Collaboration in developing the African cashew industry

TechnoServeACA Seminar BeninSeptember 2006

Global Trading and agency bv

2

Three case studies of collaboration across the industry value chain

1.Production: Farmer group outgrowing program in Tanzania

2.Processing: Collaboration between processors and partnership with broker

3.Policy: Public-private-development Memorandum of Understanding

3

Cost

1. Tanzanian production: low farmer profit

Farmer profit

Low tree yield

• Old trees

• Poor planting material

• Lack of knowledge

• Input unavailability

Small farm size / low intensity

Globally-set market price

Marketing

• Poor post-harvest handling

• Ineffective grading

• Marketing system

Input purchase

Input application costs

Marketing cost (Primary Coop Society levy)

Revenue

PriceQuantity

_

X

~US$ 160 pa*

* Farmer Profit is defined as the returns to the labour of the farmer and his/her family, as per Farmer Profitability Survey 2005

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1. Tanzanian production: collaboration has worked but requires significant resources

0

25

50

75

100

125

150

1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 20040

25

50

75

100

125

150

175

200

225

1972 1976 1980 1984 1988 1992 1996 2000

Source: INCAJU, CBT

Tanzanian raw nut production (MT 000s)

Mozambican raw nut production (MT 000s)

Industry revival via Cashew Improvement Programme

Unsuccessful attempts at industry revival

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Civil society

• Facilitate FBG formation and organisational training

• Business planning• Demonstration farm management training• Attract other NGO resources• Developing broad-based media training

Public sector• District Officers: Training and follow-up• Cashewnut Board of Tanzania: planting

material, broad-based training, advocacy• ARI Naliendele (research): planting

material, broad-based training• VETA*: training, equipment

Private sector

• raw nut purchase, input on credit, equipment, training

• input on credit, equipment, training, planting material

• Banks: credit and other financial services

FARMER BUSINESS GROUP

(FBG)

• ~100 farmers in each FBG• Sub-groups of 5-10

farmers with sub-group guarantee in order to receive credit

1. Tanzanian production: multi-stakeholder creation of replicable example

+ VETA = Tanzanian Government Vocational and Education Training Authority

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2. Mozambican processing: small scale represented a challenge for cost and marketing

• Warehousing

• Shipment consolidation

• Transport

• Shipping and logistics

• Branding/marketing

Increased cost

• Lack of scale to achieve export

market ‘relevance’

• Lack of standardized product quality

Marketing challenge

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2. Mozambican processing: processor services company (AIA*) / broker partnership

Service

How does AIA add value?Economies of scale

Quality/brand/ marketing

Description of service

•Central warehouse before shipment, Global Trading warehouse in Holland•Repackaging of Infested/mispacked kernels

Allocation of revenues/costs

•Each processor shares the costs equallyWarehousing

Shipment consolidation

Transport

Shipping and customs

Brand marketing/

sales

•Sources and fills containers of kernels from variety of processors to enable kernels to be sold faster

•Processors pay pro rate based on quantity of kernel shipped

•Hires truck with driver and assistant to transport container to port

•Processors pay pro rata based on quantity of kernel shipped

•Sources space for containers on ships and completes all customs and formal paperwork

•Processors pay pro rata based on quantity of kernel shipped

•Markets kernels under one brand, Zambique•Sources branded packing materials•Market pricing information

•Each processor shares the costs equally•Marketing materials are paid for by unit

* AIA = Agro Industrias Asosciadas

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3. Tanzanian policy: uncompetitive fiscal policy

~0%~0%~0%~0%~0%~0%

19%

0%

5%

10%

15%

20%

Ta

xa

tio

n a

s %

of

farm

ga

te p

ric

e

1%

0.00%

0.25%

0.50%

0.75%

1.00%

Ta

xa

tio

n a

s %

of

ex

po

rt p

ric

e

18.0%

8.5%

3.5%(pre 05) 0.0%

5.0%(post 05)

0%

5%

10%

15%

20%

Ta

xa

tio

n a

s %

of

ex

po

rt p

ric

e

EX

PO

RT

BA

N

EX

PO

RT

BA

N

~4.0%

Low raw cashew nut export tax High farmgate tax

Export tax on processed kernel

Raw nut export to India 79%

Processed in Tanzania 21%

2005 prodn 85,000MT (~60% of

1974)

1974 production 145,000MT

1974 vs. 2005 production 2005 production

100% 100%

… industry below potential as a result

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3. Tanzanian policy: industry agreement

‘Partner’ Obligations Benefits

Ministry of Finance of Tanzania

•Remove 1% tax on processed kernels•Increase raw nut export tax by 5%•Lobby local government to accept reform package

Reinvigoration of the processing industry: creation of up to 30,000 direct jobs, up to 50% increase in export earnings etc

District Commissions (local

government)

•Reduce tax levels from ~20% to 10%, with 5% of that being charged only on the export of raw nut at the port•Allow Cashewnut Board to collect 5% at the port to be remitted to the districts

Stimulate cashew production, farmer profitability, local economy and taxation revenue

Cashewnut Board of Tanzania (Ministry of Agriculture)

Fulfill collection function at the port and monitor cashew processors satisfaction of output targets

Limited raw material cost increase

Existing cashew nut processors

Increase processed kernel outputReduction of taxation burden and streamlining of taxation collection process

Other (TechnoServe)

Facilitate agreement and monitor progress to ensure that partners fulfill obligations

Industry support

Memorandum of Understanding between government and cashew processor –cashew processors must reach output targets in return for receiving fiscal relief

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Results from collaboration

1. Production Tanzania: Replicable and sustainable model for production support

2. Processing Mozambique: secured high quality export markets (USA, Europe and South Africa) and achieved economies of

scale (logistics, marketing, branding)

3. Policy Tanzania: in 2006, contributed to 80% increase in processing output (10,000MT-18,000MT) and creating >2,000

permanent jobs