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Drop in coconut prices hits growers

by Elmo Leonard

There is panic among coconut growers as the cost per 1000 coconuts plunged to Rs 10,500 at the March 29, Coconut Development Authority (CDA) conducted auction in Colombo. Prices are expected to plummet further immediately after Vesak, when cropping is at its highest. Then, the farmgate price is expected to fall below Rs. 7.50 per nut, which is the production cost of a coconut, as estimated by the Coconut Cultivation Board.

Sri Lanka's coconut kernel export industry is in a dilemma, resulting from external and internal forces. A valiant effort is needed by growers, desiccated coconut and coconut oil millers and the authorities for the export of desiccated coconut to continue, the trade said.

A look at the situation, shows that in the first quarter of this year there was an oversupply of 10 to 12 percent over that of the corresponding quarter of 2005, acting deputy director, CDA, V. Balakrishnan said. The harvest for 2006 is 2.8 billion coconuts, as against 2.6 billion nuts in 2005, according to CDA projections. Favourable weather throughout last year has accounted for the higher crop this year.

Further, continuous rain increases the size and content of kernel in the coconut, adding to the factor of supply.

Copra prices are also down, hitting Rs. 62,000 ($601.9) per tonne, end-March 2006. In March 2005, copra prices were higher at Rs. 82,000 ($880) per tonne, according to CDA statistics. The current price of desiccated coconut, fine grade is Rs. 84,000 ($815.5) per tonne. At end-March last year, desiccated coconut stood at Rs. 108,000 ($1080) per tonne.

The price of local coconut oil is currently, Rs. 98,000 ($951.40) to Rs 105,000 per tonne. The international market price for coconut oil is much lower, at $585 C&F (Cost and Freight) per tonne. In March, 2005 the local price of coconut oil per tonne was Rs. 101,000 ($1010) per tonne.

While the local production of coconut oil in 2005 amounted to 20,000 tonnes, Sri Lanka's annual household consumption of vegetable oil is between 175,000 to 200,000 tonnes, according to CDA statistics.

In past decades the price of Sri Lanka coconut oil remained lower than the international price for this commodity, Thus, the island produced coconut oil not only for its needs, but also for export. In 2005, the local price of coconut oil was higher by around $175 per tonne, than the international price of coconut oil, making exports impossible, Balakrishnan said. However, Sri Lanka imported a small amount of coconut oil, for the purpose of packaging and re-exporting to Bangladesh, for cosmetic purposes.

For around two decades, the 'coconut oil' available in retail outlets is largely palm oil imported from Malaysia and Indonesia, with a small percentage of coconut oil mixed in. Other vegetable oils sold such as branded oils in boutiques and shop shelves, include, sunflower, soya, corn, ground nut, among the varieties of edible oils.

The palm oil for cooking now costs around $403 FOB per tonne and entails a 27 percent duty and 15 percent VAT.

Now, the price of desiccated coconut, FOB, Colombo, is $870 per tonne. The Philippine, $850 FOB per tonne and Indonesia $750 FOB per tonne.

Sri Lanka, yet, continues to export desiccated coconut to the Middle Eastern markets, because of closer proximity and thus lesser freight charge, Balakrishnan said. Last year, Sri Lanka lost most of its desiccated coconut markets in Europe and the Middle East due to a shortfall in production. Last year, Sri Lanka exported 33,377 tonnes of desiccated coconut, while in other years, the island nation exports around 50,000 to 60,000 tonnes.

The Philippines, jolted by Sri Lanka's production shortfall in 2005, exported 128,000 tonnes, from 106,000 tonnes in 2004.

Now, the coconut growers want government to impose a surcharge on the import of vegetable oil and concurrently help restart the coconut oil industry. The coconut growers say that would increase demand for coconut and augment prices.

While 50 CDA registered coconut oil millers are largely without work, a 400-strong baby (oil)-expeller force is active, shying out of paying VAT, it has been reported.

Desiccated coconut millers say that restarting the coconut oil industry will increase demand, push up price and make local desiccated coconut uncompetitive for export and kill the desiccated coconut industry. President of the Coconut Growers' Association of Sri Lanka (CGASL) Ranjith Dias said that there is a glut of coconuts and the best thing to do is to restart the coconut oil mills. Balakrishnan could not spell out an easy way out of the dilemma.

The unwritten norm in Sri Lanka for over a decade has been to allow enough coconut kernel for desiccated coconut exports.

Sri Lanka with a mere 0.4 million hectares under coconut cultivation could do little to determine international market forces. In contrast, Indonesia has 3.7 million hectares, Philippines, three million hectares, India, 1.7 million hectares. Sri Lankans consume 75 percent of their coconut harvest, while coconuts produced in other coconut exporting countries are largely exported, a CDA official said.

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