Producer organisations that add value: A case study in Papua New Guinea

Abstract

This research was motivated by renewed support for cooperatives in Papua New Guinea, and the government’s intention to introduce new cooperative policy and legislation. Of concern is that the proposed policy changes do not address weak institutional and governance arrangements that constrain value-adding in traditional marketing cooperatives. This study highlights problems that warrant attention by contrasting two producer-owned organisations established to process and market commodities produced by smallholders in Papua New Guinea. These organisations, a cocoa cooperative and a rubber company, differed markedly in their value-adding performance despite similarities in their patron-shareholders and markets. The low-performing cocoa cooperative took on all of the investor-unfriendly institutional arrangements that characterise a traditional cooperative, denying its patron-shareholders the opportunity to realise capital gains and to benefit in proportion to their investment. By contrast, smallholders were able to realise capital gains on their investments in the high-performing rubber company, and also benefited from dividends proportional to their investment. Most importantly, these investor-friendly institutional arrangements were extended to a strategic partner that contributed capital, marketing contracts, and expertise to the company. Key policy recommendations are to legalise and promote investor-share cooperatives, establish a code of good conduct for strategic partners, allow smallholders to nominate and elect experienced directors from outside of their own ranks, and to provide the same level of initial support to producer organisations regardless of their juristic status