Enhancement Entry Points in the Coconut Value Chain

Enhancement Entry Points in the Coconut Value Chain Selected Cases in Quezon Province (A rapid coconut value chain assessment study commissioned by Pakisama under AFA) Dr. Nerlita M. Manalili Managing director NEXUS Agribusiness Solutions Vega Center, College, Los Banos, Laguna

Outline Background and Process of the Study Industry Situationer The Primary concern Emerging Products Selected Cases Constraints and Potentials Possible entry points Strengthened positions in the Coco chain Validation of Identified Options: built Scenarios Concluding Remark

The Study Done In preparation for a Regional Knowledge Sharing workshop on enhancing farmers’ market power in the value chain in Asia (AFA’s initiative) About successful (and promising) cases of marketing arrangements in a commodity chain Focus on selected coconut value chain in Quezon ( the intention is one that will later on be applied/adopted or out scaled in the near future)

Study Process Secondary Information Key informant Scenario Building Assessment & Validation Process

Industry situationer

Coconut Products among the top 10 Major Agricultural Commodities 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Coconut oil (Crude and Refined) Banana (fresh) Tuna Pineapple & Pineapple Products Dessicated Coconut Tobacco (manufactured) Seaweed and Carageenan Centrifugal sugar Milk and Cream Products Fertilizer (Manufactured)

Philippines - 2 nd largest producer in volume & value

Region IV, A major Coconut Producer Quezon Province Accounts for more than half of the region’s coconut produce

The Primary Concern Coconut Farmers, biggest in Poverty Group

In spite of contribution to GVA and Agricultural trade: l Coconut Farmers Form The Biggest Poverty Group l Income From Copra is P 900 P 1000 per hectare/month l With 2 Hectare Ave. per Family of six, Income per month is P 2, 000 Source: Dr Justino Arboleda

Emerging & Revived Coconut Products Coco Sugar Coco Water Young coconut (Buko) Coco Fiber Others (sugar from shell)

Coco Sugar 92. 78 percent increase in 2011 exports volume of coco sap sugar with 70, 000 kilograms (km) compared with 36, 310 km in 2010. Tremendous leap of 224. 20 percent increase in exports volume from a low of 11, 200 km in 2009 compared with 2010 figures. “Exports was driven by global health concerns specifically diabetes and obesity, ” the PCA Administrator bared. The World Health Organization (WHO), 2011 statistics revealed that 346 million people are diabetic worldwide. Coco sap sugar has a low glycemic index (GI) of 35 compared to regular cane sugar, thus it can be recommended for diabetics (FNRI, DOST). Exported to 11 countries namely: Japan, USA, Middle East, Korea, Hongkong, Norway, Canada, Switzerland, France, Australia, and New Zealand. Among these countries, USA ranked as the number one exporter (PCA).

Coco Water second biggest non-traditional export USD 1. 445 million from sale of 1, 450, 129 liters. United States was major destination controlling 969, 164 liters or 66. 8% of total business (PCA) Said to be cost effective in bigger scale of operation Need to be processed immediately to avoid spoilage

Coco Husks Coco husk as goldmine – Philippines produces 15 billion nuts a year, meaning also 15 billion coconut husks. Only a very small portion of this is processed into something of value. In fact the Philippines exports only about 4, 500 metric tons of coconut coir a year. Kerala, India earns $600 million a year from different products out of coconut husk. PCA

. …there are vast opportunities in farm wastes………… Largest Farm Waste in the Philippines 8 Billion Husks are burned or thrown away 3 Billion Husks Used as Fuel to make Copra Source: Dr Justino Arboleda

Sugar from coco shell a new kind of coconut sugar can be extracted from the shell of mature coconut? It looks unimaginable but the fact is that a P 2 -billion company has been set up at the DADC Economic Zone in Sta. Cruz, Davao del Sur, to produce the novel product. The company is called CJ Toyota Tsu Sho Philippines, Inc. , said to be a joint venture of Japan’s biggest car company and a Korean partner. The company has a huge processing facility that was inaugurated about a couple of months ago. The product is called Xylose coco sugar and is said to be for export to Japan and Korea. The product comes in very fine powder form that is immaculate white. It is very sweet and is said to be used for the manufacture of toothpaste, chewing gum and possibly other products that need sweetener. Source: Zac Sarian Agri Plain talk

Selected Cases Coco sugar backyard ( Armida Monghe) commercial (Pasiolco Agri Ventures Young coconut Peter Paul Phils Corp Coco Wonder Coco Coir (husks)l

Armida Monghe Coco Sugar Producer Lopez, Quezon Rosauro Monghe Coco Wine (Tuba) Producer Lopez, Quezon

Comparative Cost & Returns 20 gallons of coco wine per week sold at P 180/gallon P 3, 600/week; P 14, 400 per month gross income Coco Wine Sap gathered in the evening 2 gallons coconut sap = 1 kilo coco sugar Sold at P 250/kilo (produce 4 times a week P 1, 000/week; P 4, 000 per month gross income Coco sugar Sap gathered at 6 a. m. P 10, 000. 00 annual rent for 65 coconut trees, producing only wine before, now coco sugar is also produced.

Pascioclo Agri Ventures Maureen Pasciolco , Owner Tiaong, Quezon

COCO Sugar Production & Marketing in Quezon Lopez Tiaong What Account for differences Limited market Selling price P 250/kilo Production cost ? ? ? Production trial & error 4 -5 hrs cooking there is market selling price P 280 n -320/kilo Production cost < 190/kilo procedural- own /contract out up 6 hrs -10 hrs cooking – Market Knowledge/In fo Technical know how ie t t ly nt specialized packaging Ordinary plastic packaging e ke p Packaging p r u no branded a S em M ng Producer ra r Wholesaler Producer a Non Quezon Producer/Wholesal er Organic, package sizes local, export /Retailer

Coco Sugar Commercial Operation initial investment of P 1. 42 million. annual net profit of P 201, 762. 48. ◦ Based on the projected 10 -year income statement and cash flow, before financing ◦ income is realized at first year of operation ◦ initial investment fully recovered in 3. 64 years. Source: PCAARRD

Comparative Cost (Buko Marketing) UGMA URBAN Poor Selling price P 12 20 -25 (22, 5) No of Pcs 2, 000 Revenue P 24, 000 P 45, 000 Cost buko P 6 -9 = 7. 5 Hauling transpo (elf – 7, 000 pcs) Hauler. driver Storage P 1. 00/nut up – tie ply t p et u 8, 500 n e k S r y a l 850. 00 em M n g O an rr a Concerns High Reject - Improper selection of young coconut - (training needed) Appropriate tool High transpo cost (maximize load/trip 15, 000 P 24, 000 2, 000 Storage Short supply (specially with rejects)

Young Coconut Test Delivery UGMA Train harvesters URBAN POOR Collection efficiency to enusre timely payment Ensure consistency of delivery Manage storage concern to reduce unnecessary overheads Ensure continous supply Target for just in time delivery to avoid shortages and overstocking Target transpo cost efficiency

Peter Paul Company Have buying stations with accredited farmer supplier per station up – tie ried Usually sourcing coconuts from Catanuan, et ala rk s es. Peninsula & a Calauag, Padre burgos, Bondoc M of oye Lopez No ore pl M em Have one coop currently supplying the Co. (could be a future possibility

Coco Wonder Private Enterprise Working with a group of small farmers and local workers in the provinces. built small Processing Facilities in Provinces of Luzon, Visayas and Mindanao providing livelihood up – to small farmers and local workers. d tie rie on organic We implement sustainability-oriented et ala farming, quality and farmaproductivity improvement. rk s es Some percentage of sales are fgiven back to the M o oye o re pl farmers as incentives. Nin form of organic fertilizer, o coconut and cacao seedlings in order them to plant M em more and some are provided with monetary incentives to promote continues organic farming activity. More of salaried employees (not cooperative)

Coco fiber Utilizing coco waste for fiber Income from Labor: P 1. 50 /coi about 20 -30 pcs/day P 550 /10 meter net, 2 persons in a day P 275/person/day Source: Juliet Escasa, Hagakhakin Gumaca

R&D Initiatives Technology Available Quality Standards

Available Technology &R& D Initiatives Oven Type Drier (Copra) Ohmic heating method (coco water) Coco Sap Sugar Coco fiber - produce white hygienic copra P 200, 000 – 250, 000 investment 250 kg/day capacity(C/o Coco wonder) - pasteurization of Coco water P 2. 3 million budget alloted in 2013 for laboratory scale research on a pre-processing method for coconut water to minimize production loses due to fermentation & mishandling. - Hands- on Training offered by Pasiolco Agri ventures - Dr. Justino Arboleda of Bicol offering technical assistance

Coconut sap sugar classification Classification Premium (superior quality) Specification Cream to light yellow Tolerance 5. 0% Moisture content is <4% Class I (good quality) Light brown to brown 10. 0% Moisture content is not >4% Class II Includes the coconut sap sugar 10. 0% that did not qualify as Class I and premium but satisfied the minimum requirements of the product standards

Strengthened Positions in the Coconut Value Chain

How do we help farmers be integrated in the chain In terms of activities In terms of coordination & management To improve on his current segment as chain participant To add more activities and move to other chain segments (if within their competencies) Vertical integration Horizontal Integration To participate in decision process In setting norms and standards Through innovation 33

Pathways of enhancing farmers’ position in the chain within the Four forms of inclusive chain development Integration of post-farm activities 2 4 CHAIN Activity integrator no participation in chain Management CHAIN Participant CHAIN (CO-) OWNER participation in chain mnagement CHAIN Partner 1 3 Specialization in farm production Source: Regoverning Market (with modification by NMM) 34

Four Forms of Inclusive Chain Development Enhance quality Add value and Process products no participation in chain Management Integration of post-farm activities CHAIN Chain co (CO-) OWNER owner Chain activity integrator Chain Participant Cooperatrive business Product development Branding, marketing participating In chain management CHAIN Chain partner Partner Know more about improving Farming systems and quality Of product (to have better Chance at the market and Specialization Get better prices) Farmer study groups Specialized activity/ Knowledge & Negotiation Skills get to influence chain decisions in farm production NEXUS Agribusiness Solutions Source: Regoverning Market (with enhancements by Manalili)

Sample Action Plan: Redesign Option for Coconut Objectives Strategies Entry Points Identified Market SC Model 1. Chain Optimization Increase capacity to comply with standards to ensure quality Ø Continuous farmers’ training Ø Farmers’ Commitment to adhere to good agricultural Practices Sustain farmers education and value formation through NGOs collaborative assistance to farmer groups Modern retailers (like supermarkets hypermarkets, groceries, specialty shops) Coco Sugar Pasiolco Agri Ventures Meet grade/certification requirements (organic) ØQuality Ø of international standards Organic Certification Continuous quality upgrading Quality - userrecognized Modern Retailers Coco Wonder Pasiolco Agri Ventures 2. Integral Chain Care 3. Chain Differentiation Premium Positioning New marketing concepts E- commerce Agency selling Export markets Well differentiated International Product/product Markets delivery system Institutional Markets Coco fiber Dr. Arboleda Coco wonder Coconut house Ugma-Urban poor model

Strengthened Positions in Coconut Value Chains Integration of Post Farm activities • Chain Activity Integrator No participation Enhance quality of copra Add value (sugar, sauce, juice Improve on production Farm mgt Intercropping • Chain Participant • Chain coowner Cooperative Branding Innovative marketing (Buko Alliance Farmer study Group Agham sa Pagniniyog active participant • Chain partner Specializing in Farm production Source: Regoverning Market (with enhancements by Manalili)

FGD Questions & Outputs your Current products (Major, secondary? How are they sold Brought to market Any other activities (production, mktg) That you wish to do With your coconut? What stops you from Doing so? Questions Asked How do you see Other than current your Community livelihood what other 5 years from now? initiatives do you (other issues) need to further improve on your o small processing plant situation per barangay o intercropping o Village based mftng • ginger, gabi, o. Product enhancement • rambutann, lanzones o. Domestically sold new coco products • Explore new methods o. Livestock raising -coco milk - of Cooking copra • Ruminants, goat, - coco sauce Copra (standard coco drier • native pigs, chicken (copra rejects) PCA, DOST DTI) Whole Nut (ideas not materializing) - nata de coco, jam - processing coco milk o stable selling of buko centrifugal o. Coco Life Farm gate skills devt (identificatn) - of trading (copra, buko, • coco levyhildren don’t want to - traders • Product development Go into farming, need to o. Agham sa Pagniiniyog - market o. Certify indiginous -Sauce, Juice, sapal Look for other municipal --coconut virgin oil Knowledge Alternatives, or make Lucena -Ubod ( program planting Coconut farming viable o. Shellane like fuel prod (Technical training) o. Training & extension needed Current with changes SCENARIO BUILDING Entirely new scenario Manalili 2002

Concluding Insights v. No existing marketing arrangements (beyond the usual arms length buyer seller relationship were observed in the coconut commodity chain, given the selected cases studied. vthough there a number of promising buyer – farmer supplier relationship if given proper impetus for development, (brokering-in, guidance, collective marketing, enabled environment