Farmers will have greater earning capacity while more engineers, chemists, and other professionals will be employed, if government and coconut industry players will focus more on cocochemicals, specifically oleochemicals, to prop up an industry currently experiencing a slowdown.

This was the major point raised during a recent Round Table Discussion (RTD) organized by the National Academy of Science and Technology, an advisory body of the Department of Science and Technology. Titled “RTD on the Philippine Coconut Industry’s Cocochemical Sector: Quo Vadis?”, the event was held last May 28, 2013 at the Hyatt Hotel Manila.

Cocochemicals are the highest-value products among coconut commodities and coconut-based oleochemicals, which come from plant and animal fats, are now experiencing an upsurge in terms of market interest. The fuel industry benefits most from oleochemicals production since these may be processed to produce biodiesel, additives, lubricants, greases and solvents.

Proposed solution: embrace the value chain

To tap the opportunities generated by oleochemicals and boost the local cocochemical sector, Dean Lao Jr., managing director of CHEMREZ Technologies and president of the Philippine Oleochemical Manufacturing Association, believes that producers should venture into the other components of the value chain. He mentioned that the Philippines, as of now, is confined to only one component, which is ingredient manufacturing, or simply oleochemical production. Meanwhile, the entire value chain is quite long, comprising feedstock production, ingredient manufacturing, compounding and formulation, branding and packaging, logistics and distribution, retail or direct marketing.

Lao stressed his point during the RTD by citing Pilipinas Kao, which has gone all the way to branding and packaging. “If you go all the way down the value chain, there are savings and profits. You harness value at every stage of the chain. You are less sensitive to feedstock prices, and have more options to market finished goods,” the CHEMREZ official disclosed.

The availability of highly skilled human resources does not appear to be a problem either as Lao noted many Filipino engineers and chemists who are experts in this field. Some are getting hired in Malaysian and Indonesian cocochemical companies and plants where they continue to excel, he said.

Challenges in the cocochemical sector

According to Carlos B. Carpio, deputy administrator for research, development and extension branch of the Philippine Coconut Authority, the Philippines was one of the first oleochemical producing countries in Asia.

In recent years however, the ballgame has changed.

During his presentation titled “The Raw Materials Supply Chain: The Quality of Oil Produced by the Coconut Tree,” Carpio said that Malaysia and Indonesia are now two of the world’s biggest oleochemical producers with the most dedicated research and development (R&D) facilities. Fact is, Indonesia is the world’s biggest producer of palm oil, which includes oleochemicals among its end-products.

Evelina L. Patiño, executive vice-president and chief operating officer of United Coconut Chemicals Inc., echoed the statement of Carpio.

In her talk on “Philippine Cocochemicals for the Local and Global Markets,” Patiño specified that both Malaysia and Indonesia are now supplying 42 percent of the market for oleochemicals. “The trend has now shifted from Europe to Asia. But, we hardly have anything to speak of where cocochemical production is concerned,” she lamented.

Pilipinas KAO and PIDI are the only operating basic oleochemical plants in the Philippines, apart from biodiesel producers. The others, like Cocochem, Pan-Century, IPI, and Lina Holdings, have either closed shop or are now on shutdown.

Patiño cited the following challenges faced by local cocochemical producers: limited foreign investments, difficulty competing with other producers, absence of an export tax support unlike in Malaysia and Indonesia where an export tax scheme makes domestic oil prices cheaper, and absence of a long-term plan for increasing coconut production.

Lao added other issues affecting the industry, such as inefficient feedstock production, cost of logistics and electricity, limited R&D, regulated/restricted access to Europe, and difficulty in finding end-users for the product.

A major challenge, said a member of the audience during the open forum, is how to make the benefits of cocochemical production cascade down to the farmers. “They sell their product to manufacturers and it’s the manufacturers who earn from their product, not the farmers,” he lamented.

Aside from the fuel industry, oleochemicals also have applications in the homecare, agriculture, plastic, and food industries. These may also be used to produce metal cutting fluids, cleaners, and resins.