Preface and Acknowledgements

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3 Vijay Paul Sharma Chairman Tel: Fax: Commission for Agricultural Costs and Prices Department of Agriculture, Cooperation and Farmers Welfare Ministry of Agriculture and Farmers Welfare Krishi Bhawan, New Delhi Preface and Acknowledgements I have the honour to submit the report of Price Policy for Copra: 2017 Season. The report contains Minimum Support Price (MSP) and non-price recommendations for milling and ball copra. While making price policy recommendations, the Commission has taken into account various factors such as cost of production, overall demandsupply situation, domestic and international prices of edible oils, inter-crop price parity, terms of trade, and likely impact of MSP on general price level. I hope these recommendations will serve the interests of all stakeholders and incentivise coconut farmers to adopt new technologies to improve productivity and efficiency. Several individuals and institutions have helped in preparation of this report. First and foremost, I would like to express my sincere thanks to coconut farmers/farmers representatives, officials from Coconut Development Board and State Governments, coconut-based industry, and other stakeholders for providing valuable insights and information during the meetings and preparation of this report. Special thanks to the Directorate of Economics and Statistics, Ministry of Agriculture & Farmers Welfare and Coconut Development Board (CDB) for providing key data on cost estimates for coconut production and other parameters. I admire the enormous efforts of Member, Member Secretary, Officers and Staff of the Commission in preparation of this report. Sincere thanks to Dr. Suresh Pal, Member (Official) and Dr. Shailja Sharma, Member Secretary, for their valuable contribution and untiring efforts. I wish to thank Mr. S. R. Joshi (Adviser), Mr. S. N. Tobria (Adviser), Ms. Nutan Raj (Adviser), Mr. R.K. Sharma, Ms. Mamta, Dr. Harish Kumar Kallega, and Mr. Manish Bindal for their contribution and support during all stages of the report preparation. 7 th September 2016 (Vijay Paul Sharma) iii

4 Price Policy for Copra Commission for Agricultural Costs and Prices Ñf"k] lgdkfjrk,oa fdlku dy;k.k fohkkx Department of Agriculture, Cooperation and Farmers Welfare Ñf"k,oa fdlku dy;k.k ea=ky; Ministry of Agriculture and Farmers Welfare Hkkjr ljdkj Government of India ubz fnyyh New Delhi flrecj] 2016 September, 2016

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7 Contents S.No. Description Page No. Acronyms x Summary of Recommendations xii Price Policy Recommendations xii Non-price Policy Recommendations xii 1 Overview 1 Production 1 Coconut Oil 3 Productivity Trends 4 Technology Mission on Coconut 5 Value-Addition and Product Diversification 5 Coconut Development Board (CDB) Initiatives 5 Coir Industry 6 Constraints in Adoption of Product Diversification in Coconut 6 Sustainability of Procurement of Raw Coconuts in Kerala 6 Structure of the Report 7 2 Demand-Supply and Price Policy 8 Wholesale Prices and MSP of Copra 9 Procurement of Copra and Related Issues 10 Procurement of Raw/De-husked Coconut 12 Procurement Period 12 Procurement Centres 13 Recapitulation 13 Contents v

8 Contents S.No. Description Page No. 3 Productivity and Efficiency 14 Decadal Growth Rates of Area, Production and Productivity of Coconut 14 All India Production and Productivity of Coconut 15 District-wise Temporal Movement in Productivity of Major States 16 Production and Productivity: All India vis-à-vis Major Producing States 17 Recapitulation 18 4 Trade Competitiveness of Copra and Coconut oil 19 Global Scenario : Production and Trade in Coconut, Copra and Coconut 19 oil India s Trade in Coconut and Coconut Based Products 21 Trade Policy 23 Global Outlook 25 5 Costs, Returns and Inter-Crop Price Parity 26 Costs and Profitability of Coconut, TE Labour and Input Price Movement 28 Cost Projections for Copra, 2017 Season 31 Inter-Crop Price parity 32 Recapitulation 33 6 Considerations and Recommendations for Price Policy 34 Market Prices of Copra and Coconut Oil 34 Procurement of Copra and Related Issues 34 Procurement Period 35 Procurement of Raw/De-Husked Coconut 35 Involve Farmer Producer Organizations in Procurement Operations 36 Low Productivity 36 Value-Addition and Product Diversification 37 India s Trade in Coconut and Coconut-based Products 37 Costs and Profitability of Coconut 37 Cost of Production and MSP of Copra 38 vi

9 List of Tables List of Tables Table No. Topic Page No. Table 2.1 Stock to Use Ratio of Coconut Oil 9 Table 2.2 Wholesale Prices vis-à-vis MSP of Copra, 2008 to Table 2.3 Procurement of Copra at Minimum Support Price 11 Table 2.4 Monthly Distribution (%) of Market Arrivals of Copra, TE Table 3.1 District-wise Productivity Movement in Major Coconut Producing States Table 5.1 Gross and Net Returns of Coconut (TE ) 27 Table 5.2 Inter-Crop Price Parity in Returns List of Tables vii

10 List of Charts List of Charts Chart No. Title Page No. Chart 1.1 Share of Major States in Area and Production of Coconut, TE Chart 1.2 Major Copra Producing States, TE Chart 1.3 Domestic Price of Coconut Oil and Palm Oil 4 Chart 1.4 Trends in Productivity of Coconut in Major Producing States 4 Chart 2.1 MSP of Copra vis-à-vis Prices of Copra and Coconut Oil, 2012 to Chart 3.1 Growth Rates of Area, Production and Productivity of Coconut, s to 2010s Chart 3.2 All India Production and Productivity of Coconut, to Chart 3.3 Benchmarking Coconut Productivity & Efficiency Gaps TE Chart 4.1 Major Producers of Coconut, TE Chart 4.2 Major Producers of Copra, TE Chart 4.3 Major Producers of Coconut Oil, TE Chart 4.4 Major Exporters and Importers of Coconut Oil, TE Chart 4.5 Changing Shares of Coconut, Copra and Coconut Oil in their Total 22 Value of Exports (TE and TE ) Chart 4.6 India s Exports and Imports of Coconut Oil, to Chart 4.7 Domestic and International Prices of Copra vis-a-vis MSP 24 Chart 4.8 Domestic and International Prices of Coconut Oil 24 Chart 5.1 Share of Major Inputs in Total Cost of Production (C 2 ), TE Chart 5.2a Chart 5.2b Chart 5.2c Annual Average Growth in Wages of Agricultural Labour (During to at Current Prices) Annual Average Growth in Wages of Agricultural Labour (During to at Constant Prices =100) Average Daily Wages of Agricultural Labour and Growth in Wages over Chart 5.3 Movements in Prices of Farm Inputs 30 Chart 5.4a Supply Curve and Projected Cost (A 2 +FL) of Milling Copra, 2017 Season 31 Chart 5.4b Supply Curve and Projected Cost (C 2 ) of Milling Copra, 2017 Season viii

11 List of Annex Tables List of Annex Tables Table No. Topic Page No. Table 1.1 Minimum Support Prices of Copra 40 Table 2.1 Coconut - State-Wise Area, Production and Yield 41 Table 2.2 Production of Copra and Coconut Oil, to Table 2.3 Quarterly Wholesale Prices of Milling Copra and Coconut Oil 44 Table 2.4 Coconut: Month-end Wholesale Prices 45 Table 3.1 Growth in Area, Production and Productivity of Coconut, to Table 3.2 Area, Production and Productivity of coconut TE Table 4.1 Export of Coconut Oils and Coconut Products from India 49 Table 4.2 Import of Coconut Oils and Coconut Products to India 50 Table 5.1 Month-wise and State-wise Average Wage Rates for Agricultural Labour (Man) Table 5.2 Farm Inputs- Wholesale Price Index (Base =100) 53 Table 5.3 Copra- Break-up of Cost of Cultivation ix

12 Acronyms Acronyms A 2 A 2 +FL APCC APMC C 2 CACP CDB CFTRI C.I.F. CIPI CoP CPC CPF CPS CS CWC DES DGCIS DGFT DIPP EDC FAI FAQ FPOs Actual Paid out Cost Actual Paid out Cost plus Imputed Value of Family Labour Asia and Pacific Coconut Community Agricultural Produce Marketing Committee Comprehensive Cost including Imputed Rent and Interest on Owned Land and Capital Commission for Agricultural Costs and Prices Coconut Development Board Central Food Technological Research Institute Cost, Insurance and Freight Composite Input Price Index Cost of Production Coconut Producer Companies Coconut Producer Federations Coconut Producers Societies Comprehensive Scheme Central Warehousing Corporation Directorate of Economics and Statistics Directorate General of Commercial Intelligence and Statistics Directorate General of Foreign Trade Department of Industrial Policy & Promotion Export Development Council Fertilizers Association of India Fair Average Quality Farmer Producer Organizations x

13 HSD ICAR KERAFED MIDH MSP MT NAFED NCCF OEA OGL PSS Q 1, Q 2, Q 3, Q 4 Qtl SHG SLS SUR SWC TANFED TE TMOC USDA WPI High Speed Diesel Indian Council of Agricultural Research Kerala Kerakarshaka Sahkarna Federation Ltd Mission for Integrated Development of Horticulture Minimum Support Price Metric Tonne National Agricultural Cooperative Marketing Federation of India National Cooperative Consumer s Federation of India Limited Office of the Economic Adviser Open General License Price Support Scheme Quarters referring to the Calendar Year Quintal Self Help Group State Level Supporters Stock to Use Ratio State Warehousing Corporation Tamil Nadu Cooperative Marketing Federation Triennium Ending Technology Mission on Coconut United States Department of Agriculture Wholesale Price Index Acronyms xi

14 Summary of Recommendations Summary of Recommendations Price Policy Recommendations S.1 In the edible oil markets, there is a high degree of substitutability between vegetable oils. Therefore, prices of coconut oil are greatly influenced by the import policy for edible oils and world prices of edible oils in general and palm oil in particular as palm oil constitutes about 2/3 rd of total imports. In addition, coconut oil and palm kernel oil are used in soap making and demand for these oils is price-elastic. The steep fall in international prices of palm oil from about US$ 960 per tonne in March 2014 to US$ 652 per tonne in July 2016 has resulted in drastic fall in coconut oil price from Rs per tonne in August 2014 to Rs per tonne in June 2016 in the country. As per the World Bank Commodity Markets Outlook in July 2016, edible oil prices have rebounded in 1 st half of 2016 and are expected to remain at higher level in the near future. The pricing of milling copra is linked to the pricing of coconut oil as copra accounts for about 90 percent of total cost of coconut oil production. Based on monthly data on domestic and world market prices during January 2014 to June 2016, it has been observed that market price of copra is about 2/3 rd of the coconut oil price. S.2 Considering all the above factors the Commission recommends the MSP for milling copra at Rs per quintal and for ball copra at Rs per quintal for 2017 season. The all-india weighted average A 2 +FL cost of production of copra is projected at Rs per quintal and modified C 2 cost at Rs.7048 per quintal for 2016 season. This MSP of milling copra would give gross returns of 36.6 percent, which is recommended in response to increase in cost of production and likely recovery in prices of edible oils including coconut oil. Non-price Policy Recommendations S.3 About 40 percent of total coconut production is processed into copra, a major share being milling copra, and the rest is used in raw form and tender coconut. However, there is lack of organised markets for coconut and copra processing facilities available at farm level are also very limited. In view of this, the Commission has been receiving requests from various state governments and farmers organisations xii

15 to fix MSP of raw/de-husked coconut and its procurement. The Commission had interactions with various stakeholders and found that short shelf life, perishability, quality of raw coconuts, inadequate storage facilities and absence of infrastructure facilities for conversion of coconuts into copra are major constraints in procurement of raw coconut under PSS. Small and marginal farmers, who have small outputs and is not feasible to convert raw/de-husked coconut into copra, are mostly excluded from procurement operations. The Commission, therefore, recommends that famers should be encouraged to form groups such as Farm Producers Organizations (FPOs), Producer Companies, Cooperatives, Self Help Groups, etc. and the Central/State Government and other agencies involved in coconut development should provide assistance to these groups to create required infrastructure for de-husking and processing of coconuts into copra. These groups can be involved in procurement of coconut from the member/non-member farmers and coconut processing. S.4 Based on data on prices and procurement of coconut during last 10 years, it has been observed that copra procurement has not been very effective as market prices of copra were below MSP in 2009, 2010, 2012, and One of the reasons for crashing market prices below MSP is the level of procurement is too small to make an impact on market prices. For example, in 2012, when market prices were about 17.4 percent lower than MSP, small quantities of copra were procured by NAFED. Similarly, market prices were lower than MSP in 2016, less than 2000 tonnes of copra was procured as on 2 nd August This may be due to lack of efficient procurement agencies at grass-root level as well as inadequate storage and processing facilities. In order to make an impact on market prices and ensure benefits of MSP to small and marginal coconut farmers, farm producer organizations including cooperatives and SHGs should be involved in procurement operations and adequate quantity of copra should be procured when market prices fall below MSP. S.5 Government of Kerala has launched a scheme for procurement of raw/green coconuts from January The programme is being implemented jointly by State Department of Agriculture and KERAFED. The quantity of coconut procured under the scheme has increased from 9990 tonnes in to tonnes in (up to 23 rd July 2016). However abnormally high support price of de-husked whole raw nuts with water at Rs. 27/kg in July 2016 announced by the government is not sustainable as it is significantly higher than normal market price. Due to high support price, KERAFED has incurred losses and many farmers have not received the payments for the stocks they have supplied during last procurement season. The Commission strongly feels that the state government should go for direct income transfer to farmers, when market prices fall below support price, rather than government-supported procurement of raw coconuts as it distorts the market and industry become uncompetitive in the international market. xiiisummary of Recommendations

16 S.6 Although all-india productivity of coconut has increased significantly during the last few years but yield in Kerala, which occupies more than one-third of the total area under coconut cultivation in the country, is quite low. It is therefore imperative that the productivity levels of coconut especially in Kerala are increased through appropriate technological, institutional and infrastructure interventions. The Technology Mission on Coconut, which was launched to improve productivity and profitability of coconut farmers in the country, needs to be appraised critically with reference to its objectives and actual achievements. Summary of Recommendations S.7 Cost of production is one of the major parameters for recommending the MSP of coconut. As of now, only two states Kerala and Tamil Nadu are covered under the comprehensive scheme. The Commission strongly recommends that for more objective assessment of the cost of coconut production at all-india level, Andhra Pradesh and Karnataka should also be included in the Scheme. S.8 Currently the procurement period of copra has been increased from 3 months to 6 months on the recommendation of CACP. However, the market arrivals of copra are well distributed during all months in a year. There is demand from farmers and other stakeholders that procurement operations should be extended to whole year as the crop is perennial with year-round harvesting. The Commission therefore recommends extending the procurement operations throughout the year, when market prices fall below MSP. ***** xiv

17 Chapter 1 Overview 1.1 Coconut is grown in more than 90 countries in the world but India being the largest producer occupies a prominent position in the world coconut economy. Top three producers, India, Indonesia and Philippines account for over 3/4 th of global output and acreage of coconut. Although, India ranked third (17.5 percent) in terms of coconut acreage but has the highest share (31 percent) in world production, followed by Indonesia (23.4 percent) and Philippines (21 percent) in In India, coconut is cultivated mainly in the coastal areas of Kerala, Tamil Nadu, Karnataka and Andhra Pradesh and these four producers together account for over 90 percent of the total area and production in the country. Coconut contributed Rs crore (current prices) to the value of output from agriculture during However, the coconut sector is faced with several constraints and challenges such as low and fluctuating productivity due to old and senile plantations, shortage of quality planting material, incidence of diseases and insect-pests, poor management of the farms, shortage of skilled manpower, lack of assured irrigation facilities, poor post-harvest management and infrastructure, lack of access to assured market, and competition from substitute oils. Production 1.2 Coconut production in India, which witnessed a declining trend during to , increased by 0.05 percent in , from billion nuts in to billion nuts in due to increase in area from 1.98 million hectares to 2.09 million hectares while yield fell by 5.58 percent (from nuts/ha in to 9767 nuts/ha in ). The increase in the production was mainly contributed by Kerala, where production increased by percent, whereas production decreased in other major producing states like Tamil Nadu ( percent), Karnataka (-0.24 percent) and Andhra Pradesh (-2.37 percent). During triennium ending (TE) , Andhra Pradesh, Karnataka, Kerala and Tamil Nadu accounted for 90.6 percent of total coconut production in the country (Chart 1.1b). Chapter 1 1

18 1.3 In terms of area, Kerala has the highest share (35.7 percent) under coconut cultivation, followed by Karnataka (25.1 percent) and Tamil Nadu (22.4 percent) during TE (Chart 1.1a). Although Tamil Nadu ranked third in terms of acreage under coconut, but contributed the largest share (32.0 percent) to total production during TE (Chart 1.1b), which is attributed to higher productivity levels. 1.4 The area under coconut increased from lakh hectares in to lakh hectares in at All-India level. The increase in area was mainly in Kerala as a result of various coconut development programmes, which target to bring more area under coconut cultivation in the potential belts thereby increasing coconut production in the country. Under the scheme of Replanting and Rejuvenation of Coconut Gardens, financial assistance is given to farmers for cutting and removal of old, senile, unproductive and disease advanced palms, replanting with quality planting material, rejuvenation of existing gardens through integrated management practices and training of farmers to improve productivity of the crop. Chart 1.1: Share of Major States in Area and Production of Coconut, TE Overview AP 5.3% Odisha 2.5% Others 9.0% a: Area Kerala 35.7% AP 7.5% Odisha 1.6% Others 7.8% b: Production Kerala 26.6% TN 22.4% TN 32.0% Karnataka 25.1% Karnataka 24.5% Source: Horticulture Division, DAC&FW 1.5 Milling copra is produced mainly in Tamil Nadu (50.3 percent) and Kerala (39.9 percent) and these States account for 90 percent of the total domestic production (Chart 1.2a) whereas ball/edible copra is produced mainly in Karnataka contributing 57.8 percent. Tamil Nadu contributes 17.1 percent and Kerala 16.1 percent of the total domestic production of ball copra (Chart 1.2b). 2

19 Chart 1.2: Major Copra Producing States, TE a: Milling Copra AP 1.8% A&N, Laksh adweep 1.2% b: Edible Copra A&N, Laksh adweep AP 7.9% 1.1% Kerala 16.1% Kerala 39.9% TN 17.1% TN 50.3% Source: CDB Coconut Oil Karnataka 6.8% Karnataka 57.8% 1.6 Copra normally has an oil content varying from 65 to 72 percent. Coconut oil production in the country is estimated at 5.7 lakh tonnes in Supply of coconut oil has been generally higher than its demand. Demand for coconut oil has declined during to mainly due to high prices while its supply has increased in after showing a declining trend upto Coconut oil commands a premium over other edible oils such as palm oil in the country, given its superior dietary value, aroma and customary taste and preference in the southern regions. Since, coconut oil commands a premium over palm oil, therefore, price sensitive consumers tend to shift to cheaper edible oils like palm oil. A comparison of prices of coconut oil and palm oil during last two years reveals that coconut oil commands a premium of about 100 percent. Since 2015, coconut oil prices have shown a sharp decline, mainly due to increase in the demand for palm oil arising out of its subdued prices. However, difference between palm oil and coconut oil prices has narrowed down from about 155 percent in Q 1 of 2015 to 27.5 percent in Q 2 of It is also evident from Chart 1.3 that palm oil prices witnessed a modest rise since Q 4 of 2015, while prices of coconut oil have stabilised. It is expected that with increase in palm oil prices, coconut oil prices would recover in the coming months and improve profitability of coconut farmers and industry, which was in serious crisis during Overview 3

20 Chart 1.3: Domestic Price of Coconut Oil and Palm Oil Rs/qtl Q Q Q Q Q Q Q Q Q Q3 Coconut Oil Palm Oil Note: The domestic price of coconut oil for Kochi and palm oil for Hyderabad market Source: DES Overview Productivity Trends 1.8 Although productivity of coconut in the country has increased during the last decade but average productivity in Kerala, the second largest producer, is quite low (Chart 1.4). At All-India level, coconut yield has increased from about 8.1 thousand nuts/ha in TE to 10.1 thousand nuts/ha in TE but in Kerala yield is still low and almost stagnant at about 7.5 thousand nuts/ha during TE Average productivity in Kerala is about half of that in Andhra Pradesh and Tamil Nadu and about 27 percent lower than All-India average. Therefore, efforts are needed to increase productivity and profitability of coconut cultivation in the State. Coconut is a labor-intensive crop and human labour accounts for about half of total cost of production. Labor wages being the highest in Kerala, further reduce profitability of coconut farming and therefore efforts are needed for promoting farm mechanization in coconut cultivation in the state. Chart 1.4: Trends in Productivity of Coconut in Major Producing States s/ha '000 nuts Tamil Nadu Kerala Karnataka A.P. All India TE TE Source: DES 4

21 Technology Mission on Coconut 1.9 Technology Mission on Coconut (TMOC) was launched during to address issues related to technology development and dissemination, processing and product diversification, market research and promotion. The TMOC is now being implemented as a sub-scheme under Mission for Integrated Development of Horticulture (MIDH) and main components of the scheme are production and distribution of quality planting material, area expansion, productivity improvement, development and adoption of technologies for management of insects/pests and disease affected gardens, development and adoption of technologies for processing and product diversification, market research and promotion, replanting and rejuvenation of old coconut gardens, coconut palm insurance scheme and Kera Suraksha Insurance scheme. Value-Addition and Product Diversification 1.10 Coconut is one of the most versatile crop from which a range of valuable products could be produced. However, farmers are yet to exploit the potential of value-added products and by-products from coconut. Nearly 10 million people in the country are dependent on coconut for their livelihood. However, coconut farmers and industry are facing various challenges due to low productivity and declining and fluctuating prices of coconut oil and other products. There has been a gradual shift from coconut oil to palm oil for food and industrial consumption due to easy availability of low cost palm oil and declining competitiveness of coconut oil vis-à-vis other substitutes. Even though India ranks first in productivity and production of coconut, exports of coconut value-added products are meager compared to other coconut growing countries in the world. The exports from coconut sector (including coir and coir products) have increased by 10.1 percent in over the previous year while the overall merchandise exports from the country recorded a negative growth of 9.89 percent. In order to ensure continuity of coconut-based exports, immediate requirement is to ensure reasonable prices to farmers for their produce as a short term measure and easy availability of good quality planting material to improve crop productivity as a long term measure. Diversification of coconut-based products and value-addition will help the coconut growers in getting remunerative prices and improve competitiveness. Therefore, efforts are needed to develop technologies for processing and product diversification and market promotion of such products. Overview Coconut Development Board (CDB) Initiatives 1.11 CDB has developed various technologies in association with other institutes like Central Food Technological Research Institute (CFTRI), ICAR to promote R&D activities in post-harvest management and processing of coconut. Some of the technologies include low fat tender coconut cream, spray dried coconut milk, preservation and packing of tender coconut water, coconut oil as alternate automobile lubricant, 5

22 dietary fibre from coconut residue, production of virgin coconut oil through cold process of centrifugal separation, coconut jelly, coconut chips, preservation and packaging of coconut neera and its value-added products, designing a hygienic harvesting process and formulation of health mixes with coconut milk powder and coconut flour etc About 98 percent of coconut holdings in the country are small and marginal less than two hectares and face a range of constraints such as poor market linkages, low bargaining power to access inputs, services and technologies, high transaction costs, etc. The CDB has taken an initiative of formation of Coconut Farmer Producer Organizations (FPOs) having three tier structure, consisting of Coconut Producers Society (CPS) at village level consisting of coconut growers, Coconut Producers Federation (consisting of 8-10 CPS) at the second tier and Coconut Producers Company, consisting of 8-10 CPFs. CDB is facilitating formation of FPOs and also helping them to undertake procurement, production, processing and marketing of coconut and coconut-based products. So far 9220 Coconut Producer Societies, 715 Coconut Producer Federations and 65 Coconut Producer Companies have been registered with the Board. Overview Coir Industry 1.13 Coir industry is a traditional, labour-intensive, export-oriented cottage industry. Besides the number of registered industrial units, there are thousands of household units engaged in fibre extraction and spinning of coir yarn throughout the coir producing regions. More than 6 lakh workforce, of whom 80 percent are women, is solely dependent on coir industry in the major producing states particularly in Kerala. Majority of them are from rural areas and economically weaker sections of the society. Constraints in Adoption of Product Diversification in Coconut 1.14 The bulky nature of raw materials and perishability are major constraints in collection, handling and transportation of nuts, which increases transportation costs and handling charges. The product also requires large storage space and high working capital for setting up of coconut based industry. Seasonal and erratic fluctuations in the prices of raw material are a major concern for the industry. There is no organized market for coconut convenience products and hence market promotional expenses are very high, which are beyond the capacity of small scale entrepreneurs. Consumer awareness about various coconut products is not adequate. Lack of quality standards maintained by manufacturers of coconut products and effective mechanism in enforcing these standards have been major constraints in exploiting export market. Sustainability of Procurement of Raw Coconuts in Kerala 1.15 Copra conversion is not very common among coconut farmers, therefore, market intervention programmes for copra have not been able to achieve the desired 6

23 results. In order to provide benefit to small and marginal farmers, Government of Kerala launched a scheme for procurement of raw/green coconuts in January The programme is being implemented jointly by State Department of Agriculture and KERAFED through Panchayat level Krishi Bhavans. The farmers register with Krishi Bhavans and deliver a fixed quantity of green coconut in 6-8 installments based on harvesting cycle at a fixed price announced by State government. The quantity of coconut procured under the scheme has increased from 9990 tonnes in to tonnes in and tonnes in (up to 23 rd July 2016). However, there are several constraints in implementing this scheme. For example, lack of sufficient storage facility, perishability of raw/green coconuts, delivery of immature coconuts by some farmers resulting in poor quality of copra and inadequate processing facilities for timely conversion of coconuts to copra are major problems. The problem is further accentuated by abnormally high support price announced by the state government, which distorts market. For example, support price of dehusked whole raw nuts with water has increased from Rs.14 per kg in 2013 to Rs. 25 per kg in 2015 and Rs. 27 per kg in July 2016, which is significantly higher than normal market price. Due to high support price, KERAFED has incurred losses and many farmers have not received the payments for the stocks they have supplied during the last procurement season. The Commission is of the opinion that the state government should go for direct income transfer to farmers, when market prices fall below the support price, rather than government-supported procurement of raw coconuts. Structure of the Report 1.16 Chapter 2 of this Report presents the demand-supply situation and efficacy of price policy of copra. The productivity of coconuts and its various dimensions are discussed in Chapter 3. Chapter 4 looks at domestic prices vis-a-vis international prices and trade policy with a view to fostering international competitiveness. Chapter 5 presents costs and returns for copra. Finally, major highlights of all the chapters, leading to the price and non-price policy recommendations, are presented in Chapter 6. Overview ***** 7

24 Chapter 2 Chapter 2 Demand-Supply and Price Policy 2.1 The prices of all coconut products including raw coconuts are determined by the ruling price of coconut oil, which in turn is influenced by the prices of other vegetable oils and coconut oil in the international market. Palm oil is the largest imported edible oil and the cheapest oil available in the country as well as in the world market. Although people in the southern states have a preference for coconut oil, and are willing to pay some premium over palm oil, yet large scale imports of palm oil at a cheaper price do substitute other oils in several uses, especially in industrial and culinary uses. Chart 2.1 presents the relationship between MSP and wholesale prices of milling copra and coconut oil. It is evident from the chart that average market price of milling copra varies from 63.8 percent to 72.8 percent of the price of coconut oil during 2012 to The wholesale price of copra, which was below MSP of milling copra during Q1 of 2012 to Q2 of 2013, increased significantly till Q3 of 2014 and then witnessed a declining trend. The price of copra fell below MSP during 2016, mainly due to declining prices of coconut oil. A comparison of coconut oil prices with palm oil prices shows that coconut oil commands a premium due to its dietary value and preference for coconut oil in some regions of the country. Chart 2.1: MSP of Copra vis-a-vis Prices of Copra and Coconut Oil, 2012 to Rs/qtl Percent Q Q Q Q Q Q Q Q4 WP of Milling Copra Q Q Q Q Q Q Q Q Q Q Q3 0 8 WP of Coconut Oil MSP of Milling Copra WP of M. Copra as % of coc oil Note: i) Wholesale Prices (WP) of milling copra at Kozhikode and coconut oil at Kochi market ii) WP of 2016Q 3 is of July & August Source: DES

25 2.2 As prices of copra are directly linked to prices of coconut oil, it is imperative to assess the demand- supply situation of coconut oil in terms of its availability and use (Table 2.1). Table 2.1: Stock to Use Ratio of Coconut Oil ( 000 tonnes, percent) S.No. Particulars E 1 Opening Stocks Production Imports Total Supply (1+2+3) Exports Consumption Total Use (5+6) Ending Stock (4-7) Stock to Use Ratio (%) (8/7*100) E: Estimated Source: DGCIS for export and import, CDB for others 2.3 Price of coconut oil, which started rising since Q 2 of 2013 till Q 3 of 2014, led to a fall in its consumption from 5.9 lakh tonnes in to 5.2 lakh tonnes in The overall fall in usage (11.5 percent) was larger than decline in the total supply (10.5 percent) leading to an increase in SUR from 1.70 percent in to 2.87 percent in This, in turn, had a dampening effect on the prices of coconut oil and these declined from their peak in Q 3 of 2014, (Rs per qtl), to nearly half in Q 3 of 2016 (Rs per qtl) with some minor exceptions in between. However, in , growth in the uses (0.9 percent) has been lower than the growth in the supply (4.5 percent) pushing the SUR even higher at 6.55 percent. The higher SUR would provide a buffer to the availability of coconut oil but might have adverse impact on the prices, which are already very low (Table 2.1). Wholesale Prices and MSP of Copra Demand-Supply and Price Policy 2.4 Wholesale prices of milling copra and ball copra have shown fluctuating behavior during 2008 to 2016 with market prices lower than MSP in the years 2009, 2010, 2012 and 2016 in case of milling copra and 2009, 2010, 2012 and 2013 in case of ball copra. During 2014, wholesale prices of milling copra and ball copra reached the peak of Rs per quintal and Rs per quintal, respectively, with a declining trend in following years (Table 2.2). The reason for this price rise was fall in production of coconut since in the range of 3 to 6 percent mainly due to deficient monsoon, natural calamities like cyclonic storms and pests & diseases. Major coconut growing states were severely affected by cyclones namely Nilam, Phailin and Hud Hud during 2012, 2013 and However, an increase in the 9

26 production of coconut by about 5 percent in alongwith high SUR might have depressed the prices thereafter. Demand-Supply and Price Policy Year Table 2.2: Wholesale Prices vis-à-vis MSP of Copra, 2008 to 2016 (Rs/qtl, Percent) MSP Average Wholesale Price Percentage Change in Wholesale Prices over MSP Milling Copra Ball Copra Milling Copra Ball Copra Milling Copra Ball Copra Note: Wholesale Prices of ball copra for Arsikere (Karnataka) and milling copra for Kozhikode (Kerala). Source: DES 2.5 The monthly wholesale prices of milling copra at Kochi, Alappuzha and Kozhikode markets in Kerala were below MSP throughout the year in In 2014, the monthly average price of milling copra, which opened at Rs per quintal in January 2014 at Kochi market reached at Rs per quintal in August. Thereafter the market prices recorded a declining trend and closed at Rs per quintal. In 2015, the prices showed fluctuating trend till August (Rs. 7150/qtl. in July to Rs /qtl. in April). However, the prices started declining since September, 2015 and reached a level of Rs per quintal during June Similar price trends were observed in other major markets of Kerala, Tamil Nadu and Karnataka. In case of ball copra, wholesale prices declined from Rs /qtl in October, 2015 to Rs. 7418/qtl in June, 2016 (40.6 percent decline) in Tiptur in Karnataka. Procurement of Copra and Related Issues 2.6 The market prices of copra were much above the MSP of copra in 2014 and 2015, and therefore, no procurement was necessitated in these years. However, a robust procurement mechanism is essential for benefits of farmers in an event of fall in market prices. NAFED and National Cooperative Consumer s Federation of India Limited (NCCF) are the national nodal agencies for PSS operations of copra. The quantity of milling copra and ball copra procured by NAFED under PSS since 2012 is given in Table 2.3. The table suggests that procurement operations have not been very effective as small quantity was procured in various years. Though the prices of milling copra are ruling below MSP during 2016, procurement has started 10

27 only in Tamil Nadu and Karnataka and that too during June The maximum procurement of milling copra was 66,454 tonnes in Table 2.3: Procurement of Copra at Minimum Support Price State * Milling Copra Andhra Pradesh A & N Islands Karnataka Kerala Tamil Nadu Total Milling Copra {(Spl. Grade (F)} Andhra Pradesh Ball Copra Karnataka Kerala Total *: As on Note: During 2014 and 2015 there was no procurement as market prices were above MSPs. Source: NAFED (MTs) 2.7 Timely and adequate procurement of copra under PSS from major producing states like Kerala and Tamil Nadu for milling copra would ensure price stability and benefits of MSP to reach the genuine coconut farmers, which is important for achieving profitability in coconut based farming system and to make an impact in the market in the event of a fall in the market prices below MSP. 2.8 There are weak infrastructure and institutional arrangements for procurement of copra. To make procurement operation more effective and inclusive, farmer s collectives like Coconut Producers Societies (CPSs), Coconut Producer Federations (CPFs) and Coconut Producer Companies (CPCs) should be involved in procurement of de-husked mature coconut with water for conversion into copra. In addition recognized primary level co-operatives and Self Help Group (SHGs) should be involved in procurement of coconut from the member/non-member farmers. Federation of CPSs should be equipped with modern copra dryers for production of Fair Average Quality (FAQ) copra with financial and technical assistance from the Central and State agencies. Coconut Producer Companies can also be designated as state level agencies. Demand-Supply and Price Policy 11

28 Procurement of Raw/De-husked Coconut Demand-Supply and Price Policy 2.9 In the context of the procurement of raw green coconut, the Commission has been receiving requests from various state governments and farmer orgainsations to consider fixing MSP of Raw/De-husked Coconut and its procurement. To examine the feasibility of procurement of raw coconut, Commission visited Kerala and had interactions with various stake holders. It was observed that small farmers do not have the requisite infrastructure like processing facilities, driers etc. and financial capacity to convert the raw/ de-husked coconut into copra and therefore are mostly excluded from procurement operations. Primary Cooperative Marketing Societies, and other agencies who have drier facility, procure de-husked coconut from farmers and convert into copra and supply under PSS to NAFED through State Level Supporters (SLSs) like KERAFED in Kerala and TANFED in Tamil Nadu. Due to lack of adequate infrastructure and machineries like drier, the procurement of de-husked coconut is very limited in Kerala whereas in other states, the procurement of dehusked coconut could not be possible, so far. Therefore, Central/concerned State Government may help in creating infrastructure through Government agencies involved in the PSS operation in the coconut producing States, which will help to pass on the benefits of this Scheme to a large number of farmers Limited shelf life, perishability, inadequate conversion facility for making copra and storage facilities are major constraints in procurement of raw coconut under PSS. Further NAFED is also facing problems in getting storage space for copra. The storage of copra is generally done in CWCs/SWCs godowns and where the godown space is not sufficient, warehouses hire private/temporary godowns which lack scientific storage facilities The participating agencies, which do not have required processing facilities, engage SHGs, Cooperative Societies and private dryers for processing and in many cases, copra thus produced does not meet quality standards prescribed for FAQ grade milling copra. Procurement agencies are operating through few collection centres, and therefore more collection centres need to be opened at panchayat/village level for collection of the raw nuts and collection centres linked to processing units for processing into milling copra. Procurement Period 2.12 The market arrivals of copra are well distributed during all months in a year but procurement operations are undertaken for 6 months (increased from 90 days) in a calendar year. The Commission appreciates that the government considered the recommendation and extended the procurement period to six months. However, there is demand from farmers and other stakeholders that procurement operations should be extended to whole year as the crop is perennial with year round harvesting. From the Table 2.4 also, it is evident that market arrivals of coconut are distributed throughout the year. The Commission therefore recommends extending the procurement period to whole year. 12

29 Table 2.4: Monthly Distribution (%) of Market Arrivals of Copra, TE2014 Month State-wise Monthly Share of Market Arrivals (%) AP Karnataka TN All-India January February March April May June July August September October November December Total Source: CDB Procurement Centres 2.13 There are no regulated markets for the marketing of coconut and coconut products in Kerala. Though Tamil Nadu and Karnataka have APMCs, a substantial quantity of raw coconuts, and copra are being traded outside the regulated markets. Also, coconut growers are mostly small and marginal farmers and have to travel about 7 to 35 kms to reach the nearest society which is procuring coconut/copra under support price scheme. In Andaman and Nicobar there is no regulated market in the Island and main market is at Port Blair, which is around 200 to 800 kms away from small Islands. The Commission, therefore recommends that to extend the benefits of price policy to the farmers, procurement centres should be at the cluster of villages. For this purpose FPOs should be promoted and involved in procurement of produce from the farmers. Demand-Supply and Price Policy Recapitulation 2.14 The price policy can be effective if there is a robust procurement system in terms of number and distribution of procurement centres. Therefore, in the interest of the coconut growers, the Commission recommends involvement of FPOs, CPSs and CPFs, SHGs and cooperatives in procurement operations. Based on the request of Coconut Development Board, and considering the perennial nature of the crop, the Commission recommends that the procurement agencies should intervene in the market when prices fall below MSP. ***** 13

30 Chapter 3 Productivity and Efficiency Demand-Supply Chapter 3 and Price Policy 3.1 Productivity plays an important role in increasing profitability of farmers by reducing cost of production and helps in poverty alleviation. Besides, higher productivity is the key to increasing competitiveness and living standards. In the backdrop of these advantages, this Chapter analyses decadal growth (year on year basis) of coconut in the country, comparison of productivity of major producing states of India with the benchmarking state, which could help in setting productivity targets for the country. Decadal Growth Rates of Area, Production and Productivity of Coconut 3.2 The annual average growth rates of coconut area, production and yield are given in Chart 3.1. It is evident from the Chart that area under coconut in the country recorded a growth rate of 1.9 percent during the decade of 1990s, which declined to 0.7 percent in 2000s but improved (1.8 percent) during the 2010s. The production growth witnessed an increasing trend during last 25 years. The growth rate increased from 2.8 percent during the 1990s to 3.6 percent during 2000s and reached a level of 4.2 percent during 2010s. During the 1990s, growth in coconut production was mainly driven by area expansion while during the 2000s productivity was a major contributing factor. During the decade of 2010s, both area and productivity contributed to increased production but contribution of productivity was higher than area. 3.3 During the 2010s, among major coconut producing states, Karnataka recorded the highest growth in coconut production. The average annual growth rates of area and productivity in the state were 4.2 percent and 16.6 percent respectively, which led to a high growth rate (24.7 percent) in production. Andhra Pradesh registered an average annual growth rate of 11.2 percent in production due to 1.2 percent growth in area and 7.7 percent growth rate in productivity. The annual average growth rates of area, production and productivity of coconut in major producing states have been presented in Annexure Table

31 Chart 3.1: Growth Rates of Area, Production and Productivity of Coconut, 1990s to 2010s 5 4 Percent Area Production Productivity 1990s s s Note: 1990s, 2000s and 2010s denote for decadal period from to and to and to respectively. Source: CDB and Horticulture Division, DAC&FW All India Production and Productivity of Coconut 3. 4 During to , the highest production and productivity of coconut achieved were 22.7 billion nuts and nuts/ha respectively in The total production of coconut declined from to but it improved slightly to 20.5 billion nuts in The productivity fluctuated during to and it has come down to 9767 nuts/ha in The trends of production and productivity of coconut during are shown in the Chart 3.2. Chart 3.2: All India Production and Productivity of Coconut, to Productivity and Efficiency Production (Bn Nuts) Production (Bn nuts) Productivity ('000 Nuts/Ha) Source: Horticulture Division, DAC&FW Productivity ('000 Nuts/Ha) 15

32 District-wise Temporal Movement in Productivity of Major States 3.5 With a view to examining performance of yield of coconut at district level during , , and area under different yield bands (<5000, and >10000 nuts/hectare) at district level in major producing states were analyzed and results are presented in Table Tamil Nadu had the highest production share of 32 percent in the total coconut production of the country, followed by Kerala (26.6 percent), Karnataka (24.5 percent) and Andhra Pradesh (7.5 percent) in TE Table 3.1: District-wise Productivity Movement in Major Coconut Producing States Productivity and Efficiency Year Tamil Nadu (32 %) <5000 Nuts/ha Nuts/ha >10000 Nuts/ha No. of districts Area (%) No. of districts Area (%) No. of districts Area (%) Kerala (26.6 %) Karnataka (24.5 %) Andhra Pradesh (7.5 %) Note: Figures in parenthesis represent share in total production Source: Computed from data provided by Coconut Development Board, Kochi 3.7 It may be observed from Table 3.1 that Tamil Nadu had 8 districts having an area of 4.6 percent in yield band of less than 5000 nuts/ha and 13 districts with an area of 35 percent were in the yield band of more than nuts/ha in It is encouraging to note that area under yield band of above nuts/ha increased from 35 percent in to 56.7 percent in

33 3.8 In case of Kerala, which has much lower yield compared with Tamil Nadu and All- India, the area under yield band less than 5000 nuts/ha has reduced from 23.3 percent in to 7.6 percent in , while the area under nuts/ha yield band increased from 76.7 percent to 84.4 percent during the same period. One district has moved to yield band of above nuts/ha in In Karnataka, the area under yield band of nuts/ha was 59.9 percent in which increased to 100 percent in In Andhra Pradesh, the area under the yield band above nut/ha reached 99.2 percent in as against 74.5 percent in Production and Productivity: All India vis-à-vis Major Producing States 3.9 Efficiency gaps [(1-actual yield/maximum yield)*100] between the benchmarking state (Tamil Nadu) vis-à-vis other major coconut producing states and All-India productivity have been studied and shown in the Chart 3.3. The states of Tamil Nadu and Andhra Pradesh have higher productivity in comparison to All-India average. As per TE , the efficiency gap in the productivity of benchmarking state (Tamil Nadu) with that of All-India is 30 percent. The efficiency gaps are 1.4 percent, 31.7 percent and 47.9 percent in case of Andhra Pradesh, Karnataka and Kerala respectively. The analysis of efficiency gap would enable the country to improve competitiveness through setting out targets and help to improve productivity levels. In order to reduce the yield gap, it is imperative to study cultivation and management practices of benchmarking state, replacement/rejuvenation of old and senile trees, planting of short duration high yielding dwarf and disease resistant varieties and use of new resource conservation technologies in the cultivation. Chart 3.3: Benchmarking Coconut Productivity & Efficiency Gaps TE Productivity (000 nuts/ha) T N A P Kar Ker All India Prdty ('000 Nuts / Ha.) Efficiency Gap (%) Efficiency gap (%) Productivity and Efficiency Note: Top 4 states having more than 1 percent production share in total production have been considered. Source: Horticulture Division, DAC&FW 17

34 Recapitulation i) Average growth of productivity of coconut has accelerated during the current decade but is still low in two major producing states, namely, Kerala and Karnataka as well as in many districts of the country and efficiency gaps are high. Therefore, it is important to study cultivation and management practices in benchmarking state and adopt those practices to improve overall productivity levels of the states. ii) It also emerges from the analysis that productivity levels in Tamil Nadu and Andhra Pradesh are significantly higher than other states. These states/districts may have more suitable agro-climatic conditions and may be using different practices or input regimes, which need to be studied and implemented in other low-yield areas. Productivity and Efficiency ***** 18

35 Chapter 4 Trade Competitiveness of Copra and Coconut oil Global Scenario: Production and Trade in Coconut, Copra and Coconut oil 4.1 Coconut is mainly grown in coastal areas and Islands in about 90 countries in the tropical wet regions of the world. As per Asia and Pacific Coconut Community (APCC), the global production of coconut was 70.9 billion nuts in TE2014. India is the largest producer with a share of 31.8 percent followed by Indonesia (23.1 percent) and Philippines (21.6 percent) in TE2014 (Chart 4.1). These three countries produce more than three-fourths of global output of coconut. Other major producers are Brazil (4.1 percent) and Sri Lanka (3.9 percent). Chart 4.1: Major Producers of Coconut, TE2014 Chart 4.1: Major Producers of Coconut, TE-2014 Indonesia 23.1% Philippines 21.6% Chapter 4 India 31.8% Others 23.5% Source: APCC 0.0% 4.2 Copra, the dried kernel, is the main product derived from coconut. As per APCC, global production of copra was 58.7 lakh tonnes in TE2014. Philippines is the largest producer of copra with a share of 40.3 percent followed by Indonesia (25.2 percent) and India (20.9 percent) [Chart 4.2]. These three countries produced about 86 percent of global copra production in TE2014. Most of the copra is processed to produce coconut oil in the producing country itself and only 2.6 percent of copra was traded in the international market in TE

36 Chart 4.2: Major Producers of Copra, TE2014 Indonesia 25.2% India 20.9% Trade Competitiveness of Copra and Coconut oil Source: APCC Philippines 40.3% Philippines 43.4% Indonesia 29.0% Others 13.6% 4.3 As per USDA, global production of coconut oil was 33.9 lakh tonnes in TE , out of which about 54 percent was traded. Philippines is the largest producer of coconut oil with a share of 43.4 percent followed by Indonesia (29 percent) and India (13.1 percent) [Chart 4.3]. These three countries produced 85 percent of global coconut oil in TE which corresponds with their share in copra production as copra is mainly used for extracting coconut oil. Chart 4.3: Major Producers of Coconut Oil, TE Source: USDA India 13.1% Others 14.5% 4.4 The global exports of coconut oil, as per USDA, were 18.2 lakh tonnes in TE Philippines is the largest exporter of coconut oil with a share of 44.9 percent followed by Indonesia (41.3 percent) and Malaysia (9.0 percent) [Chart 4.4(a)]. These three countries accounted for 95 percent of total global exports of coconut oil in TE EU is the largest importer of coconut oil with a share of 32.5 percent closely followed by USA (31.8 percent) [Chart 4.4 (b)]. EU and USA 20

37 accounted for about two-third of total global imports of coconut oil. Other major importers are Malaysia (10.9 percent), China (8.2 percent) and South Korea (3.1 percent). Chart 4.4: Major Exporters and Importers of Coconut Oil, TE Chart 4.4: Major Exporters and Importers of Coconut Oil, TE Indonesia 41.3% Source: USDA (a): Exporters Philippines 44.9% Malaysia 9.0% Others 4.8% EU % (b): Importers USA 31.8% Malaysia 10.9% Others 16.6% 4.5 As per USDA, the total global production of major vegetable oils has increased from 1107 lakh tonnes in TE to 1756 lakh tonnes in TE , posting a growth rate of 4.7 percent per annum whereas production of coconut oil has only slightly increased from 33.8 lakh tonnes to 33.9 lakh tonnes during the corresponding period. In comparison, the production of palm oil has increased from 332 lakh tonnes to 601 lakh tonnes during the same period with a growth rate of 6.1 percent per annum. The share of coconut oil has decreased from 3.1 percent in TE to 1.9 percent in TE During the same period, the share of palm oil has increased from 30.0 percent to 34.2 percent. India s Trade in Coconut and Coconut based Products 4.6 Export of coconut products (excluding coir and its products) have increased from Rs crore in to Rs crore in whereas imports have increased from Rs crore to Rs crore during the corresponding period. The major coconut products exported from India are coconut shell based activated carbon, coconuts (dry and fresh) and coconut oil. Department of Commerce, Ministry of Commerce & Industry in April, 2009 has notified Coconut Development Board (CDB) as an Export Development Council (EDC) for all coconut products other than those made from husk and fibre. Hence, export of coconut products such as ball copra, cut copra, all oils made from coconut, coconut shell products, coconut wood furniture fall within the jurisdiction of CDB. As regards coir and coir products, its exports have increased from Rs crore in to Rs crore in China 8.2% Trade Competitiveness of Copra and Coconut oil 21

38 Trade Competitiveness of Copra and Coconut oil 4.7 Despite being one of the largest producers of copra as well as coconut oil in the world, India exports small quantities of coconut products due to high domestic demand. However, the country s exports of coconut have increased from 2.6 thousand tonnes valued at Rs.5.7 crore in TE to 69.3 thousand tonnes valued at Rs crore in TE In value terms, India s exports of coconut, copra and coconut oil were Rs.5.7 crore, Rs.1.7 crore and Rs.27.9 crore in TE which have increased to Rs crore, Rs.62.9 crore and Rs crore respectively in TE The share of exports of coconut in total exports of coconut, copra and coconut oil taken together has increased from 16.1 percent in TE to 66.7 percent in TE , whereas the share of exports of coconut oil has decreased from 79.1 percent in TE to 22.1 percent in TE (Chart 4.5). India should lay more emphasis on exports of finished products rather than on primary commodities so as to increase job opportunities and ramp up investment. The country does not import coconut and copra, though it imports small quantities of coconut oil. Exports and imports of coconut oil during to may be seen at Chart 4.6. It may be noted that India was a net importer of coconut oil till but turned to be a net exporter during to (barring when it was net importer of coconut oil). Chart 4.5: Changing Shares of Coconut, Copra and Coconut Oil in their Total Value of Exports (TE and TE ) Coconut oil 79.1% Source: DGCIS (a) : TE Coconut 16.1% Copra 4.8% Coconut 66.7% (b) : TE Copra 11.2% Coconut oil 22.1% 22

39 Chart 4.6 : India's Exports & Imports of Coconut Oil, to ' Tonnes Trade Policy Export Quantity Import Quantity Source: DGCIS Export of edible oil was initially prohibited for a period of one year from March, 2008 which was extended from time to time. However, certain exemptions are permitted for exporting edible oils including coconut oil. In addition, export of edible oils in branded consumer packs of up to 5 kgs. is permitted with a Minimum Export Price (MEP) of US $ 900 per MT. 4.9 Edible oils were under negative list of imports till April, 1994 when import of palmolein was placed under OGL subject to 65 percent import duty. Subsequently, import of other edible oils were also placed under OGL and import duty was high up to 80 percent on crude and 90 percent on refined edible oils during early 2000s but was reduced to zero percent on crude and 7.5 percent on refined edible oils in April, Import duty on crude edible oils was increased to 2.5 percent in January, 2013 which has been further increased to 7.5 percent in December, 2014 and to 12.5 percent in September, Import duty on refined edible oils was also increased to 10 percent in January, 2014 which has been further increased to 15 percent in December, 2014 and to 20 percent in September, Trade Competitiveness of Copra and Coconut oil 4.10 The domestic and international prices of copra vis-à-vis its MSP from 2012 (Q 1 ) to 2016 (Q 3 ) may be seen at Chart 4.7 and domestic and international prices of coconut oil may be seen at Chart 4.8. It is observed that domestic wholesale prices of copra as well as coconut oil were generally higher than international prices. However, from 2016 (Q 1 ) onwards, the domestic prices are continuously lower than international prices. Currently, the domestic wholesale prices of copra are lower than MSP. 23

40 Chart 4.7: Domestic and International prices of Copra vis-a-vis MSP Trade Competitiveness of Copra and Coconut oil l. Rs/Qt Note : Copra (Philippines/Indonesia), bulk, c.i.f., NW Europe and domestic wholesale prices at Kozhikode. * Domestic and international prices are average price of July and August for the quarter Source: World Bank, DES and CACP Rs/ /Qtl Chart 4.8: Domestic and International Prices of Coconut Oil Q Q Q Q Q Q Q Q Q Q Q Q2 Note : Coconut oil (Philippines/Indonesia), bulk, c.i.f. Rotterdam and domestic wholesale prices at Kochi. * Domestic and international prices are average price of July and August for the quarter Source : World Bank and DES 2013 Q Q Q4 MSP of Copra (Milling) Domestic Price International price Q Q Q1 Domestic Price International price Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3* 2016 Q3* 24

41 Global Outlook 4.11 As per World Bank, the average international prices of coconut oil have increased from US$1110 per tonne in 2015 to US$1273 per tonne during the period January- March, 2016 which further increased to US$1531 per tonne during the period April-June, 2016 but declined to US$1508 per tonne in July, However, the international prices are likely to remain at higher level in the near future Domestic wholesale prices of copra as well Coconut oil have been ruling lower than international prices from 2016 (Q 1 ) onwards and so there is good scope for increasing their exports. Indian coconut oil has quality advantage in export market and Indian diaspora also prefers coconut oil of Indian origin. The share of coconut oil is decreasing whereas the share of coconut and copra is increasing in total exports of coconut, copra and coconut oil taken together over the years. India should lay more emphasis on export of finished products rather than on primary commodities so as to increase job opportunities and ramp up investment. ***** Trade Competitiveness of Copra and Coconut oil 25

42 Costs, Returns and Inter-Crop Price Parity Chapter 5 Chapter As per the mandate of the Commission, cost of production (CoP) is one of the important factors in the determination of Minimum Support Price (MSP) of copra. Besides this, the Commission considers other important factors such as demand and supply, trends in the domestic and international market prices, inter-crop price parity and terms of trade between agricultural and non-agricultural sectors, likely impact of MSP on consumers. Thus, pricing policy is rooted not only in cost plus approach though cost is one of the important factors. 5.2 The Commission uses the cost estimates furnished by DES, Ministry of Agriculture & Farmers Welfare under Comprehensive Scheme (CS) for Studying the Cost of Cultivation of Principal Crops in India. Since CS data is generally available with a time lag of two years, it needs to be projected for ensuing season 2017 state-wise and at All-India level. These projected cost estimates are factored into formulation of price policy recommendations by the Commission. 5.3 The Commission has projected CoP estimates for 2017 season, based on actual estimates for the latest three years viz to in respect of only two States of Kerala and Tamil Nadu. These projections capture change in overall input cost separately for the season 2017 over each of the past three years viz , and An assessment of overall change in input cost likely for the season 2017 with reference to each of the above mentioned three consecutive years is made by constructing the Composite Input Price Index (CIPI) based on latest prices of different inputs like human labour, bullock labour, machine labour, manures, fertilizers, seeds, pesticides and irrigation charges as per data available from Labour Bureau, State governments, Office of the Economic Adviser (OEA), Ministry of Commerce and Industry, Fertilizers Association of India (FAI) etc. Based on CIPI thus constructed, the Commission projected CoP for 2017 season. 26

43 5.4 The Commission prepares cost projections on the basis of latest three years cost estimates for each state. In this exercise, there are certain implicit assumptions. One, since projection for copra for each growing state is made two years ahead, it is assumed that fixed cost components would not, in all likelihood, undergo any perceptible change in the intervening period. Two, since yield level varies year-onyear due to multiplicity of factors, three projections of cost are attempted for each state to smoothen out erratic fluctuations in yield and hence in cost of production. Costs and Profitability of Coconut, TE Before giving its projection, the Commission first examines the actual cost and profitability of the coconut, for which latest CS data is made available by DES. It is pertinent to point out that the gross value of output is estimated at the prevailing market prices during harvest season in the village/cluster of villages where crop is grown and harvested. With this stipulation, an analysis of profitability and rate of return over costs A 2, A 2 +FL and C 2 for the crop during TE is presented. 5.6 Profitability can be seen from three perspectives. First is gross returns over A 2 which is defined as gross value of output less cost A 2, second is gross returns over A 2 +FL, which is defined as gross value of output less cost A 2 +FL and third is net returns, which represent gross value of output less cost C 2. The average returns (both gross and net) of coconut for the States of Kerala and Tamil Nadu during to are presented in Table 5.1. Average gross rate of returns over costs A 2, A 2 +FL and net rate of returns are 241, 137 and 58 percent for Tamil Nadu and 112, 74 and 28 percent for Kerala, respectively. Year Cost A 2 Table 5.1: Gross and Net Returns of Coconut (TE ) Cost A 2 +FL Rs/ha Cost C 2 GVO Gross Returns over A 2 Rs/ha (Col.5- Col.2) Percent (Col.6/ Col.2*100) Gross Returns over A 2 +FL Rs/ha (Col.5- Col.3) Percent (Col.8/ Col.3*100) Rs/ha (Col.5- Col.4) Net Returns Percent (Col.10/ Col.4*100) (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) Kerala Average Tamil Nadu Average Source: CACP, using CS data. Costs, Returns and Inter-Crop Price Parity 27

44 Labour and Input Price Movement 5.7 Coconut is a labour intensive crop with 48.5 percent share of labour (Chart 5.1) in the total cost of production (C 2 ) at All-India for TE High share of human labour in the total cost of production suggests the necessity of farm mechanization on a massive scale. Chart 5.1: Share of Major Inputs in Total Cost of Production (C 2 ), TE Costs, Returns and Inter-Crop Price Parity Capital 7.9% Fertilizer 12.6% Land 26.0% Source: CACP calculations. Others 5.0% Human Labour 48.5% 5.8 Charts 5.2a & b depict annual average growth in wage rates of agricultural labour in nominal and real terms ( =100), respectively in major coconut growing states and at All-India level during to At All-India level, increase in agricultural labour wage was 18.2 percent in , 12.7 percent in and it further slowed down to 5.2 percent in at current prices. The increase in real wages was 5.9 percent, 5.4 percent and -2.1 percent in corresponding years. This reflects a declining trend in growth of agricultural labour wages over the last three years. Further, Chart 5.2c reflects annual average daily wages of agricultural labour in and growth in wages during over The statewise and All-India details of monthly average daily wage rates of agricultural labour in nominal terms of major coconut growing states are given in Annex Table

45 Chart 5.2a: Annual Average Growth in Wages of Agricultural Labour (During to at Current Prices) Growth (%) Growth (%) Andhra Pradesh Andhra Pradesh Karnataka Kerala Tamil Nadu All India Growth ( ) Growth ( ) Growth ( ) Note: Average is from July to June. Source: Labour Bureau, Shimla 9 2 Chart 5.2b: Annual Average Growth in Wages of Agricultural Labour (During to at Constant Prices = 100) Karnataka Kerala Tamil Nadu All India Growth ( ) Growth ( ) Growth ( ) Costs, Returns and Inter-Crop Price Parity Note: Average is from July to June. Source: Labour Bureau, Shimla 29

46 Chart 5.2c: Average Daily Wages of Agricultural Labour and Growth in Wages over Costs, Returns and Inter-Crop Price Parity Average Daily Wages (Rs) Kerala Tamil Nadu All India Karnataka Andhra Pradesh Avg Daily Wages Growth in wages Source: Labour Bureau, Shimla 5.9 Chart 5.3 exhibits average trend of prices of farm inputs based on WPI =100 during May to July, 2016 over May to July, While the prices of HSD, fertilizers, tractors, cattle feed, fodder, pesticides and non-electrical machinery have increased in the range of 0.7 percent to 12.9 percent, that of electricity for agriculture has declined by 2.6 percent and in case of lubricant, the price remained the same during the corresponding period (details in Annex Table 5.2). Percent Chart 5.3: Movements in Prices of Farm Inputs (May to July,2016 over May to July,2015) Diesel (HSD) Ferti. Elect. (Agri) Trac. Lub. Cattle Feed Fodder Pest. Non- Elect. (Mach.) Growth in Wages (%) -100 WPI Price Index (May to July,2015) Price Index (May to July,2016) Change in Price (%) Source: DIPP, Ministry of Commerce and Industry 30

47 Cost Projections for Copra, 2017 Season 5.10 The costs per nut for Kerala and Tamil Nadu are projected on the basis of actual cost estimates of coconut received under CS. Further to arrive at per quintal cost of copra, per nut processing charges of converting coconut to copra and number of nuts per quintal of copra provided by the State governments have been used. The average projected cost per nut worked out to be Rs.9.98 for Kerala and Rs.6.53 for Tamil Nadu for 2017 season. The break-up of actual cost estimates in respect of Kerala and Tamil Nadu for and are given in the Annex Table Based on the state-wise costs and CIPI, an All-India weighted average cost of production of milling copra has been arrived at with weights being relative shares of the states in the total production of milling copra in TE The per quintal paid out costs including family labour (A 2 +FL) works out to be Rs 5784 for Kerala and Rs 3946 for Tamil Nadu for 2017 season. The costs of production (C 2 ) per quintal of copra is projected at Rs 8187 for Kerala, Rs 6000 for Tamil Nadu for 2017 season. Further the All-India cost A 2 +FL and C 2 have been projected at Rs.4758 and Rs.6967 per quintal respectively. The modified C 2 cost, which is C 2 cost plus transportation, marketing charges and crop insurance premium (Rs.81 per quintal for 2017 season), works out to be Rs.7048 per quintal at All-India level for 2017 season Supply curves (Charts 5.4a & b) depict the cost of production A 2 +FL and C 2 of milling copra of states in ascending order with their respective shares in the total production. It may be noted that All-India cost of production A 2 +FL and C 2 of milling copra is Rs.4758/qtl and Rs.6967/qtl respectively both of which cover 56 percent of total production of milling copra. Compared to this, MSP recommended at Rs.6500 per qtl covers 100 percent of the total production with respect to A 2 +FL cost of the major coconut producing states. Chart 5.4a: Supply Curve and Projected Cost (A 2 +FL) of Milling Copra, 2017 Season Cost of Production (Rs/qtl) MSP Recommended = Rs 6500/qtl All India A 2 +FL Cost = Rs 4758/qtl Costs, Returns and Inter-Crop Price Parity Tamil Nadu Production Shares (Percent) Kerala All India A2+FL Cost = Rs 4758/qtl MSP Recommended = Rs 6500/qtl 31

48 Chart 5.4b: Supply Curve and Projected Cost (C 2 ) of Milling Copra, 2017 Season 9000 Costs, Returns and Inter-Crop Price Parity Cost of Production (Rs/qtl) All India C 2 Cost = Rs 6967/qtl MSP Recommended = Rs 6500/qtl Production Shares (Percent) Tamil Nadu Kerala All India C2 Cost = Rs 6967/qtl MSP Recommended = Rs 6500/qtl Inter-Crop Price parity 5.13 Table 5.3 presents a comparative picture of returns from coconut and paddy grown in the state of Kerala and Tamil Nadu. Though coconut is a plantation crop in contrast to paddy being a field crop, the comparison is made between the two crops just to get a broad idea about the level of returns from these crops. It is noted that, on an average, returns (both gross and net) from coconut cultivation are significantly higher compared to those under paddy cultivation in the state of Tamil Nadu whereas in the state of Kerala paddy cultivation is more profitable (Table 5.2). Year Cost A 2 Cost A 2 +FL Table 5.2: Inter-Crop Price Parity in Returns Rs/ha Cost C 2 GVO Gross Returns over A 2 Gross Returns over A 2 +FL Rs/ha (Col.5- Col.2) Percent (Col.6/ Col.2*100) Rs/ha (Col.5- Col.3) Percent (Col.8/ Col.3*100) Rs/ha (Col.5- Col.4) Net Returns Percent (Col.10/ Col.4*100) (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) Coconut-Kerala Average Paddy-Kerala

49 Year Cost A 2 Cost A 2 +FL Rs/ha Cost C 2 GVO Gross Returns over A 2 Gross Returns over A 2 +FL Rs/ha (Col.5- Col.2) Percent (Col.6/ Col.2*100) Rs/ha (Col.5- Col.3) Percent (Col.8/ Col.3*100) Rs/ha (Col.5- Col.4) Net Returns Percent (Col.10/ Col.4*100) (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) Average Coconut-Tamil Nadu Average Paddy-Tamil Nadu Average Recapitulation 5.14 To sum up, the pricing policy is rooted not just in the cost plus approach, though cost is one of its important determinants. Given the time lag of about two years in availability of CS data from field levels to DES, the Commission has projected the cost estimates for the ensuing season Since DES provides CS data only for two states viz; Kerala and Tamil Nadu, it is desirable to extend the comprehensive scheme in the state of Andhra Pradesh and Karnataka for better representative estimates for All-India projections. The All-India weighted average costs A 2 +FL and C 2 of milling copra are projected at Rs.4758/qtl and Rs.6967/qtl respectively for 2017 season. The modified C 2 cost inclusive of costs of transportation, marketing and insurance premium of milling copra is projected at Rs.7048/qtl for the 2017 season. These projected costs have been factored into formulation of price policy recommendations. Given high share of labour at 48.5 percent in the total cost of production (C 2 ) coupled with high growth in wage rates, it is imperative to ramp up farm mechanization which will increase the pace of the operations, enhance productivity, contain cost of production and augment profitability in medium to long run. Costs, Returns and Inter-Crop Price Parity ***** 33

50 Considerations and Recommendations for Price Policy Chapter While recommending MSP for milling copra and ball copra for the 2017 season, the Commission has considered cost of production of copra, trends in the domestic and international prices of edible oils, overall demand and supply of copra and coconut oil, the cost of processing of copra into coconut oil and the likely impact of the recommended MSPs on consumers. Chapter Coconut production in India, which witnessed a declining trend during to , marginally increased in , due to increase in area by 6 percent while yield declined by about 5.6 percent. Kerala was the major contributor to increase in all-india production, where production increased by percent. Market Prices of Copra and Coconut Oil 6.3 Wholesale prices of milling copra and ball copra have shown fluctuating behavior during 2008 to Since mid-2015, coconut oil prices have shown a sharp decline, mainly due to increase in the demand for palm oil arising out of its low prices. Increase in coconut production during has led to an increase in stock-touse ratio (SUR), which may have adverse impact on coconut oil prices. However, with depleting vegetable oil stocks and reversal in declining price trends in most vegetable oils in the world market during last few months and expectation of likely increase in prices, coconut oil prices are likely to recover in the coming months and improve profitability of coconut farmers and industry, which was in serious crisis during Procurement of Copra and Related Issues 6.4 NAFED and National Cooperative Consumers Federation of India Limited (NCCF) are the national nodal agencies for Price Support Scheme (PSS) operations of copra. 34

51 Procurement and market prices data showed that copra procurement operations have not been very effective as market prices of copra were lower than MSP during 2012 but still very small quantity was procured in Even during 2016, the prices of milling copra were ruling below MSP but procurement operations were started quite late and that too in Tamil Nadu and Karnataka only. This market intervention led to some improvement in market prices of copra and farmers received marginally higher prices than MSP. Procurement Period 6.5 The procurement period of copra has been increased from 3 months to 6 months in 2016 on the recommendation of the CACP. However, analysis of market arrivals of copra and discussions with coconut farmers/farmers representatives, officials of CDB and State Governments, it was observed that market arrivals of coconut are well distributed (without much seasonality) during all months in a calendar year. Moreover, there is also demand from farmers and other stakeholders that procurement operations should be extended to whole year as the crop is perennial with year round harvesting. The Commission, therefore, recommends that whenever market prices fall below declared MSP, procurement operations under Price Support Scheme (PSS) should be undertaken and continued till the market prices stabilize above the MSP. Procurement of Raw/De-husked Coconut 6.6 The Commission has been receiving requests from various state governments and farmer organizations to consider fixing MSP of raw/de-husked coconut and its procurement. To examine the feasibility of procurement of raw coconut, Commission visited Kerala and Tamil Nadu to have interactions with various stakeholders including farmers and processors. It was observed that small and marginal farmers do not have the required financial capacity to convert the raw/de-husked coconut into copra and therefore, are mostly excluded from procurement operations. Small and marginal coconut farmers generally sell raw coconuts to traders at low price, who aggregate produce and convert into copra. Under PSS operations, cooperatives and other agencies, who have drier facility, procure de-husked coconut from farmers and convert into copra and supply to NAFED through State Level Supporters (SLSs) like KERAFED in Kerala and TANFED in Tamil Nadu. Due to lack of adequate infrastructure and machineries like drier, the procurement of de-husked coconut is very limited in Kerala whereas in other states, the procurement of de-husked coconut has not been possible, so far. Therefore, Central/concerned State Government should help in creating infrastructure for processing raw coconut into copra at village level agencies involved in PSS operations, which would benefit a large number of coconut farmers. Considerations and Recommendations for Price Policy 35

52 Considerations and Recommendations for Price Policy However, limited shelf life, perishable nature, inadequate conversion facility for making copra etc. are the major constraints in procurement of de-husked coconut under PSS. Further NAFED is also facing problems in getting storage space for copra. The storage of copra is generally done in CWCs/SWCs and where the storage facilities are not sufficient, private godowns are used for storing copra but these godowns lack scientific and quality storage facilities. 6.7 In order to provide benefit to small and marginal farmers, Government of Kerala launched a scheme for procurement of raw/green coconuts in January However, there are several constraints in implementation of this scheme. Some of these constraints include, lack of sufficient storage facility, perishability of raw/ green coconuts, limited shelf life and delivery of immature coconuts by some farmers resulting in poor quality of copra and lack of processing facilities for timely conversion of coconuts into copra. Also abnormally high support price announced by the government is not sustainable. The Commission is of the opinion that the state government should go for direct income transfer to farmers, when market prices fall below support price, rather than government-supported procurement of raw coconuts. Involve Farmer Producer Organizations in Procurement Operations 6.8 NAFED is one of the Central Nodal Agencies for procurement of milling and ball copra under Price Support Scheme. KERAFED in Kerala and TANFED in Tamil Nadu procure copra under the price support scheme on behalf of NAFED. However, procurement agencies operate through few procurement/collection centres, therefore the Commission recommends that more collection centres need to be opened at panchayat/village level for collection of the raw nuts and procurment/ collection centres should be linked to processing units for processing into milling copra. For this purpose FPOs should be promoted and involved in procurement of produce from the farmers Low Productivity 6.9 States of Tamil Nadu and Andhra Pradesh have higher productivity in comparison to All India average. As per TE , the efficiency gap in the productivity of benchmarking state (Tamil Nadu) with that of All India is 31.3 percent. The efficiency gaps are 4.2 percent, 33.4 percent and 49.7 percent in case of Andhra Pradesh, Karnataka and Kerala respectively. The analysis of efficiency gap would enable the country to improve competitiveness through setting out targets and help to improve productivity levels. In order to reduce the yield gap, it is imperative to 36

53 study cultivation and management practices of benchmarking state, replacement/ rejuvenation of old and senile trees, planting of short duration high yielding dwarf and disease resistant varieties. Value-Addition and Product Diversification 6.10 Coconut is one of the most versatile crop from which a range of valuable products could be produced. However, farmers are yet to exploit the potential of value-added products and by-products from coconut. Diversification of coconut-based products and value-addition will help the coconut growers in getting remunerative prices and improve competitiveness. Therefore, efforts are needed to develop technologies for processing and product diversification and market promotion of such products. India s Trade in Coconut and Coconut-based Products 6.11 Export of coconut products (excluding coir and its products) have increased from Rs crore in to Rs crore in whereas imports have increased from Rs crore to Rs crore during the corresponding period. The major coconut products exported from India are coconuts (dry and fresh) and coconut oil The share of coconut oil is decreasing whereas the share of coconut and copra is increasing in total exports of coconut, copra and coconut oil taken together over the years. The Commission feels that India should lay emphasis more on export of finished products rather than on primary commodities so as to increase job opportunities and for ramping up investment. Costs and Profitability of Coconut 6.13 The all-india weighted average costs A 2 +FL and C 2 of milling copra are projected at Rs 4758/qtl and Rs 6967/qtl respectively for 2017 season. The modified C 2 cost inclusive of costs of transportation, marketing and insurance premium of milling copra is projected at Rs 7048/qtl for the 2017 season. These projected costs have been factored into formulation of price policy recommendations. Given high share of labour at 48.5 percent in the total cost of production (C 2 ) coupled with high growth in wage rates, it is imperative to ramp up farm mechanization which will increase the pace of the operations, enhance productivity, contain cost of production and would augment profitability in medium to long run. Since DES provides CS data only for two states viz; Kerala and Tamil Nadu, it is desirable to extend the comprehensive scheme in Andhra Pradesh and Karnataka for better representative estimates. Considerations and Recommendations for Price Policy 37

54 Cost of Production and MSP of Copra Considerations and Recommendations for Price Policy 6.14 Considering all the above factors, the Commission recommends that MSP of milling copra and ball copra be fixed at Rs.6500/quintal and Rs.6785/quintal respectively for 2017 season. This MSP of milling copra would give gross returns of 36.6 percent. The Commission is of the considered opinion that implementation of the recommendations contained in this report would steer the copra sector towards greater stability and would go a long way in putting it on a higher trajectory of growth. (Suresh Pal) Member (Official) 7 th September, 2016 (Vijay Paul Sharma) Chairman (Shailja Sharma) Member Secretary 38

55 Annex Tables 39