Spend Matters welcomes this guest post from Jara Zicha, of Mintec.
Looking at the nut and dried fruit markets over the last couple of years, many could be described as volatile, erratic or unstable. Almond prices continue to rise, driven by lack of rain in the main producer California. Hazelnut prices have fallen sharply, after rising to an all-time high in May. Turkish sultana prices are significantly higher this year due to a damaging spring frost. While dried apricot prices have been falling from last year’s peak. Desiccated coconut is no exception, with a largely unpredictable trend over the past couple of years.
The Philippines is the main global exporter of desiccated coconut, accounting for more than a third of exports. Early in 2014, Philippine desiccated coconut prices rose sharply in response to the destruction left by Typhoon Haiyan. The typhoon caused catastrophic damage to agriculture and infrastructure in the Philippines and resulted in a large number of fatalities. This year, prices have fallen to pre-Haiyan levels, plummeting 45% since the beginning of the year. To understand why the prices have fallen, we need to consider several factors.
The price of desiccated coconut closely follows the price of coconut oil. When the price of coconut oil rises, desiccated coconut prices will soon follow and vice versa, as they compete for the same raw material — raw coconut. The price of coconut oil is largely driven by price trends in other vegetable oil markets, in particular palm oil, due to the oil’s interchangeability. In addition, the price of crude oil can be a factor as vegetable oils are also used in renewable fuels.
With crude oil prices falling dramatically over the past eighteen months, the demand for vegetable oils as a source of biofuel has fallen. There has been a pressure from palm oil and palm kernel oil markets due to ample supplies, with prices of both oils falling by 55% and 50% between March 2014 and September 2015. The combination of these factors has contributed to lower coconut oil prices and consequently led to lower desiccated coconut prices.
There have also been some aggressive selling strategies from smaller producers in Indonesia, Sri Lanka or Vietnam, which have further supported the downward trend in the desiccated coconut markets.
In the past few weeks, however, the price fall has slowed, with El Niño cited as the main reason. Dry weather in parts of Southeast Asia has driven palm oil prices upwards and, with coconut trees believed to be affected by the lack of rain, the price of desiccated coconut seems to have plateaued for the time being.