The Philippine coconut industry in

the long term

Except for the competitive export crops (banana, pineapple, mango and abaca) and
to some extent tobacco, the rest of our crops, sad to admit, are not doing well. In
particular, the woes of our beleaguered coconut industry continue to pile on.

Most immediate is the precipitous (30%) decline in the price of coconut oil in the
world market during the period January to June 2018 from US$1,399 to US$976 per
metric ton. From a farm gate price to P6-P8 per nut, it is now down to P4.50 per
nut. Coconut farmers already among the poorest of the poor will be that much
more impoverished.

Also devastating to coconut farmers are the reported provisions in the bill pending
in Congress on the disposition of the coconut levy funds (CLF) which the coconut
farmers have been fighting for for decades. The CLF and assets are now worth P100
billion and the farmers are keen that these funds are expended for their sole
benefit as intended. The bicameral committee consolidating the separate bills from
both Houses has agreed to repose the management and disposal of the coconut
levy funds and assets to the Board of Directors of the Philippine Coconut Authority
(PCA). This is contrary to the wishes of coconut farmers that the utilization of the
CLF be under the supervision and management of a Coconut Industry Fund
Committee over which the farmers have effective corporate control.

Moreover contrary to the proposal of farmers, that the CLF funds be held in trust by
government in perpetuity, the draft bill programs the exhaustion of the CLF within a
20-year period. Adding salt to the injury, the CLF cannot yet be disbursed until
Congress passes a law amending the charter of PCA. This could very well take
another year, or forever, if the 40-year drawn out saga of CLF is any indication.

Very alarming as well is the proposal to eliminate the mandatory bioethanol and
biodiesel additives as provided in the Biofuel Act of 2006 (RA 9367) as one of the
solutions to temper inflation. The addition of sugarcane-derived ethanol and
coconut methyl ester minimize air pollution which is a major health hazard in urban
center. Human they add costs to the prices of gasoline and diesel, thereby adding
to the costs of doing business, and inflation. Instead of raising the present level of
2% biodiesel to 5% biodiesel as prescribed by law, the proposal effectively
eliminates the demand for coconut oil as raw materials for biodiesel which
currently is in the other of 100,000 metric tons (about 10% of CNO exports). They
will put additional downward pressure on the farm gate price of coconut.

Our ASEAN neighbors profited greatly from the massive cultivation of oil palm,
rubber, coffee and cacao. There are repeated calls by well-meaning advocates to
shift priority away from coconut to these other more profitable plantation tree
crops.

Finally the national agency mandated by law to support the coconut industry, the
PCA, sadly had been chronically suffering from organizational instability and alleged
mismanagement and misdirection. Two of the most recent PCA administrators
served very briefly and were replaced in quick succession. Worse its inability to fully
utilize its appropriations, the budget of PCA was humiliatingly slashed by Congress
from P3 billion to P1.5 billion.

These challenges and circumstances demand immediate responses. The coconut

farmers want to know now how government will help raise farm gate prices of
coconut. They want to know how the CLF assets will be disposed i.e the six
underutilized oil mills, the United Coconut Planters Bank and Cocolife. Will the
Biofuel Act be repealed? With all these problems will the farmers, and the rest of
the country be better off, switching to other crops? Piece meal responses to specific
issues while good for the short term could be liabilities in the long term. They are all
related and therefore require an integrated and sustainable plan of action based
on a coherent long term plan.

Following are seven considerations which could very well steer the course of the
Philippine coconut industry in the long term. These should inform the decisions
government will take now!
They ought to be part of the Coconut Industry Road Map!

First and foremost, the call for giving up on the coconut is premature and
misplaced. For reasons of ecology, food security, tradition and culture we should
continue nurturing the coconut industry. Most crops cannot tolerate saline solis. No
other crop thrives better than coconut in the saline coastal areas which we have
plenty of because of our archipelagic geography. With global warming and rise of
sea levels we can expect more of our coastal areas to be subjected to salt intrusion.
Soil erosion and growing scarcity of fresh water are two of our most important
environmental challenges. Coconuts are good cover crops in slope lands for soil
and water conservation. Coconuts are resilient to strong winds better than most
other tree crops. Coconuts are good and affordable sources of dietary energy and
protein and are very much a feature of our culinary tradition and way of life.

Second, coconut oil is a minor player in the very competitive global vegetable oil
commodity market. Coconut oil is only ranked 8th among the world’s top vegetable
oils. In 2017 the market leaders, palm oil, soybean oil and rape seed (canola),
produced 67, 56 and 29 million tons, respectively. Coconut oil volume was only 3.44
million tons.

The recent drop in the price of coconut oil could very well be due to oversupply of
vegetable oils. Between 2012 and 2017, total vegetable oil production rose from
162 million tons to 195 million tons. Most of the increase in supply (70%) was
accounted for by the significant rise in production of palm oil, soybean and
rapeseed.

Our most formidable competitor is palm oil. With high yielding hybrids and proper
fertilization, oil palm yields are in the order of 4-5 tons per hectare per year. With
our coconut yield of only 0.75 ton per hectare per year, we have a long way to go to
match the farm productivity of oil palm.

Soybean benefited greatly from the commercialization of genetically modified (GM)

herbicide-tolerant and insect-resistant varieties. Ninety four million hectares of GM
soybean are now grown in the major soybean producing countries (Argentina, USA
and Brazil). GM soybean adoption in the rest of the world is just beginning. The
world will therefore be likely brimming with soybean oil in the years to come.

The same is true with rapeseed (canola). The expansion of the hectarage of GM
rape seed is closely tracking the growth of GM soybean. From zero a few years
back, there are now 10 million hectares of GM canola. However, global adoption is
still only 5%. We can expect a “flood” of canola oil in the coming years as the other
countries develop high yielding GM canola varieties adopted to their growing
conditions.

Worst, with the new gene editing technology which is non-GMO, plant scientists in
the developed world are now able to tinker with the lauric-acid producing genes.
Coconut oil is valued highly for its high content of medium chain fatty acids (lauric
acid). High lauric-acid soybean and canola are in the books and will challenge the
dominance of coconut oil in this niche market in the years to come.

This leaves us to only one conclusion — WE SHOULD REDUCE DEPENDENCE ON

COCONUT OIL AS A COMMODITY EXPORT.

Third, related to the second, and as a consequence, we should aggressively

diversify into other higher-value products like virgin coconut oil, coconut water, and
direct exports of young coconuts (buko). The market for coconut water has grown
exponentially the past year or two. The market for young coconuts is not as yet as
large as the markets for bananas and pineapple but quite profitable. The demand
in North Asia (China, Korea, Japan) and the Middle East for fresh young coconuts
during the summer are expected to grow as these populations grow more affluent.

Fourth, still related to the second, we should increasingly turn to wet coconut
processing (instead of copra processing) to exploit the full value of all parts of the
coconut, namely, coconut water, coconut sugar, coconut fibers and geotextiles,
activated charcoal, desiccated coconut and coconut flour.

The costs of moving around whole coconuts long distances will be staggering. It will
be difficult to supply on a timely basis the raw material requirements of huge
processing plants. This calls for village-level, moderate-sized processing plants
dispersed in the countryside. These small to medium-scale enterprises will
generate more employment, and democratize ownership of the coconut processing
part of the value chain thereby provide for more inclusive growth.

We will not need all the existing coconut oil mills. We can retire those which are old
and underutilized anyway for lack of raw materials.

Our coconut industry is woefully distressed. Not only is its productivity low and
stagnant, it is losing ground in the highly competitive global vegetable oils market.

The coconut levy funds (CLFs) which are now worth about P100 billion upon which
coconut farmers had been pinning their hopes for salvation still remain frozen in
the national treasury. The bill pending in Congress that will finally provide for the
utilization of the CLF entrusts the management of the funds with the Philippine
Coconut Authority (PCA). However, PCA’s charter will have to be amended and that
could very well take a year, or forever, if the 45- year saga of the CLF is any
indication.

In order to bring down cost of diesel to help temper inflation, there is a threat to
repeal the Biofuel’s Act which mandates the use of coconut oil-derived biodiesel.
This will impact negatively on our fledging oleochemical downstream industry.

And just yesterday, the coconut industry suffered yet another social media blast in
the continuing polemic of the US soybean lobby against coconut oil. A supposed
quote from a Harvard researcher that “Coconut Oil is Pure Poison” has gone viral.
This contention ignores the counter factual that the fatty acids in coconut, unique
among vegetables oils, are medium-chain fatty acids which are readily digested and
metabolized as energy, and NOT DEPOSITED AS FAT in the liver.

All the above conspire to make our coconut industry a pariah of sorts.

This two-part column elaborates on why the pariah appellation is undeserved and
more importantly how we can turn things around moving forward. What the
coconut industry needs is a coherent, integrated and sustainable long term plan
which takes into account the challenges and opportunities, present and future. This
column offers eight considerations around which we can build such long-term plan.

The first four considerations were dealt with in the first part, namely

: 1) strong rationale for continuing support to coconut for reasons of ecology, food
security, livelihoods, culture and tradition;

2) deteriorating position of CNO in the global vegetable oils market, and hence the
need to lessen dependence on CNO as commodity export;

3) consequently, the challenge to aggressively diversify into other products such as

virgin coconut oil, coconut water, and direct exports of young coconuts (buko)
which are higher valued, and for which there is an expanding export market, and;

4) relatedly, the opportunity to increasingly switch into wet processing (instead of

copra processing) to exploit the full value of all parts of the coconut, namely
coconut water, coconut sugar, coconut fibers and geotextiles, activated carbon,
virgin coconut oil, desiccated coconut, and coconut flour; which in turn will require
village-level, moderately-sized processing hubs (small- to medium-scale countryside
enterprises) which will generate more rural employment and broaden ownership of
the coconut value chain (inclusive growth).

Intercropping for greater productivity and farmers’ incomes and higher

employment

The fifth consideration is the opportunity to generate more farm productivity and
incomes and higher employment by intercropping. Coconut lends itself well to a
multi-canopy type of agriculture.

There is much sunlight filtering through the coconut canopy all year round to raise
decent crops of annual crops (corn, vegetables, legumes, ornamentals and herbal
crops) as well as perennials (bananas, pineapple, papaya, coffee, cacao, black
pepper). Provided markets could be arranged for these intercrops very often they
will be more profitable than coconut itself.

Only one-third of the three million hectares devoted to coconuts are intercropped. The
entire bureaucracy of the Department of Agriculture (DA), not just PCA, needs to be
mobilized to realize the additional productivity from the two million hectares of
underutilized coconut farm lands.

Raising primary productivity with hybrids and adequate fertilization

All along, the basic challenge is the low primary productivity of the coconut palm
itself. Our national average yield is only 43 nuts per tree year equivalent to 0.75 ton
copra per hectare per year. Current selected tall varieties like the Laguna Tall, San
Ramon and Baybay with proper fertilization and weeding are good for 2-3 tons
copra per hectare per year. The 12 hybrids developed by PCA researchers can
produce as much as 4-5 tons copra per hectare per year.

We should therefore persevere in the replanting program with mass-selected selected tall
varieties and dwarf x tall hybrids (6th consideration). Priority are the 68 million
unproductive senile palms among the total coconut population of 324 million trees.

Intercropping for greater productivity and farmers’incomes and higher

employment

The fifth consideration is the opportunity to generate more farm productivity and
incomes and higher employment by intercropping. Coconut lends itself well to a
multi-canopy type of agriculture. There is much sunlight filtering through the
coconut canopy all year round to raise decent crops of annual crops (corn,
vegetables, legumes, ornamentals and herbal crops) as well as perennials (bananas,
pineapple, papaya, coffee, cacao, black pepper). Provided markets could be
arranged for these intercrops very often they will be more profitable than coconut
itself.
Only one-third of the three million hectares devoted to coconuts are intercropped. The
entire bureaucracy of the Department of Agriculture (DA), not just PCA, needs to be
mobilized to realize the additional productivity from the two million hectares of
underutilized coconut farm lands.

Raising primary productivitywith hybrids and adequate fertilization

All along, the basic challenge is the low primary productivity of the coconut palm
itself. Our national average yield is only 43 nuts per tree year equivalent to 0.75 ton
copra per hectare per year. Current selected tall varieties like the Laguna Tall, San
Ramon and Baybay with proper fertilization and weeding are good for 2-3 tons
copra per hectare per year. The 12 hybrids developed by PCA researchers can
produce as much as 4-5 tons copra per hectare per year.

We should therefore persevere in the replanting program with mass-selected selected tall
varieties and dwarf x tall hybrids (6th consideration). Priority are the 68 million
unproductive senile palms among the total coconut population of 324 million trees.

However, PCA needs to undergo reforms in four aspects: First, revolving door
political appointments of the PCA administrator must cease. The appointment of a
career administrator with a fixed term of, say, three years but renewable upon
meritorious performance will provide stability to the agency. Second, need to
strengthen business management and scientific expertise in the PCA Board by the
appointment of a proven industry executive nominated by the Management
Association of the Philippines (MAP) and of an eminent scientist/technologist
endorsed by the National Academy of Science and Technology (NAST) as additional
independent directors.

The third reform has to do with PCA’s research and development function which
has deteriorated over the years after the old stand-alone scientific organization –
the Philippine Coconut Research Institute – was absorbed into PCA. The coconut
industry must continuously innovate to stay competitive and survive. PCA needs to
undertake a massive recruitment and training program of researchers at the
graduate level. The PCA experiment stations and research laboratories should be
modernized and appropriately funded.
In fact the better option is to resurrect the old Philcorin and administer it as a separate
research entity like PhilRice and the Philippine Carabao Center which R:D units under the
Department of Agriculture had been doing well.

And the fourth, is to resolve the impasse and finally return PCA under the
supervision and control of the DA. PCA cannot do it alone. The coconut industry
will benefit greatly from the complementary technical support of the Bureau of
Plant Industry, Bureau of Soils and Water Management, the National Irrigation
Administration and the Agricultural Training Institute (for extension) all of which are
in the DA.