Business News Tue, 22 Feb 2005

PSI Company Dying Slowly

... Bleak Future for Ayensu Starch Factory
The Ayensu starch company (ASCO), the first cassava production and starch processing company to be established under the President's Special Initiative (PSI) is said to be dying slowly.

Many reasons, including low cassava yields, falling international starch prices, high perishability and a rising demand for cassava for gari are said to be the major constraints bedeviling the company.

Engineer Robert Woode, Chairman of the Center for Technology and Economic Development (CTED) made the disclosure at a three-day workshop for Financial and Economic journalists in Accra.

Speaking on the topic, "The Presidential Initiative on Cassava and Starch Production in Ghana, A Technologist's Perspective," Woode noted that the European market, which is a major consumer of starch is dominated by potato and corn starches and is highly protected by high tariffs. Thus, since its inception in 2001, Ayensu has managed to sell only about 2000 tons of cassava starch to the European market at $200 per ton. This he said falls short of the 1995 price of $358 per ton.

He added that in Asia too, Ghana's starch is non-competitive because "Thailand a commercial and low cost producer of cassava starch," has captured the market and is said to have the advantage of closeness and high operational efficiency. He also indicated that though ASCO's starch has comparative advantage in the ECOWAS sub-region, Nigeria, which has the largest market demand for starch in the region has also banned imports of starch from Ghana.

Another major problem confronting the company is farmers' dissatisfaction with prices they receive for their produce . Presently, farmers are receiving ?150,000.00 per ton or ?7,500.00 for a 50kg bag of cassava and have threatened to stop supplies to the factory. The open market value for a 50kg bag of cassava is said to be around ?40,000 - ?50,000.

Many market watchers have argued that because of the low international prices for starch coupled with the high processing costs, Ayensu cannot afford to buy the farmers' produce beyond the ?7500 per 50kg mark. According to Woode "if Ayensu is compelled to buy cassava at say ?20,000 per 50kg bag, a ton would cost ?400,000, and given that the extraction from cassava to starch is 5:1, the equivalent amount for a ton of starch would be ?2 million. But as the world market price stands at $200 per ton, and the exchange rate at ?9000 per dollar the company could fetch only ?1.8 million per ton, incurring a ?200,000 loss per ton."

He said if farmers continue to be dissatisfied with the present prices, there would be the possibility of cassava being diverted to the parallel market for processing into gari,. "Such an action will definitely create problems for Ayensu, since it cannot buy cassava at the parallel market price and stay in business," he stressed.

According to A.E. Quayson, former Managing Director of the company, Ayensu has been operating at 20% of its installed capacity due to inadequate supply of roots and low export prices obtained from the European market. Though he indicated Ayensu pays about ?300,000 per ton, Engineer Woode, maintained that the real prices farmers receive is far lesser.

Woode said in 2000, total world cassava production stood at 175.6 million tons out of which Ghana produced about 8.1 million tons. Nigeria produced 33.9 million tons, Thailand 18.8 million with Brazil producing about 23.8 million. He said the national average yield of 12 tons per hectare is too small and raises the question of whether Ghana could rely on cassava as a wealth-creating crop. But Mr. Quayson, argues that cassava has the highest output of all crops with an annual production estimated at 12 million tons and is practically grown in almost all the regions of Ghana and could be a source of reducing the incidence of poverty in rural areas if properly developed. He added, "Cassava surpasses that of maize; 1.4 million tons and paddy rice 280,000 tons, in production." According to him, cassava is the largest contributor to agricultural GDP at 23%.

Though he agreed that yields are currently low at about 5 tons per acre, he was of the view that yields of 10-12 tons per acre are achievable if high yielding planting material and proper husbandry practices are followed.

CTED suggests that if Ayensu is to survive, it should move into secondary and tertiary processing of starch into higher value products like glucose and alcohol. It also suggested that government should rather channel the resources earmarked for the establishment of new factories to support the Ayensu factory.

It also suggests that farmers be encouraged to build small plants to extract starch for Ayensu to refine. It said the poverty gap is a technology gap and that every effort must be made to build technology for agro-processing.

Source: Public Agenda