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Question Factors causing Kina Value

What is the main factor that Foreign exchange to Depreciate 1. Depreciation is caused
has caused the kina value to shortage by foreign exchange
depreciate resulting in Low exchange rate Foreign Exchange Shortage shortage or low
increased wheat price in PNG? Lower reserves  Low exchange rate exchange rate because
• The kina value is depreciating due Backlog of orders  Lower reserves it contributes to
to the foreign exchange(forex) Import  Large backlog of backlog of orders,
shortage in Papua New Guinea compression orders import compression
since 2015. As low exchange rate Forex shortage  Import Compression and supply demand
results in lower reserves, leading to Reduced growth  Supply demand mismatch which drops
large backlog of orders and imports Investment Mismatch our currency against
compression as caused the kina to Prolonged supply - Low takings other currencies.
depreciate. (The path to kina demand mismatch from
convertibility: An analysis of Papua Low takings resources 2. In addition, the
New Guinea's foreign exchange resource projects - Fall in Australian dollar
market, 2022) Fall in commodity commodity/tr gained more on
prices ade mineral export which
• As a result of import compression Term of trade fall - Expectation of increased inflation in
by forex shortage it has reduced Expectation of depreciation U.S and this add
growth and investment and has depreciation - Budget Deficit downward pressure on
reap future export opportunities Backlog orders our economy.
Budget deficit Australian Dollar gained
• The factors that have contributed Increased demand more
to the forex shortage is a prolonged Dollar gained more  Inflation in U.S 3. Fiscal and monetary
supply demand mismatch the Inflation in U.S  Reduced stimulus with the
reason for reducing supply include; Forex shortage growth/investment expectation of
government takings from resource Geopolitical issues depreciation made
projects are low due to the fall in Covid Pandemic Geopolitical Issues/ Covid foreigners to reduce
commodity prices, fall in terms of Fiscal and pandemic investments, as made
trade, there is an expectation of a monetary Stimulus low takings from
depreciation, backlog of forex by government Fiscal and monetary resources due to the
orders and budget deficit and for Import Tariff charge stimulus fall in commodity
the increased demand; propensity prices, term of trade
to import by private sector is high, and budget deficit
Fiscal policy settings and high
propensity to import of 4. geopolitical issues
government. between Russia and
Ukraine as Russia is
• In 2020 the Australian dollar world leading wheat
gained more on mineral export producer and fuel
which appreciated against the U.S. made it difficult
dollar and this contributed to because of sanctions
putting downward pressure on our against Russia and the
domestic currency and exchange covid pandemic
rate as the U.S. is experiencing restrictions caused
inflation (Group, 2021) This has delays.
resulted in a decline in
capital/infrastructure investment,
income tax collection and shortage
of foreign exchange

• The other things that also

contributed to the kina devaluating
and causing price of wheat (flour)
to increase are the geopolitical
issue between Russia and Ukraine,
the covid 19 pandemic, fiscal and
monetary stimulus programs by the
government, the tariff charged on
wheat (flour) and members of the
Melanesian Spearhead Group who
are freed from tariff (The National,
2022)

Green: Foreign exchange shortage

Yellow: AUD dollar gained more
Blue: Geopolitical issues/covid
pandemic
Pink: Fiscal and monetary stimulus
What do you think about the Bad for customers The negative and positive 1. I t is bad for customers
government for increasing tariff Needed for survival impacts of increased tariff as they are the ones
charged on imported wheat by Negative tariff view who will endure all the
price in PNG? Local industries  Bad for customers cost, even a bad
Negative impact on  Competition in impact on market
• Firstly, tariff on imported competition market competition as the
flour/wheat is bad for the Market and wheat  Wheat price prices will continue to
consumers but local industries like price increase increase increase.
Goodman fielders need tariff in Provide  Labor cost increase
order to survive employment  Minimal 2. The industry will
Promote local employment increase labor cost to
• It will have negative impact on investment  Decrease imports compensate the price
competition in the market and Increase labor cost  Scarcity increase on wheat as
wheat prices will continue to Create there is a decrease in
increase employment Positive tariff view imports results in low
minimal production and
• This will provide local Increase producer’s  Needed for survival scarcity in the market.
employment and promote local surplus  Promote local
investment Decrease import employment 3. Goodman Fielders
Cause scarcity  Promote local need tariff to survive
 The protection on local Price rise investment because of foreign
industries by high tariff will  Increase producers threats and cheap and
increase the labor costs Surplus inferior imports
causing chaos and
 (Pacific Economic Bulletin)
 The creation of
employment by local
protected industries is
minimal unlike the
potential employment in
industries that export
(Pacific Economic Bulletin).
 The domestic industry will
experience an increase in
producers surplus and will
decrease amount of import
causing scarcity in domestic
market and prices to rise
(Predicting impact of PNG
2018-2019 tariff increase)
Blue: Negative Views
Dark Yellow: Positive View
Do you think being a price taker
of wheat as caused this
increase in price?
 PNG is a price taker and
when it comes to externally
driven factors such as food
prices the challenge is for
the bank to limit these
prices onto passing to
other prices. (Commodity
and Food prices, inflation
and monetary policy in
PNG 2011).
 As PNG continues to be a
price taker and importer of
wheat, the company must
accept whatever price that
is set in the market of its
product as it lacks the
market share to influence
the market price, all
downward pressure a felt
on the prices( Ocran, 2007)
 Wheat price is referred to
as exogenous variable
therefore it is determined
according to the world
estimated loss to the
company.
4. It will promote local
investments
opportunities which
may cause the
industry to expend
and create more
employments as a
result of increase
producers’ surplus.
Influences on being a prices 1. the bank limit them
bank limiting prices taker from passing to other
onto passing prices prices since it is in
Accept product Challenges being price charge of issuing
price set takers currency and
Lack market share  Bank limiting prices managing foreign
No market onto passing exchange in PNG,
influences  Lack market share
Downward  No market 2. As it lacks market
pressure felt on influences shares to influence
prices  Downward Pressure price, it accepts
Price set by world felt on prices product market set by
market  Positive or negative the world market and
Either positive or impact on food the downward
negative impact inflation pressure either
Food inflation on  Half income spent negative or positive is
price taker on food felt on price and can
Half income spends cause inflation.
on food Influences by price
Determined by
money demand  Accept product 3. It reacts to foreign
and imported market set prices because wheat
inflation  Price set by world is a tradable food and
React to foreign market price movement
prices  By Money demand depends on
and imported commodity prices,
inflation money demand and
imported inflation
 market, any increase or  React to foreign making half of the
decrease in wheat prices prices income spent on food.
will have either positive or
negative impact on the
domestic and food inflation
as PNG is a food importer
and price taker
 PNG is a net importer that
spends half of its
household income on food
and is a price taker the
price level is determined by
the money demand and
imported inflation. (Food
inflation and its impact
PDF).
 Since wheat is a tradeable
food the price movements
of this tradeable food
commodities react to
foreign prices.

Yellow: Challenges
Pink: Influences
What was customers reaction Customers reaction towards 1. Many customers
towards the increase in wheat price increase switch to starch to
product prices? Felt biggest substitute wheat foods
• According to the National dated squeeze in finance Positive reaction from because it was
august 18 2022, customers felt the by local SME or customers starches that was
biggest squeeze in their finance, household firms  Switch to starch cheap and affordable
especially local SME like poultry Add to pay more  Substitute wheat for everyone, but rich
farmers or household farms add to Switch to starch  Rich people protect people where
pay more Substitute wheat themselves protected as they have
Poor people money and are able to
• Customers tend to switch to penalized Negative reaction from buy the products
starches to substitute wheat if they No protection customers without getting
are cheaper( against  Felt finance squeeze affected.
 People who are poor are consequences by local SME,
penalized and they are less Less able against household firms 2. Local firms and
able to protect themselves high price  Add to pay more customers had to
against any consequences  Poor people tighten their finance
and less able to hedge penalized because more add to
against the high prices  No protection on be paid and no
poses unlike the rich consequences protection on
people. (Food inflation and  Less able to hedge consequences making
its impact PDF). high price poor people penalized
and hedge the high
price.
Green: Positive Reaction
Blue: Negative Reaction
How does customers demand Not important 1. The customer’s
for wheat products affecting towards sales Customers demand on sales demand is not
the sales? Remains the same  Not important important towards
Quantity towards sales sales it remains the
• Customers demand for wheat demanded change  Remains same same because it is the
does not play an important role Quantity demand  Quantity demand quantity demanded
toward the sales of wheat it increase so does change that changes therefore
remains the same the quantity prices  Sales not affected making sales not
demanded is the one that changes. Sales reduced Less affected.
As customers quantity demand for demand, lower Quantity Demand/ Price
wheat decreases results in lower prices and more  Increase price, less 2. Sales can be affected
price and sales but if customers sales sold by the price and
quantity demand increase of the Quantity supplied  Price decrease, quantity demands
wheat that means prices may be decrease more sales, quantity because as quantity
too high and more sales but decrease supply decrease increase so does price
quantity supplied decrease. Sales not affected and this reduces sales
moreover prices
 it is not the customers decrease so does
demand that affects sales quantity, more sales
but the changes in the but quantity supply
international commodity decreases.
prices that will affect the
domestic demand and the
effect through balance of
payment that will
determine how much is the
value of kina exchange
rate. If prices increase less
will be sold but if the price
decrease more sales will
take place (PNG Inflation
PDF)

Yellow: Customers demand on

sales
Pink: Quantity demand/ price

What will happen to the impact on production level 1. Staff laid off will cause
production level if less people Purchasing power when less employees real value of money to
are employed? decrease decrease as prices
Price increase Lack Skilled employees increases the demand
• He further stated that the Economic  Purchasing power of products will
purchasing power of these goods downturn decreases cumulate and our
will decrease and be less available Staff laid off,  Price increase economic will go down
or increase in price on the local increase  Economic downturn causing production
markets, following an economic unemployment  Staff laid off level to decrease
downturn, staff laid off, increase Cumulative  Cumulative demand because of unskilled
unemployment, and cumulative demand  Production employees who are
demand. (Lea D,2018) Not hurt growth decrease not qualified to do the
 According to an article the remain same/grow job.
decline in manufacturing Production Technology advances
jobs is not really a concern decrease  Increase 2. The production level
as it will not hurt growth as unemployment will remain the same
technology advances  Not hurt growth and unemployment
 Even if less people are  Remain same or will increase because
employed but there are grow of new advantages
few skilled employees the technologies which
production level will have made work
remain the same or may easier and faster
grow but if those remain therefore will not hurt
lack skills than the growth, production
production level will will grow or may
decrease (The remain the same.
manufacturing skills gap)
Green: Technology Improvement
Blue: Lack Skilled Employees
What is your response to the Save cost on import Views on wheat as a cash 1. To grow wheat into a
government who is now Safe on road with crop cash crop is good it
considering to make wheat one bulk saves cost because
of its cash crops? Money given to Positives on wheat growing less will be spent on
• our government and domestic local  Save cost/ brings importing wheat and
suppliers can save cost on import, Reduce import money to country road cost is also
it’s safer to travel on the road with dependence  Safe on road with cheap.
bulk as container may cost a lot and Bring money into bulk 2. Bring money into the
also, we are giving back money to country  Money given to local country and locals
our local farmers which will also Bring money to  Reduce import benefit through selling
reduce the full dependence on country dependence of wheat overseas and
imported wheat ( Anzu S, 2011) Funding needed  Bring money to reduces import
• It can also be a potential export No proper research country dependences as wheat
cash crop for our country, it will No farming  Contribute to food is now grown locally to
help bring money into the country machinery security save import cost and
and as NARI’s research target is to Basic tools used  High potential help towards food
expand food and feed sources in Poor quality growing security as potential
high altitude places, but to proceed information for growing is high.
in growing wheat.( National High potential Negatives on growing wheat
Agriculture Research Institute growing  Funding needed 3. Making wheat a cash
2011) Contribute to food  No proper research crop is bad because
 funding is needed in order security  No farming we lack funding with
to help carry out research Lack process skills machinery/tools no proper research, no
as no research as being  Basic tools used farming machine with
carried out to improve our  Poor quality poor quality
information and
 agriculture practices, pest information process skills will lead
and diseases control, and  Lack process to failure in the future
no machinery to be used in skills/research if we grow wheat
farming. ( National because basic tools
Agriculture Research cannot be used in
Institute 2011) cultivating a product
 There are already wheat that relies on certain
growing trails in Western climate and water
Highlands, Simbu and Enga patten.
and the results shown have
been very well including
farmers processing the
wheat using basic tools but
poor-quality information
on nutrition and how to
process is lacking (National
Agriculture Research
Institute (NARI),2011).
 According to National
Agriculture Research
Institute (NARI) PNG has a
very high potential in
locally growing wheat and
contributing to food
security

Yellow: Positives on wheat growing

Blue: Negative on wheat growing
What was a significant change 1. Goodman Fielders can
in Goodman Fielders when bulk Quantity taken in Improvements now take large
wheat imports were introduced large amount number of quantities
in PNG? Reduce logistic  Quantity taken in because the bulk rate
issues large amount is much lower than the
• According to grain central by Liz Freight rate soften  Reduced logistic container and this
Wells dated June 28 2019, the Bulk market issues helps reduce the price.
shipment in bulk enables buyers softens  Freight rate soften 2. Issues relating to
like the millers to take quantities in Widened gap for  Wider gap container logistics
large amounts at one time, to help container and bulk and bulk Have decreased
reduce the logistics issues that because of bulk which
were connected to large number of is easier in transferring
containers.( wells L ,2019) goods in large amount
 The freight rates in the bulk rather than having
market have softened and many containers and
that has widened the gap this as widen the gap
between container and between container
bulk freight and bulk.
Green: Improvements
What do you think about reducing 1. The reduction will
tariff on imported wheat and will it increase threats for
help the company? Increasing threats Tariff reduction views by the company because
• Papua New Guineas local cheap imports company this will make foreign
producers are experiencing Dumping ground companies to bring in
increasing threats from foreign Loss to company  Increases threats cheap imports and
companies who are bringing in Flour deteriorates  Cheap imports PNG will become a
cheap imports and dumping them Cause chaos  Dumping ground dumping ground
in our country. The PNG Goodman Tariff neither  Loss to company making flour
fielder’s General Manager for sustain industry  Deteriorating flour deteriorate.
operation, Peter Tannahill, said that nor economic  Cause chaos
because of the cheap and inferior growth  Neither sustain 2. The company will
flour imports he estimates, that will Reduce industry make a loss because
cause loss to the company opportunities  Reduce tariff did not sustain
especially its major sales volume. Adjustments opportunities the industry, chaos will
He further says that Containerized become difficult  Difficult adjustments be caused as to make
flour deteriorates when left for Less competitive  Less competitive flour in the country
weeks at wharves and overseas Reduce investment  Reduce investment
suppliers take advantage and dump Market failure  Cause market failure
them in our markets causing total 3. Opportunities will be
chaos, he added that we do not reduced because
want tariff to reduce any further foreigners will not
down. (Business Advantage PNG, invest in a market that
2014). has less competition
 According to the Papua and the company may
New Guinea’s trade policy find it hard to adjust to
history domestic industries the reduced tariff
under trade protection which will lead to
despite decades of market failure.
assistance the tariff as
neither sustain the industry
nor the economic growth
 The tariff reduction will
reduce opportunities for
the industry as poor
economic conditions and
make adjustment more
difficult
 As flour is a product
enjoying the tariff increase,
a reduction will make
infant industry become less
competitive.
 • May reduce
investment attractiveness
due to inefficient allocation
 of resources (Market
failure)
Yellow: Tariff Reduction
Research Topic: The impact of depreciating kina value. A case study on the increase wheat
price of Goodman Fielders, Port Moresby NCD.

(Hulahau S, 2016)

Bibliography
Hulahau S. (2016). Food inflation and its Impact on the economy of Papua New Guinea. Port Moresby.