Kiribati Economy

Summary

FINDINGS 1.
i. Average annual copra production is estimated at about 9,000 metric tons (actual copra production fluctuates depending on ENSO events)
ii. Copra Pricing Policy has no (or little) effect on Copra Production
iii. ENSO Events influence Copra Production.

FINDINGS 2.
i. Copra production in 2011 is estimated at about 8,000 metric tons

FINDINGS 3.
i. Government is losing about US$1000 per metric ton.
ii. Total financial loss to government is estimated at an average of AUD$9 millions per year (fluctuates depending on ENSO events)

FINDINGS 4.
i. Amount of coconut oil needed to power PUB generators is 1.2 millions liters per year for a mix ratio of 80:20 (Diesel:Coconut Oil)
ii. Total amount of coconut oil available in the country is about 4.5 million liters per year;
iii. Copra Mills is capable of crushing 8000 - 12000Tiaon Aukitino personnel communication 2010 MT;
iv. Using coconut oil as Bio-Fuel is not an economical option if government has to recover full cost. Coconut oil costs government at least AUD$1.40 per liter whereas Diesel is about AUD$1.10 per liter.

A. Introduction

1. Agriculture in Kiribati is typiﬁed by the coconut, but about half the estimated 11million trees in the country is considered senile and unproductive. Copra production is heavily subsidized, helping to keep people in the outer islands. While production of copra is largely suited to an atoll environment, two constraints on production are becoming increasingly apparent, namely: (i) low world prices for copra and poor prospects for increased prices in the future; and (ii) local conditions including aging trees, low rainfall increasing salinity and declining fertility of the soil, and major bushfires.

B. Copra

Copra Production

2. Copra production averaged to about 9000 metric tons per year (for year 1970 to 2008). In 1975, copra production dropped to about 4000 metric tons and peaked to about 14,000 metric tons in 1989.

Source: Kiribati Statistic office

ENSO events and Copra Production.

3. According to the Food and Agriculture Administration, climate variability causes considerable fluctuations in crop yields and productivity. In fact, Adams, et al. [1999] claim that climate is the primary determinant of agricultural productivity [1]. Having an ocular inspection of the figure alone, one can verify that 1972-73, 77-78, 82-83, 87-88, 91-93, 94-95 and 02-03 are El Niño years while 1971-72, 73-76, 88-89, 98-99 and 00-01 are La Niña years. (Click to see SOI data or refer to appendix) [2] .

Source: Australian Government Bureau of Meteorology

Copra Price and Copra Production

4. Price of copra is heavily subsided and depends on political promises made by political parties during election periods. In 1991 to 1994, the price of copra was AUD $0.4 per kg. This was increased to AUD$0.50 per kg when Teburoro came in office in October 1, 1994. In July 2003, Anote came into office and increased the price of copra once more to AUD$0.6 per kg. In 2010, the price of copra is AUD$0.7 per kg after Government request for an increase was passed in parliament earlier in the year.

5. The effects of price on Copra Production were not really clear. In 2002-2003, production increased by about 1,500 metric tons, however in 2003, copra production increased by about 4,000 metric tons.

ENSO events, Copra Price and Copra Production.

6. The first attempt to link ENSO events and Copra price to Copra Production was developing an econometric model for copra production, using copra production _(t-1), SOI, SOI _(t-1), and Copra price as interdependent variables. It can be seen from the output of the analysis (see below) that Copra Price and Previous Copra Production were not statistically significant.

OLS, using observations 1971-2008 (T = 38)
Dependent variable: CopraPro

               coefficient    std. error    t-ratio    p-value
-------------------------------------------------------------
const        9110.05        1406.69        6.476     2.39e-07 ***
SIO           106.761         47.1650      2.264     0.0303   **
SIO_1        -223.383         50.0123     -4.467     8.80e-05 ***
CopraPrice    131.814       2505.04        0.05262   0.9584
CopraPro_1     -0.0479930      0.136971   -0.3504    0.7283

Mean dependent var   8908.342   S.D. dependent var   2496.199
Sum squared resid    1.36e+08   S.E. of regression   2029.828
R-squared            0.410244   Adjusted R-squared   0.338759
F(4, 33)             5.738838   P-value(F)           0.001278
Log-likelihood      -340.6360   Akaike criterion     691.2720
Schwarz criterion    699.4600   Hannan-Quinn         694.1852
rho                 -0.415234   Durbin's h          -4.567147
Excluding the constant, p-value was highest for variable 5 (CopraPrice)
Test for omission of variables -
Null hypothesis: parameters are zero for the variables
    CopraPrice
    CopraPro_1
Test statistic: F(2, 33) = 0.0616552
with p-value = P(F(2, 33) > 0.0616552) = 0.940315

7. Omitting variables: Copra Price and Previous Copra Production (t-1) and leaving SOI and SOI (t-1) as independent variables indicated the SOI was statistically significant. The result of the analysis is detailed below.

OLS, using observations 1971-2008 (T = 38)
Dependent variable: CopraPro

             coefficient   std. error   t-ratio    p-value
---------------------------------------------------------
const       8730.61       328.006     26.62     8.14e-025 ***
SIO          105.685       45.7626     2.309    0.0269    **
SIO_1       -225.650       46.9876    -4.802    2.91e-05 ***

Mean dependent var   8908.342   S.D. dependent var   2496.199
Sum squared resid    1.36e+08   S.E. of regression   1974.659
R-squared            0.408040   Adjusted R-squared   0.374214
F(2, 35)             12.06283   P-value(F)           0.000104
Log-likelihood      -340.7069   Akaike criterion     687.4138
Schwarz criterion    692.3265   Hannan-Quinn         689.1617
rho                 -0.440104   Durbin-Watson        2.877232
Comparison
  Null hypothesis: the regression parameters are zero for the variables
    CopraPrice, CopraPro_1
  Test statistic: F(2, 33) = 0.0616552, with p-value = 0.940315
Of the 3 model selection statistics, 3 have improved.

FINDINGS 1.
i. Average annual copra production is estimated at about 9,000 metric tons (fluctuates depending on ENSO events)
ii. Copra Pricing Policy has no (or little) effect on Copra Production
iii. ENSO Events influence Copra Production.

Econometric Model and Policy Making

8. In Jan 2010, SOI was -10.1 reflecting EL NINO period, however by the end of November 10, the SOI has jumped to 16.4 pointing out that the pacific was in La Nina period. As ENSO events normally rotate every 3-8 years, then it is likely that the 2011 will be in La Nina period.

9. Based on para 8, a simple copra production econometric model was derived (see below). If the SOI remains at 16 in 2011 and the average SOI in 2010 is 11, then copra production is estimated to be about 8,000 metric tons in 2011.

Copra Production (metric tons)_t = 8731 + 106 x SOI_t - 226 x SOI _t-1

FINDINGS 2
i. Copra production in 2011 is estimated at about 8,000 metric tons

World & Government of Kiribati Copra price:

8. The world copra price fluctuated between US200 to US$400 for year 1994 to 2008. In 2009, the copra price was estimated to be about US$300 per metric tons (US$0.3 per kg). On the other hand, the Government of Kiribati is buying copra from the copra cutters at US$0.8-0.9 per kg, reflecting a financial loss of US$500 - US$600 per metric tons. If the cost of shipment from the outer island to oversea market via Tarawa and damages during distributions and storage are added, then the financial loss to Government can be as high as US$1000 per metric ton.

source: Fiji Copra Mill [3]

FINDINGS 3
i. Government is losing about $1000 per metric tons.
ii. Total financial loss to government is estimated at an average of AUD$9 millions per year (fluctuates depending on ENSO events)

C. Bio-Fuel

Public Utility Board and Coconut Oil

9. PUB consumes about 6 million liters of diesel per year, putting huge strains on KOIL storage. There has been a number of requests from the Copra Mills to sell coconut oil as a substitute for diesel oil. A number of studies have reported a number of issues with regards to the use of coconut oil such as lower specific energy, deposits on the pistons, valves, combustion chambers and injectors which can cause severe loss of output power, engine lubricant deterioration which will eventually lead to catastrophic failure to engines.

10. To minimize the effect of the deposits, SOPAC recommended a mix of 80:20 (Diesel:Coconut Oil) reflecting a need for 1.2 million liters of coconut oil to power PUB generators. As mentioned in para 2, the average annual copra production in Kiribati is abut 9000 metric tons (or 4.5 million liters of coconut oil) [3] which means that there is enough copra (or coconut oil) to meet the demand.

11. Copra Mills is capable of crushing 8000 - 12000Tiaon Aukitino personnel communication 2010 MT and there are plans to increase machine capacity in the near future. However the amount of coconut oil that the Copra Mills will be able to produce will be limited by the availability of copra from the outer islands.

12. As mentioned in para 4, Government buys copra at a price of AUD$0.7 per kg (or an equivalent of AUD$1.40 per liter of coconut oil). This is more than the price of diesel, therefore it is not an economical option.

FINDINGS 4
i. Amount of coconut oil needed to power PUB generators is 1.2 millions liters per year for a mix ratio of 80:20 (Diesel:Coconut Oil)
ii. Total amount of coconut oil available in the country is about 4.5 million liters per year;
iii. Copra Mills is capable of crushing 8000 - 12000Tiaon Aukitino personnel communication 2010 MT;
iv. Using coconut oil as Bio Fuel is not an economical option if government has to recover full cost. Coconut oil costs government at least AUD$1.40 per liter whereas Diesel is about AUD$1.10 per liter.

References

[1] Richard M. Adams, "The economic consequences of ENSO events for agriculture," 1999.

[2] "Bureau - Southern Oscillation Index (soi) Archives," Internet: http://www.bom.gov.au/climate/current/soihtm1.shtml, 2010/12/09 [2010/12/09].

[3] "Coconut Oil Benefits," Internet: http://coconutoilbenefitsonline.com/, 2010/11/15 [2010/11/15].

[4] "Economic Statistics," Internet: http://www.spc.int/prism/country/ki/stats/Economic/production/copra.htm, 2010/11/27 [2010/11/27].