COCONUT PROCESSING MODULES FOR MICRO AND VILLAGE SCALE ENTERPRISES

Divina D. Bawalan*

Abstract

The coconut which is normally referred to as the “Tree of Life” has the highest economic value among the various palm trees if properly utilized. Every part can be utilized for man's use or converted into valuable products. However, despite the myriad of commercial products that have been developed from it, majority of coconut farmers in almost all coconut producing countries of the world are still poor and just producing the traditionally low value product, copra.

Since 1990, government and non-governmental organizations (NGO’s) in the Philippines promoted and supported programs involving the establishment of village level coconut processing plants in response to the clamor to liberate the farmers from producing copra alone and to get higher value for his produce. But instead of getting additional income from the enterprise, farmer cooperatives found themselves saddled with capital loans due to non-viability of their operation.

Micro and village scale enterprises in the Philippines with processing capacities of 5,000 nuts per day and below are characterized by batch type operation and the production of only one or two products. Under the said condition, overhead and production costs for a particular product is high due to under-utilized equipment, longer production cycle and nonoptimization of raw material use. Thus, profitability if not zero, is really very low

To improve the viability in a micro and village scale coconut processing enterprises, the application of processing module concept is suggested. The module involves the production of three (3) or more related coconut products in one processing set-up considering either of the following three aspects, a) the maximization of raw material or further processing of generated by-products; b) maximization of time through proper production scheduling to get around the constraints of batch type processing or c) maximization of equipment utilization through the use of multi-functional equipment for greater flexibility in product processing; or d) a combination of two or all aspects whichever is more appropriate in a given market condition. Each of the three aspects are discussed with corresponding sample processing modules. In addition, a brief discussion of the factors that should be considered in designing the processing modules is included. To demonstrate the concept, cost comparison and profitability assessment of a single product and a three- product module micro enterprises are presented. Selected pictures of equipment appropriate for micro and village scale enterprises are likewise included.

* Senior Science Research Specialist, Product Development Department, Philippine Coconut Authohty

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1. Introduction

The coconut (Cocos nucifera linn) is normally referred to as the “Tree of Life”, “Man’s Most Useful Tree”, “King of the Tropical Flora”, “Tree of Abundance”, etc. If properly utilized, it has the highest economic value among the various palm trees. This is because every part of the coconut tree and its fruit can be utilized for man’s use or converted into valuable products. The main commercial usage of coconuts at present is the processing of the fruit into various products such as desiccated coconut, coconut milk/cream. coconut chips, copra, coconut oil and copra meal from the meat; charcoal and activated carbon from the shell; coir fiber and coir dust block from the husk; coco water beverage and vinegar from the coconut water. It is a well known fact that to be globally competitive, one must be able to produce good quality products at the least cost and at the least waste of materials. This can be done by producing more value-added products from a single raw material at the least input. Coconut, given its versatility as a raw material fits well the above mentioned strategy.

In almost all coconut producing countries including the Philippines, the only way by which majority of farmers could convert their coconuts into income is by processing them into copra. About 85% of the Philippine coconut production is converted into copra. Under the present set-up, farmers remain poor because they just produce a low value product in which the price fluctuates wildly depending on the movement of vegetable oil prices in the world market. In addition, they always lose by selling their copra at a very cheap and dictated price and buying the consumer products (e.g. cooking oil, soap, margarine etc.) obtainable from it at a much higher price depending on how far their locality is from the nearest processing plants. Moreover, by just converting the coconut into copra, the potential and value of the coconut fruit is not being utilized to the fullest.

A proliferation of village-level oil mills with processing capacities of 5.000 nuts/day and below was seen in the Philippines since 1990.. This is in response to the clamor to liberate the farmers from producing copra alone and to get higher value for his produce. These mini-oil mills designed normally to produce cooking oil. copra meal and laundry soap are almost always owned by Fanners Cooperative and funded either by foreign donors through NGO's or soft loans from farmer oriented programs of the local government and government agencies like the Department of Trade and Industry, Department of Science and Technology, Department of Agrarian Reform, Land Bank and others. In addition to mini-oil mills, farmers cooperatives were likewise induced to go into coconut husk processing with the expectation that their life will be better if they go into other types of processing ventures. However, based on a nationwide assessment made by a PCA multi-disciplinary team last February - March 2002, operation of majority of these village level coconut processing plants (VLCP’s) did not last for more than a year due to either marketing, financial, technical or management problems or a combination of all of these problems and failure to consider other factors while still in the planning stage. Profitability is very low or even a negative value in some mini-oil milling operation where production cost is even higher than the selling price of commercial cooking oil being sold in the locality. In these cases, coconut farmers who started with very high hopes and expectations while the VLCP’s were still being planned and established ended up disillusioned and saddled with capital loans when the plants were finally operated and closed. Several farmer cooperative owners of these VLCP’s who were interviewed even mentioned that their income from other projects got dissipated when they operated their VLCP's.

On the other hand, micro scale coconut processing enterprises have been existing in the Philippines for the last forty years. They normally produce coconut food products such as young coconut “buko” pie, coconut candy “bukayo”, nata de coco and others. They are operated either as a single proprietorship or family owned businesses. However, in the last

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ten years, several micro-enterprises which produce coconut oil based herbal soaps and beauty care products started to proliferate. Production is normally limited inasmuch as marketing of the products is just done within the locality and in some cases in a neighboring village. Lack of capital for expansion was the most common problem that micro-scale coconut processors mentioned to the PCA multi-disciplinary team when interviewed.

The paper will discuss the concept and application of producing 3 or more related coconut products through a coconut processing module approach as a means of improving the profitability and providing flexibility in micro and village scale enterprises.

2. Definition of Micro and Village Scale Enterprises

For purposes of clarification and discussion in this paper, the terms micro-scale and village scale coconut processing will be defined as follows:

2.1 Micro-scale enterprises - includes all enterprises with coconut processingcapacities below 1,000 nuts per day. Process operation is either done fully manual or semi- mechanized, normally using not more than three (3) simple, single phased motorized equipment. In the Philippines, micro-scale enterprises which also include cottage level operation normally produce coconut food products. Capitalization normally range from Php 50,000 - Php 500,000 (approximately US $1,000 - US $10,000)

2.2 Village scale enterprises - includes all enterprises with coconut processingcapacities of 1,000 to 5,000 nuts per day. Process operation is semi-mechanized using a combination of single phased and three phased motorized equipment. Capitalization normally ranges from Php 500.000 - Php 5.000, 000 (approximately US S10.000-US $100,000)

3. Common Characteristics of Existing Micro, and Village Scale Coconut Processing Enterprises

3.1. Batch Type Processing

Unlike small, medium and large scale coconut processing plants which are run continuously for 24 hours per day, process operation in micro and village scale coconut processing enterprises is generally done by batch. The main reason for this is that there is no standardized and synchronized process equipment for a specific product that has been developed so far for the said scale of operation. Instead, for processes which require a certain degree of mechanization, micro and village scale processors have been using and adapting whatever available equipment in which the capacity is nearest to the intended purpose. Hence, in such a set-up, most of the equipment are under-utilized which contributes to high overhead cost . For instance, in a mini-oil milling plant, it is not uncommon to see a hammermill which is just being operated for just 2 - 3 hours a day while an expeller is operated only at 6 hours a day. Likewise, batch type operation makes the processing of a particular product quite expensive because the production cycle is much longer than if the same product will be produced in a continuous operation. For example, cooking oil in a small commercial oil mill can be produced in a 24-hour operation cycle but it will take about 5 days to produce cooking oil in a village level oil mill. Labor cost is also high because there are times in a day where plant personnel are idle.

It should be noted that this particular problem in micro and village scale enterprises is something that could not be easily solved. Fabricators who have developed equipment for specific coconut products at specific capacities do not want to fabricate a similar

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equipment at a lower capacity that a micro or village scale processors might need, two equipment fabricators that were interviewed on the subject matter mentioned that the labor cost for fabricating a small capacity and a big capacity equipment is almost the same. In addition, downscaling or upscaling an equipment which has already been developed and working well will also entail extra costs for further testing and debugging to check if the newly fabricated prototype will perform as well as the previously developed equipment.

3.2. Processing of Only One or Two Products

All existing micro and village scale enterprises in the Philippines only produces one or two coconut products and do not process any of the generated coconut by-products. For instance, there are producers of young coconut “buko” pie at different parts of the country which only process the meat and throw away the young coconut water. On the other hand, there are also processors of young coconut water beverage/drink which partly sell and partly throw the young coconut meat. There are several villages producing nata de coco1 which only use coconut milk and are just throwing away the resulting coconut water and the coconut milk residue “sapai”. Even in copra making operations, most of the coconut husks and all of the coconut water generated are just thrown away. The same is also true in big commercial coconut processing plants with the exception of two plants producing coconut cream powder, low fat desiccated coconut and coconut water beverage

4. Proposed Strategy for Economic Viability in Micro and Village Scale Processing Enterprises: The Module Approach

The coconut fruit, as mentioned before, is a versatile raw material because of the myriad of products which can be produced from its various parts. Everyone recognizes the fact that the profitability in a coconut processing operation can be greatly improved if the generated by-products in a particular operation will be further processed into value-added products instead of wasting them. While a lot of integrated coconut processing projects have already been proposed and studied in the Philippines, none has been translated into successfully operating plant. This is because the proposals were all hinged on utilizing all parts of the coconut without considering the constraints in terms of economies of scale and available equipment which are specific to each processing technology that will be integrated in the operation.

The suggested coconut processing module concept is different from the integrated processing concept that has been proposed before in the sense that it does not recommend per se the processing of all parts of the coconut fruit. Rather, it will improve the economic viability in micro and village scale processing by combining the production of three (3) or more related coconut products in one processing set-up considering either of the following three aspects; a) the maximization of raw material or further processing of generated byproducts; b) maximization of time through proper production scheduling to get around the constraints and inefficiencies of batch type processing or c) maximization of equipment utilization through the use of multi-functional equipment for greater flexibility in product processing or d) combination of two or all aspects whichever is more appropriate in a given

Nata de coco is a white, gelatinous food material obtained from the action o f microorganism

Acetobacter aceti subsp.xylinum on a prepared substrate o f coconut milk or coconut water. It is normally sweetened for use as desserts or ingredient in fruit salads or mixed with fruit juices. For higher quality product, coconut milk is the preferred substrate medium rather than coconut water.

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market condition. One advantage of the process module concept is that expansion from a micro scale to village scale operation can be easily done by just adding a similar module of the same product mix or integrating another product which complements the existing product mix or by adding a module of different product mix which is complementary to the existing module. In other words, the key elements that should be considered in designing a coconut processing module is the complementation of raw material use, production scheduling and equipment usage.

4.1. Further Processing of Generated By-Products

There is no doubt that the economic viability in a micro and village scale enterprises can be greatly enhanced if the generated by-products in a specific processing operation can be further processed into suitable and marketable products inasmuch as the said raw material resource has already been paid for. For instance, in the processing of young coconut “buko" pie, only the meat from the young coconut is being used but the producer is paying for the entire nut which also contains coconut water and coconut shell. Hence, the profitability of the operation can be increased if the said young coconut water can be further processed into either coconut water beverage “buko juice”, coconut “wine” or coconut water vinegar and the shell can be processed into buttons, handicrafts or fashion accessories. A coconut processing module comprising the production of coconut water beverage in PET bottles, young coconut meat candy “bukarillo” or sweetened dehydrated “buko’ or “buko" pie can easily be done in either micro or village scale enterprises depending on the market demand Shown in Table 1 below is a list of products that are being produced in micro scale enterprises in the Philippines with the corresponding coconut by-products generated which are currently unutilized and the additional potential products that can be produced.

Table 1: Some Coconut Products Currently Produced in Micro Scale Enterprises with Unutilized By-Products

P r o d u c t U n u t i l i z e d B y

p r o d u c t G e n e r a te d

A d d i t i o n a l P o te n t ia l P r o d u c ts

N a ta d e C o c o c o c o n u t m i l k re s id u e

c o c o n u t w a te r

m a tu re c o c o n u t s h e ll

- c o c o n u t H o u r ; c o c o n u t fo o d p r o d u c ts s u c h as

c o o k ie s , m a c a ro o n s , c o c o b u r g e r , c o c o p r e tz e ls ,

c o c o b r i t t le , lo w ta t c o c o n u t m e a t c a n d y e tc . ;

a t la to x in - f r e e te e d in g r e d ie n t

- c o c o w a te r v in e g a r

- c o c o n u t s h e ll h a n d ic r a f ts a n d n o v e l t y ite m s

2 . C o c o n u t S p re a d “ C o c o J a m ” S a m e as a b o v e S a m e as a b o v e

3 . C a n n e d L a in g ( ta r o le a v e s w i th

c o c o n u t m i lk )

S a m e as a b o v e S a m e as a b o v e

4 . V i r g i n c o c o n u t o i l b y m o d i f ie d

t r a d i t io n a l a n d fe r m e n ta t io n

p ro c e s s

S a m e as a b o v e S a m e as a b o v e

5 . Y o u n g c o c o n u t “ b u k o ” p ie

- y o u n g c o c o n u t

w a te r

- y o u n g c o c o n u t

s h e ll "

- c o c o n u t w a te r b e v e ra g e “ b u k o j u i c e ” , c o c o n u t

“ w in e ” , c o c o n u t w a te r v in e g a r

- c o c o s h e l l b u t to n s . h a n d ic r a f ts a n d fa s h io n

a c c e s s o r ie s

6 . Y o u n g c o c o n u t w a te r b e v e ra g e

" b u k o j u i c e ”

- y o u n g c o c o n u t

m e a t

- y o u n g c o c o n u t

s h e ll

- “ b u k o ” p ie , s w e e te n e d y o u n g c o c o n u t m e a t

“ b u k a r i l l o ” , d e h y d r a te d y o u n g c o c o n u t m e a t

- c o c o s h e l l b u t to n s , h a n d ic r a f ts a n d fa s h io n

a c c e s s o r ie s

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However, it should be borne in mind that limitations in marketing, available processing technologies and corresponding economies of scale or equipment availability with the required capacity may not always allow the further processing of by-products generated in a specific process operation. For example, it is not also advisable to process all coconut water generated into vinegar because production will very much exceed existing market demand. Likewise, coconut residue can only be profitably processed into coconut flour and virgin coconut oil if the amount of coconut milk residue generated in a processing plant could reach at least 1,000 kgs (1 MT). Hence, integration of products should not only be hinged on the processing of by-products but should also consider other manageable aspects.

4.2. Proper Production Scheduling

As mentioned before, operation in micro and village scale enterprises is inherently batch type in nature. One possible approach to turn around this problem into opportunity is to consider the production of other related products in which the schedule could fit the production of a chosen major product. This approach is especially applicable to processes with in-between idle time of four (4) hours and above and those processes in which a waiting period is required before the final product is recovered. For instance, in nata de coco production, after the substrate is prepared and placed on moulders on the first day, it will take a minimum of 8 -10 days before the raw nata can be harvested and finally processed. Likewise, in processing one batch of coconut water into vinegar, work is done only on the first day, eight day and the thirty seventh day. In between periods, processing of other marketable coconut products can be done. By making a detailed Gantt Chart of activities, one can see the amount of time available and the specific point where a new production schedule can be inserted. The production of nata de coco, coco water vinegar, virgin coconut oil using the low pressure oil extraction method and aflatoxin-free feed ingredient could be combined in one module through production scheduling and further processing of generated by-products (coconut milk residue and coconut water).

4.3. Use of Multi-Functional Processing Equipment for Flexibility

Another approach in the design of a coconut processing module is to consider the use of multi-functional equipment for better flexibility in operation. This is especially suited in micro-scale operation in which the market for the product is still developing. The use of multi-functional equipment affords the micro and village level entrepreneur to vary the products that it produces depending on the market demand. Thus, he or she will not run the risk of tying up capital in a big volume of product inventories if the market for that particular product slows down.

To demonstrate the concept: by having a basic equipment set-up composed of a motorized coconut grater (Figure 1), manually operated bridge press (Figure 2) and a cocohusk or cocoshell - fired stove and cooking pan assembly (Figure 3) plus relevant utensils and equipment accessories, one can alternately produce virgin coconut oil by the modified kitchen method, coconut meat candy “bukayo”, coconut spread, and coconut milk candy. Adding a gas-fired oven (Figure 4) in the equipment set-up will give the plant the flexibility to further diversify into baked coconut food products from the coconut milk residue “sepal” such as macaroons, cookies Likewise, with a basic equipment set-up consisting of a gas-fired oven (Figure 4), gas fired stove (Figure 5), stainless steel casseroles and relevant accessories, one can produce young coconut “buko” pie. coconut chips, young coconut water beverage in PET bottles or coconut vinegar.

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5. Factors to be considered in designing a Coconut Processing Module

5.1. Market

The economic viability and sustainability in any processing enterprise at any scale of operation greatly depends on its ability to sell all the products that it produces at a profit. A lot of government agencies and NGO’s which promoted livelihood coconut processing programs for farmers in the Philippines forgot to consider the said basic tenet in business operation. Instead, they focused primarily in choosing products and technologies which could employ a bigger number of people. So, it is really not surprising to see that such type of programs had very short life which further wasted limited material resources.

Therefore, in defining the kind of products that will be included in the module, the prospective entrepreneur should look into the size and diversity of the market which it is expected to be served and the prevailing prices of the goods that are expected to be produced. Market boundaries should likewise be delineated and market needs in terms of variety and quantity within the said boundaries should be determined and matched with a corresponding production and marketing plan. Most of the failures in the operation of village level oil mills in the Philippines stemmed from the assumption that all products (cooking oil, soap and coconut meal) that would be produced would be easily marketed in the locality without considering the capacity of the intended market to absorb a specified production volume and the competition posed by similar products in the same area. Inasmuch as micro and village scale enterprises normally target the locality where the plant will be set-up as the potential market for the products to be produced, a logical method is to analyze the economic and social conditions in the said area to determine the spending capacity and preferences of its residents (both permanent and temporary ) and potential coconut product needs. For example, in an island community frequented by western tourists, a possible, village level module is a combination of coconut water beverage/drink, “buko” pie, coconut chips and novelty items from coconut shell. Another possible combination of products on a micro scale operation, given the above conditions is the processing of virgin coconut oil using the modified kitchen process and coconut food products from coconut milk residue such as macaroons, low fat. high fiber cookies, coconut brittle and coconut kisses. The choice for the principal product in a coconut processing module should always be guided by the market demand and the value of the product (i.e. which product will bring the biggest profit to the enterprise).

Another strategy that can be used in defining the type of product to be produced is to determine if the particular locality has an existing big user or marketing aggregator of specific coconut products. For example, in Southern Philippines, village based nata de coco growers involving several households in the whole village have been operating for the last eighteen (18 years) with Del Monte Foods Corporation as the sole market. A village based processing of coconut milk residue generated from the said operation is being studied to produce white coconut oil and aflatoxin-free feed ingredient. Another example is a group of farmers in Southern Luzon (biggest island of the Philippines) who produces on a micro scale operation and supplies virgin coconut oil to a company which aggregates and exports the said product to the United States. In this particular instance, farmer producers are no longer interested to further process the by-products because the company is already buying the virgin oil from them at a price of 130 % more than what they will normally get if they process their coconuts into copra.

Still another point to consider in determining the kind of products to be integrated in one processing module is looking for a particular product advantage that could satisfy a “niche” market. In other words, re-inventing a product with concomitant change in process

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operation to fit a specific requirement. One very good example of this is coconut oil. As the PCA multi-disciplinary team found out, village scale processing of coconut into cooking oil is very unprofitable because of high overhead cost, longer production cycles and low oil extraction efficiency. However, by processing the fresh coconut into virgin coconut oil, the selling price of the product is increased by 150 - 200 %, so profitability is correspondingly improved.

5.2. Scale of Operation and Raw Material Supply

The market demand for a particular product will correspondingly determine the processing capacity or scale of operation that has to be adopted in a processing enterprise. Likewise, to insure that the plant will run at all times, the said market demand should be correspondingly matched by an appropriate raw material supply base. This is particularly critical in micro and village scale enterprises where the input raw material is always fresh coconuts with very short storage life unlike copra. Processing operation requires a regular delivery of fresh coconuts since the shelf life severely limits the raw material inventory that the said plant could stock. It should be noted that setting up the processing plant in a coconut production area is not a guarantee that the plant can get all the raw materials that it needs at all times because of competition posed by copra traders and other coconut processors that might be present in the area. Another factor that may affect the supply of raw material is the price of nut that a processing plant is willing or can afford to pay. It can get all the nuts that it needs if it can pay premium prices on COD basis. It will run into supply problem if it cannot pay competitive prices. Therefore, in determining the product to be produced, a good balance should be made between market demand, scale of operation and the raw material supply. A good product is one that matches the market demand with a processing capacity within its appropriate economies of scale and requiring a coconut supply base which can easily be satisfied in a given area. Otherwise, adjustment in the capacity should be made. To get an estimate of what is needed, computations have been made to determine the minimum coconut supply base (in hectares) required to support the operation of micro and village scale enterprises at different processing capacities and different productivity rates. These are presented in Table 2 below.

Table 2: Required Coconut Supply Base in Hectares For Specific Processing Capacities at Different Productivity Rates*

Coconut Supply Base (hectares) at Different Productivity RatesCapacity(nuts/day)

35 4» 50 55 60 65

100 8.57 7.50 6.00 5.45 5.00 4.62200 17.14 15.00 12.00 10.91 10.00 9.23400 34.29 30.00 24.00 21.82 20.00 18.46500 42.86 37.50 30.00 27.27 25.00 23.08600 51.43 45.00 36.00 32.73 30.00 27.69

oooo 68.57 60.00 48.00 43.64 40.00 36.921000 85.71 75.00 60.00 54.55 50.00 46.15

ooor I 171.43 150.00 120.00 109.09 100.00 92.313000 257.14 225.00 180.00 163.64 150.00 138.464000 342.86 300.00 240.00 218.18 200.00 184.625000 428.57 375.00 300.00 272.73 250.00 230.77

* C o m p u ta t io n s w a s b a s e d o n 3 0 0 d a y s p e r y e a r o p e r a t io n o f th e in te n d e d p r o c e s s in g p la n t a n d th e

a s s u m p t io n th a t th e r e a re 10 0 c o c o n u t p r o d u c t iv e tre e s p e r h e c ta r e . P r o d u c t i v i t y r a te is g iv e n in

te r m s o f n o . o f n u ts p r o d u c e d p e r t r e e p e r y e a r .

1 6 8

5.3. Process Technology and Availability of Skilled Manpower

The most appropriate process technology to be adopted to produce a specific product is normally dictated by the determined production capacity for the major product which in turn is highly dependent on the market demand and the available coconut supply base. Choosing the processing technology will also mean determining the type of equipment to be used and the corresponding degree of mechanization that is required in a particular process. On the other hand, the degree of mechanization will be decided based on the availability of power and cost of electricity in a particular locality. A good balance should therefore be made between these interdependent factors to insure smooth and profitable operation. Adopting a technology process and equipment which is not properly matched with the required production capacity normally results in high production costs and unprofitable operation. For example, if one is only set to process 500 nuts per day to produce virgin coconut oil, one should just adopt either the modified kitchen process or low pressure extraction method instead of the so-called centrifuge method which requires an expensive 3-way centrifuge equipment.

Side by side with choosing an appropriate technology for the processing of a particular product is the determination of the availability of skilled manpower who can be tapped to perform the various processing steps and operate equipment if needed with the utmost accuracy and efficiency. This is necessary to insure that the chosen products can be produced at the specified quality and with minimum wastage of raw materials. Even a simple soap making operation will not be sustained if the production personnel involved do not have the appropriate capability and training to properly execute the various steps in the operation. The higher the degree of mechanization in a particular processing plant, the higher is the level of expertise needed for its manpower. Aside from the workforce involved in the production aspects, skilled workers are also needed to do repair and maintenance of plant equipment. Thus, the availability of skilled manpower or the availability of workers who have the necessary aptitude to be trained can be a limiting factor in choosing the type of equipment that will be installed and the type of technology to be adopted in a coconut processing enterprise. The level of technology to be adopted should be matched by the capability of available manpower. Otherwise, it will result in high production cost, when the plant is finally operated.

6. Case Studies to Demonstrate the Module Concept

To demonstrate the concept, cost comparison and profitability assessment is made on three related cases as described below:

Case 1 - the processing plant comprising of one motorized grater (Figure 1), one manually operated bridge press (Figure 2) , one coco-shell fired cooking stove and pan assembly (Figure 3) plus relevant accessories only produces virgin coconut oil from coconut milk using the modified traditional kitchen method Processing capacity is 500 nuts per day. It is not processing the wet coconut milk residue and other by-products, coconut shell and water. Wet coconut milk residue is just being sold at Php 25 (US $0.50 ) per 100 kgs while excess coconut shell is being sold at Php 50 (US $1.00) per 100 kgs.

Case 2 - A contact dryer which is an improved version of the one shown in Figure 6 is added to the processing plant described in Case 1. Under the set-up, virgin coconut oil is produced using the modified traditional kitchen method as in Case 1 at the same processing capacity of 500 nuts per day. The resulting coconut milk residue “sepal” is dried

immediately after coconut milk extraction, then a corresponding amount of freshly grated coconut meat is mixed to the dried sepal and additional oil is extracted with the application of low pressure oil extraction method (or the so-called intermediate moisture content method) using the manually operated bridge press. The amount of fresh grated meat mixed with dried sapal is just enough to bring the moisture content of the mixture to 10-12 %. Coconut products for Case 2 are virgin coconut oil from coconut milk, residual virgin coconut oil from a mixture of dried coconut milk residue and fresh grated coconut meat and aflatoxin- free dried coconut meal.

Case 3 - The coco-shell fired cooking stove and pan assembly (Figure 3) in Cases 1 and 2 is just used for about two hours per day. The said equipment can also be used for making coconut meat candy “bukayo”, For the medium fat bukayo, a 50 - 50 mixture of wet coconut milk residue or sapal and fresh grated coconut meat is used. While the market demand for bukayo is still very limited, one formulation (21 kgs) is just used and production is only done at 3 days per week. The rest of the sapal generated is processed into residual virgin coconut oil and aflatoxin-free coconut meal as done in Case 2. So under Case 3, medium fat bukayo is produced in addition to virgin coconut oil, residual virgin coconut oil and dried cocomeal. An additional working area for the molding and packaging of bukayo has to be added to the existing work area in Case 1.

Shown in Table 3 below is the summary of computations comparing the costs and profitability of the 3 cases. All cost figures are on annual basis and presented in United States dollars (US S) using the exchange rate US $1.00 = 50 Philippine pesos. (PhP). The computations is based on the following assumptions:

Cost per dehusked nut - PhP

Operating days per year - 250

Selling price of products:

Virgin Coconut Oil - PhP

Residual Virgin Coco Oil - PhP

Afla-free Dried Cocomeal - PhP

Medium fat Bukayo - PhP

2.50 per pc. (US $

80.00 per liter (US SI.60)

70.00 per liter (US $1.40)

3.00 per kg (US $0.06)

14.00 per 227 g. pack (US $0.28)

- based on 7 days inventory of raw material and

Working Capital packaging, 1 month salary of plant personnel

and 7 days finished goods inventory

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Table 3: Summary of Cost Computations and Comparative Profitability Assessment

Case 1 Case 2 Case 3

T y p e o f p r o d u c t V i r g i n C o c o

O i l

V i r g i n C o c o O i l

R e s . V i r g i n C o c o O i l

D r ie d C o c o m e a l

V i r g i n C o c o O i l

R e s . V i r g i n C o c o O i l

D r ie d C o c o m e a l

M e d . F a t B u k a y o

N u ts p r o c e s s e d p e r d a y 5 0 0 5 3 0 5 5 9 ( 3 x a w e e k )

5 3 0 ( 2 x a w e e k )

T o t a l I n v e s tm e n t 8 ,1 2 0 8 ,8 7 1 1 0 ,8 3 8

F ix e d C a p i t a l I n v e s tm e n t 7 ,1 8 0 7 ,7 8 0 9 ,4 9 2

W o r k in g C a p i t a l & P r e - o p 9 4 0 1 ,0 9 1 1 ,3 4 6

T o t a l R e v e n u e /S a le s 1 4 ,1 6 3 1 9 .3 4 1 2 5 ,7 2 7

T o t a l P r o d u c t io n C o s t 1 2 ,6 1 9 1 4 ,5 0 7 1 8 ,4 2 3

T o t a l O v e r h e a d 3 ,4 9 7 3 ,8 4 0 4 .3 2 7

R a w M a t e r ia l 6 , 2 5 0 6 ,6 2 8 8 ,1 9 3

P a c k a g in g 4 3 3 6 1 4 1 ,5 7 6

D i r e c t L a b o r 2 ,4 0 0 3 ,3 8 4 4 ,2 8 4

L i g h t a n d P o w e r 3 9 41 4 3

G r o s s P r o f i t 1 ,5 4 4 4 ,8 3 4 7 ,3 0 3

A d m . & M a r k e t in g C o s t

( 2 % o f g r o s s s a le s )

2 8 3 3 8 7 5 1 5

N e t P r o f i t ( b e fo r e ta x e s ) 1 ,2 6 1 4 ,4 4 7 6 ,7 8 9

In c o m e T a x

( 3 5 % o f N e t P r o f i t )

4 4 1 1 ,5 5 7 2 ,3 7 6

N e t P r o f i t a f t e r ta x e s 8 1 9 2 ,8 9 1 4 ,4 1 3

R e t u r n o n In v e s tm e n t ( R O I ) 10.09 % 32.59 % 1 40.71%

Table 4: Effect of Raw Material Cost on ROI at Constant Selling Price of Virgin CNO

Price of Coconut ( per 100 pcs)

% Return on Investment (ROI)Case 1 Case 2 Case 3

A. Selling price of virgin coconut oil @ Php 80/liter (US$1.60 per liter)

PhP 200 (US $4.00) 20.27 42.66 49.27PhP 250 (US $5.00) 10.09 32.59 40.71PhP 300 (US $6.00) 0.08 22.68 32.28A.Selling price of virgin

coconut oil@Php 90/liter (US$1.80 per liter)

PhP 200 (US $ 4.00) 33.98 55.20 59.52PhP 250 (US $5.00) 23.68 45.03 50.89

PhP 300 (US $6.00) 13.56 35.02 42.39Note : All computations are made using Microsoft Excel spreadsheet. Slight discrepancies might occur in some figures due to rounding off o f numbers.

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It can be clearly seen from the tables that there is a big increase in the ROI values from Case 1 (single product) to Case 2 (three products where the by-product coconut milk residue is further processed). With the addition of another product (bukayo) in Case 3, profitability also increased but not as big as that between Case l and Case 2. This can be attributed to the fact that with the inclusion of bukayo in the product line, a much bigger investment was made in terms of additional working area and additional fixtures like molding table and packaging table. Likewise, in the processing of bukayo, an additional raw material (sugar) is needed which could also be very sensitive to price fluctuations. Looking at Table 4, one can say that the profitability of the operation is very sensitive to the changes in the cost of coconuts per piece. Hence, selection of the project site with proximity to raw material sources should also be a very prime consideration.

7. Final Remarks

The coconut processing module concept working on the principles of a) maximization of raw material use through further processing of generated by-products; b) maximization of time through proper production scheduling and c) maximization of equipment utilization through the use of multi-functional equipment for greater flexibility in product processing are the good strategies to adopt in improving the profitability and enhancing sustainability of micro and village scale enterprises.

The choice of products to be processed in a coconut processing module should always be guided by the market demand and the value of the product (i.e. which product will bring the biggest profit to the enterprise ). This should be properly backed-up by sufficient coconut supply that will match the appropriate scale of production and the adoption of suitable processing technologies and equipment.

Micro and village scale extraction of coconut oil from fresh coconuts will be a profitable venture if the product will be processed and sold as virgin coconut oil instead of ordinary cooking oil.

The fast developing and high value niche market for virgin coconut oil offers a good prospect for the improvement of the life of the farmer. Inasmuch as virgin coconut oil can also be produced on a micro and village scale of operation, it creates a situation where coconut farmers can directly participate and get a bigger share of the profit of the industry instead of being a mere producer of copra. This is already being enjoyed by a group of coconut farmers in the Philippines who produce virgin coconut oil to a company which exports the product to the United States.

8. Acknowledgment

Heartfelt gratitude and thanks are extended to the God Almighty, for providing the author with the inspiration to write the paper and good health to be able to participate in the XXXX COCOTECH Meeting,; to Dr. P. Rethinam, Executive Director, Asian and Pacific Coconut Community (APCC) for accepting the paper for presentation and providing funding for the trip; to Mr. Danilo M. Coronacion, Administrator, Philippine Coconut Authority (PCA) for giving me the permission to travel to Sri Lanka , to Mr. Carlos B. Carpio, PCA Deputy Administrator for Research, Development and Extension for the support and recommendation of the paper to APCC and last but not least, to Mrs. Dina B. Masa, Manager, PCA Product Development Department for providing insights on coconut food processing technologies being applied in the micro and village scale enterprises and for allowing the use of pictures from the department files to enhance paper presentation.

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