Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand. Tsorng-Chyi Hwang, Kamol Ngamsomsuke and Narumol Kimpakorn

Transcription

1 International Symposium Agribusiness Management towards Strengthening Agricultural Development and Trade III : Agribusiness Research on Marketing and Trade Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand by Tsorng-Chyi Hwang, Kamol Ngamsomsuke and Narumol Kimpakorn Multiple Cropping Center, Chiang Mai University National Chung Hsing University The Ministry of Agriculture and Cooperatives 2001

2 III : Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand 161 Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand 1 Tsorng-Chyi Hwang 2, Kamol Ngamsomsuke 3 and Narumol Kimpakorn 4 Abstract Cassava production in Thailand during had a negative trend, due mainly to unfavorable prices caused by the imposition of the common agricultural policy of the EEC, and an increasing cost of production when compared with the farm gate price, yet cassava production was still a profitable crop for Thai farmers. Fresh cassava roots were being processed into chips, pellets, starch, flour and alcohol. Cassava chips and pellets were mainly for export. Cassava starch was mainly used in domestic food, dextrin, glucose, monosodium glutamate, sago and the modified starch industries. As a major supplier of cassava products in the world market, Thailand occupied more than 70 percent of the market share. However, its cassava exports have declined during While Thai exported cassava pellets had a negative trend, its exports of cassava starch tended to increase through time. A major destination for Thai cassava pellet export was the EEC. Taiwan, Japan and Indonesia were the top three importers of the Thai cassava starch. During , Taiwan imported cassava starch ranging from percent of its total native starch importation. Major sources of cassava starch imported into Taiwan were from Thailand, Indonesia and Vietnam. Thailand alone occupied percent of the market share in Taiwan. The computed RCA and DRC indexes (provided by Khaosaard et al., 1997) showed that only cassava starch of Thailand had comparative advantage in the world market. Nevertheless, Thai cassava starch in the Taiwanese market was facing threats from competitors (Indonesia and Vietnam) and product substitution (cornstarch). To compete in this market, Thailand has to improve its cassava starch quality by selecting a suitable variety for the production of high starch quality, improving cost effectiveness and paying attention to the purity of its product in order to gain Taiwanese importers' business confidence. 1 The authors would like to thank Ms Suppada Koaywiwattrakul, an M.S. students at the Department of Agricultural Economics, Faculty of Agriculture, CMU for her patience in drawing graphs, figures and proofreading. 2 Professor, Department of Agricultural Economics, National Chung-Hsing University, Taiwan 3 Department of Agricultural Economics, Faculty of Agriculture, Chiang Mai University, Thailand 4 Department of Marketing, Faculty of Business Administration, Chiang Mai University, Thailand

3 162 Agribusiness Management towards Strengthening Agricultural Development and Trade 1. Introduction Cassava or tapioca 5 is one of the world important food crops. It is grown in topical areas for those located not more than 2,000 meters above the sea level. Suitable temperature for cassava production is degree Celsius with millimeters of average annual rainfall. Its scientific name is Manihot esculenta Crantz. Cassava originated in Central and South America. The Portugese brought it from America to grow in Africa. The African natives used cassava for food. It then spread to Asia and other areas. At present, cassava is grown in more than 90 countries around the world. The major planted areas of cassava is Africa followed by Asia and Latin America. Major producers of cassava are Nigeria, Brazil, Thailand, Indonesia and Zaire. Available data showed that in the 1999 crop year, cassava production from these major producers have been about 30, 23, 20, 15 and 15 million metric tons respectively (see Appendix Table 1). At that time, the world production was 165 million metric tons indicating that these five countries occupied about two third of the world cassava production. The trend of world cassava production is best depicted in figure 1. It was increasing during before reaching the peak in World cassava production was rather stable at about 165 million metric tons during Only in 1998 did the cassava production drop to 161 million metric tons following a substantial drop of Brazilian production (see also Appendix Table 1). It was predicted that world production of cassava would reach 205 million metric tons in 2005 and the five major producers would occupy 70 percent of it (FAO, 2000). Million metric tons Year Farmers' Price Production Cost Figure 1 World Production of Cassava, The words, cassava and tapioca are used interchangeably. Some prefer cassava while the others use tapioca.

4 III : Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand 163 Total world trade of cassava products were as much as million metric tons in The trade volume substantially declined during and was as low as million metric tons in 1998 (Table 1). Major exporters were Thailand and Indonesia while importers were the European Economic Community (EEC), Japan and South Korea. Table 1 World Trade of Cassava Products by Country, Unit: Million metric tons Group/Country Exporters Thailand Indonesia Vietnam Others Importers EEC Japan South Korea Others Total Trade Source: FAO, FAOSTAT ( According to the world trade statistics, Thailand occupied a substantial proportion of export market share of cassava. In 1991, it supplied more than 82 percent of cassava exports. Following the world decline in cassava trade, Thailand was slightly loosing its significance in the world market to supply only 78 percent of the total trade volume in This is mainly because the EEC has forced Thailand to reduce its export to the EEC by applying a voluntary export restriction regime (VERs) on cassava pellets/chips. At the same time, Thailand failed to diversify its markets to other countries, and to the product forms. During the market share of Thai cassava has gone up to more than 81 percent. The decline of cassava export forced Thailand to look for non-eec markets and adjust its product forms to serve these diversified markets. Recently, Taiwan became a major non-eec market for cassava products of Thailand. Being competitive in world trade environments, some questions arise regarding cassava trade between Taiwan and Thailand. Would Taiwan be a prospect market in both the short and long run? How would cassava trade between

5 164 Agribusiness Management towards Strengthening Agricultural Development and Trade Taiwan and Thailand be improved? The cassava trade potential between these two countries must be investigated. 1.1 Objectives of the Study In order to know trade potential for cassava products between Taiwan and Thailand and to recommend measures for improvement, the following objectives have to be met. 1) To understand cassava production, market and export policies of Thailand. 2) To clearly understand cassava demand in the Taiwanese market. 3) To know the appropriate measures to improve cassava trade between Taiwan and Thailand. 1.2 Scope of the Study This study covered cassava production, marketing, and trade policies, in Thailand where the supply side was focused. On the demand side, it covered forms of demand, and quantity demanded, for cassava products in the Taiwanese market. 1.3 Research Methodology The study used mostly secondary data for exploring the trade potential. These data were collected from publications, research papers and official documents from various agencies. Some were gathered through Internet facilities, and a study tour in Taiwan was carried out. A visited company was able to provide inside data on cassava demand in the Taiwanese market. Data analysis covered descriptive statistics where simple average, summation, and percentage were computed for better understanding of the importance and trend of analyzed issues. The design of graphical presentation was to support the above analyses. One of the main analyses in this study was to explore competitive advantage of Thai cassava products. This study employed the concept of revealed comparative advantage (RCA) as a measure. The RCA was computed using the following formula. RCA = X Y i i X Y Where X i = export value of cassava product form i from Thailand

6 III : Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand 165 X = export value of all cassava product forms from Thailand Y i = export value of cassava product form i from all countries in the world market Y = export value of all cassava product forms from all countries in the world market 2. Thailand's Cassava Production, Marketing and Utilization 2.1 Cassava Production and Growth When cassava was first introduced into Thailand it was grown in the south. It later expanded along the coast to eastern, northeastern, western and upper parts of the central plain. Some was grown in the north of Thailand. The northeastern region has long been a major producing area of cassava. Before 1987, the northeastern region alone occupied and produced as much as 90 percent of the total area and production (The Thai Trade Association, 1987). In 1992, the planted area to cassava in Thailand was 9,323,451 rais 6 which produced as much as 20,355,733 metric tons. Since then cassava planted area and production has been declining to reach 6,693,742 rais and 15,590,556 metric tons, respectively (Table 2). Table 2 Area Planted to Cassava, Its' Production and Yield, Thailand, Year Planted Area Production Yield (1,000 rais) (1,000 metric tons) (kg/rai) ,323 19,705 2, ,323 20,356 2, ,100 20,203 2, ,817 19,091 2, ,093 16,217 2, ,885 17,388 2, ,907 18,084 2, ,694 15,591 2,388 Source: Office off Agricultural Economics, Ministry of Agriculture and Agricultural Cooperatives, Thailand. 6 Rai is a unit of measurement of land in the Thai system rais are equivalent to one hectare.

7 166 Agribusiness Management towards Strengthening Agricultural Development and Trade The decline of cassava production in Thailand was mainly due to unfavorable prices caused by the imposition of the Common Agricultural Policy (CAP) of the European Economic Community (Division of Commodity and Marketing Research, 1995). Such policy reform in the European Economic Community induced the use of other cereals as substitution for cassava pellets. At the same time Thailand was not able to expand into other markets for cassava products. The cost of cassava production in Thailand is increasing. In 1991/92 crop year, production cost of cassava was 0.56 baht/kg. It increased to 0.67 baht/kg in 1996/97 crop year before soaring to 0.77 baht/kg in 1997/98 crop year. This substantial rise in the cost of cassava production resulted from a recent economic crisis in Asia. (Table 3) Table 3 Production Cost of Cassava, Thailand, 1990/ /98 Crop Year Production Cost/rai Cost per Kilogram Variable cost Fixed Cost Total Cost (baht/kg) 1991/92 1, , /93 1, , /94 1, , /95 1, , /96 1, , /97 1, , /98 1, , Average 1, , Source: Office of Agricultural Economics, When comparing production cost with the price received by farmers, Figure 2 demonstrates that only in 1994, farmers' prices fell below the production cost. The farmers' margin was narrowed down during before becoming negative in After 1995 farmers' profit per kg was reasonably high even when the impacts of the economic crisis prevailed in This implies that cassava is a profitable crop for Thai farmers.

8 III : Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand Forms of Cassava Production and Utilization Cassava roots produced at farm level can be processed into many forms. These include cassava chips, cassava pellets (both in native and hard or brand forms), cassava starch and flour, and alcohol. Cassava chips and pellets are mainly for export. However, a significant portion of its production was used in the domestic feed industry. Cassava starch is used in the food, dextrin, glucose, monosodium glutamate, sago and modified starch industries (Figure 3). Production of alcohol from cassava in Thailand was at the experimental stage and was not profitable for commercial purpose (Office of Agricultural Economics, 1996). Data on the production of each cassava product in Thailand was not available. Since Thailand exported more than 90 percent of its domestic production, the structure of exported cassava products could represent the structure of its production as well. Based on the exported data shown in Table 4, it is obvious that major cassava products of Thailand are cassava pellets and chips followed by cassava starch. Modified cassava starch is much less important. Though there was no updated data available, significant amounts of cassava pellets and chips were used in the animal feed industry, while cassava starch was processed into monosodium glutamate, glucose, and dextrose production for mainly domestic uses. 1.4 baht/kg Farmers' Price Production Cost Year Figure 2 Farmers' Price and Production Cost of Cassava, Thailand

9 Fresh Roots Tapioca Chip Mills Tapioca Meal Plants Cassava Flour Mills Alcohol Processing Plant Tapioca Chips Tapioca Meal Waste Starch/Flour Alcohol Native Pellets Pellet Mills Brand Pellets Phar ma cy Indu s try Food Industry Glucose Industry Mono Sodium Glutamate Industry Stamp/Envelope Production Dextrin Industry Plywood Industry Paper Industry Animal Feed Industry Export Sago Industry Modified Starch Industry Metal Industry Textile Industry Ink Industry Figure 3 Flows and Utilizations of Cassava Products in Thailand

10 III : Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand 169 Table 4 Quantity of Cassava Products Exported from Thailand Classified by Types, Unit : Metric tons Year Starch Chips Pellets Hard Pellets Total , ,122 4,978, ,212 6,309, , ,247 5,214,592 1,479,856 7,607, , ,157 2,391,530 1,637,827 4,669, , ,775 2,893,327 2,905,316 6,419, , ,161 1,102,432 5,386,950 7,113, ,048 68, ,161 5,508,254 6,287, ,056 97, ,653,244 6,119, , , ,183,239 8,107, , ,391-9,032,918 9,798, , ,150-7,285,423 8,210, , ,472-6,044,973 6,894, , ,643-7,724,387 8,795, ,276 71,566-6,635,439 7,360, ,561 9,909-4,782,643 5,716, , ,067-3,127,526 4,141, ,365 2,700-3,604,411 4,500, ,140, ,586-4,016,106 5,295, , ,162-2,961,486 3,968, , ,058-4,118,549 5,272,530 Source : Thailand Tapioca Trade Association, Annual Report Marketing of Cassava Products As discussed earlier, cassava can be processed into many products. There are, therefore, many parties involving in marketing of the cassava products. They included assemblers, agents and commissioners, chip and pellet processing factories, cassava starch factories, Bangkok wholesalers, exporters, and retailers (Akanistaphichart, 1996). These brokers facilitate the selling and buying of cassava stock, (usually the improved varieties) cassava roots and processed products. In general, cassava growers sell cassava roots by contract before harvest or by harvest. Prices of cassava products are differentiated by variety and starch content. Improved varieties such as Rayong 5 (a newly developed variety with higher percentage of starch content) received higher prices. Therefore, in buying the cassava roots, the buyers usually

11 170 Agribusiness Management towards Strengthening Agricultural Development and Trade examine the starch content at the buying location 7. Yet the prices were affected by the amount of their production available in the market. The prices usually drop sharply when production exceeds market demand. Standards for cassava pellets were set by the government. It requires moisture content of less than percent, foreign matters (usually sand) not more than 3 percent. After buying cassava roots, the factories usually process them within a day. Storage is not normally practiced by starch processing factories except when overloaded. 8 Trucking was the single mode of domestic transport for cassava products. Ships are used for international shipment. According to the findings of Akanistaphichart (1996), cassava chip factories played an important role in the domestic cassava market. They bought more that 48 percent of cassava roots. However, the pellet factories bought as much as 46 percent of cassava root equivalence (34 and 19 percent in the forms of chips and roots respectively, see Figure 4). The cassava starch processing factories also processed as much as 45 percent of the total cassava products. At the end, about 26 percent of cassava products in 1995 were used for domestic consumption. There were 22 percent in the form of cassava starch and 4 percent in the form of cassava chip and pellets for animal feed. The balance of 74 percent was exported to the world market. Interestingly, the cassava starch processing factories bought about 26 percent of cassava roots directly from the farmers while the balance of 16 percent were from the chips and agents or commissioners. The later part of cassava roots was considered to have less quality for the production of high quality starch Practically, the examination of starch content was done at factories where they had measurement equipment. A visited starch processing company in Taiwan claimed that cassava roots had to be processed within 24 hours of harvest in order to maintain high quality of starch. It was claimed by the visited glucose (fructose) processing company in Taiwan that cassava starch from Thailand was not of good quality. The study tends to support that the claim was initially true.

12 III : Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand 171 Agents in Local Market Cassava Chips Factories Fresh Cassava Cassava Chips Cassava Starch Factories Modified Starch Processing Factories Wholesalers 4.31 Farmers Fresh Cassava Cassava Chips 9.11 Collectors Fresh Cassava Cassava Chips Cassava Pellets Factories Bangkok Agents Exported Merchants Retailers 4.31 Forward Industries Households Source: Akanistaphichart, Domestic Use Feed 3.59 Export Figure 4 Marketing Channel of Cassava in Thailand, 1995

13 172 Agribusiness Management towards Strengthening Agricultural Development and Trade 2.4 Export of Cassava Products Thailand is the world largest cassava exporter. In 1980 its total export value of cassava products was US$727 million accounting for almost 77 percent of the total world export value. During , the total export value of cassava products from Thailand fluctuated between US$ million and 64-77percent in terms of market share (Table 5). It was highest at US$1,085 million in Since then the export value of cassava products from Thailand has substantially declined to US$495 million in This is mainly due to the effect of policy restructuring in Europe. Nevertheless, its market share was still higher than 70 percent. Table 5 Export Value of Cassava Product from Thailand, Rest of the World and World Year Total, Thailand Rest of the World World Total Unit : US$1,000 Value (%) Value (%) Value (%) , , , , , ,097, , , ,269, , , , , , , , , , , , , , , ,175, , , ,207, , , ,270, , , ,180, , , ,121, ,085, , ,316, , , ,088, , , , , , , , , , , , , , , , year avg , , ,009, Source : FAO FAOSTAT Database ( Note : 1 average from

14 III : Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand 173 During , there were four cassava products exported from Thailand. They included cassava chips, pellets, hard pellets and native cassava starch. After 1988 Thailand stopped exporting cassava pellets to the world market due to the newly developed hard pellet form. Table 4 shows the major product form of cassava exporting from Thailand to be hard pellets followed by starch and pellets. At the same time it also shows that the export of cassava hard pellets has significantly declined while starch trend has increased through time. This may demonstrate that Thailand has high potential for exporting cassava starch. The major market for Thai cassava hard pellets is the European Union (EU) where the Netherlands, Spain and Belgium are major importing countries (Table 6). On the chip market, China, Italy, Netherlands, and Portugal are important markets for Thailand (Table 7). Table 6 Quantity of Cassava Pellet Exported from Thailand, Unit: Metric tons Destination Netherlands 2,517,339 3,296, Spain 186, , Belgium 27,165 81, Portugal 48,376 57, China 54,000 39, Italy Japan 19,977 15, Nuie - 4, USA - 1, Germany 15, , Others 319, Total 3,187, ,053, Source : Department of Custom, Ministry of Commerce, Thailand.

15 174 Agribusiness Management towards Strengthening Agricultural Development and Trade Table 7 Quantity of Cassava Chip Exported from Thailand, Unit: Metric tons Destination China 141, , Italy - 26, Netherlands - 12, Portugal - 9, Japan 1, South Korea 13, USA Taiwan Canada Australia Others 18, Total 161, , Source : Department of Custom, Ministry of Commerce, Thailand. In the cassava starch market, Thailand exported its product to more than 30 countries around the world. Among them, Taiwan, Japan and Indonesia were the top three importers. Volume of cassava starch export from Thailand to Taiwan and Japan were rather stable when compared to its export to Indonesia. This is due mainly to the fact that Indonesia is also one of the major cassava producing countries. It only imported when domestic supply fell short of demand. Unlike Taiwan and Japan, cassava was insignificantly grown. Looking at these points, Taiwan and Japan could be prospective markets for Thai cassava starch. Nonetheless, market demand, characteristics of demand and policy interventions in these markets must be investigated. These issues will be covered in Section Cassava Trade Policy Cassava export policy of Thailand itself was rather liberalizing. However, it has accepted voluntary export restrictions offered by the European Union (EU) on exportation of pellets and hard pellets since During , the quota was set at 20.9 million metric tons (Thitaphiwatakul, 1996). After the first contract terminated, negotiations for renovation have been held on a four-year term basis. Since 1995, the export quota from

16 III : Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand 175 Thailand to EU has been set at 21 million metric tons for every four years 10. Similar to EU, South Korea also offered Thailand an export quota of 1 million metric tons per year for 10 years starting from The National Food Institute, Thailand (2000) reported that Thailand also held an annual quota of 10,000 metric tons of cassava starch export to EU. On the import side, Thailand followed the WTO agreement. It imposed 60 percent import duty on cassava pellets importation. This import duty will be reduced to 40 percent at the end of 2004 (Division of Commodity and Marketing Research 2, 1995a). Similarly, import duty for cassava starch was 40 percent or 2.75 baht/kg (whichever is greater) and would reduce to 30 percent or 2.06 baht/kg (whichever is greater) (Division of Commodity and Marketing Research 2, 1995b). Under WTO rules, other countries must convert other trade restrictions into tariff or tariffication and reduce certain percentages of such tariff (20 and 13 percent for the developed and developing countries, respectively). The tariff reduction has to be done within a predetermined time frame (6 and 10 years, respectively). Since the reduction of tariff could incur more production of cassava substitutes in feed industry. Thailand may not obviously enjoy much profit from participating WTO as long as cassava products is concerned. 3. Demand for Cassava Products in Taiwan Statistically, Thailand supplied more than 70 percent of its total cassava export to the EU. Those products were mostly pellets and hard pellets that were used for animal feed production. However, Taiwan was the largest market for Thai cassava starch. It is thus interesting to explore into the Taiwanese market. Major issues of interest include demand and its growth, characteristics of demand, and Taiwanese trade policy. 3.1 Total Demand: Growth and Trend In 1989, Taiwan used to produce as much as 20,107 metric tons of cassava roots. Since then its production dropped sharply to only 658 metric tons in 1998 (Department of Agriculture and Forestry, Taiwan Provincial Government, 1999). This amount of production was not enough for domestic use. Therefore, Taiwan has to import starch from the world market. Table 8 shows that Taiwan imported as much as 358,232 metric tons of all starch in Cassava starch accounted for 67 percent of the total imported starch. The total, as well 10 Based on an agreement between Thailand and EU No. 3 ( ) (See Division of Commodity and Marketing Research 2, 1995.)

17 176 Agribusiness Management towards Strengthening Agricultural Development and Trade as cassava starch importation, to Taiwan dropped remarkably during They were back to normal during and reached the peak of 457,336 metric tons in Of which the share of cassava starch was almost 73 percent. According to the figures presented in Table 8, the trend of cassava starch importation could be classified into 2 periods. The first period took from when the importation of starch had a negative trend. To the contrary, the second period, , had a positive trend. But if we tried to look into a long run, the trend would be positive. On the aggregate, the importation on native starch by Taiwan grew by 38 percent or equivalent to more than 4 percent per annum. Interestingly, per capita consumption of imported native starch by the Taiwanese during the same period, also increased by 21 percent. Table 8 Imported Native Starch of Taiwan Classified by Types of Starch and Per Capita Consumption, Unit : Metric tons Types of Native Starch % of Cassava Per Capita Year Wheat Potato Corn Cassava Total Starch Consumption ,238 41,832 64, , , ,741 38,241 82, , , ,528 52,302 90, , , ,100 48,218 59, , , ,039 25,422 89, , , ,459 32,074 29, , , ,579 45,996 36, , , ,371 37,000 71, , , ,217 46,254 60, , , % Change* 62.10% 10.57% -6.18% 38.07% 27.66% Na % Source: Rikkei Trading Corporation, May 10, Note: * refers to the aggregate percent change during 1991 and About 45 percent of native cassava starch in Taiwan was used for sweetener i.e. production of fructose. Another 30 and 25 percent were for direct use (for food and non-food product) and local modified (Table 9). Imported modified starch were in the forms of alpha (21 percent), edible cassava modified starch (20 percent) and other modified starch (37 percent). Alpha starch was used for feed and non-feed items.

18 III : Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand 177 Table 9 Volume of Imported Cassava Starch Classified by Types and Utilizations, Taiwan, 1998 Unit : Metric tons Utilization Types of Imported Starch % to Total of Native Starch Modified Starch Each Type 1. Sweetener 180, Direct use 120, Food 50, Non-food 70, Local Modified 100, Food 60, Paper (Oxydized) 30, Other 10, Dextrin 3, Etherified/Estherified starch 4, Alpha starch 10, Feed 8, Non-feed 2, Other modified starch 18, Tapioca starch edible 10, Others 2, Total 400,000 50, Source: Rikkei Trading Corporation, Mar 29, Structure of Cassava Starch Demand The imported cassava starch products of Taiwan are classified into three types; edible, non-edible and flour. Edible cassava starch is the most important. Total amount of imported cassava starch was 249,726 metric tons in Ninety six percent of this amount was edible cassava starch (Table 10). Throughout the period of , both total cassava starch and edible cassava starch imports increased slightly (Figure 6). Notably, the import of cassava edible starch and total cassava starch were rather stable at about 300,000 metric tons. This implies that demand for cassava starch and especially cassava edible starch in Taiwanese market is nearly saturated.

19 178 Agribusiness Management towards Strengthening Agricultural Development and Trade Table 10 Volume of Imported Cassava Products by Sources of Origin, Taiwan, Unit : Metric tons Main Sources of Origin % of Thailand Year Thailand Indonesia Vietnam Total Share ,728 7, , ,218 12, , ,361 89, , ,320 3,431 1, , ,016 21,852 13, , ,900 30,330 43, , ,477 7,726 36, , ,316 63,588 12, , ,926 29,508 35, , Source: Rikkei Trading Corporation, May 5, Metric tons 400, , , , Year Edible Non-edible Flour Total Figure 6 Importation of Cassava Starch Classified by Types, Taiwan

20 III : Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand Cassava Trade Policy At present Taiwan imposes 17 percent or NT$ 1,200 per metric ton import duty to the importation of cassava starch (whichever is greater). No other measures were implemented on the import of cassava products. Recently, Taiwan has applied for a membership to WTO and are obliged to reduce import duty to 7 percent within 6 years. Taiwan as a member of WTO would somehow raise opportunities for export of Thai cassava starch. However, one would not expect much impact on this issue. 4. Potential for Cassava Trade between Taiwan and Thailand 4.1 Competitive Advantage of Thai Cassava Products (RCA) To look at competitive advantage of Thai cassava products, this study makes use of the concept of revealed comparative advantage (RCA). The two important cassava export products, cassava starch and dried cassava or cassava pellets, were explored. It revealed in Figure 7 that RCA of the Thai dried cassava during was less than unity. This implies that this product has less competitiveness when compared to other exporting countries. It was only in 1998 that its RCA became greater than one. On the contrary, the cassava starch owned greater than unity of RCA in but became less than unity in RCA Index Year Cassava Starch Cassava Dried Figure 7 Revealed Comparative Advantage (RCA) of Thai Cassava Products,

21 180 Agribusiness Management towards Strengthening Agricultural Development and Trade The above information demonstrates that Thai cassava starch was performing well in the world market while the cassava dried or cassava pellets performed poorly. However, it was also observed that the revealed comparative advantage of cassava starch was continuously declining during A drastic drop was in 1998 when it has gone below one. Interpretating this information must be done with caution. The declining of the RCA index may not imply that Thailand's cassava starch was losing its competitiveness in the world market. Instead, it may demonstrate that Thailand was not performing well in exporting its cassava starch. Therefore, Thailand was losing its market share on this product. The reason was that, in the past few years, the European Union increased its supply of corn products in the world market. Therefore, Thailand's cassava starch still had its comparative advantage. Khaosa-ard et al. (1997) made it clear by showing the domestic resource cost (DRC), the more acceptable index to measure comparative advantage, of the Thai cassava starch to be Performance and Roles of Thai Cassava in Taiwan Market Looking at cassava starch trade between Thailand and Taiwan, both are important to each other. While the Taiwanese market is a major destination for Thai cassava starch export, Thailand provides a substantial source of raw material for the Taiwanese starch processing industry. Table 10 shows that Thai cassava starch occupied more than 80 percent of the total cassava starch imported into Taiwanese market. Indonesia and Vietnam have come in this market since Though these two competitors for Thai cassava starch occupied less than 20 percent of the market share, their market shares have tended to increase gradually. 4.3 Threat of Product Substitution (Price and Quality) There are four types of starch used in Taiwan. They include potato, wheat, corn, and cassava starches. Among them, cassava starch was the most important starch that occupied 71 percent of the total market share (Table 8). This was followed by corn and wheat starch (13 and 10 percent respectively). Statistically, corn and wheat starches stayed almost constant during Notably, cassava starch imported to Taiwan grew nearly 40 percent during this period. While the Taiwanese per capita consumption of imported native 11 The lower than unity the DRC, the more comparative advantage the country has.

22 III : Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand 181 starch grew by 21 percent. The growth of imported cassava starch to total imported starch increased from 67 percent in 1991, to nearly 72 percent in This trend is due markedly to the fact that among these competitive products, world price of cassava starch was the lowest. According to the performance of Thai cassava starch, as witnessed by its market share in the Taiwanese market, Thailand was on the top. Its market share was about 97 percent in The total Thai cassava starch imported to Taiwan was decreasing during After that it tended to increase during (Table 10). Nevertheless, market share of the Thai cassava starch dropped to 78 percent in 1999 as a result of the entry of Indonesia and Vietnam into the market. Though Thai cassava starch showed acceptably good performance in the Taiwanese market, it was threatened by two reasons. First, there was a tied substitution from corn starch. The world price of cassava starch declined to the lowest one compared with the other starches ( ), corn price was also going down. Corn price became as low as that of cassava starch in late Coupled with new technology developments in the Taiwanese starch processing industry, where fructose was cheaply produced in Taiwan, corn starch became a major substitute for cassava starch. Second, although Indonesia and Vietnam supplied only about 33 percent of cassava starch to Taiwan, their appearances forced Thailand to lose a portion of its market share. Since the quality of Thai cassava starch was not superior in the market, increasing competition and threat of product substitution may leave no room for the Thai cassava starch in the Taiwanese market. Thailand could improve its product quality by selecting a good variety for the cassava starch industry. Also adoption of newly developed technology may increase its cost effectiveness for this particular industry. That is the key to comparative advantage of the Thai cassava products. 5. Conclusions and Recommendations 5.1 Summary of the Findings The world production of cassava during had been slightly increasing. As of 1998, its total production was as much as 165 million metric tons. On the other hand, the world trade of cassava shrank from 46 million metric tons in 1991 to 28 million metric tons in The shrink of cassava world trade was mainly due to the decline of EEC imports. Thailand, as an exclusively major world exporter of cassava and main supplier to the European Economic Community (EEC), was affected by such trends. Inevitably, Thailand has to diversify its markets toward non-eec countries as well as the product forms.

23 182 Agribusiness Management towards Strengthening Agricultural Development and Trade Taiwan, a considerable non-cassava production country, is thus a prospect market for Thai cassava products. At the same time, stable supply of cassava from Thailand in desirable product forms and quality would also benefit Taiwan. This study aimed at knowing trade potential between Taiwan and Thailand as well as measures for their trade improvement. The study is narrative in nature. Most of the data used was from secondary sources. A study tour in Taiwan was made to get some insight information about the cassava products, processing industry. The study also employed the concept of revealed comparative advantage (RCA) to measure competitive advantage of Thai cassava export. The study found that cassava production in Thailand during had a negative trend. Its production used to be as high as 20 million metric tons in 1992 but has declined to 15 million metric tons in The decline of cassava production in Thailand was mainly due to unfavorable prices caused by the imposition of the common agricultural policy of the EEC. The cost of cassava production in Thailand was increasing. It was 0.77 baht/kg in the crop year 1997/98. However, when compared with the farm gate price, cassava production is a profitable crop for Thai farmers. In Thailand, cassava is being processed into chips, pellets, starch, flour and alcohol. Cassava chips and pellets are mainly for export. Significant amounts of chip and pellet are also used in the domestic feed industry. Cassava starch is mainly used in domestic food, dextrin, glucose, monosodium glutamate, sago and modified starch industries. Thailand is a major supplier of cassava products to the world market. Though its total cassava export has been declining during Thailand occupied more than 70 percent of the world market share. Cassava pellets and starch are the major exported cassava products of Thailand. While its exported cassava pellets had a negative trend, the export of cassava starch tended to increase through time. Thailand could also export modified cassava starch. But due to its insignificant amount of export, statistics on export of modified starch were not separated from that of cassava starch. A major destination for Thai cassava pellets export is the EEC where the Netherlands, Spain, Belgium, and Portugal are major importing countries. Taiwan, Japan and Indonesia are the top three importers of Thai cassava starch.

24 III : Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand 183 Thailand's trade policy on cassava products was rather liberalizing. However, it accepted the voluntary export restrictions offered by the EEC. The export quota under this arrangement is on a four-year periodic basis. At present the Thai export quota of pellets to the EEC is 21 million metric tons and that of cassava starch is 10,000 metric tons. According to cassava products in the Taiwanese market during , Taiwan imported cassava starch ranging from percent of its total starch importation. Most of the starch imported into Taiwan was in the form of native starch. Only about 2.2 percent was in the form of modified starch. Native starch is used for production of sweetener, direct use for food and non-food products, and local modified. On the other hand, modified starch is used for the production of dextrin, etherified/estherified starch, alpha starch etc. Consumption of native starch (including wheat, potato, corn, and cassava) in Taiwan during grew nearly 40 percent. At the same time per capita consumption of imported native starch has increased about 21 percent. If this trend continues, there will be high potential for trade in cassava starch between Taiwan and Thailand. The major sources of cassava starch used in Taiwan were, Thailand, Indonesia, and Vietnam. Thailand alone occupied percent of market share in Taiwan. Indonesia and Vietnam have become Thailand s competitors in Taiwan after Taiwan imposed tariff policy only on the importation of cassava products. However, the tariff rate was rather high. At present the tariff rate is 17 percent of NT$1,200 per metric ton (whichever is greater). Upon applying for WTO membership, Taiwan was obliged to reduce its import duty to 7 percent within 6 years. According to the computed RCA for Thai cassava products, it was found that Thai performance on export of cassava starch was better than that of cassava pellets and chips. The Thai export performances in both products worsened during when the European Union changed its policy. However, the DRC-a better index measuring comparative advantage index, provided by Khaosa-ard et al. (1997), shows that Thai cassava starch has its comparative advantage in the world market. Though Thailand occupied more than 70 percent of the share in the Taiwanese market, there are threats from competitors-indonesia and Vietnam and product substitution. Among the four types of starch used in Taiwan, cornstarch is a close substitute for cassava starch. According to the world price of these competitive products, the price of cassava starch was the lowest. However, due to the policy on encouraging the use of corn among EEC

25 184 Agribusiness Management towards Strengthening Agricultural Development and Trade countries, corn price was lower and close to the world cassava starch price. It was also claimed by Taiwan that Thai cassava starch was not of high quality, the threat from product substitution and competitiveness is substantially increased. However, if Thailand could improve quality of its cassava starch and be cost effective in the production process, then trade on cassava starch between Taiwan and Thailand could be further strengthened. 5.2 Recommendations Based on the above findings, the study has shown high trade potential in cassava starch between Taiwan and Thailand. However, there are still some impediments confronting Thailand s cassava starch industry. To overcome these obstacles, the following points are recommended. 1. Thailand has to improve its cassava starch quality. Since there are many varieties of cassava grown in Thailand, selection of suitable ones for the production of high starch quality would be possible. 2. Cassava starch manufacturers have to pay their attention on the purity of their product in order to gain Taiwanese importers business confidence. Such confidence would lead to stability and expansion of trade between these two countries. 3. To gain export competitiveness, Thailand may have to make more effort to create an industrialized base for cassava production and processing. Also to improve cost effectiveness in the production and processing of cassava. Such attempts are to keep Thai price of cassava starch well below that of corn starch-a close substitute product. References Akanistaphichart, K., 1996, "Production and Marketing of Cassava 1995." Journal of Agricultural Economics, Vol.15 No. 2. Department of Agriculture and Forestry, Taiwan Provincial Government, 1999, Taiwan Agricultural Yearbook 1999 Edition.

26 III : Potential for Bilateral Trade in Cassava Products between Taiwan and Thailand 185 Division of Commodity and Marketing Research 2, 1995a. Department of Business Economics, 1995, "Cassava Pellets." Potential for Major Agricultural Commodities of Thailand after Trade Liberalization., 1995b. Department of Business Economics, "Cassava Starch." Potential for Major Agricultural Commodities of Thailand after Trade Liberalization. Khaosa-ard, M., A. Siamwalla, P. Liaengcharoen, and S. Saehae, 1997, Strategies for Developing an Efficient Management System of Agricultural Development and Related Industries in order to increase Effectiveness of Agricultural Sector. Final Draft Submitted to National Economic and Social Development Board, by Thailand Development Research Institute (TDRI). Office of Agricultural Economics, Cassava Production Plan in the Economic and Social Development Plan No. 8, Ministry of Agriculture and Agricultural Cooperatives. Thitaphiwatanakul, B., 1996, "Export Policy on Cassava Products (H.S.O.0714) to European Union under Agreement between Thailand and EU." Year Book 1996, the Thai Tapioca Trade Association.

27 Appendix Table 1 World Production of Cassava Root, Unit : Million metric tons Country Africa Nigeria Zaire Ghana Tanzania Mozambique Madagasca Uganda Others Asia Thailand Indonesia India China (Mainland) Vietnam

28 Appendix Table 1 (Continued) Unit : Million metric tons Country Philippines Others Latin America Brazil Paraguay Columbia Others Others Total Sources: 1) Data from were taken from FAO 11/10/1999 in The Thai Tapioca Trade Association, Year Book ) Data from were taken from FAO production Yearbook 1992, 1993 and Food Outlook March/April 1996 in OAE, Cassava Development Plan of the National Economics and Social Development Plan No. 8 ( ).

29 188 Agribusiness Management towards Strengthening Agricultural Development and Trade Appendix Table 2 Export Value of Cassava Products from Thailand and World and Their Revealed Comparative Advantage (RCA), Year Cassava Starch Thailand World RCA Cassava Dried All Cassava Products Cassava Starch Cassava Dried All Cassava Products Cassava Starch Unit : US$1,000 Cassava Dried , ,062 3, , , , ,370 2,620 1,017,226 1,097, , , ,619 4,491 1,178,444 1,269, , , ,903 4, , , , , ,043 4, , , , , ,232 11, , , , , ,994 16, , , , , ,895 28,538 1,084,101 1,175, , , ,746 39,840 1,116,146 1,207, , , ,845 37,089 1,169,077 1,270, , , ,693 57,778 1,054,239 1,180, , , ,067 73, ,483 1,121, , ,895 1,085,549 82,807 1,144,186 1,316, , , ,866 68, ,083 1,088, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , years avg. 1 66, , ,887 78, ,176 1,009, Source : FAO FAOSTAT Database, Note: 1 average from