Investment to transform cassava as a growth industry
Michael Tse speaking about cassava as catalyst for economic growth. KT/Chor Sokunthea
Khmer Times | 26 March 2018
Investment to transform cassava as a growth industry
by May Kunmakara
Green Leader Holdings Group, a Hong Kong-based investment firm, announced the investment of $150 to $200 million to build 20 processing factories and develop farmland in Cambodia. Michael Tse, Green Leader CEO, spoke to Khmer Times’ May Kunmakara about the investment and how the company wants to become the industry game changer.
KT: In late January, your company signed a memorandum of understanding with the Ministry of Agriculture, Forestry and Fishery (MAFF) agreeing to invest in cassava plantations and build 20 processing plants. Can you update me on the progress? Where are you going to build your factories?
Mr Tse: We have just acquired a piece of land in Snoul Special Economic Zone in Kratie province for our first cassava starch processing plant.
We will hold the ground-breaking ceremony on April 1 and we expected to start production by early November.
We have done a lot of preparation work beforehand in terms of the design of the project to the processing of the cassava into starch and the marketing of the finished cassava starch. At the same time, we are also finalising another piece of land in Tboung Khmum province, which will be the site of our second cassava starch processing factory.
This means that this year we will start to build at least two factories and we’re still looking for a third factory site between Kratie and Stung Treng provinces, so we are building cassava processing plants accordingly to our master plan.
We are focusing on these provinces initially is because they are major cassava producing areas with no processing plant. Local farmers sell to middlemen who then transport the products to Vietnamese parties who process and sell to Chinese and European markets claiming them as Vietnamese products.
The target of 20 factories is our long-term investment goal in Cambodia and we will definitely build three factories this year and by the end of next year we should have at least five plants up and running.
KT: What is your annual output capacity and what type of products can you process and are they for export?
Mr Tse: We are establishing a presence here to upgrade and help industrialise the cassava sector, as needed by the government.
Cambodia offers a good potential in terms of cassava cultivation land with about 600,000 hectares, according to MAFF estimates, producing 14 million tonnes of fresh cassava a year.
Unfortunately for Cambodia, most of this production is being exported to neighbouring countries because there are only seven cassava-processing factories in Cambodia with some struggling to survive.
To be successful, economies of scale are crucial and according to market research we conducted last year, some of the current local processing plants are too small and are suffering working capital deficits to be sustainable.
Thus, to achieve economies of scale, all our factories are conceptualised as a “module” with a standard factory design and equipment with an annual output of 100,000 tonnes of cassava starch.
Therefore, once the first factory is built, we can simply replicate it, which lets us buy equipment on a larger scale at lower costs from manufacturers. This is our expansion model.
Through this module and standardisation concept, workers’ training would be easier, allowing us to ascertain quality control of our finished product across all factories.
We can also control the standard of our finished product so everything can be planned accordingly. This is how we intend to help industrialise the sector.
We will initially process food-grade cassava starch in our plants with some of it to be upgraded into modified starch, which is a value-added product use widely in food additives, pharmaceutical, cosmetic and paper-making industries.
All our products are of the highest quality and will be exported to Asian and European markets.
KT: Did you buy the land from private owners or get economic land concessions from the government?
Mr Tse: Right now, we are looking at some economic land concessions but as a foreign investor, we are not here to do large-scale farming because local farmers always have lower plantation costs.
They have their own land and have cheaper labour costs as family members can work in the fields.
However, local farmers have working capital deficits and do not have adequate farming techniques such as the use of tractors to work the soil or applying fertilisers. This is where we as foreign investors can come in and contribute.
To be successful, we need to ensure a steady supply of raw cassava to our processing plants for continuous operations. It is not feasible for us to build 10 or 20 factories and at the same time plant cassava to supply our factories.
We select our processing plant sites within 50km of cultivation areas capable of providing us with 400,000 tonnes of fresh cassava annually.
We are working closely with MAFF, the Ministry of Commerce (MoC) and the UN Development Program (UNDP) because these public sectors help build capacity for farmers and assist us in tailored contract farming schemes.
So, we are contributing the expertise and equipment, that is we bring in 120 new tractors to help farmers. Besides teaching planting techniques, we also provide assistance such as ploughing farmers’ land, and providing fertilisers to go along with the tailored contract farming arrangement.
All such assistance costs to farmers will be recorded and deducted from our payment for their fresh cassava on harvesting time.
Currently, the average yield is only 10 to 15 tonnes of fresh cassava per hectare but with our assistance, this should increase to about 25 tonnes per hectare.
So, even after deducting the additional costs of tractors and fertiliser, farmers should still be able to earn more and improve their subsistence means.
The reason for our land concession to cultivate cassava ourselves is only to demonstrate to farmers our plantation knowhow and the use of mechanised farming techniques.
KT: Cassava production in Cambodia is still quite small, according to MAFF data. Cambodia exported 2.3 million tonnes of cassava chips – about 5.5 million tonnes of tubers – in nine months. Cassava chip exports in 2016 amounted to 2.9 million tonnes. How would this meet your production plan? How are you going to ensure a sustainable supply chain?
Mr Tse: MAFF data shows that Cambodia produces 14 million tonnes of fresh cassava tubers but with only seven processing plants. Therefore our approach is for a series of processing plants to achieve economies of scale and maximise the existing supply.
As one tonne of starch requires four tonnes of fresh cassava, each of our processing plants would require 400,000 tonnes of fresh cassava annually.
Tailored contract farming is the key as we will work closely with local farmers associations or communities.
It is also important for us to work with MAFF, MoC and UNDP because they have long experience in how to help build capacity and structure the contract farming scheme.
KT: Will you bring in experts to teach local farmers to make sure your investment projects in Cambodia are successful?
Mr Tse: We have been planting small plots of about 2,500 hectares in Pursat province, so we have proven our experience in cassava cultivation. However, each country is different, so research and development are also vital to the local cassava industry.
We are currently working with Chinese cassava experts from Guangxi province because they have long experience in cassava cultivation with similar soil and weather to Cambodia.
We are also working with international research and development institutes linked to MAFF to establish a research and development centre.
We recently arranged a visit of cassava experts from Cornell University to MAFF and we are now working with MAFF to start a student exchange program between Cornell University and the Royal Agriculture University.
KT: The Commerce Ministry has nearly finalised the draft national strategy on cassava to make it more attractive like the rice policy. What do you think about this? If you look at the price per tonne of cassava, it cannot compare with rubber. Does it make sense that the policy is the right one?
Mr Tse: We cannot compare rubber with cassava because they are different crops with different cultivation requirements. In addition, it is easier for farmers to plant cassava than rubber because for rubber you have to wait five to seven years before maturity while cassava is a twice-yearly crop.
Also, recently, the rubber price has dropped a lot while the price of fresh cassava has reached an all-time high, so that’s the nature of global commodities trading.
I think the Ministry of Commerce is doing the right thing because after rice, cassava is the second-largest agricultural crop of Cambodia. So, the strategy is very important as local farmers need all the help they can get to sustain their income and improve their living standards.
Nonetheless, I think it is also very important to involve the private sector like us to provide our input in setting the national strategy through a public-private partnership approach.
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