CASHEWNUT BOARD OF TANZANIA

Transcription

1 CASHEWNUT BOARD OF TANZANIA INVESTMENT OPPORTUNITIES IN CASHEWNUT INDUSTRY IN TANZANIA 1.0 Introduction Tanzania is among traditional cashewnut producing countries in the world. The country used to produce over 20 percent of global production in the 1970s peaking at 145,000 metric tons in 1974, but then in the 80s collapsed to some 3% before regaining to 158,000 metric tons in year Most of the Tanzanian raw cashewnut crop, i.e. about 90 percent is exported to India as raw cashew nuts (RCN) and only a small portion, which is less than 10 percent, is processed internally. Tanzania has a substantial potential to extend production and increase the amount and adding value of domestically processed cashewnuts beyond the current 10 percent while also making use of by-products. The production of cashewnuts is increasing in reaction to good price signals farmers received during the last three years. While Tanzania s cashewnut sector, due to a combination of seasonality and price, is well positioned in the international market for raw cashewnuts its processing sector still remains underdeveloped and uncompetitive, particularly when buyers of raw cashewnuts can freely access the market. Reasons for this can be found in a combination of internal and external factors including the lack of market, technical, financial and managerial experience of most processors. There has been increasing numbers of new small, medium and large-scale firms processing and roasting firms in the cashewnut sector in Tanzania during the last ten years. Most of the large-scale cashew nut firms are export processors, with only few that are both processors and traders. The total installed significant cashew nut processing capacities for the large firms in Tanzania in year 2012 was about 94,000 metric tons per season. The average capacity utilization rate for the large-scale cashew nut processing firms has been low at about 21 percent in year Failure to utilize full capacity is due to insufficient fund for purchasing raw cashewnut and meet production costs, poor management skills and style, lack of entrepreneurship and business skills to factory owners, unskilled labour, inappropriate processing technologies, and product market uncertainty due to lack of registered Tanzanian cashew kernels brand name. 2.0 Performance of Cashewnut Sub Sector in Tanzania Cashewnuts sector is one among the main contributors in the exports basket for Tanzania standing at third position from tobacco and coffee in foreign exchange earnings from year 2009 to Based on Bank of Tanzania s Annual Report for year 2010/2011 1

2 Such contribution of cashewnuts in the export earnings would have been even higher if the crop would have been processed before exporting. The export of raw nuts bears negative structural impacts on the industry such as the export of employment opportunities and the loss of income for other cashew byproducts. 2.1 Production and Quality of Cashewnuts from Tanzania Cashewnut Sector in Tanzania has passed through a period of varied experience characterised by fall and rise of cashewnuts production. Table 2.1 below presents production and export trends of raw cashewnuts from 2004 to 2012 which shows that production continued to increase to the maximum of 158, tons in 2011/2012 season. The trend of cashewnuts production was increasing since independence and peaked to 145, in 1973/74 then started to decrease gradually recording as low as 16,400 metric tons in 1986/1987. Production started to increase again in mid 1980s where 122, tons were recorded in 2000/2001. Figure 2.1 below shows production trend from 1961 to In the year 2012/2013 the quantity of raw cashewnuts collected through Warehouse Receipt System as at 9 th February 2013 is 121, The increase of production was due to increased acreage, government subsidy on pesticides, and adoption of Good Agricultural Practices (GAPs) including weeding, pruning and spraying of pesticides. Table 2.1: RCN Production and Export data from 2004 to 2012 YEAR Production (MTS) Export (MTS) 2004/ , , / , , / , , / , , / , , / , , / , , / , , Tanzania is known to produce premium quality cashewnuts fetching higher prices in the world markets compared to cashewnuts from other countries in Africa. Such quality is attributed to favourable weather and soil conditions coupled with good agricultural practices exercised in the farms. 2

3 Figure 2.1: Cashew nut production trend (1961/ /12) 2.2 Processing Patterns and Capacities Cashew processing in Tanzania began early 1960s, when a private company known as African Cashew Processors Company Ltd established a simple manual processing plant in Dar es Salaam, and in 1965 the first mechanical processing factory, incorporating Italian technology, was installed. Starting from 1968 till the late 1970s, Government of Tanzania built 12 cashewprocessing factories with an accumulated capacity of around 100,000 Mt, which were constructed with funds from the World Bank. The Cashewnut Authority of Tanzania (CATA), which was the government parastatal, owned the factories. In 1980s, the rapid decline in production of cashewnut resulted in the closure of all twelve factories. All factories were large-scale mechanized types using either Italian (Oltemare) or Japanese (Cashco) technology. Table 2.2 below shows the factories, which were built by the government, and their installed capacities. Table 2.2: Factories Built by the Government of Tanzania in 1970 s S/ NO NAME OF FACTORY LOCATION INSTALLED CAPACITY (TONS) 1 Southern TZ Project-Newala I Newala 10,000 2 Southern TZ Project-Newala II Newala 10,000 3 Southern TZ Project-Lindi Lindi 12,000 4 Southern TZ Project-Masasi Masasi 10,000 5 Mtwara Cashew Company Mtwara 10,000 6 Tunduru Tunduru - Ruvuma 12,000 7 Southern TZ Project-Mtama Mtama Lindi Southern TZ Project-Nachigwea Nachingwea Lindi Tanita II DSM 12, Likombe Cashewnut Factory Mtwara 10, Kibaha Cashew Nut Factory Kibaha 10, Tanita I DSM 10,000 Total Procesing Capacity per Annum 116,000 3

4 In 1990 s the government decided to sell the twelve factories to private firms so that to rescue the market of raw cashewnut produced in Tanzania. The private firms did not use the factories accordingly since then. Till now few of these privatised factories are processing using either semi mechanical or Indian (manual) technology. These firms process the cashewnut at 1 st and 2 nd stage of cashewnut processing based on their processing capacities. There are about 40 small, medium and large-scale factories in Tanzania processing at 43.6% capacity utilisation, which is significantly contributed by small and medium scale firms. Roasting firms who buy the white kernels from either the 1st or 2nd stage of processing firms and roast with the aim of flavouring and tasting achieve the 3rd stage of processing. The cashew apples processing is still under research and not yet commercialised. The factors affecting processing performance are; old or outdated technology of equipment and machinery used in cashewnut processing, lack of capital for equipment and machinery, lack of education and knowledge on cashewnut processing and value chain linkages, lack of education and knowledge on business development skills and lack of accessibility of raw cashewnut and information on availability of packaging materials. Apart from idle capacities from available factories, there are still a lot of opportunities for new companies to establish new factories to take advantage of available production of raw cashewnuts for both local and export markets. 2.3 Markets for Raw and Processed Nuts While more then 90% of Tanzania s raw cashew nuts are destined to India, the international trade in cashew kernels has grown strongly in the last 10 years. Trade data shows that over 150,000 tons are now exported per year as compared to 65,000 tons 10 years ago. FAO Data, (2012) suggest that there is significant growth in this trade, showing the increase in Indian output and the dramatic appearance of Vietnam as a supplier of cashew nut kernels to rival Brazil. These three exporters supply over 90% of the kernels traded globally. Table 2.3: Exports of Kernels in Quantity, Values and Unit Values Year 2010 Rank Area Quantity Value (1000 Unit value (tons) $) ($/ton) 1 Viet Nam India Brazil Netherlands United Arab Emirates Germany United

5 Republic of Tanzania 8 Indonesia Belgium Mozambique United Kingdom United States of America Italy Singapore Greece Luxembourg Kenya New Zealand Lithuania Austria Data Source: FAOSTAT Table 2.3 shows that the ten leading kernel exporters are Viet Nam, India, Brazil, Netherlands, United Arab Emirates, Germany, United Republic of Tanzania, Indonesia, Belgium, and Mozambique. Among the main African exporters are Tanzania and Mozambique. Indonesia, Vietnam and China supply from Asia. Brazilian cashew kernels were sent mostly to the USA, but the trade with the EU has been developing recently. Exports of kernels from both India and Brazil have been growing strongly for some time. Brazil has expanded its processing capacity, and a long-term ban on raw nut exports has ensured a supply of feedstock for the factories. The major import markets for cashew kernels are shown in the Table 2.4 below. The major importers are the developed countries. Although the kernels are also used in food preparation and confectionery and are important in Asian cuisine, the principal outlet is the snack food market, and this sector is growing rapidly in most developed country markets. The markets for other nuts, such as groundnuts and almonds, are static or even showing a decline, but these find different markets to the luxury nuts such as cashews, macadamias and pistachios, which are increasingly popular. Table 2.4 suggests that North America and in particular the USA, is the largest importer. Western Europe, Japan and China are the other major importers. Table 2.4: Global Import of Kernels in Quantity, Values and Unit Values Year 2010 Rank Area Quantity (tonnes) Value (1000 $) Unit value ($/tonne) United States of America 2 Netherlands

6 3 Germany United Arab Emirates Australia United Kingdom China Canada Russian Federation Japan France Belgium Spain Thailand Italy Lebanon Sweden Israel Greece Luxembourg Data Source: FAOSTAT It is assumed that worldwide, more than half of cashew kernels are consumed in the form of snacks while the remaining share are included in confectionery, (UNIDO, 2011). Demand for cashew kernels is robust, growing at a significant positive rate of lately 7 percent annually, with every expectation that the market will remain strong. The cashew competes in the same market with other edible nuts including almonds, hazels, walnuts, pecans, macadamias, pistachios and peanuts. There has recently been a considerable rise in demand for edible nuts by consumers interested in quality and health aspects of food. The breakfast cereal, health food, salads and baked goods markets are all expanding markets for cashew nuts. The domestic consumption of cashew kernels in Tanzania, of late, has shown an upsurge with increasing of cashew kernel production in the country. The formal and informal cashewnut sectors are estimated to process around 15,000 metric tonnes of raw cashew nuts. The rest of the raw nuts are exported to India. A change in food habits following an improvement in living standards and lifestyle in urban areas has led to increased usage of cashew by the food industry, especially in bakery and confectionery products. Besides, use of value-added cashew products as snacks is also on the rise among the middle, upper-middle and high-income groups. As a result, the Tanzania domestic consumption of cashew kernels soared from an estimated 20,000 tonnes in 2010 to around 25,000 metric tonnes currently in The increasing domestic consumption of cashew kernels is due to improved distribution systems through street vendors, shops, minimarkets, and supermarkets. 6

7 2.4 Value addition in the cashewnut by-products Value addition for other cashew by-products (apples, shells, CNSL, testa) have not been adequately exploited as additional source of income and efficiency in the processing industry. For example, the cashew apples constitute viable raw material for value added products such as beverages, snacks, jam and particularly ethanol. The current production volume of raw cashew nuts of around 160,000 Mt in year 2012 of national production would yield an estimated 1.6 million Mt of apple fruits which could be further processed. A very small proportion of fresh cashew apples are used in making locally fermented drinks in the villages. Potential by-products from cashew apple, which can be produced include: i) Production of Gin ii) Processing of juice, syrup, jam, pickle and wine, iii) Extraction of cashewnuts shells liquid (CNSL), and iv) Production of butter using kernels. While there are potential markets for these products, little or nothing much has been done to develop these by-products to commercially profitable quantities in the country. 3.0 Policy, Legal, Regulatory, and Institutional Framework Governing Processing in Cashewnut Industry The Tanzanian cashew nut processing firms operate in a known, credible, stable and transparent trade environment that provides a basis for governance reciprocity and the development of trust among industrial units and their social functional mechanisms. The trade social milieu is largely determined by a number of known factors such as global and national policies, legal and regulatory frameworks, institutional organizations, infrastructures, macroeconomics, socio and political subsystems. Since the mid-1980s, Tanzania has introduced a series of broad policy reforms and measures intended to restore macroeconomic balance, stimulate economic growth and facilitate social and political development. The first generation policy reforms included broad based measures, such as fiscal, liberalization of internal and external trade, the removal of restrictive tendencies, the liberalization of the foreign exchange market and the institution of a policy environment, which is more favourable to private sector expansion. The reforms brought about increasing role of private sector participation in investment, production and trade. Based on the experiences of implementation of first generation macroreforms, the government introduced the second generation reforms occurred between 1996/7 and 2005/6 and now 2012/13, aimed at facilitating pro-poor economic growth as the basis for poverty reduction. The government of Tanzania articulated various national sector and crosscutting policies in consultative manner with aim of complementing implementation of national long-term development policies and medium term strategies. These included 7

8 agriculture, investment, industry and trade policies. The country had put in place the national programs, projects and has been undertaking the public investments necessary to exploit global trade opportunities. In accordance with the National Development Vision 2025, the goal of export trade policies are of raising efficiency and widening linkages in domestic production and building a diversified competitive export sector as the means of stimulating higher rates of growth and sustainable development. The laws that affect cashew nut processing industries and its allied business activities are many, which are also effective and complex. The sample of the relevant laws includes Tax laws, The Occupational Health and Safety Act No 5 of Employment/Labour Relations Act; Environmental Issues; Investment Laws; Import and Export Trade Matters, cashew nut Industry Act, 2009, and the Warehouse Receipt Act No. 10 of These have been effective in creating institutions, supporting, facilitating and regulating the cashew nut industry in Tanzania. The institutional framework facilitating performances of the cashew nut industry in Tanzania is composed of public and private sector firms, household and other forms of social economic entities at different levels, sizes and operational objectives. An organizational structure consists of core and promotional, regulatory, facilitating and supporting systems and activities such as task allocation, coordination and supervision, which are directed towards achieving the organizational aims. The core institutional organizational entities are the Ministry of Industry, Trade and Marketing; the Ministry of Agriculture, Food Security and Cooperatives, and the Cashew nut Board of Tanzania. 4.0 Available Opportunities in Cashewnut Production and Value Addition With less than 10% of raw cashewnuts processed locally and very little value addition in cashew by-products, there are immense opportunities to companies contemplating to invest in the cashewnut sector in Tanzania as elaborated below. 4.1 Opportunities in Cashewnut Production Production of cashewnuts in Tanzania is characterised by smallholders farmers operating at subsistence level. Cashewnuts plantations are rare or non-existent especially in southern regions of Mtwara and Lindi where most of cashewnuts are produced. Tanzania is endowed with huge fertile and arable land where large plantations can be established to feed into processing factories and export markets. This opportunity is open to both local and foreign investors looking for areas to develop viable business ventures in agriculture. 8

9 4.2 Opportunities in Cashewnut Value Addition (Processing) Having more than 90% of total production of raw nuts exported in raw form to India, the country is losing not only incomes from export of processed kernel, but also loss in employment opportunities to local communities and loss from export of by-products which would have been realised if local processing could be realised. Opportunities are available through the following investment options: i) Joint ventures with already established factories through investments in technologies and management skills to turn around the idle capacities to productive ventures; ii) Establishment of new factories in preferred areas to tape the available potentials in raw materials and cheap labour force for processing development; iii) Value chain integration by establishing vertical linkages between the farmers and other chain actors on one hand with horizontal linkages with major players in the markets; and iv) Investing in value chain collaboration systems with cashewnuts producers and other players in the localities through shareholding and distributed responsibilities as a way of linking raw nuts producers, processors and the markets. 5.0 Value Chain Collaboration Model 9

10 Value Chain Collaboration Model depicted in the figure above suggests a winwin situation between value chain actors in the process of value creation from the farmers, Agricultural Marketing Cooperative Societies (AMCOS), processing factories to the local and foreign markets through effective and transparent quality assurance and quality institutions. Under this system, farmers will have stakes in the processing factories through shareholding and memorandum of cooperation, which will bind the farmers to deliver their crops to the factories on agreed terms from which farmers will be able to receive initial payments from their AMCOS and get additional payments from sales proceeds and dividends from operational profits from the factory. With value chain collaboration, the factories will have guaranteed supply of raw cashewnuts as farmers will not have incentives to sell their crops through warehouse receipt systems as there will be more benefits selling them through processing factories. The working relationship in the value chain will be as follows: i) Farmers will collect their crops in the AMCOS warehouses where they will receive payments equivalent to the Farm Gate Prices, which will be jointly set at the beginning of every season. The AMCOS will take banks loans to facilitate these initial payments and forward the crops to the desired factories according to the arrangements in place for processing. The farmers and AMCOS will keep records of the received raw cashewnuts for processing in order to assist them to determine the appropriate portions during the final payments to the farmers; ii) AMCOS will supervise processing of the raw nuts into kernels and related by-products and keep records of the outputs from their presented cashewnuts to the factory to avoid confusions, which may arise due to improper records keeping for their farmers. The AMCOS will pay the processing fees to the factory and ascertain the quality of kernels before selling in the local and export markets; iii) The factory will process the raw nuts and charge processing fees to every consignment received from AMCOS and keep proper records of kernel produced from each AMCOS. At this stage, the factories will also perform grading of the kernels and packaging according to the branding requirements which will be managed by Cashewnut Board of Tanzania in collaboration with processors; iv) The factory will sell the kernels after effective quality checks from reputable quality assurance institutions for local and international markets. At this stage the factories will be required to excise high level of integrity to make sure that outputs from their factories conform to the agreed standard and brand requirements before any sales are made; v) Cashewnut Board of Tanzania will provide the required services at all levels of value chain management and coordinate the marketing efforts 10

11 through identification of relevant promotional events in the local and international markets and coordination of participation of cashewnut industry in both local and international trade fairs in collaboration with Tanzania Trade Development Authority (TanTrade); and vi) The factories will distribute the gains from sale of the kernels according to the agreed formula to the farmers through their AMCOS and to other stakeholders and paying the relevant taxes and duties to the relevant authorities. 6.0 Conclusion and Recommendations Based on the analysis made in this paper, it is evident that Tanzania s cashewnut industry has a lot of attractive investment potentials, with promising returns within short, medium and long-term horizons. The analysis indicates further that apart from capacities underutilisation exercised in the old and privatised factories which provide quick win opportunities to new investors, there are still promising investment options that can create immediate economic impacts in the societies growing cashewnuts and create financial benefits to investors within short terms through establishment of medium to large scale factories in selected centres in the cashewnut growing regions. Furthermore, the analysis discloses the fact that engaging local communities in the ownership of the stake in the factories may not only provide sustainable supply of raw cashewnuts to the factories, but also will provide a direct bridge between farmers and the markets which will encourage farmers to sustainably increase production at farm level as a cushion to sustainable processing in the factories. Value chain collaboration model can quickly turn around the processing efforts in favour of raw material producers, primary cooperative societies, processing centres, and shareholders as a way of creating multiplier effects in the economies of the cashewnut stakeholders in the country. With those facts in mind, the Cashewnut Board of Tanzania recommends the following: i) The government should provide more incentives to investors who have shown interest in establishing factories in agro processing with particular emphasis to cashewnuts sub sector from which already the country is loosing a lot of economic gains by exporting raw nuts in the world markets; ii) The government should consider waving taxes to machineries and spare parts earmarked for establishment and running of processing factories in the country to reduce establishment costs to the investors in cashewnuts processing; and 11

12 iii) The government should consider remitting 100% of the export levy collected by Tanzania Revenue Authority (TRA) from exporters of raw cashewnuts to the Cashewnut Industry Development Trust Fund (CIDTF) to support establishment of new processing factories in the country as a way of achieving the target of locally processing all cashewnuts produced in Tanzania within the next three years. Submitted by: CASHEWNUT BOARD OF TANZANIA 12