Cashew farmers under pressure to process
African cashew nut producing countries are investing heavily in production and processing, even as significant challenges such as demand size, cartels, market dynamics and protectionism linger.
The last two years have not been good for cashew nut producers in the region, even as they work to increase production. From Côte d’Ivoire, the continent’s largest producer, to Tanzania, governments and donors are investing in multiple points in the value chain.
- “We will plant 15mn new cashew nuts every year between now and then,” Japhet Ngailonga Hasunga, the Tanzanian Minister for Agriculture, said at the African Cashew Alliance (ACA) conference in Dar es Salaam in November “as well as provide better seeds and field extension services.”
The country produced 313, 000 tonnes in 2017/8 but far less in 2018/9; it plans to increase this to 1m tonnes by 2024.
The area under cashew production in Africa will increase by a million hectares in the next four years, according to a report by Mordor Intelligence.
- Côte d’Ivoire will still have the highest production, owing to its higher yields.
But the lingering question is Africa’s low processing capacity, with almost countries exporting primarily to Vietnam, Cambodia, and India. Both homegrown and foreign companies are setting up on the continent, supported by government policies and donor projects.
One problem governments are battling with is cartel behaviour in the market, which often means farmers get unbelievably low prices for their harvests.
- In a bid to do this in late 2018, the Tanzanian government bought nearly all the nuts harvested that year, and had its army truck it into warehouses.
- Tanzanian President John Magufuli also fired two ministers, including the then minister of agriculture, and the entire cashew nut board.
- In 2017, cashew nuts brought in $340.9m in foreign exchange, more than the country’s next five agricultural products combined.
While the East African nation’s moves in 2018 briefly excited the market – prices rose by 10% – it was what happened after that exemplifies the multiple problems any such government interventions face.
Without any substantial processing capacity, Tanzania still had to find a buyer for its now government-held cashew nut stock.
In January 2019, it signed a deal with a Kenyan company that turned out to be a briefcase entity owned by a Kenyan political wheeler-dealer. The $180.2m cashew nut project failed after the company failed to pay up within three days, even with an extension of a month.
In May, the Tanzanian government cancelled the deal and said it now had bids from six firms. Only two of them were local.
At the beginning of its current harvest season, in September, the country launched an online bidding system in an attempt to enhance transparency and get farmers better prices.
But the government’s mid-term plan is the same as everywhere else, to increase local processing. “All of Africa’s cashew nuts should be processed in Africa,” Francis Alfred, the Director General of the Cashewnut Board of Tanzania, says. By the time it quadruples its production in 2024, he added, the country will have the capacity to process half its production.
Côte d’Ivoire exports nearly all of its cashew nut production, but the government’s policies towards farmers and processors have been heralded as forward-thinking. Farmers get 60 percent of international prices, but with price fluctuations in the last two years, policymakers in the West African country have doubled down on growing local processing.
- “The easiest way for farmers to realise profits is to process locally,”Arthur Coulibaly, the advisor to the Ivory Coast President on Industry and Economic Transformation, concurs.
It is an easy argument to make, because the opportunity cost of exporting most of a country’s raw nuts denies its farmers potentially better prices.
In nearly all cashew nut producing countries, local processors are experimenting with products, as they edge away from the traditional snack/ingredient divide of cashew nut demand.
You can now buy a cashew nut wine in Tanzania, or a brandy in Ghana, or chocolate-coated nuts in Ivory Coast.
- “As much as the cashew business is about knowledge, it is also about creativity, and above all thinking outside the box,” Florentino Nanque, the current chair of the ACA, says.
Starting from scratch
Even with investment in processing though, countries will still have to grapple with low demand on the continent as well as market protectionism as they try to sell their products. Unlike Vietnam and Cambodia, which have built their pole position in the market by having access to the main global markets, African processors are starting mainly from scratch.
Low demand on the continent is a critical problem that has left local processors either at the mercy of their international counterparts, or grappling with barely profitable ventures. While the ratification of the African Continental Free Trade Area (AFCTA) will undoubtedly shape the cashew sector, its effects are still years away.
- “Most African countries have to buy from the country they are in,” Wayne Tilton, the Director of Operations at Red River Foods, says, “While processors in Vietnam and Cambodia can shop anywhere on the continent.”
As cashew producers increase production, and new countries encourage their farmers to plant it, governments are likely to seek ways to further protect their growing local processing sectors. This increased productivity will require commensurate demand spikes, which market players predict will come from the changing culinary preferences of the continent’s middle class. Until that happens, though, most will continue to struggle with their position in an export-oriented sector.
- “We as processors are at the mercy of everyone else in the supply chain,” says Ayodele Olajiga, the CEO and co-founder, of FoodPro Limited, a cashew processing company based in Nigeria.
There are also other factors at play, such as the opportunity costs (to food security) of planting more cashew trees, and politics. In the countries in East and West Africa that produce most of the continent’s cashews, the nuts are a particularly emotive political platform. Ghana, Ivory Coast, Tanzania, and Togo, all major cashew producers, are scheduled for elections in 2020.
Failed experiments such as Tanzania’s 2018 intervention are likely to halt any other government from trying, but as political campaigns heat up especially over rural votes, the price of cashew nuts will be a primary election issue.
With improving government policies for local processing, firms are working to not just build demand so they can offer better prices, but also to enhance their relationships with farmers themselves.
- “Business cannot be about profits alone, Salma Seetaroo, the CEO of Ivorienne de Noix de Cajou, tells The Africa Report. Salma’s company has an installed capacity of 9,000 tonnes, and employs about 400 people, mainly women.
Another company, Export Trading Co. (ETG) employs 95% women in its Tanzania and Mozambique processing facilities. “We view cashew as not just a commodity, but as a symbol of broader and more equitable economic growth,” says Mahesh Patel, the founder and CEO of ETG.
Despite such moves, local processors are still trailing far behind their Asian counterparts. To get farmers better prices, governments will have to find ways to support their processors.
Bottom Line: It will be a fine balance between protecting local markets and creating synergies to build a substantial demand in the region.