With cries of mismanagement by the Copra Marketing Board ringing through the industry, the arrival of El Nino drought would only make matters worse, officials said.

This week, a powerful 7.6 magnitude earthquake struck Papua New Guinea, knocking coastal homes off their stilts and generating a small tsunami. There were no reports of crop damage.

Papua New Guinea's copra exports, to Europe, Japan and Bangladesh, last year fell by 67 per cent to 21,000 tonnes, while coconut oil exports fell 46 per cent to 27,100 tonnes.

Coconut export earnings plunged by 74 per cent to K42.4 million (US$10.6 million) compared with a record K162.3 million (US$40.6 million) the previous year.

The falls have been part of the dismal story of Papua New Guinea's agricultural sector, which is blessed with ideal climate and soil, but which is contributing to overall economic decline.

Output of coconuts and cocoa has stagnated for two decades while coffee, also in the doldrums, is artificially supported by government subsidies.

This leaves palm oil as the only significant success.

"This man-made disaster can be blamed on the poor performance of the Copra Marketing Board over the last two to three years," Rural Industries Council Chairman Brown Bai told Reuters.

The Ministry of Agriculture and Livestock said cashflow problems had forced the board to close branches and agencies.

"The CMB began issuing worthless cheques to farmers who then stopped collecting and selling their copra," said David Loh, an executive with the PNG Growers Association.

After defaulting on several European contracts last year, copra growers were now also being hit by El Nino, Loh said.

Copra production in island areas such as New Ireland, where coral and limestone surfaces are poor at water retention, would be adversely affected by a prolonged dry season, he said.

Loh said coconut producers were switching to cocoa, where output has stagnated at around 30,000 tonnes a year. Together with new planting in Bougainville, cocoa output could grow by 20 to 30 per cent in the next two years, specially with cocoa prices at a 15-year high of K500 per bag versus K50 per bag for copra.

COFFEE CONCERN

But concern is growing for next year's coffee crop.

"The big issue is how much longer it is going to stay dry. If it stays dry from now all the way through until January, we may have a problem (for the next crop)," Mick Wheeler, head of Papua New Guinea's coffee delegation in the UK, told Reuters in London.

Australia's Bureau of Meterorology says there is a 90 percent chance that El Nino will last until the end of the year.

El Nino would add to coffee industry woes over 10-year low prices and law and order and infrastructure problems, which stop 30 to 50 per cent of output from reaching markets.

Output has fallen from a peak of 83,500 tonnes in 1998, the year after the worst ever El Nino caused drought in Papua New Guinea, to 51,600 tonnes last year, government statistics show.

Palm oil, in contrast, was reaping the benefit of a strong prices this year, Bai said.

The country's largest producer, Malaysian-controlled New Britain Palm Oil Ltd, will next month begin to commission the nation's first palm oil refinery near Kimbe, in West New Britain.

NBPOL has said only small quantities of supplies from local farmers, living near the company's plantations, had been affected by the reactivation of the long dormant Mount Pago volcano.

Palm oil output last year fell to 327,600 tonnes from a record 336,300 tonnes in 2000 and 253,800 tonnes in 1999.