Home > Corruption, Human rights, Land, Papua New Guinea > Rice monopoly is not good says ICCC

Rice monopoly is not good says ICCC

January 21, 2012 Leave a comment Go to comments

THE proposed Central Rice project has come to the attention of the Independent Consumer and Competition Commission, reports the Post Courier. The Commission is aware of since it is a member of the National Planning Steering Committee (NPSC) of the rice project which consists of relevant government departments headed by the Department of Agriculture and Livestock, the lead agency and proponent of the project.

The Commission opposes certain concessions in the project deed of agreement, particularly granting exclusivity rights to the developer, Naima Agro-Industry Ltd (Naima), for a 20-year period which will grant monopoly power to Naima. The possible negative implications as identified by the Commission for granting exclusivity to the developer will be:

  • Likely to have the effect of substantially lessening competition in the market, leading to developer gaining monopoly power over the rice industry in the country. The PNG economy has had bad experiences with business operating with monopoly power in delivery of particular products or services in the past and present, and rice now being the staple food for all PNG citizen, it is obviously too risky to allow a monopoly in the rice industry as the welfare of all rice consumers in the country will be at stake.
  • Undermines at one stroke the long-standing policy of successive governments to encourage and create income-earning opportunities for Papua New Guineans who are not part of the formal economy, and to create additional such opportunities in small scale rice farming. This will remove income-earning opportunities for many Papua New Guinean small-holders growing rice, particularly the rural population, who are already under financial and economic pressure which is causing ‘urban drift’, which is putting additional pressure on our towns and cities.
  • Rice will be produced considerably in excess of domestic demand, as per the estimated rice production projected by the developer, of which about 90% will be exported. Around 10% of the rice produced will meet the annual domestic rice demand for the country. This will mean the entire rice market requirement in the country will be taken up by the Naima and rice supplied by the current players will no longer be purchased, milled and sold, thus putting them out of business and there will not be possibilities for any new players to invest in rice production in competition with Naima, because of the exclusivity to be granted to it.
  • The Commission is also against the concession requested by Naima to impose 60% – 100% levy on other rice importers for at least 24 months. The Commission assumed that this is a strategy whereby the developer is anticipating to utilize onerous concessions to capture 100% rice market share in the country. Major negative economic implications the Commission believe will prevail in the economy should other rice importers be penalized with high levy includes;
  • Drive all existing major players out of rice market, including growers, millers and importers. This will mean employment loss for people being employed by the exiting rice suppliers in the country. This is unfair for some players who had been investing in PNG for a long period of time;
  • A most definite outcome of huge rice price inflation, which will result in consumers paying up to 100% more than the current market prevailing price. From the Commission’s vast experience on pricing in the retail and wholesale industry especially on the declared goods and services which the Commission monitors, prices at retail and wholesale level do not follow what is expected or projected in such proposals since most players in the these markets seek to exploit all available opportunities to maximize profits. Once tariff protection is granted by State agreement, it cannot be reversed for the agreed period. The incentive for the beneficiary, therefore, is to exploit the opportunity by pricing to the ‘import parity price limit’ which would include any agreed tariff increase on imported rice. A rational economic approach is needed here to prevent the grant of such concessions stifling existing competition within Papua New Guinea, and to safeguard the interests of all rice consumers in the country.
  • There is no incentive at all for Naima to actually produce any rice because if it fails to do so it is protected from financial penalty for such failure by the project agreement, and it can import rice under a 60-100% tariff, and price up to import parity price. This will lead to;
  • Up to a 100% rise in the price of rice; and
  • A windfall gain to the monopoly holder, Naima

As the leading economic regulator with vast experience in the pricing of declared goods and service in the country, the Commission is of the view that these two concessions alone (and there are more in the Project Agreement) will have severe implications on the country as these concessions will grant monopoly power to the developer.

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  1. Karsie
    January 24, 2012 at 2:37 am

    Hi folks. There is also a much bigger issue associated to this..that the rice company is linked to the Indonesian criminal/fugitive who is also listed on Interpols’ wanted list. The Government has engaged with an international criminal and this is absolutely wrong. Even if Dr. Puka Temu’s explanation tries to include the positives, this should be seen as ill-conceived als esp when he is also aware that the principle owner is a known criminal. Where has the moral decency of leaders gone?

  1. September 12, 2013 at 10:46 am

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