A nutty idea? This is what govt plans to do with cashew harvest

05Dec 2018
Financial Times
A nutty idea? This is what govt plans to do with cashew harvest
  • CONTINGENCY PLAN The state has come up with an ambitious 'plan B' that could see nearly all the country's raw cashew harvest exported abroad for processing if local value addition of the crop proves to be a hard nut to crack

IT sounds a bit nuts. But like elsewhere in Africa, Tanzania has traditionally been exporting nearly all its raw cashew crop to Asia cheaply and has in turn been importing processed cashew at costly prices.

Now the government wants to change this bizarre trade imbalance by ending all raw cashew exports.

According to the newly-appointed Minister for Agriculture, Japhet Hasunga, the government intends to implement a 'plan B' that will involve exporting the raw cashew now being purchased from local farmers for processing abroad in case the revival of a factory that was recently repossessed by the state from private owners flops.

“We basically have two alternatives ... First we are going to look into local capacity to process the raw cashew nuts. But if our capacity falls short, we are going to look for a contractor outside the country to do the cashew processsing work for us and we will take our kernel (processed nut),” Hasunga told the Financial Times.

President John Magufuli announced last month that the government has handed over Bucco Limited (Lindi cashew nut factory) to the Tanzania People's Defence Forces (TPDF) after the plant was repossessed by the Treasury Registrar due to the failure of the erstwhile privatised factory to develop the industry.

Magufuli ordered the army to process all the raw cashew being purchased from farmers at the Bucco Ltd factory so Tanzania can add value to its raw materials and boost its export revenues.

However, an assessment of the factory with installed capacity of 10,000 tonnes a year recently revealed that it has obsolete technology, hence cannot process any raw cashew.

Faced with a setback, the government is now looking for ways of reviving the Bucco Ltd cashew processing plant by importing new machinery.

If the plan to process raw cashew at the now state-owned Bucco factory and other privately-owned plants in the country fails to materialise, the government will trigger the contigency plan of exporting the raw material to a processor abroad -- possibly in Vietnam, India or China -- to process the nuts for Tanzania so the country sells the finished product, cashew kernels.

As the government mulls with in-country processing of raw cashews, some bankers have warned that the country's shilling could depreciate due to a halt of cashew exports.

"Exports of raw cashews between October and February are one of the biggest sources of foreign exchange to Tanzania. The fact that raw cashews have now been stopped means there will be a shortage of US dollars in the markert and this will put a lot of pressure on the shilling," a foreign exchange trader at a commercial bank in Dar es Salaam told the Financial Times.

Tanzania earned close to $542 million from cashew nut exports last year, which is double the $271m fetched by the country's Number 1 cash crop in 2016, due to both an increase in production and higher prices at the world market.

Hasunga said the government plans to step up the purchase of cashew nuts from farmers, which was being delayed due to a verification exercise to block middle-men from taking advantage of higher prices offered by the government.

The state-run Cashewnut Board of Tanzania (CBT) initially announced indicative prices of 1,500/- per kilo for season, which was rejected by farmers.

Magufuli decided to sack the management of CBT and cancel all cashew nut auctions involving private buyers following a public outcry from farmers over low prices. The president instead ordered the government to buy the cashew from farmers at 3,300/- per kilo.

However, there is concern over exactly what the government plans to do with the country's entire cashew harvest of around 200,000 tonnes after buying all the nuts from farmers.

‘A wake-up call’

The Ministry of Agriculture announced yesterday that the government had by yesterday purchased cashew nut worth 41.8 billion/- from farmers.

This represents roughly 10 per cent of the total estimated cashew harvest of around 200,000 tonnes.

Hasunga said the government has stepped up its cashew buying speed by purchasing cashew worth between 5 billion/- and 10 billion/- each day from around 1 billion/- previously.

Analysts said although Tanzania produced less than 10 per cent of the world's total cashew output, it benefits from seasonality by being the biggest producer of the nut during the October-January period.

Other cashew producers from West Africa are expected to harvest their crop in February, which means that Tanzania now dominates supply to the global market until early next year.

This means that the government is running out of time to process and sell the country's cashew crop before other global cashew producers hit the market over the next two to three months.

President Magufuli sacked two cabinet ministers - erstwhile agriculture minister Dr Charles Tizeba and industry, trade and investment minister Charles Mwijage - for failing to tackle the cashew nut price problem.

The acting director general of the Cashewnut Board of Tanzania (CBT), Prof Wakuru Magigi, and board chairperson Anna Abdallah, were also dismissed, with the entire board of directors of CBT dissolved.

However, Fahad Awadh, co-founder of a privately-owned cashew plant, YYTZ Agro-Processing, praised President Magufuli's government for its renewed focus on value addition of the country's raw materials.

"I think that maybe the biggest opportunity that exists for Tanzania and other African countries is to trade within Africa. I'll give you an example -- I was in Kigali (the Rwandan capital) for the agro conference in September, and I went to a supermarket in Kigali and bought cashews. I wanted to see where they come from -- these cashews came from Belgium," Awadh told CNBC in an interview.

"This is interesting because Belgium doesn't produce cashews as we know, but the origin was most likely Vietnam -- they are the largest exporter to Europe. Eighty per cent of what Vietnam processes comes from Africa, so the journey of these cashews was from Africa to Vietnam, to Europe, and then back to Africa in a supermarket in Kigali."

Awadh said Tanzania can capture more value by processing all its raw cashew nuts and exporting the finished product to regional markets such as Rwanda, Kenya, Zambia and South Africa which offers a big market.

"Eighty per cent of what Vietnam processes comes from Africa, so they import about a million tonnes (of raw cashew) a year from Africa. As a continent, we are seeing a new wakeup call and renewed vigour towards processing and value addition," he said.

"It’s a conversation that we've had continuously on other commodities and we know that Africa produces a lot of raw material but now I think we are seeing the urgency of it. When the market is down is when you are really going to feel that impact."