ASEAN Business Systems 1

Coco Biodiesel in ASEAN - Learning Team B1

ASEAN 2015: COCO-BIODIESEL AS AN ALTERNATIVE

SOURCE OF FUEL
ASIAN BUSINESS SYSTEMS

Radha Sagi (ASEAN LAB MEMBER)

Roan Buenaventura
Vinay Sharma
Samar Abbas
Arghya Paul
Marco Dumaliang

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Coco Biodiesel in ASEAN - Learning Team B1

I.

INTRODUCTION

Coconut Industry
ASEAN Regional Block is the largest producer & exporter of coconut products and oils to
global markets with Indonesia and Philippines accounting to 80% of total coconut production
in ASEAN. Over many years, the large-scale production of coconuts had made it a
significant agricultural crop earner for Indonesia & Philippines1. The farmers have been
producing mainly copra for a highly capital-intensive and specialized coconut oil industry that
rendered uneconomical the use of 86% of the whole coconut for other high value added
products demanded in different markets2. The value-addition of coconuts to the stakeholders
such as farmers, oil millers has been declining due to various issues that plaque the
competiveness of the industry.
Over capacity
It is a significant issue in the coconut oil industry because of very low capacity utilization of
oil mills: at 42% in the Philippines (2007) and 70% in Indonesia (2006) 3. However, there
have been no measures taken for consolidation in the industry. Moreover, production in
Indonesia increased in the recent years, which in turn increased its exports to global
markets. This increased competition within ASEAN reduced Philippines exports, thereby
further decline in capacity utilization.
Slow growth
Opportunity of industrial use in global markets is sufficient for industrys full capacity. As food
product, coconut oil faces price competition from vegetable and palm oils. Post 2008
recession, edible markets have become price sensitive and cheaper edible oils such as palm
oil, soybean oil, sunflower seed oil etc. started gaining higher market share. Under-utilization
of production capacity and loss of market share in the edible oil market reduced the growth
of the industry4.
Monopsony
With these exports tied to the international market, western multinational corporations have
benefitted more from the ASEAN coconut production in manufacturing other products. Major
export destinations are US and Europe accounting to 80% of exports. Due to high
dependency on western markets, the raw material copras price is determined by the world
market prices for coconut oil. This leads to very low pricing of copra and coconut oil fetching
very low value to the farmers and oil millers in raw material producing countries5.
1

Faustino, Joey. (2006 August).Facing the Challenges of the Philippine Coconut Industry:
The Lifeblood of 3.4 Million Coconut Farmers and Farm Workers. Retrieved June 23, 2012
from http://www.scribd.com/doc/4938629/Facing-the-Challenges-of-the-PhilippineCoconut-Industry-the-Lifeblood-of-3
2
Endaya, Simplicio, et. al. (2006 May). Improving the Investment Climate in Emerging
Nontraditional Coconut Products.
3
Ibid
4
Food and Agriculture Organization of the United Nations.FAO Statistical Yearbook 2013.
Retrieved June 23, 2012 from http://www.fao.org/economic/ess/en/#.UchnSztge4x
5
Faustino, Joey. (2006 August).Facing the Challenges of the Philippine Coconut Industry:
The Lifeblood of 3.4 Million Coconut Farmers and Farm Workers. Retrieved June 23, 2012
from http://www.scribd.com/doc/4938629/Facing-the-Challenges-of-the-PhilippineCoconut-Industry-the-Lifeblood-of-3

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Coco Biodiesel in ASEAN - Learning Team B1
These issues of under-utilization of production capacity, lack of domestic market support,
and high dependency on exports have to be addressed through collaborative engagement of
all stakeholders which would help organize and facilitate the development of coconut
industry.
Alternative uses of Coconut
In addition to the traditional use of copra and coconut oil as raw materials for use in
manufacturing, the industry in ASEAN has experienced the emergence of non-traditional
products that utilize the copra and coconut oil as raw materials. The copra found new uses
such as copra meat for animal feeds and coco-chemicals for surfactants, personal care
products and fuels. Coconut oil processing produces high end by-products of oleo chemicals
that are used as raw materials for the production of pharmaceuticals, cosmeceuticals,
explosives and bio-diesels6.
Biofuel
A biofuel is any fuel that is derived from a living or recently living organism, as opposed to
fossil fuels, which are produced from the organic remains of long dead organisms. There is
increasing interest in biofuels because they are a more renewable resource than fossil fuels,
and better for the environment7.
Bioethanol and biodiesel are types of biofuels. See Exhibit 1 for the comparison of these
types of biofuel . Bioethanol or simply ethanol is an alcohol which is made by fermenting the
sugar and starch components of plant materials by using yeast such as saccharomyces
cerevisae. Ethanol can be used as a fuel for vehicles in its pure form as a replacement for
gasoline, but it is usually blended with gasoline so as to improve vehicle emissions.
Biodiesel is produced from renewable plant or animal feedstocks containing fatty acids using
a process of condensation called transesterification, and are the most common form of
biofuel in Europe as a replacement for diesel. Biodiesel can be used as a fuel for vehicles in
its pure form, but it is usually used as a blend to reduce levels of particulates, carbon
monoxide, and hydrocarbons from diesel-powered vehicles.
Coco biodiesel is a new area of significant domestic utilisation of coconut oil, in the form of
coconut methyl ester (CME) used as diesel fuel enhancer. Increased demand for clean
energy and high prices of conventional oils present a market opportunity for increasing the
use of coco biodiesels. Moreover, businesses seeking new clean energy mixes and investing
in environmental-friendly strategies increases the potential for success of CME as an
alternative green energy source. This new use as a biodiesel would help increase the farm
production level, utilize more production capacity, reduce dependency on export markets
and cater to both ASEAN & other global markets which would make the coconut oil industry
competitive8.
If Philippines & Indonesia, the largest coconuts export block for the global market, cooperate to meet the changing trends towards energy-efficient & eco-friendly fuel demand by
6

Endaya, Simplicio, et. al. (2006 May). Improving the Investment Climate in Emerging
Nontraditional Coconut Products.
7
Biofuel Association. (
8
Garelli, Stephane. (2012). The Competitiveness Roadmap: 2012-2050.

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Coco Biodiesel in ASEAN - Learning Team B1
the businesses & individual consumers, then coco-biodiesel would be a next-big-product for
the ASEAN Business community towards the Capitalism 3.0 goal.
II.

Industry analysis of BIODIESEL

What is BIODIESEL?
Biodiesel is a type of fuel made from vegetable oil or animal based fuel oil. Its structure is
composed of methyl, ethyl and propyl ester chains, which is formed by reacting vegetable or
animal fat with an alcohol chain. In order for a product to be called a biodiesel it must
undergo testing under the ASTM D 6751 standard. ASTM D 6751 is the standard
specification for biodiesel blend stock for middle distillate fuels set by American Society for
Testing and Materials, an international standards organization that develops and publishes
voluntary consensus technical standards for a wide range of products, materials, systems,
and services9.
Biodiesel is being used for engines in cars, boats, trucks etc. It can also be used in heating
gas turbines for power plants in energy generation10.
Blending biodiesel with diesel (20% biodiesel and 80% diesel) is the most common mix used
in engines. Due to its different property compared to a diesel fuel, a pure biodiesel substitute
for engines can degrade the rubber gaskets and hoses of the vehicle 11. In order to avoid this
from happening, most vehicles must replace these parts with fluoroelastomers, which do not
react with biodiesel fuels12.
Value Chain Analysis from Coconut to Biodiesel
The process to turn coconuts into biodiesel starts with the meat, or copra, of the coconuts.
The meat is grated, dried and then pressed to extract the coconut oil. The oil is then mixed
with two chemicals, methanol and sodium hydroxide, in the reactor for two hours to transition
the oil into clean-burning fuel. The by-product of the process, glycerol, can be made into
soap or compost and sold along with the rest of the coconut husk and meat13.

ASTM International. ASTM D6751-12 Standard Specification for Biodiesel Fuel Stock
Blend for Middle Distillate Fuels. Retrieved June 24, 2013 from
http://www.astm.org/search/standards-search.html?query=ASTM%20D
%206751&reskin=true
10
Biodiesel Basics. Biodiesel Americas Advanced Biofuel. Retrieved June 23, 2013 from
http://www.biodiesel.org/what-is-biodiesel/biodiesel-basics
11
Biodiesel Basics. Biodiesel Americas Advanced Biofuel. Retrieved June 23, 2013 from
http://www.biodiesel.org/what-is-biodiesel/biodiesel-basics
12
Thomas, Eric W., et.al. (2007, October 29). Fluoroelastomer Compatibility with Biodiesel
Fuels.SAE International. Retrieved June 23, 2012 from http://papers.sae.org/2007-014061/
13
Leonard, Brittany. (2007 May 29). BYU Student Engineer Help Tongans Turn Coconuts
into Diesel Fuel. Retrieved June 23, 2012 from http://news.byu.edu/archive07-Maytonga.aspx

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Coco Biodiesel in ASEAN - Learning Team B1
Sources of biodiesel:
Table 1. Biodiesel Yield per Acre from Selected Crops
Fuel
Biodiesel

Crop

Fuel Yield
(gallons)

Oil palm
Coconut
Rapeseed
Peanut
Sunflower

508
230
102
90
82
56 (authors
Soybean
estimate)
Source: Chapter 2 of Plan B 2.0 by Lester Brown
Coco biodiesel Advantages
With the growth of modern civilization and industrialization worldwide, the demand for energy
is increasing day by day. Majority of the ASEAN countries needs are met through fossil fuels
and natural gas. As a result, the amount of fossil fuels is diminishing from year to year. Since
fossil fuel is non-renewable, fuel price is gouging as a consequence of spiralling demand
and diminishing supply. At present the power generation of ASEAN countries mainly
depends on imported fossil fuels. To reduce the dependency on imported fuel, the use of
renewable sources has become more popular.
It is found that biodiesel has slightly different properties than diesel. With biodiesel the
engine is capable of running without difficulty. Different blends of biodiesel (i.e. B80, B60,
and B 50 etc.) have been used to avoid complicated modification of the engine or the fuel
supply system. However analysing all the aspects it does show a number of benefits as
outlined herewith.
Environmental Benefits
The widespread use of coconut oil to replace diesel has a range of potential environmental
benefits. First, there are lower emissions of poisonous gases and particulate matter as
compared to diesel, through the higher oxygen content of coconut oil. These benefits
however do not materialise so well using straight vegetable oil in standard engines.
Secondly, the use of coconut oil can be considered CO2 neutral. The CO2 stored in the
coconuts, husks and shells are used in the process of oil production (husk and shells for
drying the copra) and burning of the oil. This CO2 is again sequestrated during the growing
of new trees and nut.
Socio Economic Benefits
Coco biodiesel would help in creating a local industry that substitutes fuel imports, benefits
ASEAN countries substantially through improvements in balance of payments and job
creation. Simultaneously, coconut farmers are given access to a new and potentially
booming market once the difference with the benchmark of the diesel price further increases.
Coco biodiesel as a higher value product is expected to give higher profitability for
producers.
Cost Benefits
Running diesel engines with biodiesel blends is costly as compared to diesel fuel. However,
cost can be drastically reduced, if methanol can be recycled after transesterification reaction.

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Coco Biodiesel in ASEAN - Learning Team B1
Moreover using raw or unprocessed oil would also cause to decrease the biodiesel
production cost14.
But to encourage investors and entrepreneurs, subsidy on biodiesel fuel needs to be given
by the government which will cause the lower price for diesel fuel. So a thorough study is
required for the feasibility analysis of biodiesel by comparing its production cost with
international market price of diesel.
Biodiesel Movement
Biodiesel for Cars
Certain car companies like Daimler Chrysler is now taking steps to change their cars to
adapt to biodiesel movement. Several researches were done by the company in altering
their vehicles to able to cope with a 20% biodiesel blend15.
Aside from Daimler Chrysler other companies like Volkswagen is also following this trend,
finding ways and capabilities in order for their vehicles to adapt into a much cleaner form of
fuel source for their vehicles.
Biodiesels does not require changing parts of the vehicle except for its gas tank. Thus, use
of biodiesel for a vehicle lowers operating costs with minimal entry cost.
Biodiesel as a power source
Biodiesel is also being used as a back-up power for areas just in case black outs occur. This
resulted to lower smog and sulfur emissions. This move resulted to lower carbon emissions
within certain areas16.
Under the current context, the ASEAN countries call for local solutions to energy issues.
Since most of these countries import their fuels at very high transport costs, it makes
economic sense to find local fuel supplies. Even though these countries on a world-scale do
not contribute much to the emission of greenhouse gasses, their case for mitigation
assistance under the Kyoto Protocol17 becomes much stronger if they simultaneously look
for environmentally beneficial alternatives to fossil fuel18.
Today, as the developing countries are suffering greatly from energy crisis, biodiesel can be
used as a good alternative source. Although production cost of biodiesel is still currently
high, its environmentally friendliness seems to be an attractive case in point for this to be
pursued. Because of the raw materials used for biodiesel, it is also a good source of
renewable energy for electrical generation. Potential reduction in production cost may also
be derived from maximum utilization of existing capacity.
Coco biodiesel Disadvantages
Researches has shown that due to the rising boom of biofuels it was able to lower
greenhouse emissions and lower the prices of fuels available in certain markets. However,
with biofuels good effects, it also resulted in problems like increase in food prices, which
resulted to hunger in certain areas of the world19.
14

Hossain, Md., et.al. (2012). Biodiesel from Coconut Oil: A Renewable Alternative Fuel for
Diesel Engine
15

Electrical Generation. Biodiesel Americas Advanced Biofuel. Retrieved June 23, 2013
fromhttp://www.biodiesel.org/using-biodiesel/market-segments/electrical-

generation
16

Ibid
Kyoto Protocol is an international agreement linked to the United Nations Framework
Convention on Climate Change, which commits its parties by setting internationally
binding emission reduction targets. (United Nations)
18
Cloin, Jan. (n.d.). Coconut Oil as a Biofuel in Pacific Islands.
17

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Coco Biodiesel in ASEAN - Learning Team B1
Though the effects of food hunger cannot be directly linked to the increase in demand for
biofuels, but by looking at certain demand and supply factors in the energy industry such as
but not limited to inflation rates, competition from substitutes and crop yield, the fact remains
that the issue of increased food price is seen by many as unjust in the midst of continuous
efforts to promote biofuels consumption.
Steve Sextonfrom the UC Berkley created a research in 2008 relating biofuels and food. In
his research, corn (feedstock for ethanol in US) prices raised by at least eighteen percent
(18%) while gasoline prices was reduced resulting to savings for gasoline consumers by as
much as $41.7 billion20.
Increase in oil prices has been prominent from the year 2000 to 2009. Increase in fuel prices
raises the costs needed in farming and plantation of crops. Increase in costs led to lower
yield of crops, which eventually resulted to lesser food being served to people. Since there is
a low supply of food, market prices went up. People are now demanding solution to avoid
this food crisis regardless if this is caused by biofuels adaptation or not21.
Researchers and government sectors looked for other aides in solving this problem.
Researchers tried looking at certain areas like food technology, biotechnology and lowering
of gas prices. These factors have gained support from the government and resulted to
increase in yields of food production22.
Certain government policies in the world increased demand for biofuels. In fact, production
of biofuels amounted to six thousand five hundred (6,500) billion gallons in 2007. But during
that time, biofuels are not yet widely commercially available and in some areas where it is
available, biofuels cannot compete with fuel prices due to its high production costs. To
address high production costs, government institutions pushed for research for
enhancement of biofuels in order to comply with world standards, and eventually lower its
costs. This resulted to consumption of more crops, making the food supply in the market
scarce, hence, market prices of food shoots up.
The world now faces a challenge between biofuels and food. Biofuels may be the best
answer for sustainable source of cheap and clean energy but this solution may lead to food
scarcity as feared by many.
III. Trends in the Biodiesel Industry
World Biodiesel Industry
Biofuels continue to grow in importance as the only direct substitute for fossil fuels. Although
there is a significant slowdown in investment recently in the industry in different countries,
international trade still remains active, with growth from the major exporting countries.
However, current production technologies will very soon come up against the limits of
resource availability, raising important questions regarding the ability to meet incorporation
targets for 2020, especially in Europe and the USA.
In 2010, global consumption of biofuels represented 3% of total fuel consumption (i.e. 55
million tons oil equivalent Mtoe). This total figure for biofuels breaks down into 73%
bioethanol (produced by fermenting sugar and usable in gasoline-powered engines) and
27% biodiesel (produced from vegetable oils and usable in diesel powered engines).
Current markets are therefore expected to maintain their current levels whilst waiting for the
emergence of new biofuel technologies from 2015 onwards. Under such a circumstance
19

Sexton, Steven, et.al. (2008). Food versus Fuel: How Biofuels Make Food More Costly
and Gasoline Cheaper.
20
Ibid
21
Ibid
22
Ibid

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Coco Biodiesel in ASEAN - Learning Team B1
coco-biodiesel seem to be a upcoming new technology in the production of biodiesel which
could have a good growth potential.
Philippines
The passing and enactment of Biofuels Act of 2006 (Republic Act 9367) in January 2007
solidified the Philippines position as the pioneer in the use of biofuels. However, in 2010,
only 1% of Philippine Energy Mix came from biofuels 23 while 74% came from oil, geothermal
and coal.
Coconut methyl ester (CME) is the chosen feedstock input for biodiesel blend. This is not
surprising given that coconut is Philippines national tree, which is planted on 26% of total
agricultural land of the country.24 In 2011, more than fifteen (15) million tons of coconuts were
produced mainly coming from Mindanao (see Exhibits 2 and 3 for details), of which 59%
were exported25. Approximately two billion dollar ($2 billion) receipts of coconut exports were
made in that year majority coming from Europe and USA. 26 Although eighty percent (80%) of
earnings came from coconut oil exports, this amount declined by 39% from 2010. Increasing
competition brought by cheaper palm oils is one of the reasons for this reduction.27
New vision and mission statement for the period 2012-2030 was created by Biofuel Board
(NBB) Technical Working Group after five (5) years of implementation 28. These vision and
mission statements listed below aims to inspire and strengthen implementation of Biofuels
Act of 2006 to eventually decrease dependency on imported fuels.
Vision:

The Philippines is a major user and leading net exporter of biofuels by 2030.

Mission:

To increase energy self-sufficiency through sustainable production of biofuels.

A short term goal of replacing three (3) to five (5) percent of total diesel utilization is targeted
to be attained by 2016. Gradual increases to 10% by 2022 and to 20% by 2030 are
projected milestones for NBB (see Exhibit 4 for details).
Oleochemical derived from coconut oil, CME is the biodiesel feedstock of the Philippines.
There are nine (9) biodiesel producers in the country with total annual capacity of three
hundred ninety three (393) million liters (MiL) as of July 2012 (see Exhibit 5 for the complete
lists and respective capacity)29. CME producers are currently experiencing low utilization rate
of 36% in 2011, which is already thrice the rate in 2007 (see Exhibit 6 for details). Despite
low utilization rate, the incentives brought about by the Biofuels Act of 2006 motivate
producers to stay in the industry. Incentives for the CME producers are: (1) zero (0) specific
tax; (2) value added tax exemption, (3) waste water charges exemption; and (4) government
banks financial assistance. In terms of trade, the country is neither exporting nor importing
coco biodiesel as of date of writing.

23

Corpuz, Perfecto. (2012, July 20). Philippines Biofuels Annual: Philippine Biofuels
Industry Situation and Outlook. Global Agricultural Information Network
24
Philippine Coconut Authority.Coconut Statistics. Retrieved June 23, 2012 from
www.pca.da.gov.ph/cocostat.php
25
Ibid
26
Alave, Kristine (2011, December 9). Coconut exports up to $2B in 2011. Philippine Daily
Inquirer. Retrieved June 23, 2012 from http://newsinfo.inquirer.net/107713/coconutexports-up-to-2b-in-2011
27
Olchondra, Riza (2012, January 9). Coconut oil exports fell by 40% in 2011. Philippine
Daily Inquirer. Retrieved June 23, 2013 from http://business.inquirer.net/38763/coconutoil-exports-fell-by-40-in-2011
28
Corpuz, Perfecto. (2012, July 20). Philippines Biofuels Annual: Philippine Biofuels
Industry Situation and Outlook. Global Agricultural Information Network
29
Ibid

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Philippine Coconut Authority (PCA) submitted a petition to increase mandated coco biodiesel
blend from two (2) to five (5) percent. This move is supported by several coconut industry
players such as Pambansang Koalisyon ng Manggagawa at Magsasaka sa Niugan
(PKMMN) and CIIF-Oil Mills Group (CIIF-OMG). According to PKMMN president Efren
Villasenor, the approval of the petition will help more than three (3) million farmers as this will
increase demand for coconut. CIIF-OMG President Jesus Arranza states his confidence for
non-opposition of oil firms since prices of copra and crude coconut oil have gone down. He
adds that the increased blend requirement may conserve countrys dollar reserve as this will
bring down the need for imported diesel. He concludes by emphasizing the effect of this
move to the countrys clean air act program as studies shows that biodiesel reduces carbon
deposits in the engine that emit toxic fumes that is hazardous to human health. 30 Perfecto
Corpuz of USDA Foreign Agricultural Service estimated that a five (5) percent blend will
require three hundred seventy eight million liters (378 MiL) of biodiesel which would utilize
approximately ninety seven percent (97%) of the existing CME industry capacity31.
The requested increase in biodiesel blend may be timely as coconut products export
percentage declines over the years. Although the Philippines is still a major exporter of
coconut products, drastic decrease in export is felt when 2010 export rate of eighty six
percent (86%) drops to just fifty nine percent (59%) of coconuts produced in 201132 (see
Exhibit 7 for the export rate trend).
Aside from decreasing export trend, slight decrease in coconut yield trend is observed (refer
to Exhibits 2 and 8 for 5 years data of coconut yield). Decrease yield is associated with
proliferation of senile coconut trees. Despite increase from 3.4 million hectares to 3.6 million
hectares in area harvested in 2010, total production drops from 15.7 million tons to just 15.5
million tons. Further decline in production was experienced in 2011. Coconut
replanting/planting program is aggressively pursued by PCA. Also, a fertilization program is
being implemented to improve coconut productivity33.
To augment CME, use of palm oil as additional biodiesel feedstock is also being considered
by PCA. There is currently fifty five thousand (55,000) hectares of palm oil plantation in
Northern Mindanao. University of the Philippines Los Banos (UPLB) is working on research
and development of alternative biodiesel feedstock. UPLB is currently conducting research
on the use of jatropha and macroalgae as biodiesel feedstock34.
Indonesia
Indonesia is the largest producer of coconuts in the world. With 2011 production of
seventeen million and five hundred thousand (17.5 million) tons, it surpass the production of
the largest coconut products exporter country, the Philippines, by more than two (2) million
tons (refer to Exhibit 2 for details). Of produced coconuts, fifty four percent (54%) were
domestically consumed, the rest are exported. Exported coconuts are in the form of fresh
coconuts, copra, coconut oil, desiccated coconut, coconut milk and cream, activated carbon,
and fibre products35. Coconut oil, which is the raw material for coco biodiesel, tops the
30

De Leon, Max (2012, November 28). Coco industry players seek increase in biodiesel
blend. Business Mirror. Retrieved on June 23, 2013 from
http://www.businessmirror.com.ph/index.php/en/business/agri-commodities/4166-cocoindustry-players-seek-increase-in-biodiesel-blend
31
Corpuz, Perfecto. (2012, July 20). Philippines Biofuels Annual: Philippine Biofuels
Industry Situation and Outlook. Global Agricultural Information Network
32
Philippine Coconut Authority.Coconut Statistics. Retrieved June 23, 2012 from
www.pca.da.gov.ph/cocostat.php
33
Corpuz, Perfecto. (July 20, 2012). Philippines Biofuels Annual: Philippine Biofuels
Industry Situation and Outlook. Global Agricultural Information Network
34
Ibid

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coconut products export list for Indonesia which is enough to place them as top two (2)
coconut exporter in the world, next to the Philippines (refer to Exhibit 9 for details).
Biofuel is seen by Indonesia as the key instrument to accelerating economic growth,
alleviating poverty, and creating employment opportunities 36. Biofuel efforts by the
government are also pursued to adhere to the Kyoto Protocol 37. Several legislations have
been passed by the Indonesian government to promote production and use of biofuel. These
legistions include: (1) Presidential Instruction No. 1/2006 on Provision and Utilization of
Biofuel; (2) Presidential Regulation No.5/2006 on the Establishment of National Energy
Policy; (3) Presidential Decree No. 10/2006 on the Establishment of National Team for
Biofuel Development; (4) Minister of Energy and Mineral Resources Decree No. 051/2006
on Guidance and Procedure for Biofuel Business; (5) Minister of Finance Decree No.
117/PMK.06/2006 on Credit for the Development of Biofuel Energy and Plantation
Rehabilitation; and (6) Government Regulation No.1/2007 on Income Tax Facilities for
Investment Activities in Specific Industries and/or Particular Region. 38 However, these efforts
have not been enough mainly due to inconsistency on implementation brought about by
limited funding by the government. Biofuel development in Indonesia remains sluggish
compared with other countries in ASEAN. Aside from minimal government support, several
issues are confronting the biofuel industry such as: (1) ability to produce high yield feedstock
seeds; (2) incomplete data on land ownership and land use; (3) high price of biofuel
feedstock; (4) high price of biofuel compared with subsidized fossil oil price; (5) lack of
national technologies capabilities on biofuel processing; and (6) an allegation that biofuel
development will cause damages to the countrys forests.
Available feedstock for Indonesian biodiesel producers are palm oil, jatropha oil and coconut
oil. Due to the established palm oil industry and potential for the increase in production, palm
oil has been the main biodiesel feedstock in Indonesia. In fact, according to Global
Agricultural Information Network by USDA Foreign Agricultural Service, palm oil has been
the sole feedstock used by biodiesel producers since 2006. In 2007, Indonesia surpassed
Malaysia as the world leader in palm oil production 39. At least in the short term, palm oil is
expected to be the main biodiesel feedstock for the country. Limited supplies of jatropha and
domestic coconut oil makes them less competitive compared to palm oil. In addition, low oil
extraction rate of jatropha makes it uneconomical. Researches are being conducted to
increase the economic value of jatropha by breeding high yield varieties and increasing the
value added of by-products from the milling process such as jatropha meal and glycerol.
High yield variety of jatropha that can produce five (5) tons of dry seed per hectare has been
released by the Indonesian Agency for Agricultural Research and Development in 2006. The
Surfactant and Bioenergy Research Center at the Bogor Agriculture University has
developed jatropha glycerol as a component of Coal Dust Suppressant formula, which is
necessary to prevent coal dust air pollution. However, these products are yet to be ready for
commercialization40.

35

Ministry of Agriculture of the Republic of Indonesia. (2010). Indonesia.Asian and Pacific

Coconut Community. Retrieved June 24, 2013 from
http://www.apccsec.org/INDONESIA.HTM
36
Asia Pacific Economic Cooperation (2008).Indonesia Biofuels Activities.APEC Biofuels.
Retrieved June 24, 2013 from http://www.biofuels.apec.org/me_indonesia.html
37
Kyoto Protocol is an international agreement linked to the United Nations Framework
Convention on Climate Change, which commits its parties by setting internationally
binding emission reduction targets. (United Nations)
38
US Commercial Service. (August 2008). Indonesia: Biofuel Development. Retrieved
November 4, 3013 from
http://aaa.ccpit.org/Category11/mAttachment/2008/Nov/06/asset000110060510852file1.
pdf
39
Asia Pacific Economic Cooperation (2008).Indonesia Biofuels Activities.APEC Biofuels.
Retrieved June 24, 2013 from http://www.biofuels.apec.org/me_indonesia.html

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Coco Biodiesel in ASEAN - Learning Team B1
Biodiesel production has been steadily increasing since 2009. Overwhelming improvements
were noted with one hundred five percent (105%) increase from 2010 (740 MiL) to 2011
(1,520 MiL). Then again, capacity utilization of twenty two (22) bio refineries is still poor with
the highest utilization registered in 2011 at 36%. Although domestic consumption of
biodiesel in Indonesia has increased by 38% from 2010 to 2011, this rate is dwarfed by the
118% year on year growth of biodiesel exports for the same period. No import has been
registered since 200641 (see Exhibit 10 for details).
Transportation sector is the main driver for the increase in biodiesel consumption in 2011.
The policies initiated by the Ministry of Energy and Mineral Resources Directorate General
of New and Renewable Energy and Energy Conservation (EBTKE) with the support of
PERTAMINA, the state-owned oil and natural gas mining company is expected to further
improve domestic consumption of biodiesel. These policies include: (1) PERTAMINAs
initiative of increasing biodiesel blending from five (5) to seven and a half percent (7.5%)
starting February 2012; (2) planned expansion of distribution biodiesel outlets in West
Kalimantan by PERTAMINA starting August 2012; and (3) mandate by EBTKE to blend
biodiesel in non-subsidized Automotive Diesel Oil (ADO) starting May 2012, which was
previously required only in subsidized ADO. These policies are estimated to increase
biodiesel consumption to five hundred million liters (500 MiL) at the end of 201242.
There had been a strong incentive for export for Indonesian biodiesel producers. The
preference to export rather than sell domestically is mainly due to assurance to earn positive
margin from overseas market. Without subsidy, producers are unable to get positive margin
from domestic biodiesel price.43 Refer to Exhibit 11 for sample computation comparing
domestic and export prices and corresponding margin.
Export is preferred by biodiesel producers as they are getting better price in international
market as subsidies on domestic sales are limited. Europe has been the single largest
market for Indonesia with market penetration up from nine percent (9%) in 2008 to thirty nine
percent (39%) of total European biodiesel import in 2011. Success factors contributing to
Indonesias excellent performance in biodiesel export in Europe are as follows 44:
Lower supply of rapeseed oil-based biodiesel resulting from poor European rapeseed
crop. Rapeseed production is predicted to decline from 20.76 metric tons in 2011 to
19.12 metric tons in 2012 by USDA.
Abundant Indonesian palm oil supply and Differentiated Export Tax policy on palm oil
products make prices for palm oil-based more attractive.
Major producers which comprise eighty five percent (85%) of total installed capacity
were able to arrange long term business contract with European biodiesel blenders
as they had been qualified by the International Sustainability and Carbon Certification
(ISCC).
Opportunity for Indonesia and Argentina, the only two (2) producers with large
exportable supplies, to increase biodiesel export to Europe opened as the European
Union (EU) implemented the countervailing and anti-dumping duties on US-origin
biodiesel, or re-exports from the US to the EU.
The palm oil export tax structure made available large supply of palm oil feedstock at
cheaper price, than Malaysian palm oil, to Indonesian palm producers.
Assuming that above-mentioned factors will continue to exist, Indonesian biodiesel exports
are expected to hit 1.3 billion liters at the end of 2012 and 1.5 billion liters by 2013. However,
40

Slette, Jonn P, IbnuWiyono. (August 14, 2012). Indonesia Biofuels Annual 2012. Global
Agricultural Information Network
41
Slette, Jonn P, IbnuWiyono. (August 14, 2012). Indonesia Biofuels Annual 2012. Global
Agricultural Information Network
42
Ibid
43
Ibid
44
Ibid

ASEAN Business Systems 12

Coco Biodiesel in ASEAN - Learning Team B1
the possibility of the imposition of non-preferential import duty on biodiesel to countries
which adopt differential tax export policy by the European Commission (EC), which is
supported by European Biodiesel Board (EBB), is a threat to the successful biodiesel trade
of Indonesia to Europe. Further, the government of Malaysia is also considering reforming its
palm oil tax structure, to be patterned with Indonesia, to make its palm oil competitive45.
IV.

Coopetition Between Philippines and Indonesia

PARTS Framework
PARTS framework will be used in order to properly identify and establish coopetition strategy
for Philippines and Indonesia.
Players
Philippines and Indonesia are the main producers of coconuts in the world. Both also tops
the coconut oil production list as estimated by Index Mundi for 2013, see Exhibit 12 for the
top 15 coconut oil producing countries. Thus, the use of coconut methyl ester (CME, from
coconut oil) as biodiesel feedstock is very feasible. Philippines is ahead of Indonesia in using
CME, however, the continuous decline in output yield is a threat to the promising but still not
growing industry. Indonesia on the other hand is already known in the world market as
exporter of biodiesel. Its strong trade relationship with Europe shown by long term contracts
of major Indonesian biodiesel producers is a competitive advantage. Then again, the threat
brought by Malaysia to palm oil industry of Indonesia (raw material for CPO) may lead to
volatility of prices of its major biodiesel feedstock.
Added Value
Indonesias current relationship with export market is a good start to promote coco biodiesel
globally. Being ahead of Indonesia in terms of coco biodiesel production, Philippines can
share their technology with Indonesia. The two countries may initiate research collaboration
to address output yield issue. By end of 2013, Index Mundi estimated that production growth
rate of coconut oil for both countries will be negative. 46 Advantages of economies of scale
may also be utilized by having greater bargaining power in purchasing supplies such as
fertilizers and equipments for biodiesel production.
Rules
Cooperation between Philippines and Indonesia will create higher bargaining power which
can thereby increase their influence in export market which hopefully could address the
monopsony issue of the industry. Philippines can also receive the trade treatment to
Indonesia as their partnership progress.
Tactics
The increased blend requirement for the two countries (from 2% to 5% for the Philippines;
from 5% to 7.5% for Indonesia) will increase production of coco biodiesel thereby utilizing
existing plant capacity. Stable coconut oil, raw material for CME, supply will give the
potential to produce more for export purposes. These will help in promoting use of coco
45

Slette, Jonn P, IbnuWiyono. (August 14, 2012). Indonesia Biofuels Annual 2012. Global
Agricultural Information Network
46
Index Mundi. (2013). Coconut Oil Production Annual Growth Rate by Country. Retrieved
November 24, 2013 from http://www.indexmundi.com/agriculture/?commodity=coconutoil&graph=production-growth-rate

ASEAN Business Systems 13

Coco Biodiesel in ASEAN - Learning Team B1
biodiesel worldwide. The potential success of these two countries may encourage other
countries to also consume coco biodiesel, thereby promoting alternative sources of energy.
This move will be beneficial in the long term to coco biodiesel industry stakeholders as well
as the environment in general.
Including other ASEAN member countries such as Vietnam, Thailand and Malaysia, which
ranked 4th, 7th and 9th, respectively in coconut oil production (Exhibit 12), in the cooperation
forming one ASEAN block can further the move to promote coco biodiesel vis a vis
alternative sources of energy. Creating one ASEAN block will be beneficial for the region
especially with the threat from Africa, Caribbean and Pacific (ACP) region, which have 7
countries in the top 15 list of coconut oil producers. According to United Nations Conference
on Trade and Development (UNCTAD), 47 out of 77 ACP countries are producing
coconuts47. In case this region gain access to technology to further process their coconuts
produce, their number will definitely be a great threat to ASEAN member countries.
Scope
Declining demand for coconut oil as edible oil as a result of increased preference for palm oil
is foreseen to decrease coconut oil exports. As such, alternative use for coconut oil is
deemed necessary. Because of coconut oils several intrinsic properties, such can also be
used an ingredient in naturally made cosmetics. These intrinsic properties includes: (1)
pleasant aroma; (2) high resistance to oxidative rancidity; (3) skin friendly oil; (4) superior
baby oil; (5) good emollient on skin, skull and hair; (6) protects skin from heat; (7) ready
penetration into skin and appreciable water absorbing property; and (8) imparts hardness
and lathering property to soaps48.
Redding Framework
To fully understand the biodiesel business model of Philippines and Indonesia, and to
summarize their coopetition potential, Redding framework is appropriately used.
Meaning
The use of coconut oil (CME) as feedstock for biodiesel is an obvious choice for the
Philippines as the tree is planted on 26% of total agricultural land of the country. The benefits
Filipinos get from this tree of life are enough to make it the countrys national tree. The
Philippines is also the top exporter of coconut products wherein 80% of export earnings
came from coconut oil.
Indonesias choice for palm oil (CPO) as feedstock stems from the fact that they are now the
leader in palm oil production, taking over Malaysia since 2006. The established palm oil
industry and the potential to increase production solidify this decision.
Philippines and Indonesia are gifted suitable land mass for coconut plantation. Together,
these countries will be the undisputed leader in coconut production and export in the world.
As they build their partnership, they will be able to pioneer promotion of coco biodiesel.
Order
Producers and consumers should form an association to discuss and review various issues
faced by them like production, pricing and supply chain related issues. Primary role of
producers and consumers is to maintain the supply and demand for coconut bio-diesel.
Given that producers have other alternative to sell their coconut for other uses, producers
must commit certain production of coconut to biodiesel consumers. Similarly consumers
have alternative fuel options and sources they must commit certain demand to coco
47

United Nations Conference on Trade and Development. (April 27, 2012). Infocomm
Commodity Profile: Coconut. Retrieved November 24, 2013 from
http://www.unctad.info/en/Infocomm/AACP-Products/COMMODITY-PROFILE---Coconut2/
48
Coconut Development Board. (n.d.). Coconut Oil Unique and Healthy. Retrieved
November 24, 2013 from http://coconutboard.nic.in/cnoqulty.htm

ASEAN Business Systems 14

Coco Biodiesel in ASEAN - Learning Team B1
biodiesel. Initial commitment from producers and consumers is very critical to the
development of biodiesel industry as a whole which will lead to collective growth.
Governments primary goal to act as catalyst to the industry by incentivizing the production
of biodiesel and setting up norms and policies to motivate and increase the consumption of
biodiesel fuels. Both governments of Philippines and Indonesias decision to increase the
required blend of biodiesel, is a good start.
Private sector should build the necessary infrastructure to generate and distribute biodiesel
fuel. This is one of the foremost challenges as infrastructure development needs significant
investment which private sector players will do only if they see required returns and on their
investments. Private sector companies from Philippines and Indonesia can look for M&A
opportunities or can form joint ventures to share knowledge, infrastructure and resources
and explore other synergies to drive the biodiesel industry.
Coordination
will aid in stabilizing supply of coconut oil and thereby CME needed in coco biodiesel.
Indonesia may encounter problem with palm oil supply when Malaysia starts reforming its
tax policy to be more competitive. With this, Philippines can help Indonesia by helping
stabilize the supply of coconut oil. This is also advantageous to the Philippines as palm oil is
also becoming a threat as an alternative to coconut oil in the export market. As it is, the
Philippines, is highly reliant on coconut oil as main coconut product export.
The move of both countries government to promote biodiesel in their respective countries is
a starting point but they need a compelling reason for their constituents to adhere. The two
countries together can encourage acceptance by providing cheaper fuel alternative as raw
materials are locally sourced.
Indonesia and the Philippines can also work together and maximize human capital to
stabilize if not increase coconut yields as both countries experienced drop in yield for the last
two (2) years. Improving the yield will also address the food and fuel trade off issue being
faced by biofuels. Technology can also be shared and research collaboration can result to
improved productivity and efficiency at lower spending. Sharing of other best practices such
as tree replanting movements is also critical to the sustainability of the industry.
The cooperation between the two countries will give them higher bargaining power which
can benefit on both ends of supply chain. They can negotiate for better price in fertilizers and
other supplies as well as equipments purchase. Also, they can improve their profit margin by
negotiating better price.
The potential for these two markets to dominate biodiesel export market is huge. The current
trade relationship with Europe by Indonesia via long term contracts is a great starting point
for the export venture. Production is likely to be enough for respective domestic demand,
and excess may be exported. There will be sufficient demand in international market for two
countries to provide the biodiesel as the acceptance on the use of biodiesels are gradually
improving as people become conscious of the concerns of the planet.

ASEAN Business Systems 15

Coco Biodiesel in ASEAN - Learning Team B1
V.

CONCLUSION:

Coco-biodiesel- An emerging opportunity for ASEAN sustainable development:

The competitiveness of traditional coconut products industry is diminishing due to the issues
of over-capacity at the production end, slow growth in industrial raw material and edible oils
markets and monopsony dictating the domestic raw material prices. With the current trend of
clean energy demand by both businesses and individuals, there is high potential for the
success of biodiesels. The increased awareness of harm to environment by fossil fuels, both
businesses & individuals are on quest for investments in environmental strategies and green
energy sources respectively.
In ASEAN, four-fifth of coconut production coming from Indonesia and Philippines caters to
the traditional global market. Coco biodiesel as an alternative fuel source adds value to
ASEANs coconut industry by increasing the value added by coconuts by utilizing the
demand for biofuels, increasing the capacity utilization, improving domestic markets and
reducing export market dependency. This alternative use of coconut as coco biodiesel will
shift the industry to high-end coconut products which would help maximize the value-add
and increase its competitiveness. Coco biodiesel has a number of benefits such as
environmental benefits of low pollution, socio-economic benefits of reducing transaction
costs and creating new jobs and Cost benefits to end users through lower fuel prices.
Coco biodiesel industry provides opportunities for sustainable development of ASEAN as it
has the potential to create avenues for coopetition between the worlds top two largest
coconut producers, Indonesia and Philippines, which can address the increasing need for
biofuels. The scale of coconut production and abundance of water availability gives the
advantage of economies of scale which can reduce associated costs by strategic planning of
biodiesel plants. The producers and consumers common dialogue could pave way for
creating demand and supply for cocobiodiesel and also, take measures to sustain it through
collective growth. Government support is a significant factor to drive this growth through
policies and regulations that incentivize bio-diesel production and consumption in ASEAN.
The Indonesian & Philippine governments can leverage their advantage of large-scale of
production through collective R&D, infrastructure and industry practices. Private sector
opportunity lies in the emergence of new technologies, management practices, joint ventures
and sales & marketing of coco-biodiesels. The state & private sectors together through
coopetition in Indonesia and Philippines can drive the growth of coco-biodiesel industry that
would maximize the value of coconut industry while increasing its competitiveness.

ASEAN Business Systems 16

Coco Biodiesel in ASEAN - Learning Team B1
EXHIBITS
Exhibit 1. Bioethanol and Biodiesel Comparison
Bioethanol

Biodiesel

Process

Dry-mill method: yeats,

sugars and starch are
fermented. From starch, it is
permented to sugar,
afterwards it is fermented
again into alcohol.

Environmental
Benefit

Both reduce greenhouse gas emissions as biofuels are

primarily derived from crops which absorb carbon dioxide.

Compatibility

Ethanol has to be blended

with fossil fuel like gasoline,
hence only compatible with
selected gasoline powered
automobiles

Transestirification: methyl
ester and glycerin which
are not good for engines
are left behind.

Able to run in any diesel

generated engines

Source: Wordpress.com

Exhibit 2. Coconut profile of Philippines and Indonesia

Philippines

Year

Production
(in
thousand
tons)

Area
harvested
(in
thousand
has)

2007

14,853

2008

Indonesia

Per ha
yield
(ton/ha)

Production
(in
thousand
tons)

Area
harvested
(in
thousand
has)

Per ha
yield
(ton/ha)

3,360

4.42

19,625

2,900

6.77

15,320

3,380

4.53

17,937

2,880

6.23

2009

15,668

3,402

4.61

19,000

2,900

6.55

2010

15,510

3,576

4.34

18,000

2,980

6.04

2011

15,245

3,562

4.28

17,500

2,980

5.87

Source: Food and Agriculture Organization of the United Nations

ASEAN Business Systems 17

Coco Biodiesel in ASEAN - Learning Team B1

Exhibit 3. Coconut Production per Region (in thousand metric tons)

2007

2008

2009

2010

2011

14,853

15,319.53

15,667.56

15,510.28

15,244.61

3,070.69

3,407.15

3,666.27

3,639.45

3,617.25

0.86112

0.86578

0.90605

0.91398

0.90724

..ILOCOS REGION

34.55

36.14

38.02

37.38

38.48

..CAGAYAN VALLEY

79.33

77.78

71.90

67.32

59.76

..CENTRAL LUZON

182.40

189.10

199.73

210.44

212.65

1,247.03

1,362.85

1,430.13

1,394.64

1,390.85

..MIMAROPA

567.16

580.60

668.36

659.22

712.90

..BICOL REGION

959.36

1,159.81

1,257.22

1,269.54

1,201.71

2,657.81

2,681.66

2,689.84

2,671.54

2,668.00

..WESTERN VISAYAS

483.07

482.74

478.33

472.74

459.78

..CENTRAL VISAYAS

396.70

393.86

434.59

429.72

438.27

..EASTERN VISAYAS

1,778.04

1,805.07

1,776.92

1,769.08

1,769.95

MINDANAO

9,124.43

9,230.71

9,311.46

9,199.29

8,959.35

..ZAMBOANGA PENINSULA

1,766.48

1,714.91

1,744.74

1,713.02

1,557.62

..NORTHERN MINDANAO

1,669.28

1,713.35

1,743.34

1,757.16

1,745.95

..DAVAO REGION

2,581.10

2,671.20

2,691.90

2,635.87

2,627.25

854.58

870.09

895.09

864.27

879.87

..CARAGA

1,010.28

1,011.10

985.43

974.21

879.40

..ARMM

1,242.71

1,250.05

1,250.97

1,254.76

1,269.27

Coconut (with husk)

PHILIPPINES
LUZON
..CAR

..CALABARZON

VISAYAS

..SOCCSKSARGEN

Source: Philippines Bureau of Agricultural Statistics

Exhibit 4. Target Biodiesel Blends by 2030

Year
Target (%)
Source: NBB - TWG Review

2012

2013- 2015

2016

2020

2025

2030

3 to 5

10

20

ASEAN Business Systems 18

Coco Biodiesel in ASEAN - Learning Team B1

Exhibit 5. The Philippine CME Industry

Company

Capacity
(MiL)

1. Chemrez Technologies,
Inc.

75

2. Pure Essence Int'l, Inc.

60

3. Golden Asian Oil Int'l, Inc.

60

4. JNJ Oleo chemicals

60

5. Mt Holly Coco Industrial

Co. Ltd

50

6. Bioenergy 8 Corporation

30

7. Tantuco Enterprises, Inc.

30

8. Freyvonne Milling Services

16

9. Philippine Biochem
Products, Inc.

12

Total

393

Source: Philippine Coconut Authority

Exhibit 6. CME Production, Consumption and Utilization Rate in the

Philippines
2007

2008

2009

2010

2011

Production (MiL)

38

65

130

139

144

Consumption (MiL)

38

65

130

139

144

Number of CME Producers

12

12

12

12

12

Capacity (MiL)

325

325

395

395

395

Utilization (%)

12%

20%

33%

35%

36%

Source: GAIN Report by USDA Foreign Agricultural Services

ASEAN Business Systems 19

Coco Biodiesel in ASEAN - Learning Team B1

Exhibit 7. Philippine coconut export trend

Source: Philippine Coconut Authority

Exhibit 8. Philippine Coconut Yield (ton/ha)

Source: Food and Agriculture Organization of the United Nations

ASEAN Business Systems 20

Coco Biodiesel in ASEAN - Learning Team B1

Exhibit 9. Coconut Oil Export Data for Philippines and Indonesia

Philippines

Indonesia

Year

Quantity
(thousand
tons)

Value
(thousand
USD)

Quantity
(thousand
tons)

Value
(thousand
USD)

2006

1,067

578,769

520

270,674

2007

890

733,813

740

570,410

2008

850

1,039,612

649

769,134

2009

833

594,506

571

387,360

2010

1,346

1,265,716

567

566,068

Source: Food and Agriculture Organization of the United Nations

Exhibit 10. Biodisel, Production, Consumption, Export, Import and Utilization Rate in
Indonesia
2007
2008
2009
2010
2011
Production (Mli)
270
630
330
740
1,520
Consumption (Mli)
22
23
60
220
304
Imports (Mli)
0
0
0
0
0
Exports (Mli)
257
610
204
563
1,225
Ending Stocks (Mli)
18
15
81
38
29
Number of Biorefineries
7
14
20
22
22
Capacity (Mli)
1,709
3,138
3,528
3,936
4,280
Utilization (%)
16%
20%
9%
19%
36%
Source: Trade Data (USDA and EU Statistic); Consumption (APROBI and PERTAMINA);
Production and Ending Stock (APROBI and Post's Estimation

Exhibit 11. Profit Margin for Domestic and Export Biodiesel Price, 2010 & 2011

Production Cost
Domestic Purchase Price*
Profit Margin Without
Subsidy
Profit Margin With Subsidy

2010
(US$/Liter)
1.07
0.88

2011
(US$/Liter)
1.31
1.16

-0.19
0.03

-0.15
0.07

1.08
0.01

1.38
0.07

Export Price
Profit Margin from Export
*based on Indonesian Biofuel Price Index Formula
Source: Posts Estimation

ASEAN Business Systems 21

Coco Biodiesel in ASEAN - Learning Team B1

Exhibit 12. Estimated Coconut Oil Production by 2013 End

Production
Country
(1000 MT)
Philippines
1725
Indonesia
974
India
447
Vietnam
153
Mexico
145
Papua New
6
Guinea
63
7
Thailand
46
8
Sri Lanka
43
9
Malaysia
35
10
Mozambique
30
11
Tanzania
21
12
Cote D'Ivoire
19
13
Nigeria
9
14
Ghana
7
15
Samoa
7
*ACP - Africa, Carribean and Pacific
Rank
1
2
3
4
5

Source: Index Mundi

Region
ASEAN
ASEAN
Asia
ASEAN
Latin America
ACP*
ASEAN
Asia
ASEAN
ACP*
ACP*
ACP*
ACP*
ACP*
ACP*