Working Group 6
DEVELOPMENT OF RESOURCE-BASED SECTORS
[Terms of Reference]

BACKGROUND

The resource based sectors have been underperforming in the past decade – with the exception of mineral water. These sectors have much greater potential than their recent performance suggests. Given private sector leadership in marketing, production and investment, the resource based sectors can contribute much more to development. Substantial restructuring and reform in the way the sectors are managed is required. This is especially important given their positive impact on poverty alleviation, affirmative action and social justice, and rural and outer island development.

Agriculture
The performance of the agriculture sector has generally been on a downward trend due to declining efficiencies, particularly in the sugar industry, damages caused by natural hazards such floods, droughts and cyclones, expiring leases and problems with land tenure. The contribution of the agriculture sector to GDP has decreased from around 16% a decade ago to the current level of 11 percent to 12 percent.

The decline in the sugar industry has been the significant factor behind the poor performance in the overall agriculture sector. Sugar sector production has fallen by 30 percent since 1995, even before price reductions commenced, and the contribution to GDP has dropped from 11.3 percent in 1995 to a current estimate of 5.7 percent. Cane production has fallen in the same period from around 4 million tons in 1995 to current levels of around 3 million tons. Consequently, sugar production levels are now around 300,000 tons compared to 454,000 tons ten years ago.

Sugar production for 2007 is expected to decline to around 268,000 tons, 13 percent below the 2006 level, from 2.72 million tons of cane. This represents a TCTS ratio of 10.2 which is high and inefficient when compared to the TCTS of 8.7 in 1995.

Up to 60 percent of sugar produced is exported under preferential arrangements to the EU market with a quota of 173,000 tons. The EU has announced progressive cuts in preferential prices from 5 percent in 2006/2007 to up to 36 percent by 2009/2010. The EU has indicated its support in this transition phase, in the form of a National Adaptation Strategy, and also through other trade arrangements such as the Economic Partnership Agreements.

While sugar has been on the decline, the growth in production of other crops for the local and export market has stagnated and failed to keep pace with domestic demand. This has resulted in a progressive increase in the import bill for crops and vegetables, which is approximately 15% of total food imports.

Fisheries
The performance of the sector during the past decade can be described as erratic with periods of growth intermittent with periods of decline. Its contribution to GDP however over the years has been stable around 2.5 percent to 3 percent. The tuna industry dominates the sector in terms of output and export hence the performance in the sector is closely linked to the progress in offshore fisheries.

The sector performance has improved in the past few years on the back of strong growth in 2004 and 2005 of 24.1 percent and 7.4 percent respectively. This strong performance was attributed to increased catch of tuna for the Japanese sashimi market. The strong growth was checked however in 2006 when the sector declined by 4.2 percent. The forecast for 2007 and 2008 is for a recovery of 1.1 percent and 4.6 percent respectively. Export earnings in 2005 and 2006 stood at $82.9m and $97.9m respectively, while earnings for 2007 is estimated at $102.6m.

The management of the offshore fisheries has been an area of concern, not only nationally, but regionally and globally also, particularly in the wake of an invasion of state subsidized Asian fleets. This has raised concerns in recent years on the sustainability of the current fishing effort in Fiji and the Pacific as a whole. In response to concerns on stock sustainability, annual offshore licences were reduced from a cap of 110 to 60 in 2006. This followed the increase in the number of Fiji licensed tuna long line vessels from 43 in 1999 to 101 active vessels 2003. A fleet of 87 vessels was operating in 2004 and 72 in 2005.

The aquaculture subsector has not developed as expected despite the large amount of resources that have been invested in research, subsidizing ponds and other infrastructure, establishing hatcheries and pilot farms. The poor performance has been attributed to declining prices, disease, problems in producing post larvae, and difficulties in maintaining yields due to high cost of feed.

Forestry
The Forestry sector on average contributes 1.3 percent of GDP. However, a decade ago, its contribution was around 1.6 percent of GDP, but began deteriorating rapidly from 1999 mainly due to large reduction in indigenous log production and pine pulpwood. While the commercial harvesting of mahogany in 2003 was expected to boost the sector, this has not eventuated due to the large number of disputes with landowners, thus disrupting harvesting.

Export earnings from timber and other wood-based products average around $42 million each year, the bulk of which is derived from export of wood chips to Japan. In 2006, the recorded earnings were $37.6 m while the estimated earnings in 2007 is $43.6m. Logs are currently processed into sawn timber, veneer, plywood, block board, moulding, poles and posts, and wood chips, with the total export volumes averaging 266,000m3 each year. Most wood products are sold to Australia and New Zealand, while wood chips are sold exclusively to the Japanese market. The American market consumes approximately 40 percent of all veneer products. Other exported products, such as mouldings and other finished components, account for at least 6 percent of annual export earnings.

Pine plantations in Bua, Vanua Levu are expected to add an additional $20-$25m in export receipts annually from 2008 when the port and mill in Wairiki, Bua, is fully operational.

FHCL has continued to make financial losses annually since its incorporation in 1998 and became technically insolvent towards the end of 2006. The financial position of the company has improved in the past year after the Board assumed executive control and appointed Pricewaterhouse Coopers to oversee the revival of the company. However, the recent court decision on the case brought by Mr. Atunaisa Tiva which annulled the validity of 99 year leases issued to FHCL requires re-evaluating the company’s operations.

Mineral and Groundwater
On average, the mining and quarrying sector on average accounts for 1.4 percent of GDP. Emperor Gold Mining Company operated the only mining operation at Vatukoula. In the recent decade, the performance of the mine has been deteriorating attributed to underground floodings, high worker absenteeism, and low grade ore extracted at the mines. Gold production in the last decade has averaged 128,000 ounces annually. Production in 2005 stood at close to 90,000 ounces and declined to around 45,000 ounces in 2006 when the mine was shut down.

Operations at Vatukoula were shut down in early 2006 to allow a reorganisation aimed at bringing the mine back into profitability. Rising operational costs and low output severely affected the viability of operations at Vatukoula. The reorganization exercise was to have involved the rationalization of the 1800 person workforce, retraining, and implementing an expansion plan to improve throughput. While the shut down was supposed to be temporary, a management decision was taken in December 2006 to close the mine, citing the inability to generate viable returns as the central reason for closure.

To address the social implications on the Vatukoula mining community, Government undertook a Rehabilitation Program which targeted assistance to access tertiary education and upskilling of the mineworkers including their immediate families, as well as the development of small & micro enterprises. Meanwhile, an Australian Company, Westech Gold purchased EGMs operations and tenements in Fiji. No production is anticipated in 2007, while the outlook for 2008 will depend on the ability to get the mine back into operation following the current rehabilitation works.

There are other gold mining prospects such as Tuvatu, Wainivesi and Mount Kasi, which are being developed. In addition, other mineral deposits are being explored such as copper, and industrial minerals such as sand and gravel, quarried stone and coral sand.

Natural Waters of Fiji is the main player in the groundwater industry with a strong international standing. Compared to other industries, the potential for new entrants is limited although there are recent additions to the industry such as Dayals (Island Chill brand bottled at Vuqele, Vatukoula), Diamond Aqua (Diamond Aqua brand bottled at Nadi) and Aqua Pacific (Aqua Pacific brand bottled at Nadi). Mineral water exports have been  consistently growing since being pioneered in 1997. Export receipts in 2005 and 2006 stood at $67.9m and $86.9m respectively, while receipts for 2007 are estimated at $99.2m.

Sugar Industry Reforms

The loss of preferential access to the EU market through declining preferential prices has necessitated reform in the sugar sector. Supported by development partners, such as the Government of India and EU, a restructuring plan has been developed by Government and the industry, elements of which are reflected in the sector strategies. The programmes and projects under the National Adaptation Strategy will develop a suitable and competitive industry and secure suitable on farm and off farm livelihood opportunities.

Despite the programmes that have been put in place, the performance of the sugar industry in 2007 has highlighted the vulnerability of this to environmental and weather events, on which policy has little effect. 

Land

Indigenous Fijians own about 90 percent of all land in Fiji. Native land is held by the Native Lands Trust Board on behalf of the landowners. This land cannot be bought or sold. Land that has been registered can be leased by the NLTB; the remainder is held under customary tenure. The ultimate owners of the land are collective groups (most commonly Yavusa (tribes) and mataqali (clans) although land can be owned in the name of the titular heads of tribes e.g. chiefs who hold the hereditary titles, agnate descendants of a member of a tribe (qele ni kawa) or family units (tokatoka). The social norms governing access to land, seafoods and hunting/foraging are governed by the decision-making structures within individual Yavusa and mataqali in which Chiefs play a major role. Within this framework, an individual’s access to land rights is usually acquired at birth, not through purchase or inheritance. Where land rights are transferred by inheritance, many factors come into play. These include the needs of individuals, the harmony of conflict between potential heirs and heritors, the extent to which heirs had used the land, who provided for the elders in their declining years, what payments were made at customary events/feasts, and other considerations.

The Agricultural Landlord and Tenant Act 1966 (ALTA) governs the negotiation and grant of agricultural leases on native land. About 50 percent of all leases are ALTA leases. The ALTA legislation imposes a rigid framework, specifying the rent (6 percent of the unimproved capital value of the land) and the term (30 years, with no right of renewal). The Native Land Trust Act (NLTA) provides a less rigid legal framework for non-agricultural commercial leases. Leases can be for up to 99 years and the rental and other terms are negotiable.

Generally speaking, neither the landlords nor the tenants are happy with the ALTA framework. The landlords are unhappy about the low rental levels, which do not appear to reflect the market value of the land, and the tenants want stronger provisions providing compensation for improvements in the event that the lease is not renewed. It appears that tenants would be happy paying a higher rental and landlords would be happy to provide more reasonable terms on the issue of compensation but the law is standing in the way of a sensible and pragmatic compromise. The ALTA legislation is constitutionally entrenched (originally to safeguard the interests of indigenous Fijians) and can only be amended if a two-thirds majority concurs.

Further evidence illustrating the impracticality of the current legal arrangements for leasehold land acquisition and transfer can be found in the growing incidence of vakavanua arrangements. These are informal agreements – with nothing in writing - between mataqali and families or individuals who wish to occupy and use some land. They can run for many years – sometimes decades. The main problem with vakavanua arrangements is that they leave the tenants outside the formal property rights system and thus unable to take advantage of the benefits a legal leasehold title would give them.

In part, at least, vakavanua arrangements are a response to the surreal situation facing indigenous Fijians wishing to work their own land under a formal legal title. The irony is that though customary owners may lease their land to investors and entrepreneurs, who can in turn use the land as collateral, there appears to be no easy way for the customary owners to use the land as collateral directly. They can, of course, lease the land to themselves via the NLTB but this seems a tortuous way of making their ownership “legal”. A better way needs to be found to allow mataqali to gain direct access to the benefits of operating within the formal property rights system.

It is also important that better ways be found to ensure that more land is made available for priority agricultural, commercial and social purposes (e.g. for social housing). The unavailability of leasehold land for all these purposes is now a major impediment to Fiji’s economic and social development.

    ISSUES

General Issues: