East African Business
THE EASTAFRICAN (Nairobi, Kenya)
Monday, December 20, 2004
African Cashews to Indian Factories: How the Continent Exports its Profits and Jobs
By WAIRAGALA WAKABI
Africa Currently exports an estimated 95 per cent of its cashew nuts in raw form, but this could change following moves to boost processing on the continent and to raise the profitability of the ailing industry.
The industry recently formed a continental cashew association to promote a campaign to add value to its nuts, encourage higher production and better quality, and market Africa as a source of quality organic cashews.
National cashew associations have subsequently been formed, and the continental association has interested the Development Bank of South Africa in funding their processing ventures.
The African cashew industry employs three million households, but is dogged by depressed prices and dwindling production.
While in the 1970s Mozambique and Tanzania were the main global producers, they have since been edged out of the top positions by India, Vietnam and Brazil, whose respective processing capacities are 750,000 tonnes, 300,000 tonnes and 300,000 tonnes.
Besides Mozambique and Tanzania, other notable African producers are Ghana, Guinea Bissau, Kenya, Madagascar, Benin, Togo and Nigeria.
Industry officials say whereas world cashew production has increased, Africa’s share has decreased over the years. The continent’s current output of 300,000 tonnes is less than half its potential of 700,000 tonnes.
Jake Walter, Mozambique director of TechnoServe , an agency that is helping to revamp the cashew industry in Africa, says cashew processing can generate annual revenues for Africa as high as $500 million by 2015, of which 40 per cent would go to wages for manual labour. The primary target markets for Africa, which produces a third of the world’s cashews, are the European Union and Asia.
“African processors need to be competitive in four areas: broken nut yields, production costs, working capital rates, quality and reputation,” says Walter. “Processors must also have access to quality nuts to assure long-term industry viability.”
Statistics from every one of Africa’s big producers paint a bleak picture as far as processing is concerned. Guinea-Bissau, the second biggest producer in Africa and the fifth in the world, produces 90,000 tonnes, according to Fernando Flamengo, a cashew nut processor.
Mr. Flamengo says almost all the production is exported for processing in India. He notes that, directly or indirectly, almost 80 per cent of the country’s population is connected to the cashew industry.
Lack of financing for raw material purchases, as well as lack of buyers of kernels, are some of the problems facing the industry. Besides, there is no national export brand and no credible quality certification, which means Guinea-Bissau kernels lack recognition in the international market.
The Ghanaian industry is dogged by low inputs, low yields and poor prices for raw nuts. Orleans Chinery, the cashew project manager for TechnoServe Ghana , says virtually all nuts are exported raw. He adds, however, that a large increase in processing over the next five years is expected to occur with the establishment of five new processing plants.
Tanzania, whose 2004 production is expected to be 84,000 tonnes, processes only about 10 per cent of its production, while the rest is exported to India for processing. A small amount of processed kernel is exported to the US, Europe and South Africa. The sector employs 280,000 smallholder farmers.
Tanzania’s cashew industry generates 5 per cent of the country’s export earnings – approximately $70 million annually – from raw cashew nut exports. Following nationalisation of the cashew sector in the 1970s and investment in costly, large-scale production plants utilising inefficient technology in the 1980s, the industry has experienced troubled times.
Raw cashew nut production in Tanzania has fallen from 128,000 tonnes in 2001 to 84,000 tonnes currently. Analysts say a viable processing industry in the country could create 30,000 direct jobs and generate $40 million in incremental processing revenues annually.
Tim Piper, deputy manager of TechnoServe Tanzania, told The EastAfrican that a single factory that processes 1,000 tonnes of cashewnuts per annum would create 300 jobs, double export earnings from the cashew crop and support 10,000 growers.
Cashew industry officials in Tanzania say high levels of taxation at the farmgate and on processed cashews, low farmer profitability leading to lack of investment in the crop, limited processing experience and lack of an established international reputation for Tanzanian processed kernels are the main problems.
“The strategic imperative for the Tanzanian cashew industry is to process domestically. A co-ordinated effort between policy makers, smallholder farmers and processors is required, and could give Tanzania a viable and value-added cashew industry,” says David Williams, a cashew industry consultant.
Meanwhile, Ivory Coast has one struggling processing facility and virtually all its produce is exported in raw form to India, accounting for 22 per cent of all India’ s cashew nut imports. The country, whose production in 2003 was 64,000 tonnes, has 20 export companies, and 1.5 million people involved in cashews.
Dr. S.H. Shomari, the director of the Naliendele Agricultural Research Institute in Tanzania, says African production has been constrained by low tree yields, pests, lack of by-product usage, inadequate farmer training and lack of funding. Limited access to credit, abandonment of trees and marketing constraints are the other obstacles.
TechnoServe , which is operational in most of Africa’s major cashew growing nations, says the lack of viable processing industries means that African countries are forgoing tremendous value-added gains. It says the price for cashew kernels has of late averaged $4,500 per tonne, compared with $500-$700 per tonne for raw cashew nuts. Besides, with processing, thousands of jobs would be created in Africa.
A recent meeting of African cashew industry officials noted that the demand for kernels worldwide is expected to be robust for many years to come, and that there is a need to establish processing ventures and to accelerate the production of quality raw nuts.
Industry officials told The EastAfrican that African producers and exporters agree that competitiveness must be enhanced by improving the quality of raw nuts, increasing access to affordable financing, and improving processing practices.
“Cashew processing is a key factor capable of driving other elements of the cashew value chain,” says Mr. Walter ofTechnoserve Mozambique .
Gerald Klijn of Global Trading Agency advises Africa to enhance demand through promotion rather than through lowering prices. He says Africa needs to get rid of the “weakest link” by producing a high quality, safe product and in the near future investing in generic cashew promotion as “The African Industry.”
Trading experts say there was a dramatic increase of world production of cashews, from 1 million tonnes in 2001 to 1.35 million tonnes in 2003, with the largest increases coming from Vietnam and West Africa. The main exporter of raw nuts is Africa, while India is the main importer.
Emmanuele Simantov, a World Bank consultant who addressed the African industry meeting in July, said although world supply is expected to increase – with higher production by Brazil, India and Vietnam – there is still room for Africa to increase production and processing. “The potential African supply has advantages: good quality raw nuts, backward traceability, organic products and freight saving,” he said.
Mr. Simantov added that, to capture a share of the market in Europe and China, African processors have to produce good quality and competitively priced kernels, to be reliable partners for importers, participate in promotion campaigns on cashew consumption, as well as engage the Chinese government in dialogue.
In 2002, cashew consumption in China was estimated at 8,500 tonnes and in Hong Kong at 3,150 tonnes, but analysts say a large amount of informal trade exists, and the actual figure could be three times the official one.
TechnoServe says worldwide demand for cashew kernel exports is currently estimated at 200,000 tonnes per year, and is projected to grow at a rate of 5 per cent to 8 per cent annually over the next five years. Major importers of cashew kernels are the United States, the European Union and China.