4. Prices and Margins

4.1 Current Status

The Cassava Handbook contains numerous tables of historical annual, monthly and state level price series for cassava roots sold in rural and urban areas as well as the overall state average. Prices for gari, chips, flour and starch and competing maize and yam prices are also provided.

For this report, an overall impression on the level and patterns of price movements for these goods is provided. Detailed examination of prices can be seen from the Handbook. All state level price data were collected by the Project Coordinating Unit of the Federal Ministry of Agricultural and ADPs in the country.

An overview of cassava root prices is illustrated in the map below^[17].

Map 4-1 Cassava Tuber Prices by State (N/tonne)

Generally cassava root prices are lowest in the southern regions of the country. The exceptions are Bayelsa, Akwa Ibom and Lagos which have high root prices. The highest cassava root prices are in the North East and North West.

Historical price trends of maize, sorghum, yams, millet, cassava and gari are illustrated in Figure 4-1. Cassava prices are lowest in this series while gari and yams are the highest. All except cassava and yams experienced a severe decline in prices from 1998 to 2000. Gari prices rebounded exceeding that of yams in 2001.

Figure 4-1 Historical Price Series

Monthly prices are illustrated in Figure 4-2 from 1993 to 2003^[18] for cassava, gari and maize. Cassava again is the lowest price in this series while processed gari exceeds the price of maize except for a period in mid 1998 and again in mid 2000. Other than the occasional month prior to 2001, gari prices closely track maize prices. Beginning in 2001 gari prices jumped steeply as did maize but the reason for the magnitude of the increase is unknown to the authors. An import ban on maize was lifted in 2000 but import duties continue to make imports expensive. Cassava prices rose in mid 2002 exceeding the maize price in only one month. By early 2003 cassava and gari prices had fallen while maize prices remained high and relatively steady throughout.

Figure 4-2 Monthly Prices

Regional gari prices deflated by the US dollar for this same period from 1993 to the end of 2002 are illustrated in Figure 4-3. The impression is that prices move in unison around the country. Other than some individual months where isolated peaks and dips appear, regional prices fall within a relatively narrow band. Prices in the South East have been relatively higher of late, while prices in the North Central are shown to be dropping.

Figure 4-3 Monthly Gari Prices by Zone

Figure 4-4 provides a slightly different approach to examining regional prices. In this figure gari prices for each region are averaged for each month over the time period 1993 to 2002.

The lack of seasonality in gari pricing, other than a few outliers, confirms the conclusion that the relatively consistent supply of cassava roots provides a fairly predictable price throughout the year and a relatively narrow gari price band across the country.

Figure 4-4 Average Monthly Gari Prices

Cassava has a unique characteristic in that it can be continuously harvested and marketed throughout the year. This provides a consistent supply of product, available for immediate processing at a fairly predictable price throughout the year. This could be cassava’s greatest attribute^[19], relative to competing commodities like maize.

As illustrated in the following map, gari prices^[20] below N20 000 are primarily found in the South West and North Central. Gari prices are highest in the South South, North East and North West.

Map 4-2: Gari prices by State (N/tonne)

Data on the cost of cassava production and processing was not readily available. Costs of production that were available were often restrictive in coverage. The best source of data found was in annual farm management surveys^[21] carried out by the Projects Coordinating Unit (PCU). The following data on costs is summarized for the most part from the 2000 wet season farm management survey (Projects Coordinating Unit, 2002) generated through direct contact with farmers in Bauchi and Jigawa in the North East, Nasarawa in North Central, Katsina and Kebbi in the North West and Akwa-Ibom States in the South South.

In the six surveyed states of the 2000 wet season farm management survey, the annual average rental cost of one ha of land for farming ranged from N656 in Jigawa to N2 088 in Akwa-Ibom. The outright purchase of land for agricultural development, although rare^[22], ranged from N11 084 in Katsina to N36 929 Akwa-Ibom. The cost of land clearing is as follows:

Table 4-1 Cost of Clearing Land in 2000 (N per Ha)

It was reported that one ha of land from land preparation to harvesting costs approximately N62 000 to maintain. Human labour per man-day is N400 plus meals. The cost of a woman-day is N300 plus meal.

Production of one tonne of cassava costs N2500. The market price should be between N7 000 to N10 000 a tonne^[23]. One tonne of cassava costs N2 500 to transport.

The average price of cassava planting material is N100 per bundle. The average quantity of fertilizer bought by the small scale farmer was six 50 kg bags (five used and one for future use). On average, farmers applied three bags of fertilizer on a hectare of land and supplemented with farm yard manure where available. Pest and disease if present were controlled with karate chemical. The cost of fertilizer is N1 300 from government sources or N2 600 on the open market.

The average farm gate cassava price was reported as N8 000 per tonne. The average cost of a storage structure is N1 500 to store ten bags Rumbu or N20 500 to store 50 bags in a mud wall structure.

If the average farm household size is ten, the cost of feeding the household per year was estimated in 2000 at N72 196. The cost of household maintenance (clothing, etc) was N 47 298. Estimated annual cash income for members was N67 666.

These are just some estimated production costs for cassava. Interviews throughout the study provided other indicators of prices and costs. However, little can be reported since the information was not collected in a standardized or systematic manner. A national agricultural survey would be better able to capture true costs of production and processing for cassava and competing products. One factor in determining the costs of production vis-à-vis international standards is reflected in the following statement by the US report of Nigerian trade barriers.

Understanding the true costs of production and processing is essential to pricing and investment. Such calculations are used on a daily if not hourly basis to determine the appropriate mix of inputs for commercial operators.

It has been said that the price of cassava must represent 80 percent of the price of maize for it to be competitive. Other benchmark prices may also exist but using this one, Figure 4-5 illustrates those states where cassava is competitive and those where it is not.

Figure 4-5 Cassava-Maize Price Ratio and Cassava Production

The dots in this figure represent the cassava price ratio to maize. The horizontal line represents the 80 percent benchmark. Those states whose dot is above the line are said to be uncompetitive at the time of review (using 2000 prices) and those states whose dot is below the line are said to be competitive. Coupled with the level of cassava production in each state (the bars) one can quickly see those states that have an advantage in cassava production, processing and utilization. Cross river, Rivers, Enugu, Imo, Kogi and Kaduna all appear to be strong contenders barring other considerations such as resources in land, labour, water, etc.

4.2 Future Targets

There are two future price and margin targets for Nigeria to strive for. The first is a short-term target that lowers domestic costs of production and final prices to remain competitive against internal competition. The second, a long-term target, that lowers the costs of production and final prices to attain international competitiveness.

In the case of the first target, it is the impression that cassava has only been used by industry when maize or wheat prices were high. Potential users of cassava do not generally talk of using cassava because the price is low. There is a need to achieve lower cassava prices so that cassava is used because its price is competitive.

In most instances the competitive price for cassava is the price of imported replaceable commodities. The primary candidates for replacement are maize, wheat flour, ethanol and starch. It is assumed that cassava chips or pellets could be competitive with maize and it is also assumed that cassava chips would be produced in the Thai manner with a 1 to 2.5 ratio of chips to roots. The conversion factor in this table also includes the aforementioned 80 percent factor (3.125=2.5/.80). Cassava flour is assumed to be the prime commodity to compete with imported wheat and wheat flour in the bakery, confectionary and flour milling industries. Fresh cassava is assumed to be the primary input for the production of ethanol. Finally, cassava starch could compete with imported starches.

The following table indicates the range of these prices (high and low) and converts them to a naira value (the last column of the table). This value provides an indication of the target price (roots plus processing) that would make cassava and cassava products competitive.

For example, it would appear that cassava chips or pellets could be competitive with maize if the cost of cassava roots and processing was in the range of N6 550 to N12 254. Obviously when maize prices are low the cost of roots and processing has to be at the lower price range.

For cassava to be competitive in the ethanol and starch industries, the cost of cassava roots and processing should be in the range of N11 213 and N18 860.

When attempting to identify the relative importance of these target prices it should be recalled that the cost of processing cassava differs greatly between the industries. Ethanol processing is probably the highest cost industry followed by starch - at least the production of high quality modified starch.

Table 4-2 Calculated Cassava Root and Processing Price

Source: Maize and wheat import prices (FAO various years). Ethanol and starch (Subcommittee, 2002).

A discussion of the second price and margin target requires a move outside of Nigeria. While Nigeria dominates in the production of cassava, Thailand, dominates as the major exporter of cassava products. In 2002, Thai exports of dried cassava, cassava starch and tapioca totalled US$3.6 billion. This represents 81 percent of total cassava export values in 2002 (US$4.5 billion).

As the world’s largest exporter of cassava chips, pellets, cassava starch and flour, all other existing and potential exporters must accept the Thai price as its world price or ‘price to beat’.

Table 4-3 Thai Exports Value and Quantity 2002

The export unit prices in Table 4-3 indicate that competitively priced cassava ranges from US$65.84 per tonne for dried cassava to US$244.11 per tonne for cassava tapioca. More specific price targets can be found from the Thai Tapioca Trade Association web site, prices are up-dated twice a month. Super high grade Tapioca flour/starch is priced at US$175-185 per tonne. Tapioca Hard Pellets Shipment shipped to the European Union on 3 December 2003 were priced at US$82-83 per tonne and Tapioca Chips shipped to China on 4 January 2004 were priced at US$74-75 per tonne. It should also be noted that the quantity of dried cassava exports were up 30 percent in 2003.

Figure 4-6 Volume Thai Exports

An examination of recent historical trends in Thai trade illustrates some interesting changes. The quantity of exported Thai pellets has declined since 1999. In contrast Thai chip exports have risen such that chip/pellet trade has almost balanced out. Thai starch exports have shown slow yet steady increases over this same timeframe.

Figure 4-7 Value Thai Exports

Looking now at the value of Thai exports, it is not surprising that chips and pellet values have followed quantity levels. Relatively new to the scene, starch export values have achieved very high added values.

Price ratios in Thailand currently range between 2.09 to 2.43 for chips to root and 5.39 to 6.50 for starch to roots, as of 15 January 2004. On top of these narrow margins, Thailand’s pelleting capacity is vast.

Thailand currently has 200 pellet factories with a total capacity of 10 million tonnes a year. At present the EU quota is 5 million tonnes a year, which means Thailand, is working at 50 percent capacity equivalent to three to four months a year and is quite ready to increase supply in response to international demand.

4.3 New Initiatives

Returning to the Nigerian domestic market for food and industrial goods and the farm modelling exercise, one of the most interesting results provided by the regional production models is the estimates of the amount of cassava that could be marketed as a result of the adoption of improved production practices and improved varieties. These results are highlighted in the following chart and figures.

Figure 4-8 Marketable Cassava by Alternative Scenarios

The model suggests that improvements in agronomic practices coupled with the use of improved yields can lead to large increases in the amount of cassava that could be marketed. This is consistent with often-repeated statements that the adoption of mosaic resistant cassava varieties could lead to large increases in cassava production.

The increase in marketable cassava changes the relative importance of other marketable crops as illustrated in Maps 4-3 and 4-4.

Map 4-3 is the base scenario of the model. It illustrates that the South East and North Central are the primary sources of marketable cassava. The South West is identified as the primary source of marketed yams and the North West as the primary source of sorghum and maize.

Map 4-3 Primary Marketed Crops Base Scenario

The source and amount marketed changes for the scenario of improved agronomic practices and yields of 20 tonnes/ha is illustrated in Map 4-4.

All regions except the North East are identified as potential marketers of cassava. The North Central is identified as the region with the greatest marketing potential while the North West, South East, South South and South West have nearly equal potential.

Map 4-4 Primary Marketed Crops in 20 tonnes/ha Scenario

The substantial increase of marketable cassava does not necessarily imply a decrease in the marketing of other commodities.

As illustrated in Table 4-4, results of the model suggest that in many cases increased availability of marketable cassava is accompanied by increased availability of marketable quantities of competing crops.

Table 4-4 Marketing Impact of Scenario where Yield Increase to 20 tonnes/ha

In general, the model suggests that the adoption of improved production practices and improved cassava varieties can lead to substantial increases in the production of cassava and the availability of marketable cassava. This appears possible while meeting existing food consumption requirements and within the limits of available land. It also appears that these changes do not require large negative changes in the production and marketing of other crops. The model also suggests that the proposed improvements could increase employment opportunities.

It must however be remembered that this is only the output of a model. A model that operates at a rather aggregate level and a model that is based on restricted information. Notwithstanding these caveats, it can be suggested that the results are consistent with the conclusions of other assessments of the potential benefits that could be derived from adopting improved cassava production practices and improved cassava varieties (Implementation by IITA, 2003), (RTEP, 1995).

4.4 The Way Forward

The Farm Management Survey provides an invaluable opportunity to quantify the health of the agricultural industry in Nigeria and the overall effectiveness of national agricultural programmes and policies. It also provides advisory information for extension agents. Typically, agents are encouraged to use these guides to identify weaknesses and strengths of like-farms, identifying areas of over or underutilization of resources.

These data can also support marginal pricing analysis to determine true costs of production and appropriate returns to production and investment.

An essential requirement for the development of an industrial cassava industry in Nigeria is the need for industrial cassava to be marketed at competitive prices. The problem for the private sector, as illustrated in the case of the missing cassava, is that if there is not a sufficient supply of cassava to sustain both industrial and existing food demands, cassava supplies will drift to the market offering the highest price. Cassava intended (and possibly even contracted) for use in the industrial sector will find its way into the food sector. To illustrate this point the need for a ‘purple cassava’ has been identified.

The need for a ‘purple cassava’ implies the need for two separate cassava markets in Nigeria; cassava produced and processed for the food market and cassava produced and processed for the industrial market.

The ‘purple cassava’ solution implies the need for an easily and identifiable mechanism to prevent industrial cassava from entering the food market. Whether breeding can create a cassava variety in Nigeria that is undesirable for human consumption, yet desirable for industrial use, is something that has yet to be seen.

As a means of achieving price and margin targets, it is strongly suggested that improvements must be made at every stage of the cassava industry’s supply chain. Established and proven models exist for describing, assessing, measuring and improving supply chains. One state-of-the-art model is called the Supply Chain Operations Reference (SCOR) Model (Supply-Chain Council, 2004). The model provides a framework that links business process, metrics, best practices and technology features into a unified structure to support communication among supply chain partners. The objective of SCOR is to improve the effectiveness of supply chain management and related supply chain improvement activities.

Figure 4-9 provides an overview of a SCOR roadmap to improve supply chain operations. Firstly, competition is analysed, a supply chain is configured, and performance levels, practices and systems are aligned and implemented. Feedback is linked back through the model and specific metrics are used to measure progress at each stage of the chain. The SCOR roadmap provides a convenient way to bring together supply chain members with a common purpose to improve the supply chain. The SCOR approach can be developed with the support of outside agents who assist the supply chain members as they tackle the different SCOR levels. Although single firms most often use this analysis, application to an entire subsector would be groundbreaking if accomplished.

Figure 4-9 A Roadmap for Supply Chain Development