EXECUTIVE SUMMARY

The objective of this study was to identify viable business opportunities for the use of cassava. The report has explored the domestic and export opportunities for the three major markets for cassava, food, starch and animal feed. The global examination of these markets was based on the analysis of 64 countries that produced at least 10 000 metric tonnes of cassava in 1995. Case studies of individual country activities in these different markets were used to identify factors that contribute to the development of these market opportunities. The case studies, in keeping with the Global Strategy for Cassava, identified some of the key stakeholders who helped to develop and support the market opportunities.

The analysis indicates that business opportunities exist for the use of cassava, but not necessarily for all cassava-producing countries. In very general terms domestic markets, in particular domestic food market, appear to offer greater opportunities than export markets. The case studies consistently pointed out that the development of any market opportunity depends on a reliable supply of competitively priced cassava of the appropriate quality.

Domestic Market Summary

Cassava as food. The analysis of the 64 studied countries suggests that a market opportunity exists for the use of cassava as a food. It was noted in the Brazilian case studies that the development of new market opportunities must respect existing markets. That is developing one market at the expense of another market does not indicate a net gain in the market for cassava. If however, the growth of the market respects existing markets and creates an additional demand for cassava, then there is a net benefit to cassava producers and others in the supply chain. Market opportunities were measured in terms of the additional demand that might occur by the year 2005 relative to what it was in 1995.

1995 was taken as the base period because it was the last year that complete data for the 64 studied countries was available. The additional production required to meet new market requirements was used as a proxy of additional demand. It was assumed throughout this study that additional demand would in turn have positive impacts on the development process. This assumption was confirmed by the case studies that illustrated that there are a number of stakeholders who benefit from the creation of additional markets for cassava. These benefits can extend to having national consequences as illustrated by the use of cassava flour in Nigeria. This case study suggested that the use of cassava flour could save Nigeria US$14.8 million per year in foreign exchange.

The market for cassava as a food appears to provide the greatest potential for the greatest number of countries. The available national data permitted two market opportunities to be evaluated, namely the urban market for cassava and the wheat and wheat flour import substitution market. It was argued that urbanization effectively increases the number of domestic consumers who will potentially purchase and consume cassava.

The import substitution market refers to the opportunity of using domestically produced cassava flour as a partial replacement for imported wheat and wheat flour. This market is attractive because of its foreign exchange saving features and because the demand for products based on wheat and wheat flour is growing. The results of the examination of these two market opportunities suggest that by the year 2005, in 48 of the 64 studied countries, there could be an additional cassava demand of greater than 10 percent over 1995 production levels (Table 1).

The general results are that the growing urban market may be the most promising avenue for development of a cassava industry in a majority of the studied African countries. In Latin America, the most promising development opportunity for a number of the studied countries might be replacing 10 percent of imported wheat. The reference price for cassava roots, as determined by average import costs, is between US$36.00 and US$75.00 per tonne. This reference price includes transportation and processing costs.

Obvious development of either of these two domestic food market opportunities will require market development and the delivery of the appropriate quality and price of product to the consumer, be they individuals in the cities or bakeries. The potential market caused by urbanization may also mean that traditional products need to be modified, such as making them more convenient to use, and packaged in a manner that is consistent with urban living. Also cassava flour will only be used if it effectively meets the quality standards of imported wheat flour. As noted in the Nigerian case study, if wheat is readily available at a low cost it remains the favoured raw material for bakery products. The reality of the situation is that wheat is not readily available at a low cost. Changes in the value of national currencies and international trading regulations have increased the relative price of wheat and wheat flour (see Ghanaian and Nigerian case studies on the use of cassava flour).

The Brazilian case study of "Pao de queijo" illustrates how a common cassava-based food can grow into a rather large industry. The growing popularity of "Pao de queijo" and the creation of coffee shop chains that feature "Pao de queijo" have created a lucrative fast-food. As an indication of the impact of this market on the members of the supply chain - one of the companies Forno de Minas, which makes frozen now, has annual sales of US$40 million - ten times what they were in 1994. This case study also illustrated that as the market grows, there needs to be changes in the product to reflect the increasing needs for a high quality, easily handled and standard product.

Cassava as industry raw material - Starch. The potential for the domestic starch market for the 64 countries studied above could not be analysed, owing to data limitations. Available data did show that most of the studied countries imported some form of starch with glucose and dextrose being the most common imports. All of these starches can be replaced in part by cassava starches. The amount of import substitution that is possible depends on the use of the starch. While country level analysis was not possible, the case studies showed that there are both emerging and existing country opportunities for the domestic use of cassava starches.

The case study of Benin, Ghana and Malawi illustrated that the small size of the market is a barrier to its development. In Benin, for example only 120 tonnes of starch is reportedly used. While it is technically feasible to replace some of this starch with cassava starch (some of the imported starch is in fact cassava starch) it is very difficult to domestically establish a plant to produce cassava starch. It was suggested in the case study that to be viable, a "traditional" starch plant would minimally work a 100 days of the year with a daily output of at least 4 tonnes of starch per day or 400 tonnes per year. This is substantially larger that the current needs of Benin.

The annual starch demands for Malawi (780 tonnes) and Ghana (4,200 tonnes) would justify domestically producing cassava starch. The case studies illustrated that there are in fact domestic cassava starch factories, but that these factories still face problems of quality of the final product. Nevertheless the feasibility of using cassava starch has been demonstrated, as has the competitiveness of cassava starch.

The Brazilian case study examined cassava starch as an established industry producing 300 000 tonnes per year. The production of modified starch has grown during the past five years and now constitutes 30 percent of cassava starch. The market is continuing to grow. The Brazilian cassava starch supply chain differs from almost all other countries in the world by having an increasing number of farmers that grow more than 1 000 hectares. This is in contrast to Thailand in which most of the cassava farmers have holdings of 1 to 5.7 hectares.

The Thai case study demonstrated that while the Thai cassava starch industry is export oriented, its domestic consumption is several times larger than Brazil's consumption of cassava starch. In fact, in 1997 Thailand produced 512 000 tonnes of modified starch and syrups for the domestic market. About an equal amount of native starch was consumed domestically. The Thai case study highlighted the role played by the export sector in promoting the domestic use of cassava. Thailand has a well funded development institute (the Thai Tapioca Development Institute Fund) that is investing in the domestic market for cassava. It is probably fair to claim that no other country in the world is doing as much to promote cassava markets. Interestingly enough it is the traders and processors that are leading the way.

Cassava as feed ingredient - Chips. Domestic use of cassava as an animal feed is probably the least developed of the domestic markets. One indication of the potential is given by the increasing trend in maize imports into a number of the studied countries. Assuming that much of this maize is going to animal feed, the figures suggest that there is a growing feed compounding industry. As has been shown by the Europeans, cassava can replace maize and other grains given the right prices of cassava and protein rich ingredients. Thus in cassava producing countries, it is technically possible to replace some of the imported maize by cassava. Assuming that 10 percent of imports could be replaced produced the following table.

Clearly Latin American countries appear to have the greatest market growth potential for cassava, as a substitute for maize. The target import substitution price for roots, including processing and transportation ranges from US$57 to US$63 per tonne. This is similar to the target price for wheat and wheat flour import substitution. But in many cases it could be assumed that the processing cost of producing cassava chips for animal feed would be lower than those of producing cassava flour.

The Brazilian case study of cassava chips in the state of Ceará, confirmed that there is a market potential for cassava as a domestic animal feed ingredient. The Thai case also illustrated that there is a domestic market for cassava as an animal feed ingredient. But the Thai case study demonstrates the importance of being competitively priced. Even in Thailand, as the analysis shows, there have been times that cassava-soybean or cassava-fishmeal mixes were not competitive against domestic maize.

The Zimbabwe case study illustrates some of the factors that need to be considered in developing a fledgling animal feed industry that uses cassava. The problems or opportunities facing Zimbabwe are that they do not traditionally grow cassava; they have a small intensive animal feed industry and a small food compounding industry. Clearly these problems must be faced when trying to develop the cassava animal feed market, but these same issues, if overcome, suggest that it could be possible to develop the industry.

All the case studies identified factors that could act as bottlenecks to the development of domestic market opportunities. Table 3 highlights the bottlenecks identified in the different case studies. The most commonly identified bottleneck was the lack of a reliable supply of cassava. In Zimbabwe, there was also a lack of good planting material. Lack of equipment, mechanization and power were also mentioned on several occasions as bottlenecks to developing the industry.

Some less frequently mentioned bottlenecks, but perhaps as important as those above, are infrastructure, consumer acceptance, education and training of key actors in the industry, and good weather for drying cassava. Almost all cassava-based products require drying. The large volume of water in cassava leads to the observation that the only economical way of drying cassava is sun drying. Unfortunately in many cassava producing countries this is only possible during a part of the year. A related issue about drying cassava is that the by-products of cassava processing do not have much value. The overall value of cassava is enhanced if new and improved ways of dealing with waste can be found.

Infrastructure, in the form of roads, extension services and credit facilities, was identified as being a positive contributing factor to the development of cassava markets in Thailand and Nigeria, and bottlenecks in some of the other case studies.

The domestic market potential in the year 2005 indicated in Tables 1 and 2 is equal to 36 million tonnes of roots or 22 percent of 1995 production. Without a doubt the growth potential of the domestic markets is substantial and can contribute to national development.

Export Market Summary

The export markets have been the source of much interest in trying to develop cassava markets that in turn are hoped to spur the economics of cassava producers. As noted in Part 2 of this report, the export markets have in fact had periods of impressive growth. This growth has been impressive because it has occurred with little national and international support. No doubt many have concluded that even greater advances could have been made for cassava markets if more were done, for example by national and international organizations, to promote and develop cassava markets. As summarized above, there appear to be a number of domestic market opportunities that in part require the support of national governments to realize the potential.

The chapters in Part 2 of this report shed some light on the factors that have contributed to the growth of the export markets for cassava as food, starch and feed ingredient, and the likelihood that these markets will continue as growth areas.

Cassava as food. The largest market of cassava as an exported food has been for paraffin-coated cassava. The major importers are North America with imports of nearly 38 000 tonnes and Europe with imports of 5 000 tonnes. The prime exporter is Costa Rica. This market exists because of the discovery of the paraffin coating process, or less frequently used C02 filled plastic bag process, that extends the shelf life of fresh cassava roots. The market is driven by ethnic communities in Europe, normally of African descent, and North America, normally Hispanics.

The case studies pointed out that the paraffin-coated cassava is more appropriate for the North American market than the European market. In Europe cassava pastes or flour would be more consistent with traditional consumption patterns.

The positive growth factors for this market are that these ethnic communities are growing in both Europe and North America. In North America, supermarkets are catering to the ethnic markets and are marketing traditional foods like cassava. If the present consumption levels are maintained, the growth in the Hispanic population in North America would suggest that the demand for paraffin-coated cassava could increase by 40 percent by 2005. In both Europe and North America, there are indications that "non ethnic" communities are becoming more interested in "exotic" foods such as cassava. Unfortunately, most of the "non ethnic" market does not know what cassava is, or how to prepare it. If the market is to expand, the product needs to be promoted.

The negative growth factors for cassava as an exported food are that second and later generations of ethnic communities may be less likely to consume cassava, as they adopt the eating patterns of the non ethnic communities. A second deterrent to the growth of the fresh market is its price. The European case study points out that the price is relatively high when compared to other carbohydrates. In North America fresh cassava is sold as a loss-leader. Thus the retail price, at least from the point of view of the supermarkets, may be too low. Unless there is an increased demand for paraffin-coated cassava, it is unlikely that supermarkets will continue to sell it. The future for this market depends on continued consumption of cassava by the ethnic market, with increased consumption by the non ethnic market.

The case studies indicated that there were other food markets for cassava such as frozen cassava, cassava French-fries and cassava flour. Unfortunately not much information is known about these markets. The cassava flour import market is small, but a niche market could develop if bakery, confectionery and pasta products using cassava flour were manufactured and marketed for individuals with coeliac disease. Currently, in North America, the major manufacturers reportedly do not think that the market is large enough to justify development. The import market for frozen and cassava French-fries is relatively new in Europe and North America. It would seem that these markets could grow, but they will probably grow only if the large food processors decide to promote the products. The intention of these large food processors is unknown at this time.

Cassava as industry raw material - Starch. Cassava starch trade comprises of a diversity of products that are not normally delineated by available data and are not in the FAO data set, used for much of the analyses. Nevertheless, it is known that there are many more importers of cassava starch than there are exporters. As was shown in Chapter 6, Thailand is the dominant exporter accounting for approximately 85 percent of world cassava starch exports. In 1990, China and Japan accounted for about 80 percent of global starch imports. In 1995, China, Indonesia, Malaysia and Japan accounted for 81 percent of global starch imports.

The case studies of European and North American starch markets demonstrated the fact that a nation's preferred starch is based on the most abundant supply of raw material available. In North America, the preferred starch is maize starch, while in Europe, a variety of starches are preferred depending in part on the geographical region. The preferred starches are potato, wheat and maize. The relatively large imports by China and Japan, partially reflect the fact that these countries do not have an abundant raw material source for starch manufacturing. The strongest markets for cassava starch in Europe and North America appear to be in the adhesives and food and beverage industries. In times of high maize and maize starch prices, the North American paper industry becomes a large importer of cassava starch. Cassava starch does not inherently have properties that make it a preferred starch for the paper industry other than price.

The case studies relating to starch in Brazil, Europe, North America and Thailand indicate a growth potential for modified cassava starch. For the producing countries, much of the commercial development of modified starch production has been in conjunction with European and North American starch producers. The resulting product is normally produced for the European and North American starch producers. There is little indication that cassava producing countries have produced modified starches exclusively for domestic purposes.

Cassava as feed ingredient - Chips. The import/export market for cassava chips and pellets is represented mainly by the European-Thai trade in the sector, and also by Indonesia's. As pointed out in Chapter 6 Thai and Indonesian exports account for ninety five percent of European imports of cassava chips and pellets. Thai exports of chips and then pellets increased yearly from nothing in the early sixties to 6 million tonnes in 1978. Exports then oscillated around the 6 million tonne level until 1988. From 1988 to 1992, exports oscillated around 8 million tonnes. Since that time there has been a steady decline of Thai cassava chips and pellets exports. The decline in Thai exports has not been as great as the decline of the European import of cassava chips and pellets. Thailand has successfully found alternative importers of cassava chips and pellets; however the demand from these countries has not been reliable. The main alternative markets have been China and Republic of Korea

The European case study highlighted how initial agricultural policies of the European Community created the market for cassava. The case study also evidenced how changing European and World policies regarding agricultural trade and protection are eroding the market for cassava. Many suggest that the European demand for cassava pellets is going to further decrease. This report has taken a more optimistic view that the European market may remain fairly stable. The rational is that the Thai financial crises and resulting devaluation has made cassava more competitively priced. Secondly, Thailand has a lot of sunk cost in the capacity to produce cassava pellets therefore the Thais may be able to export cassava pellets for as long as the export price covers variable costs.

The implication is that the Thais, and presumably the Indonesians will continue to supply the European pellet market for as long as it exists. There will be little opportunity for other countries to enter the market except to supply the WTO members' quota of 145 000 tonnes. As the Ghana cassava chips export case study reported, it is very difficult for new entrants to survive in this limited market.

In summary there appear to be new, but not clearly defined, market opportunities in the cassava food and starch export markets. To get an independent assessment, the Thai Tapioca Trade Association (TTTA) was asked for their opinion about the future for cassava. Mr. Teera, TTTA Manager, graciously collaborated and consulted TTTA members on their view of the future. The assistance of the TTTA is gratefully acknowledged and their responses are summarized as follows:

Q1: In your opinion what are your expectations for the future (next 10 years) for tapioca products?

Q2: In your opinion what are the most likely growth areas for tapioca products? (for example: paper manufacturing; animal feed ingredient; human food uses, etc)

Q3: Where will the export growth markets be located? (countries)

Q4: What do think might limit the development of these potential market opportunities?

From the Thai perspective, the major export growth opportunity is the modified starch market to China, the U.S.A. and Europe. The Thais see quotas, taxes and marketing problems to be the greatest barriers to this growth opportunity. The Thais appear to be optimistic about domestic opportunities for cassava chips and starches. The Thais did not discuss the cassava food market because Thailand has very little experience in this market.

The review of cassava exports illustrated that it is difficult to predict before hand what are going to be the successful markets, or if any country is going to become the dominant exporter. Nevertheless when a country utilizes the opportunity, as Thailand and Costa Rica have, it can be seen that the rewards are great. Clearly, a large number of small farmers, traders, small and large processors, and ancillary industry members have benefited during the more than three decades of Thai cassava exports. While not easy, it would seem that other countries could also experience success in some new market opportunity.

Conclusions

This study attempted to identify viable business opportunities for the use of cassava. It was found that 54 of the 64 studied countries have the potential to develop new domestic market opportunities that could require, by the year 2005, market growth of more than 10 percent of the 1995 production level. These markets, if established, are linked into the national economies, and should continue to grow as the economy grows. Also they contribute to the growth of the economy. The potential contribution of these cassava-based markets is highlighted by the Nigerian estimate that a 15 percent replacement of imported wheat flour with cassava flour could result in an annual foreign exchange saving of US$14.8 million. Only three cassava producing countries (Thailand, Indonesia and Costa Rica) had foreign exchange earnings greater than the import substitution available to Nigeria. The development of domestic markets is largely dependent on each country. If a viable opportunity exists and the key stakeholders are willing to work towards and contribute to the development of the market it should succeed.

Export market opportunities appear to be less robust than domestic market opportunities. All export markets can be characterized as being driven by final demand. The ethnic communities in Europe and North America are driving the cassava food market. The producers of final products like paper, textiles, adhesives, food and beverages in Europe and North America are driving the starch market. These industries continually search for the cheapest starch that has the specific properties required by the industry. If the starch does not exist, the industry will try and create the starch. Finally, the animal feed industry and the EU Common Agricultural Policy are driving the cassava chip and pellet imports.

The exporters do not drive these markets. Even the dominant exporters, Thailand in the cassava pellet and starch markets, and Costa Rica in the paraffin-coated cassava food market can do very little to alter market developments. The advantage of Thailand and Costa Rica is that they are constantly looking for new markets for their existing products. If a new demand for their products is found, they generally are in a position to exploit the opportunity.

It would appear that when it comes to developing new international market opportunities, cassava producing countries have to be considered as market takers not market makers. We are adapting the economic term of price takers and price setters. Price takers cannot influence the selling price of the goods, price setters can. Rational price takers only enter markets with acceptable prices.

It would appear that any country that wants to enter into international markets should have a soundly based national market for cassava. As was concluded in the Ghana cassava chip export case:

T&CG concentrated solely on the export market, as this seemed to offer the largest market and maximum opportunity for a good return on initial investment. In retrospect it is clear that the company would have been wise to consider domestic markets for high quality cassava chips as well, because this would have provided a buffer against fluctuations in the world market price for dry cassava. Within Ghana potential opportunities exist for dry chips in the domestic livestock markets and for the manufacture of industrial adhesives and glue extenders.