4/30/2018 Coconuts Go Upscale, Boosting Price of Conventional Coconut Oil - WSJ

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COMMODITIES

Coconuts Go Upscale, Boosting Price of

Conventional Coconut Oil
Coconut water and sugar make a splash, reducing supply for use as ingredients in less sexy products like
dish detergent

Demand for specialty coconut products like drinks and sugar has pushed up prices for basic oil used in such things as dish
detergent. Above, a worker runs behind a horse carrying coconuts in September 2015 during harvest time at a coconut
plantation in Banyuwangi, Indonesia's East Java province. PHOTO: REUTERS ANTARA FOTO

By Lucy Craymer
Updated April 7, 2016 12 44 p.m. ET

Coconut oil prices have soared nearly 20% in a month, largely because of the growing
popularity of specialty products such as coconut water.

In supermarkets, coconuts are being sold with pull tabs to be drunk like beer. Coconut sugar is
being touted as healthier for diabetics. And U.S. actress Gwyneth Paltrow is among celebrity
coconut fans, once revealing she swishes around virgin coconut oil for oral health and
whitening her teeth.

Such trendy products come from young green coconuts, fresh coconut and the trees’
flowers. That leaves less dried coconut—copra—to be made into the conventional oil that is
used in everything from dish detergent to medicine.

The result has been a jump in prices since February, to an average in March of $1,448 a metric
ton, according to World Bank data released late Wednesday. That is more than 50% higher than
the average price in 2013.

Meanwhile, the interest in specialty products is only expected to grow.

Global consumption of coconut water jumped 13% from 2014 to 2015, following a 24% increase
the previous year, according to data from beverage research firm Canadean.

The trend toward specialty products is being felt throughout the coconut industry, suggesting
that prices for conventional oil aren’t likely to drop significantly in the near future, analysts say.

Farmers in the Philippines, the world’s largest producer of coconut oil, for example, are
increasingly being asked to harvest younger coconuts, as middlemen chase after the higher

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4/30/2018 Coconuts Go Upscale, Boosting Price of Conventional Coconut Oil - WSJ
prices they net over fully mature
ones.

In the Philippines, coconut-

water exports more than
doubled to 66.3 million liters and
virgin coconut oil was up 61% to
34,227 metric tons in the 11
months to November 2015,
according to the latest available
data from the United Coconut Associations of the Philippines.

In the same period, copra and coconut-oil exports fell slightly, and the industry group predicts
they will drop 6.9% to 2.1 million metric tons in 2016 from last year.

“Increase in cost of production narrowed down margins, and the industry players naturally
moved towards high-margin [coconut] products,” said Maduka Perera, owner of Ceylon
Tropics, a coconut business in Sri Lanka.

Meanwhile, supplies will continue to feel pressure.

The Philippines is still reeling from the 2013 Supertyphoon Haiyan, which damaged or
destroyed 44 million coconut palms—about 15% of its trees. It will take at least until next
year for new trees to bear fruit.

And Indonesia, the world’s top harvester of coconuts, hasn’t undertaken a program to replace
old coconut trees that because of age are seeing less fruit, meaning plantations are producing
less nuts. The government is instead focused on expanding rice, corn and soybean production.

Manufacturers aren’t likely to stampede to coconut-oil substitutes, analysts say. That is

because substituting with, for example, petroleum-based fatty alcohols can disrupt product
formulas and threaten a product’s branding as being environmentally friendly. Palm-kernel oil,
which is produced from the seed of the oil palm, may get a boost instead.

James Fry, chairman at agribusiness analyst firm LMC International Ltd., sees some relief
coming in the fourth quarter of this year, as the worst of the El Niño phenomenon since 1997-
1998 has passed.

The current El Niño has reduced rainfall in Southeast and Southern Asia, putting stress on
coconut palms and reducing the amount of fruit on the tree.

An El Niño occurs when winds in the equatorial Pacific slow down or reverse direction. That
causes waters to warm over a vast area, which in turn can upend weather around the world.

PT Cargill Indonesia, which crushes copra into oil, described copra supplies as the worst he has
seen in 16 or 17 years, largely because of the high demand for whole coconuts.

Cargill is “struggling big time” to get hold of copra, said Satria Wardaja, Cargill’s
communications manager.

Write to Lucy Craymer at Lucy.Craymer@wsj.com

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