Overview

Offering an industry review, financial projections and our very own plantation earning breakdowns, ‘Investing in Coconuts’ is a comprehensive guide for the niche asset’s ability to generate superior returns while offering security through diversification.

Why Coconuts

Since 2008, mainstream global investment markets and asset classes have benefi ted from extraordinary largesse courtesy of the Fed. The current phase of quantitative easing is expected to run its course by October 2014. In years to come the strong performances across a range of assets over this period will likely be considered an aberration. Lower forecast levels of long-term inflation suggests that investors will have to prepare themselves for returns half that which they have enjoyed for much of the last quarter-century.

Liquid’s core belief in diversification led to a focus on commodities through agricultural plantations in Brazil. Since then this decision has been reinforced by the inherent strength in this global top six economy, its independent currency, and the attractive pricing of agricultural land in the country.

The coconut is a product which underpins Liquid’s core investment theme – diversifi cation. A product with numerous uses, the coconut is in high demand across a wide spectrum of industries due to reasons that become abundantly evident once the uses of this giant nut are investigated.

Coconut Water

Drinking the sweet, fresh water from young coconuts is ubiquitous in tropical countries like Brazil, India, and across Southeast Asia. In recent years demand has expanded beyond its traditional markets; PepsiCo, Coca-Cola and a host of niche suppliers are promoting the product to a wider global market. The latest available data shows that in the three years up to 2013, the global demand for coconut water grew by 168%.

The coconut market started from being near nonexistent to representing a $1 billion industry within just seven years. With the world’s fifth largest population, Brazil is the number one market for packaged coconut water, where it accounts for 70% of the packaged beverage market by volume.

Approximately 200 brands are now in the global marketplace, including major players, such as Vita Coco (the number one selling coconut water in the (US), Zico (Coca-Cola owned) and O.N.E. (owned by PepsiCo). PepsiCo also owns Amacoco, Brazil’s largest coconut water producer amongst others.

An interesting aspect of the market demand for coconut water is the endorsement provided by a range of celebrities. Rihanna signed up in 2011 as the ‘Face’ of Vita Coco and Jessica Alba also teamed with Zico Coconut Water in May 2014. Not only are they endorsing, but the likes of Demi Moore, Matthew McConaughey and Madonna are investing. Madonna alone invested about $1.5 million in one of the leading makers of coconut water, Vita Coco.

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Coconut Oil

A well-established commodity that has been traded globally for more than fifty years. Extracted from the dried white flesh of the coconut, the oil is a multiuse liquid that can be used as a cholesterol cutting cooking oil and a healthcare product (the oil has been shown to be anti-viral, anti-bacterial, anti-fungal and anti-microbial).

It is also widely used as a biofuel feedstock which is blended with gasoline or diesel to produce an environmentally sound and sustainable alternative to fossil fuels. An offshoot of biofuels, biodiesel is produced from a number of oil producing plants like coconuts, palms and rapeseeds. Governments worldwide are supportive of the use of biofuels and UK government studies have shown that using biofuels can reduce emissions by 60% compared to fossil fuels. Brazil is one of the world’s largest biofuel consumers, and it has ten million dual-fuel (biofuel or fossil-fuel) cars on its roads.

An exciting area of study is focusing on the fight against Alzheimer’s Disease, Dementia, Multiple Sclerosis, Diabetes, Parkinson’s Disease and Autism. An exciting area of study is focusing on the fight against Alzheimer’s Disease, Dementia, Multiple Sclerosis, Diabetes, Parkinson’s Disease and Autism. The human brain needs glucose to function effectively, but when there are insufficient amounts of glucose available, the brain acquires a portion of its energy from ketones. The latter, found in coconut oil, has been shown to play a factor in some studies regarding the treatment of Alzheimer’s. A lot of the evidence to-date regarding the ability of coconut oil to combat Alzheimer’s is strong but anecdotal. The potential upside, both for quality of life for sufferers and the profits for investors is high.

Many of the Hollywood A-list start their day with it: Gwyneth Paltrow uses coconut oil as her moisturizer and Angelina Jolie has “a spoonful of coconut oil and a handful of cereal” for breakfast. Whilst Kourtney Kardashian’s glossy locks are due to her coconut oil hair mask routine, and Jennifer Aniston’s use of coconut oil has been linked to weight loss and boosting metabolism. Even Australian supermodel Miranda Kerr, renowned for her healthy lifestyle, never shies away from discussing the uses of coconut products and has proven her love for it by using it as part of her very own beauty range.

The demand of coconut oil within the US healthcare sector must increase as momentum grows to correct the imbalance between the six-fold greater funding on AIDS research in the US, from which one million Americans suffer, compared to the funding on Alzheimer’s, which has five million sufferers in the US.

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Activated Carbon

Long used as a filter in water treatment and emissions control, the market for coconut-based activated carbon is entering a rapid growth phase driven by multilateral agreements to reduce pollutants, and specifi c legislative requirements in key markets.

The most sought after activated carbon is made from the coconut shell which has been heat-treated and then oxidized. Coconut shells are the ideal raw material because of their high carbon content, and their much greater micro-porous structure compared to coal, the other main source of activated carbon.

One gram of activated carbon can have a surface area of 500 – 2,000m2, and it is this greatly increased coverage (the ‘activation’ is caused by treatment with oxygen) which makes the product good for trapping a wide range of impurities – major applications include air purification, waste water treatment, and drinking and tap water purification. The mining and metal industries are also major users. As befitting of a product with multiple environmental applications, activated carbon can be re-activated by another round of drying and oxidation, but an estimated 15% of weight is lost each time this process is carried out.
Mercury is one of the world’s most dangerous environmental pollutants. The United Nations has decreed that mercury is such a threat at a global level, its production and usage needs to be phased out. This does not tackle the ongoing problem of mercury emissions in industrial applications. In the US, the Environmental Protection Agency (EPA) will be introducing the Mercury and Air Toxics Standards (MATS) in 2015, which will warrant a 90% cut of a wide range of poisonous emissions from coal and oilfired power stations, such as mercury and air toxics, covering metals, acid gases and dioxins. The EPA states that 46% of the US electricity generation (525 power stations) will be  affected. Fitting Activated Carbon Injection (ACI) installations will not take long, and is not complex, but it will not be cheap. A nation wide rollout is estimated to cost roughly $10 billion.

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Other Coconut Products

Soaps and Cosmetics

Pure coconut oil is 50% lauric acid, and is mainly used in the production of soaps and cosmetics. The process is very simple – it is neutralized with sodium hydroxide to produce sodium laurate, a chemical compound found in soap. Anecdotally, lauric acid is claimed to have anti-microbial properties. Coconut milk is used in soaps, because it deeply cleanses skin without stripping away the natural oils. It replenishes the moisture in skin, which leaves it smooth, soft and hydrated. It is a natural product that is used in shampoos and cosmetics to hydrate, moisturize, repair and heal hair and skin.

Charcoal

Husks and shells have historically been used as charcoal, as a potting medium to produce healthy forest tree saplings and many other uses, including detoxing remedies. The shells are used to produce charcoal briquettes. A growth area is to apply the husks as a biomass in much the same way that coconut oil is used.

Coir

Coir, the tough fi bers that come from the outer casing which surrounds the brown nut are used to make mats, packaging, mattresses and brushes. It can also be rubberized and used as an eco-friendly alternative to plastics.
Coir can be used as a natural and renewable soil addition to help plants grow stronger root systems and retain nutrients for longer. Coir is a sustainable alternative to peat moss as it is renewable while not causing  environmental damage, unlike the peat mining industry.

Milk

Coconut milk is made by passing hot water through grated coconuts, and is a key ingredient in Southeastern Asian cooking. The milk is lactose free and is rich in vitamins C, E and many B vitamins. When combined, vitamins C and E help boost the immune system, and B vitamins are responsible for providing energy to the cells.

Coconut milk is rich in antioxidants and helps to prevent free radicals, which are associated with the development of many diseases and cancers.

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