Desiccated Coconut Market - 2019 in Review

Sumit Guha - Commerical Director | Thu 09 Jan 2020
Desiccated Coconut Market - 2019 in Review

DESICCATED COCONUT – PRICES TURN UPWARDS

 

2019 has been a story of two parts for the Desiccated Coconut (DC) market. The year started with a very weak market, with farmers and processors struggling to get a decent return on their investment. At the end of the year, aided by natural and man-made factors, prices took a sharp turn upwards and caught many an importer, in Europe and elsewhere, off guard. From all indications it would appear that this trend is likely to continue at least until the end of the second quarter of 2020.

 

IN THE BEGINNING – LOW PRICES AND GOVERNMENT SUPPORT

At the start of 2019, nut prices fell to very low levels. In some countries like the Philippines, farmers were reluctant to harvest the immediate crop and, in others like Indonesia, they were not keen to plant. The government stepped in to increase the incentive to the farmers to harvest coconut. The Philippines entered into a trade agreement with China to export coconut and also encouraged bio-fuels to increase their content of coconut oil. Sri Lanka increased the floor prices to farmers for selling coconut and also increased  import levies on other vegetable oils (eg. Palm oil). This pushed consumers towards coconut oil.

 

COCONUT, PALM AND BIO-FUELS

In Indonesia too, prices were low at the start of 2019. But farmers started reducing hectarage under plantation of coconut and increasing the hectarage of palm kernel (owing largely due to the increase in the intake of palm in bio diesel in Indonesia, unlike in the Philippines where the government incentivised increased content of coconut oil in bio fuel production).. So by the middle of the year, DC factories started experiencing shortage of raw material nuts .

 

DIVERSIFICATIONS – COCONUT MILK, WATER , VALUE ADDS AND BY-PRODUCTS

There was also another factor at play in all 3 major DC producing countries, which has, in recent times, been having an impact on the availability of nuts for DC production. More and more DC producers have been diversifying to other coconut products, notably coconut milk and water, but also oils and fancy grades eg. Coconut chips, thread/ shred etc. The diversification protects the DC factories from being exposed to the vagaries of a single commodity, namely DC, adds value from processing and generates an additional income stream from by-products (eg. Low fat DC, coconut flour etc).

 

MAN MADE AND NATURAL CALAMITIES

The second half of 2019 saw the deliberate man made destruction of and, at other places, the wrath of nature. There was wide spread deforestation of land in Indonesia to make way for eventual planting of palm for bio fuel. The consequent impact on the atmosphere, from heavy smoke , prevented harvesting of coconut. And the Philippines experienced sharp earthquakes ( 6+ on the Richter scale), in places like Davao in the South and two brutal typhoons “ Kammuri” and “Phanmone” in Luzon in the North of the country. Philippine factories withdrew from the market temporarily, just before Christmas, to take stock of the situation before re-opening.

 

ONE LESS PLAYER IN THE MARKET

To make matters worse for end users, an Indonesian GFSI accredited factory, closed down and this resulted in a number of contractual commitments to importers in Europe and America not being fulfilled.

 

EXPORTS FROM MAIN SUPPLIERS

Philippine exports are expected to be down 6% to 120,000 mt in 2019 and Indonesian exports are exported to be down 9.4% to around 96,000 mt in the same period, both due to supply factors. Sri Lankan exports did rise to about 40,000 mt in 2019, but that was after 3 consecutive years of sharp decline. Vietnam, the other major DC producer, would also have exported around levels similar to or just under Sri Lanka but nearly all of this goes to China, where the demand for coconut is very high.

 

IMPORTS AND DEMAND

Apart from China, the other major importing areas for DC are north America, especially USA, and the European Union, mainly UK,  Germany, Belgium, Netherlands, Poland and Spain. Netherlands and Belgium tend to re-export to other EU and non-EU countries (eg. Russia, Morocco etc.).

DC continues to be a popular filler for bakery ingredients in most parts of the world and is also sold in retail packs as an ingredient in home baking. In recent years, demand for DC has remained buoyant due to its perceived health benefits and the fact that it ticks the trend boxes such as Vegan and Gluten Free .

HOW PRICES HAVE MOVED IN 2019 AND EARLY 2020

To give a perspective of how far the prices have moved : in the early part of the year, prices from reasonably reliable (though not necessarily GFSI accredited) suppliers was around US$ 1200 – 1250 mark per metric ton on a Cost and Freight Main European Port basis. The accredited suppliers were about $ 50 – 100 dearer. Philippines prices were only slightly higher than these levels (say $ 50 more). Just before Christmas, prices breached $ 1700. In the new year (2020) prices have crossed $ 2000 with Philippines offering as high as $ 2250 per metric ton from some factories.

 

WHAT WE THINK ABOUT THE MARKET

Given the current dynamics namely:

-Persistent shortages of raw material nuts

-Reduction in hectarage under coconut

-Diversification of DC factories to value added products and by-products

-Government policies in all 3 major DC producing countries to incentivise farmers

-And, last but not least

-The weather and climate (typhoons, earthquakes, el nino)

It is hard to see an easing of prices in the near term.