Different scenarios of potential 'forex hole' in cashew nut exports

12Jan 2019
Ani Jozen
Dar es Salaam
The Guardian
Different scenarios of potential 'forex hole' in cashew nut exports

INSTITUTIONAL contention in relation to cashew nut exports does not appear to have ended with the purchase at higher prices by the government.

Cashew nut factory workers at a production line in Mtwara, Tanzania. FILE photo

The focus has shifted from the purchase process and the wounded institutions and agencies it has left by the roadside, those who wished to recover their money from farmers by handling the crop, and now have to sit out the purchase and refunding of loans by other agencies.

Even with this aspect not yet sorted out, new fears are coming up, either by independent observers or institutional agencies, of foreign exchange losses with this purchasing and marketing method.

What a section of economic observers have noticed is the time lag it may take to process cashews with a recently repossessed factory, Bucco Ltd (handed over to the military), and the world market peak need for local cashew nuts before other countries push their produce into the market.

What was tantalizing was the scenario they suggest could happen, that the country reverts not to selling raw cashews as is the usual habit (and in a more congested atmosphere with other countries pushing their harvests).

An impression is created that raw cashew is given to other countries to process and sell for us, is it the case, or a mistake?

Logically speaking there are two options in cashew nut exports, first as the traditional practice of selling raw cashew nuts, which must be favored by buyers around the world for they pay low prices and then proceed to make confectionary brands out of the cashew nuts.

Local processing of the cashews does not create a brand, which means it would have to be purchased and repackaged, the way sugar companies here purchase foreign sugar and then repackage it as if it was their own, to fetch a premium for the 'value addition' involved.

Evidently the foreign exchange earning being targeted isn't from repackaging but from the raw product itself.

Capturing foreign exchange value addition lost by selling raw cashew is a straightforward idea but it gets complicated at a later stage.

If Tanzania seeks to obtain advantage arising from the processed product, it will have to sell as bottom prices to compete with those who process in countries purchasing raw cashews, and as this can't be assured, the product shift advantage isn't obvious If they purchase processed cashew nuts, their benefit would have to stem from repackaging or reprocessing to suit the needs of the confectionary brand involved.

Our market advantage is coming out earlier than the West African product, with selling raw cashews at prices we want pegged to getting the crop early into the market.

What happens when the product is changed from raw cashews to processed ones is unclear, as the research for that needs to be conducted among confectionaries.

Existing buyers, and even perhaps the big Chinese company asking for most of the crop, are likely to prefer the raw product, for own profit.

Discussion concerning the changed atmosphere in purchase and exporting of cashew nuts centred on timing - both in relation of rapid marketability during October to January as by February other producers are on the scene, and foreign exchange earnings.

Observers say the country supplies around 10 per cent of the global product, and as it comes earlier, it has a ready marketplace unless an excess of the crop remained from the previous purchasing season.

That means there is already plenty of competition and hence the need for appropriate timing even with raw cashew nut sales, before the product is changed to processed cashews.

At the risk of not hearing right what current prerogatives are likely to be in that regard, it can be said that expectations are that the marketing of processed cashews will be the same as raw cashews, the difference being the price.

Evidently the cost involved in processing the product is less than prices fetched by selling the processed product, but the question comes, to whom?

So far it isn't clear, not even evident, that the companies in talks with the government as to purchasing cashew nuts at the stated price don't make out any difference between buying the raw produce or having it processed first. But their clients at home will do so.

The stopping of exporting raw cashews arises from the oft-expressed wish to add value to produce rather than exporting it raw.

It means it is a local policy viewpoint unrelated to likes and dislikes of buyers in the world market, where again the 'forex hole' fears could be validated, less from the timing of purchasing and export but the shift in the product being sold.

Chances that the whole issue of marketing a different product than what they are used to has been discussed and sorted out are mild, or nil.

 

 

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