How (and why) entrepreneurs should cash in on the coconut craze

A few days before Dr. Karin Michels, an adjunct professor at the Harvard T.H. Chan School of Public Health, called coconut oil “pure poison” in her now-viral lecture, the Philippines was busy holding the first World Coconut Congress.
In 2017, the Philippines’ coconut oil exports generated over $1.46 billion in total revenues, putting the country among the world’s top coconut and coconut-derivative producers. Harvard University has since distanced itself from Dr. Michels’ comments, saying they were “not made on behalf of the institution.” Similarly, organizations all over the world have written up countless rebuttals to the coconut oil put-down.
The fact stands, coconut oil is a huge market, one that Filipinos ought to capitalize on.

Tech bias

The emergence of tech startups today has created a huge and arguably disproportionate amount of interest in emerging tech products and services. As far as potential entrepreneurs and venture capitalists are concerned, new tech, like blockchain or AI, is the new oil.
This attraction to the tech sector is not necessarily bad. But, amid rising globalization in agricultural and non-agricultural supply chains, the lack of attention among entrepreneurs to invest, disrupt, and innovate in more traditional sectors puts these precarious industries, and the economy at large, at risk of falling behind.
Last August 14 to 16, the Philippines hosted the first World Coconut Congress at the SMX Convention Center in Pasay City. The theme: “The Time is Now”.
The conference and exhibition was the flagship event of the 32nd National Coconut Week of the Philippine Coconut Authority (PCA), bringing together global industry experts; business leaders;  government officials; NGOs; members of the academic, medical, and research communities; and key stakeholders in the coconut industry.
Here are some of the opportunities in the industry today:

Wide and diverse applications

The coconut tree is known as the tree of life, and for good reason. The fruit can be broken down into a wide range of coconut-based and derivative products spanning multiple consumer categories:

• food (coconut cream, coconut milk, coconut oil, lambanog, coconut water, and coconut sugar),
• food supplements and health and wellness (refined, bleached, and deodorized coconut oil, virgin coconut oil, and medium-chain triglyceride oil),
• personal and home care (soaps, cleaners, and surfactants),
• furniture,
• and handicraft material and fibers.

Effectively communicating how versatile this product can be is key to making coconut-based and derivative products attractive to potential investors and industry players.
Global market values of coconut milk, water, and virgin coconut oil have grown steadily in both value and volume since 2014. Ken Gibson, senior vice-president of Franklin Baker Company of the Philippines, says this has sparked a renaissance for producers shifting away from more traditional products like desiccated coconut, towards newer offerings.
According to Divina Bawalan, an international coconut processing consultant and former senior research specialist at the Philippine Coconut Authority, this renewed interest in products such as coconut water and oil have done much to revitalize the industry that has been in decline since the early 2000s.

Increasing demand and growth potential

From Madonna to the Kardashians—massive investments and waves of celebrity endorsements in coconut derivatives placed within the health, beauty, personal care, and wellness categories have garnered a lot of attention for these products.
Whether it’s virgin coconut oil, sugar, water, vinegar, or amino, there is growing consumer acceptance and increased demand in export markets. Coconut-based products are being touted as a superfood for their health benefits, sold in massive quantities at countless big retailers like Whole Foods and Wal-Mart.
Marco Reyes, president of the Virgin Coconut Oil Producers & Traders Association of the Philippines, expects an annual compound growth rate of about 10% to 11% in global demand for virgin coconut oil over the next three years.

Health, beauty, and wellness properties

Academic research—such as that of Dr. Fabian Dayrit, chairman of the Asian and Pacific Coconut Community Scientific Advisory Committee for Health—has long extolled the benefits of coconut-based products. New research has found benefits in:

• maintaining cholesterol levels,
• weight loss,
• increasing metabolism,
• skin and hair care,
• and treating cognitive illnesses such as Alzheimer’s disease.

On the other end of the wellness spectrum, Mintel’s 2018 Report on Global Beauty Trends shows global consumer preferences shifting towards environmentally-friendly products made from natural ingredients. 
Glenn Apostol, a market development manager at oleochemical producer Chemrez, describes three main coconut derivatives under this category:

• mild, hypoallergenic soaps and shampoos
• petroleum and silicon-free skin moisturizers (that make for fantastic natural sunscreens)
• natural antimicrobial lipids proven to be highly effective at treating skin infections

Coconut oil is a small component of global vegetable oil production

Compared to its closest substitute, palm kernel oil, global coconut oil production has stood at just over three million tons in 2017, less than half of the seven million tons of palm kernel oil produced in the same year. More aggressively marketing coconut oil as a substitute for palm kernel oil can potentially capture an extra three million tons of demand for palm kernel oil.
There remains, of course, a number of challenges: integrated processing facilities’ high barriers to entry, lack of support from the medical and scientific community in the west, decreasing supply and output, and a fragmented marketplace for raw coconut inputs, to name a few.

A need for inclusive growth

Government support in the form of subsidies, training, information dissemination, and R&D on coconut tree hybrids, spearheaded by the Philippine Coconut Authority, DTI, and DOST, are a good first step in the right direction.
The use of new technologies like blockchain applied to big multinational companies’ supply chains can allow for greater transparency in the way manufacturers source their raw materials, giving farmers a voice toward fair and ethical sourcing.
Innovations in tech mint a few billionaires here and there, but inclusive growth is the only way to ensure the Philippines’ coconut industry—and the agricultural sector as a whole— grows sustainably.
We need to deploy programs toward restructuring systems and reskilling the labor force such that more traditional sectors of the economy like agriculture can continue to thrive. By providing sustainable livelihoods to the workers and farmers in this sector, not only the intrepid entrepreneurs, but the nation at large, can reap the benefits of this coconut boom.

Ryann Chris Aninias is an economist by training, with a masters degree in Economics from the University of the Philippines. He currently serves as the associate director at a local tech startup.