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Posted on 08/11/2023
Today the Philippines is the world's third largest producer of coconuts and one of the largest producers of derived products and exports. Once at first place globally, the country’s coconut sector has been impacted by a combination of low productivity, aging stands, widespread monoculture, pest infestations and natural disasters. Other issues such as technical know-how, logistical and financial gaps also impacted performance. An estimated 25 to 33 percent of the Philippines population is reliant on the coconut sector for their livelihood (Lindsey, 1993), and nearly 70 of its 82 provinces produce coconut. The Philippine Coconut Authority (PCA), of the Department of Agriculture, is responsible for developing coconut and palm oil industries.
Among others, coconut supplies important ingredients in foods, cosmetics, cleaning and medical products (e.g., copra, copra meal, coconut milk, water, oil (including organic), desiccated coconut, coconut shell charcoal, activated carbon, and oleochemicals), while coconut sap provides numerous other products, (e.g., distilled alcohol such as lambanog, coco sugar, aminos, etc.) The Philippines also exports coco shell powder, coco handicrafts, and coco coir etc.
So, is the coconut MSMAE sector in Quezon Province (QP) fit for purpose?
A rapid Strategic Enterprise Analysis of MSMAE sector (focused on edible coconut products) in QP was carried out in June 2023. The stylized particulars below offer the current state of the sector and indicate where there is a need to make substantial efforts ahead:
A few large MNCs/Conglomerates enjoy economies of scale and large market shares e.g., Cargill and Celebes Coconut Corporation. Their scale supports greater cost and marketing efficiencies, promotes visibility, while their diversified business model (markets and manufacturing base, as well as varied product and service lines), helps lower the risks.
Numerous MSMAEs (often family owned and managed), e.g., GreenLife and Quezon’s best, are trying to compete in the same space. At the time of this exercise, some 30-coconut processing and marketing enterprises were registered with PCA. However, a much larger number of informal MSMAEs (with frequent entrances and exits) are also present.
Indeed, with low barriers to entry, the Philippines and QP MSMAE landscape is too fragmented with extensive internal and external competition. The sector is characterized by the presence of many mills and refiners, with underutilized capacity. For example, one small social enterprise with the capacity to produce 20 MT/month of virgin coconut oil (VCO), is often unable to leverage full capacity.
Climate Change, Extreme Weather & Contributory Factors
A changing climate and natural disasters – from typhoons to earthquakes - contribute to declining/low yields and agri-production losses. Climate change, combined with lack of investments in productivity enhancing technologies, is hurting yields, production volumes with domino effects on MSMAE input supplies and costs. Extreme weather, pandemic potential, logistics issues and other external threats are prevalent in QP and beyond.
A visit to a MSMAE processing plant producing cold pressed VCO showed food losses at a vast scale. Only about 12% of the copra value was extracted as VCO with the rest (water, milk) being discarded, while other parts of the input (crushed copra meat for feed, husk for fuel or fertilizer, mature or spoilt copra for non-premium oil, flour etc.) being sold at modest prices for low-value products. Primary reasons for this gross inefficient usage include the absence of investment capital to install processing machinery and cool chains for milk, water etc.
Moreover, at the farm level, a vast majority of the coconut smallholders follow climate unfriendly practices – where soils, tree stands and water resources are poorly managed. Due to a lack of know-how and financial support, many coconut farmers are unable to improve their agricultural practices, leading to stagnating yields. Also, monoculture is widespread, which makes them more dependent on coconut and thus more vulnerable.
MSMAEs Access to Markets is Constrained
A record US$2 billion worth of coconut products were exported in 2021 (an increase of nearly 59% from 2020, and a 4-year high according to Philippine Statistics Authority (PSA) data. This performance has not been sustained. Coconut exports declined by over 50% from US$1.04 billion in the first trimester of 2022 to some US$490 million in the same period in 2023 (Philippines News Agency, June 2023). At the same time, the global coconut products market is valued at USD 20.24 billion in 2022 and is expected to expand to USD 38.58 billion by 2030, expanding at 8.4% CAGR from 2023 to 2030 (Research & Markets, July 2023).
A scan of the markets for coconut food products (especially domestically), revealed a largely “saturated” segment. There is a proliferation of similar coco-based products which are pervasive in the domestic market, with competition for a slice of exports even more fierce. The standard coconut products have largely become “commoditized” with limited differentiation and limited opportunities for “standing out”.
In addition to domestic competition, the sector is faced with traditional and new competition from across South and East Asia and the Pacific. In terms of products, the competition includes – at the higher end, avocado, almond and olive oil and at the lower end, palm and corn oil.
While there is growing consumer interest (particularly in the Global North) in international food trends, which provides opportunities for QP’s MSMAEs, to develop new food products, consumer tastes and demand are generally fickle; preferences often change in favor of the latest innovative products touting health, beauty, or wellness attributes. At the same time, the majority of domestic consumers is looking for value for money, with price often the overriding consideration.
Efforts are necessary to improve MSMAEs products and branding. Current labeling and packaging of one can be relatively easily confused with those of the competition. There are too many product offerings – all on offer also by competition. For one small social enterprise, its organic VCO was not serving intended purpose as a “flagship” product, including due to above issues.
Marketing efforts based on a mix of relatively traditional methods (phone and email outreach). Website needs work. For example, landing page is confusing. Check some health claims. Export page needs more work. Additionally, the high costs of logistics and transportation in the Philippines – add to the challenges. Standardized, complete data on market structure and players (domestic or export), sales trends, provenance and destination of various coconut products (CP), profitability trends are not readily available, with decisions made on the basis of partial or outdated information.
So, what can be done?
With ample good quality inputs (fresh, nutritious, and low-cost local coconut supplies) and favorable demand trends, there is potential for product & process innovation, market diversification, new partnerships, climate smart actions, and natural resources management, Timely technical assistance, strategic advice and concessional financial support also can help unlock organizational reengineering opportunities, for a more sustainable, inclusive and profitable sector.
To thrive (not just survive), Quezon’s MSMAEs must take concerted action to consolidate their operations and capacity (via vertical or horizontal integration and partnerships with other processors, including shared service and “toll fee” models and formation of cooperatives), as appropriate to garner economies of scale and address the problem of underutilized processing capacity through joining up and sharing equipment, facilities and logistics. This would permit an entity to produce a more diverse range of coco-nut based products through access to diversified processing machinery and equipment, storage and cool chains, reducing the need for duplicative capital and machinery investmern. At the same time, it would help generate a revenue stream for the enterprises with milling or processing over-capacity issues via a system for renting out their facilities during “low” periods, for example to allow micro-enterprises to use equipment for a toll fee. Moreover, setting up co-operatives could lead to better financing terms and conditions, and permit the MSMAEs to do targeted investments in areas of missing processing capacities (e.g., coconut milk and water preparations).
The growing global market for plant-based alternatives, vegan and lactose-free diet offerings is trending and the shift in consumer preferences for organic, functional, and healthy foods, holds much promise. To stay ahead of the trend, innovative products to meet new/evolving tastes (e.g., coconut yogurt and ices, choco-coco milk; health and sports drinks’ alternatives; and other products with fruits, nuts and seaweed combinations) offer huge potential for growing the market “pie”. This combined with efforts to tap into new markets and expand the consumer-base (via focused efforts to grow export markets while strengthening existing consumer loyalty), will strengthen the economic returns and resilience of Quezon’s coconut MSMAEs.
In addition, a focus on creating value for clients, through the digitalization of services, making available online shopping and e-commerce options can provide more affordable selling avenues and can help close market access gaps. Some of the affordable remote marketing technologies (mobile apps, commerce platforms and live chats), would allow the MSMAEs to extend and deepen their reach, without huge financial outlays). Seek to dominate the ecommerce space and use (push and pull) omni-channels for (i) consumer awareness; (ii) increase new and repeat customer visits; (iii) build brand loyalty; and (iv) increase size of “basket”.
It is critical to accelerate the adoption of Environmental, Social, Governance (ESG) principles and enhance the value proposition across Quezon’s coconut sector enterprises. To advance on this front, there is tremendous untapped opportunity for these MSMAEs to reduce the carbon footprint of their processing operations. For example, reduction of financial loss and environmental harm through inefficient practices (e.g., proper utilization of currently discarded of coconut milk and water), is a win-win solution. Additional value can be generated also through innovative and better usage of coconut meat residue and husk, which are currently disposed at low prices. Innovations to improve shelf life, aggregating of consignments for ensuring larger shipments, combined with the development of sustainable (and sturdy) packaging options using coconut/palm leaves, coir or husk would also reduce the MSMAEs’ carbon footprint. MSMAEs that provide high quality, natural products to consumers could generate better employment opportunities for small-scale coconut farmers, especially women and vulnerable youth, improving their quality of life.
The triple-pronged climate wins of mitigation, adaptation and resilience are also to be had through the training of coconut family farmers, through adoption of climate smart agricultural practices, such as inter-cropping, better soil, water, and inputs management, is another necessary complementary action area. These actions help improve their overall well-being and resilience through the diversification of income streams and/or nutritional produce for own consumption.
Effective implementation of the composite of actions outlined above can support the MSMAEs in Quezon and beyond to enhance their value proposition by enhancing their products and services to respond to consumer demand shifts; addressing operational capacity issues (overcapacity, lack of processing equipment for diversification of products, etc.); and broadening their markets. It is moreover vital for longer-term sustainability, that these agro-enterprises, look into the future and take measures to address critical issues like climate change, while ensuring greater equity and inclusion across the value chain, lifting up the small coconut farmers to the small-scale retailers.