6. Case Studies:
Nigerian Cassava Flour: Broadening Value Chains for Traditional Crops
1. Agriculture in Nigeria
In the 1960’s, Nigeria was a major exporter of groundnuts, cotton, cocoa and palm oil. In the decades following independence, the economy became increasingly centred on petroleum. Agricultural growth stagnated due to lack of investment and enabling policies. In 2001, the government launched initiatives to promote the sector’s development, triggering 11% annual growth in agricultural GDP over the following ten years.1Despite this growth, the country still imports the vast majority of staple foods such as rice and wheat. In 2012, the Federal Ministry of Agriculture and Rural Development (FMARD) announced an updated approach to agriculture through the Agricultural Transformation Agenda (ATA). The programme aims to support the production of target crops through a favourable policy environment, access to finance and land, improved infrastructure and tax benefits.
2. Cassava in Nigeria
Cassava is one of six target crops receiving ATA support. Nigeria’s soil and climate are well suited to cassava cultivation,2 and the country is already the world’s largest producer of the crop, with 2011 production estimated at 52 million mt.3Brazil, the world’s second-largest producer, produced only half that amount. The Nigerian cassava production landscape is dominated by thousands of smallholder farmers, with an average farm size of two hectares.4 Approximately 95% of the cassava produced in Nigeria is processed by local small businesses into traditional West African staple foods like garri.5 These foods are a key part of local diets – in fact, cassava makes up 40-50% of calories consumed in southern and central Nigeria.6Cassava is a versatile crop; its starch can be used in a number of value-added products, beyond traditional foodstuffs (Figure 7). The main focus of the ATA’s cassava programme is to facilitate the development of these “industrial” value chains.
Figure 7: Alternative End Uses for Cassava
Source: Foundation for Partnership Initiatives in the Niger Delta (PIND), 2011. “A Report on Cassava Value Chain Analysis in the Niger Delta”
A small number of private-sector-led processing facilities for HQCF, starch and ethanol have been constructed in recent years. This case study focuses primarily on the development of the HQCF value chain. The lead partner company for this case study, Flour Mills of Nigeria, recently acquired a flour processing subsidiary called Thai Farms International (TFI). Through this connection, data and interviews with farmers, transporters and customers were obtained along the flour value chain during a three-week field visit to Nigeria.
3. High-quality Cassava Flour
HQCF (so-called to distinguish it from less pure, traditionally-processed cassava flours) can supplement wheat flour in bread, pasta and confectionery. Due to differences in its structural composition, however, it can only be used in limited percentages before the quality of the baked goods suffer (e.g. bread does not rise, biscuits crumble).7 In 2005, the government introduced legislation obligating wheat flour millers to incorporate 10% cassava flour in their wheat flour. Enforcement of this legislation largely failed due to insufficient HQCF production capacity, unreliable quality and high costs.8
Production capacity has since grown, and bread and biscuit makers are increasingly incorporating HQCF. However, producers still struggle to profitably compete with flour made from imported wheat, despite the 15% wheat tariff protecting the nascent HQCF industry.9 A number of supply chain barriers contribute to this cost differential.
4. Impacts of Supply Chain Barriers and Potential Solutions
The HQCF value chain is nascent, fragmented and informal. Farmers harvesting cassava can choose to sell to “garri ladies” (local women who process tubers into traditional foods) or to industrial processors. This decision is taken at the time of harvest, typically without long-term contracts. Again, most cassava farmers own only a few hectares of land; the few commercial farms that exist, however, tend to supply industrial processors and so are particularly relevant for the HQCF value chain. After harvesting, tubers are transported to the processor in trucks. Cassava tubers must be processed within 72 hours of harvesting due to rapid fermentation that renders them sour and unfit for consumption.10 As a result, harvesting typically only occurs once a guaranteed buyer is identified. This precaution helps to avoid food loss during transport; such loss only occurs in rare cases (e.g. a truck breaks down in an area without mobile phone coverage).
Upon arrival at the HQCF processing facility, the roots are weighed and their starch content measured. After processing, the HQCF is bagged and sent to customers (mainly confectionery producers). End markets are concentrated in the south of Nigeria, in and around the major cities of Lagos, Ibadan and Abuja.
Transport and Communications Infrastructure
Cassava roots are made up of only 15-20% starch; the rest is water, fibre, peels and skin.11 Although some waste by-products can be sold as animal feed, the starch is the most valuable component. As a result, the tubers have an extremely low value-to-bulk ratio, so any reduction in transport cost will have a relatively high impact on value chain profitability.
Reducing the distance between farm and factory is one of the biggest long-term levers for improving HQCF profitability. One way of achieving this is through vertically-integrated farms and factories, which is discussed in further detail in the section on business environment. Whether vertically integrated or not, there is an optimal size for cassava processors, which balances the operational benefits of scale with the cost of transporting tubers across long distances. Finding this balance is a critical aspect of building a profitable Nigerian cassava industry, and should be considered when constructing any new processing plants.
Aside from these long-term approaches, short-term solutions are available to reduce the cost of transporting product to existing HQCF processors such as Thai Farms International (Figure 8). Farmers typically pay for transport themselves, thus reducing their willingness to send tubers across long distances and encouraging them to sell to local garri processors. In turn, this barrier reduces industrial processors’ ability to procure the quantity of raw materials needed to maintain adequate capacity utilization (large industrial cassava processors’ utilization ranges from 20% to 50%).12 Given producer cost structures, current HQCF market prices and average raw-tuber prices from August 2012-August 2013 (US$ 82/mt), industry profitability would be within reach if more raw materials were accessible.13
Figure 8: Cassava Sourcing Footprint of Thai Farms International: Limited to a 200-km Radius
Source: Thai Farms International
Potential suppliers can be divided into local smallholders, mid range smallholders and distant commercial farms. For local smallholders and distant commercial farms, creative solutions have been found to reduce transport costs and make the transaction profitable for farmers. For mid range smallholders, a solution has been identified but not yet implemented (Figure 9).
Figure 9: Creative Logistical Solutions Can Help to Increase the Supply of Raw Materials
Note: (*) Procurement is estimated based on the local selling price of avocados in Kenya
Sources: Thai Farms International, farmer interviews, Bain analysis
Local smallholders: vertically integrated transport
Initially, farmers were expected to arrange their own transport to processors through third parties. However, the additional margins charged by transporters added costs to the value chain, making it more difficult to compete with local garri producers. Consequently, some large Nigerian processors have acquired a small number of trucks to transport roots. Farmers still pay for the transport, but on an “at-cost” basis.
Distant commercial farms: backhauling
A huge amount of cargo enters Nigeria through the ports at Lagos and is then trucked north to markets. Trucks typically make the return journey without cargo due to the limited production of goods in the north. Recognizing this opportunity, TFI leverages its sister company, Golden Transport Company (GTC, also a subsidiary of Flour Mills of Nigeria), to move cassava grown in the country’s mid-regions to the south. GTC charges farmers for this service at cost, and everyone wins.
Mid range smallholders: collection points
Backhauling is an effective solution for large farms, which have adequate supply to fill an empty 30-mt truck. However, for midsized farms with harvests of 3-5 mt, other arrangements must be found. Even at current cassava prices, which are above the norm, transporting cassava in 3-mt trucks is generally not economical across distances exceeding around 60 km.14 The bulk shipments enabled by collection points could be moved using 40- or even 60-mt trucks, providing obvious logistical benefits and reducing risk for the farmer (Figure 10).
Figure 10: Collection Points Offer Improved Logistics and Reduced Transport Cost
* Reflects current cost of 8,300 Naira (N)/mt vs 750 N/mt for transport to collection centre + 500 N/mt cost of running collection centre + 2,500 N/mt for transport from collection centre to Thai Farms Sources: Thai Farms International; Bain & Company analysis
Collection points also offer an opportunity to implement improved storage methods. Tubers kept in the shade while volumes accumulate can reduce the onset of post-harvest deterioration.15 Other storage approaches (e.g. plastic bags, layering tubers with straw and soil) have extended tuber shelf life to a week or more and could be further explored, although costs would have to be carefully managed.16 Farmer education is an important component of implementing any of these methods, and could be coordinated jointly by the public, private and donor sectors.
TFI is currently organizing a pilot to test the collection point concept, which the company hopes to have operational in early 2014.
Future potential: primary processing
Another innovative method of reducing transport costs is processing tubers into chips or cakes to reduce bulk and extend shelf life, using small facilities located close to farms or collection points. Dutch Agricultural Development & Trading Company has developed Autonomous Mobile Processing Units, which travel to platforms in rural locations and source raw materials from local farmers. In the already uncompetitive HQCF value chain, this approach creates a main challenge by adding another layer of costs that are not easily compensated for by transport savings. Additional research may yield success in the future as the technology and efficiency of this model improve.
While requiring significant government investment, improvements to underlying infrastructure would generate benefits across a number of value chains, not only for cassava.
Cassava for industrial processing typically moves down the LAKAJI corridor, the most important transport artery in Nigeria, from production areas in the middle of the country (e.g. Kwara state) to processors located closer to Lagos end markets (Figure 11).17 Travelling by road along the corridor takes 130% more time per km and costs 25% more than a similar regional corridor between Burkina Faso and Ghana.1819
Figure 11: LAKAJI Growth Corridor – Nigeria’s Primary Route for Transporting Agricultural Goods
Source: USAID/NEXTT LAKAJI Growth Corridor Project
Investments in improved road infrastructure are important in the long term, but the most effective and feasible solution to bridge the gap in costs and delays is to restore Nigeria’s extensive rail network. Most of it is currently not operational; however, a significant budget allocation was made in 2009 to fund investments in rail rehabilitation, and a segment between Lagos and Kano opened for operation in 2012. Shipping a container along this segment is 25% cheaper by rail than by road.20 Private sector investment in wagons is now needed to help drive increased usage of this segment. In addition to infrastructure, regulations can also have important impacts on transportation efficiency (Box 1).
Box 1: Impacts of regulation on transportation services
Regulation can sometimes be even more important than infrastructure in enabling the efficient movement of agricultural goods. A recent study found that transportation costs along four African corridors are no higher than in other developing countries like China. However, transportation prices are far higher. High African profit margins – up to 160% in Central Africa – are a result of regulations that restrict entry of new companies.21
Liberalization of movement within regions is also critical, both for reducing direct costs and for promoting competition.22 In Central America, Guatemalan exporters sending goods overland to Mexico are forced to offload their cargo from Guatemalan trucks at the border and reload it onto Mexican trucks, and vice versa.23 In both countries, this process adds direct costs that make exported goods less competitive and restricts competition in the transportation sector.
Exports of HQCF are not feasible in the near future, given Nigeria’s huge domestic market and lack of competitiveness versus other HQCF exporters. However, port infrastructure is important for this value chain in two ways. First, agricultural and processing equipment must be imported into Nigeria in order for the HQCF industry to grow, along with inputs for manufacturing fertilizer. Second, exports of cassava chips to China or Costa Rica are seen by some as an effective way to sell excess cassava in glut years, helping to smooth prices and reduce the potential “whiplash” effect of price volatility on production levels. Lagos port logistics reveal opportunities for improvement: almost 100% of transport costs between the port and Lagos proper could be avoided if best practices were implemented, such as increased use of rail and containers.24
Reduced policy risk
Dramatic fluctuations in supply and demand make long-term profitability elusive for both producers and processors. Lack of data and poor information flows mean that farmers must rely on price signals to make production decisions. Seeing prices spike, farmers increase the area of cassava planted in the following year. Thousands of smallholder farmers may react in this way and overcompensate, causing a glut in the market (Figure 12). The process then repeats.
Figure 12: Excessive Supply May Force Farmers to Let Cassava Rot to Clear Fields for Planting
Source: Thai Farms International
Many improvements to the value chain can decrease the volatility of supply and demand, including better provision of information, improved contract enforcement, vertical integration and low-cost primary processing to increase shelf life. However, one key solution could be implemented immediately and at essentially no cost: increased consistency in government policy, given past supply fluctuation in response to policy changes.
Unpredictable policies drive volatility in production volumes and prices (Figure 13). For example, Nigeria imposed a 110% tariff on rice in January 2013. Changes like this have immediate and important impacts on demand for cassava, due to garri’s role as a substitute for imported grains.
Figure 13: Nigerian Cassava Supply Fluctuates in Response to Policy Changes
Sources: FAOSTAT; World Bank population database; TechnoServe presentation at Cassava Development Corporation workshop, Abuja, 22 October 2013; interviews
Corruption and fraud
Corruption and other unscrupulous business practices impose costs along the HQCF value chain as well as all agricultural value chains in Nigeria. “Informal fees” at the border drive additional costs of US$ 70 per 20-foot-equivalent unit, making it more expensive to import farm and processing equipment.25 Counterfeit fertilizer limits potential yields in the short term, and reduces fertilizer adoption rates in the long term. Truck drivers sometimes take unofficial side jobs along their routes to earn extra pocket money. According to some transport operators, a common scam is when drivers collaborate with state border agents to fake truck breakdowns. A tow truck is then “hired” and exorbitant charges are sent to the transport parent company, with the driver and government agent ultimately sharing the proceeds. Too often, funds earmarked for development of the agricultural sector and associated infrastructure somehow fail to translate into the intended investments.
Strong political leadership and an effective judicial system are required to drive change in the long term. Over the short term, the private sector can help to reduce the impacts of corruption and fraud, and to accelerate the rate of change. Scale gives companies valuable leverage and resources. GTC has the resources to test its fuel quality, thus reducing scams in the long run. When the testing system was first implemented, 4-5% of loads were rejected; rejection percentages are now negligible.26 Large transport companies have GPS tracking on all trucks to locate them in case of breakdowns and to reduce illicit movements. Companies also maintain in-house maintenance crews, bypassing the “tow truck” scam. Beyond individual company scale, collaboration between private-sector actors can provide additional leverage in lobbying governments for transparency on tracking funds, and for implementation of electronic processes to reduce corruption at the borders.
Enabling structural changes
HQCF processors face intense competition for raw materials from local garri processors. Garri is an important part of the traditional Nigerian diet and, as such, demand is very inelastic. However, bakers are extremely price sensitive. Because wheat flour is directly substitutable, HQCF processors have a maximum price for what they can pay for tubers, since they cannot pass raw material cost increases on to consumers. Development of commercial-scale farming will expand supply, reduce production costs and thereby provide a buffer for HQCF processors, with vertical integration giving them control over their own raw material supply. Nigerian production costs are around US$ 40/mt compared to Thailand’s at US$ 30/mt; bridging this gap is a critical step towards achieving the tipping point of industry profitability.27
Aside from consistent regulatory policy and reduced corruption and fraud, two additional aspects of Nigeria’s business environment could encourage private-sector investment in this space: reliable non-transport infrastructure and access to agricultural finance. As part of its Agricultural Transformation Agenda, the FMARD will create staple crop processing zones (SCPZs) for target crops. The plan is for the SCPZs to receive government support, such as access to finance, land ownership, and power, water and road infrastructure. Implementation of this plan would improve the competitiveness of HQCF and the agricultural sector as a whole.
Movement of goods within Nigeria is subject to regulations and fees that also add to total costs. Trucks are stopped at local and state borders and charged additional fees, which add approximately 6% to the cost of transporting cassava (Figure 14).28 If permits to operate a truck in each area are obtained in advance, the impact of these “on-the-spot” fees is reduced, but getting permits every year is a huge burden. Trucks are required to carry about 50 individual permits costing US$ 75-150 per truck per year, not to mention the administrative trouble of navigating the application process (figure 15).29 Reducing this burden should be a priority for the LAKAJI growth corridor initiative. Discussions among national, state and local governments should include an analysis of the potential impacts of establishing a “free zone” for the movement of trucks – both in terms of lost permitting revenues and increased trade.
Figure 14: Unofficial Border Fees Add 6% to Transport Costs
Sources: Interviews with Kwara state farmers; LAKAJI corridor baseline assessment; USAID West Africa Trade Hub
National border administration is also relevant for the development of the HQCF value chain, both to facilitate access to equipment and inputs, and to develop cassava chip exports while reducing tuber price volatility. In 2012, a pioneering agribusiness company attempted to ship four containers of chips to China. After coordinating the logistics required to source, chip, pack, and transport the cassava to the Lagos port, the company encountered so many challenges at the border that it abandoned the effort.30
Figure 15: Permits Required to Operate a Commercial Truck in Nigeria
Sources: Bain & Company; Flour Mills of Nigeria
Clearing one container for export requires 79-100 signatures.31 The cost of border clearance for one container (US$ 187) is 44% higher than benchmarks of African countries with similar GDPs. The challenge of bearing these costs and navigating the procedures is so great that one major third-party logistics provider had to cancel all contracts that involved handling goods within the port. Alleviating these bottlenecks will be critical not only for the cassava value chain development, but also for Nigeria’s agricultural sector as a whole. Best practices for border administration are well understood and documented, but require political leadership and investment (see the “Enabling Smart Borders” section of the Enabling Trade: From Valuation to Action report).
Figure 16: Food Loss in Nigerian Cassava Value Chains (Estimates)
Note: Totals are estimated, as percentages are based on different quantities. Sources: Interviews with processors and farmers, October 2013; Oguntade, A., “Food Losses in Cassava and Maize Value Chains in Nigeria”. BMZ/German Society for International Cooperation (GIZ), June 2013
Cassava chip importers, such as China and Costa Rica, have minimum standards for chip specifications (e.g. maximum moisture content, minimum starch content); these specifications are clearly communicated and are not exceedingly strict. Particularly for initial shipments, chip exporters must work with processors to ensure that these quality standards are met in order to establish a credible reputation and compete with established Thai chip exporters.
5. Conclusion and Recommendations
A number of supply-chain-improvement initiatives could help to reduce the overall food loss (Box 2) and bring the HQCF value chain to its tipping point of competitiveness with wheat flour (Figure 17). Some would benefit all agricultural value chains, and others are specific to cassava. Promising progress is being made along both fronts. Based on the initial analysis done in this case study, two priorities are highlighted for further consideration.
Figure 17: Potential Initiatives to Reduce HQCF Supply Chain Barriers
Note: (*) Ease of implementation is assessed based on the number of stakeholders, nature of stakeholders, time for implementation, investment required, need to adapt/change the legal framework, and contentiousness of reform. Sources: Bain & Company analysis; interviews
Box 2: Food Loss in Nigerian Cassava Value Chains32
Note: Food loss figures are estimates only. Garri-value-chain figures are based on a German Federal Ministry for Economic Cooperation and Development (BMZ) survey of 200 farmers, 30 garri processors, 30 garri marketers and 25 starch processors. HQCF figures are based on these BMZ results, adjusted to reflect farmer and processor interviews conducted by the authors.
Food loss occurs at higher rates in the traditional garri value chain (about 35%) than in the industrial HQCF value chain (about 20%) (Figure 15). Garri processors peel tubers by hand, so small tubers are discarded. Also, garri is susceptible to post-processing losses due to higher moisture content and informal storage methods.
Harvesting: Manual harvesting is the predominant method across both chains, resulting in about 5% of tubers being damaged and left on the field. During harvesting, about 2% of tubers are left on the field due to their small size. “Not sold” reflects the rough estimate that 25% of the harvests are discarded every five years due to gluts in supply, driven largely by changes in policy (import tariffs of substitute products and politically-driven promotion of certain crops). Importantly, supply surges reduce prices, making it less economical to spend money to avoid food loss along the value chain.
Post-harvest handling and storage: Farmers reported losses of 1-2% during storage of fresh tubers, and 1-2% during transport; losses are roughly consistent across value chains. While very rare, storage and transport losses occur over entire cassava shipments. For example, if an identified buyer does not arrive to pick up a load within 72 hours, the tubers are no longer sold.33 Again, this type of loss occurs more often in years of oversupply, when buyers are difficult to find.
Processing and packaging: Garri processors reject about 10% of all tubers deemed too small or too woody for hand peeling. HQCF processors can reject entire loads that are spoiled or have extremely low starch content, although this rarely occurs (impact estimated at 5%). After these 5-10% losses due to rejections, processing itself drives further losses of 1-2% in both value chains.
Distribution: Processed garri incurs losses due to poor storage methods, pest infestation, spoilage/moisture and transport. HQCF losses have been assumed to be negligible as the product has low moisture and is less vulnerable to spoilage; it tends to be packaged, transported and stored in more formalized, protected environments.
A private-sector-led body is being formed to further this nascent industry’s development. In October 2013, FMARD convened a group of public and private stakeholders to discuss the structure and role of a new Cassava Development Corporation (CDC). An external consultant facilitated the session, and the group aligned on a board structure and an initial list of activities that should be pursued by the Corporation.
To leverage the CDC, the establishment of collection points could be a “quick win” that would generate results in a short time frame and create additional momentum for further initiatives.
Existing processors can drive progress on this initiative by conducting analyses of the optimal locations for collection points. Thai Farms has already identified a location where it could source raw materials from up to 1,000 local smallholders.34 Donor-funded agencies can facilitate the development of farmer cooperatives to supply tubers to this collection point, open up channels of communication between processors and farmers, and potentially mediate negotiations. Government’s role could be to assist with providing access to land for the collection point, a potentially contentious issue that is already a challenge for Thai Farms with its collection point location. Throughout implementation, the CDC can be used as a forum for sharing roadblocks and best practices among processors, as well as the public, private and donor sectors. Successful performance on this quick win will build stakeholder confidence in the potential of the CDC to achieve results, create momentum to drive progress on other initiatives and mobilize additional funding from donors and the government.
In addition to the cassava-specific initiatives, broader investments in infrastructure will benefit the agricultural sector as a whole. USAID has funded the NEXTT project, for which an external consultant has done an initial assessment of the LAKAJI corridor’s performance as a trade route. Through primary field research and extensive interviews with various stakeholders, data was collected on the costs and time required to travel along this route. These metrics were benchmarked against regional and global best practices to identify bottlenecks and opportunities for improvement. High-level recommendations to the government have been drafted based on the findings. A list of investment opportunities for the private sector along the corridor has also been generated, from cultivation to warehousing to ICT.
The NEXTT team is now mobilizing a group of public- and private-sector stakeholders to translate these opportunities into action. This process is a prime example of how a third-party organization can help catalyse progress by creating a data-driven understanding of opportunities. Success will depend on how engaged and optimistic various stakeholders are about the initiative’s potential to positively impact Nigeria’s agricultural sector. Strong leadership and targeted communications are called for to achieve this level of excitement and engagement.