Beyond Copra: Saving Money, Reducing Poverty, and Diversifying Agriculture in Kiribati

Beyond Copra: Saving Money, Reducing Poverty, and Diversifying Agriculture in Kiribati

Executive Summary

Kiribati's copra subsidy is a key part of the government's economic strategy, aimed at reducing poverty, encouraging residence on outer islands, and providing employment in a culturally significant industry. However, it is fiscally inefficient. Lowering the subsidy from A$4 to A$2 per kilogram and supplementing it with targeted cash transfers could achieve these goals more effectively and cheaply, potentially reducing poverty by 20% and saving 30% of current expenses. Additional reforms like consolidating Kiribati Coconut Development Limited would help restore it to profitability. Reducing the copra subsidy would also allow agriculture to diversify, and in doing so improve health and nutrition. To implement this, Kiribati should collaborate with development partners to establish a targeted cash transfer system, gradually reduce the copra subsidy, and consider capping subsidies per household in the short term.

Background Papers

Cultivating Shared Prosperity

This report focuses on how the copra subsidy reduces poverty. Using data from the 2019 Household Income and Expenditure Survey it finds that the subsidy reduces poverty, but becomes less effective the larger it gets. The subsidy targets poor people, but does so inefficiently because some of it goes to richer households, some households receive a lot, and many poor households get none. Lowering the subsidy from A$4 to A$2 per kilogram and supplementing it with targeted cash transfers to poor people on the outer islands could reduce poverty by 20% and save 30% of current expenses (~A$15 million). Developing a targeted cash transfer scheme may take time, and so an interim measure would be to cap the subsidy paid to each household at the poverty line, or $142/month per adult equivalent. This would quickly save 4 percent of GDP without increasing poverty or changing the per-kilogram subsidy rate.

Cracking the Nut

This report focuses on the performance of the copra sector. It finds that the copra subsidy creates wide-reaching distortions, and so the first step must be to reduce the copra price and let it vary with the market. Agriculture is largely non-commercial, but private investment could be boosted by making land title secure and enforceable. There are inefficiencies throughout the copra value chain, including replanting, weigh stations, shipping and processing. To improve efficiency and accountability, KCDL should consolidate control and responsibility throughout its value chain. To improve the frequency and reliability of shipping to the outer islands, the government should encourage more private participation through fixed-term performance-based contracts. There is potential for Kiribati to expand production of higher-margin goods like virgin coconut oil (VCO), but it will require significant reforms, including replanting and expanding processing capacity. There is also a potential for Kiribati to enter the high-value niche of wet young coconuts, but this would involve significant investment in cold-chain storage.

New Sprouts

This report focuses on how the copra subsidy affects the rest of the agricultural sector. It finds that most households on Kiribati's outer islands remain involved in agriculture. However, they rely on imported foods because the copra subsidy crowds out production of other fresh produce. This contributes to food insecurity, malnutrition and widespread non-communicable diseases. While there is high demand for local fresh produce in South Tarawa, it is not being met by suppliers due to weak supply chains. Moving towards market-oriented production requires reducing the copra subsidy, scaling up existing technologies, and improving post-harvest management, transport and access to finance.