Coconut oil prices are dipping and are likely to ease further as supply remains unabated and demand weak. With prices of substitute palm oil coming down further in the global market, the demand for coconut oil was slated to decrease further, traders said.

State-run Coconut Board has been claiming that dumping of cheap palm oil from Malaysia is hurting the market. Coconut oil prices have fallen by almost 10-12 % after the government started procurement of copra and raw coconut. Prices at the terminal market of Kochi came down to almost Rs 44 per kg last week.

Interestingly, the coconut oil market has eased by almost 30% from the high achieved last year .

Global shortage of edible oils had propelled prices of palm oil above coconut oil prompting a shift by household and hotel industry.

Coconut oil industry had gained from the relative price difference as upcountry industries like soap, detergent and confectionery shifted to the cheaper oil. Coconut oil had gained by 30-40% in a single year and managed to remain stable even in the peak production season of February-July of 2008.

However, the recession and the consequent drop of crude oil have brought down the demand for palm oil. Overproduction of palm oil in

Indonesia and Malaysia has brought down its price and India, the second largest edible oil market in the world after China, has become an easy dumping place, as there is no import duty on this product.

Industrial users had slowly shifted to coconut oil when the difference between imported palm oil and coconut oil increased to more than Rs 10 per kg.

A study by the Coconut Development Board (CDB) states that households shift back to palm oil when coconut oil sells above a premium of Rs 10 per kg. Coconut oil is at present consumed only in south Indian states, and that too mostly in Kerala. In other states, the oil is used mostly as hair oil.

The entry of Tamil Nadu into coconut farming changed the dynamics of the coconut oil market. Kerala is the main coconut growing state with an area of 897,800 hectares followed by Tamil Nadu (370,600 hectares) and Karnataka (385,400 ha). Sources say that Tamil Nadu is likely to emerge the largest producer within a short span of time given the fact that area under cultivation is decreasing in Kerala. Production has become unviable in Kerala, while productivity gains have helped Tamil Nadu stay profitable despite lowering of coconut oil prices.

“Coconut oil market firms from June with the onset of rains and stays so during the season. Before the entry of Tamil Nadu into large-scale coconut farming, prices for coconut oil used to appreciate significantly during the monsoon,” Talat Mehamod, a trader at the terminal market of Kochi, told FE. “The large-scale use of dryers and supply from Tamil Nadu has lowered the effect of monsoon considerably,” he said. As there is no demand for the oil in other states, the farmers prefer to sell it at any rate rather than stock.

The government started procurement of copra to stem the drop in coconut oil prices. The support price (Rs 44.50 for a kg of copra) offered by the government agencies is equivalent to the oil price of Rs 67-68. While the current market price for coconut oil is only Rs 44-45 per kg, palm oil is retailing below the coconut oil price.

Traders also feel that the volume of procurement has been negligible and not enough to make an effect on the market. Sources at Kerafed-the agency responsible for procurement, told FE that the procurement was on the right track and would succeed. The agency has so far procured over 4,000 tonne. “We are making sure that the assistance reaches to real farmers and not intermediaries.” “Kerafed procures copra only from genuine farmers and not traders,” sources added.