Copra to get firm on supply squeeze

Lower yields this year are set to hit coconut production

Coconut oil has been getting markedly pricier from mid-2013 even as other edible oils turned cheaper. And with coconut oil becoming more expensive, so too has its raw material, copra. The price of copra is largely dependent on the demand for, and prices of, coconut oil. Copra usually trades around 40 per cent lower than coconut oil on a per kilogram basis.

Coconut oil prices climbed swiftly from October 2013, when they crossed ₹100 per kg and hit a high of ₹178 a kg by the following August (source: Directorate of Economics and Statistics). Copra prices jumped 93 per cent in the same period. This followed a bearish 2012 when prices slid around 28 per cent.

The rising price trend of coconut oil is at odds with trends in competing edible oils. Coconut oil demand, especially industrial demand, is a factor of substitute oils such as palmoil or sunfloweroil, though it does trade at a premium. Demand for coconut oil did slide marginally in response to edible oils turning cheaper on higher production in 2013-14. But prices have moved the other way, thanks to a supply squeeze.

Supply support

Around 30 per cent of coconut production goes towards copra for milling purposes.

After rising steadily from 2009-10 to 2012-13, coconut production dropped in the subsequent years. For 2013-14, production was 3 per cent lower.

The two main producing states of milling grade copra are Kerala and Tamil Nadu, which together account for 88 per cent of production. Coconut production in Kerala has been falling gradually from 2010-11 onwards.

Milling grade copra production dropped 6 per cent in 2013-14 to 916,000 tonnes over the year before while coconut oil production shrank a similar extent to 573,000 tonnes, going by CACP reports. For fiscal 2014-15, average market arrivals of copra in the main states of Kerala and Tamil Nadu were lower by around 33 per cent, judging by Agmarknet data. Since supply just about managed to meet demand, it resulted in low closing stock as well.

For the 2015 season too, production is likely to remain flat. The area under cultivation has been rising only marginally, while key producing region Kerala is seeing productivity falling. The pressure on copra prices is, therefore, unlikely to ease much.

No global play

The cheaper global prices of copra will not help put a lid on the price rise. Prices of Philippine copra, the world’s largest producer and exporter, began correcting from mid-2014, going by World Bank data. Cheaper palm and soyabean oils could also limit the price rise.

The rise in domestic copra prices has been far steeper at close to 48 per cent for the calendar 2014. In comparison, global prices dipped 4 per cent in the same period. The gap between domestic and global prices has thus widened sharply. Domestic copra prices are now almost double that of global prices, when it was nearly equal in late 2012.

Global trends have limited the impact on Indian markets as, for one, the entire production is absorbed domestically and exports aren’t much.

Two, consumers of coconut oil or copra cannot directly make direct imports for domestic use and have to route it through state trading corporations. So, though India is the third-largest coconut producer after Indonesia and the Philippines, it accounts for a negligible share of global trade in coconut, copra and coconut oil.

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