coconut coir value chain analysis
DESCRIPTION
Value Chain Analysis of Coco CoirTRANSCRIPT
1
SNAPSHOT FIRM LEVEL VALUE
CHAIN ANALYSIS AND MARKET
ASSESSMENT REPORT:
COCONUT (COPRA, FIBER AND
VIRGIN COCONUT OIL)
Caraga Region
Strengthening of the Agro-Industrial
Sector in Bicol and Caraga (SAIS-BC)
2009
Report prepared by:
SDCAsia in partnership with Fundacion CODESPA
2
TABLE OF CONTENTS
TITLE Page No.
Section 1: Overview of the Coconut Industry
A. World Production 4
B. Philippine Production 4
C. Caraga Coconut Production 5
D. Industry Players 7
E. Relationships / Inter – Firm Cooperation 15
Section 2 : Market Assessment
A. Market Trends 18
B. Implications to Cooperation upgrading Directions 26
Section 3 : Firm Level Value Chain Analysis
A. Copra 27
B. Coco Coir / Fiber Processing 31
C. Virgin Coconut Oil 34
3
ACRONYMS
ARMM Autonomous Region of Muslim Mindanao
AusAid Australian Aid
BAS Bureau of Agricultural Statistics
BFAD Bureau of Food and Drugs
CARP Comprehensive Agrarian Reform Program
CDM Clean Development Mechanism
CER Certified Emission Reductions
CLACOFAMCO Claver Coconut Farmers Cooperative
DA Department of Agriculture
DCM Direct Copra Manufacturing
DENR Department of Environment and Natural Resources
DPWH Department of Public Works and Highways
GVA Gross Value Added
KAAGAPMUCO Kaagap Multi-Purpose Cooperative
LGU Local Government Unit
MGB Mines and Geo-Science Bureau
MOA Memorandum of Agreement
MT Metric Ton
PCA Philippine Coconut Authority
PCFMPC Paco Coconut Farmers Multi-Purpose Cooperative
SAIS BC Strengthening of the Agro-Industrial Sectors in Bicol and Caraga
SOEMCO Socorro Empowered People’s Cooperative
TAGINDECO Tago Agro – Industrial Development Cooperative
UCAP United Coconut Association of the Philippines
VCO Virgin Coconut Oil
WESCOPROMACO Western Coconut Producers Marketing Cooperation
4
Section 1:
OVERVIEW OF THE COCONUT INDUSTRY
This snapshot report will focus only on the existing products of copra and whole nuts that are commonly traded within and outside Caraga, as well as the other products introduced and supported by the SAIS BC project namely: coco coir fiber and pith from the husks and virgin coconut oil.
A. WORLD PRODUCTION
• Coconut tree is ranked among one of the 10 most useful trees of the world and is often called as the “tree of life”. It is harvested in more than 93 countries in the world from an area of 10.685 million hectares, with an annual production of 54.254 million MT of nuts or 13.59 million MT of copra equivalent.
• Prior to 1996, Philippines topped world production of coconuts. Based on the 2008 FAO Agri statistics, the Philippines ranks first as the country with the largest area planted to coconut with 3.37 million hectares. However, Indonesia is the largest coconut producing country, and annual production of 19.5 million MT planted in an area of 2.9 million hectares. Indonesia is followed by the Philippines with an annual production of 15.3 million MT. India, with 1.9 million hectares and annual production of 10.89 million MT, occupies third place.
• In terms of yield, Philippines ranks 6th (4.53 MT/hectare) two places down from being the 4th in
2005. Vietnam has the highest yield per hectare at 7.85 MT, followed by Thailand at 6.73 MT/hectare, and Indonesia at 6.61 MT/hectare.
Major Coconut-Producing Areas in the World: Production and Yield
Country Areas Harvested Nut Production Yield
In hectares % of World
In MT % of World
In MT/ha Rank
Philippines 3,379,740 30.15% 15,319,500 25.08% 4.53 6
Indonesia 2,950,000 26.32% 19,500,000 31.92% 6.61 3
India 1,940,000 17.31% 10,894,000 17.83% 5.62 4
Sri Lanka 394,840 3.52% 2,200,000 3.60% 5.57 5
Thailand 255,697 2.28% 1,721,640 2.82% 6.73 2
Malaysia 174,000 1.55% 555,120 0.91% 3.19 7
Vietnam 138,300 1.23% 1,086,000 1.78% 7.85 1
World 11,208,072 61,094,243 5.45
Source of Data: FAO Statistics 2008
B. PHILIPPINE PRODUCTION
In 2008 (BAS), there are around 339.357 Million bearing trees with a production volume of 15.319 Million metric tons with a value of 80,121 million pesos at 2008 prices. Within the country, 68 out of the 79 provinces are identified as coconut areas. In general, 26% of the total crop lands in the country are planted to coconut with rice as the number one crop based on the percentage land used.
5
The Philippine coconut industry contributes at an annual average of 5.67% to the total gross value added (GVA) in agriculture (this was approximately 10% in the 1970s) and 1.14% to the country’s gross national product. Annually, the country exports at an average of USD 800 million worth of products which is roughly 40 billion pesos. The country contributes an estimated 59% of the total world exports in coconut. In addition, there are approximately 3.5 million farmers and farm workers dependent on the coconut industry with approximately a total of 25 million Filipinos directly and indirectly involved in the industry.
C. CARAGA COCONUT PRODUCTION
The CARAGA Administrative Region ranked 8th in terms of volume of coconut production in the country based on 2008 Bureau of Agricultural Statistics (BAS) with 1,011,096.28 nuts which is 6.6% of the country’s production. The Davao Region is the top producer contributing to about 17.44% to the country’s coconut production followed by Region 8, 9, 10, 4-A, ARMM and Region 5 respectively. Among the 4 provinces within the region, Surigao del Sur is the top producer contributing to about 45.41% of the region’s coconut production or 459,134 nuts in 2008. The second top coconut producing province in the region is Surigao del Norte with 34.01%, followed by Agusan del Norte with 16.30% and Agusan del Sur with 4.28% respectively.
For the last 5 years, coconut production in Caraga has steadily increased by 6% from 955,000 in 2004 to 1 million in 2008. Agusan del Norte was noted to have the highest increase of 16% (2008/2004) in production compared to the other provinces. Even though Surigao del Sur had the highest volume of production, from 2004 to 2008, there was only a 1% increase in production. The growth of Agusan del Norte coincides with the increasing trend in the number of bearing trees for the last 5 years. Surigao del Norte recorded to have a decrease in the number of bearing trees from 10,263,000 in 2004 to 9,910,000 in 2008. This may be due to the incidence of tree senility (old trees), where they are cut down and converted to coconut lumber.
Number of Bearing trees Per Province from 2004 - 2008
2004 2005 2006 2007 2008 Change
Philippines 331,465,540 328,652,399 335,466,568 338,724,352 339,357,206 2%
CARAGA Administrative Region 20,374,800 20,010,800 20,035,156 20,839,900 20,845,650 2%
Agusan del Norte 2,161,000 2,161,000 2,165,000 2,700,000 2,700,000 25%
Agusan del Sur 1,455,000 1,454,000 1,474,356 1,500,000 1,505,750 3%
Surigao del Norte 10,263,000 9,900,000 9,900,000 9,910,000 9,910,000 -3%
Surigao del Sur 6,495,800 6,495,800 6,495,800 6,729,900 6,729,900 4%
6
In terms of yield, the region has a slightly higher productivity compared to the national average of 4.53 metric tons/hectare in 2008. Overall, there was an increasing yield in coconut for the whole region from 2004 to 2008. Agusan del Norte (6.17 MT/ha) and Surigao del Sur (5.11MT/ha) had the highest yield in coconut production per hectare. Increasing productivity in the region would translate to increasing the supply of coconuts and its by-products.
In terms of nut productivity per tree, Caraga has higher average number of nuts per tree (49 nuts) compared to the national average of 45 nuts per tree. Region 3- Central Luzon has the highest nut productivity per tree at 80 and followed by Southern Mindanao.
Nut Productivity per Tree: Caraga vis-à-vis Top 3 Regions
Region 2006 2007 2008
Central Luzon 78 77 80
Southern Mindanao 64 65 67
Socsksargen 59 59 60
Caraga 50 48 49
Philippines 45 44 45
Source: UCAP Coconut Statistics 2008
Yield per hectare per province from 2004-2008
2004 2005 2006 2007 2008 Change
Philippines 4.41 4.57 4.48 4.42 4.53 3%
CARAGA Administrative Region 4.30 4.45 4.55 4.61 4.61 7%
Agusan del Norte 5.36 5.28 5.58 6.06 6.17 15%
Agusan del Sur 3.26 3.26 3.34 3.44 3.45 6%
Surigao del Norte 3.44 3.76 3.90 3.89 3.82 11%
Surigao del Sur 5.04 5.06 5.05 5.08 5.11 1%
7
D. INDUSTRY PLAYERS
1. Farmers/Farmer Cooperatives
The Philippine Coconut Authority (PCA) defines a coconut farmer as:
- Owner-farmer: who owns and tills the farm by himself and/or with assistance of farm laborers and/or by tenants
- Farmer-tenants: tills, harvests, and processes the coconut product and is compensated in the form of the produce which he sells as his/her own
- Farm workers: work in the coconut farm for wages or in-kind compensation. It is estimated that in Caraga there are more than 100,000 coconut farmers and farm workers. Majority of the coconut farms are smallholdings of less than 5 hectares. The shrinkage of the average farm size is attributed in part to the Comprehensive Agrarian Reform Program (CARP) which started in 1988.
The farmers are considered among the poorest with an average annual income ranging from PhP 13,000 – 16,000 per hectare. Farmers either sell whole nuts or in copra form. Main income from coconut is derived from copra which is then taken to oil mills through a complex marketing system composed of multi-layered intermediaries. During the recent years, there is an increasing number of farmers who engage in value added processing with the assistance or via their cooperatives to augment their income. For the past two years, SAIS-BC is supporting the development of the coco coir enterprises of the following 6 cooperatives:
COOPERATIVE LOCATION
Bislig City Producer MPC Bislig City, Surigao del Sur
Claver Coconut Farmers MPC (CLACOFAMCO) Claver, Surigao del Norte
Socorro Empowered Peoples' Cooperative (SOEMCO) Socorro, Surigao del Norte
Tago Agro-Industrial Development Coopeartive (TAGINDECO)
Tago, Surigao del Sur
Western Coconut Producers Marketing Cooperative (WESCOPROMACO)
Malimono, Surigao del Norte
Kaagap Multi-Purpose cooperative (KAAGAPMUCO) San Francisco, Agusan del Sur
Of the 6 cooperatives being assisted by the SAIS-BC project, three (Tagindeco, Wescopromaco and Kaagamuco) were already engaged in copra trading prior to project assistance. Clacofamco was formed in 2007 from a federation of barangay based small coconut farmers. The Cooperative has recently started their coco fiber processing operation last October of 2009. Soemco was initially formed by 17 LGU employees of the Socorro Municipality. The current activities of the cooperative include buy and sell, lending, management and operation of the Socorro Municipality Hotel and Water distribution system. The Bislig Producers Cooperative of 17 business men and farmers in Bislig City is currently engaged in trading of baled coco fiber and whole nuts processing and trading. Wescopromaco has been engaged in Direct Copra Marketing with Granexport and has experienced highs and lows due to price fluctuations and loan repayments. Tagindeco’s experiences in collective marketing are mainly centered on palay and corn trading business. The cooperative is also known for its coco gin, which they sell locally within the Municipality. Kaagapmuco has had support in the processing of virgin coconut oil and is currently producing and selling intermittently their oil within
8
the province of Agusan del Sur. Of the 6 cooperatives, only 2 have started the operations of their new processing facilities for coco coir fiber processing.
In general, these cooperatives are the main sources of technical and market information to the members. They also provide support services such as short term financing, value added processing for those who are operating and doing collective trading of agricultural products. Aside from the SAIS BC supported coconut cooperatives, another cooperative was reported to have been granted a set of equipment for coco fiber processing. The Paco Coconut Farmers Multi-Purpose Cooperative (PCFMPC) in Barangay Paco, Mainit, Surigao del Norte was supported by PACAP (AusAid) in the set-up of a coco fiber processing facility with the equipment coming from Rigwell Industries through the assistance of the PCA in the Region. However, during the snap shot study, no other data can be secured whether the cooperative is still in operation or not. 2. Input Suppliers
Coconut seedlings: Coconut seedlings are gathered from their own produce where the farmer leaves some nuts and wait for them to mature before planting in their proposed expansion areas. The PCA intermittently distributes coconut seedlings to farmers thru the cooperatives, but these are highly dependent on budget resources of the agency.
Fertilizers: Fertilizers are sourced from agricultural supply / general merchandise stores in the Municipal Centers.
Processing Equipment: The decorticating machines of the cooperatives were all sourced from the same fabricator. There are varied customer satisfaction feedback from the cooperatives who were provided with the equipment. Some were satisfied with the performance of the machine but a greater majority were dissatisfied with the results of the dry run for the equipment. Common observation was that the equipment was not functioning as expected/as per specifications and the supplier had poor after sales customer service.
3. Coconut Industrial Sector in the Philippines
The coconut industrial sector encompasses wide range of activities. In general though, they are underutilized due to lack of supply brought about by declining productivity and stagnation of the farm sector. a) Coconut Oil Mills There are 63 coconut oil mills in the Philippines with total annual crushing capacity at 4,501,500 MT (copra terms). 25 of the mills are located in Mindanao with aggregate crushing capacity of 2,503,500 MT. Celebes Oil Mill, which is the lone oil mill in the region, has annual crushing capacity of 30,000 MT. Many of the copra traders sell to the 9 oil mills in Northern Mindanao which collectively have the highest crushing capacity in the island at 1,050,000 MT. Two of the biggest mills in terms of crushing capacity are located in Northern
CELEBES OIL MILL/REFINERY –
Butuan City
9
Mindanao, namely: a) Granexport Manufacturing Corporation (Iligan City); and b) Wilmar Edible Oils Philippines, Inc. (Gingoog City). The oil mills have their buying stations and accredited copra traders in Caraga. In general, crushing capacity utilization for Philippine coco oil mills in 2008 was slightly better at 49% than in 2007 which was at 42%. Capacity utilization is directly influenced by available supply of copra. Oil mills in Southern Mindanao, for instance, have been operating only at 66 percent of its full capacity due to lack of copra supply.
b) Coconut Oil Refineries There are 39 coco oil refineries in the Philippines with total annual rated refining capacity of 1,434,750 MT. 15 of the oil refineries are located in Mindanao with collective rated refining capacity of 653,400 MT. The top 2 refineries in Mindanao in terms of rated refinancing capacity are: i) International Copra Export Corporation in Davao City; and ii) Wilmar Edible Oils Philippines in Roxas – Dipolog. Celebes Oil Mills, which is the only refinery in the region, has refining capacity of 7,500 MT per year.
Coconut Oil Refineries in Mindanao As of 30 June 2009
Company Annual Rated Refining Capacity (in MT)
Region IX – Western Mindanao 189,000
Philippine International Development Corp. 75,000
Unicab Industries 9,000
Wilmar Edible Oils Philippines, Inc. (Roxas) 105,000
Region X – Northern Mindanao 84,000
Limketkai Manufacturing Corp. 30,000
Cagayan de Oro Oil Company 6,000
Lanao Milling Corporation 3,000
Osamco Manufacturing Corp. 45,000
Region XI – Southern Mindanao 372,900
International Copra Export Corp. 120,000
Legaspi Oil Company 90,000
Granexport Manufacturing 72,000
New Davao Oil Mill 60,000
Pacific Oil Farmers, Inc. 14,400
Mindanao Coco Development Corp. 12,000
Asia Pacific Oil Manufacturing Corp 4,500
Region XIII – Caraga 7,500
Celebes Oil Mills 7,500
Source: UCAP Coconut Industry Kit Series of 2008, July 2009
c) Oleochemical Plants
There are 10 oleochemical plants in the Philippines making intermediate coconut-based chemicals like fatty alcohol, fatty acids, methyl ester, and glycerin. Two of the plants are located in Mindanao,
10
namely: i) Philippine International Development Incorporated in Zamboanga City; and ii) Pilipinas Kao, Incorporated in Jasaan – Misamis Oriental. d) Biodiesel Companies As of May 2009, there are 10 Department of Energy accredited biodiesel manufacturers (coco methyl ester). Two of the companies are located in Davao City, namely: i) Bioenergy 8 Corporation with 30 million liters capacity/year; and ii) Freyvonne Milling Services with annual capacity of 15.60 million liters. e) Dessicated Coconut Plants There are ten desiccated coconut plants in the Philippines categorized as medium scale mills employing 50 to 100 people. Aggregate annual production capacity of the 10 plants is 159,609.60 MT. 5 of the 10 companies are located in Mindanao. Franklin Baker Co., with plants in Laguna and Davao, is the largest producer with a capacity of 32,640 MT per year. In Caraga, Celebes Coconut Corporation produces desiccated coconuts also for exports and has an annual production capacity of 8,649.60 MT f) Virgin Coconut Oil Companies
The Virgin Coconut Oil Producers and Traders Association of the Philippines, Inc. (VCO Philippines) has currently about 84 members, an almost 400% increase from 22 in 2003. Statistics from PCA indicate that as of 2007, there were 218 VCO producers nationwide and of which 7 are located in Caraga. There are, however, only about 65 producers with the Bureau of Food and Drugs (BFAD) registration. The top 10 producers and exporters of VCO are Luzon based companies. Many of these companies were already in the herbal medicine and/or food supplement and coconut business prior to embarking to VCO production. The top 10 producers and exporters of VCO are Luzon based companies. Many of these companies were already in the herbal medicine and/or food supplement business prior to embarking to VCO production. Among the top producers are ProSource International with production capacity of 50,000 liters per month, Splash Pharmaceutical Company with total start-up investment of PhP 150 million for its VCO business (including distribution and marketing, and ABS Gen Herbs International Corporation which is among the leading herbal food supplement company in the Philippines.
One of the VCO producers in the region is Kaagapmuco which is also among the recipients of SAIS-BC support. Current production volume is still low and operations are intermittent. The most well-established producer of VCO in Caraga is the Celebes Agricultural Corporation. Celebes is a primary source for the "Organic Certified” Virgin Coconut Oil RBD Coconut Oil, Crude Coconut Oil, Cochin Oil, and its by-products like copra cake, copra meal, coconut flour, and coconut acid oil
g) Coco Coir Companies
There are 23 small to medium sized decorticating/coir processing plants in the Philippines. A decorticating plant needs about 20,000 pieces of coconut husks for an eight hour operation. There were a number of community-based coir processing plants set-up by various development projects but many have intermittent operations.
VIRGIN COCO OIL – Celebes
11
Among the SAIS BC supported groups, , Bislig Producers MPC, Wescopromaco, and Clacofamco have started producing baled coco fiber but in low volume and still in the start-up phase. The other cooperatives still have to finish the set-up of the processing plant, while others are waiting for the release of their equipment under. In the area of Bislig, a private company, Florland, also produces baled fiber in a small scale and delivers this to Regwill in Davao City. Celebes produces cocofiber and sells this in the export market only.
12
CARAGA COCONUT (COCO FIBER) VALUE CHAIN MAP SCHEMATIC DIAGRAM
HUSK
COLLECTION
Hauling
DECORTICATION
EXPORT MINING
FIBER PROCESSING
BALING OR
TWINING
COCONUT
PRODUCTION
Growing/
Harvesting/
INPUT SUPPLIERS
Exporters (Regwill )
Planting Mats
from coop
Commercial
Fertilizers
Bislig PMPC
Has been
supplying to
Regwill
Non
Members
150
Non
members
200
Planting Mats
from coop
Commercial
Fertilizers
Member
Suppliers
17
Members
97
CLACO
FAMCO
Recently
started
operations
in October
Other coconut
farmers
Own farm
inputs
Commercial
Fertilizers
Community
Based weavers
Coop Dev.
Authority
(CDA)
Phil.
Coconut
Authority
(PCA)
MLGUs
City LGUs
DA – PCA
DOST
Mines and
Geosciences Bureau
Municipal and City
LGUs
Local financial
Municipal and City
LGUs
Local financial
SAIS BC Program
under DA that would
terminate in 2010 for
Organizational Dev.
DA – PCA
Mines and
Geosciences Bureau
Local Miners (Mining
Chamber of Cagraga)
FlorLand
Ventures
CAPACITY
BUILDERS
SUPPORTERS FACILITATORS INFLUENCERS OPERATORS
13
CARAGA COCONUT (COPRA) VALUE CHAIN MAP SCHEMATIC DIAGRAM
COPRA PRODUCTION
Splitting and Drying
COPRA CONSOLIDATION
LOCAL LEVEL
OIL MILLING
COPRA WHOLESALING
MUNICIPAL LEVEL
COCONUT
PRODUCTION
Growing/Harvesting/
Dehusking
INPUT SUPPLIERS
Oil Mills in Cagayan Iligan,
Cebu and Davao
Planting Mats
from coop
Commercial
Fertilizers
WESCOPR
OMACO
Non
Member
s
Non
members
Planting Mats
from coop
Commercial
Fertilizers
Member
Suppliers
♀65
♂70
Members
♀505
♂338
TAGIN
DECO
KAAGAP
MUCO
Non
Members
Member
s
♀18
♂117
Own farm
inputs
Commercial
Fertilizers
Local
Consolidators
Oil Mill Buying Stations (i.e
POMS ventures in
Surigao city and Granex) Municipal Traders in the
town centers
Coop Dev.
Authority
(CDA) Phil.
Coconut
Authority
(PCA)
MLGUs
City LGUs
DA – PCA
DOST
Municipal and City
LGUs
Local financial
Municipal and City
LGUs
Local financial
SAIS BC Program
under DA that would
terminate in 2010 for
Organizational Dev.
DA - PCA
CAPACITY
BUILDERS
SUPPORTERS FACILITATORS INFLUENCERS OPERATORS
14
CARAGA COCONUT (VIRGIN COCONUT OIL AND WHOLE NUTS) VALUE CHAIN MAP SCHEMATIC DIAGRAM
WHOLE NUT
CONSOLIDATION
VCO PROCESSING
END CONSUMER
VCO WHOLESALE
RETAILING
COCONUT
PRODUCTION
Growing/Harvesting/
Dehusking
INPUT SUPPLIERS
Local Consumers
Planting Mats
from coop
Commercial
Fertilizers
Non
members
150
Planting Mats
from coop
Commercial
Fertilizers
Member
Suppliers
17
KAAGAP
MUCO
Non
Members
Members
♀18
♂117
Local stores
Coop Dev.
Authority
(CDA) Phil.
Coconut
Authority
(PCA)
MLGUs
City LGUs
DA – PCA
DOST
Municipal and City
LGUs
Local financial
Support
Municipal and City
LGUs
Local financial
Support
SAIS BC Program under
DA that would terminate in
2010 for Organizational
Dev.
DA - PCA
Franklin Baker Davao
Desiccated Coconut
BISLIG
MPC
CAPACITY
BUILDERS
SUPPORTERS FACILITATORS INFLUENCERS OPERATORS
15
E. RELATIONSHIPS/INTER-FIRM COOPERATION
The relationship matrix below describes the horizontal collaboration among coconut farmers and the vertical relations between the cooperative consolidators and the farmer suppliers as well as the cooperative coco fiber processors and the existing lead firms. Although Caraga coconut farmers have been supplying and participating in the copra industry for a long time, it can be gleaned that the industry is still very atomistic and fragmented. Focusing on the coco fiber industry, there is a low level of existing collaboration between vertically integrated players. This may also be due to the fact that the industry is still at a very early stage where existing coconut industry players are still trying to find their role. Relationships have been built between the coconut farmer members of the cooperatives but these are mainly based on the copra trading structure. Out of the 6 assisted cooperatives, only 3 are operating but still in the start-up phase.
Smiley description of relationships with different
players by the coconut
cooperatives (Business planning
workshop output)
16
Horizontal Collaboration Vertical Relationship
Coconut Farmer Suppliers Cooperative Consolidators/Processors –
Farmers/Suppliers
Cooperative Processors - Exporters/lead firms
Information Sharing and Transparency
Sharing of information and farming practices are done informally among farmers in contiguous farms. Formal sharing of information usually happens during training sessions conducted by the CDA, PCA or the DA.
Spontaneous information flow on markets and production practices and processing techniques to cooperative members. The annual general assembly is the main instrument for the cooperative to share the financial reports and updates. Non member suppliers acquire information only when transacting with the cooperative on an intermittent basis.
There is limited information sharing among cooperative processors wanting to engage in trading with exporters of coconut fiber. Suppliers are not allowed to go inside the processing plant. In a special case experienced by 1 cooperative, the lead firm who was also the supplier of the equipment assisted in the start up operations of the baled fiber processing. Information was provided in terms of equipment maintenance, quality specifications and quality control. However, this was not replicated in the other cooperatives.
Value Added Services/Cooperation and Collaboration
Main means of collaboration is via the coconut farmers cooperatives. Most of them were revived from the previous failures while the others were newly formed. Given this nature, the cooperatives still needs organizational development and frequent backstopping from the LGU focal persons. There is an ongoing initiative (although still weak) of collective marketing between farmers (both members and non members) in selling their products to the cooperative consolidators.
Cooperative consolidators act as the market intermediary of the farmers produce collecting the products and selling in bulk of processing in fiber/nets. There is a high degree of collaboration among member-suppliers and the cooperative since the members are assured of a market for their produce while supply is available for the cooperative to process. Non members also find the collective marketing and value added processing offered by the cooperative attractive such that it has become a means to expand its membership to other suppliers in the area.
There is predominately an arm’s length based relationship between the cooperatives and the lead firms. Exporters/ lead firms determine the price and have set the quality standards for any suppliers to follow. One cooperative did not continue to supply to the exporter due to the low price offer. Since the supply of the products (coco fiber) is still limited and there are still inefficiencies in the equipment to be able to meet the requirements, cooperatives find it difficult to negotiate for a better and long term marketing/supply agreement.
Supplier and Buyer Selection and Procurement Process
Coconut farmers still sell to the traditional buying stations of
Since the cooperatives buy the husks which are usually already
Selection of baled coco fiber suppliers are based on quality
17
Horizontal Collaboration Vertical Relationship
Coconut Farmer Suppliers Cooperative Consolidators/Processors –
Farmers/Suppliers
Cooperative Processors - Exporters/lead firms
oil mills in the town markets. This is usually because they have long standing loans or cash advances. Coconut farmer members prefer to supply their husks to the cooperative with the decorticating facilities due to the no cash incentives.
considered farm wastes, supply and suppliers are many and they have to prioritize where to get the supply. Cooperative processors prioritize husk collection from the members followed by the non members. Despite the motivation of the cooperative to the members, there are still inactive members who prefer to “wait and see” until the cooperative’s enterprise is fully operational
standards. Exporters set dimension and weight of the baled fibers. For buyers of coco nets and twine they are still in the initial try out stage of the products from the cooperatives. The Mining companies are comparing these to the nets/twine sourced from Bicol.
18
Section 2:
MARKET ASSESSMENT
A. MARKET TRENDS
1. Copra/Coconut Oil Copra has perennially been of short supply during the recent past years. Crushing capacity of oil mills in the Philippines is over 4.5 million MT of copra per year, double that of copra supply. As per PCA Coconut Industry Development report, copra production in Mindanao is projected to reach about 7.5 million metric tons for the period covering 2005-2010. With the current huge demand for copra by oil refinery mills in Mindanao, this projected target can only fill 55 percent of the demand during the same period. The combined copra requirements of the six regions of Mindanao covering the same period have been estimated by PCA at 13.7 million metric tons. Except for Celebes Oil Mills which reportedly has more than 300% utilization, majority of the mills are underutilized. As such, increase in production volume of coco farmers can be readily absorbed by mills in Mindanao. Below are the list of oil mills in Mindanao and their respective rated milling capacity:
Copra Crushing Capacities of Mindanao Coconut Oil Mills As of 30 June 2009
Company Rated Milling Capacity (in MT)
Region IX – Western Mindanao 510,000
Interco Manufacturing Corporation 180,000
Philippine International Development 120,000
Unicab Industries 45,000
Wilmar Edible Oils Philippines (Roxas) 165,000
Region X – Northern Mindanao 1,059,000
Wilmar Edible Oils Philippines (Gingoog) 216,000
Cagayan de Oro Oil Company 120,000
Limketkai Manufacturing Corporation 37,500
Lanao Milling Corporation 12,000
Muenster Ingredients Manufacturing 7,500
Third Millenium Oil Mills, Inc. 150,000
Osamco Manufacturing Corporation 66,000
Granexport Manufacturing Corporation 270,000
Iligan Bay Milling and Trading Corporation 180,000
Region XI – Southern Mindanao 852,000
International Copra Export Corporation 157,500
Legaspi Oil Company 157,500
New Davao Oil Mill 90,000
Pacific Oil Farmers 66,000
Asia Pacific Oil Manufacturing 22,500
Mindanao Coco Development Corporation 22,500
Freyvonne Milling Services 4,500
Interco Manufacturing Corporation 142,500
19
Copra Crushing Capacities of Mindanao Coconut Oil Mills As of 30 June 2009
Company Rated Milling Capacity (in MT)
Coco Davao, Inc. 9,000
Cargill Philippines 180,000
Region XIII - Caraga 30,000
Celebes Oil Mill 30,000
Region XIV - ARMM 52,500
BJ Coco Oil Mill 52,500
Total - Mindanao 2,503,500
Source: UCAP Coconut Industry Kit, July 2009
On the average, 70% of the total Philippine coconut oil production is exported. It is traded in the world market along with other vegetable oils and fats. Since coco oil is only on the average about 4% to 5% of the world fats and oil market, it is very vulnerable to price movements of soybean and palm oil which supply more than 60% of the vegetable oils and fats trade. As such, coco oil importers are generally price takers. There are several factors that can influence the pricing of coconut oil but generally it all boils down to supply and demand. Nonetheless, it has remained premium oil over most of the others - and definitely the highest priced oil among the so-called tropical vegetable oils, - due to its properties and distinct usage. Coconut oil is valued for its high lauric fatty acid content, which is the base material used for detergent and cosmetic products. The growing local consumption of coconut oil has helped significantly in sustaining the price of copra. The buying price of domestic coconut oil was in many times during the year higher than the export price. In 2008, the average monthly coco oil domestic consumption was at 70,000 MT. The coconut oil edible users had an average consumption of 45,000 MT per month while oleochemicals used about 20,000 MT/month. Biodiesel companies had average consumption of 5,000 MT/per month. The monthly requirement of biodiesel companies in 2009 was estimated to increase by 100% with the increases from the one per cent biodiesel blend to two per cent blend as mandated by the Biodiesel Law. Both in the domestic and export markets, price and demand of coco oil is very much influenced by price of substitutes especially the palm kernel oil. Likewise, buying price of copra has some variations among the various ports of loading. It is, therefore, important for farmer cooperatives engaged in copra trading to make careful calculations on logistics/transportation costs to various ports of loading vis-à-vis buying price. Below is a snapshot of the average prices of copra in various loading points in Mindanao during the last quarter of 2009:
Average Prices of Copra in Ports of Loading in Mindanao (PhP/100 kilos – delivered bodega)
Port of Loading
Oct/09 Nov 21/09 Nov 28/09 Dec 5/09 Dec 12/09 Dec 26/09
Surigao City 1709.00 1730.00 1768.00 1784.00 1790.00 1810.00
Nasipit 1684.00 1705.00 1743.00 1759.00 1765.00 1785.00
Medina 1689.00 1710.00 1748.00 1764.00 1770.00 1790.00
Gingoog 1814.00 1818.00 1850.00 1850.00 1870.00 1900.00
Cag de Oro 1782.00 1796.00 1850.00 1820.00 1870.00 1850.00
Iligan City 1699.00 1720.00 1758.00 1774.00 1780.00 1800.00
Ozamis City 1694.00 1715.00 1753.00 1769.00 1775.00 1795.00
Dipolog 1735.60 1761.00 1725.00 1745.00 1787.00 1825.00
20
Average Prices of Copra in Ports of Loading in Mindanao (PhP/100 kilos – delivered bodega)
Port of Loading
Oct/09 Nov 21/09 Nov 28/09 Dec 5/09 Dec 12/09 Dec 26/09
Zamboanga 1760.60 1786.00 1750.00 1770.00 1812.00 1850.00
Basilan 1740.60 1766.00 1730.00 1750.00 1792.00 1830.00
Mati 1760.60 1786.00 1750.00 1770.00 1812.00 1850.00
Davao City 1716.40 1750.00 1762.00 1776.00 1800.00 1800.00
Cotabato City 1756.00 1785.00 1795.00 1795.00 1815.00 1845.00
Gen Santos 1761.00 1790.00 1800.00 1800.00 1820.00 1850.00
Source: UCAP Weekly Bulletin
Importing countries particularly the EU require that copra meal brought to them must not exceed the aflatoxin limit of 20 parts per billion (ppb) and crude coconut oil, the polycyclic aromatic hydrocarbon (pah) limit not to exceed 25 ppb within it the benzo@pyrene (BaP) component not exceeding 5ppb. These two (2) chemical compounds, which are carcinogenic and therefore health hazards, are acquired from using the traditional smoke (landahan/ganggangan) dryers and from poor and improper use of other drying methods or procedures in making copra like drying them under the direct heat of the sun. Likewise, storage practices of traders often leaves copra at an unsafe moisture content for longer than 48 hours and result in a greatly increased risk of mould and aflatoxin contamination. When the crushing plants process this inferior quality copra, the aflatoxin is carried over in copra meal, a by-product in oil extraction, while the "pah" is carried over in the extracted crude coconut oil. To improve quality of copra and enable farmers to get a premium price for their produce, the use of kukum dryers is being promoted by the PCA Caraga. One of the early adopters is the Wescopromaco Cooperative, a group being supported by the SAIS-BC project. The kukum dryer produces white copra which has been proven to effectively control the growth and contamination of aflatoxin-causing molds because the more reddish, the copra, the more aflotoxin it has. Economic analysts foresee further tightening of supply of copra in the coming years unless the industry pursues a cohesive and intensive approach to address coconut production, productivity, and quality problems.
2. Coco Coir The coconut husk is a by-product of the coconut industry and is wasted in many areas or left on the fields as a mulch or used as fertilizer because of high potash content. Coconut husks are made of bristle fiber (10%), mattress fiber (20%) and coir dust and shorts or wastes (70%) on a dry weight basis. The ratio of yield of long, medium and short fiber, respectively, is on average 60:30:10. These husks can be used in three ways: a) for extraction of coir fiber; b) as domestic fuel; and c) for soil moisture conservation by burying in coconut lands. Coconut fibers have high lignin content and thus low cellulose content, as a result of which it is resilient, strong and highly durable. The remarkable lightness of the fibers is due to the cavities from the dried out sieve cells. Coconut fiber is the only fruit fiber usable in the textile industry.
21
The demand behavior for coir is pushed by the eco-friendly characteristic of the product. Traditionally, coir has been processed into a range of products such as yarns for the production of floor coverings, mats and matting, cordage and nets, bristle fibers for brooms and brushes, and for use with domestic mattress and upholstery industries. Coco coir is now widely used as basic material in making nets, rolls, and mats for protective covers for soils and slopes. Geotextile nets or coconets, which are made from coir fiber twine woven into high strength mats, is preferred over concrete bricks and peat moss because it is cheaper and completely biodegradable. It is also an excellent growing medium for plants and grasses since the fiber has natural rooting hormones and excellent water holding capacity. Likewise, the geotextile finds important use in shoreline stabilization and desertification. As a natural material for soil erosion control, coco geotextile has elevated the importance of coconut husk several notch higher from an otherwise known waste product of coco processing. The field was pioneered by an agricultural engineer, Dr. Justino Arboleda, which gained him international recognitions. A by-product of coir fiber extraction is the coir pith. Coconut Peat or often called as Cocopeat has a high lignin (31%) and cellulose (27%) content and a carbon-nitrogen (C/N) ratio of 104: 1. It also has a very high water holding capacity of 5 to 6 times its weight. It should be noted that Coconut Peat is stable because of the presence of high percentage of lignin. Thus, the peat left to itself takes decades to decompose. The composted peat is used along with organic supplements in crop fields in horticulture and floriculture. It is also used as rooting and growing medium for certain ornamental flowering plants. Decomposed coconut peat is also used as hydroponics systems for growing roses and vegetables under controlled conditions. The coconut peat in sterilized condition finds use in mushroom cultivation and floriculture. It is also used as an alternative for 'Peat Moss'. Coconut Peat has a calorific value of 3975 k cal/kg, close to 4200 k cal/kg of coal. It is also used as fuel briquettes with ash content 1/10th of coal. China remains the top importer of Philippine coco fiber products, both for processed and raw. Based on the international fiber trade, China is still the top importer of fiber followed by Netherlands, Spain, Japan, and Germany. In 2007, the DA was reported to have signed an agreement with Zongbao Fiber Company for the supply of 100,000 MT of coco coir fiber. Philippine exports of baled coir to China in 2008 decreased in terms of volume but increased in value. Overall, export volume and value of baled fiber in 2008 increased both in terms of value and volume over 2007 figures. Export statistics indicate a 40% increase in unit price of baled fiber in 2008 over 2007.
Baled Coir: Export Performance
Destination
2007 2008
Volume (MT) Value (US$) Volume (MT) Value (US$)
China 3,781 409,924 3,290 513,531
Taiwan 1,192 138,392 1,420 189,137
Hongkong 190 20,211 482 93,250
Singapore 250 44,900
22
Baled Coir: Export Performance
Destination
2007 2008
Volume (MT) Value (US$) Volume (MT) Value (US$)
Others 102 25,544 384 81,568
Total 5,265 594,071 5,825 922,386
Source: PCA
Share of Philippines to world exports of coir products is still low. Sri Lanka is the single largest supplier of coir fiber to the world market and together with India accounts for almost 90% of global coir exports. Although Sri Lanka has traditionally been the lead exporter of coir fiber and pith, India holds the dominant position in terms of revenue generated by the industry, given the higher value-added component of its coir exports. For Philippines to increase its market share, product quality has to be at par with India and Sri Lanka. Volume and economies of scale are also vital factors especially for Caraga coir cooperatives intending to export since shipping costs from Davao and Cagayan de Oro is 300% higher compared to Manila. Main export market for coco peat/dust is Korea. Export volume and value in 2008 decreased over 2007 performance. Unit price increased by 13% in 2008 compared to 2007 figures. In 2008, 10 MT of coco net was exported to Japan with a value of US$ 15,175.
Coco Peat/Dust: Export Performance
Destination
2007 2008
Volume (MT) Value (US$) Volume (MT) Value (US$)
Korea 2,705 437,161 1,376 290,512
China 1,386 156,551 1,356 146,781
Taiwan 48 5,332 488 78,662
Hongkong 161 24,050 316 48,024
Singapore 155 17,838 189 35,202
Others 238 58,579 132 48,969
Total 4,694 699,511 3,857 648,150
Source: PCA
The coir industry stands to benefit from the following international opportunities: - The Clean Development Mechanism (CDM) of the Kyoto Protocol offers significant international
opportunities for the coir industry. Under the CDM, firms in industrialized countries can earn Certified Emission Reductions (CERs) by investing in environment-friendly projects in developing countries.
- China. According to the Sino-Malaysia Science and Technology Cooperation Project, “live”
desert is moving towards cities, provinces, agricultural areas, and livestock pasture areas in China at the rate of 2,460 sq km per year. A total of 2.6 million sq km or 27.3% of China’s total territory is already affected by desertification. China also has numerous building construction and flood-control projects that are in need of erosion-control measures. It is projected that China will require 96,000 MT of coir per year and 4,800 MT coir peat annually.
- Korea and Japan. These countries allocate funds for environment-related projects. Like China,
they give high priority to the landscaping of public areas and highway shoulders that run thousands of kilometers. It is projected that there will be high demand for erosion-control materials and coco peat in these countries.
23
- Europe, United States, and Canada. Coir products for horticulture applications- plant liners, coco peat, totem poles. The bulk of coco peat exports to Europe and Canada come from Sri Lanka while Korea and Japan source from neighboring countries like the Philippines.
Coir fibre products for soil strengthening as reinforcement in tropical soils have been shown to be effective. In horticulture sector, natural fibre can play a vital role (with reasonable strength and disposability) in transporting flowers, vegetables, fruits, etc. pots for planting..
- Netherlands. The total size of the market for geotextiles in the Netherlands is approximately 10 –
12 million square meters annually. According to estimates of the Dutch Road and Hydraulic Engineering Division (DWW) of the Directorate General of Public Works and Water Management, the market share of biologically degradable geo-textiles amounts to 3% to 5% of the total market. Estimates by the DWW foresee a possible growth of the market share of biologically degradable geo-textiles of 15% in the coming years. Exporters form developing countries could profit from this rising market share.
Likewise, about 2 million pots of plants are produced consuming about 30,000 tonnes of synthetic plastics. Biodegradable pots using natural fibres can be produced replacing synthetic plastics.
- The automotive and upholstery industries also recognize the eco-friendliness of rubberized,
molded coir products. In addition, new uses of coco coir are being developed all the time (e.g., as reinforcing material in composite products such as fiber boards and insulation boards). Industry application for coco coir fiber is making its way in the European automotive industry. Coco fiber is seen to be a good alternative to reduce cost and weight in automotives. Similar to Abaca, the coco fibers are placed in car seats and cushions. In a report by the APCC, several European firms are testing the effectiveness of coco coir as “bio composites” in the automobiles, or as thermal insulation in home construction.
To boost domestic market for coir products, the following directives were issued by the government: - Memorandum Circular No. 25 directs all national and local government agencies, bureaus, and
other instrumentalities, including agricultural institutions and councils, to use coco peat or coir dust and coconut fiber materials for soil conditioning and erosion control.
- Administrative Order No. 43 encourages the use of containers or receptacles (for “plantable”
seedlings) made from indigenous organic materials like coconut husk, coconut coir, coco peat, or other plant fibers.
- Administrative Order No. 11 recommends the sustained use of coco peat or coir dust as a
complementary soil amendment (conditioner) for improved crop yields during “normal” times and as a drought-mitigating measure during El Niño years.
- The Department of Environment and Natural Resources (DENR) also issued a circular regarding
the use of coir pots for reforestation nurseries. - The Department of Public Works and Highways (DPWH) issued also a circular, ordering the
incorporation/inclusion of geotextile in the designs made by the Department for construction of roads and highways. At present, imported synthetic erosion control materials are used to stabilize highway shoulders and eroding sections of roads. The use of locally made geonets can push the demand, of which a mere 10% estimate translates to about 500 MT geotextile per 1,000 km per year.
The demand for geotextile in the domestic market is expected to increase with the intensification of subdivision projects all over the country, the construction of golf courses, and government and private
24
sector projects on soil stabilization of river banks, strengthening and fortification of dikes of fishponds, and water impounding projects for crop irrigation systems. To date, the main market for baled coir fiber from Caraga is Regwill Industries of Davao City. The company exports coconut based products like coconut fiber, coco peat, erosion control nets, bio-organic fertilizer, coco mats, coco chips, coco pots, bio logs, rubberized mats which they export to several countries like Asia, Europe, Middle East and Africa. During the study, the company did not allow interviews to be made. According to interviews with the SAIS BC supported cooperatives, the company supplied the machineries/equipment recommended by PCA-Caraga which then paved for the establishment of direct linkages with the cooperatives. The company has indicated that it can purchase unlimited volume of baled fiber at a price of Php 10-12/kg. Celebes Agricultural Corporation, a major exporter of coconut products and organic banana chips in Caraga has been exporting baled coconut fiber to China and other countries. The company sources coconuts from farmers and traders all over Caraga. According to the company’s website, the main objective for establishment of the coconut coir factory is to “turn waste into income” for their coconut farmer suppliers. The plant is equipped with tubs for soaking the husk, machines that separate the coconut husk from the shell, and a machine to process the husk into fiber. For the geotextile/net, major/preferred market of the groups is the regional market. CARAGA being a home to various mining companies is a very attractive market for geotextiles/net. Currently, these mining companies are getting supplies of geo-nets from as far as the Bicol Region. The mining companies use the nets for the rehabilitation of the mining areas. Likewise, an initial talk with the two mining companies in Surigao del Norte (Taganito Mining Corporation and Hinatuan Mining) on the use of geo-nets as material for erosion control in their mining sites resulted to a positive response. Initial demand of the two mining companies for its 500 hectares needing erosion control is estimated at 100,000 rolls of geo-nets (@200 rolls/hectare). Based on original business plans of the coconut cooperatives, there were also possible demands on geotextiles for the DPWH and NIA for 1000 rolls and 500 rolls, respectively. Claver LGU has facilitated a MOA with the mining companies in the supply of coco nets from Clacofamco. During visits conducted, the cooperatives showed that they already have orders from these mining companies but do not have the capacity yet to supply because of the lack of volume and the inability to process since they are still in the set-up stage / completion of the processing facilities. In an attempt to support the coconut cooperatives in meeting the potential market demand of the mining companies in Caraga, the Mines and Geo-sciences Bureaus (MGB) convened the Mining Chamber of the Region together with the coco coir producing cooperatives. Initial agreements centered on the supply of geotextiles from the group with the MGB as the conduit. The memorandum of understanding between the group was already formalized and price has already been set. To further support and strengthen the cooperatives’ position, the coir fiber producing cooperatives in the region (under the SAIA BC project) have decided to federate themselves and engage in collective marketing and pool their produce and sell these to the mining companies. 3. Virgin Coconut Oil The virgin coconut oil (VCO) is extracted directly from the fresh, mature kernel of coconut by mechanical or natural means, with or without the use of heat, without undergoing chemical refining, bleaching, or deodorizing. The traditional coconut oil product is extracted from copra or dried, mature, coconut meat. Coconut oil from copra has to be refined, bleached and deodorized to make it suitable for human consumption. Hence, it is generally called RBD coconut oil and is yellow in color, odorless and tasteless. On the other hand, VCO is colorless or water clear and has a natural coconut aroma/scent which differs in intensity depending on the process used in extracting it. VCO is suitable for consumption without the need for further processing.
25
The way by which the VCO is produced, packed, and distributed as well as the limited volume of production account for the most for the relatively high price it commands vis-à-vis the traditional coconut oil. For the period 2004 to 2008, export price of VCO ranged from US$ 2,692.12/MT FOB (2007) to US$ 3,400.56/MT (2005). During the same period, the price of refined/bleached oil ranged from US$ 557.18 to US$ 1,232.79/MT FOB while RBD coco oil (refined, bleached, and deodorized) had a price range between US$ 606.86 to US$ 1380.16/MT FOB.1 Within this five-year period, the average price of VCO is 400% more expensive than cochin oil and 370% higher than the RBD oil. In 2008, VCO was among the top 5 non-traditional coconut exports of the Philippines with the natural health food sector as its major market. It is a highly regarded functional food for its antiviral, antibacterial, antimicrobial, and antifungal action. There is also a growing market demand for use of VCO as major base oil for hypoallergenic cosmetics, as hair and skin conditioners and as carrier oil for aromatherapy/ massage oils. VCO exports have significantly increased during the last five years. From a mere US$ 0.553 million in 2004, exports have increased to US$ 5,342 million in 2008. Similarly, export volume increased from 172 MT in 2004 to 1,639 MT in 2008. Export sales in 2009 (as of September 2009) dropped by around 27% due to the worldwide recession.
Virgin Coconut : Export Performance
Destination
2007 2008
Volume (MT) Value (US$) Volume (MT) Value (US$)
United States 999 2,840,940 862 2,891,961
Canada 666 1,546,648 395 1,080,857
Belgium 115 337,866
Australia 8 30,678 59 259,908
Germany 94 261,667 82 245,612
Taiwan 3 12,884 40 141,321
Malaysia 8 41,626 22 112,734
Others 75 218,753 65 271,787
Total 1,854 4,991,196 1,639 5,342,046
Source: PCA
Functional or food supplements market requires organic and other relevant certification which oftentimes, are be difficult and expensive (vis-à-vis scales of operations) for farmer-producers/micro VCO companies to obtain and achieve. A potential opportunity for Caraga VCO producers is bulk selling/exports to hypoallergenic cosmetics and specialty soap companies which generally do not require organic certification. VCO is marketed as a food supplement in the Philippines. Innovations have been made in the presentation and packaging of the VCO for the consuming public. Apart from being sold in bottles of various sizes, it now comes in capsules of 500 milligrams. Likewise, flavors such as banana, sweet corn, jackfruit, have been added. VCO is also used locally in the manufacture of non-food premium products such as soaps, shampoos, hand and body lotions, massage oils, etc. In the Philippines, herbal medicine market is estimated to be about PhP 5 billion. Splash Pharmaceutical Corporation, aims to capture 40% of the PhP 5 billion herbal medicine market with its VCO products. The “virgin coconut capsule fiber plus” under the brand name Kolestrim of ABS Herbs International is exclusively distributed by Getz Bros. Philippines, which has 90 years of distribution experience in the Philippines. Thera Herb from Splash Corp is said to be the market leader in the local market.
1 UCAP Coconut Statistics 2008
26
B. IMPLICATIONS TO COOPERATIVES’ UPGRADING DIRECTIONS Coconut production in Caraga during the last five years has steadily increased with some provinces surpassing the national productivity level. However, the coconut industry in Caraga has lagged behind in terms of tapping and maximizing the potential of the industry. Similar to the other coconut farmers in the Philippines, the situation in Caraga holds the same such that farmers are still suffering from low income which is aggravated with the fluctuating copra prices that largely depends on movements in the world vegetable fats and oil market. Low income of farmers from coco farming activities are primarily due to perennial problems as poor technology (limited to almost no application of fertilizers), increasing senile trees, and low productivity. The support of SAIS BC has made headway in realizing the need for value added processing anchored on the collective marketing initiatives of the supported cooperatives. However, there is still a need to strengthen the industry, its players and Caragas position in the Philippines. Below are the recommended upgrading directions for the new entrants in the coco coir/fiber industry/coco processing business ventures:
• Improve productivity of existing farms employing low cost practices. This would involve developing a system of mass based technology awareness thru indigenous market based mechanisms. The cooperatives that were capacitated by the PCA / DA may be the anchor for continuous dissemination of these production technologies.
• Develop standard operating system based on cooperative capacity and scale of operations for the management and operation of the processing plants using environmentally sustainable practices.
• Strengthen organization in enterprise development and management using sound decision making process and business principles. Improve business management skills to equip members on marketing and processing operations.
• Strengthen collective marketing for the cooperatives and facilitate market development, advocacy and promotions.
• Facilitate win-win relationships among existing and new players of the coconut industry as a whole. Establish market linkages with lead firms (i.e coco fiber exporters and VCO industrial users).
It is also recommended that as soon as the cooperatives are able to stabilize processing and marketing operations of a main product (e.g., baled coco coir), it should look into expansion into an integrated coco processing enterprise model that can be operated by a federation of coco cooperatives in Caraga2.
2 During the Business Planning Workshops conducted by SDCAsia, the coco cooperatives have initiated the formation of a federation including the election of officers.
27
Section 3:
FIRM LEVEL VALUE CHAIN ANALYSIS
The firm level value chain analysis looks into the individual operations of the 6 cooperatives supported by SAIS BC in terms of its primary activities (inbound logistics, operations, outbound logistics, marketing and sales and after sales) as well as the support activities. This section will look into 3 operations namely: copra production / making by 3 cooperatives (WESCOPROMACO, TAGINDECO and KAAGAPMUCO) and coco coir /fiber processing as operationalized by BCPMPC and CLACOFAMCO. Although the KAAGAPMUCO, has been processing VCO utilizing its old equipment, it has not yet tried processing VCO utilizing the new machines granted under the SAIS BC project. SOEMCO, the 6th cooperative has not yet started it operations in relation to value added coconut processing.
A. COPRA
Firm Activities Description
INBOUND LOGISTICS Currently there are 2 cooperatives involved in copra buying and trading and 1 cooperative involved in copra making from whole nuts.
Firm Infrastructure Copra Procurement
• Supply procurement planning: weekly purchase planning is done but is mainly determined by the available cash on hand the cooperative has for purchasing of copra. For a cooperative with a direct marketing agreement with an oil mill, purchasing is done with the copra supply volume as the basis for their annual volume target of copra.
• Management of purchasing operations: directly handled by the cooperative assigned purchaser and assisted by laborers for weighing. The cooperative book keeper and cashier provide payment and keep manual record of weights. The cooperative general manager oversees the overall purchasing activity.
• Quality Control of purchased copra: the cooperative does not have a moisture meter to determine moisture content. Instead, visual quality inspection is done at the point of purchase.
Whole nut procurement for Copra
• Supply procurement planning: weekly purchase planning is done but is mainly determined by the available cash on hand the cooperative has for purchasing of copra.
• Quality control system: Maturity index is based on visual inspection on the color (green and brown) of the whole coconut.
28
Firm Activities Description
Human Resources • In house training of laborers by cooperative members on visual inspection of delivered copra as well as correct weighing and tarring of weights.
• Cooperative members / purchasers in charge of buying copra derive copra quality from the buying station of the oil mills which he downloads internally to laborers and staff.
• The cooperatives irregularly participate in PCA organized technology info trainings on coconut production processes and value assed technology.
Technology
Development • The cooperatives rely on PCA R and D findings. Involvement would be
mainly on the production side implementing field trials of new varieties like dwarf coconuts.
Procurement Copra procurement
• Cooperative consolidators purchase copra from their members and non member suppliers
• Supplier Information: The cooperative has a supplier listing for member and non member copra suppliers
• Procurement practice/system: members deliver directly to the cooperative warehouse for bigger volumes. While others deliver the small volume copra to designated buying stations. Schedule of pick up are disseminated thru the members of the cooperatives.
• The cooperatives utilize their hauling trucks to pick up copra/whole nuts.
• Copra is delivered by the suppliers thru Carabao drawn carts or in motorcycles. For bigger volume suppliers, they use tricycles and multi cabs.
• Delivered copra is placed in sacks and unloaded in the cooperative warehouse ready for weighing.
• Copra purchased has varied quality (moisture content) due to varied drying techniques (sun drying and kiln drying) and drying times depending on weather conditions.
• One cooperative purchases whole nuts from their member and non members
Whole nut procurement Similar to copra, whole nuts are picked up from designated buying stations for small volumes and direct to the warehouse for larger volumes and payments transactions are done in the cooperative office. Whole nuts are sorted based on color. Green nuts are rejected because these are immature nuts and produce low quality/rubbery copra that is hard to dry and has a high tendency to contract molds.
OPERATIONS Copra Trading The cooperative receives copra at their warehouse/storage area. The operations activity involves weighing and sorting of the consolidated dried copra. Sorting of copra is done manually utilizing visual methods. White copra with low moisture content is noted as good quality copra that would yield higher coconut oil. Brown copra that is usually observed during sun drying is usually reprocessed/re-dried to remove moisture. Green copra as evidence of
29
Firm Activities Description
mold growth are discarded since this may contain Aspergillus flavus, a mold that produces aflatoxin. Copra processing/making from whole nuts After receiving of whole nuts, these are de husked, the husks are separated for fiber processing. The nut with shell are split open using a machete and the coconut water is drained. Opened nuts are sun dried using the cooperative owned cement pavement. Usual drying takes place for 5-6 days depending on the weather. After drying, the copra meat are scooped out using a metal stick and visually inspected for sufficient moisture content. Further drying is done for sorted copra with higher moisture content based on sensory testing.
Firm Infrastructure • Weighing System at point of delivery in the cooperative warehouse
• Sorting system based on copra color and moisture content
• Quality control system: Qualitative sensory testing via the thumb against the white meat (quick test for 6 percent moisture content). If the copra kernel (white portion) does not stick to the thumb, and readily drops when released, the 6 percent (approximately) moisture level has been achieved.
Human Resources • Informal and in-house training of laborers on sorting dried copra via color (white, brown and green) and thumb test moisture determination, basic calculations for weight and % moisture.
• Knowledge on copra making is acquired thru experiences which are handed down from their elders.
• The cooperative attends trainings sponsored by the local PCA office, but these are intermittent and depend on the existing budget of the cooperative or the PCA.
• The cooperative does not have a fixed budget allocation for HR development of laborers and staff members.
Technology • One cooperative has conducted pilot testing using kiln drying methods to ensure whiter copra with lower moisture content preventing against mold growth. Sun drying would take 5-6 days while direct or indirect smoke drying (a type of kiln drying) would take a maximum of 4 days
Procurement • Weighing scales are maintained using test weights. The cooperative purchases from a local hardware store weighing scales.
OUTBOUND LOGISTICS Copra is stored in the cooperative warehouse on a weekly basis until the desired delivery volume (5-6tons) is achieved. Copra ready for delivery are packed in sacks with 50kg to 60kg weights. The sacks are loaded in the hauling trucks and covered with a canvass. Delivery records are placed noted and presented to the oil mill buying stations.
Firm Infrastructure • Manual Inventory of weekly copra stocks
• Delivery receipts with total volume are sent together with the hauling trucks for delivery.
• Delivery Records and Payment Records are in place.
• Safety warehousing and storage practices are lacking especially in the design and maintenance of the storage facilities.
Human Resources • In house training on quality control inspection prior to delivery
• Oil mill purchases also provide tips to cooperative suppliers on maintaining quality of copra during transport.
Technology • Main concern faced by cooperatives is usually on the improper warehousing facilities and design (limited protection from entry of rain/moisture and pests) wherein their stocks are susceptible to moisture
30
Firm Activities Description
uptake and pests (i.e rat infestation).
• The cooperatives are devising methods to hasten pickup and delivery of the copra products by designating more buying stations with strategic locations.
Procurement • Used sacks are purchased from general agriculture supply stores in the town centers. Usual sacks reused are those from sugar, rice and sometimes feeds.
MARKETING AND SALES Cooperatives with direct marketing agreement receive an annual purchase order from the partner oil mill. The stated volume is then divided on a monthly basis to determine the monthly quota that the cooperative will distribute among its member and non member suppliers. Order processing without DCM: Since oil mill buying stations accept any volume of good quality copra anytime, other cooperatives without any DCM only trade existing volume supplied by the members and non members and these are bounded by existing cash on hand.
Firm Infrastructure • Initiatives on marketing and marketing management are tied with other agricultural products that the cooperative trades such as palay or corn thru the cooperative retail stores and warehouse.
Human Resources • Cooperative staff attends annual CDA training on book keeping and general financial management for all cooperative products.
• General manager acquires informal training on trading and handling transactions thru day to day experiences and handed down from oil mill purchasers.
Technology • Initiatives on improvement of quality of copra product and timely delivery of purchase orders as per DCM.
Procurement • Higher consolidated copra volume for higher buying price: Cooperatives maintain a minimum volume of copra that will be sold to the oil mill buying stations and traders so that they will be provided with a stable high price.
• Direct Copra Marketing Agreement: honoring the DCM and renegotiating annually the terms and conditions.
• Face to face transactions and negotiations with buyers
• Copra as a product has not been pushed/ marketed by the suppliers since the market has been existing for a long time and it is only the price that determines whether the cooperative sells within the week or waits for the following week
AFTER SALES
Firm Infrastructure None
Human Resources None
Technology None
Procurement Face to face transactions from oil mill purchasers and buyers/traders.
Main gaps identified is mainly on maintaining copra quality after consolidation and the improvement of drying methods to produce good quality copra with high oil content and no aflatoxin.
31
B. COCO COIR / FIBER PROCESSING The analysis of the coco fiber operation is based mainly on the experiences of Bislig Producers MP Cooperative and Claver Coconut Farmers Cooperative. Both cooperatives have started operations after the receipt of the equipment provided under the SAIS BC project. Based on the interview conducted, Bislig cooperative was able to deliver to the Buyer twice.
ACTIVITIES Description
INBOUND LOGISTICS
Firm Infrastructure • Supply procurement planning: husk procurement is based on the targeted volume that the cooperative needs to be able to deliver to the buyer and these are matched to the existing suppliers and their current husk volume. Husk acquisition is mainly confined to the baranggays within proximity to the processing plant. A hauling schedule is drawn after canvassing of husks is completed and given to the driver and the assistant.
• Since operations of the 2 cooperatives are still in the infancy stage and both are still in the process of maximizing the plant capacities, procurement and hauling of husks are done on a need basis only.
• Management of purchasing operations: Canvassing of available husk supply is done by the project in-charge with the clerk as the assistant. The driver together with the assistant weighs the husks at the consolidation points and pays the farmers/husks owner and delivers the husks to the processing plant.
• Inventory and record keeping: Manual inventory recording in the raw materials / husks log book.
• Quality Control system for of purchased husks: visual inspection for color (brown and yellowish green) and adulterants.
Human Resources • Cooperative members and production manager acquire technology information from PCA which included hands on training.
• Informal training to driver and assistant driver (hepe de viaje) on raw material inspection and weighing skills.
Technology • No differentiation between brown husks (mature coconuts) to produce brown fiber and green husks(young/immature coconuts) to produce white fiber that is good for making 2 ply ropes due to its fine and resilient bristles. Younger (yellowish-brown, greenish-brown) husks produce good quality fibers.
• Some of the member farms are involved in PCA commissioned new coconut variety field testing.
Procurement • Suppliers’ information: The cooperative has a list of and contact information of the husk suppliers. Husk supply is taken from nearby areas within 300 meters from the processing plant (this includes neighboring brgys. ) Husks within the municipality are bought at a higher price (i.e 0.25 cents), while outside of the municipality is 50-60% less to account for transportation costs.
• Husk collection is initially done via canvassing from member and non member suppliers to determine existing volume of available husks. Once the volume is sufficient to fill up the cooperative hauling truck, this is picked up from designated consolidation centers and brought to the processing plant for storage and/or direct processing. Payments are usually cash basis after weighing is completed. There are coop members as of the moment that gives their coconut husks to the cooperative for
32
ACTIVITIES Description
free. When procurement and processing has stabilized, the cooperatives have decided to pay certain amount to member for every supply of coconut husks they get.
• Visual inspection of the consolidated husks is performed to check for other materials like stones or whole nuts, coco shells that might adulterate the weighing and destroy the blades of the decorticating machine. Color is also checked
OPERATIONS
The following are the general operations conducted within the fiber processing plants of the 2 cooperatives based on the existing equipment provided under the SAIS BC project.
Decorticating: Hauled coconut husks are soaked in water in a tub to soften and placed in the decorticating machine where the fibers are extracted. The machine separates the fiber (40%) from the peat or coir dust (60%). For efficient separation of the dust and the fiber, a manual sieve is used. Currently, the coco peat/dust is placed in heaps beside the processing plant. The cooperative has not yet defined clearly any activity transforming coco coir dust into other product formats for commercial use other than packing the coco peat in sacks and given to members interested to apply the peat as soil conditioners in their farm.
Drying: The wet fibers dried under the sun. In the drying process, the fibers are spread loosely in the cemented solar drying pavement about 3 to 4 inches thick and turned after two hours of exposure until a 15% moisture content is achieved. After drying, the fibers are now stored for bailing and packaging. 95% of the fibers are baled and the 5% are converted into twines.
Baling: Coco fiber is compressed using a baling machine with dimensions 0.7x0.7x0.35meters weighing 43-45kgs/bale. The bales are tied with plastic ropes and stored in the warehouse.
Twining: Fiber is woven into ropes and geo-nets using the manual twining machines. Currently the cooperative is still in the trial stage perfecting the different geo textile products.
Firm Infrastructure • Quality Control System: On process visual inspection conducted by decorticating machine as well as baling machine operators. No QC assigned to check on inventory of baled fiber.
• Equipment maintenance and cleaning: current practice suggest that this is done before and after an operation. Preventive maintenance are lacking in system
• Management of operations: Operations are being run by the hired operators and laborers with the supervision of the project in charge (usually from the LGU) and the chairperson.
• Standard Operating Procedure: No written SOP for coco fiber processing operation. Since the cooperative is still on the dry run stage, they have not drawn up on paper the specific operating procedures and standards.
Human Resources • Prior to operation the cooperative members were coached by the equipment supplier in terms of operation, maintenance and trouble shooting. No formal on the job training was conducted for its workers.
• Skills were derived from internal hands-on and several dry run operation on the decorticating and baling machines.
• Experience was the basis for hiring machine operators and laborers. In the Bislig cooperative some of the workers came from coco coir
33
ACTIVITIES Description
processing facility in the area. There are still those that have not yet adjusted to the work especially in maximizing the stated capacity of the machine.
• Training on good quality fiber production is needed as well as quality control system.
Technology • Trial and error in the standardizing and maximizing the full capacity of the machines vis a vis the available inputs. Mechanical decorticating and baling.
• Product development and standardization of various geotexile products like rope, geonets, biologs as well as coco coir dust product formats.
• Standardization of procedures vis – a vis maximizing capacity of equipment and product quality standards monitoring is needed
Procurement • Equipment purchase: certified equipment supplier by PCA Caraga Region. The cooperative was the recipient of the equipment provided under the SAIA BC project and had little knowledge on the equipment specifications and performance.
• Needed materials such as plastic ropes for baling and used sacks are acquired locally.
OUTBOUND LOGISTICS
Firm Infrastructure • Quality Control System: Limited only to the counting of bales when loading. Inspection of the baled finer should be done to check for wet fibers, bales with weeds and integrity of the bundling of the bales.
• Distribution System/Infrastructure: Direct selling to buyer utilizing cooperative owned hauling / delivery truck.
• Record Keeping: Delivered bales are manually recorded in the production logbook and driver/hepe de viaje bring the delivery receipt.
• Warehousing and storage infrastructure: Has in place a cooperative warehouse which also doubles up as the warehouse for raw materials.
Human Resources • Limited training on warehouse management and stock inspection procedures. Quality control practices needs to be downloaded especially in warehousing where sometimes insufficient drying may cause growth of weeds and grasses in the baled fibers and these may be rejected.
Technology • The cooperatives are doing calculations on the best delivery scheme (volume and time of delivery) to have more profits.
• Rapid moisture testing methods needs to be devised to determine the MC of the fibers since this in one of the needed quality requirements.
Procurement none
MARKETING
Firm Infrastructure • Financial Management System: Payment to the cooperative is done via bank to bank transactions.
• Transactions are done via the cell phone or thru sms exchange.
Human Resources • Marketing and sales manager are not fully trained on handling the product as well as it product characteristics.
• Informal training and coaching provided by LGU focal persons and project in-charge on some marketing strategies.
Technology • Product testing with mining companies in comparison with the Bicol made geonets. Cooperatives have provided samples of geo nets to nearby mining companies to test the quality of the products.
34
ACTIVITIES Description
Procurement • Attendance to trade fairs funded and organized by the LGU are the main means of generating orders for coir fiber by products. The products are together with the products promoted by the producers group.
• Claver LGU negotiations with the Mining Chamber of Caraga has gained positive feedback on the possible business engagement.
• Bislig PMPC has developed a product information brochure given to trade fair booth visitors.
AFTER SALES Product feedback is acquired via face to face transactions during cooperative delivery to the buyers processing plant.
Firm Infrastructure none
Human Resources No training on customer service or handling customer feedback.
Technology
Procurement none
C. VIRGIN COCONUT OIL
Since the processing of VCO is yet to be fully operational, it is expected that Good Manufacturing Practices should be followed in all areas of the operation. This includes among others the selections of raw materials (fully matured, without sprout and no crack), efficient coconut milk extration utilizing an expeller and press, the applicaton of correct fermentation seasoning temperature and environment. Based on the interviews and the initial business plans, it is projected that the VCO equipment set-up
35
will produce 48 liters of VCO per day consuming 800 fully matured nuts. Premium quality virgin coconut oil will be packed in 250 ml, 330 ml, 500 ml, and 1,000 ml bottles fordirect selling. Currently the VCO of KAAGAPMUCO are sold by the gallons within the vicinity of Agusan del Sur. The cooperative has done some experiments on the production of soaps and massage oild but this has not be completed and ready for marketing.