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27 Jul 2010

Agriculture

Cassava Products: FTAs Boosting Exports, Government Releasing Stock (Business Brief No.2889)

During 2010-2011, those involved in the cassava industry may face certain challenges due to continuous decreases in cassava output due to drought and a mealy bug outbreak, but demand for cassava products, particularly in China, is surging. Cassava prices at all market levels and product categories (from the price of tubers sold by farmers to the FOB export price of cassava chips/pellets and tapioca starch) have reached record-breaking highs, amid shortages being experienced by the industrial sector.
Some guidelines to solve the cassava shortage problem would include:
- Releasing Stockpiles: Currently, there are 1.2 million tons of cassava in government stockpiles, so the National Tapioca Policy Committee has resolved to release 200,000 tons through auctions at the Agricultural Futures Exchange of Thailand (AFET), and they are considering other ways to release the remaining 900,000 tons. Cassava exporters will be allowed to participate in the auctions, or be permitted to submit bids weekly, as carried out in early 2010.
Meanwhile, there is some concern within the tapioca starch industry because the government has sold 140,000 tons to China Marine Shipping Agency Lianyungang Co., Ltd., a Chinese state enterprise, at THB10.67/kg. Currently, the government is delivering shipments to the buyer. In case of the shipment failure, that stock should be re-auctioned.
- Imports: In 1Q10, Thailand imported 33,119 tons of cassava chips/pellets valued at USD2.87 million, decreasing 51.2 percent in volume and 28.6 percent in value YoY because we are in competition with Vietnam for supplies. That was the first contracted import of cassava since we began to import this product in 2007. Previously, increases in volume and value were seen continuously.
Factors that will influence the cassava industry over the long-term include:
- FTA Pacts: Tariff reductions and cancellations on cassava chips/pellets and tapioca starch per FTA pacts are expected to spur cassava exports to the Chinese and other Asian markets, particularly Indonesia and Malaysia. Other potential markets include Japan and South Korea. South Korea has agreed to eliminate their tariff on starch beginning this year and set a 9-percent tariff on a cassava product import quota of 9,600 tons per year. Meanwhile, Japan will slash their starch tariff from 0-8.7 percent to duty-free status in 2018, but their tariff for cassava products will remain unchanged at 15 percent.

- Increasing Demand for Cassava Products at Home: Currently, the price of molasses, an important raw material for ethanol production, has risen due to the problem of production shortfalls. As a result, ethanol producers have been looking for substitutes. Raw materials that could be used instead of molasses include cassava chips/pellets and tapioca starch and the production of new ethanol factories also depends on supply of both products, so domestic demand for cassava chips/pellets and/or tapioca starch may increase accordingly.

Agriculture