8th Asian Cassava Research Workshop

Vientiane, 20-24 October

The role of Contract Farming in theDevelopment of a Competitive and Sustainable

Cassava Sub-sector in Vietnam

Tiago Wandschneider, Project LeaderSADU-CIAT

The Context in Vietnam

Dramatic increase in production due to a majorexpansion of area and significant productivity gains

Regions Area(‘000 ha)

Yield(ton/ha)

Production(‘000 ton)

Share ofproduction

(%)

2000 2007%

change 2000 2007%

change 2000 2007%

change 2000 2007

Red River Delta 8.3 7.6 - 8.4 9 11.9 32.2 74.4 89.9 20.8 3.8 1.1

Northeast 48.4 55.3 14.3 8.8 13 47.7 426.7 719.6 68.6 21.5 9

Northwest 35.3 42.9 21.5 7.5 9.8 30.7 265.3 419.2 58 13.4 5.2

North Central Coast 38.4 58.8 53.1 6.6 15.4 133.3 255.2 906.3 255.1 12.9 11.4

South Central Coast 37.1 65.3 76 8.9 15.7 76.4 329.5 1,021.4 210 16.6 12.8

Central Highlands 38 129.8 241.6 9.3 15.2 63.4 351.5 1,976.5 462.3 17.7 24.8

Southeast 24.4 130.8 436.1 8.8 21.3 142 215.5 2,779.1 1,189.6 10.8 34.9

Mekong River Delta 7.7 6.3 - 18.2 8.9 11.6 30.3 68.2 73.1 7.2 3.4 0.9

Vietnam 237.6 496.8 109.6 8.4 16.1 91.7 1,986.3 7,984.9 301 100 100

Source: Ministry of Agriculture and Rural Development (MARD)

Main producing areas

Ho Chi Minh

Hanoi

Key drivers of growth in the cassava sub-sector

Availability of high-yield, high-starch varieties

Large and growing demand for starch and dry cassava,especially in China

Government investment in industrial starch processing units

Cassava farmers have enjoyed favorable pricetrends

Farm-gate price of cassava in Krong Bong, Dak Lak

(US$/ton)

0

20

40

60

80

100

120

140

160

2003 2004 2005 2006 2007 2008

US

$/t

on

Fresh roots Dry cassava

Mid-Term Market Outlook for Vietnam

Demand outlook is favorable

Strong and growing demand for dry cassava in China

Strong demand for cassava starch in China

Growing demand for dry cassava for industrial feed in Vietnam

Growing demand for starch in Vietnam

Cassava ethanol plants as a new source of demand in Vietnam

But

Starch factories may have to close due to concerns over theenvironmental impacts of waste water

Supply outlook not so favorable

Limited scope for further productivity gains through adoption ofhigh-yield, high-starch varieties

Limited scope for continued expansion of cultivated area

Most increased supply will have to come from improvedcultivation practices

fertilizer use is increasing but need for site-specific solutions

significant obstacles to adoption of other technologies andmanagement practices that are critical for increasing or sustainingyields => many cassava farming practices are not sustainable

Price outlook is relatively favorable

Prices may have peaked in early 2008

however…

Strong demand fundamentals

Tight supply conditions

Trend in the prices of cassava fresh roots, dry chips andstarch (FOB Bangkok) in Thailand from 2003 to 2008.

0

40

80

120

160

200

240

280

320

360

400

440

J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N

0

40

80

120

160

200

240

280

320

360

400

440

Starch

Dry chips

Fresh roots

$US

/ton

2003 2004 2005 2006 2007 2008

Actual or planned factories for the production of anhydrous ethanolfrom cassava in Asia

Fresh rootCapacity requirement

Country Company Location (‘000 l/day) Status (‘000 t/year)1)

China Guangxi New Tiande Energy Ltd. Co. Qinzhou, Guangxi 420 operating 787

China Food Comp. (COFCO) Beihai, Guangxi 840 completed in 2007 1,575China Food Comp. (COFCO) Wuzhou Guangxi 1,260 2,362Other factories 1,510 planned 2,832

7,556 2)

Indonesia Sampoerna Bio-energy: 3 factories East Java 2,500 planned 4,688Sorini Corporation SE. Sulawesi 2,500 planned 4,688EN3 Co. Ltd: 3 factories S. Sulawesi 600 planned 1,125

10,501

Thailand Thai Nguan Ethanol Co. Ltd Khon Kaen 130 stopped operating 244International Gasohol Corp Rayong 150 completed, not operating 281Phakwantip Co. Ltd. Prachinburi 60 completed, not operating 1126 factories using cassava and/or molasses 1,000 to be completed in 2008 1,87516 factories 7,170 licensed 13,443

15,955

Vietnam Petrosetco+Itochu Co. HCM city 333 to be completed in 2009 624Petrosetco Binh Dinh 375 planned 703Petrosetco Baria Vungtau 375 planned 703Hai Phong Engine Comp. Gia Lai 400 planned 750

Quang Nam planned 2,780Quang Nam plannedDak Lak plannedYen Bai planned

1) based on 300 working days per year and a conversion of 160 l ethanol/ t fresh roots2) in next 10 years China will require 3.1 mil. tons ethanol/year from cassava or 24.22 mil. tonnes fresh roots.

Key challenges in the cassava sub-sectorin Vietnam

Will Vietnam remain a very competitive producerof cassava and cassava-based products?

The future of the starch industry is under threat due toconcerns over their environmental impact

The sustainability of cassava production is under seriousthreat due to unsustainable cultivation practices

The way forward

A concerted, multi-stakeholder effort will be requiredto address sustainability issues at the farm level

Farmers

Local policy framework

Extension Contracting firms

Research/Projects

Farmers

Local policy framework

Extension Contracting firms

Research/Projects

Current situation in Vietnam

Farmers

Local policy framework

Extension Contracting firms

Research/Projects

The role of contract farming in thedevelopment of a sustainable

(competitive) cassava sub-sector

Some context

Cassava in Vietnam is grown by smallholders

Under contract with starch factories

Without contract

Large cassava plantations are not socially and politicallyfeasible

There is an opportunity for engaging thestarch processing sector…

Close links to cassava farming households (contract farming)

Many starch processing firms are becoming increasinglyconcerned with the long-term sustainability of their supplybase

Potential to develop new, win-win production models that alsohave a positive impact on soil fertility

Is contract farming a suitable model forcassava production?

No, under low-input (traditional) systems…

Company need

x cassava

Yes, under innovative, higher-input andskill-intensive systems…

Company need

x cassava

Entry points for intervention

design and implementation of contracts

network of field staff for provision of site-specific technicaladvisory services

fertilization

Inter-cropping

Adoption of hedgerows

new, win-win production models (short and long seasoncassava off-season supplies)

The experience of SADU in Krong Bongdistrict, Dak Lak province

Some context on SADU Vietnam

3 provinces, 6 districts

Small team + limited budget

Cassava is one of 9 target supplychains

SADU also works on strategic cross-cutting issues

Krong Bong

Cassava is the second most important commercialcrop in Krong Bong

No. cassava farming and processinghouseholds

~ 4,000

Area under cassava 2007 3,500 ha(500 ha in 2002)

Production 2008 55,000 tons

Farm-gate value of cassava roots US$ 3.7 million

The dry starch supply chain

The dry cassava chips supply chain

Intervention strategy for the dry starch chain

SADU Project

dialogue, advice, training,linkage, technical

assistance

vertical coordinationcultivation practices

off-season

dialogue

resources

services

Cultivation practices

training

Intervention (late 2006 – early 2007)Improve contract design and implementation

Collectharvesting

tickets

Arrangetransport

Travel tothe factory

Wait fordelivery

Travel tothe factory

Improvements in contract design

Registration process Measuring of farm size no longernecessary

Consultation withfarmers

Harvesting calendar now set byfarmers

Role of group leaders Financial package being revised

Input supply Plans to supply fertiliser to 10model groups

Transport services Contract with traders

Off-season contracts No change, increased investmentin off-season cultivation

Improvements in implementation of contracts

Issuing of harvestingtickets

One new field officeImpact of contract traders?

Loan disbursement No major changeImpact of contract traders?

Technical assistance Demonstration servicesPlan to work with 10 model groups

Vertical coordination Facilitative attitude towards tradersContracts with traders

Payment procedures Farmers no longer have to travel tothe factory

New intervention (June 2008 - …)Pilot of long-season cassava in 5 hectares (KM94)

CIAT trials, Naphok Agricultural Station

KM 94 was planted during the normal season (June) on mediumfertility soils: white sandy loam, low in OM (1.77%) but high in K(0.34 me/100 g)

The plots were irrigated 1 month after planting. Weeding wascarried out once. Mulching with rice straw (10 t/ha) was used.

Harvest Yield (t/ha) Starch content (%)

11 months 41.4 27.8

13 months 65.5 29.1

18 months 150.0 (!) 27.2

SADU is also promoting adoptionof simple harvesting tools

SADU is also promotingadoption of improved

processing technologies

Conclusions

The private sector must be part of the solution (developmentof a sustainable cassava sub-sector in Vietnam)

Working with supply chain champions is critical for impacts atscale (leveraged impacts)

Working with supply chains reduces the cost and enhancesthe sustainability of interventions

Thank you for your attention!