Economic analysis of cassava starch production vis-a-vis starch production from Maize and Potatoes in South Africa

Abstract

South Africa is a net importer of cassava starch and its derivatives. Yet, demand for cassava starch is increasing on a global scale. Without a supply and developed value chain, South Africa may continue as a net importer with a consequent unfavourable trade balance and a reduced Gross Domestic Product. Therefore, it is important to explore the economics of locally produced cassava starch and contrast it with currently produced starch (such as maize) in the country, to contribute to decision-making for developing a cassava starch value chain in South Africa. The study aimed to carry out an economic analysis of starch production from cassava, vis-à-vis starch production from maize and potatoes in South Africa, through the determination of the demand and supply patterns of cassava maize and potato starch, analysis of the profitability of cassava and maize starch production and modelling alternative scenarios of cassava starch production in South Africa whilst determining the costs and benefits. Time series data was extracted from the trade map in the form of yearly imports and exports of cassava, maize and potato starch. The patterns were determined using a graphical analysis, which illustrated that starch imports were significantly higher than maize starch imports. A gross margin analysis was performed to determine the profitability of maize and cassava starch production. Cassava starch production scenarios in South Africa were modelled using 3 scenarios, which were informed by the extracted starch yield. The cost and benefits of the scenarios were evaluated using Net Present Value, Internal Rate of Returns and Benefit Cost Ratio. These economic indicators revealed that cassava starch production is a viable and worthwhile project. However, one of the scenarios illustrated that the project should be rejected if the extracted starch yield is low. This is because a low extraction efficiency will render cassava starch production unprofitable. Lastly, the study conducted a sensitivity analysis to evaluate the sensitivity of the Net Present Value to the investment cost, discount rate and annual growth rate. It is recommended that the significantly high imports should be used as a driver to develop a cassava value chain in South Africa.