“impact of foreign exchange on agriculture exports … to cimc 17 july... · “impact of foreign...

Bank of Papua New Guinea

Presentation at the

CIMC AGRICULTURE SECTORAL COMMITTEE

“IMPACT OF FOREIGN EXCHANGE ON AGRICULTURE EXPORTS AND IMPORTS”

by

Gae Kauzi

~17th July 2018

Crown Plaze Hotel, Port Moresby


Outline of presentation

1. Contribution of Agriculture sector to GDP

2. Lending to Agriculture sector

3. Balance of Payments

4. Agriculture Exports & Imports

5. Foreign Exchange Market Developments


1. CONTRIBUTION OF AGRICULTURE

SECTOR (% OF GDP)

Agriculture sector is growing very slowly in value terms

But agricultures sector contribution to total GDP has declined

The Agriculture sector needs an effective policy response to diversify the economy.


CONTRIBUTION OF AGRICULTURE SECTOR (% OF

GDP)

18.4%

9.8%

16.6%

6.4%8.0%

7.2%

5.9%

27.7%

Agriculture, Forestry &Fisheries

Mining

Oil & Gas

ConstructionWholesale &Retail

Administrative Support

Real Estate

OtherIN 2017 (EST)

Agriculture share alone would be smaller, exacerbated by the decline in contributions from coffee, cocoa, copra

and copra oil sub sectors. The decline is due to change in ownership structure from plantation to smallholding.

Also, lack of support in extension services provided by the Government to the smaller holders resulting in the

shrinking share of agriculture sector’s contribution to GDP

Other sectors share of 27.7 percent comprised of other sectors contributions that are grouped together

20.3%

16.4%

3.8%9.8%11.8%

7.5%

6.5%

23.9%

Other

Agriculture, Forestry & Fisheries

Mining

Oil &Gas

ConstructionWhole

Adminsitrative Support

Real

IN 2014


Lending by sector including to Agriculture

K’ Million

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

1,800.0

2,000.0

2010 2011 2012 2013 2014 2015 2016 2017

Agriculture

TransportandCommunicationBuilding andConstruction

Hotels andRestaurants

Real Estate,Renting &BusinessServices

Lending to the Agriculture sector over the years to support production is dismal due to the risks

associated with collateral issues. This stems from shift in ownership structure from Plantation to

smallholding and reflected through a drop in foreign exchange earnings as well.


EMPLOYMENT RATE BY INDUSTRY WITH AGRICULTURE INCLUDED

TOGETHER AS AGRICULTURE, FORESTRY AND FISHERIES SECTOR

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Retail

Wholesale

Manufacturing

Construction

Transportation

Agriculture, Forestry,FisheriesFinancial, Business & Otherservices


BALANCE OF PAYMENTS

• LARGE CURRENT ACCOUNT SURPLUS IS NOT TRANSLATING INTO

INCREASED FX INFLOWS INTO THE FOREIGN EXCHANGE MARKET

• FUNDS ARE HELD IN OVERSEAS FOREIGN CURRENCY ACCOUNTS UNDER

PROJECT DEVELOPMENT AGREEMENTS


Total Agricultural Export and by Commodity - K’ Million

-

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

2010 2011 2012 2013 2014 2015 2016 2017

Tea

Palm Oil

Copra Oil

Copra

Tea

Coffee

Cocoa


Agricultural Exports, Non-Agricultural and Total Exports

K’ Million

-

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

35,000.0

2010 2011 2012 2013 2014 2015 2016 2017

Agriculture Exports

Non-Agriculture Exports

Total Exports

Agriculture 13.4% 18.5% 13.7% 11.3% 8.8% 6.8% 8.5% 6.9%

Non-Agriculture 86.6% 81.5% 86.3% 88.7% 91.2% 93.2% 91.5% 93.1%


Total Agricultural Import and by Commodity (subsector)

K’ Million

-

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

2012 2013 2014 2015 2016 2017

Rubber Palm OilCopra Oil CopraTea CoffeeCocoa


EXCHANGE RATE

• PGK Depreciated by 40 % since 2012

• Favourable exchange rate levels to encourage Agriculture

Sector to increase production and exports


Foreign Exchange inflows have been consistent throughout these years

Why is the Kina depreciating?


The net outflows have been met adequately and in some case more than enough by the BPNG’s

interventions

The interventions has achieve a gradual depreciation of the kina exchange rate consistent with the

Bank’s price stability objective.


Excess Demand as measured by Outstanding Orders is not consistent with slowing economy.

Some orders do not have Kina at the time of settlement, which suggests front loading of import

orders, hence the persistent outstanding orders.

Some of the large orders are Dividends.


AGRICULTURE FX INFLOWS vs. TOTAL FX

INFLOWS

Foreign exchange inflows from the Agriculture Sector is small

Performance over the years have been steady


AGRICULTURE OUTFLOWS vs. TOTAL OUTFLOWS


• Main export from the Agriculture sector is Oil Palm

• Coffee continues to decline while vanilla export is not fully

recorded due to most of trading over the PNG border

0%

10%

20%

30%

40%

50%

60%

2013 2014 2015 2016 2017 2018

Livestock Cocoa Coffee Copra Oilpalm

Rubber Sugar Tea Vanilla

SUPPLY OF FOREIGN EXCHANGE FROM THE AGRICULTURE SECTOR


• Big increase in demand for foreign exchange from livestock

(feeds, etc)

• Since 2017, there has been an increase in demand for foreign

exchange from the Oil Palm… repayment of FC loan

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2012 2013 2014 2015 2016 2017 2018

Livestock Cocoa Coffee Copra Oilpalm

Rubber Sugar Tea Vanilla

DEMAND FOR FOREIGN EXCHANGE FROM THE AGRICULTURE SECTOR


Foreign Exchange Reserves

• BPNG intervenes to support FX market and

smooth the exchange rate movement

• Current international reserves around

US$1.7 billion (K5.5 billion)

• Sufficient for approx 5.1months of total and

9.0 months of non-mineral import cover


• The gross foreign reserves have remained around US$1.7 billion for the last two years.

• Decline is due to decline in mineral & dividend taxes and intervention to assist domestic

foreign exchange market

• As of end June 2018, it was US$ 1.730 (K5.6) billion

• The current import covers at the end of March 2018 are:

5.8 months for total

8.9 months for non-mineral


CONCLUSION• The Government needs to diversify the economy by

focusing on investments in the Agriculture sector.

• The impact of the shortage in Foreign exchange is

mainly on the livestock segment.

• The current exchange rate is conducive to increase

production in agriculture for exports.

• Why Agriculture is important to the economy; • Source of foreign currency income

• Source of employment

• Source of revenue to the State

• Food Security for the nation


Thank you

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