From tradition to transformation: Sri Lanka’s coconut export revolution

In recent times, Sri Lanka has been rethinking its approach to exports in response to global economic changes. It’s moving away from its traditional exports like tea and rubber and exploring new avenues to make the most of its rich agricultural resources.

Coconut: A Versatile Agricultural Resource

Among the main agricultural exports, coconut is one such resource that has numerous opportunities. Coconuts, deeply ingrained in Sri Lanka’s agricultural heritage, are now at the forefront of this transformation. These versatile fruits play a vital role, contributing approximately 12% to the nation’s overall agricultural output.

Sri Lanka boasts an annual coconut crop of 2.8 to 3.2 billion nuts, according to CRI statistics. Yet, this abundance falls short of the annual requirement of 4.6 billion nuts, a demand driven by domestic consumption, coconut oil production and exports.

On the global stage, Sri Lanka has gained recognition in the coconut industry, primarily through products like desiccated coconut (DC) and brown fibre. Additionally, Sri Lanka excels in brown fiber production, known for its exceptionally long and pristine strands, making it the world’s leading exporter in this category, even finding applications in the brush industry.

The Booming Demand for Coconut Milk

In an era where global preferences are shifting towards healthier, plant-based alternatives, coconut-based products, especially coconut milk, are experiencing an unprecedented surge in demand. Embracing this transformative wave allows Sri Lanka to maximize its abundant coconut resources and align perfectly with the evolving tastes and desires of global consumers.

In such a backdrop, the potential for export revenue from coconut milk is staggering. Sri Lanka could tap into international markets hungry for this creamy delight. Beyond its renown in culinary applications, Sri Lankan coconut milk, extracted by pressing grated fresh coconut kernel, has garnered global demand. It is available in various forms, including undiluted and diluted liquid versions, as well as skimmed and spray-dried powder forms.

The production of coconut skimmed milk, obtained through centrifugal separation to remove fat, provides a high-quality protein source, ideal for various food products. This aligns with current global trends, such as vegan, gluten-free and soy-free foods, contributing to the surge in popularity of coconut milk as a dairy milk substitute. Sri Lankan coconut milk stands out in the world market due to its distinct white hue, unique aroma and delectable flavour.

Steady Growth in Export Earnings

The demand for coconut milk, with its diverse culinary applications and growing popularity in global cuisines, is on the rise. Export earnings from coconut milk have steadily climbed providing a ray of hope in an otherwise challenging economic landscape.

Traditional methods of extracting coconut milk involve grating the coconut kernel and manually squeezing the fresh meat to yield the milk. However, this age-old practice results in significant economic loss, with only 30 to 40 per cent of the coconut’s potential value being realized compared to industrial methods.

Despite the shortfall of 1.4 to 1.6 billion coconuts, the nation still uses 1.8 billion coconuts domestically, primarily for culinary purposes. By reallocating a larger portion of this consumption for the production of industrial value-added products like coconut milk and coconut cream, Sri Lanka could harness its coconut resources more efficiently.

The benefits of such a shift are multifaceted. Factories could supply high-quality, safe and value-added products for domestic consumption, often additive-free and organic, mitigating health concerns. Sri Lanka could also bolster its foreign exchange reserves through improved exports of coconut-based products.

A Vision for Economic Growth

In 2019, Sri Lanka faced a local oil requirement of 140,000 metric tons, with a substantial portion being imported, equivalent to a staggering 840 million kilograms of coconuts, or roughly 1.4 billion nuts. This substantial coconut resource was harnessed to produce 240 million kilograms of coconut milk, valued at USD 480 million (approximately Rs. 91.2 billion).

This transformation from coconuts to coconut milk not only created a value addition of USD 126 million (around Rs. 24.5 billion) but also generated a net profit of Rs. 66.7 billion or USD 354 million. These statistics highlight the immense economic potential that Sri Lanka can unlock by maximizing the use of its coconut resources, not only meeting local demands but also creating profitable opportunities through value addition.

To bolster Sri Lanka’s economy through its coconut kernel industry, a groundbreaking proposal has emerged: the implementation of a value-based rebate certificate system. Under this proposal, manufacturers of coconut kernel-based products would be granted tax quotas of Rs. 50 for importing coconut oil, with the allocation determined by their contribution to exports. This allocation could be based on the foreign revenue they bring into the country or the volume they export.

Consider an example of a revenue-based quota system, where one kilogram of quota is granted for every $4 in foreign revenue generated. In this scenario, the total foreign exchange earnings from the coconut kernel industry amount to an impressive USD 350 million. Using the revenue-based quota system, this translates to an allocation of 87.5 million kilograms, equivalent to 87,500 metric tons of coconut oil to be imported. This imported oil would be sufficient for approximately 700 million coconuts.

From a cost perspective, the government’s investment in this system would be approximately LKR 4,375 million (or USD 21.8 million). However, considering Sri Lanka’s existing coconut shortage for both domestic consumption and industrial usage, this strategy presents an innovative solution. It would alleviate the coconut shortage predicament and allow for the allocation of more coconuts to produce value-added coconut kernel products, consequently boosting the country’s foreign exchange reserves.

Economic Gains from Coconut Milk Production

By producing coconut milk from the 700 million allocated coconuts, this initiative could generate foreign revenue of USD 280 million. After deducting the initial government cost of USD 21.8 million, the net gain for the country would amount to USD 258.2 million. Simultaneously, the importation of fresh coconuts would bolster local coconut supplies, stabilizing prices for both farmers and consumers.

The current expected foreign exchange revenue stands at an impressive $1.2 billion, with existing earnings from both kernel and non-kernel-based products at $400 million each. However, a critical $400 million deficit looms on the horizon.

To bridge this gap and secure a brighter future for Sri Lanka, the nation envisions importing fresh coconuts. These coconuts will be the raw materials for producing high-demand products like coconut milk, virgin coconut oil (VCO) and desiccated coconut (DC). Each kilogram of coconut used in these processes promises significant foreign exchange gains, further enriching the nation’s coffers.

Preserving Tradition and Promoting Sustainability

Sri Lanka, recognizing the success of its regional counterparts, is also shifting its focus towards coconut-based exports, particularly coconut milk. This shift reflects a broader change in mindset, emphasizing adaptability and pragmatism. By learning from its neighbours and maximizing the potential of coconut exports, Sri Lanka aims to unlock a future where coconuts are not wasted but celebrated as a valuable export commodity.

Sri Lanka’s journey towards coconut-based exports, especially coconut milk, is a transformative and forward-thinking approach that capitalizes on the nation’s abundant coconut resources. It offers economic growth, stability and sustainability while preserving the cultural and agricultural heritage of coconut farming. This strategic shift holds the promise of a brighter future for Sri Lanka, where coconuts are not just a local tradition but a global export commodity driving prosperity and well-being.

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