- EGIONAL FIE ER WEST AFRICA Volume I Summary and Conclusions October 1908 REGIONAL FIBER STUDY w WEST AFRICA Volume I Summary and Conclusions Case & Company Inc. Management Consultants 600 Fifth Avenue New York, New York 10020 Agency for InternationalDevelopment Washington, D.C 20523 1. INTRODUCTION This report presents, findings and conclusions on the feasibility of expanding kenaf fiber production in the Ivory Coast, Niger, Togo, and Upper Volta. It was prepared in the interest of the West African Entente States and financed by the United States Agency for International Development (A.I.D.). The field investigations and much of the analysis were performed by Case and Company, New York, New York, under contract with A.I.D. The final report contains elaboration of data and conclusions by Mr. James N. Dempsey, A.I.D. Agronomy Advisor (Fibers). The report focuses on the production potentials, mill processing requirements, and market demands related to the economics of the four Entente States -- the Ivory Coast, Niger, Togo, and Upper Volta. Because the mill and marketing aspects had direct revelance to certain other countries in the region, the study required investigation of these aspects in Ghana, Nigeria, and Dahomey, Mauritania, Gambia, Senegal, Mali, Guinea, Sierra Leone, and Liberia. Agronomic aspects are covered only for the four primary states of the Ivory Coast, Niger, Togo, and Upper Volta. Analysis of the financial feasibility of investment in mills for fiber products was confined to the Ivory Coast, Niger, Togo, and Upper Volta. Kenaf fiber is produced prinipally in India, Pakistan, and Thailand. The first two ate the largest exporters of manufactured items from this fiber, while Thailand is the principal exporter of the raw material. A kenaf industry in West Africa must compete with world prices for fiber and for bags. After technical questions were resolved, the path of the economic analysis was to start with the delivered price (and their projections) of imports, and then to work back through manufacturing, and down to the fiber producting level, to determine if the mill and farm production in West Africa could compete with the import prices. In this respect, "competing" at the farm level included comparison of the price the farmer would received for fiber against known cash receipts for other crops indigenous to the area. In this way, the economic evaluation has been the focal point the study seeks to establish in the realistic manner which any potential investor would face. TABLE OF CONTENTS Volume I - Summary and Conclusions Page I. Introduction 1 II. Conclusions and Recommendations 2 III. General Background to the Study 4 A. Purpose and Scope 4 B. Research Team and General Procedure 5 C. Characteristics of the Study Area 7 IV. General Agronomic Considerations and Conclusions 9 A. Characteristics of Fibers 9 B. Conclusions - Agricultural and Agronomic Circumstances in the Study Area 11 C. Market for industrial Fibers and Fiber Crops 13 V. Fiber Production 16 A. *Kenaf and Factors Relating to Its Culture in West Africa 16 General Agronomic Conclusions 37 Economic Advantage of Growing Raw Fiber to the National Economy 38 Socio-Economic Merits of Raw Fiber Production 39 B. World Fiber Prices - Jute and Substitute Fibers 39 VI. Economics pf Fiber Mill Operation 44 A. Economies of Retted Fiber Compared to Unretted Fiber 50 B. Effect of Using Imported Fiber on Cost and Cash Flow of a West African Fiber Mill 51 C. Cash Flow'Analysis 53 D. Mill Operation and Balance of Payments 55 LIST OF EXHI-BITS Volume I - Summary and Conclusions Exhibit Number 1 Map of Potential Kenaf Producing Areas and Existing Bag Mills ]A Map of Rail Lines in Kenaf Study Area 2 Dollar Value Per Metric Ton of Selected Internati'onally Traded Agricultural Commodities 3 Price and Value Relationships of Selected Grades of Soft Industrial Fibers 4 Estimated Transportation Costs Likely to Affect Fiber Industry 5 Farm Price Per Ton for Retted Fiber to Compete for World Export Markets 6 Estimated Normal Annual Requirements for New Jute and Allied Fiber Products (inTons) 7 Product Price Implications of Transportation Costs Per Ton of Product for West African Mills Competing for World Markets 8 Pricing Implication of Transportation Costs for West African Fiber Mills Serving West African Markets 9 Examples of Minimum Cost Mixtures of Retted Fiber Suitable for One Ton of *"B Twill" Sacks for Mill Equipped to Process Low-Grade Fibers -10 Comparison of Local Labor Costs for Mill Operation 11 Comparison of Operating Cost of Mills Using Retted Fiber 12 Fiber Mill Investment Factors 13 Comparison of Key Revenue and Cost Considerations Affected by Mill Size, Flat Loom Mills 14 Comparison of Cost and Revenue Possibilities for Flat Loom Mills at Locations Considered LIST OF EXHIBITS - Continued Exhibit Number 15 Calculation of Maximum Enforceable Tariff Protection for Fiber Products in West African Countries 16 Effect of Maximum Enforceable Protective Tariff on Anticipated Cash Flow and Earnings Before Interest and Taxes of Fiber Mills 17 Comparison of Key Cost Factors in Using Retted Fiber Versus Decorticated Fiber 18 Effect of Raw Fiber Supply Source on Direct Cost Per Ton of Fiber Mill Operation 19 Effect of Source of Fiber on Cash Flow and E.B.I.T. 20 Cash Flow Analysis of Mill Operation (5,2 4 0-:Ton Flat Loon Mill) 21 Effect on Regional Balance of Payments of Development of 5,240-Ton Fiber Mill 22 Effect of 5,240 Ton Fiber Mill in Togo on Balance of Payments in Countries Served by the Mill 23 Investments and Expenses for a Fiber Development Program 24 Pakistan Jute and Thai "Kenaf" Quotations -- 1960-1965 25 Evolution of Jute Prices VOLUME I APPENDIX A Scope of Agronomic Research APPENDIX B Outline of Marketing and Economic Information Obtained for Each Country APPENDIX C Mill Cost: Outline of Information Compiled APPENDIX D Partial List of Organizations and Officials Visited in West Africa BI BLI OGRAPHY 1-2 The report is presented in five volumes. Volume I contains conclusions and recommendations with respect to the region as a whole, describes the general background of the study, and discusses agronomic conditions, economics of fiber mill operation, the feasibility of fiber production, and the market for fiber and fiber products. Volumes II, Ill, IV, and V present more detailed discussion of the study findings for the Ivory Coast, Niger, Togo, and Upper Volta, respectively. II. CONCLUSIONS AND RECOMMENDATIONS 1. Kenaf can be grown on a small plot basis by farmers in suitable areas of the Ivory Coast, Niger, Togo, and Upper Volta. While the prfce advantage over other cash crops is considerable, this margin is subject to fluctuation characteristics of world markets for agricultural com­ modities. A substantial market (45,000 to 50,000 metric tons per year) in industrial fibers has developed in west Africa, and a market for good quality kenaf fiber may be found in Europe. Although the European market for west Africa kenaf is neither necessary nor likely in the near future. A metric ton of average grade kenaf fiber would be worth about $170 at west African ports and should provide an average net foreign exchange revenue of approx­ imately $130 per metric ton, after all foreign exchange expenses for fertilizers, fuel, and internal transportation costs have been deducted. These values can be increased.by as much as 5 to 15 percent when experience in processing and grading permit marketing of a higher grade of fiber. 2. Since the long-run advantage of a fiber industry can be * realized only if fiber can be grown for sale in world markets at prices competitive (for equal quality) with fiber exporting countries, the highest priority should be given to the agronomic effort required to raise a saleable commercial volume of fiber on the world market on a profitable basis. Section V of this volume and corresponding sections of the Volumes II, Ill, IV, and V describe the cost and results obtainable. 3. The fiber production program should be aimed at the profitable production of retted fiber, of the best possible quality, since such fiber offers the maximum value for improved foreign exchange earnings. 4. A program of basic agronomic research is needed to determine best varieties and cultural techniques which will provide optimum economic returns under west African climatic and environmental conditions. While variety trials and seed production can be more 1-3 expeditiously accomplished on seed farms in each area where fiber is to be grown on a commercial scale, significant economies in the development of commercial fiber production in the region as a whole could be accomplished by establishing a Central Regional Fiber Research Center to undertake basic research for development of plant varieties, and assist in the training of the technicians who will be needed to teach the farmers the most profitable techniques .of growing the plants, harvesting them, and retting the fibers, and train the personnel of the marketing organizations to grade and buy fiber on a uniform basis. A Regional Fiber Research Center would require approximately $133,406 to establish and operate during the first three years of its operation, when expert foreign assistance would be required to train African agronomists and technicians. After initial capital expenses and training costs have been defrayed, it should be possible to continue the institute's essential functions within an operating budget of about $9,000 per year plus an average capital equipment budget of about $1,000 per year. This center would operate in one country in connection with the seed farm in that country, but would provide training and research results to all countries involved in the study area who would share in the operating costs.