SELECTED EXPERIENCES OF APPROPRIATE TECHNOLOGY INTERNATIONAL AND THE UNIVERSITY OF THE PHILIPPINES AT LOS BANOS IN COCONUT PRODUCT DIVERSIFICATION

By

Ann Koontz* ** and Ernesto Lozada

Introduction to Appropriate Techonolgy International (ATI)

Appropriate Technology International (ATI) is a Private Voluntary Organization (PVO) headquartered in Washington, D.C. with field offices in Bolivia, Senegal and the Philippines. ATI was founded in 1976 by the United States Congress in recog­ nition that a new organization was needed which could be flex­ ible in responding to small producers’ needs for appropriate technology. Our approach to technology transfer has evolved over the years, but has always involved an integrated approach, meaning we look at not only the hard technology (such as pro­ cessing equipment) but also "soft technologies" (marketing, socio­ economic factors, cultural acceptability, financing, gender issues and environmental issues).

ATI usually works with local partners, which can be NGOs, research institutions and/or government agencies, to imple­ ment projects and programs. In some cases, ATI works directly with entrepreneurs. In addition, while ATI has developed some

* Programme Development Officer - Asia, Appropriate Tech­ nology International (All), Washington, D. C.

* * Project Manager, ATI-KIT Coconut Processing Project and Professor, College of Engineering and Agro-industrial Technology (CEAT), University of the Philippines at Los Banos, Philippines.

1 9 7 in-house technologies, we generally scan the local environment for indigenous technologies and approaches and encourage south-south transfers of technology.

Our target groups are micro and small scale producers in developing countries of Africa, Latin America/Caribbean and Asia. Our projects and programs in their most basic terms seek to increase the incomes of these producers through value adding activities. ATI does this by what we refer to as "strategic subsec­ tor analysis" which identifies areas where small producers can add value to their products and realize increased incomes.

Currently, ATI is working in the subsectors of wool, edible oils, market gardening, Non-timber Forest Product (NTFPs), appropriate biotechnologies for resource poor farmers, ceramics, textiles, dairy and tree crops which includes coconut.

ATI’s Recent Work in the Coconut Subsector and Specifically Coconut Product Diversification

Coconut farmers who traditionally are not involved in any value-adding activities beyond copra making have not fared well in the last decade as the export markets for traditional coconut products have declined. ATI has been looking at opportunities within the coconut sector in which small-scale producers can add value to coconut through product diversification, technology and management improvements, and enhanced market access. A T I’s work has been primarily based on experiences from the Philip­ pines, but the lessons learned have applications for coconut producers throughout Asia and the Pacific.

Specifically, the work in the Philippines includes a "State- of-the-Art (SOA) Study on Small-Scale Coconut Processing Options, a Preliminary Market Research Study for Traditional and Non-Traditional Coconut Products, and the establishment of a Coconut Processing Test and Training Plant (CPTP) which undertakes research in product diversification, tests processing modules, test markets products, and provides technical, mana­ gerial, and marketing resources to individuals and groups wishing to establish coconut-based processing enterprises. This work

1 9 8 has been carried out and authored by a joint team of the Uni­ versity of the Philippines at Los Banos (UPLB) and ATI, spe­ cially Dr. Lozada, Dr. Sanchez, Dr. Peraltas (husband and wife), Dr. Aragon, Dr. Sumalde, Mr. Divinagracia, Dr. Duma, Ms. Ocampo, Ms. Sara, Glenn Patterson and Ann Koontz. The CPTP is located at UPLB.

From this work, it became evident that product diversifica­ tion can take on different meanings, depending on the target group. For example, for the small-scale coconut farmers of the Philippines who produce only copra, expanding into cooking oil production is product diversification. But for the coir industry of Sri Lanka, diversification may mean locating markets for the coir dust which traditionally has been a waste product of coir fiber production. ATI’s work with the UPLB, through the CPTP, is looking at both cases and therefore product diversification includes traditional and non-traditional coconut products.

In considering product diversification, it is not enough to consider new products and their technical and marketing issues. One must also consider the existing cultivation practices, product trading channels and local socio-economic factors. Despite the low incomes derived from copra sales, most small-scale coconut farmers have failed to diversify their products/by- products, even though a number of these could be produced at village-level or through small-scale rural enterprises. At the same time, larger manufacturers of coconut products are sometimes frustrated as they cannot obtain the coconuts from the rural areas in the form required at a cost-effective price for product diversification. The lack of coconut product diversification will not be overcome until technology dissemination, economic/financing, organizational and marketing constraints are addressed together. The role of the small-scale farmer as the raw material supplier and potential intermediate processor therefore cannot be overlooked in product diversification strategies.

Before describing some specific examples of product diversi­ fication oppportunities identified through the joint work of UPLB and ATI, a background on how these examples were identified is warranted (see Annex A for methodology overview). The process­ ing modules and products were selected after a careful review and testing of the technologies available and an investigation which determined the products that have market potential.

1 9 9 The State-of-the-Art-Study (SOA) on Small-Scale Coconut Processing Options and Preliminary Market Research Study for Traditional and Non-Traditional Coconut Products

The purpose of the State-of the Art and Preliminary Market Research studies was to come up with recommendations for a pilot plant - Coconut Processing Test and Training Plant (CPTP) in which processes could be tested and actual products test marketed.

In the SOA report, the UPLB-ATI project team looked at the state-of-the-art in small-scale coconut processing (defined as processing 5,000 nuts a day and under), with an initial focus on the wet process, but also including the dry process. The SOA reviewed a variety of integrated processing methods and their corresponding products, including:

Dry Processing:

- Traditional Dry Process - Fresh-Dry Process (Toasting Method) - Fry-Dry Process - Fresh-Dry (Controlled Copra Production)

Wet Processing:

- Traditional Kitchen Method - Modified Kitchen Method - Microbial Process

In addition, the SOA report looked at products and processes for utilizing by-products of oil production including latik, coagulated protein, coconut water, sapal and copra meal, coconut shell and husk. For example, coir fiber, coir dust and even fiber- reinforced concrete building materials were addressed in the SOA report.

The SOA report concluded that fresh-dry oil extraction is preferable over the wet method when the primary objective is cooking oil. The wet process has a lower oil recovery rate than the fresh-dry methods, but there are potentially more product

2 0 0 options in wet processing. The SOA report identified products and processes that appeared to be applicable for small-scale operations and the preliminary market study was done to evaluate which of these products had market potential.

The preliminary market study recognized that more work had to be completed in researching the markets not only for traditional coconut products such as cooking oil, vinegar and soap, but also for non-traditonal products such as coco cheese. Secondary market research on coconut products derived from the shell and husk was also completed. The study addressed: product characteristics, price, distribution, target market, usage and consumption levels, competition and packaging of 14 traditional and 5 new coconut by-products.

The 14 traditional coconut by-products reviewed included: cooking oil/edible oil, coconut vinegar, coconut water beverage or buko juice, coconut milk/cream, coco jam, nata de coco, maca­ roons, coco chips, copra, copra cake/meal, coco soap, coco char­ coal, coco peat or coir dust as potting medium or compost material, and coir fiber. The five new products included: coco snack food products from "sapal", coco flour, coco white soft cheese, coco yoghurt and beverages from coconut skim milk. 1

The most promising products identified in the market research work were matched up with the recommended process­ ing options from the SOA report and selected modules and prod­ ucts were incorporated into the CPTP for pilot testing.

Coconut Processing Test and Training Plant (CPTP)

With the studies completed, recommendations were made to set up a pilot plant to test both fresh-dry (UPLB method), modi­ fied kitchen wet oil extraction and related by-products pro­ duction.

1/ For complete discussion of market study result,refer to "Over­ view of Market Research on Coconut By-Products V iability and Marketability", Dr. Corazon T. Aragon, Dr. Louie A. Divinagracia, Mrs. Zen aid a M. Sum aide and Ms. Irene P. Sara.

201 The pilot plant which we refer to as the Coconut Processing Test and Training Plant (CPTP) was established at the College of Engineering and Agro- industrial Technology, UPLB with the support of the Royal Tropical Institute (KIT), Appropriate Technology International (ATI), University of the Philippines at Los Banos (UPLB), and the United States Agency for Inter­ national Development (USAID).

Multiple processing modules are present in the plant, including: facilities for fresh-dry and wet processing, snack food products, fermentation, and an area for lab testing to confirm material balance information. Areas for high quality copra­ making, soap-making and oil-refining are adjacent to the main facility. Due to resource constraints, modules for husk utilization could not be incorporated, although there is an area at the back of the CPTP which can be used for this purpose in the future.

During the pilot period, the primary objectives of the CPTP activities were to:

1) pilot test the processing modules; 2) debug equipment and processing steps; 3) produce various coconut products that could be test marketed; 4) make modifications to the products, as necessary, based on feedback from test work; and 5) make recommendations for viable micro and small-scale coconut procesing enterprises that individuals or groups could establish.

Based on the pilot period and work ATI has done with small-scale coconut producer groups, the following modules were packaged for commercialization:

1) Small-Scale Integrated Coconut Processing: Los Banos Fresh-Dry Method (5,000 nuts per day);

2) Micro-Scale Wet Coconut Processing: Oil Production (200 nuts per day);

3) Nata de Coco Production with Integrated Production of Snack Foods from Sapal;

2 0 2 4) Coco Jam Production with Integrated Production of Snack Foods from Sapal; and

5) Granulated High Grade Coco Charcoal for Activated Carbon Production.

These modules illustrate several strategies in which coconut product diversification may benefit small-scale producers and the coconut industry as a whole.

Case Study One: Small-Scale Integrated Coconut Processing: Los Banos Fresh-Dry Method (Product Di­ versification for Smalle-Scale Producers in Rural Areas) 2

Coconut growers in selected rural areas, due to transporta­ tion costs and improperly dried coconut, typically are paid some of the lowest prices for their copra, but pay some of the highest prices for finished products such as cooking oil and coco soap. In extreme casses, the price paid for the raw materials is so low that it no longer pays the farmer to harvest the nuts. Yet, the coconut farmer’s household would still require basic coconut by-products.

The distance and lack of direct links between the raw material suppliers and the final coconut processors has also impacted the coconut industry as a whole, particularly in the cases of aflatoxin levels which remain in the copra cake and high FFA content in the oil that must be reduced with sophis­ ticated refining.

21 For complete information on LOs Banos Fresh-Dry Method refer to "Integrated Coconut Processing: Los Banos Fresh-Dry Method", Lozada, Sumalde and Koontz, 1993.

2 0 3 The Los Banos Fresh-Dry Method was determined to be one of the most viable choices for Philippine small-scale pro­ ducers given the need to reduce aflatoxin levels; market cooking oil which is fully deodorized, since Filipino consumers prefer bland tasting oil; and produce oil in an effective manner given local pricing structures. This module allows entrepreneurs to produce deodorized cooking oil, crude oil for soap production, high grade copra meal for animal feed and coco-charcoal.

The key to producing the oil at a small-scale in a cost effective manner is the production of high-quality copra using the UPLB dryer and a low cost deodorizing system which is based on hot water rather than steam. The other main pieces of equip- ment-hammermill, expeller, and filter press are well known.

The UPLB dryer is simple, low cost and has no moving parts. It produces clean, white copra with low moisture content and can be made from materials available at the farm-level. The key to the UPLB dryer is a burner that generates clean heat at a controlled rate, continuously and safely for up to five hours without tending. The deodorizing system operates at atmospheric pressure and consists of a neutralizing tank, heated washing/ settling vessels, a boiling tank and an oil dryer. The vessels are heated using coconut shell-fueled burners (see Annex B for module overview and process flow diagram).

The Los Banos Fresh-Dry module provides product diversi­ fication at the rural level. Where before, farmers only made copra and coco charcoal for commercial sales, they now are ab'e to produce cooking o i', soap, and copra mea‘ for anima' feed and therefore gain additional revenues from the value-added in these products. ATI is currently working with three coopera­ tives in the Philippines to establish this module. A T I’s assistance is focused on group strengthening, business plan and manage­ ment skills development and the technology transfer process to help the group effectively manage an oil mill.

2 0 4 Case Study Two: Nata de Coco Production at Household Level (Product Diversification Using Indi­ vidual Production Units Combined with Consolidated Marketing) 3

Nata de coco is obtained by fermentation with a micro­ organism, Acetobacter xylimum, on top of diluted coconut milk. The product is sold both in the domestic markets of the Philip­ pines and export markets. The major users of nata de coco in the domestic market are individual consumers, food and fruit preservation industries, and institutional buyers like hotels, eater­ ies, bakeries and restaurants.

While most Filipino consumers are familliar with nata de coco, few produce it even though it has one of the fastest grow­ ing domestic and export markets of the existing coconut products and is well suited for household level production requiring a relatively small capital investment.

The number of countries importing nata de coco has grown from 11 in 1977 to 26 in 1988, with increased export volume from 50.9 mt to 309 mt during the same period. Current ex­ porters have complained that they are unable to keep up with growing demand in Japan, Europe, and U.S.

One of the problems household level producers face is that they quickly saturate their local community market for nata de coco yet on a household basis cannot produce in sufficient quan­ tity to service the export market. Small producers usually cannot supply the export markets directly since the capital required to do proper bottling is out of their reach.

Fortunately, nata de coco production is well suited for intermediary processing. Raw nata de coco can be produced by micro and small-scale producers and then sweetened and bottled by larger manufacturers which export the product (for overview

3 For complete details on nata de coco production, see "Baran- gay-level Wet Coconut Processing: Non-Oil Production", Sanchez, 1993.

2 0 5 and production information see Annex C). Associations of micro-level nata de coco producers can be organized to service the needs of exporters. The association can take the respon­ sibility for purchasing supplies in bulk for its members, moni­ toring quality, coordinating production schedules among the members, and marketing the raw nata de coco. Through such an arrangement, micro nata de coco producers gain access to the growing export market for this product and exporters have an expanded supply network for raw nata de coco. Additional revenues can be earned at the household level when the sapal (the spent grated coconut meat remaining after coconut milk is extracted for nata de coco production) is made into snack food products such as macaroons. There are already several cooperatives that Dr. Sanchez has helped organize and extended technical assistance to which are now producing nata de coco on a contiuous basis.

Case Study Three: Environmentally Friendly Coconut Products (Product Diversification in Niche Marketing Opportunities)

The world-wide environmental movement is opening up selected opportunities for coconut products diversification. Organic foods, natural instead of synthetic fibers, and coconut products that can be substituted for products that are harvested from endangered eco-systems (e.g forest and peat bogs) have potential new markets emerging. These markets currently at best are niche opportunities but, nonetheless, it is worth the co­ conut industry’s monitoring and does hold opportunities for some manufacturers. It is too early to tell if these opportunities are passing fads or new emerging consumer consumption trends that will have a long life. Below are several opportunities that have already been identified.

Organic Foods:

Foods are considered organic when no chemical fertilizers or pesticides have been used in cultivation and no inorganic chemicals are added to the foods after harvesting, including

206 processing and packaging. Poor coconut farmers who have not been able to afford fertilizers and pesticides may find that their products qualify as organic. These organic raw materials must then be specially processed with no chemical additives. There is currently a limited demand in European markets for organic coconut oil. There is also a demand for products such as organic banana chips, organic potato chips and other organic snack food products that require substantial amounts of organic oil in their processing.

Natural Rather than Synthetic Fibers:

Synthetic fibers still and will continue to dominate the world markets, but for selected products, there is a renewed interest in natural fibers, e.g., coir fiber. World consumption of coir fiber is approximately 300,000 mt (Eusebio, 1991). Compared to other natural fibers, coir fiber is buoyant and resistant to bac­ teria and salt water. The renewed interest in natural fibers and coir's inherent properties mean that it is being looked at for new applications not previously considered. For example, erosion control matting that was previously made from plastic. Coir fibers, unlike most plastics, are biodegradable but do not de­ compose before the indigenous plants can re-establish them­ selves. Coir- based planting pots, cleaning pads (e.g. for electric flo o r polishers), cushions and mattress material are also finding renewed markets as industries strive to become more environmentally conscience.

Substitution for Products Harvested from Endangered Ecosystems:

European and North American consumers have traditionally used charcoal briquettes for outdoor cooking and purchased substantial quantities of peat for gardening and landscaping pur­ poses. Several European countries recently banned mining of tra­ ditional peat because their peat bogs are considered endangered ecosystems. This has forced the gardening and landscaping supply companies to look for substitute products. Coconut coir dust, or what is sometimes referred to as cocopeat, has been identified as

2 0 7 a good substitute. Cocopeat is now attractive to the European markets, even with shipping charges. Sri Lanka has already begun to market their vast stocks of cocopeat to Europe and the potential for a growing export market looks encouraging. A similar situation applies to briquettes which traditionally are made from wood.

Selected consumers are interested in buying a briquette product that is non-wood based, but provides similar cooking qualities as wood-charcoal. Coco shell charcoal briquettes offer such a combination of properties and can be marketed as "envi­ ronmentally friendly" since no trees have to be cut down to make the charcoal.

Coco charcoal already has good export potential, as evidenced by the impressive rate of growth in export volume during the years 1970 - 1989. The Philippines contributed roughly 56.3% of the world market share in 1985. Sri Lanka is the largest competitor. Marketing of coco charcoal does not appear to be a problem and instead groups should concentrate on trying to access the relatively higher value markets that demand quality and graded coco charcoal (e.g. activated carbon manufacturers). Activated carbon is used in multiple applications including water purification and pollution control devices, a growing industry.

Rural groups can also more easily enter these markets for coco charcoal and cocopeat, since quantities of these products can be accumulated without fear of spoilage. Small-scale rural coconut producers will have to be involved in raw material supplying and where possible intermediate processing if countries are to access these markets effectively.

Conclusion - Future Directions

There is a continuing need to package the technology, mar­ keting and management information so that entrepreneurs, espe­ cially in rural locations where the supply of coconut is readily available, may participate in coconut product diversification. In addition, as the case studies pointed out, the coconut industry as a whole can benefit and access growing and emerging markets for coconut products when they consider strategies for involving small-scale producers as more than merely raw material suppliers.

2 0 8 The A T I’s work in this effort is ongoing with groups in the Philippines through the continued activities of the Coconut Processing Test and Training Plant (CPTP) that are being under­ taken in conjunction with the University of the Philippines at Los Banos (UPLB). The continuing goals of the CPTP’s activities are to:

1) Continue to conduct research on additional modules and improve upon coconut processing methods and pro­ duct formulation for micro and small-scale production;

2) Act as a technical and marketing resource for entrepre­ neurs wishing to establish integrated coconut enterprises. For example, groups interested in setting up their own mill may try out equipment at the CPTP; order product samples for test marketing in their own areas; obtain financial costing projection advice;and in general become better acquainted with the entire enterprise before they make their investment;

3) Train coconut processing technicians and extension agents;

4) Provide groups with information on where they can purchase equipment; and

5) Act as a technical trouble-shooting services when enter­ prises encounter technical problems.

ATI and UPLB hope that the CPTP can continue to be a source of practical information on coconut product diversification opportunities.

209 REFERENCES

A ppropriate Technology International, STATE-OF-THE- ART REPORT ON SMALL SCALE COCONUT PROCESSING. DRAFT, June 1992.

Aragon, Dr. Corazon T., Dr. Louie A. Divinagracia, Mrs. Zenaida M. Sumalde and Ms. Irene P. Sara. OVERVIEW OF MARKET RESEARCH ON COCONUT BY-PRODUCTS' VI­ ABILITY AND MARKETABILITY, paper presented at workshop on integrated coconut processing, June 1993, Quezon City, Philip­ pines.

Koontz, Ann. ATI PROJECT OVERVIEW: VILLAGE AND SMALL SCALE PROCESSING, paper presented at workshop on integrated coconut processing, June 1993, Quezon City, Philip­ pines.

Lozada, Ernesto P., Zenaida M. Sumalde and Ann T. Koontz. INTEGRATED COCONUT PROCESSING: LOS BANOS FRESH-DRY METHOD, paper presented at workshop on inte­ grated coconut processing, June 1993, Quezon City, Philippines.

Sanchez, Priscilla C. BARANGAY-LEVEL WET COCONUT PRO-CESSING: NON-OIL PRODUCTION, paper presented at workshop on integrated coconut processing, June 1993, Quezon City, Philippines.

2 1 0 A nnex A

METHODOLOGY FOR IDENTIFYING COCONUT ENTERPRISE OPPORTUNITIES

STATE-OF-THE-ART FOR SMALL-SCALE COCONUT PROCESSING ESSING Identifies range of possible products that can be made at a small-scale level

PRELIMINARY MARKET RESEARCH STUDY FOR COCONUT PRODUCTS Identifies products that have market potential

MATCHING OF PRODUCTS AND PROCESSES THAT HAVE BOTH TECHNICAL AND MARKET PROMISE RECOMMENDATIONS MADE FOR PILOT PLANT i ESTABLISHMENT OF COCONUT PROCESSING TEST AND TRAINING PLANT Pilot tests the processes and test markets actual products made from the processes

ONGOING CONSULTATIONS WITH COCONUT FARMERS AND ENTREPRENEURS To learn their expectations, constraints, and interest T' in coconut processing / v 1 ) I FEEDBACK FROM THE MARKET ON PRODUCTS PRODUCED '

\ ( ' / \ MODIFICATIONS MADE IN PROCESSING AND/OR * PRODUCT FORMULATION

ENTERPRISES FINALIZED THAT HAVE TESTED TECHNICAL PRO­ CESSES, PRODUCTS WITH MARKET ACCEPTABILITY, AND FINANCIAL VIABILITY

211 Annex B

SUMMARY OVERVIEW: LOS BANOS FRESH-DRY COCONUT PROCESSING

Title Integrated Coconut Processing: Los Banos Fresh-dry Method (5,000 nuts/day)

Project Cost P1.405.599

Products Cooking oil, copra cake, soap (When desired, other products may be produced such as vinegar and animal feeds)

Prefered Location Town proper with 3-phase powerline, 200-300 hectares of coconut. The module is appropriate for communities that do not have a large or medium-scale oil mill in their vicinity.

Raw Material Requirement 1,000 kg/day copra (5,000 nuts/day)

Target Market 25% of cooking oil and soap requirement of a town with 60,000 people

Proposed Selling Prices

Cooking oil P5.00 per 350 ml bottle or P14.29 per liter Soap P12.00 per bar of 500 grams Copra Cake P2.75 per kg

Nut Buying Price (Delivered) P1.20 per whole nut

Financial Information IRR 55% Payback period 2.88 years

Technology Source College of Engineering and Agro-Industrial Technology (CEAT), University of the Philip­ pines at Los Banos 1 US Dollar = 27 Philippine Pesos

2 1 2 Annex C

SUMMARY OVERVIEW: NATA DE COCO PRODUCTION (and macaroon production for local market)

Title Production of nata de coco and macaroons

Project Cost P160.960 (P129.753 for building and equipment, P5.000 for pre-operating expenses, P26.207 for working capital for 1 month)

Products Raw nata de coco, macaroons

Preferred Location Village center with good water source, 2-3 hectares of coconut

Raw Material Requirement 20 nuts per day

Target Market Exporters and local processors for nata de coco; school-children for macaroons

Proposed Selling Price Raw nata de coco, P/kg - P 11.00 Macaroons, P/box - P 10.00 Dried sapal, P/kg - P 2.75

Nut Buying Price, P/nut P 3.50 (from retail suppliers)

Financial Information

IRR 55% Payback Period 2.90 years

Technology Source Institute of Food Science and Technology (IFST), College of Agriculture, University of the Philippines at Los Banos = 1 US Dollar := 27 Philippine Peso

213 DEII U S K ED HIJ T !» •.*•000 n u ts . *1000 k ?>

Hjvrel. Process How Digurau for fresli-riry Coconut Processing (1-os Banns Model)

2 1 4 D EH u s K r: P N u T 12'J WIS>

c o c o w n T EH SPLITTING <4.9 Li) ♦— O

S H E E L S GRATING <3.9 XG) 4.5 KG

FIRST PRISSIMG

SICWO PRISSIHG

MIXING

MIXING

TRANSFER TO lmiM lflllCH TRAYS

FERMENTATION (10-12 days)

HARVESTING

Mnrn u r: COCO <100 ka>

ligurr^L. Process flow Huvrj» pir n.il •i (Jr cnco p r o d u c tio n .

2 1 5