Day 1, Session 1: The Role of Policy Analysis for Informing the Agricultural Transformation Agenda (ATA)

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Assessing the Comparative Advantage of Domestic

Agriculture:  The Nigerian Cassava Value Chain

Presented by Dr. Saweda Liverpool-Tasie, Michigan State University,

NSSP National Conference 2012:“Informing Nigeria’s Agricultural

Transformation Agenda with policy analysis and research evidence”

Abuja, Nigeria – November 13-14, 2012

This project was a collaborative effort between,

»IFPRI- Dr. Saweda Liverpool-Tasie and Akeem Ajibola

»Professor G. B. Ayoola (President, Farm and Infrastructure Foundation (FIF))

and

»Dr. Oyeleke, Razaq O.(National Food Reserve Agency, Abuja Nigeria)

Overview:

Looking at Nigeria’s comparative advantage in the production of cassava within prevailing global and local market conditions

Considerations within the framework of the cassava transformation plan of the Agricultural transformation agenda of President GoodLuck Jonathan administered by the Honorable Minister of Agriculture, Dr. Akin Adesina

Methodology

Value chain analysis – Policy Analysis Matrix (PAM) framework using detailed information on farm level production budget as well as on other processing and affiliated costs related to the production and marketing of cassava based products• PAM construction and simulations• Supplementary primary data collection

and case studies

Data…

A survey of 60 randomly selected farmers each from two local governments (Odeda LGA and Ado-Odo LGA) in Ogun State, Nigeria.

Ogun State was chosen for this study because it is considered to be a state with a high potential for cassava production, hence a natural location to study for cassava

Its proximity to the ports in Southern Nigeria also provides a good starting point when thinking about marketing cassava products, particularly for export.

Additional data was gotten from secondary data and interviews with key informants including farmers, processors, transporters, and government officials in various ministries between 2008 and 2012.

Summary of key findings…

• Cassava production structure in Nigeria

Highly labor intensiveMinimal use of purchased inputs and

mechanization• Gender participation

Very active female participation (throughout but particularly in planting, weeding and processing)

Even less use of purchased inputs like fertilizer

Lower yields of about 12.8 tons/ha compared to the representative farmers with yields of 15.7tons/ha

• Assumptions: Rural farmers in Ogun state Yield of about 15.7 tons/hectare FOB of $200/ton of cassava chips Fertilizer input subsidy, exchange rate distortions,

• Back tracking Production costs Processing costs from tubers to cassava chips Transportation costs Export price of cassava chips

Average cassava growers profitability in producing cassava chips for the export market• Results: No comparative advantage in production of

cassava for the export of the root nor for cassava chips at $200 a ton

$200.00 $250.00 $300.00 $350.000.00

0.50

1.00

1.50

2.00

2.50

3.00

Social cost benefit ratios for cassava produc-tion for cassava chips over various cassava

chip FOB prices

Nigeria’s cassava production within a global context (Oct/Nov 2011):

Farm gate(RM 1)

Farm gate

(RM) (2)Urban market

price**Price/ton (Naira) 6000 14000 36000Transportation (Naira) 4000 4000 4000Cost at bigger market or Border/ton (Naira) 10,000 18,000 40,000@ exchange rate of N156=$1 ≈$65 ≈$115 ≈$256

Yields

Nigeria ≈11.7

Thailand ≈ 23

This is just cassava root prices!

Thailand: 1,700-1800 baht/ton in 2012 = $55-59 from 2,000 -3000 baht/ton ($60- $100 )in June 2011 from ≈ $34 in 2009*

*= FAO food outlook, 2010, ** Nigerian agricultural Marketing information system (NAMIS)

This is just cassava root prices… We have not talked about processing costs for conversion to chips, starch or High quality cassava flour (HQCF)

Cassava roots

Summary: Global context

Nigeria is not currently able to compete favorably with major exporters of cassava products (globally) like Thailand nor with some of her neighbors in West Africa.

But Nigeria has a large domestic market and the cassava plan within the current Agriculture Transformation Agenda (ATA) rightly stresses this…

“The overarching strategy of the cassava transformation plan is to turn the cassava sector in Nigeria into a major player in local and international Starch, Sweeteners, Ethanol, HQCF, and dried Chips industries by adopting improved production and processing technologies, and organizing producers and processors into efficient value-added chains”.

The cassava transformation plan of the ATA places strong emphasis on… Developing strong value added chains of

cassava products by linking demand for cassava for cassava-based products to reliable supply

Reducing Nigeria’s importation of industrial cassava based products like starch

Doubling of cassava productivity from 12 to 25 tons by 2014

Creation of Jobs and increased income Improving the role of cassava in securing

national food security through the increased use of bio fortified cassava varieties

An assessment of the current situation Cassava processors in Ogun State Out of 3 large scale cassava processors in Ogun

state, only 1 was in operation, Thai Farms (recently acquired by FLOURMILLS Nigeria)

The processing facility had the capacity to produce 60Metric tons of HQCF daily but was producing between 8-11 tons daily due to poor output market

From our interview with the NICAPMA: Nigeria Cassava Processors and Marketers Association CASSAPRAN, we learnt that less than 5 out of the 33 medium scale processors with capacity to produce at least 2.5tons of HQCF daily in Ogun State were in operation

One of the medium scale facility we visited had capacity to produce 5 tons of HQCF but was producing about 2.5 tons due to poor output market

Major concerns…

The main challenge mentioned by both medium and large scale processors was the limited market for HQCF

More emphasis was put on the delays getting product from farms and not on the insufficient amount of the input.• The preference is to have roots delivered

and processed within a 24 hour period • To address this, medium scale processors

mentioned a preference for local varieties which lasted longer than improved varieties

Access to credit to procure necessary machines as well as for the maintenance and repair of their machines

Major concerns…

Medium scale processors fear being priced out of the market by larger firms, particularly with their belief that the government wants to import large scale processors from China

The large scale processor mentioned the issue of product standardization. Only cassava with at least 19% starch content was considered acceptable for processing

Both large and medium scale processors complained about poor electricity supply…the high operational costs due to the need to use generators as well as because of operating at such low capacity levels

Processing and marketing costs for HQCF and Cassava Starch in Ogun State, Nigeria

Medium Scale Large Scale

HQCF: cost of production(Naira) 80,000 > 65,000**HQCF: cost of production (dollar)* 512.82 416.67Starch: cost of production (Naira) 150,000 -Starch: cost of production (dollar) @ (N156=$1) 961.54 -

* Exchange rate N156=$1 **The actual cost for the last quarter of 2011 was higher than this as they were not working at full capacity *** = gotten from the Thai Tapioca starch association

Sale price for HQCF in last quarter of 2011 100,000 80,000Dollar equivalent at N156=$1 641.03 512.82Sale price for starch in last quarter of 2011 160,000 -Dollar equivalent at N156=$1 1025.64 -

b

Price of cassava starch from Thailand is about $450/ton in 2012 compared to $440 in 2011, and $340 in 2009.*** price of cassava flour is usually lower.

Some observations…

In the absence of government intervention, the domestic market for cassava products does not compete favorably with import substitutes either.• The cost of producing cassava starch is

close to $970/ton compared to corn starch which ranges between $300-$500/ton

• The domestic sales price of HQCF is between $500-$650 /ton compared to the Thai export price of $400-$450/ton.

Summary of current challenges…

Market for HQCF is still thin Skepticism by processors about the

guaranteed market for their HQCF at acceptable prices

Poor infrastructure and electricity and their associated effect on production costs

Lack of credit to make necessary investments in machines and other inputs

Standardization, cost of verifying starch content too high for small and medium scale processors

Limited emphasis on gender specific challenges across the chain

Moving forward…

Continuing ongoing efforts to • Expand markets for cassava based products

There is a clear need for a well developed market for cassava based products that will permit processing firms to operate at higher/full capacity thus lowering per unit cost and ensuring that more participants along the chain can benefit from this cassava revolution.

Increasing local production is not enough and without a ready market for cassava products, this could even be detrimental

• Increase farmers and processors confidence in the governments long term commitment to the cassava revolution

• Ensure farmer/processor access to credit and other inputs

• Improving infrastructure to lowering processing costs

Moving forward

Procedure for ensuring that quality of inputs and consequent outputs of cassava based products can be verified and a minimum standard guaranteed

Similar studies on processors and other actors in the cassava value chain in other states to determine if constraints observed in Ogun are widespread

More studies to identify any success stories of arrangements (particularly cluster arrangements) between actors in the cassava value chain and to monitor the rate of development for market for cassava based products.

Need to incorporate within the current strategy programs/approaches to address particular needs of different actors e.g. women and youth• Production• Opportunities within small and medium scale

enterprises (entrepreneurship training and improving the quality of products and packaging)

Strategies for promoting job creation and improved incomes through the cassava value chain need to decide and appropriately differentiate programs/policies targeted at processors at different scales of operation

More deliberate efforts to capture regional market share and other niche markets• Improving the price, quality and packaging of

cassava based products

Thank you…