2000 metric tonnes head to Europe

Baeau Tai
Ramu Agri-Industries Limited (RAI), a company with a vision to transform itself into a multi-crop company, is expected to make its first export of 2000 metric tonnes of crude palm oil (CPO) to the European market in its first shipment in mid-May.

The company’s initial oil production that started on February 11 was “successful with minimal technical glitches”, RAI’s Sales and Marketing Manger, Greg Baker told ISLANDS BUSINESS.

“We have a contract agent who purchases the RAI crude palm oil and then onsells into the European market,” he said.

This year is a significant year for the company because it is producing crude palm oil for the first time and selling it apart from cattle and beef products, as well as sugar, molasses and ethanol under its diversification programme.

The objectives of the diversification are to spread overheads over a range of products and change the company from the monoculture of sugar to cushion it against the vagaries of climate and world sugar price movements.

“The prospects for oil palm are very promising,” RAI chairman, Peter N Colton had told the company’s annual meeting in September 2007.

“RAI is at the cusp of a very exciting phase in its development and growth,” he said.

Price for crude palm oil in Europe is at a record high which will make our investment beneficial to our shareholders,” said Colton.

The RAI board has decided to approve an increase in the planted area from 5500 hectares to 7500 hectares and increase the capacity throughput of the mill from 30 tonnes to 45 tonnes per hour.

“We have in effect accelerated our expansion plans to take advantage of the fact that our yields are better than projected and the buoyant state of the palm oil market.”

So far, the company has made a K100 million (US$37 million) investment in the oil palm business. Phase II will be the doubling of the existing 7500 hectares in the Dumpu to Walium area and the construction of a new mill.

“Future development plans include the possible building of a second 45-tonne of fresh fruit bunch per hour mill at Dumpu. This will be determined by the availability of land and investment funds,” Colton said.

Village farmers have around 100 hectares under development at the moment and RAI hopes to increase this to 750 hectares. An agreement has been signed between RAI, the National Development Bank and the Morobe and Madang Provincial governments to achieve the target of 750 hectares.

RAI, the new name changed from Ramu Sugar Ltd, better reflects the broad spectrum of activities it is undertaking and will continue to market its products under the brand names of Ramu Sugar, Ramu Ethanol and Ramu Beef.

The company has been successful in leasing an additional 7500 hectares of land at Leron.

This increase in the “land bank” will enable the company to expand the beef herd to around 25,000 cattle.

The annual turn off will then increase from the current 4500 head to 8000 head. A market study has shown that RAI has nine percent of the domestic beef market and plans are underway to increase its market share to 20 percent through import substitution.

The company’s 100-hectare cashew trials are progressing well. If these prove successful, RAI’s long-term plans are to plant up to 1000 hectares and possibly commission a processing plant.

The board has also commissioned a small scale bamboo trial to determine whether bamboo can grow sufficiently well in Ramu and Markham Valley to generate economic returns from products such as flooring and dehydrated bamboo shoots.

Sugar is the company’s main revenue earner. Last year, the company suffered from a combination of adverse weather conditions and pests and diseases.

“Currently, we are primarily dependent on sugar revenues,” Colton said. Any decline in cane production has a major impact on our profitability and on our ability to generate cash to take the company forward, he said.

This dependence on sugar revenue underlines the wisdom of the diversification strategy.

Other options: One reason for the low cane production last year was RAI’s inability to plant and maintain around 1200 hectares of our growers’ land due to land ownership disputes.

The chairman has signed a Memorandum of Understanding with the parties who are disputing ownership to give RAI full access to this land.

The cane supply difficulties prompted the company to restructure and strengthen the agricultural function by outsourcing cane production to its former corporate managers Booker Tate.

The cane recovery programme is well on track and RAI  expects to achieve its target of 500,000 tonnes of cane in 2009.

The board is considering other options to strengthen its earning potential in the medium term, such as the possibility of going into bio-fuel production. “

“From this year, our diversification programme will kick in and our reliance on sugar will start to reduce,” Colton said.

“Sugar will continue to be the key driver of the company because we see the domestic market growing.”
RAI’s plan is that by 2009 it will be back to 48,000 tonnes of sugar and then will review how much further it needs to expand to fulfill the domestic demand and key niche export markets.

For the first time this year, the domestic sugar market is expected to exceed 40,000 tonnes. Because its crop recovery programme is still underway, it will again need to import some sugar to ensure it can meet this additional domestic demand.

To meet the challenges of the new business environment, the diversified agriculture company is committing extra resources to people development.

Key senior and middle national managers with potential are being identified and offered accelerated and tailor-made professional training.

Baker describes the company as unique as it is one of PNG’s leading agri-industrial companies. “We are one of the private sector’s largest employers and employment opportunities continue to increase with diversification.”

There are 2200 full-time employees and 800 seasonal workers. Currently, the company is sending a recruitment team to Madang, Lae and elsewhere to recruit seasonal employees for its 2008 crop.

As Baker puts it, RAI is a “Papua New Guinea success story”. It is majority-owned by Papua New Guineans and is a major contributor towards the growth of the agricultural industry. Continued development and diversification plans will ensure it continues to grow, adding value to its shareholders, creating employment and contributing to the continued economic growth of Papua New Guinea.”