FAHAD AWADH, co-founder of the YYTZ Agro-Processing factory joins CNBC Africa to discuss sustainable ways to put an end to the crisis. Excerpts...
Q: Please tell us a little bit about the current cashew nut crisis in Tanzania that led to the government’s decision to buy all the crop harvest.
A: I think if you look at it from the perspective of how do we protect the farmer, this was probably the only move that the government had. It’s a short-term fix, essentially we can think of it as a subsidy.
I mean, the government can pay what the market couldn't and in that sense insulate the farmer a little bit from the declining prices that we've seen throughout this year, which started in West Africa and now we're seeing it here in East Africa with our harvest.
So I think that in the short term it's a quick fix, but the positive side which I'm very happy to see is the renewed focus on value addition, on processing. I think that is important.
Q: How hit was the cashew nut industry?
A: Prices for cashew have been on the decline for the past three years. When Tanzania harvested last year, it has reached the peak.
We are in the southern hemisphere, our harvest is at around October, but in West Africa the harvests begin in February.
In Ivory Coast, we saw that prices did start to decline, it was just the market reacting to the high prices and it did subdue demand slightly.
So we saw that decline continue and there were a lot of processors in Vietnam, as you might know, Africa does not process its raw cashew -- 90 per cent is exported raw in shell to India and mainly to Vietnam from West Africa.
This decline in prices has affected the industry quite a bit. It has also increased the level of stock of raw cashew that is available in the market, which is why you didn't see a real uptake from buyers during our harvest season here in Tanzania.
Q: Just two years ago, we did see a very big (price) plunge with America and Europe falling out on the demand. In the wake of this week, we saw prices hiking on the back of the decision that President John Magufuli and his government had to make.
At this particular moment, what does the market for cashews and the prices look like?
A: Prices are up about 12 per cent since the start of the season and it is on the back of the fact that if Tanzania withdraws its raw cashew from the market, there is going to be a shortage of cashews until the harvest begins in the northern hemisphere countries.
Last year Tanzania accounted for about 9 per cent of global cashew production, this year it’s going to be a bit less -- maybe 6 per cent.
But we harvest at a time when demand is a bit higher and supply is low because we are in the southern hemisphere and Tanzania is the largest cashew producer that harvests at this time.
So, the market is reacting to the prospect that there is going to be a shortage of cashews at this time.
Q: We saw news coming from Tanzania where President Magufuli was saying that the government prefers Chinese aid because they don't have strings attached.
We are also reading about the Chinese farm that is supporting Tanzania to process about 5,000 tonnes of cashews per year, is the world about to go nuts?
A: It's a good question. I actually know this firm and they had a facility that they had set up previously. I think that it hadn't been in operation because they weren't able to get the raw materials.
But now with the government buying all the stock and wanting to process it all in-country, it really means all hands on deck.
I think the Chinese have done well to take advantage and seek to partner with the government to process that crop. It does bring a renewed focus to processing, which previously we hadn't seen here in Tanzania.
Q: We mostly spoke about the European and US markets for (processed cashew), we are not necessarily looking at the demand for cashew nut on the African market. Do we see enough demand on this particular cash crop?
A: I think that is 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 (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.
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 come 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.
So, we can capture more value by processing and going all the way to a finished product and also just starting by supplying regional markets like Rwanda, Zambia and South Africa which offers a big market and they are importing cashews from Vietnam as well.
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 wake-up call and renewed vigour towards processing and value addition.
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.