Highlight / October 23, 2020

The Coconut Sector’s World of Opportunity

It was early 2015. I was a clueless traveler in Mumbai, India.

My host gave me a moto-tour around the city, and at some point, we pulled over to buy a fresh coconut from a street vendor. 

A coconut and a straw, that’s it. Somehow, this blew my uncultured mind. Unbottled coconuts for sale on the street for less than a dollar?

My host explained that in Mumbai, a tropical region, coconuts were abundant and cheap as dirt. 

A coconut vendor in India

Later, I noticed the massive piles of coconut husks behind all of the street vendors. My host said most of it would go to waste, while some may arrive in a compost pile. 

All that waste left an impression on me, and so did the affordability.

Coconut husks are useful for all sorts of things, and the prices we were paying for premium coconut milk in the US at the time were relatively high. 

I realized it then, and it’s even more true today: for the right entrepreneur, there’s a lot of potential in coconuts.

One million uses for a coconut.

 

An endless list of coconut-derived products is flying off shelves in supermarkets across the world. 

To name but a few, people use coconut oils, butter, and flour for cooking, as well as massage oils, toothpaste alternatives for hygiene and skin care.

Coconut milk is a trendy, exotic health food in Western markets. In other cultures, it’s a staple, used in all sorts of cuisine, like curries. 

Market growth has been tremendous for coconut water.

[ Healthy Snacks Drive Coconut Markets ]

Cold-pressed extra virgin coconut oil is a kitchen staple yet still packs the ROI of a luxury item, especially when combined with organic and guilt-free certifications. 

Coconut coir, the natural elastic fiber of coconut husks, is ideal for fabrics, doormats, brushes, ropes, and strings. Artisans fashion coconut leaves into brooms, baskets, roofing thatches, and temporary sheds. 

The lumber is firm and elastic enough to use in building impressive houses and furniture. The husks and shells are excellent for fuel and charcoal. People even use coconuts to create musical instruments and alcoholic beverages.

Trends that go well with coconut water

 

In the last decade, coconut demand has increased by over 500%, with coconut water demand rising 300% in 2012 alone.

[ 107.2% increase in coconut exports! ]

The early 2010s saw a tremendous spike in coconuts’ demand and production and ready to continue climbing. Through 2025, revenue for packaged coconut water will grow at a CAGR of 26%.

Globally, we expect coconut water sales to reach $8.3 billion by 2023.

[ Ready-to-Drink Coconut Imports Keep the Crop’s Demand Sky-High ]

Producers are doing their best to keep up. In 2018, the world produced about 61.86 million metric tons of coconuts, a steady climb from 51.19 million in 2000.

However, the coconut industry faces many challenges.

How much cash you can milk from a coconut?

Based on the data, what sort of returns can we expect from a straightforward coconut farm?

Let’s look at a couple of hypotheticals for a better idea:

  • A financial analysis by the Government of India of one hectare of coconut palms produced an internal rate of return (IRR) of 17.58%.
  • The Global Institute for Tomorrow (GIFT) proposed a business model for a socially responsible enterprise that would deliver an IRR of 21.8% with a minimum $35,000 investment.

Please consult a qualified financial advisor before taking any of these numbers seriously.

To start with, he growth of land area cultivated is stagnating significantly. 

The harvested land area of coconuts worldwide between 2017 and 2018 increased by about 0.9%, to approximately 12.38 million hectares

While we’re on that subject, Asia-Pacific increased coconut production by only 1.3% per year between 2000 and 2015. Major producing countries like the Philippines have seen a decline in production. 

Considering the informal nature and price arbitrage of emerging economies therein lies vast untapped potential. 

[ Get Ready for Coconuts from Colombia ]

 

Most coconuts come from a disorganized pool of small farmers. India sources almost 98% of coconuts from marginal holdings of less than two acres. In 1992, 90% globally were grown by smallholders. 

Farms have likely consolidated a bit since then. Either way, the opportunity for streamlining and formalizing processes to meet international standards is gleaming. 

Not to mention, formalizing a chunk of those farms would do a world of good in lifting thousands of shadow workers out of poverty. 

Adding Value- Could Less Be More?

What we’ve learned is that while coconuts remain profitable, there’s likely much more opportunity in vertical business models. 

In other words, companies that also handle midstream and downstream elements of the supply chain have a leg up on the competition. In particular, companies that get ahead of the pack with organic certifications and solid ESG practices have the most room to shine. 

Deloitte’s customer survey revealed that more than 80% of consumers would be willing to pay more if a brand raised its prices to be more environmentally and socially responsible or to pay higher wages to its employees

Sometimes the best way to add value is to do less. Or rather, don’t ruin something when it’s great as-is. There’s a whole industry revolving around “raw” vegan food and beverages, unaltered by additives to the greatest extent possible.

According to The Economist, a quarter of 25- to 34-year-old Americans say they are vegans or vegetarians. The market is enormous and expanding at an abnormal rate.

Superfoods are an integral part of this shift in consumer preference. As the millennial demographic ages, healthy alternatives won’t exactly be alternatives anymore – they’ll be mainstream consumer products.

Key Takeaways

Many of the fundamental shifts in consumer preferences and supply dynamics favor new participants in the coconut space. Overall planted area is stagnate, but new export markets continue to arise, and old ones continue to grow. In many places, domestic demand is rising as well.

Still a highly informal industry, the market will reward players who can bring standardization and scalability to their operations. The sustainability and social impact factors are also key, and can make all the difference when it comes to appealing to the consumer.

Overall, coconut is synonymous with exotic, tropical locales, and its staying power as a niche product is high. Whether raw or packaged into a product like oil or water, coconut is a crop that will continue to draw interest from consumers all across the glove.

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