Viability of Coconut Production and Sales in the Philippines Marketing and Trade

A World Leading Producer

Coconuts are grown and sold mostly as copra and in fresh form (UNCTAD 2009). Most of the big coconut producers process the copra themselves and extract the oil in their own oil mills. Of the total exports from coconuts, copra accounts for only 4% and the rest is coconut oil. There has been a large demand for coconut oil exports in the two decades for its high lauric fatty acid content. Only a little more than 2 million tons were supplied to the world market in 2008. In this year, the Philippines supplied the most at 42%, mostly to the U.S.A. And Europe at 24% and 25% of their imports, respectively. International organizations provide preferential tariffs and price support for these imports from the Pacific in order to encourage them About 279,000 tons of desiccated coconuts were traded in the world in the same year at 34% from the Philippines, Siri Lanka and Indonesia. Desiccated coconuts are highly valued and command a higher price than copra or coconut oil (UNCTAD).

Demand and Supply

The world demand for coconut oil remains high because its high lauric fatty acid content, which is very useful to detergent and cosmetic industries (Docstoc 2013). It is processed into coconut oil, desiccated coconut, fresh coconut and copra. By-products include copra meal, activated carbon, coconut shell charcoal, coconut coir and coir dust. On the other hand, its end-products include detergents, soaps, shampoo, cosmetics, margarine, cooking oil, sweets and sweeteners, vinegar, and nata de coco. It is also processed into intermediates, such as oleochemicals like fatty acids and fatty alcohols (Docstoc).

A rather small 20% of overall country production goes to the local market (Docstoc 2013). In addition to traditional products, virgin coconut oil or VCO continues to be in demand in the local market for health promotion. Some small and medium-sized enterprises have formed to produce and export VCO. It has become a cottage industry, which requires a minimum capitalization of P2 million. Mindanao increased its total land area planted to coconut in order to increase production to 1.4 MT for copra (Docstoc).

Marketing Practices

Most of the copra is first sold to village buyers before it reaches the oil mills (Docstoc 2013). World prices of coconut oil and domestic conditions largely determine the prices of copra. The supply chain begins from the farms, which turn out the coconut products after the nuts are harvested (Magat 1999). These nuts and other coconut parts are processed by different machineries and equipment and technologies to manufacture them into primary products, such as copra, oil, copra meal, fiber, coco dust, sap, coco water, charcoal and coco wood. These are then converted into their marketable forms, which are traded and marketed. The Philippine government extends research and extension services to improve and increase products and their quality through credit, farm input, and other forms of assistance to small and medium-sized farmers and processors (Magat).

The Key Players and Prices in the Market Chains

A study analyzed these chains for three main coconut products in two sample municipalities in the top coconut-producing province of Quezon, determined the barriers confronted by farmers, and tackled the issue of poverty among them in these sample localities (Pabuayon et al. 2009). These coconut products were coconut oil, virgin coconut oil, and coco wine. The study presented the movement of these sample products from their raw material form to the time of purchase to village agents or traders. Results showed that farmers have weak participation in the chain because they are the lowest phase of the chain and sell only the raw materials they produce. The shares of the different players in the determination of the final value of the products are diverse. The farmers' input or share is undoubtedly high but their income remains lower than those of other players, such as processors and traders. This situation makes them rank among the poorest in the industry. They need government intervention...

These development needs include inadequate capital, lack of technical and entrepreneurial know-how, lack of equipment and tools, and insufficient or lack of market access and information. Current interventions and assistance include the availability and accessibility of institutional credit for farming, training on product processing and improvement of roduct quality, and stronger and easier linkages to markets. Other approaches to raising overall productivity are learning improved farm practices, more efficient delivery of support services to them, the introduction of more initiatives for improving farm and marketing efforts and outputs, and forming active farm organizations (Pabuayon et al.).
The Viability of Starting a Coconut Production Business

The highest-yielding seed varieties, the suitable farming system, and the optimum use of every space of the plantation can assure total farm productivity and the viability of the venture (De la Cruz, 2005). The gradual integration of perennial crops from one or two in the beginning and the use of cultural methods like manuring, mulching, and farming waste recycling. Total gross returns from a one-hectare farm can be P140,735 or a net income of P91, 567 annually. The farm can net higher from the intercropping by 36% of the total estimated income. The highest possible contributions can come from pineapple at 34% and banana at 30%. The integration of such perennial crops is likely to maximize the income potential of both the farm and the farmers at a high ratio of 2:30 (De la Cruz).

The new entrepreneur must, therefore, choose between mono-cropping and intercropping (Magat 2011). One hectare with 100-150 trees under average management care can produce 60-90 nuts per tree per year. This means 7,000 nuts or 1,750 kg of copra. But this will bring in P21,000 gross income for the entrepreneur at P12 per kg of copra or a net profit of only P15,000. P6,000 will have to be deducted as production cost. But the use of integrated farming systems will optimally use the land the farmers to raise the annual income to P100,000. Conditions will, however, have to met. These are favorable soil and climate conditions; the proper technologies; the best planting materials; correct attitude behavior among farmers; a favorable market; sufficient and available capital; and available and timely extension service and assistance (Magat).

These farming systems may be a combination of intercropping, livestock raising, under-planting of coconut, nursery farm or plant materials, and aquatic farming (Magat 2011). If the entrepreneur chooses to intercrop, he or she should consider ecological, agronomic and socio-economic factors. The ecological factors are land utilization, solar energy utilization, and utilization of soil moisture and nutrients. The agronomic factors are better water retention, improved soil fertility, soil erosion, and using coconut trees for shade. And the socio-economic considerations are the provision of extra income, more job opportunities, and protection against market risks (Magat).

This paper specifically wants to determine the probable viability of a coconut business in Butawanan in Siruma, Calabanga municipality of Camarines Sur in Region 5. Agriculture authorities identified which specific regions or provinces are suitable for coconut production and at what levels (Magat 1999). Camarines Sur ranks fourth in the Priority II category of areas in the Intermediate Growing Zone. They have adequate rainfall throughout the year with only 3-4.5 dry months. The average annual yield of coconut trees in these areas is 1.5-2.5 tons of copra per hectare or 6,750 -- 11,250 nuts per hectare. Region 5's estimated coconut area measures 128,560 hectares with 10,351,340 fruit-bearing trees. About 48% of the coconuts produced in the country come from provinces in this category (Magat).

Starting a coconut business in Butawanan, if the property is bare and untapped, begins with cultivation (PCA 2014). About 3 laborers may be hired to clear the land per hectare on a daily basis and with the use of a tractor. The…