PNG Kina rate affects FFB price
Port Moresby: The two main factors that affect the income from growing oil palm for both plantations and smallholders are:
- the world price of palm oil
- and the value of the PNG Kina against the US dollar(palm oil is traded in US dollars).
The effect of the value of the Kina is often overlooked. In recent times, with the booming LNG and mining sectors have caused a strengthening of the Kina and the negative impact on agricultural exports is very significant.
The purpose of this brief was to illustrate the effect of the strengthening PNG Kina on smallholder Fresh Fruit Bunch (FFB) farmgate price.
The discussion below used an example the FFB farmgate price data from Hoskins.
The same effect would be seen with prices from other oil palm project areas.
In December 2010 the PNG Kina was worth about $US0.37 and now is worth about $US0.48- an increase of almost 30%.
The simplest way to see the impact this has had on FFB prices is to compare two-months during this period when the World Crude Palm Oil (CPO) price was the same and also making the reasonable assumption that other variables in the formula such as freight, extraction rates and transport costs are consistent.
Using the Hoskins data, the graph below compares prices in December 2010 and April 2012 when the World CPO price was roughly the same ($US1,170 in Dec 2010 and $US1, 1,160 in April 2012).
- December 2010 PNG Kina worth 0.37US$ and FFB process was K372.88 (equivalent to $US137.97)
- April 2012 PNG Kina was worth 0.48US$ and FFB price was K276.01 (equivalent to $US132.48)
The US$ equivalent of the FFB price paid in December 2010 was only 44% ($5.49) lower than that paid in April 2012 (likely due to the 00.84% lower World CPO price and differences in other local variables such as transport cost). However, the PNG Kina equivalent of the price paid in April 2012 was 26% (K96.8 7) lower than in December 2010, even though the World CPO price was about the same. This is shown as the triangle labelled �FXX Impact� in the graph.
Thee graph also showed two earlier months (April 07 and July 09) when there was no significant difference in PNNG Kina/US$ exchange rate and the World CPO was the about the same, consequently the price paid to growers for t heir FFB in these two months was the same.
In simple terms, and assuming all variables except the Kina exchange rate in the FFFB price formula are consistent, it could be concluded that the 30% strengthening of thee PNG Kina against the US$$ has resulted in growers receiving about 25-30 per cent less Kina for t heir FFB.
It should also be noted that the milling companies are similarly affected and are also receiving about 25-30 percent less (in PNG Kina terms) for their palm oil export sales.
- and the value of the PNG Kina against the US dollar(palm oil is traded in US dollars).
The effect of the value of the Kina is often overlooked. In recent times, with the booming LNG and mining sectors have caused a strengthening of the Kina and the negative impact on agricultural exports is very significant.
The purpose of this brief was to illustrate the effect of the strengthening PNG Kina on smallholder Fresh Fruit Bunch (FFB) farmgate price.
The discussion below used an example the FFB farmgate price data from Hoskins.
The same effect would be seen with prices from other oil palm project areas.
In December 2010 the PNG Kina was worth about $US0.37 and now is worth about $US0.48- an increase of almost 30%.
The simplest way to see the impact this has had on FFB prices is to compare two-months during this period when the World Crude Palm Oil (CPO) price was the same and also making the reasonable assumption that other variables in the formula such as freight, extraction rates and transport costs are consistent.
Using the Hoskins data, the graph below compares prices in December 2010 and April 2012 when the World CPO price was roughly the same ($US1,170 in Dec 2010 and $US1, 1,160 in April 2012).
- December 2010 PNG Kina worth 0.37US$ and FFB process was K372.88 (equivalent to $US137.97)
- April 2012 PNG Kina was worth 0.48US$ and FFB price was K276.01 (equivalent to $US132.48)
The US$ equivalent of the FFB price paid in December 2010 was only 44% ($5.49) lower than that paid in April 2012 (likely due to the 00.84% lower World CPO price and differences in other local variables such as transport cost). However, the PNG Kina equivalent of the price paid in April 2012 was 26% (K96.8 7) lower than in December 2010, even though the World CPO price was about the same. This is shown as the triangle labelled �FXX Impact� in the graph.
Thee graph also showed two earlier months (April 07 and July 09) when there was no significant difference in PNNG Kina/US$ exchange rate and the World CPO was the about the same, consequently the price paid to growers for t heir FFB in these two months was the same.
In simple terms, and assuming all variables except the Kina exchange rate in the FFFB price formula are consistent, it could be concluded that the 30% strengthening of thee PNG Kina against the US$$ has resulted in growers receiving about 25-30 per cent less Kina for t heir FFB.
It should also be noted that the milling companies are similarly affected and are also receiving about 25-30 percent less (in PNG Kina terms) for their palm oil export sales.
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