Slump in imports trigger surge in coconut oil prices

By Suresh Perera

With the drastic drop in imports, coconut oil prices in the market have surged to a new high as local production is grossly insufficient to meet the annual consumption of around 200,000 metric tons, industry officials said.

In 2020, local coconut oil production was a negligible 20,000MT, which translated into a yawning gap that had to be bridged by importing 180,000MT, they said.

“This has been the position over the past few years as dominant imports dwarfed local supplies”, they pointed out.

The ban on the import of palm oil has also compounded the issue as customers will now have to depend wholly on coconut oil resulting in inevitable pressure on the demand curve, they pointed out.

Prices have soared with a 750ml bottle of coconut oil fetching Rs. 550-600 in the local market, they said, while predicting the upward trend to continue due to short supply.

The local production of coconut oil fell by the wayside as high prices of nuts was a challenge to compete with imports, says M. L. D. Niroshana, Director-General of the Coconut Development Authority.

On an average price of Rs. 85 each, it requires nine to ten nuts to extract a litre of coconut oil, and they need to sell a 750ml bottle for around Rs. 500 to make a small profit. However, this was not feasible when imports were available at a more competitive price, he noted.

Earlier, a 750ml bottle of coconut oil was selling at anything between Rs. 320-380. With the slump in imports following the aflatoxins controversy, prices have zoomed as supply can no longer meet the demand, market sources said.

Consignments of palm oil imported before the ban was announced are still available in the marketplace, but after existing stocks are lapped up, there will be more pressure exerted on the demand for coconut oil that’s bound to see prices going through the roof, they warned.

“Market forces are at play because there existed a big gap between imports and local production of coconut oil. With many importers now reluctant to order fresh stocks due to uncertainty over contamination fears, and coupled with the ban on palm oil, the market is grappling with the demand for this essential consumer commodity”, Niroshana outlined.

Sri Lanka’s production in 2020 was 2,760 million nuts, which fell short of the 3,000 million target. The figure was envisaged to reach 3,600 million at peak. During October, November, December and January, there’s a shortage of nuts, but production picks up with an increase in yield during May-August.

“There is neither a short-term solution nor a question of expediting the production process as it takes 10 years for coconut trees to yield. The government grants a subsidy for fertilizer and water to growers in a bid to push up production”, Niroshana elaborated.

As in any business, private millers are also driven by profits. In the short-term, the price of nuts cannot be expected to dip to Rs. 35-45 each for millers to make a margin by selling coconut oil, the Director-General said.

As long as nut prices remain high, local coconut oil will also be costly as they go hand in hand, he pointed out. “More millers will be encouraged to take to extracting coconut oil if imports are limited and market conditions and prices are good”.

On the other hand, the export of copra is more lucrative as prices are attractive in foreign markets. This segment earned an export income of US$ 661 million in 2020, Niroshana further said.

In a bid to mitigate the ballooning prices in the market, the government has permitted only the state-owned BCC Lanka to import desiccated coconut up to a maximum of 13,000MT per month under a Special Commodity Levy (SCL) of one rupee per kilo, industry officials said.

On the recommendation of the Industries Ministry, the consignments will be allowed for a period of three months with effect from April 28, 2021, they said.

The stocks are likely to be imported from Indonesia instead of India because of the raging coronavirus pandemic there, they noted.

According to a Finance Ministry directive, a SCL of Rs. 300 per kilo will be imposed on importers of desiccated coconut.

Retail coconut prices still remain relatively high with each fetching anything between Rs. 85-100 depending on the size, market sources said.

A coconut grower in Nattandiya said the average farmgate price for nuts has now dropped to Rs. 50-55 each. In the case of small nuts, two are sold for the price of an average nut.

He said the average farmgate price was Rs. 75 each about one and a half months ago when retail market prices shot up to Rs. 100-125 per nut.