prefeasibility study on desiccated coconuts

PRE-FEASIBILITY STUDY

DESICCATED COCONUT

KF NUTRIFOODS

DAVAO DEL SUR, PHILIPPINES

KF Nutrifoods, June 25, 2012

TABLE OF CONTENTS

INTRODUCTION 3

USES AND APPLICATIONS 4

PRODUCT DEFINITION AND PROPERTIES 4

MARKET SURVEY WITH FUTURE ASPECTS 8

World coconut industry 8

Desiccated coconut demand 8

Coconut market supply 10

Current risk of tightening market supply 11

World market analysis and price analysis 12

The Need 14

Commercial interest strongly aligned to industry interests 14

World coconut market value 15

Desiccated coconut markets 16

Present manufacturers in region XI 16

Manufacturers of desiccated coconut in the Philippines 16

Examples of Best Practice at Company Level 17

Major processing routes of coconut kernel products 18

TECHNICAL ASPECT

PROCESS OF MANUFACTURE 19

POLLUTION CONTROL 20

BASIS AND PRESUMPTIONS 21

FINANCIAL ASPECTS 23

PRODUCT EXPANSION PLAN 24

MACHINERY SUPPLIERS 24


INTRODUCTION KF Nutrifoods have been in the export and manufacturing

industry of banana products since 1997. With a growing demand and interest in developing other forms of products aside from banana chips product line, the company intends to engage in desiccated coconut production as part of its processed foods product line.

The company is not relatively new to the coconut industries and its products. Its sister company, GCF Multiproducts is currently engaged in developing coconut charcoal briquettes and granulated coco charcoal for exports. Hence, with the expertise and experience with processed foods and with the understanding of the coconut industry, KF Nutrifoods eyes to venture into producing desiccated coconut products to be exported worldwide.

For a brief background, KF Nutrifoods is situated in Padada, Davao del Sur where 65% of the total land area is planted with coconuts. In 2010, Davao Del Sur region produced 842,342 MT of coconuts (Bureau of Agricultural Statistics, 2010) as copra as their main produce and the coconut shells and husk serving as by products. Alongside with GCF Multiproducts, the company started helping the coconut farmers improve the utilization of their coconut products by developing new products for export market which includes coconut charcoal briquettes, granulated coconut charcoal, coconut peat and coconut fiber.

The intended advancement of diversification of KF nuntrifoods products is based on the world market demand for coconut products. Asian and Pacific Coconut Community (APCCSEC), an intergovernmental organization organized in 1969 under the aegis of the United Nations Economic and Social Commission for Asia and the Pacific, reiterated in their report on their current prices of coconut products in Asia that Philippines has a higher price ($1944/MT) than the other top coconut product exporters of desiccated coconut namely: Indonesia ($1500/MT) and Sri Lanka ($1457/MT).

On the national level, based on Philippine Coconut Authority 2011 report, Philippines export an average of 140,000 MT/year in desiccated coconut and UNCTAD (United Nations Conference on Trade and Development) reports a global production of an average between 180 – 290,000 tonnes annually which indicated that desiccated coconut is a well-established product dominated by the Philippines. In the UNCTAD report on INFOCOMM – COMMODITY PROFILE: COCONUT, production of desiccated coconut is waning in Vietnam, Thailand, Brazil and Sri Lanka due to product shift to vegetable oil, environmental issues and disasters, etc. this expresses a huge opportunity of a steadily increasing demand for desiccated coconut. Aside from those reports, currently there are 8 coconut desiccator companies that are registered under DTI and BETP which leaves for more room for companies like KF Nutrifoods to strengthen the desiccated coconut production in the Philippines.


KF Nutrifoods experience in processed foods manufacturing since 1997.

Production plant is planned to be located in Davao Del Sur region, Philippines

PCA 2011 reports an export average of 140,000 MT/yr. in desiccated coconut.

In addition to the main objective of the study, additional sub-objectives of this study is to estimate the cost of production for developing a desiccated coconut plant and to determine its production process through process descriptions and economic analysis. Estimated production costs were derived from equipment manufacturer’s costs and capital and operating costs based on the process flow diagrams and public posted market prices of the equipment.

USES AND APPLICATION Uses and Applications for desiccated coconut are used

mainly by confectionery and biscuit industries. It is used as a baking and confectionery ingredients for cakes, pastries, desserts, chocolates, etc. It has a wide range of food applications aside from bakery and confections, it is also applied on dairy products, savory, cereals, coatings, beverages, and so much more. This indicates that the applications for desiccated coconut products are already wide and varied and the possibilities are virtually unlimited as a growing demand for desiccated coconut is rising in US, Europe, Germany and that includes China and India (with the new economies and improved buying power.)

Another indicator of its increasing uses and applications are the widening diversification of desiccated coconut product features and characteristics. An example of these are that of Franklin Baker Desiccated Coconut product line which includes: extra fine, macaroon cut, medium, coarse, natural blend, extra fancy shred, tender flake, special long thread, mill run chip, and SL chips. In another company, Celebes coconut corporation their desiccated coconut products includes toasted, sweetened, toasted and sweetened kinds of desiccated coconut aside from the regular desiccated coconut (high fat and low fat).

In relationship with KF Nutrifoods venturing into desiccated coconut products, there will only one main product that will be produced categorized as regular desiccated coconut (high fat) however, not limited to it as it intends to diversify its products. The main goal is to be a supplier of desiccated coconut to baking and confectionery manufacturers worldwide. Therefore, KF Nutrifoods will be flexible to the demand of the buyer and its requested characteristics and features.

PRODUCT DEFINITION AND PROPERTIES KF Nutrifoods properties will comply with the Philippine National Standard definition and

properties of desiccated coconut products under DTI (Department of Trade and Industry) Bureau of Product Standards PNS/BAFPS 25:2007, ICS 67.080.10 with reference to Codex Standard for Grated Desiccated Coconut (CODEX STAN 177-1991) revised 2011 covering International Food Standards.

PRODUCT DEFINITION:

2.1 Desiccated Coconut is the product:


Uses for desiccated coconut are unlimited as the product varies in confectionery and baking applications.

KF Nutrifoods will venture in high value products as it plans to diversify its products in the future

a. prepared from substantially sound white kernel obtained from the whole nut of coconut (Cocos Nucifera L.), having reached appropriate development for processing, without oil extraction in conformity with Section 3.2.4 (c);

b. processed in an appropriate manner, undergoing operations such as: de-husking, hatcheting, paring, washing, comminuting, drying and sifting;

c. described in points (a) and (b) from which oil has been partially extracted by appropriate physical means in conformity with section 3.2.4 (c).

2.2 Sizing (optional)

Desiccated coconut may be sized according to their granulometry as follows:

a. Extra-fine desiccated coconut – Desiccated coconut of which not less than 90% of the weight shall pass easily through sieve with square apertures of 0.85mm, but of which maximum 25% of the weight passes through a sieve of 0.50 mm aperture size.

b. Fine desiccated coconut – Desiccated coconut of which not less than 80% of the weight shall pass easily through sieve with square aperture size of 1.40 mm, but of which maximum 20% of the weight passes through sieve of 0.71 mm square aperture size.

c. Medium desiccated coconut – Desiccated coconut of which not less than 90% of the weight shall pass through a sieve of square aperture size of 2.80 mm, but of which maximum 20% of the weight passes through a sieve of 1.40 mm square aperture size.

d. Other sized desiccated coconut – covers all other presentations including “fancy cuts” or special cuts (i.e. tender or thin flakes, long and thin chips, extra fancy shreds, long shreds, standard shreds, etc.)

3. Essential Composition and Quality Factors

3.1 Composition

3.1.1 Basic Ingredient

Coconut as defined in Section 2.1

3.2 Quality Factors

3.2.1 Color and texture

The color shall be natural white to light creamy white. The texture shall be characteristic of the product.

3.2.2 Flavor

The taste shall be characteristic of the product without off-flavors due to deterioration or absorption of extraneous substances.

3.2.3 Odor

The odor shall be characteristic of the product, shall not be mouldy, cheesy, smoky, fermented, or rancid, and shall not possess any undesirable odor.

3.2.4 Chemical and Physical Characteristics


PARAMETERS REQUIREMENTS

(a) Total acidity 0.3% m/m

measured as lauric acid

(b) Moisture 4% m/m

(c) Oil content

≥ 60% m/mfor desiccated coconut as described in section 2.1.1

(a) and (b)

≥35 < 60% m/m for desiccated coconut as described in section 2.1.1 (c)

(d) Ash 2.5% m/m(e) Extraneous vegetable material: Harmless

vegetable matter associated with the product.

15 fragments per 100g

(f) Foreign matter: Any visible and/or apparent matter or material not usually associated with the product.

Absence in 100g

3.3 Classification of “Defectives”

A container that fails to meet one or more of the applicable quality requirements, as set out in Section 3.2, should be considered as a “defective”

3.4 Lot Acceptance

A lot should be considered as meeting the applicable quality requirements referred to in Section 3.2 when the number of “defectives”, as defined in Section 3.3, does not exceed the acceptance number (c) of the appropriate sampling plan, as describe in Section 10.

4. Food Additives

4.1 Antioxidants and preservatives used in accordance with Tables 1 and 2 of the Codex General Standard for Food Additives (CODEX STAN 192-1995) for Food Category 04.1.22 – Dried fruits are acceptable for use in foods conforming to this standard.

4.2 The antioxidant listed below is also permitted for use, under the conditions of good manufacturing practices, in the products covered by this Standard.

INS No. Name of Food Additive Maximum Level330 Citric Acid GMP

5. Contaminants

5.1 The product covered by this standard shall comply with the maximum levels of the Codex General Standard for Contaminants and Toxins in Food and Feed (CODEX STAN 193-1995)

5.2 The product covered by this standard shall comply with the maximum residue limits for pesticides established by the Codex Alimentarius Commission.


6. HYGIENE

6.1 It is recommended that the products covered by the provisions of this Standard be prepared and handled in accordance with the appropriate sections of the Recommended International Code of Practice – General Principles of Food Hygiene (CAC/RCP 1-1969), the Recommended International Code of Hygienic Practice for Desiccated Coconut (CAC/RCP 4-1971) and other relevant Codex texts such as codes of hygienic practice and codes of practice.

6.2 The products should comply with any microbiological criteria established in accordance with the Principles for the Establishment and Application of Microbiological Criteria for Foods (CAC/GL 21-1997).

7. WEIGHT AND MEASURES

Containers shall be as full as practicable without impairment of quality and shall be consistent with a proper declaration of contents for the product

8. PACKAGING, TRANSPORT AND STORAGE

Desiccated coconut shall be packaged, transported, and stored in accordance to the Recommended International Code of Hygienic Practice for Desiccated Coconut (CAC/RCP 4-1971).

9. LABELLING

In addition to the requirements of the Codex General Standard for the Labelling of Pre-packaged Foods (CODEX STAN 1-1985), the following specific provisions apply:

9.1 NAME OF THE PRODUCT

9.1.1 The name of the product should be "Grated Desiccated Coconut" preceded or followed by the common or ordinary name legally accepted in the country of retail sale.

9.1.2 The name may indicate the grade of the product in accordance with the descriptions contained in Section 3.2.4 (c).

9.1.3 The name should indicate the oil content of the product in accordance with the description contained in Section 2.2

9.2 Labelling of Non-Retail Containers

Information for non-retail containers shall be given either on the container or in accompanying documents, except that the name of the product, lot identification, and the name and address of the manufacturer, packer, distributor or importer, as well as storage instructions, shall appear on the container. However, lot identification, and the name and address of the manufacturer, packer, distributor or importer may be replaced by an identification mark, provided that such a mark is clearly identifiable with the accompanying documents.

10. METHOD OF ANALYSIS AND SAMPLING


Provision Method Principle Type

Ash AOAC 950.49 Gravimetry I

Extraneous vegetable material

Described in the StandardCounting extraneous material

with the naked eyeIV

Moisture AOAC 925.40Gravimetry

(loss on drying)I

Oil content AOAC 948.22 Gravimetry I

Total Acidity of Extracted Oil

ISO 660:2009; or AOCS Cd 3d-63 (09) Titrimetry I

Extraneous Vegetable Material

The determination is carried out by spreading 100g of the sample in a thin layer against a white background and counting the extraneous material with the naked eye.


MARKET SURVEY WITH FUTURE ASPECTS WORLD COCONUT INDUSTRY

The world consumes its coconuts as oil (55%), fresh (37%), desiccated (5%)and a small amount of a long list of other products (by volume). The annual wholesale value of the coconut sector can be estimated as approximatelyUSD 6 billion for 2006 comprised of; coconut oil USD 2.9 billion, fresh nutsUSD 2.2 billion, desiccated coconut USD 0.3 billion, other kernel products USD 0.3 billion, husk products USD 0.3 billion, shell products USD 0.1 billion.

DESICCATED COCONUT MARKET DEMAND

Being a mass consumption item, desiccated coconut has a good market. United Nations Conference on Trade and Development – INFOCOMM – Commodity Profile Report on Coconut showed that the imports for desiccated coconut coming from top 5 countries (USA, UAE, Singapore, Germany, Belgium) totals to 272, 223 tons in 2008.


Desiccated coconut world consumption is at 5% at approximately $ 0.3 billion

By 2009, FAO (Food and Agriculture Organization of the United Nations) released a data on trade import quantity on countries importing dessicated coconut and United States imports increased by 4847 tons which is 15% increased from 2008. The same goes with other countries importing desiccated coconuts.Furthermore, the data from 2008 indicates a total world importation of 272,223 tons and has increased to 283,321 in 2009 indicating a 4.07% increase in world importation of desiccated coconut.

Year Country QUERY Product Quantity2009 United States of America Import Quantity Coconuts Desiccated 358562009 Singapore Import Quantity Coconuts Desiccated 271072009 Belgium Import Quantity Coconuts Desiccated 163722009 Germany Import Quantity Coconuts Desiccated 156122009 Netherlands Import Quantity Coconuts Desiccated 139842009 United Arab Emirates Import Quantity Coconuts Desiccated 137812009 United Kingdom Import Quantity Coconuts Desiccated 133502009 Turkey Import Quantity Coconuts Desiccated 102282009 Poland Import Quantity Coconuts Desiccated 89822009 Australia Import Quantity Coconuts Desiccated 88472009 France Import Quantity Coconuts Desiccated 81232009 Russian Federation Import Quantity Coconuts Desiccated 75632009 Pakistan Import Quantity Coconuts Desiccated 75422009 Egypt Import Quantity Coconuts Desiccated 73962009 Canada Import Quantity Coconuts Desiccated 69612009 South Africa Import Quantity Coconuts Desiccated 55252009 Brazil Import Quantity Coconuts Desiccated 53532009 Spain Import Quantity Coconuts Desiccated 40422009 Saudi Arabia Import Quantity Coconuts Desiccated 37512009 WORLD Import Quantity Coconuts Desiccated 283,321

In addition to that, FAO data on imports of dessicated coconut worldwide from 2000 to 2009, shows that the demand is stable and resilient over time as seen in the data by FAO on Total World Import of Desiccated Coconut 2000 – 2009. It is to take note that there are some countries, like China,


and its imports on desiccated coconuts are not available in FAO data since 2000 up to present. It is to presume that the consumption of desiccated coconuts is also growing in the emerging economies like China.

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

50000

100000

150000

200000

250000

300000

350000

Total World Import of Desiccated Coconut

Import

COCONUT MARKET SUPPLY

The production of coconut in the Philippines has been favorably good as FAO data indicated since 1992 – 2010. Asian and Pacific Coconut Community (APCC) published their market analysis on January 1, 2011 Vol. XLI No. 1, expressed that the export quantity of desiccated coconut from the three countries (Philippines, Indonesia and Sri Lanka) had an increasing trend of 4.14%/month in the year 2010. Although there was a 5% decrease in production in comparison to 2009, the price of desiccated coconut showed a significantly increasing trend in 2010 as opposed to the price in 2009.

PCA (Philippine Coconut Authority) reported the volume of coconut production from 2003 – 2010 averages at 14.675 Billion nuts yearly with a growth rate varying between -9.65% to 19.00% annually. This can be translated to 2.4 Million MT being produced annually by the Philippines alone.


In Davao region, the supply of coconuts varies approximately between 2.4 - 3.4 Million tons according to Philippine Coconut Authority and Bureau of Agricultural Statistics. In their volume of production data (1990-2010) Davao del Sur produces an average of 674, 000 tons of coconut which is second to Davao Oriental which produces and average of 1.5 million tons annually.

It is to note the table below shows that the volume of the production of coconuts in Davao del Sur has a growth rate between 1 - 4% annually.

Other Crops: Volume of Production by Crop, Geolocation and Year (MT)

2004 2005 2006 2007 2008 2009Coconut (with husk)

....Davao del Sur 748,345 751,908760,74

5808,382 838,496

855,456

5241 nuts = 1 MT

In relationship with KF Nutrifoods supply analysis, the company has produced an average estimate of 3600 MT of coconut shell charcoal in 2011 which made up approximately of 36,000 MT of coconut shells annually or 3000 MT monthly. If 5% of the coconut shell supply is converted into whole coconuts intended to produce desiccated coconuts that would give us a volume of 150,000 coconuts monthly. Given with the whole scenario, that would be an estimated 0.04% of the overall total coconut production of Davao Del Sur which gives us abundant supply of coconuts intended for desiccated coconuts.

2010 = 4,414,148,394 Davao Del Sur Annual Coconuts Production Count

2010 = 1,800,000 GCF Annual Coconut Procurement

In regards to Philippine Development Plan 2011 – 2016 which recognizes the coconut as is an immense source of food and non-food products the Philippine government intends to double exports of coconut products by promoting value added products (refined coco oil, coco biodiesel, and oleochemicals) and ensuring that the supply of coconut be available to processors. In addition to this, it also intends to improve the sectors credit access to promote long-term financing for long gestation crops such as coconut. Hence, under strategy 2.1 of PDP 2011 – 2016 it is stated that investments and employment shall be increased across an efficient value chain and to strengthen the countries agricultural exports by focusing resources on high value crops such as coconuts.

CURRENT RISKS OF TIGHTENING MARKET SUPPLY

Given that if only 0.04% market share of supply is to be procured by KF Nutrifoods in Davao Del Sur area there are still several factors that are to be considered to secure the supply of the coconut of the intended business. Still holding true from the market report of Fresh Plaza (Global Fresh Produce News) which puts special emphasis on crude oil as one of the main fundamentals behind desiccated coconut market as biodiesel creates a strong linkage between mineral oils and vegetable oils on the other side. This goes to


The Philippine government is planning to focus on other value added products aside from desiccated coconuts, thus, affecting the supply of coconuts for desiccators.

In comparison to other Asian countries that shifted their production to vegetable oils, worldwide demand for desiccated coconut will depend heavily on the Philippines for supply

say that if the crude oil prices increases, biodiesel prices also increases with an immediate impact on the underlying raw material – availability and pricing as both the oil millers and desiccated coconut producers have to compete for the same raw materials. In theory, if there is a price increase in copra, coconut farmer producers are more willing to sell their coconuts to the oil millers rather than the desiccators. Holding true that despite the huge acreage of coconut-plantations, raw material supply remains a huge burden for the Philippine desiccated coconut producers as they are in continuous competition with coconut oil mills.

With worldwide demand for vegetable oils expected to increase at a phenomenal rate in the coming years, it is clear that the present competition for raw material will intensify further in the years to come – all the more as the Philippine Government seems to be unable to meet the targeted growth in coconut output (target for 2010 is 3M tonnes with present output standing at approximately 2.7 M) which will widen the gap between supply and demand even further. Not to mention the PDP 2011-2016 which intends to intensify the promotion of coco oil, coco biodiesel, and oleochemicals. These trend are materializing in up to date as desiccated coconut producers being sold out up to 2 to sometimes 3 months ahead which leaves insufficient supply capacity once the demand increases further for the next coming years. Although, we still have a high comparative advantage among selected ASEAN countries like Indonesia, Malaysia, Thailand and Vietnam for desiccated coconut , this still will affect the supply and the market of raw materials domestically.

On the long term, it is evident that the producers in the various origins will be unable to keep up with growing worldwide demand in especially vegetable oils, which will leave less raw material for desiccated coconut production. In this respect, the desiccated coconut world market will heavily depend on Philippine coconut producers abilities to step up production to cater for the increased demand as other origins, except maybe Indonesia, are ill equipped to make any significant progress in stepping up desiccated coconut production.

Even though, we still have a high comparative advantage among selected ASEAN countries like Indonesia, Malaysia, Thailand and Vietnam for desiccated coconut production , this still will affect the supply and the market of raw materials domestically.

WORLD MARKET ANALYSIS AND PRICE ANALYSIS

Export volumes of desiccated coconut from the main producing countries such as the Philippines, Indonesia and Sri Lanka in 2010 increased and prices shifted up during the period concerned. The export quantity of desiccated coconut from the three countries had an increasing trend of 4.14%/month in the same year. The total export of the three countries in 2010 was 182,021 tons which was down from 192, 603 tons in 2009 or a decrease by 5%. However, the price of desiccated coconut showed a significantly increasing trend in 2010 as opposed to the price in 2009.

The Indonesian average priceincreased to US$1,478 F.O.B Jakarta / Surabaya in 2010 from US$952 per ton in2009. The price was also up by 43% to reach US$1,653 per ton in the Philippines as opposed to US$1,153 a year ago. So did in Sri Lanka, the average


Overall, the price of the desiccated coconut in the world market is resilient and stable from a 20 year survey by different trade agencies including FAO.

price in 2010 increased to US$1,644 per ton from US$1,188 per ton in 2009 or an increase by 38.4%. The average monthly price of DC for Indonesia, the Philippines and Sri Lanka rose at a rate of 7.6%, 7.2% and 4.2%, respectively in 2010.

Sri Lanka sold its desiccated coconut to the overseas market at 30,247 tons in 2010 as against 39,001 tons in the previous year or a decrease by 22.4%. Meanwhile, Indonesia also faced an increasing export volume to 37,596 tons during 2010 as against 29,249 tons a year ago or up by 28.5%. However, the Philippines exported a lower volume at 114,178 tons in 2010 as opposed to 123,353 tons last year [2009] or a decline by 7.4%.

In the last five years [2006-2010], the Philippines exported 128,020 tons of DC annually. The EU market had the biggest share of total export volume at 44%. It was followed by the American market with 34.3% share where the USA and Canada were themain destinations. The annual market share of DC from the Philippines to the USA and

Canada ranged from 35,778 tons to 45,856 tons in the last five years, which is about onethird of the total export. The countries in Asia and Pacific region such as Australia, Japan, Taiwan, Singapore, and Korea had a market share of 20% of the total export.

The shipment of DC from Sri Lanka was 28,455 in 2010 which mostly went to Middle East countries especially to United Arab Emirates, Saudi Arabia, Iran, Oman and Jordan. The export share to these destinations was 42.4% or about 12,065 tons.

The EU market was the second largest export destination of DC from Sri Lanka with a share of 26.7%. Spain, Germany, France, Portugal, United Kingdom, Italy, Poland, Greece and Belgium are the main buying countries. The USA, Brazil, Chile, Mexico, Pakistan and Australia are growing markets for the Sri Lankan desiccated coconut.Indonesian exporters sold their DC mostly to the EU countries for 2010 at about 42.8% of the total export. The second biggest market was Asia and Pacific countries including Australia and New Zealand. This region had a market share of 30.8% in which Singapore, China and Australia were marketleaders. The American market,especiallyBrazil, Chile and the USA have also shown agrowing demand for DC from Indonesia.

The price of desiccated coconut showed some congruence with the price behavior of coconut oil in the world market. The two prices [CNO and DC] were relatively high and were significantly correlated at 70% -- meaning that about 70% of variation of DC prices in the world market can be explained by the variation of prices of CNO. A regression analysis of the prices [monthly price-data for the last five years] indicates thatthe two prices are inelastic with an elasticity value of 0.958. This elasticity value indicates that a ten-percent increase in the price of CNO per ton [ref. CIF. Rotterdam price] could cause an increase of 9.6% in the price of desiccated


The price of desiccated coconut has a direct congruent relationship with the coconut oil market.

Philippines can dictate a higher price rate for desiccated coconut in comparison to other countries in the world.

coconut. Currently, there is an upward trend of vegetable oil prices including the price of coconut oil in the world market. Consequently, for 2011, it is expected that the price of desiccated coconut will also face an increasing trend.

In the period of January – December 2010, Indonesian pric150,000e of desiccated coconut grew at a rate of 7.6% per month and with an average price of US$1,479 per ton. This was about 55.4% higher than that of last year [US$952/ton]. Meanwhile, in the Philippinesduring the said period, the price was US$1,653 per ton and accelerated at a rate of 7.2% per month. The price was around 43.3% higher than last year’s price at US$1,153 per ton. In the case of Sri Lanka, the export price of DC averaged at US$1,644 per ton with a monthly growth rate of 4.5%. This price was 38.4% more expensive when compared to the average price in the same period last year.

Among the three main players, the Philippine DC exporters offered the highest price to the world market. Its average price was 11.2% and 0.6% higher than that of Indonesian and the Sri Lankan prices, respectively.

In regards to the domestic market, Franklin Baker FOB price is currently (June 2012) estimated in between $1,278 - 1,323 /MT which is being shared by Celebes Coconut Corporation and Peter Paul Philippines desiccated coconut producers FOB prices. Their production capability is estimated average between 9,600 – 14,400 MT annually for Celebes Coconut and 18, 000 - 22,000 MT annually for Peter Paul Philippines.

The need

As well as the opportunity, there is an increasing urgent need. The currentindustry has high nut costs by international standards and is not competitive in the mainstream commoditized coconut products of desiccated coconut and oil,especiallyin relation to the very large, low cost production capacity in the Philippinesand Indonesia. These problems will be further aggravated by the upheavals in the coconut oil markets.

High value added industries, outside of the commodity markets, will be best placed to withstand the harsh market conditions within the mainstream markets in the coming years – as their competitive advantage comes from the efficiency of utilization of the entire nut for value added products and a diversity of end markets, as opposed to simple competition on the lowest price of a nut.

Commercial interests strongly aligned to industry interests

Most of the modern, integrated kernel processing businesses began as desiccated coconut processors or oil millers. They gradually added related product lines to make them the big integrated coconut processing enterprises that they are today.

The commercial benefits of this business strategy are self-evident. At currentmarket prices, a desiccated business processing


There is a need to develop other high value products that is in line with desiccated coconut production rather than competing on the lowest price of nut buying.

Most industries that starts of as desiccators moved to increase their profit with integrated processing procedures that results in the utilization of the whole coconut.

10,000 nuts per day could increase its profits (EBIT7) from $180 to $165 by investing an additional $60,000 – $100,000 to take the first step towards integrated kernel processing, initially selling coconut milk and residue. With an incremental investment of around USD 0.5 – 0.7 million, and a move to full integrated production of high value products, daily profits could rise to over $2285.

Figure 3: Rising profits with increased integrated processing


This pathway takes advantage of the fact that there are similar processing steps between coconut milk and desiccated coconut production, so it iseasy to integrate these two product lines. Similarly, liquid coconut milk processing and coconut water can share the same UHT packaging or canning system, also assisting integration. Similarly, the existing businesses selling high value finished products from husk fiber, pith and shell have already identified the greater profit margins that can be achieved in these finished products and have an interest in expanding their business in these areas.

Technology and equipment are now widely available from commercialequipment suppliers for all major products from integrated kernel processing and high value husk fiber and pith products.

WORLD COCONUT MARKET VALUE

The world consumes its coconuts as oil (55%), fresh (37%), desiccated (5%) and a small amount of a long list of other products (by volume)The annual wholesale value of the coconut sector can be estimated16as USD 6 billion for 2006 comprised of; coconut oil USD 2.9 billion, fresh nuts USD 2.2 billion, desiccated coconut USD 0.3 billion, other kernel products USD 0.3 billion, husk products USD 0.3 billion, shell products USD 0.1 billion.

Desiccated coconut markets

Desiccated coconut, is used both in the food processing industry, for example in bakery and confectionary, as well as being used directly by consumers. It is primarily and export led market.


World coconut value shows the 5% market share of the desiccated coconut in relationship with other coconut products.

Although world consumption of desiccated coconuts grew nominally by 1.5% per annum over 1998 – 2006, the actual volume of desiccated coconut consumption and price of desiccated coconut varied significantly between years, with a possible recovery in demand in the recent years.

The main import markets are Europe (43% by volume), USA (15%), Singapore (13%) and the Middle East (9%). The Philippines is the dominant exporter with 50% market share by volume, followed by Indonesia (25%) and Sri Lanka (17%) with all three countries with long established industries. Vietnam is a recent entrant to the market with approximately 4% market share24, reportedly gained largely in the Middle East at the expense of Sri Lankan exporters.

Despite relatively stable demand and historic over capacity in the industry, especially in the Philippines, there is currently not significant over capacity in the desiccated coconut industry, for example Philippine desiccated coconut mills are reported to be running at an average of over 90% of capacity in recent years.

A significant factor in this has been that a number of bigger and more progressive desiccated coconut companies have diversified into new products and more integrated processing business models. Examples include Peter Paul PhilippinesLtd which has the world’s largest desiccated coconut mill and other major companies in Philippines, Indonesia, Sri Lanka, Malaysia and Thailand. However, Indonesian businesses are reported to have been expanding production capacity in recent years to compete more directly with the Philippines. Vietnam’s production capacity has also been growing.

This is likely to result in intensified competition in the industry and downward pressure on prices. Producers with higher raw material costs, such as Sri Lanka and Vietnam will find it increasingly hard to compete in this market.

PRESENT MANUFACTURERS IN THE REGION XI

- Franklin Baker- Coco Davao, Primexcoco- Superstar coconut products co

MANUFACTURERS OF DESICCATED COCONUT IN THE PHILIPPINES

- ATSON COCO, INC.- CELEBES COCONUT - CORPORATION- FRANKLIN BAKER CO. OF THE - PHILIPPINES- FRESH FRUITS DRINK - INGREDIENTS, INC./FIESTA - BRANDS, INC.- GLOBE COCO PRODUCTS


Currently there are 14 desiccated manufactures listed under DTI list 2012 which gives room for KF Nutrifoods opportunities to engage in desiccated coconut production.

- MANUFACTURING CORP.- PETER PAUL PHILIPPINE - CORPORATION- PRIMEX COCO PRODUCTS,INC.- SUPER STAR COCONUT

EXAMPLES OF BEST PRACTICE AT COMPANY LEVEL Individual businesses are proven examples of the commercial strength ofhigher value added business models and industry strategies. Notable examples include Sambu Group (Indonesia), Renuka Group (Sri Lanka), Peter PaulPhilippines, Wonderfarm (Vietnam), Tropicoir (Sri Lanka) and Hayleys Export (Sri Lanka) as well as numerous Thai and Malaysian companies. Many of them share the same common themes:

For kernel processing, the most successful businesses:- have incrementally evolved integrated processing business models, often starting

as simple DC or oil millers- differentiate their products through integrated processing and a continuous

process of diversification- now make, as a minimum, coconut milk/cream, coconut milk powder, as well as

traditional desiccated coconut and defatted coconut (residue).- have added coconut drinks and virgin coconut oil to their product range more

recently still retain production of original products, eg. DC, but with profit growth driven by investment in high value products

- can thrive, even in higher cost local industry, if using an integrated processing business model

- To maintain competitiveness, research and development, quality control, and customer service are major focuses of businesses in all three sub-sectorsInternational distribution networks are essential and Joint ventures (or long term relationships) with partners in end markets are often an important part of the success of export led companies

- Domestic markets also have potential, if marketing activity is properly addressed- Manufacturing sites with good port access are an advantage - Businesses need to be of a medium scale, providing them:

management capacity to access export markets sufficient volume to support a diversified product range production volumes to achieve processing efficiency resources to invest in ongoing product development

MAJOR PROCESSING ROUTES OF COCONUT KERNEL PRODUCTS


Coconuts120,000

DEHUSKINGRC:360/hr @ 17 = 6120/hr)

DRC: 122,400 nutsL:17

DESHELLINGRC: (360/hr @17 = 6120/hr)

DRC: 122,400 nutsL:17

PARING(240/hr @ 26 = 6240/hr)

124,800L:26

WASHING BINSL:1

STERILIZING TANK

L:1

DC CUTTERRCO: 80-500 kg/hr @ 2

TCO:12000 kg DC/12 MTL: 3

DRYERL:2

-

TECHNICAL ASPECT

PROCESS OF MANUFACTURE


First step in the manufacture of desiccated coconut is the selection of coconuts. The quality of desiccated coconut depends upong the quality of coconuts used. Fully matured coconuts of about 12 months are used for the prearparion of desiccated coconut. Fully matured nuts are stored with the husk for about one month so that the water inside the kernel is absorbed. This also facilitates cocont kernels to get separated from shell walls.

The coconuts are then dehusked and their shells are are removed. The brown portion of nuts called testa is removed by scraping it off using a paring machine. These parings can be pressed out after drying to get oil which can be used for soap making or for producing virgin coconut oil.

Coconut kernel are broken into pieces, washed properly by going into the washing bins and sterilizing tank. Afterwards, the sterilized kernel enters the desiccated coconut cutter to bedisintegrated into various grades. The powder is then dried in a drier by spreading it out uniformly in trays. The temperature in the drying chamber is maintained at about 180O F and the powder is stirred occasionnally during the drying process to ensure uniform drying. When powder is dried, it is cooled and passed through a vibratory screens having different sizes (12, 14, and 16 mesh). The segregared material is packed in oil proof, moisture proof polythene lined plywood boxes of 25 kgs. It may also be packed in polybags of 250g , 500 g for retail sale.

During the process of manufacturing desiccated coconut, a number of byproducts such as coconut shell, parings, and husks are obtained which can be converted into various items of great items. Coconut Milk can also be obtained if we added a process of extraction after generating grated coconut thus producing low fat desiccated coconut.

POLLUTION CONTROL

The main effluent produced in theprocess of desiccated coconut is theafter wash water having dissolved solidsand coconut oil. The level of dissolvedsolids and oil is not significant and theeffluent water could be safely used forirrigation purpose or drained out aftertrapping solids and oils. The water havingdetergent used for cleaning equipment should be disposed of f separately.

Proper disposal facility should be made available for dumping refuge and perishable spoiled products and a separate pit constructed for this purpose. Proper hygiene and sanitation will ensure environment free of pollution

DETAILED PROCESS OF MANUFACTURE AND POTENTIAL PRODUCTS


MACHINERY UTILIZATION

The Machinery Utilization in this study is at 60% in the first year and 75% in the second year.

BASIS AND PRESUMPTIONS 1000 nuts = 100 kls Desiccated Coconut

120,000 nuts daily = 43,800,000/annually = 4,380,000 kgs (4380 MT)

Ratio:

DC to PARINGS = 1.5%


DC to CSH = 3%

COCO to DC =52.4%

Working hours/Shift : 20 hours

No. of shift/day : 1 day

Working days : 365

Working Efficiency : 75%

Margin Money : 25% of capital investment

Rate of Interest : 15%

Currency Exchange : $1 = Php 42.00

Value of machinery and equipments :Taken on the basis of a particular supplier of machinery and equipment on madeinchina.com and alibaba.com

Coconut processing machines (Dehusking, Deshelling, Paring)

are provided by Method Machine Works (www.coconutmachine.com)

Value of raw materials and others : Based on the input of GCF president and Franklin Baker price rates

FINANCIAL ASPECTS

i) Land and Building

Particulars UNIT Unit Price Amount in Pesos

(i) Land 150000

005,000,000

(ii) Building and other civil works 120000

002,000,000

Total Php 7,000,000

ii) Machinery and Equipments

Particulars UNIT Unit Price Amount in Pesos

(i) Coconut Dehusking Machines 1720000

03,400,000

(ii) Coconut Deshelling Machine @ 63,000 17 63000 1,071,000

(iii) Coconut Paring Machine @ 147,000 2614700

03,822,000

(iv) Coconut Grinding Machine 156000

0560,000

(v) Washing bins 410000

0400,000

(vi) Sterilizer tank 425000

01,000,000

(vii) Cabinet type hot air drier with blower, motor and other accessories

242000

0840,000

(viii) Vibratory sifting machine 2 30000 600,000


0

(ix) Platform weighing balance 2 @ 5040 2 10080 20,160

(x) Laboratory testing equipments NS 15000 150,000

Total Php 11,863,160

iii) Labor Cost

Designation Unit Unit Price Amount in Pesos

a) Administrative

(i) Manager / Food Technologist 1 20000 20,000

(ii) Sales and Marketing 2 15000 30,000

(iii) Clerk 2 10000 20,000

b) Technical

(i) Supervisor 5 15000 75,000

(ii) Chemist 2 12000 24,000

(iii) Skilled workers 5 12000 60,000

(iv) Semi-skilled workers 6 10000 60,000

(v) Unskilled workers 60 9000 540,000

Monthly Salary / Wages 829,000

Annual Salary / Wages Php 10,777,000

iv) Raw Materials

Raw Materials Unit Unit Price Amount in Pesos

(i) Fresh whole coconuts @ 120000/daily @ P6.00/kl (156,000 kls)

156000 30 4,680,000

(iv) Labels and other packing aids NS NS 100,000

Utilities 0

(i) Electricity 3000 KWH @ P9.00/hr 3000 9 27,000

(ii) Water 800 KL @ P12.6 cu.m. 800 12.6 10,080

Php 4,817,080

Total Recurring Expenditure 5,646,080(Working Capital)Recurring Expenditure for 2 months 11,292,160

Total Capital InvestmentFIXED CAPITAL 18,292,160WORKING CAPITAL (2 MOS) 16,938,240

Php 35,230,400

FINANCIAL ANALYSIS Cost of Production

Description Amount(i) Total Recurring Expenditure 67,752,960(ii) Depreciation on building and other civil

works @ 5% 350,000


(iii) Depreciation on machinery and equipments @ 10%

1,186,316(vi) Interest on capital investment @ 15% 5,284,560

Total Php 74,573,836$ 1,775,568

Turn Over (per year) Amount(i) Desiccated coconut 4380MT @

$1278/MT = 60% Efficiency2628 1278 3,358,584

(ii) Coconut paring 657MT@ $520/MT 657 520 341,640(iii) Coconut shell 1314 MT@ $150 1314 150 197,100

Total $ 3,897,324Php 163,687,608

Net profit (per year) (Before Income Tax) $ 2,121,756Php 89,113,772

Net Profit Ratio 54.44%Rate of Return 119.00%Break-even point 16.50%

FIXED COSTa) Depreciation on machinery and equipments 1,186,316d) Depreciation on building and other civil works 350,000e) Interest on total investment 5,284,560f) Salary / Wages 10,777,000Total 17,597,876

PRODUCT EXPANSION PLAN


MACHINERY SUPPLIERS

A. Mesh-belt dryer for desiccated coconut

FOB Price: US $ 10,000 - 100,000 / Set

Port: Shanghai

Minimum Order Quantity: 1 Set/Sets

Supply Ability: 3 Set/Sets per Month

Payment Terms: L/C,T/T

Quick Details


Place of Origin: Jiangsu China (Mainland)

Brand Name: HC Model Number: DW

Type: DehumidifierOther Spec: According to request

material: SS304

certification: ISO9001

Packaging & DeliveryPackaging Detail:

wooden case or custom requirement

Delivery Detail: 15 days

Specificationsthe mesh belt dryer is low in the energy consumption

the mesh belt dryer is high capacity in the producing

DW series Mesh-Belt Dryer

Description: drying machine

The raw material can be spread on the converyer belt through suitable auxiliary mechanism such as

distributor,vibrating belt,pulverizer of granulator.The convey or passes one cannel or serveral channels consisting of

heating unit.Each heating unit is equipped with air heating and circle system.Each channel has one or sereral damp

exhaust system.When the conveyor passes it,hot air passes through raw material from up to low or against.In this

way it makes raw material dry uniformly.

Principle:

1.The materials are uniformly put on the mesh-belt by the material charger.

2.The mesh-belt uses generally 12-60 mesh stainless steel wire net and it is drawn and moved inside the drier by a

transmission device.

3.The drier is composed of serveral units.For each unit,the hot air is circulated separately.Some exhausted gas is

discharged with a special moisture elimination blower.The waste gas is controlled through an adjustment valve.The

hot air passes through the mesh-belt covered with the material from the top to the bottom or against and this will

complete the heat and mass tranfer process.This process will bring the material water away.

4.The mesh-belt moves slowly,running speed can be freely adjusted according to the material temperature.The final

products after the drying will fall into the material collector continuously.The top and low circulation units can be freely

equiped according to the users demand.The unit number can be selected according to the demand.

Technical Parameters:

Type DW-1.2-8 DW-1.2-10 DW-1.6-8 DW-1.6-10 DW-2-8 DW-2-10Unit Number 4 5 4 5 4 5Belt Width (m) 1.2 1.2 1.6 1.6 2 2Drying Section Length (m) 8 10 8 10 8 10Thickness of Material Covered (mm) 10-80Temperature () 60-130


Steam Pressure (Mpa) 0.2-0.8Steam Consumption (Kg/h) 120-300 150-375 150-375 170-740 180-500 225-600Drying time (h) 0.2-1.2 0.25-1.5 0.2-1.2 0.25-1.5 0.2-1.2 0.25-1.5Drying Strength (Kg H2O/h) 60-160 80-220 75-220 95-250 100-260 120-300Total Power of Blower (Kw) 9.9 12.1 9.9 12.1 18.2 22.2Total Power of Equipment (Kw) 11.4 13.6 11.4 13.6 19.7 23.7


2. CE Approved coconut grinding machine

FOB Price: US $ 4,450 - 13,983 / Set

Port: QINGDAO PORT

Minimum Order Quantity: 1 Set/Sets

Supply Ability: 20 Set/Sets per Month

Payment Terms: T/T

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Henan Province Sanxing Machinery Co., Ltd.

[ Henan, China (Mainland) ]

Main Products: pcb recycling machine,eddy current separator,ultrafine grinding mill


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Product DetailsCompany Profile

Quick Details

Condition: NewPlace of Origin: Henan China (Mainland)

Brand Name: sanxing

Model Number: E500 name: coconut grinding machine capacity: 100-500kg/h

floor space: 8*4*4.5(l*w*h)meters warranty: 12months power: 45kw

uses: all kinds of the wood

Packaging & Delivery

Packaging Detail:

according to customer's requirement

Delivery Detail: 8-15days after receiving the down payment

Specifications


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coconut grinding machine

1.no pollution

2.above 10 years experience

3.fineness 60-560 meshes adjustable

4.less power

CE approved coconut grinding machine1. CE Approved coconut grinding machine (SAMPLE GRADES)

↓


environmental promotion cetification

5.TECHNICAL SPECIFICATIONS

type motor power fan power rotary speed output fineness floor space analyzer

700 30-37kw 4kw 2990r/min 80-500kg/h 60- 8*2*4.5 M 1.5KW


500meshes

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prefeasibility study on desiccated coconuts

Documents

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coconut fiber

coconut peat

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coconut farmers

coconut industries

desiccated coconut production

coconut market supply