Spotlight on Domestic Markets

There has been a lot of commentary in relation to PACER Plus recently. The two most useful items that I read were by Matthew Dornan and Dan Gay.

Both Matt and Dan made reference to the impact of PACER Plus on domestic markets. They both identified that fears that big multi-national companies were going to set up in places like Vanuatu and crowd out local business are largely unfounded. The domestic markets in most of the relevant Pacific island countries are too small to be attractive to big businesses. There are very few opportunities to generate sufficient return in order to justify the set-up costs that would be involved.

On the other side of the coin, Dan commented that the likelihood the PACER Plus agreement would lead to increased foreign investment was exaggerated. Again, he puts forward the small size of the domestic markets of Pacific island countries as a major barrier to increasing investment of that type.

The role of domestic markets in increasing economic development in the Pacific island region is often overlooked. It certainly does not receive as much attention as it should, with much more thinking and energy being directed to increasing export opportunities and activities.

I am not disagreeing that domestic markets in the Pacific island region are small. But whilst that is true, we also need to remember that these markets are (or should be) easier to access. Also, in a number of cases, they are growing. As populations in countries like Vanuatu and Solomon Islands grow, the domestic markets expand in terms of absolute numbers.

As Pacific island countries become more urbanised and a greater proportion of the population participates in the formal or cash economy, the domestic markets for food items and other products of the rural, agricultural economy increases. This results from people in urban areas having reduced access to gardens and/or less time to prepare traditional foods. If they are able to buy local produce in towns as supplied by farmers in rural areas, there is less need to rely on imported, processed foodstuffs.

New approaches to health and food security, such as the Slow Food movement can also lead to increased demand for locally sourced produce.

Another aspect of how domestic markets in Pacific island countries are growing is the impact of participation in seasonal labour schemes. Whether it is for personal, business or community projects this is an emerging sector of the domestic market that is looking to purchase locally developed goods and services.

In some countries (e.g. Vanuatu, Fiji, Cook Islands) there is a particular subset of the domestic market for agricultural and cultural products, which is the tourism sector. I think of this as a ‘visiting domestic’ market.

In Vanuatu, we have already seen some really important steps taken to increase the linkages between local producers and the tourism industry. There are some really important lessons to learn from the experience of those that have made progress in this area so that more people can get involved.

Whether it is food crops supplied to hotels, resorts and restaurants, handicrafts or niche value-added products that can be sold as souvenirs, there are opportunities to grow the yield from this ‘visiting domestic’ market.

I was talking recently with someone about how countries in the Pacific can make the most of the opportunities presented by the growing number of wealthy Chinese tourists looking for new destinations.

Part of maximising these opportunities is having a good understanding of what this market’s expectations are likely to be. We discussed the importance of local produce as part of the offering to this demographic. They will be looking forward to eating great food cooked with organically grown, locally sourced produce. There is plenty we can do to put us in a good position to get the most out of the opportunities this type of expansion of tourism may bring.

More needs to be done to improve linkages between primary producers and purchasers within this sector, notably hotels, resorts and restaurants. For producers, they need to have confidence that increasing or diversifying production will lead to greater returns. In other words, they need to feel comfortable that there is actually a market for their goods. They also need access to reliable infrastructure and transport links in order to move their products to market reliably and at reasonable cost.

For purchasers, key concerns are assuring regularity of supply both in terms of quantity and quality. This means that opportunities for establishing aggregators exist and can be further explored and developed.

I am aware that there are already many activities underway that address some of the points I have raised. I’m looking forward to seeing how these and other things develop in the future.

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