Cashew Marketing, Trade Developments and Experience: A Case Study in Eastern and Southern Africa.

Project Executing Agency Regional Cashew Improvement Network for Eastern and Southern Africa (RECINESA) Naliendele Agricultural Research Institute P. O. Box 509, Telephone +255 73 2934035; Fax +255 73 2934103 E-mail utafiti@iwayafrica.com MTWARA Tanzania

Cashew Apple & Nut

Mature Cashew Tree

Developing apple

Developing nut

Mature cashew nuts

Outline of the presentation

1.0 Background 2.0 Marketing Constraints
2.1 2.2 2.3 2.4 2.5 2.6 Production and supply of raw cashew nuts Market agents and channels for raw cashew nuts Marketing of kernels Pricing movements Marketing costs and margins Quality control

3.0 Recommendations
3.1 Major problems, constraints and limitations 3.2 Strategic positioning and future prospects 3.3 Strategies put in place to increase production include: 3.4 Policy recommendations

1.0 Background
CFC provides financial assistance to developing countries for poverty alleviation through commodityfocused developments.
RECINESA one of them, Tanzania, Malawi, Uganda, Kenya, Mozambique, Madagascar and Ethiopia

Overall objective of the Network is to:

raise the incomes and living standards of resource-poor farmers therefore contribute to increased household incomes improvement in production and marketing of cashew nuts

In LDCs, exports of cashew nuts and citrus fruits increased by 7.2% and 11.8% respectively between 1995 and 1999 Cashew nuts are the largest single export item for LDCs, having accounted for 53% of the total LDC exports of fresh and dried fruit and nut in value over

2.0 Marketing Constraints

Cashew nut development in Eastern and Southern Africa is hindered by a number of constraints: Low production levels of farmers Ineffective marketing, pricing and taxation policies Low and fluctuating market prices of raw nuts hence discouraging smallholder farmers to increase production of nuts Lack of standards which are harmonized with international standards Weak institutional framework Declining cashew production.

However, efforts have been initiated recently in order to revamp the cashew industry and improve its marketing

2.1 Production and supply of raw cashew nuts

Production structure, supply of cashew nuts varies between different countries in the Network Production decreased in all countries to lowest levels in the 1970s and 1980s largely because of
the presence of the Powdery Mildew Disease (PMD) ageing of trees and poor agronomic practices

On average, around 100,000 MT of cashew are produced annually in Tanzania

2.1 Production and supply of raw cashew nuts (cont.)

In Mozambique a peak was reached in 1972 of 216,000 MT, since 1977 the decline has been steep, now Mozambique produces as little as 15 to 20% of the levels obtained in 1972. In Malawi national annual prod. of the crop is currently less than 100 MT. Decline in production has been linked to market failures and the consequent lack of care for the trees by farmers In Kenya, cashew production capacity is currently estimated at 10,000 MT whereas the total processing capacity is about 18,000 MT

2.2 Market agents and channels for raw cashew nuts In all countries in the Network, cashew nut marketing

structures have changed over the years due to changes in the overall macro-economic policies. Market liberalization policies in the region have put emphasis on separation of the governments from business. private companies were given permission to buy and export raw cashew nuts or process them within the countries and export kernels to foreign markets. (Let us examine some examples of the marketing systems)

2.2 Market agents and channels for raw cashew nuts (Cont.) are purchased primarily using a At present cashew nuts

network of agents who go to the field to buy nuts for the large exporters At village level, buyers, (whether employees of exporters, their agents or smaller buying companies), deal with agents of buyers either at designated buying points or other places Cashew nuts are being bought at all sorts of buying posts such as primary society offices, village godowns, in the shops, and at farmers' residences After bulking, cashew nuts are then transported to main processing or export points. Direct purchases from farmers account for more than a half of all purchases

Figure 1 Marketing channels for cashew nuts in Tanzania

Farmer
Village trader Cooperative Society Village

Buying companys Staff/trucks

Buying agent

Experienced Company

Local processor

Less experienced Company

Local Processor

Retailer s Exports (Raw nuts) Exports (kernel) Local consumers Exports (raw nuts)

Retailer

Local Consumer

Export (kernels)

Figure 2 Marketing channels for cashewnuts in Mozambique

Farmers
Informal Traders (Lojas & Ambulantes) Commission Agents/traders

Informal Crossborder trade

Small/Medium Scale processors

Commission agents/traders in neighbouring countries

Indian Buyers & Exporters in Neighbouring Countries

Indian Buyers/Exporters

Indian Processors

AIA

European/USA Blenders/Roasters

Local Consumers

European/USA Consumers

Figure 3 Marketing channels for cashewnuts in Kenya

Farmers

Bicycle Traders

Kiosks

Brokers

Local Processors & Blenders

Big Traders

Export (Raw Nuts)

Domestic Consumers

Export (Kernels)

Figure 4 Warehouse receipt system for cashew marketing in Tanzania (Adopted in 2007)
Owner
Loan Receipt

Financial Institutions

Produce Receipts

Information

Warehouse Custodian

Payment Agreement

Market

2.3 Marketing of kernels

Most kernels that are processed in the region are exported to different markets with some limited domestic marketing of kernels. Locally consumed nuts are mostly obtained from the smallholder cottage type of processors For the local supplies there are two main problems
poor packaging labelling and roasting

One big weakness has been lack of market research or consumer surveys in the Network countries to understand the actual domestic, regional or international demand for kernels

2.4 Pricing movements

Both national and international prices for cashew nuts depict a wide range of variability prices offered by licensed cashew nut buyers are almost always higher than those offered by marketing agents In all countries, processors face competition from traders of raw nuts who offer relatively better prices In countries like Mozambique and Tanzania, governments propose minimum indicative farm-gate prices based on the international cashew nut price for that year during each buying season after consultations with stakeholders. Most often, indicative prices are, however, are often not adhered

2.4 Pricing movements

Farmers are unable to negotiated prices with traders who come to their village. They can only decide whether or not to sell at the price offered The pricing of raw nuts also hinge on the tradeoff between exporting or processing the nuts locally
For example, during 2004 Kenyan traders exporting raw nuts offered Kshs 60/kg against Kshs 30-40/kg offered by processors

2.5 Marketing costs and margins

Assessment on whether the pricing mechanisms are fair or not can be done by looking into the distribution of returns to different participants in the marketing chain compared to the costs they incur in the marketing process In Tanzania, on aggregate, the farm gate prices represented some 71 % of FOB prices for the period between 1991/92 to 2003/04. However, traders benefit more than farmers in the cashew transactions and earnings to farmers seem to be lower when production costs are deducted from the farm-gate price

2.6 Quality control

The quality of cashew nut depends on two factors:
free from disease and pest attack proper post harvest handling (during drying and storage of nuts).

Correct grading of nuts and quality control are important for maintaining a country's reputation as
an exporter of high quality nuts And to ensure that farmers are offered good price

In the marketing system for kernels in the respective countries, quality control is strengthened by the national bureaus of standards However, quality control is sometimes difficult because of a number of factors including:
the use of non-standard weights and measures failure of cooperative unions to increase farmers' bargaining power unsatisfactory performance of extension staff regarding quality lack of mechanisms for rewarding farmers producing high quality cashew nuts.

2.6 Quality control (cont.)

Traders also sell as standard grade on the international market nuts that are really under grade and buy as under grade from farmers' nuts that are really standard grade Farmers also have their share of the blame because they could mix standard grades with under grades, soak nuts in water or put stones in nuts to increase weights. Also quality control for kernels has not yet been well coordinated and neither are there stringent requirements for packaging finished products except when one sells in local supermarkets or overseas markets

3.0 RECOMMENDATIONS

3.1 Major problems, constraints and limitations

The cashew nut industry has suffered from a number of constraints socio-economic, bio-physical and technical, which are directly or indirectly linked to production and marketing The major constraints that have a direct bearing on marketing of cashew nuts include:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Insufficient market and price information Lack of institutional framework Inefficient marketing channels for raw nuts Lack of credit to smallholder farmers Insufficient knowledge coupled with poor technology and information transfer Weak farmer organisations or groups Low farm gate prices Low nut and kernel quality Sub-optimal domestic consumption of kernels in the region Unsustainable funding of Research and Development

3.2 Strategic positioning and future prospects

The Network member countries seem to have high potential for the growth of the cashew sector and each country has set a number of strategic options to exploit this potential. The main strategies aim at
increasing production improving domestic processing and connecting local processors to markets

3.2.1. Increasing production I

Include
Using improved planting materials improving husbandry practices rehabilitation and upgrading of abandoned cashew orchards introducing the crop in new areas that have shown some potential for growing the crop.

Fostering development of medium and large scale farms by offering technical assistance and financial incentives in high potential areas To strengthen extension services through training of subject matter specialists or local councillors. Educating farmers through training of various technologies and skills of cashew production.

3.2.2 Improving domestic processing

Measures to enhance domestic cashew nuts processing include:
Encouraging investment in cashew production and processing by removing barriers to investment imposing surcharges on exports of raw nuts in order to give priority to selling of raw nuts to local processors. Streamlining of registration of companies and offering incentives to processors such as exemptions of duty for imports and tax holidays.

Strategic marketing initiatives are:

Assisting farmers to form associations under which they could access information and extension services, markets, and credit. Linking processors of raw nuts to international markets for kernels.

3.3 Policy Recommendations

A number of problems still persist in the sector in the region. To alleviate these bottlenecks, two sets of recommendations are put forward: those focusing on increasing production and quality attributes those dealing with strategic marketing decisions

1. Encouragement of farmer groups/associations 2. To encourage progress towards better cashew quality starting from the field 3. Strengthening of legislative bodies where they already exist and foster their institutionalization in countries where they do not exist 4. To improve quality of research, there is an urgent need to secure sustainable funding for research and development activities

Ladies and gentlemen Thank for Listening