Cuckoo for Coconuts: Demand Is Soaring, but Production Isn’t Keeping Up

30 September 2016

What do shampoo, synthetic rubber, and sports drinks all have in common? They each make use of coconut as an input. These tropical drupes (or fleshy fruits) have a remarkably wide range of uses, from direct consumption of coconut meat and water, to lubricants and surfactants for industrial purposes.

Coconuts have been harvested in mostly tropical regions for hundreds of years. In the last decade, they received their biggest marketing boost yet: With the help of celebrities, they’ve been designated a “superfood.” Demand has soared for two coconut products in particular: coconut water, which is drained from young coconuts, and virgin coconut oil, which is obtained from pressing the meat of fresh coconuts. These products are increasingly easy to be found on the shelves of trendy stores, and there is no sign that demand for them is slowing down.

But the production of coconuts hasn’t significantly increased in response to explosive demand. In fact, production has slightly fallen in Asia, where more than 80 percent of the world’s coconuts are harvested. The price per metric ton of coconuts has increased by over 50 percent since 2013, and the world’s producers still haven’t added a great deal of production capacity. And given the difficulty of scaling up production, it’s not likely that output will significantly increase any time soon. Instead, producers have to rely on more creative solutions to meet and profit from this surge in demand.

Global coconut production is concentrated in Asia
Global coconut production is concentrated in Asia

Background

Coconut palm trees flourish in tropical regions, reaching heights of up to 100 feet. They take at least three to five years to fruit after planting, and reach peak production after around 15 years. Dwarf varieties bear fruit more quickly, and can live up to 50 years; tall palms bear fruit more slowly, but can live up to 90 years.

Coconuts are harvested at two stages of development: Young coconuts are harvested after 7 months, when they produce peak water content. This coconut water is what has caught the attention of so many consumers in richer countries. Until recently, most coconuts have been harvested once they reach maturity, after around 12 months. Mature coconuts have a greater range of uses. Their fresh meat can be processed into coconut milk (a thicker drink than coconut water), virgin coconut oil, or shredded coconut. In addition, the lumber from old palm trees are particularly prized for making furniture.

The dried meat of mature coconuts, known as copra, used to be far more intensively produced. Among the top coconut producing countries, 40 to 90 percent of all harvested coconuts were used for copra production. Most copra is pressed and further processed to produce a refined coconut oil (which should not be confused with virgin coconut oil, a product processed from fresh coconut meat). This refined oil, sometimes abbreviated as RBD coconut oil (refined, bleached, and deodorized), is used in a range of commercial, cosmetic, and industrial products. In addition, it can be transformed into things that include biofuels, feedstock, and surfactants.

Growing demand for young coconuts

Niche coconut products are surging in popularity. Most young coconuts used to be consumed in their local regions as refreshing drinks and snacks. But in recent years they’ve been touted to have vast health benefits, from supporting weight loss to treating dementia, and they’ve been adopted by mostly affluent consumers with a special fervor. According to the FAO, coconut milk and water now make up more than 30 percent of overall global coconut consumption.

The coconut water business in the US has surged in value from a few million dollars a decade ago to nearly $800 million in 2015. Globally, the coconut water industry alone is on track to generate $4 billion in revenue between 2015 and 2019. Coconut milk sales are escalating rapidly too: in the US, coconut milk sales rose 35 percent last year to approximately $27 million, and in the UK they grew 67 percent.

It’s not just drinks: virgin coconut oil has also become more popular. After being shunned for over a decade for of its high amounts of trans fat, consumers have embraced the fresh pressed version as a “superfood.” Food companies have responded; product research firm Mintel reports that coconut oil was found in 26 percent of new food and beverage launches in 2012.

Meanwhile, demand for industrial uses of copra has held steady. Due to higher demand, buyers of copra are finding it more and more difficult to find reliable sources, because young coconuts are being harvested for their water instead of allowed to mature to be harvested for meat. Cargill Indonesia, a major producer of copra, has called market conditions the most difficult in “16 or 17 years.”

Coconut producers can’t scale up to meet demand

The demand growth comes at a time of stagnating production. The world’s top three producers—Indonesia, the Philippines, and India—make up three quarters of global production. Instead of increasing production to keep up with demand, their overall harvests of coconuts have slightly declined. Although annual production grew by over 2 percent annually from 2000 to 2009, average production has fallen by 0.1 percent annually since 2010. By comparison, global demand has grown by nearly 10 percent a year.

The three largest producers of coconuts are Indonesia, the Philippines, and India
The three largest producers of coconuts are Indonesia, the Philippines, and India

It should be easy to predict what happens when demand grows but supply doesn’t; as expected, a severe shortage of coconuts is worrying buyers. Coconut is already the largest agricultural export product of the Philippines, which has increased its exports of virgin coconut oil by over 61 percent in 2015 alone. Still, that’s not enough to satisfy world demand. World Bank data indicates that the price of copra more than doubled—from $403 per metric ton to $854—between 2006 and 2015.

Why haven’t growers significantly increased production in response to these much higher prices? The answer has to do with the agronomy of coconuts and the incentives for farmers.

Many coconut trees were planted more than half a century ago, including as early as the end of World War II. Coconut trees produce peak yields between 10 and 30 years of age, and many trees are now past their prime. An average tree in Asia can produce 40 coconuts a year, while prime-producing trees can potentially yield 75 to 150 coconuts a year. Aging trees helps explain why the top three producers have all seen yields decline between 6 to 9 percent in the last five years of available data.

Yield of coconuts hasn't seen a sustained increase in the last few decades
Yield of coconuts hasn't seen a sustained increase in the last few decades

It’s difficult to ask farmers to plant new coconut trees, even when they know that they’d reap larger harvests. Coconut harvesting is dominated by smallholders, a majority of whom live in poverty. Because farmers have small plots of land, they can’t easily expand their area of planted trees. Even the quickest-growing hybrid varieties of coconut palms take three years to bear fruit, while most take over five years to bear. So farmers have to confront giving up years of production to grow more efficiently in the future. That investment is beyond the financial means of many.

The fragmented industry makes it difficult to increase productivity. It takes a lot of time to disseminate best farming practices to many different farmers. In addition, they usually lack the market power to negotiate for better prices with the middlemen who set the farm gate prices. Their lack of means also prevents them from investing in inputs like pesticides or improved hybrid seedlings to boost yields.

Nature hasn’t been very kind to coconut farmers either. In 2013, Typhoon Haiyan tore through the Philippines, damaging an estimated 44 million trees along the way. The storm accelerated a drop in coconut production of more than 1.2 million tonnes, or a decline of roughly 7 percent, the most significant that the country has suffered in nearly two decades. The weather is especially volatile in this tropical region, so the supply is likely to suffer weather-related shocks on a regular basis.

As an example of another type of natural disaster, coconut production is currently being hurt by a variety of pests. One such example is the red palm mite, which is an invasive species common in tropical regions, that has been responsible for coconut crop losses that have sometimes exceeded 50 percent.

Refreshing the coconut industry

In response to the decline in production, more and more organizations are rolling out initiatives to stimulate production.

For starters, planting initiatives are being set into motion to help replace the aging trees. Cargill in partnership with Winrock International recently donated 20,000 seedlings in Indonesia, while the Philippine Coconut Authority has purchased four million coconut seedlings. As small as these numbers are relative to the hundreds of millions of trees in each country, it’s a start. Additionally, given the long lead time between planting and tree maturation, producers are also switching to new coconut hybrids that bear more fruit more quickly.

Governments, businesses, and NGOs are also encouraging farmers to adopt intercropping, or the practice of growing multiple crops on the same field. Studies have shown that intercropping can generate net incomes three to five times higher than those from traditional nut production alone. Another option for increasing farmer incomes is for expansion into other niche coconut products, like coconut sugar, which utilize other parts of the palm, such as coconut husks and shells. Tapping coconut palms for their sap (to be reduced into sugar) can actually stimulate fruit production and processing the coconut husks and shells into crafts, fertilizer, or charcoal can be a way of reaping a profit from what might otherwise be a waste product.

Perhaps the most promising outcome for greater coconut production is that farmers in other regions have been enticed by high prices to join the market. Farmers in tropical regions of Africa and Oceania are starting to plant crops, while the Caribbean has also seen growth in production over the past few years. Most of the growth is driven by actions taken in the Dominican Republic—the largest producer in the region. Although the country lost an estimated 30 percent of its plantations by Hurricane Jeanne in 2004, it has continued to invest. The country’s public and private sector have continually replanted to boost production. The most recent data from the FAO indicates that the Caribbean’s production of coconuts have grown by 40 percent in the last five years, due mostly to the efforts of the Dominican Republic.

Conclusion

Everyone wants more coconuts, from consumers who believe that they are very healthy; to processors who need copra as an industrial input; and to farmers who want to take advantage of higher prices. Although it will have to slow down eventually, demand for coconut water and virgin coconut oil is still going strong, with forecasters suggesting that there are still billions to be made on coconuts in the next few years. Therefore we should expect high prices to induce more growers in other regions into planting the crop, and more existing farmers in Asia to switch to planting more productive trees.

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