated by expatriate and national); (b) incremental operating costs of these staff (travel, stores, utilities, minor capital items); (c) incremental housing and vehicle requirements; (d) training programs for national staff; (e) consultant services; and (f) data storage equipment. In preparing this component, account should be taken of the need for the PEI4 Division of DPI to provide a secretariat for the NAC and NAAC (paras. 4.02- 4.05), to provide more planning help to provinces (para. 5.07), to play a more active role in the development and evaluation of research programs (para. 7.05) and to produce a 5-year Agricultural Development Plan (para. 5.08 and para. 2 above). In addition, it should be noted that the data storage equipment should also have the capacity to handle data from the Research Division (para 4.22). 8. The recommendations regarding research services include the reorientation of research emphasis, improved management of research, the recruitment of additional scientists, and the expansion of the field station network. The incremental costs associated with implementing these recommen- dations should be established. The component should include (paras. 7.02- 7.08): (a) the staffing of an evaluation and monitoring unit and staff related to research/extension liaison; (b) the establishment and staffing of regional research centers and a network of field substations; (c) increasing soil survey and land utilization capacity; (d) increased pathology and entomology staff; (e) a program of introduction of improved planting material; and (f) incremental staff requirements related to the other changes proposed in research priorities. The component should cover appropriate elements of research to be carried out under the auspices of industry bodies as well as that to be a direct DPI responsibility.  - 45 - Appendix 1 Page 5 9. The components under the heading of crop development services and extensior should include the establishment of a crop development section (para. 6.11) and the setting up of a pilot T&V extension service in at least one province (para. 6.05). Crop development services are being financed on a selective basis under the agricultural credit project: the component to be developed should be complementary to that and wider in terms of crops to be covered and geographical areas. Any consequential addition to headquarters staff of the proposed Development Services Division (para. 4.10) should also be included. Appendix 1 of Annex n provides a guide for preparing the extension component. Attention should be paid to the need for funds for additional travel and for the production of extension materials, and to all costs associated with the appointment of additional support staff. Other cost items would be similar to those outlined in paras. 7 and 8 above. 10. Training, additional to the components addressed specifically above, should also be included in the project. Items to consider are: (a) the need for more scientific and agricultural training in universities; (b) expansion of the capacity of agricultural colleges; (c) training of DPI staff in administration and management; and (d) training of plantation managers. As with other components, the jutification of each item would need to be established and incremental costs identified. It is understood that a manpower survey is to be undertaken. This should provide a basis for such costing. 11. Review of the Estate Sector. This review would embrace land which has already been developed as plantations and alienated land which is presently unused. It would involve the following tasks: (a) the identification, location and valuation of all estates; (b) the assessment of the attitudes of the owners of estates towards sale or redevelopment; (c) the assessment of land pressure in villages close to estates and, in case of land pressure, the possibility of providing unused land to relieve this pressure; (d) the identification and location of unused alienated land, the assessment of its suitability for redevelopment and the likelihood of ownership disputes;  - 46 - Appendix 1 Page 6 (e) a review, by means of model budgets, of the options in terms of crops, size of holding and ownership for the development/ redevelopment of alienated land; (f) the formulation of recommendations for redevelopment including the identification of priority areas together with estimates of the costs and benefits thereof; and (g) preliminary feasibility studies of the development of areas of land identified as having high priority. 12. The review should be divided into at least two and possibly three phases. Task (g) would need to await the consideration by government of the results of previous steps. Tasks (a)-(d) could be handled separately from tasks (e) and (f). A large amount of field work would be involved and this would be both expensive and time consuming. In view of thiese factors and likely limitations on the rate at which government could implement any redevelopment recommendations, it is suggested work could proceed on a selective basis, concentrating on areas of known land pressure (to meet the most pressing social needs) and larger areas of unused alienated land with known potential (to meet growth objectives). Preliminary feasibility studies would need to be of a sufficiently high standard to serve as a basis for attracting loan finance or investor interest. 13. Tree Crop Replanting Levies and Subsidies. The accumulation of large amounts of money in the coffee and cocoa stabilization funds has emphasized the ability of these industries to generate savings. It has also emphasized the anomolous situation of industries saving large amounts but not reinvesting enough to maintain long-run productivity. In many countries, replanting is assisted by finance from industry levies. It is recommended that the possibilities of following this course in PNG should be investigated. Necessary steps would include: (a) an assessment of why replanting is not occurring and the possible need for incentives; (b) a review of possible forms of incentive, including guaranteed loans, subsidized interest rates, reduced management fees, input subsidies and replanting grants; (c) estimation of the total costs of any subsidy recommended; (d) identification of sources of finance including industry levies; and (e) a detailed assessment of the requirements of levies for stabiliz- ation purposes and possible conflicts with the collection of replanting levies.  - 47 - Appendix 1 Page 7 14. Research on Land Policy Issues. Few resources have been devoted to land policy issues and there is an urgent need to initiate research in this area (para. 9.11). It is suggested that negotiations be initiated with the Institute for Applied Social and Economic Research (IASER) or other suitable research bodies to carry out research in priority areas. Topics suggested for study are: (a) attitudes of landowners towards different forms of payment for the use of their land; (b) the feasibility of delegation of authority for land law to provinces; (c) the codification of customary land law; (d) fragmentation of land on succession; (e) the cost and time involved in registering customary land; (f) the effectiveness of dispute settlement procedures; (g) the extent to which customary land law is changing to meet the changing circumstances; and (h) alternative means of providing security for lending for agricul- tural projects on customary land. 15. Review of DPI Marketing Section Operations. As part of a general move to extricate DPI from commercial operations, it is recommended (para. 8.02) that attempts be made to interest the private sector in providing buying services in areas presently served by DPI. Specific contracts and/or subsidies or other incentives should be used if necessary. A detailed costing of DPI marketing services (including staff time as well as explicit cash costs) would be required before firm proposals could be developed. This has already been done for rubber, and the staff of DPI's PEM division should be able to repeat the process for other commodities and areas. Costings would need to be done on a district or subdistrict basis in order to be able to assess the possibilities of a single business entity taking over the function in that area. At the same time as the costing work is proceeding, businesses already established in the area should be assessed with regard to their capacity to provide a buying service and interest in doing so. The Office of Business Development might be able to assist. In the light of the results, a detailed proposal should be prepared for consideration by NAAC and NAC which would define the areas from which DPI might be able to withdraw its services and prescribe a system of incentives or subsidies which would make the provision of services attractive to the private sector. Proposals should also be outlined to monitor the effects and to review the level of subsidy on a regular basis.  - 48 - Appendix 1 Page 8 16. Quality control of export crops. Two questions which could not be addressed by the mission would justify examination. They are: Are the costs to industry, government and the industry boards of the various inspection services and grading, and controls on processing and handling, justified in terms of increased commodity prices? Are the methods employed the most cost-effective ways of achieving the objectives? It is recommended that expert assistance be recruited to advise with respect to the main tree crop exports, on: (a) the relationship between price and quality; (b) ways of detecting quality differences at all stages in the processing/marketing chain; (c) factors affecting quality and methods of achieving higher quality; and (d) marketing and regulatory arrangements which would encourage the various sectors of the industries to produce the quality of product which would be most advantageous for them. Particular attention should be paid to the objectives of expanding cash crop production into new areas and the likelihood that production units in such areas would be able to support large and sophisticated processing facili- ties. The appropriate expertise should be sought from the relevant interna- tional commodity organizations and the Tropical Products Institute, London. 17. Job Descriptions and Salary Review of DPI. It is proposed (para. 4.25) that following consideration of the organization and staffing proposals in this report, DPI job descriptions should be rewritten and salaries reviewed. This report has dealt only with the most senior positions and consequential changes in the roles of subordinate staff would need to be considered during the rewrite. It is recommended that professional personnel consultants be appointed to work with DPI staff in completing this task. An essential part of the terms of reference of the consultant would be the training of appropriate staff of the Management Services Division of DPI in this work. 18. Exchange Rate Policy and Agricultural Production. It has been suggested that the hard currency strategy maintained by the Government to control inflation may discourage the expansion of crops in both the export and the import replacement sectors (para. 9.15). This effect may be felt the more strongly as long term prices fall below the buoyant short term levels and small changes become more important. On the other hand, this adverse impact of the policy may be neutralized by its success in holding the rate of inflation below the levels in PNG's major trading partners. This argument depends, inter alia, on the relationship between changes in the exchange rate and inflation; how far the CPI, which is based on an urban consumption basket, is also relevant for rural areas; and the extent that  - 49 - Appendix I Page 9 agricultural producers are sensitive to real rather than nominal changes in prices. The importance of the exchange rate as an influence on producer prices is enhanced to the extent that internal price stabilization policies are successful in reducing the swings in world prices. However, these may still outweigh the impact of the exchange rate. 19. Given the potential importance of exchange rate policy for the competitiveness of PNG's agricultural sector, these issues deserve additional study. It is recommended that a study be commissioned, either by a local research group such as IASER or by an outside consultant, which would concentrate on: (a) competitiveness of Papua New Guinean agriculture vis-a-vis other producing countries, i.e., the cost structure for the production of major crops as well as of those which would be suitable for diversification; (b) the degree to which international inflation is transmitted to the domestic economy, e.g., through imports and through the indexation of wages to the CPI, which is heavily influenced by imports; (c) the relationship between changes in the exchange rate and the level of inflation, including an assessment of which exchange rates are the most relevant; (d) the relevance of the CPI for rural areas (e.g. the import content of a rural compared to the urban consumption basket); and (e) the sensitivity of producers to real as opposed to nominal price fluctuation. If the study identifies any adverse effects of the exchange rate policy on production, it should also consider possible measures which could be taken to counteract this effect. 20. Import Substitution Studies. It is suggested in para. 9.20 that the most efficient way for government to proceed in developing any import replacement food industries which might require large-scale investment would be to carry out feasibility studies on an industry basis. DPI will need to do some preliminary screening to identify promising industries and suitable land which could be used. The estate sector review (paras. 11 and 12 above) could prove useful in identifying available land. It is recommended that government hire recognized international consultants to carry out the studies.  - 50- Appendix 2 Page 1 PAPUA NEW GUINEA AGRICULTURAL SERVICES REVIEW Production and Exports of Major Crops Page No. Table 1: Smallholder Coffee Production by Province .... ............. 2 Table 2: Plantation Coffee Production by Province .................. 2 Table 3: Total Coffee Production by Province ....................... 3 Table 4: Cocoa Production by Provinces .............................. 3 & 4 Table 5: Copra Production by Provinces ............................. 4 & 5 Table 6: Rubber Production by Provinces ............................ 5 & 6 Table 7: Oil Palm Production ....................................... 6 Table 8: Tea Production ............................................ 7 Table 9: Volume of Export Major Agricultural Products .... .......... 7 Table 10: Value of Major Agricultural Exports ....................... 8  - 51 - Appendix 2 Page 2 Table 1: Smallholder Coffee Production by Province (tonnes green bean) Province 1973-4 1974-5 1975-6 1976-/ 1978 1979 Western Highlands 7,700 7,945 9,369 8,376 9,520 Eastern Highlands 5,950 6,532 6,885 6,312 8,954 Simbu 5,350 6,043 6,486 5,566 6,793 Morobe 2,200 2,437 2,535 2,573 2,505 East Sepik 1,400 1,452 1,282 1,581 2,123 Enga 900 908 1,522 1,146 1,503 Milne Bay 107 63 101 153 177 Northern 400 416 483 553 414 Madang 200 228 305 300 419 West Sepik 37 59 217 346 236 Southern Highlands 58 97 112 252 358 Other 80 61 40 37 67 Total 24,382 26,240 29,337 27,195 33,069 Source: Department of Primary Industry Table 2: Plantation Coffee Production by Province (tonnes green bean) Province 1973-4 1974-5 1975-6 1976-7 1978 1979 Western Highlands 4,884 5,114 3,831 4,816 7,355 8,642 Eastern Highlands 3,724 3,935 3,479 2,237 4,413 4,920 Simbu 350 581 343 6 14 - Morobe 611 747 707 296 379 467 Northern/Milne Bay 24 8 33 2 99 22 Southern Highlands 103 271 341 161 464 47 Others 6 6 11 3 5 6 Total 9,702 10,704 8,745 7,521 12,728 14,104 Sources: Department of Primary Industry and Bureau of Statistics  - 52 - Appendix 2 Page 3 Table 3: Total Coffee Production by Province (tonnes green bean) Province 1973-4 1974-5 1975-6 1976-7 1978 1979 Western Highlands 12,584 13,059 13,200 13,192 18,162 Eastern Highlands 9,674 10,467 10,364 8,549 13,874 Simbu 5,700 6,624 6,829 5,572 6,793 Morobe 2,811 3,183 3,242 2,869 2,972 East Sepik 1,400 1,452 1,282 1,581 2,123 Enga 900 916 1,528 1,149 1,509 Milne Bay 107 63 101 153 177 Northern 424 458 516 555 436 Madang 200 228 305 300 419 West Sepik 37 59 217 346 236 Southern Highlands 161 368 453 413 405 Other 86 67 45 37 67 Total 34,084 36,944 38,082 34,716 47,173 Table 4: Cocoa Production by Provinces (tonnes) (a) Smallholder Province 1973-4 1974-5 1975-6 1976-7 1978 1979 E. New Brit. 6,138 6,121 4,721 4,640 4,032 North Sols 4,116 5,246 6,010 5,546 8,700 Madang 349 360 511 503 448 New Ireland 81 149 243 244 n.a. W. New Brit. 202 425 355 175 313 Others 309 354 802 797 869 Total 11,195 12,655 12,642 11,905 14,363  - 53- Appendix 2 Table 4(Cont'd) Page 4 (b) Plantation Province 1973-4 1974-5 1975-6 1976-7 1978 1979 E. New Brit. 7,177 7,394 5,295 4,716 5,119 4,516 North Sols 5,502 5,732 4,947 4,531 5,081 4,815 Madang 1,613 1,668 1,397 1,392 1,410 1,018 New Ireland 2,195 2,200 1,508 1,920 1,810 n.a. W. New Brit. 1,018 1,076 737 611 1,932 667 Others 562 677 524 354 457 223 Total 18,067 18,747 14,408 13,524 15,809 11,238 (c) Total E. New Brit. 13,315 13,515 10,016 9,356 8.547 North Sols. 9,618 10,978 10,957 10,077 13,515 Madang 1,962 2,028 1,908 1,895 1,466 New Ireland 2,276 2,349 1,751 2,164 n.a. W. New Brit. 1,220 1,501 1,092 786 980 Others 871 1,031 1,326 1,151 1,092 Total 29,262 31,402 27,050 25,419 25,601 Sources: Department of Primary Industry and Bu.eau of Statistics Table 5: Copra Production by Provinces (tonnes) (a) Smallholdings Province 1973-4 1974-5 1975-6 1976-7 1978 1979 E. New Brit. 15,588 15,086 16,712 15,017 21,846 North Sols 10,762 10,906 8,370 14,879 11,515 New Ireland 9,350 9,283 93794 10,889 5,687 Madang 4,211 5,488 4,749 6,610 8,120 W. New Brit. 2,044 3,146 3,225 3,238 5,102 Others 12,096 11,641 10,634 9,811 13,336 Total 54,051 55,550 53,484 60,494 65,606  Appendix 2 Page 5 Table 5 (Cont'd) (b) Plantations Province 1973-4 1974-5 1975-6 1976-7 1978 1979 E. New Brit. 17,230 19,280 16,246 15,673 20,220 20,866 North Sols 12,709 13,841 12,726 11,954 14,222 12,258 New Ireland 14,897 15,834 13,566 13,851 11,895 4,846 Madang 10,247 11,193 11,863 11,332 7,917 13,310 W. New Brit. 6,803 8,214 7,332 14,544 3,954 5,416 Others 10,810 10,320 8,635 7,604 10,492 6,282 Total 72,696 78,682 70,370 74,958 68,700 62,978 (c) Total E. New Brit. 32,818 34,366 32,958 30,740 42,712 North Sols 23,471 24,747 21,098 26,833 23,773 New Ireland 24,247 25,117 23,360 24,720 10,533 Madang 14,458 16,681 16,612 17,942 21,430 W. New Brit. 8,847 11,360 10,557 17,782 10,518 Others 22,906 21,961 19,269 17,415 19,618 Total 126,747 134,232 123,854 135,452 128,584 Sources: Department of Primary Industry and Bureau of Statistics Table 6: Rubber Production by Provinces (tonnes) (a) Smallholder Province 1973-4 1974-5 1975-6 1976-7 1978 1979 Western/Gulf 55 61 Figure 99 n.a. n.a. wrong Central 120 141 1,119 320 n.a. n.a. Milne Bay/Northern 70 65 47 133 n.a. n.a. Others 3 2 Figure 2 n.a. n.a. wrong Total 248 269 1,137 554 417 555  Appendix 2 Page 6 Table 6 (Cont'd) (b) Plantations Province 1973-4 1974-5 1975-6 1976-7 1978 1979 West/Gulf 394 289 219 137 n.a. n.a. Central 4,809 4,267 2,926 3,355 n.a. n.a. Milne Bay/Northern 740 554 484 218 n.a. n.a. Others 108 176 145 158 n.a. n.a. Total 6,051 5,286 3,774 3,868 3,568 3,688 (c) Total West/Gulf 449 350 - 236 n.a. n.a. Central 4,929 4,408 4,045 3,6753 n.a. n.a. Milne Bay/Northern 810 619 531 351 n.a. n.a. Others 111 178 - 160 n.a. n.a. Total 6,299 5,555 4,911 4,422 3,985 4,243 Table 7: Oil Palm Production (tonnes) Fresh fruit 1975-6 1976-7 1977-8 1978-9 Smallholder ) 98,722 87,369 94,031 102,231 Village ) 3,353 4,274 6,207 Estate 50,115 58,524 47,765 57,769 Total 148,838 149,246 146,070 166,207 Total oil 27,086 27,628 28,673 32,395 Kernel 2,046 3,035 3,558 4,806  Appendix 2 _ 56 _ Page 7 Table 8: Tea Production (tonnes) 1974-5 1975-6 1976-7 1978 Smallholder n.a. 150 235 188 Estate 3,862 4,454 5,390 6,278 Total 3,862 4,604 5,625 6,466 Table 9: Volume of Export Major Agricultural Products (tonnes) Commodity Copra Copra Palm Coffee Cocoa Tea Rubber oil oil beans beans 1.970 85,617 21.670a - 25,783 23,700 689 6,330 1971 92,021 27,161a - 23,934 27,827 1,169 6,337 a 1972 87,515 26,501 3,464 28,193 29,269 1,803 5,934 1973 79,785 27,713a 8,066 31,158 22,071 2,792 5,616 1974 73,568 26,806a 8,734 32,713 28,742 3,965 6,127 1975 95,455 26,565a 18,438 36,769 35,498 4,489 5,474 1976 92,764 25,482 27,087 37,182 30,431 5,633 4,662 1977 87,733 29,743 24,532 36,965 29,392 6,142 4,152 1978 92,164 29,088 28,4