J.C.Newby - CIAT Asia
The outlook for cassava in Southeast Asia has a long history of being closely tied to developments in global commodity markets. The fate of smallholder producers is subject to global trends and shocks brought about by changing government policies that have an impact on a range of substitutes in the carbohydrate market.
Almost unknown to people outside the industry, the roots of this small perennial shrub (Manihot esculenta) are the source of what has become the starch of choice for many food and non-food applications due to its superior functional properties. Indeed, inspection of any Australian pantry, fridge and freezer will no doubt reveal several products containing cassava starch (or tapioca, as it is widely known) and flour. Its use in processed food has become increasingly prominent, with highly visible gluten-free products now found in major supermarkets rather than confined to health food stores.
Outside these emerging food applications, cassava starch is used in many other products. The paper, textiles, pharmaceuticals, bioplastics and pet food industries are all using large quantities of cassava starch. The sorbitol in our toothpaste is probably made from cassava starch, derived from cassava roots grown by a smallholder farmer in Southeast Asia.
While as Australian consumers we probably have a daily association with cassava without knowing it, the global market for cassava remains highly oriented towards Asia, with East Asia (particularly China) having enormous influence on the market. Beyond starch, cassava chips are used in the livestock feed industry and as a feedstock into the ethanol industry (hard liquor, industrial ethanol, and biofuel). In the past few years smallholders have enjoyed the higher prices stemming from this increased regional demand.
Nevertheless, the crop has struggled to shake off the stigma of being an ‘economically inferior good’ or a ‘poor-man’s crop’, despite being a multi-billion dollar export industry. While cassava remains an important food security crop in some upland communities in Southeast Asia, the derived demand for the starchy root is likely to increase as incomes increase and consumer preferences within Asia change. The per capita consumption of pig meat in China and Vietnam gives a good indication of the growing demand for livestock feed (Fig. 2). Vietnam alone imports over USD 1.65 billion of maize, USD 0.76 billion of soybeans, and over USD 3.39 billion of animal fodder and other animal feeds.
While the long term outlook for cassava remains positive, 2016 will be a year of significant adjustment for cassava farmers and the industry as a whole. Price support to protect maize farmers in China that previously fuelled the cassava boom (as maize and cassava are substitutes) are being wound back. This is leading to a fall in demand for intermediate cassava product and declining cassava root prices, impacting on smallholder incomes in Southeast Asia. The adverse impacts are particularly felt at the “extensive margins” of the value chain. In Cambodia the area of cassava has increased rapidly to meet the demand created by artificially high prices, but the industry relies heavily on cross-border trade into Thailand and Vietnam for processing or transhipment to China.
It is not the first time that price supports and preferential tariff arrangements have influenced the development of the cassava industry. The initial expansion of commercial production in Thailand (and later Vietnam) was largely driven by price support for grains under the Common Agricultural Policy (CAP) of the European Community (EC). This policy aimed to provide stable and remunerative incomes to European farmers, resulting in domestic grain prices being kept well above world prices. But with expanding livestock herds in Europe, the higher grain prices discouraged their use as animal feed and encouraged the use of cereal substitutes. Cassava producers in Thailand benefited greatly from the tariff arrangements. However, with trade reform under GATT and WTO, the demand for cassava chips and pellets in Europe almost completely disappeared and the market was reoriented towards East Asia (Fig. 3).
Twenty years on, Thailand remains the market leader when it comes to international cassava trade. In 2015, Thailand exported over 7.46 million tons of dried cassava chips to China with an export value of over USD 1.56 billion (Fig. 4). China was the destination for 99.84% of all Thai cassava chip exports. At the same time, Vietnam (the number two exporter) shipped around 1.85 million tons of chips to its northern neighbour with an export value of USD 396 million (Fig. 5). China is also the main destination market for cassava starch exports. Thailand exports around 45% of its cassava starch (valued at around USD 550 million) to China. Vietnam’s starch exports of USD 928 million are also predominantly destined for the Chinese market.
The strong influence of the Chinese market on the cassava outlook should be clear. So what is happening in China to make cassava farmers in Southeast Asia nervous? Once again, the outlook for cassava is coming under pressure from policy developments in a substitute commodity in the export destination– this time maize in China. China is the world’s largest producer of maize, cultivating with over 37 million hectares. In recent years Chinese producers have benefited from minimum price support policies in place since 2008. Similar to the European efforts several decades earlier, the goal of the price support program was to prevent steep declines in farm prices by purchasing commodities during periods of slack demand. This protected farmers from market fluctuations and helped ensure food security.
The price support program was introduced as the economies of China and many other countries were falling into recession and global commodity prices were declining sharply. In 2008, Chinese authorities purchased maize at a minimum price of RMB 1500, shielding Chinese producers from the steep decline in global prices later in that year. However, the following three years saw surging demand boost domestic maize prices. Authorities were required to make minimal stock purchases at the support price and could auction off much of the stockpile acquired during the previous year to slow the increase in prices. The rising prices and concern over food security during this period also led to changes in biofuel policy in 2010. The new policy dictated that biofuel development not compete with crops intended for human or animal consumption with cassava identified as one of the main feedstocks to be used in future development.
During 2012-13, Chinese authorities once again intervened in the maize market, making purchases at the support price when the country’s maize market again faced downward pressure on prices. However, unlike the previous intervention, there hasn’t been a subsequent upturn in global prices or upward pressure on domestic prices, enabling stocks to be released into the market. Global maize prices have continued to fall (see FOB Gulf price in Fig. 6) and, at the same time, global freight costs have also declined significantly. Bulk freight costs from the US Gulf to China are now only around USD 20-25/ton, while they reached USD 130 in mid-2008.
The new Chinese floor price announced for the October 2013 maize harvest far exceeded the US futures price for December delivery. The prospective gap in prices gave feed mills and industrial users in China strong incentive to import maize or look for alternatives. Hence the increased demand for cassava. Cassava has not been the only crop to benefit from the price distortions. Imports of barley, sorghum, and “distillers dried grains with solubles” (DDGS) for the feed and ethanol sectors all increased rapidly after 2012 as a result of high domestic maize prices. Exporters including the US and Australia benefited from these high prices.
By mid-2015 there was speculation that the “temporary reserve” price for maize would be cut as Chinese stock levels became unsustainable and pressure mounted from imports of the relatively cheap alternative – cassava. Some commentators suggested that the temporary reserve price for maize would be cut to RMB 1600/ton for the 2016 crop, down from RMB 2000 for 2015. However, on 28 March 2016 the Chinese government announced an end to the floor price for maize. The result was a significant fall in maize prices, with the nearby futures falling by around RMB 300/kg (from RMB 2000). Dalian Futures for a September delivery fell below RMB 1600/kg.
Hence the trend in imports of maize alternatives is already being reversed, with the impact being felt throughout the cassava sector. The prices of cassava chips and cassava starch have fallen to more closely reflect the world price for the main alternative – maize – and farm-gate prices throughout mainland Southeast Asia are falling (Fig. 7).
Cassava root prices still vary considerably throughout the region (Fig. 8). Prices in southeast Cambodia (Tbong Khmun) are around USD 50-72/ton at collection points, depending on quality, and USD 80/ton (30% starch content) once they reach starch factories in Tay Ninh Province in Vietnam. With around 50 large starch factories in the province, the competition for roots has maintained prices at factory gates higher than in the Central Highlands and Northwest regions.
Prices in Indonesia remain above those in mainland Southeast Asia, with Indonesia remaining the second largest importer of starch in 2015. The dual cassava economy in Indonesia (food and industry) segments the market prices, with high prices for lower-yielding sweet varieties sold in small quantities in local markets. However, large-scale domestic starch processors will come under increasing pressure from cheaper Thai imports in key processing markets in Java, such as in the artificial sweetener industry. These processors should find it easier to compete with maize-based products.
The outlying case is in the Ayeyarwaddy Region of Myanmar, where small-scale starch processors are receiving improved prices and cassava farmers are benefiting.
Regardless of where they are in Southeast Asia, low prices are one more issue cassava farmers are going to have to deal with in 2016. Drought and emerging pests and diseases are already predicted to take their toll on yields. New partnerships between farmers, industry, governments, and research agencies are required to improve productivity and profitability, with the aim to ensure improved smallholder livelihoods and a sustainable cassava industry. Two new ACIAR projects aim to tackle these issues by developing effective linkages between value-chain actors to increase the adoption of improved smallholder technologies.
ASEM/2014/053 - Developing cassava production and marketing systems to enhance smallholder livelihoods in Cambodia and Lao PDR
AGB/2012/078 - Developing value-chain linkages to improve smallholder cassava production systems in Vietnam and Indonesia
For further information contact:
Professor Rob Cramb (UQ) - email@example.com
Dr Jonathan Newby (CIAT) – firstname.lastname@example.org
Join the discussion in the Facebook Group “ACIAR Cassava Value Chain and Livelihood Program” https://www.facebook.com/groups/1462662477369426/