Financial Times

Booming Indian demand gives fillip to DC industry
Sky-high crude oil prices may not have led to increased exports of Sri Lankan desiccated coconut (DC) to the Middle East, its main market, but the DC industry has found a new saviour in the form of booming demand from India this year.

"There's a big off take to India at very high prices," said Sunil Watawala, president of the DC Millers Association. "This has kept world DC prices very high." Demand increased after India lowered import tariffs earlier this year under the Bangkok agreement, a preferential tariff arrangement aimed at promoting intra-regional trade through exchange of mutually agreed concessions by member countries.

Previously, imports of DC by India was discouraged by high tariffs. Watawala said lower Indian import tariffs and increased demand had helped stabilise Sri Lankan DC prices despite shipments to the Middle East remaining the same.

India's DC manufacturing capacity is only 35,000 metric tonnes compared with Sri Lanka's installed capacity of 100,000 metric tonnes. Sri Lanka is the world's second largest exporter of DC and the island's DC is known for being much sweeter than that of other origins. Watawala said so far this year about 15,000 metric tonnes of DC had been shipped to India where it is used in chocolates, sweets and by housewives. "If the Indian market had not opened up that quantity would have been stuck here and gone to traditional markets which means that buyers would have had no worry, knowing that big volumes were available in Sri Lanka. But the Indian off-take has created a bit of a short position in Sri Lanka."

DC millers have asked the government to do a vigorous trading campaign in India to increase sales. "India is going to be our biggest market in the future," Watawala said. "No one else can creep into it because of our freight advantage. Other origins like Indonesia and the Philippines are not competitive. But we have to be able to service the demand."

Indian millers would not be able to supply demand because they do not have enough nuts most of which are eaten up leaving only a little for manufacture with the rest converted in to oil, especially in the southern states. The over capacity in the Sri Lankan DC industry, when the market was in the doldrums a few years ago, was now under control because of the new Indian market.

One option was China but Sri Lankan exporters would have found it hard to compete with other origins that are closer like Indonesia and the Philippines. Watawala said Sri Lanka had exported about 45,000 MT of desiccated coconut so far this year and expects shipments to rise to 60-65,000 MT by year's end of which 25,000 MT will go to India.

"We were having a very bad time but with the Indian market coming in things are shaping well," he said. "We can assure estate owners a very lucrative price for coconut." DC production and exports fell sharply in 2002 owing to the lagged effects of drought the previous year. Exports fell to under 30,000 MT in 2002 from nearly 50,000 MT in 2001 but recovered to 42,000MT in 2003.

During the difficult years many of the 63 DC mills in the island were forced to close or curtail production because of the shortage of raw material caused by drought and the war in Iraq which affected exports to the Middle East. As much as 80 percent of Sri Lankan DC went to the Middle East.

Watawala said the industry was still struggling to raise DC selling prices. "The chocolate called 'Bounty' uses DC. It is mostly used for Bounty bars, and has never come down in price," he said. "Our biggest problem is that the cost of production is rising with oil prices and wages going up. So our selling prices must rise."

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