Background

Managing “natural” and “policy-driven” comparative advantage:

The growth of the cassava industry in Vietnam
by Jeniffer Lin, Joanne Kwok, Minh Nguyen & Sharon Sim

Good morning Prof and class. Today my group will be discussing the
topic of “natural” and “policy-driven” comparative advantage with a
focus on the growth of the cassava industry in Vietnam.
 Cassava Uses & Products
Also known as “Tapioca” Best harvest yield from fields starch & starch derivatives paper
with average soil fertility
A tropical Root Crop food & feed processing textiles
levels
Warm Weather: regular moisture pharmaceutical industry biodegradable plastics
Require at least 8 months
Fresh Root: 30% Starch, low biofuel MSG
to grow
protein level automotive fuel
High Rainfall:
Require at least 18 ethanol
months to grow flour

Now, cassava is actually what you would normally know as ‘tapioca’, a
tropical root crop. That means it can only grow in warm temperatures
with a relatively high rainfall. Cassava adapts well to a wide range of
climates & soils, requiring only low inputs of rainfall. Its fresh root
contains 30% starch with a low protein level, making it an imperfect
substitute of potato and maize.
The uses for cassava are actually very diverse, which provides many
avenues of production for the industry. It can commonly be used for food
and feed-processing, but more recent developments have allowed it to
expand into the biofuel, biodegradable plastics and even
pharmaceutical sectors.
 Main Exporters & Importers
Farmers plant more varieties of cassava
Cassava processed forms for pig feed; large scale cassava starch
a cottage industry factories start appearing

1988 1996 2010

1990s 2000
Europe
Thailand Cassava used for
China noodles & other Bio-ethanol plant being built
consumption purposes
Indonesia as biofuel industry emerges
Japan
Vietnam
South Korea
Vietnam’s Cassava
2001
Industry Growth Chart
The main exporters of cassava we will be touching on today are A quick look at Vietnam’s Cassava Industry Growth Chart will show that
Thailand, Indonesia and Vietnam. Minh will later elaborate on a cassava started off as a cottage industry in the 1990s, its main uses
competitive analysis of these three nations. Main importers are European being consumption and farming purposes; for example, an ingredient in
countries, China, Japan and South Korea. noodles as well as cassava chips for feeding pigs. It was only in the new
millennia when new commercial purposes for starch such as biofuel
appeared did the growth of the Vietnam industry truly take off.
 Yield Charts Production Charts

India

Thailand Thailand
China Indonesia
Indonesia
Vietnam India
Vietnam
China

Looking at the yield and production charts of South East Asian cassava
growth, Vietnam can be seen to have indeed experienced a sharp
growth in the new millennia, one that is at a much faster rate than other
more experienced cassava producers such as India, Thailand and
Indonesia.
 Types of CA
Natural: A country can be considered to
have a natural comparative advantage if
Situational Analysis
that advantage arises #om permanent
natural factors.

Policy-driven: Also known as artificial

comparative advantage. It arises #om
factors that are not permanent and can be
altered through policy decisions.

Now I would like to point out the differences in the two types of
comparative advantage we will be using as a basis of our discussion
today. Natural comparative advantage can be defined as an advantage
arising from permanent natural factors. On the other hand, policy-driven
comparative advantage is a form of artificial advantage, arising from
factors that are not permanent and can be altered through policy decisions.

Vietnam’s
CA
relatively cheap labour, relatively
new technology, enthusiastic
government, successful and extensive
R&D, cooperative farmers,
China’s big demand
These are a few condensed comparative advantage factors for
Vietnam’s cassava industry which we will covering today - mainly,
relatively cheap labor, relatively new technology handled by an
enthusiastic government which has resulted in successful and extensive
R&D, cooperative farmers and an important external demand in the
form of China.
Vietnam’s “natural” CA
Labor/Agricultural Comparative Advantage
Post-war baby boom led to labor abundance, cassava
industry is relatively labor-intensive (60-70% of total
production costs are labor costs)
No Land Comparative Advantage
Although Minh will be talking on greater detail about the comparative
advantages Vietnam has compared to two large Southeast Asian
cassava exporters, Thailand and Indonesia, I just want to point out that
Vietnam experienced a post-war baby boom after the Vietnam War
that led to an abundance of labor. Because the cassava production
industry is a relatively labor-intensive one, with 60-70% of total
production costs being labor costs, and according to Heckscher-Ohlin
(HO) theory, this gives Vietnam a natural comparative advantage in an
agricultural industry. Unfortunately, as Minh will mention later, it does not
have a comparative advantage in land, unlike Thailand and Indonesia.
 SWOT Analysis
Strengths
‣ Cassava processing factories are new &
modern
‣ Vietnamese farmers willing to adopt
new technologies
‣ Vietnam Cassava R&D projects
Opportunities
‣ Increasing demand in multiple products
‣ Move from food crop to industrial crop, has
become a cash crop in Vietnam, high value export
‣ Ability to attract foreign investment
‣ Rapid growth of industry at 2.5% a year over
past 10 years
‣ Buoyant internal demand for starch
Weaknesses
‣ Lack of processing facilities & small
farms
‣ Crop competition (Sugarcane, rubber,
coffee, fruit trees and cashew nut are
competing with cassava)
Threats
‣ Unstable prices
‣ Cassava starch is not the perfect
substitute for more popular starch crops
‣ Asian societies likely to reduce their
consumption of high energy staples like
rice and cassava
Policies by Vietnam
1. Further advances in cassava breeding and in production practices
2. Improving soil fertility of cassava growing areas
3. Planning and establishing production areas for processing
factories
4. Developing post-harvest technologies
5. Expanding markets for cassava products
6. Development of high starch and high yield varieties
7. Transfer new technologies to cassava households (Farmer
Participatory Research)
8. Diversification of end-products (instant food, fast food, animal
feed, pharmaceuticals, textiles, biofuel, paper)

In order to aid our further identification of Vietnam’s competitive
strengths, we have put together a SWOT analysis of the Vietnam
Cassava Industry. I would like to draw your attention to the points
highlighted in red, such as a lack of processing facilities and farming
area as well as the threat of crop competition from more popular
commercial crops, as these lead to the comparative advantages and
disadvantages of the industry.
In order to counter weaknesses of the industry and thus boost the
comparative advantage of its cassava, Vietnam has made many efforts
to improve their crops to become better substitutes of more popular
starch produce such as potato and maize. This includes planning and
establishing more production areas for processing factories, since a
weakness of Vietnam’s young industry was a lack of processing facilities.
And in order to correct its comparative disadvantage in growing area as
well being an imperfect substitute of popular starch crops, potato and
maize, much R&D effort has been placed on developing high starch and
high yield varieties.
 Answering the Question:
How did Vietnam grow so
rapidly over the past 10 years?
Answer: mainly policy-driven growth

New Technologies

Now Sharon will continue on our quest to answer how Vietnam

achieved such rapid growth over the past decade, propelling it to the
front line of cassava exports at a faster rate than other nations have
done before.
New Technologies
To increase the yield Bioethanol production
potential, dry matter content
New factories
and starch content, and
enhance early harvestability R&D

Identification of cassava high-

yield varieties suited to
different agro-ecological
zones and the integration of
!
these into smallholder Fast Technology Transfer
farming systems.
Technologies developed to improve efficiency
likewise spread widely & quickly across
Vietnam because of cooperative behavior

Vietnam has made the fastest progress in

application of new technologies in breeding
and new cultivar propagation in Asia Trade Reforms
An artificial advantage by the Vietnam
Government
FTAs and PTAs Reaping from ASEAN PTA

ASEAN Free Trade Agreement (AFTA)

Vietnam became a full member of ASEAN-China FTA

ASEAN on 28 July 1995 (AFTA)
ASEAN-RoK FTA
The General Council approved Viet
Nam's accession package on ASEAN-Japan Comprehensive Economic Partnership
7 November 2006. Viet Nam became
Agreement
the WTO's 150th member on
11 January 2007 (WTO)
ASEAN-Australia-New Zealand FTA

ASEAN-India FTA
 Vietnam Reduction of Tariff rates
Most-favoured-nation (MFN) tariff
rates which are applied to imports
from any country that has already
had a bilateral trade agreement with
Vietnam or in fact has granted MFN
treatment to Vietnamese exports;

Preferential tariff rates are applicable

Revealed Comparative Advantage (2001-2005 Average)
and the Share of
Individual Country’s Exports in ASEAN’s Total Exports
to member countries
for goods under the CEPT (AFTA)
agreement
Normal tariff rates that are usually
50 percent higher than the MFN ones
are used in other circumstances
Effects of Lowered Tariff Rates

In the reviewed period, Vietnam earned 4.2 billion USD from exports enjoying
tariff cuts offered by FTAs with other ASEAN member countries and the group’s
partners, which accounts for nearly 13 percent of its total export value against 9-10
percent recorded in previous years.

After the ASEAN-China FTA took effect last year, Vietnam ’s exports to China rose
by 21 percent year on year to 5.3 billion USD.

As the FTA between ASEAN and the Republic of Korea lifts tariffs on 92 percent of
imports from 2010, Vietnam posted a surge of 35 percent in its exports to the Concluding tariffs and
country, earning 1.2 billion USD.

FTAs
 Comparative Analysis Changes over years
Between Vietnam,
Changes in cassava harvested area, yields and total production in major SE Asian
countries for the
period 2000-2007 (source FAOSTAT)

Thailand and Indonesia

 Harvested Area (1000 ha) Yield (ton/ha)

1,500 30

-6.0% +35.5%
1,125 22.5
+1.9%
+29.6%
750 15
+136.3% +89.3%

375 7.5

0 0
2000 2004 2007 2000 2004 2007

Thailand Indonesia Vietnam Thailand Indonesia Vietnam

 Production (million tons)
World Exports of Cassava Products
30
+38.6% 10

22.5
+21.9% 7.5

15 5

+347.2%
7.5 2.5

0 0
2000 2004 2007 Ave 83-85 Ave 92-93 Ave 95-96 2000 2002 2005

Thailand Indonesia Vietnam World Exports Thailand Indonesia Vietnam

Natural Advantages

Vietnam’s growing
environment
Thailand’s growing Indonesia’s growing
environment environment
 Conclusion to natural advantages Policy-driven comparative advantages

Vietnam suffers more from

erosion.

Thailand has the most

favorable condition.

Indonesia has better

condition than Vietnam.
Vietnam Indonesia Thailand
Least Favorable Most Favorable
 Conclusion to policy-driven comparative
Policy-driven comparative advantages
advantages

Vietnam does not really have comparative advantages over Thailand, given
Thailand’s great consideration for this industry Vietnam will not take over
Thailand in the future.

Vietnam is currently ranked higher than Indonesia in this industry thanks to its
rather aggressive approach to promote cassava export. However, this is an
unsustainable development with the lack of strict control from the government
Indonesia might not be able to take over Vietnam in the future but Vietnam will
have to pay a price.
 Vietnam’s Cassava Exports

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China’s Big Demand !"#$%&

Cassava, an edible root, has become an increasingly profitable export for Vietnamese due to the growing
demand in the Chinese market

China is the biggest importer of the Vietnamese Cassava Industry. In 2010, China accounted for 92.4% of
Vietnam’s Total Cassava Exports.
 Huge Demand for Cassava in China’s Cassava Imports
China (2003 -2009)
Cassava as raw materials for Biofuel industry

China adopted “15% Biofuel targets” by 2020

Shortages of Cassava

Turned to Thailand & Vietnam for more Imports

Data from Global Agricultural Information Network Report 2009!

“The fact that cassava is being used for biofuel in China, rapeseed is being used in Europe, and sugar Example of Biofuel Targets:
cane elsewhere is definitely creating a shift in demand curves,” said Timothy D. Searchinger, a research TheEuropean Union stipulates that 10 percent of transportation fuel must come from renewable sources
scholar atPrinceton University who studies the topic. “Biofuels are contributing to higher prices and tighter like biofuel or wind power by 2020
markets.”  Supposedly healthier for the enviroment, a more stable source of energy since fossil fuel is depleting and
oil prices are increasing
China’s Cassava Imports (2007 -
2009)
Trade seminars
Second Trade Seminar was held in HCM City on 7 Sept 2010
by the Trade Promotion Department of China & Vietnam

To promote Cassava Exports to China

Many Cassava Importers & Suppliers met local businessmen

to exchange information & seek business opportunities
China - ASEAN Impact on Vietnam’s
Free Trade Area (CAFTA) Cassava Industry

Establishment of CAFTA in Jan 2010

New bilateral trade Agreement between ASEAN & China

Cassava-based fuel ethanol, key development item

China removed Tariff on Cassava imports from Member

countries, including Vietnam

To increase Cassava Export into China

Implications on Vietnam Recap
Vietnam has Least favorable Landscape condition among
other Exporters

Vietnam rose to being the 2nd Largest Exporter with the help
of Policies-driven Comparative Advantages

Technologies & FTA contributed to Vietnam’s Cassava

Industry growth

China’s Huge Demand – a Pull Factor to Vietnam’s Cassava

Exports
 Concerns
Vietnam, not a country with advantages in developing Cassava

Observations, Industry

Only countries with large area and thin population density can
Recommendations & reserve many areas for growing cassava

Our Conclusion Nigeria (3.8 million hectares)

Brazil (1.8 - 1.9 million hectares)

Thailand (1.3 million hectares)

Indonesia (1.2 million hectares)

Good or Bad?
Farmers growing more Cassava

More income for poor Farmers Better lives

More Cassava for Exports

Benefits for Home Country or Foreign

Country?

Lesser Food Crops

Shortages of Food?

Hike in Food Prices?

More Deforestation