Technological Changes and the Perils of Commodity Production:
Biotechnology and the Philippine coconut farmers
Gigi Manicad
Keywords:  Coco palm; Philippines; Small-scale farming; Substitution; Trade; Public institute.
Correct citation: Manicad, G. (1995), "Technological Changes and the Perils of Commodity Production: Biotechnology and the Philippine coconut farmers." Biotechnology and Development Monitor, No. 23, p. 6-10.

Coconut is one of the tropical crops for which biotechnology includes potential gains as well as threats. Which side of the coin will prevail in the Philippines, is determined not only by the technology itself, but more so by the Philippines' domestic economic and political structure, and its position in the world market.

Once the major source of vegetable oil in early 20th century world trade, today coconut only accounts for about 5 per cent of the world supply. The main comparative advantage of coconut oil is its 48 per cent lauric acid content. Lauric oil has a wide range of both edible and industrial uses, such as cooking oil, detergents, cosmetics, lubricants, and pharmaceuticals.
The Philippines is the world's largest producer and exporter of coconut, accounting for more than 70 per cent of world coconut oil trade and 40 per cent of copra (coconut meal) world trade. Coconut is one of the most important crops in the Philippines: 29 per cent of cultivated land (3.4 million hectares) are planted with coconut, and coconut is the foremost agricultural export earner.

Internal problems
Despite its significance to the Philippine economy, modernization of the coconut farming industry has remained nil. The industry has failed to develop, due to the dependence and complacency based on the past preferential trade agreements. The export market demanded raw materials which largely stifled technological innovations in coconut production and industry. However, internal problems compound this development.
Productivity. The total coconut production has increased through the years due to the increase in area planted, particularly in the 1950s and 1960s. However, yield per hectare has declined in the past two decades due to agronomic and socio­economic conditions.
Amongst the agronomic problems, declining productivity as a result of old age (more than 50 years old) affects about one­third of the Philippine coconut trees. Despite attempts of the Marcos and Aquino governments to promote modern coconut varieties, at present more than 98 per cent of the total coconut area is planted with the traditional tall varieties. Suitable hybrid varieties are yet to be tested in various areas of the Philippines. Pests and diseases also afflict many coconut trees. 'Cadang­cadang', a viroid disease kills millions of coconut trees in the Philippines each year. Production loss is estimated at US$ 16 million per year.
Poor farm management also contributes to low productivity. Most coconut areas are dependent on rainfall, and only one per cent of the coconut parcels regularly receive fertilizer.
On the socio­economic side, the great majority of the producers are small­scale coconut farmers, but there is a small minority who control almost half of the coconut land. Many of them divide their land into small units and parcel them out to tenants. 75 Per cent of coconut farmers, and 84 per cent of landless coconut labourers, fall below the poverty line. Since income from coconut is hardly sufficient, most of the poor farmers are engaged in other activities as well.
The landed elite make little investment in coconut production and copra drying, since they extract surplus either from ground rent or lucrative trading. Increasing farm productivity is also precluded because poor peasants have no capital to invest in modern varieties, nor can they afford to wait for the seven years maturation of coconut trees that re­planting requires. Additionally, many landlords prohibit intercropping because they fear this will affect coconut productivity and because they fear their land will more easily to fall subject to land reform.

Marketing and trading. 925,000 Coconut farms are scattered in remote areas all over the Philippines. The relative non­perishability of coconut affords the Filipino farmers time to transport it. This is highly inefficient. According to Unilever (the Netherlands), the structure of coconut production and trading in the Philippines is not conducive to industrial use. Aside from the inefficiency of having to deal with thousands of small holders or several layers of domestic traders, there are periodic shortages of supply as farmers can simply sell their coconuts to local fresh markets. Despite inefficiency, commercial exporters of coconut derive multi­million profits. In fact most of the coconut exporters belong to the top 500 corporations in the Philippines.

Processing. Coconut processing is also besieged with problems. Oil extraction is mainly done using the dry method or the copra­expeller system. The copra drying method in the Philippines is generally very backward. Copra is dried by smoking, resulting in the presence of toxic substances, such as aflatoxin, which is unsafe for human consumption.
Traditional copra production as practised in the Philippines is labour intensive and increasingly expensive. The oil extracted from copra requires drastic refining and deodorizing. For industries importing coconut oil, the reprocessing adds to the cost of the already expensive coconut oil. In fact, Philippine coconut oil is of such low quality that it sells at a discount of 2 per cent in the world market. This situation is estimated to cost the country about US$ 52 million a year in reduced export prices and physical losses.

Government taxes. Aside from trading, surplus is extracted from coconut farmers through explicit and implicit taxes. Although the Aquino government already abolished export tax, implicit taxes continue to penalize the farmers under the current Ramos government. Implicit tax through the overvaluation of the peso is estimated at 20­25 per cent, while implicit taxes on agricultural products such as coconuts (Value Added Tax on processing, transport taxes, miscellaneous fees, etc.), come to almost 30 per cent.

Lack of research. Since income from coconut production is meagre, research on coconut improvement is dependent on public funding. However, the Philippine government only spends 0.2 per cent of its Gross Domestic Product on its entire science and technology programme. On average, public investment in coconut research is only about 28 per cent of the research funding for sugarcane. Current conventional research in coconut involves agronomy, entomology, germplasm collection, breeding, intercropping and diversification of coconut oil uses. However, most of this research is fragmented, severely underfunded, and understaffed. This is unfortunate since conventional research could greatly take advantage of the rich germplasm of coconut varieties in the Philippines.

While advances of biotechnological applications on temperate vegetable oil crops have been extremely rapid, there is as yet no parallel application to coconut. Because of the lack of an in vitro tissue culture system, genetic engineering technologies remain only technically a long­term possibility. Even when coconut cloning is technically made possible, considerable time and cost are involved in raising and establishing coconut plants. Therefore, it is unlikely to become a cheap, large scale process in comparison with oil palm. However, when indeed biotechnology makes it possible to shorten plant breeding time from 30­40 to 7­8 years, then the Philippines could potentially benefit from this. However, so could competing perennial crops like oil palm.
Another limitation to coconut biotechnology is that the introduction of pest­resistant genes might not give a perennial crop long­term success, since the pest would have plenty of time to overcome resistance. Yet at this stage, coconut plant diseases have not even been properly identified.
Since biotechnology R&D is even more backward technically than conventional research, it may be economically and agronomically wiser to invest in research and development on conventional breeding of coconut, rather than pursue genetic engineering.

Biotechnology research in competing vegetable oils and fats
Plant breeding. Biotechnology research in terms of increased yield through plant breeding indicates a substitution trend for coconut oil. For oil palm, Malaysia's tie­up with Unilever aims to develop clones which should give higher yields and have an increased disease resistance. Although this research is still besieged with many problems, it is being pursued vigorously.
There is strong competition between palm kernel oil and coconut oil due to their high lauric oil content. The main advantage of palm kernel oil is that the oil palm gives the highest yield of oil per unit area of all vegetable oil crops. Depending on the demand, an increase in the yield of oil palm may further depress world market prices.
Modification in fat structures. The substitution trend also occurs in biotechnology research on the modification of fat structures. For example for soya bean, scientists in Iowa state University, USA, have discovered gene codes for acetyl­CoA carboxylase (ACC), a key enzyme in the biosynthetic pathways of fatty acids. They aim to manipulate the ACC gene to induce soya beans to increase yields, as well as to modify fatty acid composition to resemble short­chain fatty acids found in coconut and oil palm. Similarly, extensive research is being carried out on the genetic modification of fatty acid composition of rape seed in public and private sectors in Canada, while Europe and Australia are also making progress in this field. One of the aims is to induce rapeseed to produce a high proportion of lauric oil. Commercial production is still years away.
Not only Northern companies are researching the possibilities of tailoring oils and fats. Biotech Philippines is also conducting research on the tailoring of fatty acids using enzymatic techniques. Enzymes that can remove or attach specific fatty acids at specific places are being identified. This research is only at an early stage.
Industrial production of fats and fatty acids. Organisms such as yeast, fungi, algae and bacteria could be genetically altered to produce a variety of edible oil, comparable with vegetable oils. For example, certain moulds (Entomorphtora and Entomorphtora obscura) have abundant lauric acids. Aside from oil production, organisms, instead of enzymes, could be used to modify fat structures or supplement oil mixtures in general applications. However, the research is not yet far enough and the cost is still too prohibitive for commercial application. Hence, the threats to coconut oil are even further away than those of the above mentioned biotechnology applications.
Fat replacement products. Tate and Lyle (UK), the world largest sweetener company, estimates the world demand for fat replacement products at US$ 800 million by 1995. Products have been developed for commercial applications which could substitute coconut oil and other vegetable oils in confectionary, dairy and salted snacks. However, should these products become commercially feasible and acceptable, they will most likely be geared towards very specific and limited affluent markets. Hence, its impact on coconut oil competition may be negligible.
Vaccine-producing plants

To show how simple it can be to produce vaccines in plants, researchers at Biosource Technologies and the Naval Medical Research Institute, both located in the USA, recently produced an experimental malaria vaccine by infecting tobacco plants with a genetically engineered strain of the tobacco mosaic virus. Studies at the Institute had shown that segments of protein on the surface of the parasite stimulate a strong immune response in humans against malaria. Synthetic genes were developed that manufacture these segments of the protein, which in turn were inserted in the nucleic acid of the tobacco mosaic virus by Biosource Technologies. 
The tobacco plants infected with the altered virus produce large quantities of the surface protein, which is extracted by simply grinding up the leaves. The advantages of producing a vaccine this way instead of using the conventional method are that it is easier to store, and that it might be even safer, since the tobacco mosaic virus cannot infect humans. Moreover, it is cheaper since one plant may be able to produce more vaccine than a 300-litre fermenter. Biosource Technologies is also looking at possibilities of using edible plants to make vaccines against cholera. Researchers at other institutes are currently working on plants producing potential vaccines against hepatitis B and foot-and-mouth disease. So far, these vaccines are, just as the malaria vaccine, all in experimental and/or testing stages. 

Source: A. Coghlan (1995), "Grow Your Own Vaccine". New Scientist, 21 January, p.23.

Impact on coconut oil trade
With regard to biotechnology applications in vegetable oil, there is still a large gap between what is theoretically possible and what is currently feasible. Availability of information to assess actual research trends is limited due to the immense secrecy of industries undertaking the research and to the unpredictability of technological developments. It is also due to the complexity of synthesizing nature itself, where millions of molecules compose a single, specific chemical characteristic such as texture, taste, smell and metabolism. Nevertheless, biotechnology innovations in vegetable oils remain a concrete possibility.
Improved crop varieties obtained with the help of biotechnology could result in an increase and oversupply of many vegetable oils, creating a glut, further depressing world prices, including the price of coconut oil. Competition between coconut oil and palm kernel oil will further intensify. It is also possible that importing counties will become self­reliant through the application of biotechnology.
The synthesis of lauric oil by other crops will definitely erode the comparative advantage of coconut oil. If this happens, competition will be determined by the amount of derivable lauric oil, comparative prices in the world market, and consumersÕ acceptance. The increasing interchangeability of vegetable oils and their sources could displace the Philippines as a producer. This may result in almost total abandonment of coconut oil production for export.

Reaction of the Philippine government
Biotechnology will not threaten the Philippine coconut trade, and there will always be a demand for lauric oil, says Vergilio David, administrator of the Philippine Coconut Authority. In an interview, David stated that companies such as the German Henkel, Unilever and Proctor and Gamble (UK), are encouraging the Philippines to continue to produce coconut oil.
His optimism is not unfounded. Without substitution, the Philippine coconut export will probably witness a modest rise in demand of 0.7 per cent per annum in the foreseeable future. There are also possibilities for a modest rise in domestic demand. The market can be maintained or increased, provided that better quality and relatively lower prices are achieved. Amongst other factors, it is important to reduce areas planted to coconut through diversification, while at the same time improving production. Favourable governmental interventions and a strong coconut farmers' lobby are crucial to the re­orientation and development of the Philippine coconut production and trade. Otherwise, results would prove to be detrimental.
However, David lamented the lack of budgets for research and development on coconut. He claimed that despite support from international donors such as the World Bank, the funds are not sufficient for research and for the full­scale replanting of over­aged coconut trees. He also claimed that one of the biggest problems of the coconut industry is the lack of appreciation of the Philippine policy makers of the need to support the industry and to implement land reform in coconut land. He stated that the Philippine congress is largely composed of landlords who are protecting their own vested interest, rather than serving the interests of the Filipino farmers.
It is encouraging that a high government official publicly condemns specific internal problems within the coconut sector. This shows the state is not a monolithic entity, only caring for their vested interest of extracting surplus from farmers. However, at the same time, it also shows the lack of power of government officials, for example, to implement land reform.

Biotechnology and commodity production
The techno­economic interest of the biotechnology industries depends on the commercial profitability of biotechnological products compared to traditional oil crops, as well as consumer acceptance, and the (inter)national policies on agriculture and trade. This, combined with the efficiency of domestic coconut production, will determine the impact of biotechnology on coconut oil substitution.
If a commercial assessment is made, the Philippines' coconut production will show itself to be uncompetitive and unreliable in terms of supply. Policy decisions taken by the Philippine government mainly address farm productivity and not structural impediments such as failing land reform and tax policies, or price distortions. In such a context, the coconut sector will have great difficulties to survive. Unless immediate and effective agronomical and institutional reforms are undertaken, Philippine coconut production and trade could collapse in the future under the pressure of substitution.
Gigi Manicad

Werkzijde 26, 2543 CA The Hague, the Netherlands

This paper is mainly based on: M.J.G. Manicad (1993), Biotechnology and Peasant Agriculture: The case of the coconut crisis in the Philippines. Unpublished master thesis. The Hague: Institute of Social Studies.

Contributions to the Biotechnology and Development Monitor are not covered by any copyright. Exerpts may be translated or reproduced without prior permission (with exception of parts reproduced from third sources), with acknowledgement of source.


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