A sharp decline in Sri Lanka’s coconut oil production in 2013 has resulted in significantly more palm oil imports, which is a close substitute for coconut oil, the 2013 Central Bank annual report showed.

Coconut oil production declined around 45 percent year-on-year (YoY) to 45,208 metric tons (equivalent of 349 million nuts) in 2013, amid palm oil imports increased 41 percent YoY to 89,959 metric tons.

In 2012, palm oil imports (both palm kernel oil and crude oil) declined significantly to 63,723 metric tons from 135,340 metric tons in 2011.

Interestingly, the increase in palm oil imports took place despite a hike in special commodity levy (SCL) on refined palm oil to Rs.115 per kilogramme in early 2013.

The SCL, which was introduced for edible oil imports from May 2012, was increased further in November 2012 to encourage local coconut oil production.

Meanwhile, Sri Lanka’s coconut production declined 14.5 percent to 2.5 billion nuts in 2013 with coconut exports falling 2 percent YoY to Rs.205 million. Coconut production hit 2.94 billion in 2012, its highest since the year 2001.

According to the Central Bank annual report, the decline in coconut production was mainly due to the lagged effect of lower rainfall in major coconut growing areas in 2012.

Since around 72 percent of coconut production was demanded by nonindustrial users, the decline in coconut output mainly affected industrial users during the year.

As a result, desiccated coconut production declined sharply by 30 percent to 29,200 metric tons (equivalent of 228 million nuts) in 2013.

The shortage of coconut supply together with the increase in farm gate coconut price pushed up the cost of production of the desiccated coconut industry, leading to a major decline in desiccated coconut exports during the year.

The desiccated coconut exports in 2013 declined by 30 percent to 28,202 metric tons compared to 2012. However, a growth in coconut milk powder, cream and milk production was recorded in 2013.

Coconut prices however increased steadily in 2013 due to lower coconut production and increased competition among the coconut kernel-based product manufacturers.

The average auction price of coconut increased to Rs.32.64 per nut in 2013 from 22.95 per nut in 2012 and the average retail price of coconut also increased to Rs.43.16 per nut in 2013 from Rs.34.56 per nut in 2012.

The average price of coconut oil increased to Rs.258 per litre in 2013 from Rs.224 per litre in 2012, largely due to the considerable increase in copra prices. The average desiccated coconut price at the Colombo coconut auction also increased to Rs.239.05 per kilogramme from Rs.173.19 per kilogramme during 2012.

Despite the increase in desiccated coconut prices, the average export price declined in 2013 to US $ 1.55 per kilogramme from US $ 1.65 per kilogramme during 2012, reflecting a contraction in profit margins during 2013.