Coconut Research Institute Repository

Fernando, S.C.

Hirimburegama, K.

Weerakoon, L.K.

Callogenesis in cultured plumule explants of coconut (Cocons nucifera L.)

Samarajeewa, A.D.

Use of Gliricidia as an animal feed in coconut lands

Wickramananda, I.R.

Efficacy of four botanical pesticides on three major pests of coconut

Nainanayake, N.P.A.D.

Bandara, D.C.

Root-shoot relationships: an effective indicator of soil compaction and water stress for coconut (Cocos nucifera L.) seedlings

Fernando, M.T.N.

Marikkar, J.M.N.

Jayalath, K.V.N.N.

Subasinghe, S.D.J.N.

COCOS (2000-2002), 14 19-28
Printed ill Sri Lanka
FINANCIAL ANALYSIS OF COCONUT OIL EXTRACTION USING
LOCALLY MANUFACTURED BABY EXPELLERS
M T N Fernando , J M N Marikkar , K V N N Jayalath and S D J N Subas inghe
Coconut Research Institute, Lunuwila, Sri Lanka
ABSTRACT
This paper analyses the financ ial feasib ility of coconut oil extraction using
locally manufactured Baby Expellers, and identifies constraints faced by users
of Baby Expellers. Data were collected by a field survey (February, 1999) of a
purposive sample of fifteen Baby ' Expeller users located in Puttalam ,
Gampaha and Kurunegala districts, using a structured questionnaire,
supplemented with informal discussions. Gross margin (GM), pay-back period
and break-even prices of inputs and outputs were the different economic
indicators employed. The results revealed that oil extraction using Baby
Expellers is econom ically less attractive at the market prices of coconut oil
and copra that prevailed in February 1999. However, there is a marked
improvement of the oil producers' GM when either copra prices are reduced
or oil prices are increased , even by small amounts. The study also revealed
that the profitability of oil extraction is more sensitive to changes of copra
prices than oil prices. As the initial capital requirement to install the Baby
Expeller is substantial , an increased access to loans was recommended to
popularize this technology especially among small and medium
entrepreneurs. The desirability of granting a grace period of over six months
for borrowers was emphasized as the payback period of the initial investment
was also over six months . Low tariffs for palm oil importation and shortage of
copra availability espec ially during lean periods of coconut production appear
to be notable constraints faced by Baby Expeller users. Areas requir ing Rand
D to improve performance of the existing Baby Expeller machines are also
suggested.
INTRODUCTION
Extraction of coconut oil using locally manufactured Baby Expellers ' seems to
be gaining popularity as a cottage industry in many parts of the coconut-
growing areas in the country. The choice of alternative oil-processing
technologies, specially by small and medium size entrepreneurs, is greatly
influenced by the scale of production and the initial capital requirement of
these technologies in addition to the existing resource base of low and
These expellers have an average capacity of abou t 300 kg of coconut oil per 8 hours.
Often these expellers were driven by electric motors.
19
medium-income groups (Anon. 1983, and Etherington and Mahendrarajah,
1997). These attributes of the technology under review seem more
appropriate than the large-scale oil processing technologies, to the existing
resource base of medium-income groups. Recently, the Coconut Research
Institute (CRI) received several inquiries from potential millers who wish to
install Baby Expellers, about the economic feasibility of these mach ines as
well as the likely problems and constraints when using it. However, this
information was not readily available at the CRI, and this motivated the
present study to assess the economic feasibility of oil extraction using Baby
Expellers.
OBJECTIVES
This study aims to:
(i) determine the economic feasibility of oil extraction using locally
manufactured Baby Expellers
(ii) identify the constraints faced by current Baby Expeller users,
and
(Hi) examine the Rand D required to improve the performance of
the locally manufactured Baby Expellers.
METHODS
Data
Data were collected by a field survey, in February 1999, by interviewing a
purposive sample of 15 Baby Expeller users/ located in Puttalam, Kurunegala
and Gampaha districts, through a single visit, using a structured schedule
supplemented with informal discussions.
Analysis
Different economic indicators, namely Gross Margin (GM) per 8 hour working
shift, the Pay-back Period, and the Break-even Price of inputs and outputs
were employed.
2At least, a sample of 30 respondents is required to satisfy the statistical requirements. However,
the population of current holders of locally manufactured Baby Expellers would not exceed
fifty. So, we argue that 15 respondents are a fair representation of the above population. In
terms of mode of operation, size etc., the entire population of baby expellers seems to be
homogeneous. So a purposive sampling was adopted.
20
The GM was computed by deducting total variable cost from gross income.
Pay-back is the length of time required to payoff the initial investment. Break-
even price of inputs means the price of inputs, at which the Baby Expeller
user neither loses nor gains. Similar interpretation applies for break-even
price of output.
The GM for oil extraction using Baby Expellers at prevail ing input and output
prices, and the time taken to pay-back the fixed cost involved in establish ing
the machines were calculated in the base scenario. The sensitivity of the GM
in the base scenario for variat ions in oil and copra prices, each by 10, 20 and
30 per cent was assessed in the sensitivity analys is. In addition , this sect ion
includes the computation of break-even prices of selected inputs and outputs.
The constraints faced by present Baby Expeller users and their suggestions
on R&D needs of the current Baby Expeller were qualitatively assessed
without employ ing any statistical procedures because data were collected
from a limited sample of only 15 respondents.
RESULTS AND DISCUSSION
(I) Base scenario
(i) Gross Margin (GM)
Cost of production (COP) of 1 kg of coconut oil at prevailing prices of inputs
(copra, electricity, fuel wood etc.) was found to be Rs 913 . However, the
current price (as at 26 February, 1999) of 1 kg of coconut oil is Rs 85, which
implies that there is a loss of Rs 6 per kg of oil extracted. Other by-products
such as poonac and pressed oil compensate for this loss. When the incomes
of these by-products are accounted for, the Baby Expeller generates a GM of
some Rs 950 per 8-hour working day (see Table 1).
Table 1:
Item
Cost and returns of coconut oil extraction using baby expellers
Unit Price
OUT PUT (per 8 hrs)
300 kg of oil per 8 hrs
181 kg of poonac per 8 hrs
53.5 kg of pressed oil per 8 hrs
Gross Return
@ Rs 85 per kg
@ Rs 9 per kg
@ Rs 4 000 per barrel of
(200 kg) pressed oil
INCOME (Rs/8
hrs)
25500
1629
1070
28199
COST (Rs/8 hrs)
I US $ = Rs 69.45 as at 26 February 1999.
21
INPUTS
(A) Variable Costs
Labor
2 MD (one man for cutting & drying while
the other man is for work ing
in the expeller)
Materials
- Copra
(535 kg of "kede" copra
is required to extract 300 kg of oil)
- Fuel wood for dryer (1 cubic yard of "wal
dara" is required to obtain 230 kg of oil.
So, to obtain 300 kg of oil, 1.3 cubic yard
of "wal dara"is required .
- Electricity
- Grease
Total variable cost (Rs/8 hrs)
(8) Maintenance Costs (Rs/8 hrs)
Monthly tax to the Ceylon Electricity
Board
Capital depreciation
If the machine were operated 8 hrs a day,
"CONE" has to be welding filled
monthly
If the machine is operated 8 hrs a day,
"WORM" has to be filled and carved out
once in three months
• Filter cloths
Total maintenance cost (Rs/8 hrs)
Total variable costs & maintenance costs
(Rs/8 hrs)
Gross Margin (Rs/8 hrs)
@ Rs 200 per MD
@ Rs 12 400 per candy (or
254 kg) of "kada" cop ra
@ Rs 275 per one cub ic yard of
"waldara"
@ Rs 4.40 per unit of electricity
under industrial category
@ Rs 160 per kg of grease (daily
the machine has to be greased -
about 100g/day)
Unit Price
@ Rs 250 per month (24 working
days a month)
@ Rs 750 per filling (24 working
days a month )
@ Rs 2 000 per filling and carving
out (24 working days a month, and
hence 72 working days per 3
months)
A length (2.5 ft x 2.5 ft) of filter cloth
(@ Rs 3 000) can be used for 1
year (280 working days/ year)
400
26 118
358
275
16
27 167
Cost (Rs) to
extract oil fr om
535 kg of copra
(or cost per 8 hrs
wor king day)
10.40
31.25
28.00
11.00
80.65
27 248
951
Notes : MD - Man-days. 1 US $ = Rs 69.45 as at 26 February, 1999.
Source: Survey of Baby Expellers, 1999.
(ii) Pay-back Period
The fixed costs involved in establishing a Baby Expeller units were computed
(Table 2).
22
Table 2:
Item
Fixed costs involved in installing a Baby Expeller and
accessories
Unit price Rs
i) Baby Expeller machine
10 HP motor (RPM 1440)
• 2 nos. of V-belts
Starter
ii) Cutter
• 5 HP motor
• 2 nos. of V-belts
iii) Dryerb
2 HP motor
Starter
• A V-belt
iv) Filter
• 2 HP motor
A V-belt"
v) Container
(to collect poonac)
vi) Container
(to collect oil)
vii) Tray
(to keep the oil collecting container)
ix) Construction of a concrete base
(to fix the Baby Expeller)
Total
@ Rs 75 OOOa
@ Rs 14500 to 18 000
@ Rs 325/= per belt (Dengil
brand)
(MEM English starter)
(An Indian starter costs
Rs 2 000/=)
@ Rs 3 000 per cutter
@ Rs 12 000 per motor
@ Rs 275 per belt
@ Rs 4 000 per dryer
@ Rs 8 000 per motor
(MEM English starter)
(An Indian starter costs
Rs 2 000/=)
@ Rs 275 per belt
@ Rs 50 000 per filter
75 000
16250
650
3000
3000
12000
550
4 000
8 000
3000
275
50 000
8 000
275
250
250
250
1750
186550
Notes
a-
b -
c -
The price of the Baby Expeller manufactured by the Halmillakele
Engineering works of Wennappuwa was quoted for this examp le.
Use of dryers is not essential if copra is properly dried « 6%
moisture). Alternatively, cut pieces of copra could be sun dried (2 - 3
hours) before feeding into the expeller.
Filter cloths were accounted for under maintenance cost.
As shown in Table 2, the total fixed cost involved in installing a Baby Expeller
is about Rs 187 000. At the prevailing copra and oil prices, 197 eight hour
working days, i.e. over half a year, are required to pay-back the initial
investment cost, which is a substantial blocking of capital for small and
medium scale entrepreneurs. While the economic life is about 40-50 years,
parts like cones, worms etc. have to be completely replaced every 3 -4 years.
(II) Sensitivity analysis
The sensitivity of the GM in the base scenario for changes in oil and copra
prices by plus and minus 10, 20, and 30 per cent was assessed (see Tables 3
and 4 respectively for oil and copra price changes) .
Table 3: GM (Rs/8 hours) of coconut oil extraction at various oil prices
- 30%
- 6699
(- 805%)
- 20%
- 4149
(- 537%)
-10%
- 1599
(- 269%)
Oil price
at
present
price
950
+ 10%
3501
(269%)
+20%
6051
(537%)
+30%
8601
(805%)
Note : Figures in parentheses are the percentage change of GM from the
base scenario.
Source: Table 1.
As shown in Table 2, if the oil price is increased by 10 per cent, i.e. if the
present oil price of Rs 85 per kg is increased to Rs 93.50 per kg, Baby
Expeller users' GM is increased from Rs 950 per 8 hours to Rs 3 501 per 8
hours, representing a 269 per cent increase. The opposite is true for a
. reduction of oil price by 10 per cent. The consequences in response to the
other variations in oil price in Table 3 can be interpreted in the same way.
What all these imply is that the change in oil price by a small amount results
in a great impact on oil producers' GM.
Percentage increase in GM in response to a decrease in copra price by 10
per cent is 275 per cent (Table 4), and how the GM changes in response to
other variations in copra prices (as shown in Table 4) can be explained in the
similar manner. These findings suggest a conclusion as for the case of oil
price changes, i.e. a small change in copra price results in a marked impact
on GM of oil producers.
24
Table 4: GM (Rs/8 hours) of coconut oil extraction at various copra prices
-30% -20%
Copra price
-10% at + 10%
present
price
+20% +30%
4
8788 6175 3561 950 -1662 -4273 -6887
(825%) (550%) (275%) (- 275%) (- 550%) (- 825%)
Note : Figures in parentheses are the percentage change of GM from the
base scenario.
Source: Table 1.
GM increases by some 275 per cent in response to the copra price reduct ion
by 10 per cent, and the corresponding increase in GM in response to the oil
price increase by 10 per cent is 269 per cent (compare Tables 3 and 4). This
implies that the profitability of oil extraction is marginally more sensitive to
-changes in copra prices than that of the oil prices.
• Break-even prices of oil and copra
(a) Break-even price of oil
The break-even price of oil, meaning the price of oil at which the Baby
Expeller holder neither looses nor gains, was found to be Rs 81.80 per kg of
oil" , The current price of oil is Rs 85 per kg, and the break-even price of oil is
just a reduction of some 3.75 per cent less than the current oil price, implying
a fine balance between projects and losses implying that the current oil price
is at a very sensitive position given the higher prices of raw materials, copra in
particular.
(b) Break-even price of copra
Given the current prices of oil, poonac and pressed oil, Rs 85 per kg, Rs 9 per
kg and Rs 20 per kg respectively, the maximum price of copra to break-even
was computed to be Rs 12 -850 per candy (254 kg). This price represents
merely a 2.8 per cent increase from the current copra price of Rs 12 500 per
candy, suggesting that the present price of copra is almost at its maximum
given the prevailing oil price.
Incomes from poonac and pressed oil were also accounted for in calculating the break-
eve n price of oil.
25
(III) .Constraints Faced by Baby Expeller Users
Baby Expeller users pointed out some const raints hindering their business,
and they are:
• Importation of palm oil at concessionary tariffs
The tariff for importation of palm oil has been varying over the time. Orig inally,
the tariff was about 40 per cent , which was then reduced to zero, and
increased up to 8-9 per cent , which is in effect at present (26 February, 1999).
W ith this low tariff rate, palm oil price in the domestic market is as low as Rs
75 per kg. Coconut oil cannot be supplied at such a low price as the COP of
coconut oil is higher (Rs 91 per kg). Therefore, Baby Expeller users were of
the view that the local coconut oil industry has to be protected by imposing
higher tariffs for palm oil imports.
• Shortage of copra in lean crop periods
When highe r prices are offered for coconuts by desiccated coconut (D.C.)
millers, particularly in lean crop periods, the copra manufacturing industry is
seriously affected because coconut growers prefer to sell their cocon uts to
D.C. manufacturers at higher prices without selling to copra manufactures at
low prices. This results in a shortage of copra for the oil industry. A pract ical
example follows.
Some Rs 80 was paid to growers by D.C. millers for nuts equivalent to a kg of
D.C. as at 26 February, 1999.
Approximately 120 kg of D.C. is produced from 1000 nuts). On this D.C
outturn, the price paid by D.C. millers per nut was Rs 9.60. This was a
competitive price and copra manufactures could not pay such a high price to
growers given the prevailing price of coconut oil.
(IV) Research and Development Needs
Baby Expeller users' suggested some areas requmnq research and
development for improving locally manufactured expeller machines".
D.C. out turn is a function of soi l type, pick number, coconut variety, rainfall etc. For
the purpose of this calc ulation, the average D.C. out turn reported by the sample of respondents
(120 kg per 1000 nuts), was used.
6 These sugges tions are howe ver limited to the Baby Expellers manufactu red by the
Halm illakele Industries, We nnappuwa.
26
• Expeller users have found that mixing a little D.C. with copra (some 10-15
kg per candy of copra) imparts an attractive color to coconut oil, and
hence some millers feed copra into expellers mixed with some D.C.
However, the size of the expeller of the present machine is not big enough
to efficiently crush D.C. This was identified by millers as defining requiring
the locally manufactured Baby Expeller which needs to be corrected. The
need for such an improvement of the machine is further emphasized by
the following. Often, villagers bring sliced pieces of sun-dried coconuts
mixed with sun-dried coconut residue to the mills to have the oil extraction
on payments. The efficiency of oil extraction from coconut residue by the
present Baby Expeller is poor, and hence improvement is requ ired for this
reason as well.
• Some millers were of the view that the design of the machine is sound
and the finish is also satisfactory, but the workmansh ip requires
improvement. To quote one example they pointed out , "bearings are of
poor quality and some clamps do not fix tightly".
• As the bars of the bar set are widely spaced, separation of oil from
coconut residues in the expeller is not efficient. Extracted oil is always
mixed with coconut residues. Millers suggested that this defect of the
machine should be overcome.
SUMMARY AND CONCLUSIONS
An attempt was made to assess the economic feasibility of coconut oil
extract ion using Baby Expellers as a cottage industry. A purposive sample of
fifteen entrepreneurs in Puttalam, Kurunegala and Gampaha districts, who
have installed Baby Expeller machines were interviewed in February, 1999 in
a single visit , using a structured questionnaire supplemented with informal
discussions. Such economic indicators as Gross Margin (GM), Pay-back
Period and Break-even Prices of inputs and outputs were employed to
analyze the data. Results revealed that the GM of coconut oil extraction using
Baby Expellers is not attractive under the input and output prices that
preva iled during the period of the survey (February, 1999). However, a small ,
positive change in price of copra and oil resulted in a marked improvement in
terms of returns of the enterp rise. The study also revealed that the profitability
of oil extraction is more sensitive to variations in copra prices than that of the
variations in oil prices, although the differences of changes in GMs in
response to either oil or copra price changes is small. Total fixed cost
required to establish a Baby Expeller is substantial , of the order of Rs 187
000, and hence easier access to industrial loans rr.iqht be an useful means to
encourage especially the small and medium entrepreneurs to invest in these
machines. The pay-back period of the initial capital investment was found to
27
be over a half a year, so granting a grace period of over 6 months for
borrowers might be desirable to allow them adequate time to generate surplus
returns for repaying loans. The local coconut oil industry appears to be
seriously affected by the reduced tariffs for palm oil importation. However,
increased tariff may also lead to efficiency losses and protectionist policies
may not be sustainable in the emerging globalization scenario. So, in depth
stud ies are required on tariffs. As D.C. millers pay competitive prices for
coconuts, particularly in lean crop periods, nut supply to copra manufacturers
is reduced, and this appears to be a serious threat for the sustenance of the
local oil industry. Some useful information on areas requi ring R&D of the
present Baby Expeller machine are also highlighted.
REFERENCES
Etherington, M. and Mahendrarajah, S. (1997) . Economic benefits of direct
micro expelling of coconut oil in the South Pacif ic. Paper presented at the
International Cashew and Coconut Conference. 17-21 February 1997, Dar
es Salaam.
Anon (1983). Small-scale oil extraction from ground nuts and copra.
International Labor Organization Technical Memorandum No.5, 111 pp.
ACKNOWLEDGMENTS
Authors wish to express their gratitude to the Acting Director, CRISL for her
motivation to start this study and providing the approval to publish this paper.
They also wish to thank Mr J L J G Pinto , Former Asst. Information Officer of
CRISL and Mr Rowel Jayathilake, Proprietor of Halmillakele Engineering
works for their useful comments. Assistance of Messrs. Gunarathbanda and
P A B A Caldera in conducting the survey is gratefully acknowledged.
28


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National Science Foundation of Sri Lanka

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