Improving the Investment Climate in Emerging Nontraditional Coconut Products
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Technical Report Improving the Investment Climate in Emerging Nontraditional Coconut Products By Simplicio L. Endaya (Team Leader), Pablito M. Villegas, Teresita M. Espino, Ildefonso A. Tallada, and Romulo R. Mesias Prepared for Gov. Consuelo S. Perez Board of Investments Department of Trade & Industry Republic of the Philippines Submitted for review to USAID/Philippines OEDG May 2006 Economic Modernization through Efficient Reforms and Governance Enhancement (EMERGE) Unit 2003, 139 Corporate Center, 139 Valero St., Salcedo Village, Makati City 1227, Philippines Tel. No. (632) 752 0881 Fax No. (632) 752 2225 Preface This report is the result of the technical assistance provided by the Economic Modernization through Efficient Reforms and Governance Enhancement (EMERGE) Activity, under contract with the CARANA Corporation, Nathan Associates, Inc., and The Peoples Group (TRG) to the United States for International Development, Manila, Philippines (USAID/Philippines) (Contract No. AFP-I-00-00-03-00020 Delivery Order 800). The EMERGE Activity is intended to contribute towards the Government of the Republic of the Philippines (GRP) Medium Term Philippine Development Plan (MTPDP) and USAID/Philippines’ Strategic Objective 2, “Investment Climate Less Constrained by Corruption and Poor Governance.” The purpose of the activity is to provide technical assistance to support economic policy reforms that will cause sustainable economic growth and enhance the competitiveness of the Philippine economy by augmenting the efforts of Philippine pro-reform partners and stakeholders. This diagnostic study on emerging coconut products was prepared by a team composed of Simplicio Endaya; Study Team Leader; Pablito Villegas, Coconut Industry and Value Chain Specialist; Teresita Espino, Functional Food Products Specialist; Romulo Mesias, Industrial Products Specialist; and Ildefonso Tallada, Agricultural Products Specialist. They were assisted by their respective research assistants, namely: Lourdes Noveno, Elena Patambang, Ronnie Violanta, Arsenia Sapin, Jennifer Feliciano, and Gerard Feliciano. Final editing of the report was done by Ms. Sheila V. Siar. On 21 April 2005, Board of Investments (BOI) Governor Consuelo S. Perez requested the EMERGE project to provide technical assistance to the BOI in the preparation of a diagnostic study on the investment climate of emerging nontraditional coconut-based products. The main objective was to identify the policy-related transaction costs and risks associated with investments in the industry and find out how these can be reduced in order to improve the investment climate. This approach is a departure from the traditional, costly investment promotion programs based on fiscal incentives. The groups of coconut-based products identified in this diagnostic study (functional coconut food products – virgin coconut oil and its component by-products; industrial products – coconut shell charcoal and activated carbon, and cochin oil and coco methyl esther; and agro-industrial products – coir and coir products) have been named as emerging coconut products to distinguish them from the nontraditional product groups’ classification. The study team utilized the following methodologies and technical approaches in the conduct of this diagnostic study: review of literature; Porter’s value chain analysis and clustering model; interviews and focus group discussions; field visits of projects and operations in emerging coconut products; study team coordination meetings and modeling of investments; and two consultative dialogues with stakeholders. The team is hopeful that through this diagnostic study on the emerging coconut products, the coconut industry will finally get the support it has long deserved for the benefit first and foremost of the small coconut farmers, many of whom are still mired in deep poverty. The views expressed and opinions contained in this report are those of the authors and are not necessarily those of USAID, the GRP, EMERGE or the latter’s parent organizations. i Table of Contents CHAPTER 1. Improving the Investment Climate in Emerging Nontraditional Coconut-based Products: A Summary Report………………………………………. 1 Simplicio N. Endaya Introduction ………………………………………………………………………….. 2 The Phlippine Coconut Industry ……………………………………………………... 3 Estimation of the Potential Contribution of Investments in Emerging Coconut Products …………………………………………………………………….. 4 Supply/Value Chain Framework on Improving Investments in Emerging Coconut Products …………………………………………………………………….. 6 Industry and Investment Potential ……………………………………………………. 12 Policy Recommendations and Action Plan …………………………………………... 14 CHAPTER 2. Economic Contributions of Emerging Coconut Products …………. 31 Simplicio N. Endaya and Ma. Lourdes L. Noveno Abstract ………………………………………………………………………………. 32 Executive Summary ………………………………………………………………….. 33 The Philippine Coconut Industry …………………………………………………….. 35 Economic Contributions of the Coconut Industry …………………………………… 38 Prospects of Emerging Coconut-based Industries …………………………………… 44 Summary and Conclusion ……………………………………………………………. 54 References ……………………………………………………………………………. 55 CHAPTER 3. Investment Climate and Value Chain Analysis ……………………. 57 Pablito M. Villegas Abstract ………………………………………………………………………………. 58 Executive Summary ………………………………………………………………….. 59 Introduction …………………………………………………………………………... 63 The Value Added and Value Chain Concept ………………………………………… 64 Determinants of National Competitive Advantage and Investment Climate ………… 65 Investment Climate Indicators: Global Realities and Best Practices ………………… 69 Strengths and Weaknesses Analysis on the Supply and Value Added Chain ……….. 74 Opportunities and Threats (OTA) Analysis on the Supply and Value Added Chain ... 79 Overall SWOT Analysis of Value Chain of Emerging Coconut Products …………... 83 Value Added and Value Chain Analysis ……………………………………………... 84 Major Findings, Conclusions and Recommendations ………………………………... 90 Overall Synthesis and Solutions Framework ………………………………………… 96 Concluding Notes …………………………………………………………………….. 98 References ……………………………………………………………………………. 101 iii CHAPTER 4. Product Development, Challenges and Prospects: Functional Coconut Food Products ………………………………………………………………. 105 Teresita M. Espino, Ph.D. Abstract ………………………………………………………………………………. 106 Executive Summary ………………………………………………………………….. 107 Introduction …………………………………………………………………………... 110 Review of Related Literature ………………………………………………………… 111 Description of Products ………………………………………………………………. 135 Value Chain Analysis ………………………………………………………………… 141 Recommendations ……………………………………………………………………. 160 Appendices …………………………………………………………………………… 164 References ……………………………………………………………………………. 186 CHAPTER 5. Product Development, Challenges and Prospects: Industrial Coconut Products …………………………………………………………. 195 Romulo R. Mesias Abstract ………………………………………………………………………………. 196 Executive Summary ………………………………………………………………….. 197 Introduction …………………………………………………………………………... 201 Description of Products ………………………………………………………………. 201 Manufacturing Process ……………………………………………………………….. 204 Industry Profile ………………………………………………………………………. 211 Investment Outlook …………………………………………………………………... 213 Value Chain Analysis ………………………………………………………………… 214 Conclusions and Recommendations …………………………………………………. 221 Appendices ………………………………………………………………………….... 224 References ……………………………………………………………………………. 240 CHAPTER 6. Product Development, Challenges and Prospects: Agro-Industrial Coconut Products .……………………………………………………………………. 241 Ildefonso A. Tallada Abstract …..…………………………………………………………………………... 242 Executive Summary ………………………………………………………………….. 243 Introduction …………………………………………………………………………... 245 Manufacturing Process ……………………………………………………………….. 245 Industry Profile ………………………………………………………………………. 252 Investment Outlook …………………………………………………………………... 263 Value Chain Analysis ………………………………………………………………… 264 Conclusions and Recommendations …………………………………………………. 270 Appendix ……………………………………………………………………………... 272 References ……………………………………………………………………………. 273 ANNEX A. The Coconut Stakeholders’ Consultative Dialogues ………………… 275 ABOUT THE AUTHORS .…………………………………………………………... 291 iv List of Tables CHAPTER 1 Table 1.1 Improving the Investment Climate: Stakeholder’s Action Plan 2006-2010 17 CHAPTER 2 Table 2.1 Major coconut-producing areas in the world: production and yield ……... 35 Table 2.2 Profile of the coconut manufacturing sector, 2004 ………………………. 37 Table 2.3 Share to total agricultural gross value added (in %) ……………………... 38 Table 2.4 Average growth rates in current gross value added (in %) ………………. 39 Table 2.5 Prices received by coconut growers in various countries (in US$ per MT) 40 Table 2.6 Exports of nontraditional coconut products, FOB in US$’000 …………... 42 Table 2.7 Indicative prices, 2004 (in PhP per MT) …………………………………. 43 Table 2.8. Table of conversion for emerging coconut products …………………….. 45 Table 2.9 Computation of foregone revenues based on actual total coconut production in 2004 ……………………………………………………….. 48 Table 2.10 Monthly production and annual production of VCO (MT) ……………… 48 Table 2.11 Capability (MT/year) and share of VCO production of Luzon, Visayas, and Mindanao …………………………………………………………….. 49 Table 2.12 Virgin coconut oil: annual export performance …………………………. 50 Table 2.13 World exports of coconut shell-activated carbon by selected countries, in MT, 1999 -2003 ……………………………………………………….. 51 Table 2.14 Philippine CME annual demand at different rates of incorporation …….. 54 CHAPTER 3 Table 3.1 Government policies and behaviors vis-à-vis investment