Coconut
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The rise in demand has been dramatic. In the Philippines, the world's second largest coconut producer after Indonesia, the government estimates that coconut-water exports quadrupled in the first quarter of 2012 compared with the same period in 2011. Across Asia, coconut-oil exports to the U.S. have grown 3.3% annually over the past five years, according to the Asian and Pacific Coconut Community (APCC), a Jakarta-based industry group.
But in many cases, the middlemen are grabbing more of the profit--and passing on little to the growers. In Asia, middlemen are paid 25% to 50% more per coconut than what they pay farmers. In Sri Lanka, companies that make desiccated coconut, or copra, from which oil is extracted, pay middlemen about 23 per nut, while middlemen pay growers as little as 17. Because of a shortage, prices in Sri Lanka are up, but in Thailand, where supply is flush, prices have dropped to 5 per lb. from 19 per lb. last year, according to the APCC. As a result, struggling farmers continue to harvest their trees but don't plant new ones.
To avoid bottlenecks, processors are looking beyond their original source countries. Dr. Bronner's, which uses coconut oil in soaps and for food-grade oil, used to buy its coconut oil from the Philippines before setting up its fair-trade operation in Sri Lanka in 2007. The company has built a new factory in Kenya and is considering another in Mexico. Vita Coco, one of the dominant coconut-water brands in the U.S., once bought coconuts only from Brazil, using a local company to produce, flash-pasteurize and ship the juice out in Tetra Paks. Because it had only one source, "demand was increasing faster than we could produce," says Arthur Gallego, Vita Coco's spokesman. "There were multiple times that Vita Coco had to turn down major retail partners because the product wasn't going to be available." The company found new suppliers in Sri Lanka, the Philippines and Mexico, and those countries now provide a significant share of its coconuts.
A Serious Warning
Some farmers facing stagnant prices are already giving up. Coconut plantations across Asia aren't getting any bigger, and in some cases they're getting smaller as farmers sell their land or convert it to more profitable crops like palm oil. As demand pushes up prices, coconut farming will become more attractive, but until the market adjusts and young trees mature, producers are scrambling. "It's a really serious warning to business players," says Amrizal Idroes, the APCC's market-development officer. Companies will eventually have to offer higher prices, he says, to fortify growers' commitment--and their own supply.