Industry Outlook 2022-2024 : Cassava Industry

 

Overview

Cassava is a carbohydrate-rich crop that has a wide range of uses in the so-called ‘4Fs’ of: (i) food (for human consumption), (ii) feed (for use in animal feed), (iii) fuel (for use in the production of ethanol), and (iv) factories (where it is used to make alcohol, citric acid, clothing, medicine, paper and chemicals).

For many years, global demand for cassava has been high thanks to its many industrial uses and the fact that it has often been cheaper than other starchy crops. This has then lifted it to the status of being the world’s 5th most important food crop, after corn, wheat, rice and potatoes.​

In 2019, a total of 304 million tonnes of cassava were produced globally (Figure 1). Contributing 63.3% of the total, Africa was the most important cassava-producing region, followed by Asia[1] (28.0%), the Americas (8.6%) and Oceania (0.1%). By individual country, Nigeria was the world’s biggest producer, with 19.5% of all outputs globally, followed by the DR Congo (13.2%), Thailand (10.2%), Ghana (7.4%), Brazil (5.8%) and Indonesia (4.8%) (Figure 2), although heavy investment by Thai and Chinese players in production in Vietnam and Cambodia has meant that outputs in these two countries have been rising rapidly over the past 10-15 years.
 

 

However, although Africa is the world’s most important cassava-producing nations, African production is largely for domestic consumption since in these countries, the crop plays an important role maintaining the quality of life and in supporting local food security and economic activity. African-produced cassava is therefore principally consumed as fresh and processed products. By contrast, in Thailand, production is oriented towards overseas markets and the country is thus among the world’s most important exporters (Figure 2). In terms of export destinations, global markets for cassava are largely supported by demand from Asia, especially China, which alone accounts for 50.0% of all cassava imports globally (Figure 3).
 

 

Over the past two decades, rising demand on export markets has fed into an expansion of Thai cassava processing capabilities and through this, to a steady rise in the size of the national cassava harvest; as of 2020, 8.9 million rai of Thai farmland was planted with cassava, and this produced roughly 29.0 million tonnes of raw product[2] (Figure 4). Cassava cultivation is clustered most heavily in Nakhon Ratchasima (16.0% of all Thai cassava farms by area), followed by Kamphaeng Phet (7.8%), Chaiyaphum (6.4%) and Kanchanaburi (5.7%).
 

 

In 2020, there are 1,210 cassava processing facilities[3] in Thailand but for convenience and to save on transportation costs, these are generally located close to cassava production, and so with 161 plants, Nakhon Ratchasima has the most of all of Thailand’s provinces, followed by Kamphaeng Phet (150), Nakhon Sawan (90), and Chaiyaphum (63). Thai players have also sited facilities in positions that allow them easy access to imports from neighboring countries, especially Lao PDR, Cambodia and Myanmar, where to ensure secure supplies of inputs, they have established basic processing facilities. Thus, there are 75 cassava plants in Ubon Ratchathani, 61 in Kanchanaburi and 33 in Sri Saket, while to make exports more convenient, there are a further 26 facilities in Chonburi, 16 in Rayong and 15 in Chachoengsao, these locations having the advantage of ready access to major ports (Figure 5).
 

Thailand-made cassava products can be split into two main groups:

• Dried cassava products: The most important product is cassava chip, which is used as an input into the manufacture of animal feed, alcohol and citric acid. Thailand is currently home to 1,042 facilities that produce dried cassava chip (or 96% of all total processing plants). A further 29 (2.7%) process cassava pellets, 12 (1.1%) produce dried crushed cassava and 2 (0.2%) produce other types of dried cassava goods.
• Tapioca/cassava starch products: The initial output of cassava starch production is ‘native starch’, which can be consumed directly in households as a cooking ingredient or used in the manufacture of ‘modified starch’[4], a high value-added good that is then used as an input into a wide variety of downstream industries. Industrial processes then convert this into products including monosodium glutamate, sweeteners, sauces, cosmetics and medicines. At present, there are 104 cassava starch processing facilities in Thailand and a further 21 producing modified starch. Generally, the initial processing of cassava into starch occurs at the end of the year or the start of the next year because this follows on from the main harvest. Thus, both the cassava starch MPI and capacity utilization for the cassava industry typically peak between December and March (Figure 6).

 
Considering the Thai cassava supply chain as a whole, in 2020, 82.1% of inputs to domestic cassava processing was sourced domestically and only 17.9% came from imports, mostly from neighboring countries. These supplied 2.3 million tonnes of cassava chip[5] and 0.7 million tonnes of fresh cassava (together these accounted for 95% of all cassava imports by volume). In total, 67% of Thai cassava output is used to supply export markets, with the remainder going to the domestic market, where it is either consumed directly or used as an input into downstream industries (Figure 7).

 
Because of its highly developed cassava industry, Thailand is the world’s leading exporter of cassava products, and the country now has a 66% share of global exports of native starch, 59% of exports of cassava chip, and 31% of modified starch. However, following the 2005 decision by the EU to stop imports of cassava pellets[9] (the EU had until then been a major importer) and to switch to the use of alternatives, Thai exports of these have dropped to very low levels (Figure 8). The change in EU policy also had the effect of profoundly altering the structure of Thai exports, which moved from a reliance on sales to Europe to an almost total dependency on Asian export markets, and in particular to China, which with a 72% share of all Thai exports of cassava products is by far Thailand’s most important market (Figure 9).  

• Cassava chip: In 2020, 43.0% of exports of Thai cassava products by volume were of cassava chip (Figure 8), almost all of which went to China (the market for 99% of Thai exports of cassava chip), where it is used to manufacture alcohol, ethanol, animal feed[10], and citric acid. However, the structure of the export market and the extreme concentration of purchasing power means that Thai suppliers have only weak bargaining power, while they are also exposed to significant levels of risk should policies towards sourcing imports change. This is in fact what happened in 2018-2020, when China cut its imports of cassava chip and switched instead to using domestically-produced corn, and this then caused significant knock-on effects for Thai exporters.
• Native starch: This accounted for 39.0% by volume of all exports of cassava products from Thailand in 2020. The main markets for this are in China (which took 63% by value of all exports of native starch in 2020), followed by Taiwan (8%), Indonesia (5%), Japan (4%) and the US (4%) although the exact state of export markets depends to a large degree on the health of downstream industries, including food processing, paper production, beverages and textiles.
• Modified starch: This is a highly value-added product that accounts for another 14.6% by quantity of Thai cassava exports. Demand for modified starch generally moves in line with changes in the outlook for downstream industries, including producers of cosmetics and medicines. The main export markets for modified starch are Japan (which bought 28% of all 2020 exports of modified starch by volume), China (25%), Indonesia (10%) and South Korea (8%).
• Cassava pellets: The 2005 decision by the European Union[11] to cut imports of cassava pellets had profound impacts on producers, and pellets now contribute just 0.2% to total cassava exports.
• Other cassava products: The remaining 3.2% of exports come from a mixed bag of products, including cassava root, sago (made from tapioca) and cassava pulp. The principal markets for these goods are New Zealand (which took 37% of exports of this group in 2020), South Korea (36%), China (16%) and Bangladesh (3%).

With regard to domestic uses of cassava, in addition to being consumed directly in households and in the manufacture of animal feed, it is also used as a raw material in other industries, including the processing and production of food and beverages, medicines, cosmetics, chemicals and alcohol. Large players have also invested in downstream industries, including ethanol production and the generation of bioenergy from cassava pulp and other waste products. The electricity that is produced from this may then be distributed commercially or used by the cassava processor itself (Table 1).
 

Situation

In 2020, cassava outputs dropped 6.7% to 29.0 million tonnes. The harvest was affected by (i) natural factors that included drought, the delayed onset of the rains, and outbreaks of cassava mosaic disease, and (ii) a decline in the total cultivated area of cassava, which was in turn driven by a fall in the price of fresh cassava from its 2019 level to just THB 1.80/kilogram (-4.9%) in 2020. At this price, income was insufficient to recoup production costs[12] (Figure 10) but despite this, the volume and value of total exports of cassava products climbed by respectively 8.1% and 2.7% to 7.1 million tonnes and USD 2.7 billion (Figure 11) as overseas sales of cassava chip (Thailand’s primary export product) rose, especially to China. Exports were boosted by the Covid-19 pandemic  and the lift this gave to demand for energy crops (e.g., corn and cassava) for use in the production of alcohol and ethanol. By contrast, exports of cassava starch declined as China increased imports from the CLMV nations, most notably from Vietnam.
 

Outlook

Through the years 2022 to 2024, demand for Thai cassava products is expected to strengthen relative to 2021 levels. Details of this are given below.

Production: Outputs of fresh cassava are forecast to increase by an average of 1.0-2.0% annually, helped by an expansion in the total area cultivated, better water management, control of outbreaks of leaf mosaic disease, and a more favorable long-term weather forecast (Figure 15). In addition, farmers will be incentivized to increase their plantings by positive price signals, themselves boosted by recovery in export markets and the world economy generally, and by government support for the industry, most obviously in the form of income guarantees. Given this, over the next 3 years, prices for fresh cassava are likely to climb to THB 2.2-2.4/kilogram compared to average production costs of THB 1.9/kilogram (Figure 16).
 

 

Domestic market: The forecast is for domestic demand for cassava products to strengthen by an average of 3.0-4.0% per year through the coming period on: (i) 3.5-4.0% annual growth in the food processing industry over 2022 to 2024 as the economy rebounds in the post-Covid-19 environment (source: Euromonitor); (ii) government policy that will drive stronger sales of ethanol (included in the E20 and E85 gasohol mixes), and rising demand for alcohol and alcohol-based disinfectant products; and (iii) the tight supply and higher prices for sugarcane and molasses, which has encouraged ethanol producers to increasingly switch to using fresh cassava, cassava chips and cassava starch as their primary inputs.

Export markets: Total exports are expected to expand by 5.0-6.0% annually (Figure 17). Details of individual product groups follow.

• Cassava starch: Exports should improve at a rate of approximately 5.0-5.5% per annum, moving in step with the better outlook for downstream industries, most especially in the food and beverage sector. However, exporters will have to contend with challenges in the form of: (i) competition on price from alternative starches (i.e., those made from corn and wheat), prices for which are expected to be close to those of cassava; (ii) the likely improvement in China’s ability to substitute corn for cassava or to use these alternately (Figure 18); and (iii) greater competition from exports from the CLMV countries[13] thanks to investments made there by Chinese players in Cassava supply chains, including both cassava farms and basic processing plants.
• Cassava chip: Exports of cassava chip are expected to rise by 6.0-7.0% annually on: (i) stronger demand from China (the main export market) due to increased output of disinfectant alcohol, ethanol for use in construction and as an energy source , and animal feed (now that the outbreak of African swine fever is abating); (ii) the stockpiling of agricultural goods and increased worries about food security that have followed the Covid-19 pandemic; and (iii) the rebound in the global economy that the easing of the Covid-19 crisis is bringing, and the stimulus effect of this on downstream industries worldwide.
• Modified starch: Recovery in the global economy and expansion in industries including the production of cosmetics, food and medicines will feed into average yearly growth in exports of 3.0-3.5%.
• Cassava pellets: The expectation is that overseas sales will grow by some 4.0-5.0% annually on greater demand for use as a biofuel and as an animal feed, but despite this more positive outlook, exports will remain weak and uncertain, and stronger demand will be limited to periods when alternative goods are in short supply.

Major factors influencing the market in the coming period​

Tailwinds​

• Short-term (i.e., affecting the market over 2022-2023) positive factors affecting the cassava market will come from the impact of the Covid-19 crisis on demand. Demand will rise: (i) for use in the production of alcohol directly or as a component in other products; (ii) for use in the manufacture of ethanol, now that other inputs (e.g., sugarcane and molasses) are in short supply and prices are increasing; and (iii) from the food processing industry as worries over food security rise
• Long-term (i.e., affecting the market from 2023 onwards) drivers of higher demand for cassava will include: (i) the Thai government’s encouragement of greater use of ethanol as an alternative energy source; and (ii) heavier demand from downstream industrial consumers in China, which will see growth in step with the expansion of the Chinese middle class.

Headwinds

• Short-term headwinds affecting the market will comprise: (i) uncertainty over outputs, which are determined by (a) variations in the weather (Figure 19) and (b) the risk of outbreaks of cassava mosaic disease; (ii) price variability; and (iii) a fall in orders from China, as industries there switch to alternative inputs.
• Longer-term headwinds include: (i) competition for supplies of fresh cassava to use in industrial applications, especially for use in high value-added biotech industries and in other sectors that enjoy government support; (ii) the heavy dependence on the Chinese market, which makes Thai operators highly exposed to changes in Chinese government policy; and (iii) rising competition on world markets, especially from Vietnam and Cambodia, which may put downward pressure on export prices and reduce operators’ profitability.

 
Joint Standing Committee on Commerce, Industry and Banking (JSCCIB) guidelines that are relevant to the cassava industry
 

1)  Declaring cassava holdings: Business operators, owners and individuals who have monthly cassava holdings of more than 15 tonnes are required to report their purchases (the type of goods bought and the prices paid), the distribution prices, their current holdings, the quantities bought, distributed, received, used and remaining and the storage location of these, and to keep full inventory records.

2)  The transportation of cassava: The transportation of loads of cassava or cassava chip weighing over 10 tonnes into or out of 12 specified provinces is prohibited without the permission of the chair of that province’s JSCCIB or of an authorized representative.

3)  Regulations for making purchases of cassava and for displaying purchase prices for goods with a particular starch content: If operators of collection yards, starch processors and ethanol distillers discover that cassava being sold has a lower starch content than specified, they are permitted to reduce their purchase price by up to THB 0.05/kilogram/1% of lower starch content. Conversely, if the cassava has a starch content that is higher than that specified, they may increase their purchase price at the same rate.

4)  Adding cassava varieties to the list of controlled goods: To prevent or halt the spread of cassava mosaic disease, the transportation of cassava into and out of areas affected by the disease is strictly controlled. The relevant authorities will be responsible for either requiring that permission be sought by those wishing to move cassava in and out of affected locations or of banning this entirely.
 

Krungsri Research’s view

Overall, players in cassava supply chains will benefit from favorable business conditions in downstream industries on domestic and overseas markets, and this will then support increases in income for many in the industry.

• Producers of cassava chip: Turnover will tend to rise on stronger sales in China, where cassava chip is used as an input (among others) into ethanol production and consumption remains strong and stable in downstream industries. At the same time, outputs and stockholdings weakened substantially in the recent past, and this presents operators with much better opportunities for profits. However, exporters remain highly dependent on the Chinese market, leaving them exposed to any changes in demand or purchases there, while competition for Chinese market share is also rising from the CLMV region.
• Producers of cassava pellets: Uncertain demand and the continuing sluggishness in export markets (especially in Europe, which used to be the main purchaser of cassava pellets) means that manufacturers are exposed to significant risk.
• Producers of native starch: Turnover will tend to rise with stronger consumption on domestic and overseas markets. This will be thanks to an improving outlook for food and drinks processors and ethanol distillers.
• Producers of modified starch: Turnover should rise on an expansion in downstream industries in Asia, including cosmetics, food and medicine, together with a broadening of exports into new markets. On the downside, producers may also face stronger competition from starches produced from other sources that have a wider range of desirable qualities.
• Traders in cassava products: Traders will be able to maintain turnover at normal levels. It is expected that demand for cassava from domestic and export markets will grow steadily and this will allow operators to remain in profit.
• Cassava growers: Income are expected to rise with higher purchase prices for fresh cassava, while production costs will tend to hold steady and demand from industrial consumers will strengthen. Farmers are also being supported by the government, which is attempting to preserve stability in the cassava industry by establishing a guaranteed income scheme, low-interest loans and measures to absorb excess supply. As such, cassava growers will have the opportunity of earning rising profits over the coming period.

 

[1]In Asia, cassava is used principally as an input to downstream industries, rather than for  consumption. However, many countries have been moving to strengthen their food security, especially India, Indonesia and the Philippines, and in these countries, cassava has been promoted as an alternative to rice, while in Latin America, governments have pushed the commercial cultivation of cassava mainly for use as an input to industry. 
[2]Data is from the Office of Agricultural Economics. Cassava can be grown in poor soils and is drought tolerant so it can be planted year-round, although in Thailand planting usually occurs between March and May for harvest in the period from January to March the following year.
[3]Data correct as of 2 July 2021, though this does not include unregistered businesses, those that may have suspended or ceased operations, or those that have a size as determined by the Factory Act (No. 2). The data includes cassava processing facilities that output products including pellets, chips, starch, pulp and other goods (source: Department of Industrial Works). 
[4]Modified starch is made from native starch that has its physical and chemical properties altered through the application of heat, enzymes and/or chemicals. This gives the modified starch particularly desirable qualities that then make it more useful in industrial applications, such as making its viscosity less variable, increasing its stability at a wider range of temperatures, and altering its acidity and shear strength.
[5]Equivalent to 5.5 million tonnes of fresh cassava root.   
[6]Producing 1 liter of ethanol requires 6.25 kilograms of fresh cassava root.  
[7]Producing 1 kilogram of cassava chips or pellets requires 2.42 kilograms of fresh cassava root.
[8]Producing 1 kilogram of cassava starch requires 4.20 kilograms of fresh cassava root.
[9]The reform of the Common Agricultural Policy (CAP) that was carried out in 2005 encouraged member states to increase the area given over to crops that could be used as alternatives to imported cassava. In addition, prices for these were also low, and as such, EU-based producers of animal feed switched from using cassava pellets to different products, most notably potatoes.
[10]To produce a nutrient profile similar to corn, animal feed is made by mixing cassava chip and soy pulp at a ratio of 87:13.
[11]The result of reform of the EU Common Agricultural Policy was to encourage Thai exporters of cassava pellets to switch to the manufacture of cassava chip.
[12]In 2020, cassava production costs came to THB 1.83 per kilogram. 
[13]Chinese players have invested in cash crop growing and basic processing facilities in countries including Cambodia (rubber, acacia, cassava and sugarcane), Lao PDR (rubber, sugarcane, corn for animal feed, bananas, cassava, teak and eucalyptus, with most investments being made in the north of the country in areas close to the Chinese border) and Myanmar (rubber, cassava, sugarcane, bananas and watermelons). Source: Chinese Agriculture in Southeast Asia: Investment, Aid and Trade in Cambodia, Laos and Myanmar.