Cassava Starch from Cambodia: Backward Integration to Cut Costs

Published 2019년 9월 2일

Cassava root is gaining popularity all across the globe. The cassava root is often used as a substitute for potato when making chips. To avoid price swings in fresh cassava, main raw material for cassava starch, a Cambodian exporter is implementing a backward integration strategy.

Cassava root is gaining popularity all across the globe. The cassava root is often used as a substitute for potato when making chips. Cassava is also used to make starch, as cassava starch is highly demanded as a thickener and stabilizer. In Cambodia, the cassava season starts in September and ends in July and the root is mainly produced in the Rattanakiri province. In 2018, Cambodia exported around 68.9K tons of cassava starch. The Cambodian export value of cassava starch is around 30 million USD and the value has been increasing drastically since 2014. Cassava starch exporters have to compete with cassava chip producers for the supply of fresh cassavas, which increases production costs for cassava starch producers and exporters. Around 3.5 kg of fresh cassava is needed to produce 1kg of cassava starch.

The main export markets for Chea Touch Trading Co., a Cambodian cassava starch exporter, are India, China, Indonesia, Korea, and Japan. China is the largest market for cassava starch, followed by India. According to the company, imports from China and India are expected to increase this season due to the growing popularity of cassava starch in these markets. Cambodian cassava starch is exempted from import taxes in the Indian, Indonesian, Korean, and Japanese markets. As a result, Cambodian cassava exporters can offer competitive prices. The Cambodian starch has similar quality compared to cassava starch from Thailand, a leading cassava starch exporter, but has lower prices.

However, in the Chinese market, the company faces fierce competition from Vietnamese exporters. As the port in Vietnam has better infrastructure and is bigger than the port in Cambodia, Vietnamese exporters have lower shipping costs compared to Cambodian exporters. The lower shipping cost allows Vietnamese exporters to have a cost advantage in the Chinese market.

The total production of cassava starch in the 2019 season has decreased compared to 2018. According to Chea Touch Trading Co., the decrease is mainly due to the increase in the price of cassava chips. As the price of cassava chip increases, more processors demand fresh cassava to make the chips to sell them at high prices. As the demand and thus the price for fresh cassava increases, the production cost for cassava starch increases as well, leading to a decreased overall production of cassava starch.

To avoid price swings in the company’s raw materials, Chea Touch Trading Co. is implementing a backward integration strategy: the company has started planting its own fresh cassava. By producing its own fresh cassava, the company plans to cut production costs and have more control over the costs of its raw materials. The company expects to produce around 70K tons of fresh cassava annually. Backward integration will allow the company to offer more competitive prices in the global market.