Journal of Economics, Management & Agricultural Development Vol. 5, No. 1 37

Comparative Analysis of Value Chains of Virgin Coconut Oil in Quezon and Laguna, Philippines

Trisha Jasmin DM. Cañeda1 and Bates M. Bathan2

Abstract

The study compares the value chains of virgin coconut oil (VCO) in Quezon and Laguna. Respondents include 18 VCO processors, 44 coconut farmers, 5 coconut assembler -wholesalers, 1 VCO assembler-wholesaler, and 8 VCO retailers. Descriptive, profitability, value addition, and marketing efficiency analyses were done. The most efficient marketing channel was found in Quezon and this involved farmers and assembler - wholesalers of coconut, large-scale processor-cum-wholesaler-retailers of VCO who used the fresh-wet-cold-pressed-absolute-no-heat-disc-centrifuge separation method, and VCO consumers. The problems and constraints in the value chain were unstable prices of fresh and matured coconut, insufficient supply of coconut for VCO processing, low or varied quality of VCO, and difficulty in complying with the requirements of the Food and Drug Administration and Philippine National Standards for VCO. The study recommends adoption of productivity measures in coconut production, market arrangements between farmers and coconut buyers, use of fresh-wet-cold-pressed-absolute-no-heat-disc- centrifuge separation method in VCO processing, technical assistance to help processors comply with FDA and PNS requirements, and formation of a VCO cooperative in Laguna.

Keywords: virgin coconut oil, profitability, value addition, marketing efficiency

Introduction The coconut subsector is a major dollar earner and contributor to the Philippine economy, which is driven by exporting 40 types of coconut products (PCA 2013). The country contributes around 60% of the world’s coconut exports (Bautista 2012). Fresh coconut, copra, desiccated coconut, and coconut oil are the main exports of the Philippines. For the period 1990-2017, the country produced an average of 13.75 million metric tons (MT) of fresh coconut, planted in 68 provinces in the country, from an average area of 3.29 million hectares, with an average yield of 4.27 MT per hectare (PSA 2018). Delos Reyes et al. (2018) showed that the country's volume of coconut exports is positively related to local production and negatively related to the ratio of export price of the Philippines to Indonesia, the latter being the country's major competitor in the world market. According to Mayo (2005), coconut oil has been the most significant derivative from coconut trees. It is “naturally processed, chemically- free and additive-free product from fresh coconut meat or its derivative (coconut milk and coconut milk residue) which has not undergone any further chemical processing after extraction” (PCA 2005). Gaining much popularity due to its health benefits is a type of coconut oil called virgin coconut oil. Compared to ordinary coconut oil, also known as refined, bleached and deodorized (RBD) coconut oil, VCO is the “purest form of coconut oil, water white in color, contains natural Vitamin E and with very low free fatty acid content and low peroxide value” (PCA 2005).

1UP Rural High School, College of Arts and Sciences, University of the Philippines Los Baños (UPLB), College, Laguna 4031, Philippines, email: [email protected] (corresponding author) 2Department of Agricultural and Applied Economics (DAAE), College of Economics and Management (CEM), UPLB, College, Laguna, Philippines, email: [email protected]

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In both domestic and international markets, demand for VCO has been increasing together with organic and natural health products. It is used as “body oil or a substitute for moisturizing lotion, hair conditioner, carrier oil for aromatherapy and massage oil, and nutraceutical and functional food” (PCA 2014). In a UST-RCNAS study (2011) on the effects of VCO on cholesterol, it was found that VCO consumers have high amounts of good cholesterol making them less prone to having a heart attack or stroke (PCA 2014). VCO also has a high percentage of medium chain triglycerides which increases an individual’s metabolic rate. In addition, it has high lauric monolaurin content which is known for its antimicrobial, antiviral, and antifungal properties. Export demand for VCO has improved as the volume of exports increased by 71.84% between 2010 and 2012 (PCA 2013). Bawalan and Chapman (2006) proved that VCO production is also a profitable enterprise with a return on investment ranging from 54 to 182% under the natural fermentation method. In Region IV-A (CALABARZON), Quezon and Laguna are the top two coconut -producing provinces. For 1990-2017, the average coconut production in Quezon amounted to 1.13 million MT while Laguna only has an average production of 102,319 MT (PSA 2018). Coconut production in Quezon continues to increase by 1.53% annually while it decreases by 0.77% yearly in Laguna covering the same period (PSA 2018). This is the reason why VCO processors in Laguna also use matured coconuts coming from Quezon. VCO processing in Laguna is mostly a small scale operation and it produces lower quality oil vis-à-vis Quezon. VCO processors in Quezon have large scale operation, producing higher quality oil than that of Laguna. Hence, more consumers prefer VCO manufactured in Quezon than in Laguna. Nonetheless, there is a great potential for a Laguna-based VCO processor to improve the conduct of value-adding activities in VCO production and marketing based on the best practices employed within the province and also in Quezon. This study seeks to compare the value chains of virgin coconut oil in the two provinces. Specifically, it aims to describe the process flow of virgin coconut oil production, identify the key participants and support services in the value chain; describe the marketing channels for virgin coconut oil; analyze the profitability, value addition, and marketing efficiency within or of the chain; and identify the problems and constraints in the value chain.

Methodology Conceptual Framework The value chain of virgin coconut oil consists of the interplay among the value chain segments, value chain actors, support services, and local and global business environments (Figure 1). The value chain segment starts off with input supply where input suppliers provide farm inputs to coconut farmers. It is followed by production in which farmers produce, harvest and sell fresh and matured coconuts. Coconut traders such as assembler-wholesalers and wholesaler-retailers under the assembly segment sell coconuts to VCO processors while there are some farmers who directly sell their produce to the processors. Other inputs needed by the processors apart from coconut are sourced from other input suppliers. The processors perform processing until VCO is marketed to distributors or exporters. In the marketing segment, VCO is sold in the local market, particularly to institutional buyers and household consumers, and in the international market through the exporters. The value chain actors manage to perform their functions with the help of support services coming from the public and private sectors in the form of financial, research and development, education and training, Journal of Economics, Management & Agricultural Development Vol. 5, No. 1 39

and marketing and distribution services. They also operate within the local and/or global business environment in which they must adapt and be competitive.

Figure 1. Conceptual framework used in analyzing the value chain of virgin coconut oil

Sampling Procedure and Data The list of registered VCO processors in Laguna and Quezon was obtained from the Department of Agriculture – Philippine Coconut Authority (DA-PCA), and another list was generated from a field visit indicating the unregistered VCO processors in the two areas. A total of 18 VCO processors from San Pablo City and Nagcarlan in Laguna and Sariaya in Quezon were personally interviewed in 2016. Input-output, price, and cost data on VCO production and marketing, sources of raw materials, market outlets, and constraints in the VCO value chain were asked. From the processors, 44 coconut farmers and 5 assembler-wholesalers of coconut were sampled using backward tracing. Using forward tracing, 1 assembler-wholesaler and 8 retailers of VCO were sampled. Production and marketing data were obtained.

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Analytical Tools The process of VCO production; the marketing participants and their roles in the VCO value chain; the movement of fresh coconuts, mature coconuts, and VCO; the support services; and the constraints in the VCO value chain were described. Cost and return analysis was used to determine the level of profit at each level of the VCO value chain. Net revenue was computed by taking the difference between total revenue and total cost. To analyze profitability, profit margin ratio was derived by dividing net revenue by total revenue. Value chain analysis was employed by examining the value-added contributed by each marketing participant. Value-added of each participant is total revenue less the cost of intermediate inputs. The breakdown of consumer peso was computed to determine the respective shares of the marketing participants in the price paid by the end-users. The farmer’s share is the ratio of farmgate price to retail price multiplied by 100. The middleman’s share is the ratio of the marketing margin to retail price multiplied by 100. Marketing efficiency analysis was performed by determining the pricing and technical efficiency of the VCO value chain. For pricing efficiency, marketing margin was computed as the difference between the selling price and buying price in two stages of the VCO value chain. The most efficient participant is one that has the highest net revenue-to-total cost ratio. The marketing channel is said to be efficient if the percentage share of net return of each participant to the total net return of the entire chain is comparable to the percentage share of costs of each participant to the total cost of the entire chain. To determine technical efficiency, input-output relationships were determined. A marketing participant is technically efficient if a decrease in input could produce the same level or even greater quantity of output (ILRI 1995). In this study, VCO processors are said to be efficient if an alteration of high-cost equipment to low maintenance equipment or a reduction of fresh coconut and other inputs of production could still maintain the same level of VCO produced or even produce higher output. A marketing channel is said to be efficient if its VCO processors are technically efficient and that channel has posted the lowest amount of product losses.

Results and Discussion Process Flow of Virgin Coconut Oil Production There are two existing technologies in VCO production, namely, fresh-dry and fresh-wet process. The former is used “when VCO is obtained directly from fresh coconut meat and drying of fresh comminuted kernels is required before extracting the VCO” (PCA 2014). The latter is used “when VCO is obtained from coconut milk which is extracted either mechanically or manually, with or without the addition of water” (PCA 2014).

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There are three stages in VCO production. First is the pre-processing stage where fresh coconuts are procured and prepared for processing. Next is the processing stage where shells of fresh coconuts are removed to obtain coconut meat. To produce VCO, the fresh-dry and fresh-wet process can be employed. The fresh-wet process is commonly adopted in Quezon and Laguna. In particular, Quezon VCO processors use cold-pressed-absolute-no-heat natural separation method (i.e., cold-pressed-ANH natural separation method), cold-pressed-ANH-disc-centrifuge separation method, and cold-pressed traditional and heated method. Laguna VCO processors use cold- pressed-ANH-disc-centrifuge separation method and dry-expelling process-desiccated route method. Based on the interview of the VCO processor-respondents, an average of 12 matured coconuts yield one liter of VCO. Lastly, in the post-processing stage, additional procedures such as clarification and moisture reduction are done to ensure the production of high-quality VCO. The product is packaged in plastic bottles or glass jars for sale to consumers.

Key Participants in the VCO Value Chain The key participants involved in the value chain of virgin coconut oil in Quezon include coconut farmers, assembler-wholesalers of coconut, VCO processors, VCO processor-cum-wholesaler-retailers, VCO assembler-wholesalers, VCO retailers, and VCO consumers. This chain involved more marketing participants than the VCO value chain in Laguna comprising of coconut farmers, assembler-wholesalers of coconut, VCO processors, VCO retailers, and VCO consumers. Thirty-two coconut farmer respondents were from Quezon and 12 farmers were from Laguna. Assembler-wholesalers of coconut were both present in the two value chains, three from Quezon and two from Laguna. Eighteen VCO processors were interviewed - 16 from Quezon and 2 from Laguna. Of the 16 Quezon VCO processors, 13 were classified as small scale and three were categorized as large scale. Laguna processors consisted of one small-scale and one large-scale. Small-scale VCO processing produced less than or equal to 20,000 liters of VCO per year while large- scale processing produced greater than 20,000 liters. In Quezon, 93% of the small- scale VCO processors used the cold-pressed traditional and heated method while 7% used the cold-pressed-ANH natural separation method. For large-scale VCO processors in Quezon, two used the cold-pressed traditional and heated method while one used the cold-pressed-ANH natural separation method, and another one used the cold-pressed ANH-disc centrifuge method. In Laguna, the small-scale VCO processor used the cold-pressed-ANH-disc-centrifuge separation method while the large-scale processor used the dry-expelling process-desiccated route method. Of the 18 VCO processors interviewed, two large-scale processors in Quezon and one small-scale processor in Laguna performed wholesaling and retailing of VCO. They sold their processed VCO directly to either retailers or end consumers. There is also a VCO assembler-wholesaler in Quezon who bought from processors and sold to retailers. VCO retailers reported once to twice a month purchase of VCO from processors or wholesalers. VCO consumers, who are at the end of the value chain, bought directly from either VCO processors or VCO retailers.

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Marketing Channels of Virgin Coconut Oil There were six marketing channels identified. The shortest channel in Quezon involved coconut farmers, assembler-wholesalers of coconut, VCO processor-cum- wholesaler-retailers, and VCO consumers (Figure 3a.1). The longest channel involved coconut farmers, assembler-wholesalers of coconut, VCO processors, VCO assembler -wholesaler, VCO retailers, and VCO consumers (Figure 3b). In Laguna, the shorter channel included coconut farmers, assembler-wholesalers of coconut, VCO processors, and VCO consumers (Figure 4a). The longer channel included coconut farmers, assembler-wholesalers of coconut, VCO processor-cum-wholesaler-retailers, VCO retailers, and VCO consumers (Figure 4b).

Figure 3a.1. Marketing channel (F-AWC-PCWR-C), marketing margin, and consumer peso distribution of large-scale processors, Quezon

Figure 3a.2. Marketing channel (F-AWC-PCWR-R-C), marketing margin, and consumer peso distribution of large-scale processors, Quezon

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Figure 3a.3. Marketing channel (F-AWC-P-R-C), marketing margin, and consumer peso distribution of large-scale processors, Quezon

Figure 3b. Marketing channel (F-AWC-P-AWVCO-R-C), marketing margin, and consumer peso distribution of small-scale processors, Quezon

Figure 4a. Marketing channel (F-AWC-P-C), marketing margin, and con- sumer peso distribution of large-scale processor, Laguna 44 Cañeda and Bathan

Figure 4b. Marketing channel (F-AWC-PCWR-R-C), marketing margin, and consumer peso distribution of small-scale processor, Laguna

Figure 5a shows the domestic geographical flow of matured coconuts and VCO in Quezon and Laguna. The 32 farmer-respondents in Quezon produced 29,420 kilograms of matured coconuts in 2016; it was 11,960 kilograms for the 12 farmer- respondents in Laguna. Since the local supply is not enough to meet the demand of traders in Quezon, assembler-wholesalers in Marinduque provided 1,200,000 kilograms of coconut to the province. Quezon is a major source of coconuts for Laguna where 696,040 kilograms of coconut was sold to the province. Coconut produced in Laguna was only sold within the province. In terms of VCO production, the 16 Quezon processor-respondents produced 116,581 liters, the bulk of which was sold abroad (76,899 liters); the rest to Metro Manila (19,725 liters) and within the province (12,000 liters). The major export destinations for Quezon VCO in 2016 are the Republic of Korea, Singapore, and the United States (Figure 5b). The two Laguna VCO processors produced 69,130 liters, mostly sold abroad (52,413 liters) with the rest to Metro Manila (10,466 liters). The only international market for Laguna VCO is the Republic of Korea (Figure 5b). In terms of total losses, Quezon posted 7,957 liters of VCO while Laguna had 6,126 liters of VCO. Although Quezon had higher total losses than Laguna, the latter registered a higher percentage of losses over total VCO production amounting to 8.86% compared to the former with 6.83%. This could be due to the higher proportion of VCO produced in Laguna being sold outside the province (90.96%) as compared to that of Quezon (88.95%) (Figure 5a). As VCO was marketed farther from the processing site, higher losses were incurred.

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Figure 5a. Domestic geographical flow of matured coconut and VCO, Laguna and Quezon, 2016

Figure 5b. International geographical flow of VCO, Laguna and Quezon, 2016

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Profitability and Value Addition Coconut farmers in Quezon had a higher net return than the farmers in Laguna (Table 1). The difference was due to the other by-products sold. The higher cost of labor, fuel, and toll fees incurred by Laguna assembler-wholesalers of coconut resulted in their lower net return as compared to Quezon assembler-wholesalers of coconut. Laguna assembler-wholesalers of coconut had lower profit than those in Quezon. In the case of VCO processors, large-scale processors in Quezon had higher net return and profitability than the large-scale processor in Laguna. The difference of PhP 259.02 per liter of VCO in net return is due to better quality of VCO produced by large-scale processors in Quezon, thus commanding a higher price. On the contrary, the small-scale processor in Laguna had higher net return and profitability than the small-scale processors in Quezon due to the varying containers used by Laguna small- scale processor, namely, bottles and carboys. An assembler-wholesaler of VCO in Quezon was able to generate a net return of PhP 64.65 per liter of VCO and a profit margin ratio of PhP 0.20 per liter of VCO. The VCO processors in Quezon who were also engaged in wholesaling and retailing had a higher net return and profit margin ratio than the VCO processor-cum-wholesaler-retailer in Laguna. Lastly, the VCO retailers in Quezon had a higher net return and profit margin ratio than the VCO retailers in Laguna. The marketing participants engaged in VCO wholesaling and retailing in Laguna incurred higher cost mainly due to the higher price of VCO traded, hence, they posted lower net return compared to Quezon. At each level of the VCO value chain, value-adding activities were performed. Coconut farmers in Channel 1 in Quezon and Channel 2 in Laguna obtained the highest value-added among the coconut farmers in their respective VCO value chains (Table 2). Furthermore, assembler-wholesalers of coconut in Channel 2 in Laguna obtained a higher value-added as compared to Channel 1 in the same province. This is due to the conduct of de-husking. On the other hand, coconut assembler-wholesalers in Channel 3 in Quezon had a higher value-added as compared to Channel 4 in the same province as the latter performed transportation only. Among VCO processors in Quezon, Channel 3 had higher value-added than Channel 4 as the latter did not perform packaging and labeling. It was only in Quezon where there is an assembler- wholesaler of VCO and this actor generated a value-added of PhP 5.28 per kilogram of matured coconut. Between the VCO processor-cum-wholesaler-retailers in Quezon and Laguna, the latter had a higher value-added since transportation was also performed. Among VCO retailers in Quezon, Channel 2 had a higher value-added than Channel 4 since the latter did not perform packaging and labeling.

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Table 1. Total revenue, total cost, net return, and profit margin ratio (PhP/liter VCO) of marketing participants, Quezon and Laguna

Province/ Marketing Total Total Cost Net Return Profit Margin

Quezon Coconut farmers 208.8 2.48 202.32 0.97 Coconut assembler- wholesalers 141.96 132.36 21.6 0.15 VCO processors Large-scale 503.32 69.57 433.75 0.86 Small-scale 183.58 69.8 113.78 0.62 VCO assembler- wholesaler 320 255.35 64.65 0.20 VCO processor-cum- wholesaler-retailers 659.08 85.41 573.67 0.87 VCO retailers 560.83 334.65 226.18 0.40 Laguna Coconut farmers 98 1.06 96.95 0.99 Coconut assembler- wholesalers 162 140.64 21.36 0.13 VCO processor (large scale) 270.68 95.95 174.73 0.65

VCO processor-cum- wholesaler-retailer (small 340 65.64 274.35 0.81 VCO retailers 570 421.25 148.75 0.26

Table 2. Value added of the different marketing participants in VCO value chains, Quezon and Laguna, 2016

Province/ Marketing Participant (PhP/kg of matured coconut) Marketing Coconut Coconut VCO VCO VCO VCO P-W-R Channel Farmer A/W Processor A/W Retailer Quezon Channel 1 (Fig. 3a.1) 7.53 4.09 - - 2.75 - Channel 2 (Fig 3a.2) 7.46 3.96 - - 2.75 28.9 Channel 3 (Fig 3a.3) 7.01 6.09 7.56 - - 26.74 Channel 4 (Fig. 3b) 7.01 3.91 2.12 5.28 - 14.9 Laguna Channel 1 (Fig. 4a) 6.26 2.78 5.68 - - - Channel 2 (Fig. 4b) 7.26 4.62 - - 10.18 17.56

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Support Services in the VCO Value Chain Support services were provided to the various marketing participants of the VCO value chain in Quezon and Laguna. Large-scale VCO processors had access to higher amounts of credit from universal banks such as BDO and Bank of the Philippine Islands (BPI) while small-scale processors were limited to the credit provided by the Land Bank of the Philippines, Inc., CARD Bank, cooperatives, and informal lenders. This explains why large-scale VCO processors could perform more or better value-adding activities than small-scale processors. Several institutions such as the DA-PCA, Department of Science and Technology (DOST), University of the Philippines Los Baños (UPLB), and University of Santo Tomas (UST) were cited as providers of technologies and seminars/trainings on coconut production and VCO processing. Based on the farmer- and processor-respondents, however, DA-PCA only catered to large-scale processors. The small-scale processor-respondents were also found to be uninformed of some of the seminars/trainings provided by DA-PCA. In terms of assistance in marketing and distribution, DA-PCA is currently conducting a study of forming a VCO cooperative.

Marketing Efficiency The most price efficient coconut farmers are from Channel 2 in Laguna with a net return-to-total cost ratio equivalent to 4.64 in terms of matured coconut. They only sold matured coconuts which implies that coconut farmers who were engaged into selling of by-products must still lower their total cost to gain a higher ratio and improve their efficiency. The most price efficient assembler-wholesalers of coconut are from Channel 2 in Quezon with a ratio equivalent to 1.83 in terms of matured coconut. They managed to conduct de-husking, nut selection, and transportation most efficiently vis-à-vis other assembler-wholesalers of coconut. The VCO assembler- wholesaler in Quezon was also inefficient as the net return-to-total cost ratio was less than one (0.76). The large-scale VCO processor-cum-wholesaler-retailers in Channel 3 in Quezon were the most price efficient with a ratio of 9.93 in terms of VCO. They used the fresh-wet-cold-pressed-ANH-disc-centrifuge separation method and fresh- wet-cold-pressed-traditional and heated method. For Laguna VCO processors, the small-scale processor from Channel 2 who used the fresh-wet-cold-pressed-ANH-disc -centrifuge separation method was more price efficient with a ratio of 5.25 as compared to the large-scale processor from Channel 1 who used the dry-expelling process-desiccated route method with a ratio of 1.87. Among VCO retailers, the most efficient retailers came from Channel 2 in Laguna with a ratio of 3.68 in terms of VCO. The breakdown of consumer’s peso revealed that assembler-wholesalers of coconuts in Quezon had the lowest shares in the retail price of VCO followed by the coconut farmers (Figures 3a.1 to 3a.3). Marketing participants who were engaged in VCO retailing had the highest shares in the retail price of VCO. In the case of Laguna, VCO retailers in Channel 2 and coconut farmers in Channel 1 had the lowest shares in the retail price of VCO (Figures 4a and 4b). Lastly, VCO processor-cum- wholesaler-retailers of Channels 1 and 2 in Quezon (Figures 3a.1 and 3a.2) and Channels 1 and 2 in Laguna (Figures 4a and 4b) had the highest shares in the retail price of VCO and this reflects the value-adding activities performed by these marketing participants and the returns for performing these activities.

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In terms of pricing efficiency of the marketing channels in both provinces, Channel 1 was the most efficient. These two channels were the shortest channels with closest values of the share of net return of each participant to the total net return of the entire chain and the share of costs of each participant to the total cost of the entire chain. In terms of technical efficiency of the VCO processors by scale of operation, Quezon large-scale processors were more technically efficient than the large-scale processor in Laguna (Table 3). On the contrary, the small-scale processor in Laguna was more technically efficient than Quezon small-scale processors. Table 3. Input-output comparison of matured coconut used and VCO produced, by province and scale of operation, 2016

Province/ Matured Coconut Input (kg) VCO Output (liters) Scale of Operation Quezon Large-scale 1,000 150 Small scale 1,000 90 Laguna Large-scale 1,000 120 Small scale 1,000 100

By type of technology used, Quezon large-scale VCO processors who adopted the fresh-wet-cold-pressed-absolute-no-heat-disc-centrifuge separation method were more technically efficient than those who used the fresh-wet-cold-pressed traditional and heated method. Given the same amount of input, the fresh-wet-cold-pressed- ANH-disc-centrifuge separation method could produce twice as much as that of the fresh-wet-cold-pressed traditional method (Table 4). However, there was no significant difference in the technical efficiency of Quezon small-scale VCO processors who used either technology. Furthermore, small-scale VCO processors in Quezon were more efficient in using the fresh-wet-cold-pressed-ANH-disc-centrifuge method than the small-scale VCO processor in Laguna. Table 4. Input-output comparison of matured coconut used and VCO produced by scale of operation and technology, Quezon and Laguna, 2016 VCO Output (liters) Matured Coconut Quezon Laguna Technology Input (kg) Large- Small- Large- Small-Scale Scale Scale Scale

ANH-DCSa 1,000 180 130 - 110 THb 1,000 90 130 - - a fresh-wet-cold-pressed-absolute-no-heat-disc-centrifuge separation method b fresh-wet-cold-pressed traditional and heated method

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Overall, the most efficient marketing channel was found in Quezon, given that it posted lower VCO losses compared to Laguna. Specifically, it involved the most price and technically efficient Channel 1 with coconut farmers, assembler- wholesalers of coconut, and large-scale VCO processor-cum-wholesaler-retailers who used the fresh-wet-cold-pressed-absolute-no-heat-disc-centrifuge separation method, and VCO consumers as market participants.

Problems and Constraints in the VCO Value Chain Unstable Prices of Fresh and Matured Coconut

According to the farmer-respondents, their decision on whether to do an early harvest or to wait for coconuts to mature was guided by the prices of fresh and matured coconut. Due to fluctuating prices, farmers faced difficulty in making decisions. Some coconut farmers were forced to harvest early to be able to pay their debts or to satisfy their immediate cash needs. The absence of contracts or agreements with buyers added up to this market risk. The assembler-wholesaler- respondents also cited the fluctuating price of matured coconut, in addition to rising fuel prices, as a problem affecting their buying and selling operations with farmers and VCO processors, respectively. Insufficient Supply of Coconut for VCO Processing

Large-scale processors could not meet the total volume requirements of VCO importers from the United States, Republic of Korea, and Singapore due to the insufficient supply of coconut in the two areas. Large-scale processors of VCO in Quezon bought raw materials from assembler-wholesalers, whose supply comes from the province and Marinduque. Local VCO retailers also complained about the inadequate supply of VCO, which is connected to the problem of insufficient supply of coconut used as raw material for VCO processing. Low or Varied Quality of VCO

The low quality of VCO produced by some small-scale processors had led to buyers’ rejection of their product. For the VCO assembler-wholesaler-respondent, the lack of uniform quality in the VCO sold by different small-scale processors posed a challenge in marketing the product to various VCO retailers. Such quality difference was due to the varying quality of coconuts used in processing as well as the contrasting processing site conditions and operations. Difficulty in Complying with FDA and VCO-PNS Requirements

This was reported by small-scale VCO processors. The FDA requirements include the following: notarized letter of application from the manufacturer, exporter or distributor; documents of the product and its specification, including physicochemical and microbiological characteristics; certificate of accreditation and registration; sample of the product in commercial presentation; labels and labeling materials used; certificate of analysis; flow diagram of method of manufacture, packaging and quality control; packaging certification; estimated shelf life with the parameters and methods used; and registration fee of PhP 2,000 valid for two years upon approval.

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The VCO-PNS include the following: essential composition and quality factors of VCO, namely, identity characteristic (i.e., fatty acid composition); quality characteristics (i.e., color, odor, taste, moisture content, matter volatile at 120 degrees Celsius, free fatty acids, peroxide value, and absence of food additives); allowable levels of heavy metal contaminants; and hygiene which involves the absence of Escherichia coli and Salmonella and total aerobic microbial count and combined molds and yeasts not exceeding 10 cfu per ml. Other provisions of PNS include packaging in suitable and food grade container that can withstand transportation, handling and storage conditions; labeling which should contain the name of the product, brand or trade name, net content, lot identification, name and address of the manufacturer and/or packer or distributor, the phrase “Product of the Philippines”; types of process such as traditional process (latik), fermentation with heat or without heat, centrifuge process, expelling process with or without cooling system, or equivalent process; date manufactured and best before; and BFAD (now FDA) registration number and bar code which is optional (DTI 2007).

Conclusion and Recommendations Quezon serves as a major supplier of matured coconuts for both Quezon and Laguna VCO value chains. There is a more complex marketing channel in Quezon with coconut farmers, assembler-wholesalers of coconut, VCO processors, VCO processor-cum-wholesaler-retailers, VCO assembler-wholesalers, VCO retailers, and VCO consumers as value chain actors. Among the processing technologies adopted in Quezon and Laguna, the fresh-wet-cold-pressed-absolute-no-heat-disc-centrifuge sep- aration method yielded the highest net return-to-total cost ratio and technical effi- ciency. Coconut assembler-wholesalers, large-scale VCO processors, VCO processor- cum-wholesaler-retailers, and VCO retailers in Quezon showed higher profitability than their counterparts in Laguna. However, the small-scale processor-cum- wholesaler-retailer in Laguna posted higher profitability in their operations than the small-scale processors in Quezon since the former also acted as a retailer taking advantage of the earnings from selling different sizes of VCO. The value-adding activities were de-husking for coconut farmers and assembler-wholesalers; nut selection and transportation for coconut assembler-wholesalers; nut selection, splitting, grating, pressing, boiling and filtration, packaging, and labeling of VCO containers for processors; transportation for VCO processor-cum-wholesaler-retailers; and packaging, labeling, and transportation of VCO for retailers. Support services in the form of financing, research and development, education and training, and marketing and distribution have been helpful for some marketing participants, particularly for large-scale processors. The most efficient marketing channel was found in Quezon and this involved coconut farmers, assembler-wholesalers of coconut, large-scale VCO processor-cum-wholesaler-retailers who used the fresh-wet -cold-pressed-absolute-no-heat-disc-centrifuge separation method, and VCO consumers.

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The problems and constraints in the VCO value chain are unstable prices of fresh and matured coconut, insufficient supply of coconut for VCO processing, low or varied quality of VCO, and difficulty of complying with FDA and PNS requirements.

The following courses of action are recommended:

1) Adoption of productivity measures in coconut production to increase the supply of raw materials for VCO processing. PCA (n.d.) recommends practical and efficient farming technologies (PEFT) which include fertilization using sodium chloride and multi-nutrient fertilizer (i.e., N-P-K- CI-S-B). Mykovam, a fungi-based biofertilizer, can be used as a growth enhancer for coconut (Dela Cruz 2012). The use of dwarf female parents to produce coconut hybrids of dwarf and tall varieties is recommended to replace standing senile trees for the (Javier 2017).

2) Formal contracts or other forms of marketing arrangements between farmers and coconut buyers including VCO processors or assembler- wholesalers of coconut. This is to reduce the price and market risks faced by the value chain participants.

3) Adoption of fresh-wet-cold-pressed-ANH-disc-centrifuge separation method. A VCO manufacturer called Koko Oil (2017) affirms that this method creates the highest quality of VCO and cites the following advantages: raw and pure, retains all nutrients and anti-oxidants, best quality of coconut oil with natural taste and aroma, longer shelf-life, and centrifuge system is associated with quality control standard due to its high investment cost. This will also help achieve uniform quality for VCO produced by the processors.

4) Technical assistance towards compliance with FDA requirements and PNS. The small-scale VCO processors require assistance as first-time applicants. DA-PCA, Department of Trade and Industry (DTI), and DOST can assist processors in meeting the required certificates of analysis (e.g., microbial tests) and packaging.

5) Formation of a cooperative as conduit for VCO development services. The cooperative could also improve the capability of processors to enter new markets that require volume and standard quality.

References Philippine Statistics Authority. 2018. Production and Area Harvested of Coconut in the Philippines, Quezon and Laguna. Retrieved from http://www.bas.gov.ph. Bautista, K. A. 2012. “Trade Impact of Sanitary and Phytosanitary Measures of Philippine Coconut Oil Exports 1986-2009.” BS thesis, Department of Agricultural Economics, College of Economics and Management, University of the Philippines Los Baños.

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Bawalan, D. D. and K. R. Chapman. 2006. “Virgin Coconut Oil production manual for micro- and village-scale processing”. FAO Regional Office for Asia and the Pacific, Bangkok. Retrieved from http://www.fao.org/3/a-bt726e.pdf. Dela Cruz, R. T. 2012. “Mykovam: Effective Growth Enhancer for Coconut.” Department of Agriculture – Bureau of Agricultural Research (BAR) Chronicle Vol. 13, No. 2, February 2012. Retrieved from https://bar.gov.ph/index.php/test- archive/17-february-2012-issue/138-mykovam-effective-growth-enhancer-for- coconut. Delos Reyes, J. A., B. M. Bathan, J. DC. Moreto, and J. S. Reyes. 2018. “Determinants of Philippine Prawn and Coconut Oil Exports”. International Academy of Global Business and Trade 14(1), pp. 57-67. Department of Trade and Industry – Bureau of Product Standards. 2007. “Philippine National Standard for Virgin Coconut Oil.” PNS/BAFPS 22:2007 – ICS 67.200.10. International Livestock Research Institute. 1995. “Livestock Policy Analysis.” ILRI Training Manual 2. ILRI, Nairobi, Kenya. pp. 264. Retrieved from http:// www.fao.org/ wairdocs/ilri/x5547e/x5547e1a.htm Javier, E. Q. 2017. “Hybrids for long-term productivity and competitiveness of the coconut industry.” Manila Bulletin. Retrieved from https:// business.mb.com.ph/2017/07/29/hybrids-for-long-term-productivity-and- competitiveness-of-the-coconut-industry/. Koko Oil. 2017. “Why Choose Cold Pressed Centrifuged Raw Virgin Coconut Oil”. https://koko.ph/why-cold-pressed-centrifuged-raw-virgin-coconut-oil. Mayo, J. H. 2005. “Market Potential of Virgin Coconut Oil in Metro Manila, 2004.” BS thesis, Department of Agricultural Economics, College of Economics and Management, University of the Philippines Los Baños. Philippine Coconut Authority. 2005. “Frequently Asked Questions on Virgin Coconut Oil.” Retrieved from http://pca.da.gov.ph/pdf/techno/vco_faq.pdf. ___. 2013. “Outlook for the Coconut Industry.” Retrieved from http:// www.philexport.ph/c/ document_library/get_file?uuid=fb6d1043-340d-4050- b81e-3f08215b39bb&groupId=127524. ___. 2013. “Coconut Processing Technologies -Virgin Coconut Oil Processing.” Food Product Development Division, Research and Development Branch, PCA. FPDD Guide No. 3 – Series of 2014. Retrieved from http://pca.da.gov.ph/pdf/ techno/virgin_coconut_oil.pdf. ___. n.d. “Coconut Industry Production Status, Growing Zones, Productivity and Potential to Increase Nut Supply in Coconut Farms through Practice and Efficient Farming Technologies.” Retrieved from http://www.pca.da.gov.ph/ coconutrde/images/gen8.pdf.