Economic Viability Analysis of Centrifuge-type Virgin Coconut Oil (VCO) Processing Facility in Aklan, Philippines

Abstract

The Philippine coconut industry faces enduring challenges, especially among economically marginalized smallholder farmers. In response, the government enacted Republic Act No. 11524, mandating the Coconut Farmers and Industry Development Plan (CFIDP) to enhance productivity, reduce rural poverty, and modernize the sector. A key strategy under the CFIDP is the establishment of Shared Processing Facilities (SPFs) for value-added products such as virgin coconut oil (VCO). This study aims to evaluate the economic viability of a centrifuge-type VCO processing facility in Aklan to guide investment and policy decisions. Capital expenditure and operating costs were estimated using data from the Philippine Center for Postharvest Development and Mechanization (PHilMech), interviews with six coconut farmer cooperatives in Aklan, and secondary online sources. Financial values were adjusted to economic values using standard conversion factors while benefits were based on VCO sales using its free-on-board (FOB) price. An economic cost-benefit analysis (CBA) was conducted to assess the facility’s viability. The facility had a total economic cost of PHP 71.88 million (USD 1.29 million), comprising capital expenditures of PHP 47.15 million (USD 0.84 million) and operating costs of PHP 24.72 million (USD 0.44 million). In contrast, the projected economic benefits amount to PHP 46.40 million (USD 0.83 million) annually. The economic analysis yielded a positive net present value (ENPV) of PHP 96.56 million (USD 1.74 million), an internal rate of return (EIRR) of 33%, a benefit-cost ratio (BCR) of 1.46, and a payback period of 2 years and 2 months. A sensitivity analysis confirmed the facility's viability despite fluctuations in sales, costs, and discount rates. The results suggest that the centrifuge-type VCO processing facility in Aklan is economically viable and qualifies as a strategic investment under CFIDP.