PROSPECTS VIRGIN COCONUT OIL –

THE HEALTHY OIL

project
managementabu dhabi, astana, athens, brno, como, dnepropetrovsk, jakutsk, kuala
lumpur, lugano, moscow, prishtina, sarajevo, tashkent, tehran, tirana, vienna
 CONFIDENTIALITY STATEMENT

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Project Management Sdn Bhd solely for information purposes to be reviewed by
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Hans-jib Project Management Sdn Bhd

Technical Department

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PROSPECTS VIRGIN COCONUT OIL – THE HEALTHY OIL

Index

TOPIC PAGE
Executive Summary

1. The Business Proposition

1.1 Key Features & Benefits of Products
1.2 Target Customers
1.3 How the Proposition Meets User’s Needs
1.4 SWOT
1.5 Risks
2. Industry Dynamics
2.1 Market size and statistics
2.2 Industry structure
2.3 Industry Drivers
2.4 Industry Success factors
2.5 PEST
2.6 Industry lifecycle
2.7 Opportunities in the Industry
2.8 Business Models in the Industry
3. Competitor Analysis

4. Strategic Positioning
4.1 Positioning – Anticipated Evolutionary Advances
4.2 Marketing strategy
5.3 Distribution Strategy
4.4 Partnership strategy

5. Intellectual Property Potential

Strategy Recommendations
Executive Summary

Virgin Coconut Oil (VCO) gained acceptance two years ago when it demonstrated
beyond doubt its miraculous properties. Scientists and health experts conducted
extensive research on its medical properties and its ability to heal. Studies concluded
that the lowly Virgin Coconut Oil (VCO) is rich in antioxidants or cancer-fighting nutrients
such as Vitamins A, C and E. It also contains ample amounts of Lauric Acid. If that is not
enough, it is the world’s only available low-calorie fat. The United States Food and Drug
Administration (US FDA) concluded in its findings that it is “generally regarded as safe”. It
also considered VCO as the healthiest oil on earth. The humble coconut tree has truly
lived up to its moniker the “tree of life”.

Currently, the main producers/exporters of Virgin Coconut Oil are the Philippines and
India. Virgin Coconut Oil has the potential to be produced in Malaysia by the SMI sector.
Furthermore, due to the simplicity in its processes, the initial startup capital for setting up a
Virgin Coconut Oil processing plant could be kept to a minimum. In the Philippines for
example, Virgin Coconut Oil are produced by farmers using the fermentation process
and sent to manufacturers for refinement and packing, prior to export. This method of
collection could be adapted in this country as it can prove beneficial to supplement the
income of coconut growers and contributes towards revamp of the coconut industry in
Malaysia.

Key Features and Benefits of Virgin Coconut oil

Coconut oil has been used for centuries as a vital source of food for health and general
well being of traditional communities of tropical regions. Traditional beliefs that the
coconut palm is “The Tree of Life” has been further augmented by recent research which
has shown that coconut and virgin coconut oil have significant role to play in a well
balanced, nutritious diet. Research shows that replacing other cooking oils with virgin
coconut oil generally creates a more favorable HDL/LDL ratio.

As a result, the market for Virgin Coconut Oil (VCO) is gaining rapidly especially for health
conscious American and European consumers.

Virgin Coconut Oil (VCO) is produced naturally from fresh coconut meat or its derivatives
at low temperatures in the absence of chemicals or additives. It is the purest form of
coconut oil, as clear as crystal and contains Vitamin E and very low levels of fatty acids
and peroxide value. It is cholesterol and aflatoxin free and contains high amount of
lauric acid. It also contains physiologically essential fatty acids that are necessary for
growth, reproduction, health of skin, and proper utilization of fats.

Virgin Coconut Oil (VCO) is the highest source of saturated fats (92%) among any other
naturally occurring vegan food source, besides having the highest source of saturated
medium chain triglycerides (62%). Furthermore, around 50% of these medium chain
triglycerides are made up of lauric acid, the most important essential fatty acid in
building and maintaining the body’s immune system.

Apart from coconut oil, the only other source of lauric acid found in such high
concentration is in mother’s milk. Virgin Coconut Oil and mother’s milk are by far the
richest food sources containing lauric acid and medium chain fatty acids available. The
closest other source of these vital building blocks for the immune system would be milk
fat and butter, comprising around 3% of its content. Any other vegetable oil is
completely deficient in these medium chain fatty acids.

Modern researches have shown that not all saturated fats are alike and that the fatty
acids in coconut oil do not raise serum cholesterol or contribute to heart disease. The
ability of the coconut oil to stimulate thyroid function directly results in cholesterol
decrease. Accordingly, cholesterol is converted by enzymatic processes to the vitally
necessary anti-aging steroids, pregnenolone, progesterone, and DHEA in the presence of
adequate thyroid hormone. These substances are required to help prevent heart
disease, senility, obesity, cancer, and other diseases associated with aging and chronic
degenerative diseases.

Further, coconut oil contains no dangerous trans-fatty acids which are found in other
vegetable oils including olive, margarine, shortening, and more. Trans-fatty acids can
raise cholesterol levels and lead to clogged arteries, type-II diabetes, and should be
avoided.

Coconut oil can actually help us increase metabolism, thus the body will burn more
calories in a day and contribute to weight loss. This is because its medium chain fatty
acids (MCFAs) are digested more easily and utilized differently by the body than other
fats. Whereas other fats are stored in the body’s cell, the MCFAs in coconut oil are sent
directly to the liver where they are immediately converted into energy. Hence the body
uses it immediately to make energy rather than store it as body fat. Further, because this
quick and easy absorption puts less strain on the pancreas, liver and digestive system,
coconut oil heats up the metabolic system.

In today's world where health has become the prime concern, various researches are
being carried out to find natural means of promoting better health, in spite of the ever
increasing stress. In fact, people from the medical and cosmetic industry are constantly
searching and researching more and more coconut oil benefits.

However, from the findings till date, here is a list of the some of the essential coconut oil
benefits one should be aware of:

• It satisfies the body’s daily nutritional requirements

• It acts as carrier and protective agent for fat soluble and other vitamins, i.e.,
facilitates absorption of vitamins in our body.
• Coconut fat in diets leads to a normalization of body lipids, protects against
alcohol damage to the liver, and improves the immune system’s anti-
inflammatory response
• It is an effective remedy for eczema, skin rashes and other skin ailments.
• It helps cure benign prostatic hyperplasia (BPH) and ulcers.
• Its anti-microbial action reduces dental caries.
• It enhances both absorption and retention of calcium and phosphorus when
added to a rachitogenic diet thus help prevent osteoporosis
• The oil promotes weight loss as well as weight maintenance
• It provides a source of antimicrobial lipid
• The oil does not interfere with functioning of the thyroid
• It protects against heart disease
• It is anti-cancer, its fatty acids exert an inhibiting influence on the causation of
liver tumors, colon, and breast cancer
 • It is easy on the digestion system
• It empowers the immune system
• The oil does not contain cholesterol, thereby not increasing the cholesterol level
in the blood
• Does not cause the stickiness of platelets that causes the formation of blood clots
• The oil helps prevent bacterial, viral and fungal infections.
• It helps in keeping diabetes under control
• It is known to keep the skin soft when used externally
• It helps prevent skin blemishes
• The oil is highly recommended for the hair, as it promotes healthy scalp to nourish
hair and reduces hair fall

The various ways to produce virgin coconut oil.

Refined coconut oil and virgin coconut oil are two distinctly different products.

Refined Coconut Oil

Most commercial grade coconut oils are made from copra. Copra is basically the dried
kernel (meat0 of the coconut. It can be made by: smoke drying, sun drying, or kiln
drying, or derivatives or a combination of these three. If standard copra is used as a
starting material, the unrefined coconut oil extracted from copra is not suitable for
consumption and must be purified, i.e. refined. This is because the way most copra is
dried is not sanitary. The standard end product made from copra is RBD coconut oil. RBD
stands for refined, bleached, and deodorized. High heat is used to deodorize the oil, and
the oil is typically filtered through (bleaching) clays to remove impurities. Sodium
hydroxide is generally used to remove free fatty acids and prolong shelf life.

This is the most common way to mass-produce coconut oil. The older way to produce
refined coconut oil was through physical/mechanical refining. More modern methods
also use chemical solvents to extract all the oil from the copra for higher yield.

RBD oil is also sometimes hydrogenated or partially hydrogenated. This happens mostly in
tropical climates, since the natural melting point of coconut oil is 76 degrees F, and
already naturally a solid in most colder climates. Since coconut oil is mostly saturated,
there is little unsaturated oil left to hydrogenate. Hydrogenated oils contain trans fatty
acids.

Virgin Coconut Oil

Anything in its purest form is always the best, especially where health and well being is
concerned. This also applies to coconut oil. Coconut oil in its most refined form is also
known as virgin coconut oil.

The virgin coconut oil is derived from the flesh or meat of fresh coconut. For this oil there is
no usage of chemicals or high temperature heating to further refine it. This is because the
natural and pure oil is absolutely stable. Its shelf life goes up to several years.

There are essentially two primary process used to manufacture virgin coconut oil. These
are:
 • Briskly drying the non-copra of the fresh coconut and then pressing out the oil. This
requires the least amount of heat for drying the coconut flesh, after which
mechanical methods are used to derive the oil.
• Wet-milling is a method whereby the oil is derived without drying the flesh of the
coconut. Instead, the flesh is grated and the coconut milk is derived
mechanically. Water and oil is then separated using one of the following
methods:
• - Boiling
- Fermentation
- Refrigeration
- Enzymes
- Mechanical centrifuge.

Depending on the size of operations, SMI entrepreneurs can choose between the two of
the most common method of production, i.e.:

FERMENTATION PROCESS

Involves splitting the nut, grating the meat to fine particles, squeezing the milk either
manually or by mechanical means, with or without addition of water and allowing the
milk to ferment for 36 to 48 hours. Then, the skim milk at the bottom is discarded, the oil
that separated is filtered and the cream that still contains part of the oil is gradually
heated to further recover some oil. The process can be done under a home scale
operation or can be partly mechanized under a small to medium scale plant operation.

CENTRIFUGE PROCESS

Involves splitting the nut, grating the meat to fine particles, squeezing the milk either
manually or by mechanical means, with or without addition of water and undertaking a
phase separation process through the use of centrifuge. The virgin oil is recovered
through a two-stage centrifuge process where the skim milk is recovered during the first
stage. The treatment of the recovered cream to obtain the oil after the skim milk is
separated depends on the type and speed of the centrifuge used. This process is done
under a medium scale plant operation in as much as investment cost for the centrifuge
equipment is very high.

Approximately, 15 fully matured (12 – 13 month old) average-sized coconuts are needed
to produce one liter of Virgin Coconut Oil.

Mild heating is necessary to ensure that the film of water absorbed in the surface of the
oil is totally removed. The said film of water will cause the oil to get rancid upon storage if
not properly removed. Virgin Coconut Oil is not destroyed or changed chemically in any
way from its original form by using low heat and is the least susceptible to oxidation of
any plant oil and does not turn rancid for more than 3 years.

TARGET CUSTOMERS

Having been hailed as ‘the healthiest oil’, Virgin Coconut Oil has gained prominence in
the United States, and has begun to set a foothold in Europe. Current target markets are
for the health conscious first world consumers. In the long run, VCO has the potential for
global acceptance, especially for the Middle East and the rest of Asia. However, due to
a lack of promotion, and high production cost resulting in high retail price of VCO as
compared to RBD coconut oil and palm oil, for example, the market now is limited to
affluent end users.

However, a high retail price of VCO should work in favor of producers/ manufacturers as
profit margin is maintained at a respectable figure.

Although it is expected that the production of VCO will increase in the immediate future
as more and more manufacturers try to cash in on the ‘healthy oil’ revolution, it is also
expected that the demand for VCO will increase as well, thus creating a healthy supply-
demand balance.

STRENGTH

The under-performing coconut industry in Malaysia has the potential to be revived. VCO
can serve as a mean to provide an alternative to farmers and augment their income.
VCO can be produced on a small or medium scale. The initial start up capital could be
kept at a minimum due to its ease of operations. Locally-made machineries for
producing VCO are easily available and competitively priced.

WEAKNESS

Being a so-called ‘latecomers’ in the industry, Malaysian-made VCO have to compete

with the more established coconut oil producing countries, e.g., Philippines and India, for
a share of the market. In the initial stage, market penetration is envisaged to be a bit
difficult. There is a need for consultation from the experts in the industry.

OPPORTUNITY

Malaysian-made VCO has the potential to penetrate the emerging and lucrative global
VCO market. Producers should undertake to manufacture VCO to meet USDA and
European standards. Serious efforts need to be taken to promote VCO to the Middle
East.

THREATS

Stiff competition from other well-established VCO producers is to be expected. The

possibility of a drop in selling price of VCO due to such factors as increase in the number
of producers, marketing strategies and slow market expansion.
 COCONUT PROCESSING FLOW CHART

Coconut Fruit Coconut Dehusking Dehusked Coconut

Machine Fruit

Cut Deshelled Deshelled Coconut Coconut Deshelling

Coconut to Pieces Fruit Machine

Coconut Flesh Grating Fine Grated Coconut Coconut Milk

Machine Flesh Extracting Machine

Virgin Coconut Oil Virgin Coconut Oil Coconut Milk

Centrifuge System