Coconut Industry

The Philippines is the world's second largest producer of coconut products, after Indonesia.
In 1989 it produced 11.8 million tons. In 1989, coconut products, coconut oil, copra (dried
coconut), and desiccated coconut accounted for approximately 6.7 percent of Philippine
exports. About 25 percent of cultivated land was planted in coconut trees, and it is
estimated that between 25 percent and 33 percent of the population was at least partly
dependent on coconuts for their livelihood. Historically, the Southern Tagalog and Bicol
regions of Luzon and the Eastern Visayas were the centers of coconut production. In the
1980s, Western Mindanao and Southern Mindanao also became important coconut-
growing regions.

In the early 1990s, the average coconut farm was a medium-sized unit of less than four
hectares. Owners, often absentee, customarily employed local peasants to collect coconuts
rather than engage in tenancy relationships. The villagers were paid on a piece-rate basis.
Those employed in the coconut industry tended to be less educated and older than the
average person in the rural labor force and earned lower-than-average incomes.

Land devoted to cultivation of coconuts increased by about 6 percent per year during the
1960s and 1970s, a response to devaluations of the peso in 1962 and 1970 and increasing
world demand. Responding to the world market, the Philippine government encouraged
processing of copra domestically and provided investment incentives to increase the
construction of coconut oil mills. The number of mills rose from twenty-eight in 1968 to
sixty-two in 1979, creating substantial excess capacity. The situation was aggravated by
declining yields because of the aging of coconut trees in some regions.

In 1973 the martial law regime merged all coconut-related, government operations within a
single agency, the Philippine Coconut Authority (PCA). The PCA was empowered to
collect a levy of P0.55 per 100 kilograms on the sale of copra to be used to stabilize the
domestic price of coconut-based consumer goods, particularly cooking oil. In 1974 the
government created the Coconut Industry Development Fund (CIDF) to finance the
development of a hybrid coconut tree. To finance the project, the levy was increased to
P20.

Also in 1974, coconut planters, led by the Coconut Producers Federation (Cocofed), an
organization of large planters, took control of the PCA governing board. In 1975 the PCA
acquired a bank, renamed the United Coconut Planters Bank, to service the needs of
coconut farmers, and the PCA director, Eduardo Cojuangco, a business associate of
Marcos, became its president. Levies collected by the PCA were placed in the bank,
initially interest-free. In 1978 the United Coconut Planters Bank was given legal authority
to purchase coconut mills, ostensibly as a measure to cope with excess capacity in the
industry. At the same time, mills not owned by coconut farmers--that is, Cocofed members
or entities it controlled through the PCA--were denied subsidy payments to compensate for
the price controls on coconut-based consumer products. By early 1980, it was reported in
the Philippine press that the United Coconut Oil Mills, a PCA-owned firm, and its
president, Cojuangco, controlled 80 percent of the Philippine oil-milling capacity. Minister
of Defense Juan Ponce Enrile also exercised strong influence over the industry as chairman
of both the United Coconut Planters Bank and United Coconut Oil Mills and honorary
chairman of Cocofed. An industry composed of some 0.5 million farmers and 14,000
traders was, by the early 1980s, highly monopolized.

In principle, the coconut farmers were to be the beneficiaries of the levy, which between
March 1977 and September 1981 stabilized at P76 per 100 kilograms. Contingent benefits
included life insurance, educational scholarships, and a cooking oil subsidy, but few
actually benefited. The aim of the replanting program, controlled by Cojuangco, was to
replace aging coconut trees with a hybrid of a Malaysian dwarf and West African tall
varieties. The new palms were to produce five times the weight per year of existing trees.
The target of replanting 60,000 trees a year was not met. In 1983, 25 to 30 percent of
coconut trees were estimated to be at least sixty years old; by 1988, the proportion had
increased to between 35 and 40 percent.

When coconut prices began to fall in the early 1980s, pressure mounted to alter the
structure of the industry. In 1985 the Philippine government agreed to dismantle the United
Coconut Oil Mills as part of an agreement with the IMF to bail out the Philippine
economy. Later a 1988 United States law requiring foods using tropical oils to be labeled
indicating the saturated fat content had a negative impact on an already ailing industry and
gave rise to protests from coconut growers that similar requirements were not levied on
oils produced in temperate climates.

More about the Agriculture of the Philippines.