The leading commercial use for coconuts is to produce cocnut oil with meal as the by-product.
Coconut oil today only accounts for less than 2% of global edible oil consumption and is declining, mainly due to the fact that the market continues to grow. Its relative share has been diminishing with the substantial increase in overall consumption of edible oils in the past few decades. It is a minor oil, but nearly half the 70 billion coconuts that are grown every year are used to express the oil using nearly exclusively antiquated technology and equipment. The process was developed to allow copra to be exported to western consuming countries where the oil was essential for its fatty acids and in soaps and shampos. But adhering to this colonial approach keeps income for coconut farmers down.
The world market price for edible oils determines largely the price for coconut oil and logically the price that can be paid for copra, although there are variations cdepending on other factors. For coconut producers, the price is a given and they are price takers.
Only 2.2 million tons of coconut oil are traded today, valued at roughly $3 billion per annum with Philippines accounting for roughly half that total. Of course, production is nearer 5 million tons. Although a minor oil in comparative terms, there are uses for which coconut oil is irreplacable. This gives the oil a premium price and a safety net when prices fall. The volume of oil required for this inelastic component is probably not much more than 300,000 tons. For all other uses, it is possible to substitute coconut oil although for some it may be the preferred oil due to particular characteristics such as temperature.
Despite the fact that coconut oil is a minor edible oil, the volumes and values have grown consistently and are an important export earner for many countries, particularly Philippines and Indonesia. Oil exports have grown from 6 billion coconuts equivalemt in 1967 to more than twice that level today. The oil is also used for derivative extraction such as medium chain fatty acids. Additionally, coconut oil is very important in coconut growing countries for domestic consumption. Roughly one third total oil production is retained for this purpose. This does not include use of fresh coconuts for cullinary purpposes
In addition to the above, India produces and comnsumes a great deal of oil, as does Indonesia. However, these facts are not reflected in the chart above based on FAO data.
Prices for coconut oil vary with those of the other main edible oils as palm and soya oil and roughly follow a 5 year cycle. Over time real prices have been declining, at present prices stand at around $950 per ton which is above the historical nominal average, perhaps a fraction higher. But in real terms, prices today stand at a fraction of what they were in 1970. There has been and is a persistent fall in real prices. There is much speculation on the likely impact of growing wealth in China and India and this may in fact become important in reducing the rate of decline in real prices but is most unlikley to reverse it.
Current Coconut oil prices 1969-2009, VCA
In nominal terms, prices have generally followed the cyclical patterns being followed by edible oils in general. In real terms, over teh same period prices have fallen. Suprisingly, despite the long history of such fluctuations, coconut producing countries often appear to be caught off guard at each twist and turn. In reality it is a five year cycle but as usual, it is virtually impossible to anticipate peaks and troughs.
A new floor for coconut oil prices is likely to develop in the form of use as biofuel. When the price of coconut oil falls well below that for diesel, there will be pressure to substitute diesel. In turn, this will take some of the oil off the market and strengthen prices. Given the relatively low volume of coconut oil produced when compared to palm or soya, any use for fuel is likely to have an important effect.
There are rules being introduced to promote substitution of diesel by edible oils, obviously the cheapest will be used most readily but there is also the question of optimal usability.
In general, the world market price for edible oils is determined by supply and demand for palm and soy oils which, in turn, depends on Nino weather patterns. Coconut oil is paid a premium in most years over palm, soy, sunflower and safflower but the premium is generally not as high as 25%. The FOB value of copra in the Philippines tends to be five times the farm gate price. Philipino coconut farmers are as ruthlessly exploited as other coconut farmers save for India where there are protected prices that average above 200% world market.
The lowest price paid for copra nuts is in the Pacific where until recently you could buy 8 coconuts for one US cent. This has changed with the commodity price boom and now you can only get two coconuts for one cent - still a ridiculously low price at which there is no real profit for farmers and thus no incentive to plant or replant. The price that can be paid to farmers is FOB Manila - freight to Manila - traders margins - international shipping and handling - exporters margin - inter island shipping - local traders margin - haulage - copra drying.
Further details on price movements are available in the Edible Oils section of the site.
Value Chain for Coconut Oil
Between 5,000 and 6,000 coconuts are required to produce one ton of copra and, in practical terms, 60% of the copra weight ends up as oil although theoretically it can be 64% but can also be 55% in inefficient mills. Many oil mills are using very old equipment, often being repaired and it is difficult to maintain a level of capacity utilisation.
Consequently, as a rule of thumb, around 10,000 coconuts yield one ton of oil plus copra meal with varying oil content. Extending the rule of thumb for ease of calculations, we can assume the price of oil to be US$ 1,000 for one ton which values each coconut at 10 cents.