Overcoming the coconut industry crisis

Denzil Aponso

The escalation of the edible coconut prices is a topic for discussion. It is reported in the media that the price of a coconut is around Rs. 35.00 in Colombo and would soon soar to higher levels.

The Coconut Research Institute predicts the production of coconuts for 2007 to be 2900 million, up from the year 2006 yield of 2600 million.

The Economic Indicators published by the Daily News of Monday, December 3, indicate coconut production (2206 million) from January up to end October 2007, to be 6.5% (137 million) higher than the production (2070 million) for the corresponding period in 2006.

These figures are presumably obtained from the Coconut Development Authority. If these figures are deemed correct, how can there be such a scarcity and reports that price of coconut now is 100% higher than during November- December of 2006.

Some may say that this is due to the fact that coconuts are diverted to the oil industry.

It is true that, that few of the small size oil mills have been reactivated, and some mills concentrating on exotic varieties of virgin coconut oil and organic coconut oil have opened up, but the ones that have come on stream this year is not jointly consuming more than 100,000 nuts a day, yielding a total of 3.0 million a month, surely this cannot cause such a scarcity.

It is prudent for the authorities to have a look at the way production is calculated, and the conversion factors used. Part of the scarcity despite high production figures is due to the small size nuts.

Current shortage

The lean season for coconut runs through November to February. This year is exceptional as the shortage of production which one expects during this season is aggravated by the fact that the nuts are small in size and there is no demand for such nuts from the consumer.

In the districts of Kurunegala, and much of Puttalam and Gampaha which produce nearly 60% coconuts of the country, nearly 50% of the nuts are below 13 inches circumference and traditionally not marketed as fresh nuts.

Private and Co-operative Desiccated coconut (D.C.) Mills have found the out-turn weights to be the worst they have experienced. This is why they are unable to compete with the fresh nut market despite the D.C. prices being high.

When people speak about the coconut prices reaching Rs. 35.00, it is about these large nuts they are referring to. Depending on the nut size, the farm gate price was between Rs. 18 to 21. Prior to the enforcement of measures at the end of November to bring down the price of nuts.

Now, the second week of December, with these measures in place, the farm gate price is between Rs. 15 to 17. It is clear that much of the difference between prices at the farm gate and Colombo and the other cities of the country go to the middlemen, granted that part of the profits on large nuts is used to offset the low margins derived from small nuts.

Grower's concerns

When there was a similar shortage of nuts in 2002, the average farm gate price was Rs. 11.00. In real prices, (discounting back for the rate of inflation for the last 5 years) Rs. 20.00 in the year 2007 is less than Rs. 11.00 in 2002. It is more pronounced when one considers the inputs of the coconut industry.

In 2002 (diesoline price Rs. 27.00/ litre) with 24 nuts at Rs. 11.00, the grower could buy 10 litres of diesoline for the farm tractor, whereas today (diesoline price Rs. 75/litre) one needs 44 nuts at a farm gate price of Rs. 17.00.

In 2002, the Grower could buy the recommended minimum requirement of 3kg of Adult Palm Mixture (APM) fertiliser with 4 nuts at Rs. 15.00 per kg, whereas today (2007), at a price Rs. 45.00 per kg, the grower needs eight nuts to buy the same quantity.

This does not mean that the growers are asking for more. Nonetheless, present high prices of nuts help to cushion the effect of low crops experienced by growers.

In the long term, the solution to the current woes of the coconut industry is an increase in coconut production. This cannot be done unless the Growers are given a remunerative price for their nuts.

So that it helps the Growers to earn a sufficient financial return on the capital value of their holdings after meeting the expenses needed to enhance the dwindling fertility of their lands and other operation and maintenance expenses.

Those who do not have an in depth understanding of the industry, assume the haphazard fragmentation of land is the cause whenever coconut production goes down, and that legislation will overcome it. The discussion of this subject is outside the scope of this article.

The major cause that prevents further increase in production is the dwindling fertility of land, the age of the stands, low density of productive trees in lands, neglect of cultural practices for moisture conservation to counter decrease in annual rainfall.

Measures to counter these needs high level of investment and the growers need to be assured of the financial returns.

Fortunately the demand for coconut products internationally has never been so good, thanks to bio diesel, and the world moving towards organic products, particularly coconut oil which is the only oil which is not refined, bleached or deodorised.

Measures enforced to reduce the price of fresh nuts

The Authorities have enforced some measures to reduce the price of nuts. In reality one can see the need to take strictly short term measures.

However, the irony is that the effect of short term measures now enforced are passed on to the Grower en-block, and the middlemen are left untouched, as seen by the fact the farm gate price has come down by about Rs. 4.00 per nut, whereas in Colombo and suburbs, prices have not come down even by that reduction at the farm gate. Let us examine the measures imposed by the Authorities by end of November 2007.

Import of Copra- 30,000 Tons is allowed to be imported free of import duty up to end of February. Copra storage yards abroad are breeding ground for various micro organisms and other insects and as agreed it is important that fumigation is done at the port under inspection.

This needs to be carried out seriously. It is also known that the quality of Copra manufactured in the neighbouring countries is questionable with regard to curing and moisture content.

At the present world market price, when freight and insurance charges are added, the CIF price will be around Rs. 90,000 per ton. This is only marginally different to Rs. 90/100 at which copra dealers in the Coconut triangle buy copra from small time Copra Millers in the coconut triangle.

Import of coconut oil without import tax

In the world market today coconut oil is in high demand, the prices quoted in the world market in December is around 1300 U.S $ per ton. At this price, given the freight, insurance, VAT etc the price export would be around Rs. 180,000 per ton.

Palm kernel oil, which on visual examination looks similar to kernel oil is 200 U.S. $ cheaper per ton, this is adulterated with around 10% coconut oil and arrives at the Colombo Port as Coconut oil, therefore cleared without import Tax and sold as coconut oil. This is an open secret.

Presently there is no demand for coconut oil locally. A few days back a leading co-operative D.C. and oil mills had to sell 20 Tons of pure coconut oil at Rs. 140,000 a Ton, the same price as the so-called faked palm kernel oil is sold.

In reality, as at December 2007, Sri Lanka is the only country, where pure coconut oil is sold at the same price as palm kernel oil. The import duty needs to be enforced back by end of January. Authorities need to ensure what is imported is pure coconut. After all the import tax free concession is given for that.

Ban on the export of fresh nuts

The information is that this has now been lifted. However it needs to be pointed out that the export of fresh nuts has become a major employment generating industry in the Puttalam District.

During the past few years, the foreign exchange earned per nut is nearly double compared to processed exports from coconuts. During 2006, the exports of 57 million nuts earned Rs. 1350 million.

This raises the question, if the price of coconuts here is an artificial one, and is much cheaper abroad as professed even by some officials steering the industry, how is it that Sri Lanka coconuts have such a buoyant market in the Middle East when the west coast of India, the major coconut growing area of that country is much closer and therefore the freight and insurance charges are cheaper.

There are other measures that the Authorities need to take to keep the profits of the middlemen down and make available fresh nuts to the consumer at a reduced price.

Nuts from Government owned lands

The Government should direct all nuts produced by lands owned by them now managed by the two Plantation Companies, Coconut Cultivation Board, Coconut Research Board, National Livestock Development Board to supply their crops except those used for seedlings to Co-operatives, CWE, Housing Estates and population centres.

The Government owns about 40,000 even during the lean season six to eight million nuts per month can be supplied directly to the market.

This will help to bring the prices down to a great extent. Presently it is only the Cultivation Board that is making an attempt despite limited resources.

Prevent wastage by the consumer

It is a known fact that when anything is found in abundance, and given cheap, it is wasted.

A survey carried out by the Coconut Research Institute in 2006, which was tabled at the 2007 Research Committee meeting indicated, that Kurunegala District, the District that has the largest production of coconuts in the country, the annual consumption of coconuts per head, at 151 nuts, is two and half times the annual per capita consumption of Nuwara Eliya (65) Badulla (62), with an average annual consumption for the whole country at 105.

Earlier years, the average annual consumption was estimated at 94.

If the waste can be cut down by five persons consuming a nut per day instead of four persons, as is presently consumed, there would be a surplus of 400 million nuts, which is sufficient to produce nearly the entire annual D.C. production or 50,000 tons of coconut oil. It is heartening to see that the Coconut Development Authority is initiating action towards this end.

(The writer was the President of the Coconut Growers' Association of Sri Lanka from 2002 to 2004).