Potentials for tomorrow s cashew industry: Increased productivity and performant processing industry. Experience from the African Cashew Initiative

Transcription

1 Potentials for tomorrow s cashew industry: Increased productivity and performant processing industry Experience from the African Cashew Initiative Rita Weidinger, 18. September 2012

2 Key potentials for the African Cashew Value Chains Sector organisation Productivity Supply chain linkage Processing 2

3 Situation when ACi started in 2009 Farme r linkag e Productivity Processing Processing capacity ,000 MT (50% utilized) Existing processors before ACi 3

4 ACi results in Phase 1 Farme r linkag e Productivity Processing Now 3,5 years $25.4M BMGF $8.8M BMZ $15.3M private sector Production Local processing Sustainable supply chains Sector organization 240,000 farmers trained in good agricultural practices, av. increased yields 20% 40,000 MT of RCN processing capacity installed to date, 47% utilization 70,000 farmers selling RCN linked with processors/exporters ACA emerging as legitimate industry body Increase in private sector development Government lead in policies / strategies 4

5 ACi targets for 2015 a strong industry for increased farm income Farme r linkag e Productivity Processing Processing capacity of existing processors 2015 projected at MT (50% utilized) Locations where farmers have been trained ACi Processors Clients (20) Other medium and large scale Processors Other processors projected (exclusive of ACi) Districts with ACi Nurseries Processing of cashew apple juice 5

6 Additional slides 6

7 With changing power relations in the cashew value chain, the market linkages become more important for all players, with high potential for producers Farme r linkag e Productivity Processing Market Power Future Captive supply chains Good marketing position for farmers Traceability for buyers Investments for improvements Good quality Cooperation/joint initiatives Market Power Past Archaic supply chain Bad marketing position for farmers No traceability for buyers No incentives for improvement Bad quality No cooperation/suspicion Producer Processor Buyer Potential for increased value addition for farmer based organisations trader Processors take increasing initiative to link with farmers trader Traders play a less significant role, although will not likely be eliminated entirely In a market evolving toward supply driven model, there is potential for producers and their organizations to increase the value of production and trading functions. Close market linkages reduce the transaction costs also for processors and buyers, eliminating ineffective trading and improving quality and market compliance.

8 Changes in key assumptions have shifted the timing of community and farmer impact to 2/3 years post-aci Total Returns* Yr 1-4 Yr 5-7 Increased community incomes from wages Commission paid to farmers from direct sourcing Premiums paid to farmers for improved quality $6.0 M $0.9 M $0.8M $26.0 M $4.0 M $4.0 M Additional income from By-product processing** $0.03M $0.6 M No. of farmers benefiting from direct sourcing and premiums from quality improvements 27,000 63,700 Increased incomes to processors (retained profits) Increased taxes to Governments $4 M $2 M $15 M $7 M Total returns from Processing intervention $13.7 M $56.6 M * Returns are based on production of 20 processors distributed as follows: 4 processors in Yr 1, 7 processors in Yr 2, 14 processors in Yr 3 and 20 in Yr 4. ** Income to farmers from By-product processing is based on processing by FBGs in 2012 and on processing by FBG and one commercial cashew juice processor in Phase 2 8

9 ACi is working to more than double yield and increase farmer income $100+ per year by 2020 Farme r linkag e Productivity Processing For a Ghanaian farmer fully adopting ACi training*: Pre-ACi Expected yield impact of ACi RCN kg/ha % % Peak with Good Agricultural Practices** 1500 Peak with new planting material Potential incremental net cash income per farmer due to ACi training*** USD * Note this impact will not be achieved by all farmers. Some will partially adopt practices. This illustrates best case opportunity. ** Prior expectations were that GAP yield increase would plateau at 1149 ~20%. Experience in the last year suggests that GAP increase is more substantial, assuming a tree has useful life remaining. Improved planting material will achieve additional step change yield increase and be necessary as orchards mature and reach Total *** their Includes life expectancy. impact of adopting Good Agricultural Practices and improved planting material per ACi training. Price held constant at $.43/kg RCN. Includes net cash income after deducting opportunity cost of family labor at $2.70 per man day. Labor on family plantations less than 2.5 ha is typically performed by family members and the opportunity cost of that labor would be considered additional income by some families, depending on other work opportunities. Source: Team analysis 2037 By 2020, a Ghanaian farmer fully adopting GAP and new planting material will have earned an additional $5,563 net cash income, averaging $513 per year 9

10 Three scenarios define potential African production increase, with ACi intervention being the middle scenario Farme r linkag e Productivity Processing Three scenarios were defined to determine how increasing African production could impact world cashew supply/demand and resulting prices. Scenarios: 3 Very Aggressive: Africa grows at annual 9% to provide incremental supply that meets world demand projections 2 ACi vision: In 2020 ACi intervention peaks at incremental 380K MT production above conservative case of flat 850K African production Increase 2012 to % +45% Source: ISS/Fitzpatrick analysis; Cook analysis 1 Conservative: Flat production assuming no weather failure. East Africa declining, compensated by natural growth in West Africa 0% 10

11 11 In addition to RCN production, enabling African processing will mitigate the supply chain risk of dominant processors Farme r linkag e Productivity Processing Geographic concentration of processing poses supply risk to downstream buyers Domestic Indian demand will take precedence over export market China is logical market for Indian and Vietnamese exports Historical issues with Vietnamese supply contracts Africa provides a strategic opportunity for retailers to diversify their sourcing footprint and reduce supply risk Logistical concerns of shipping product from Africa to India/Vietnam for processing and then back to U.S. and Europe for consumption Monetary costs Environmental costs How much increased RCN volume can African ports realistically handle?

12 12 Vision for WA-ACi Countries is to have growing Cashew Farmers linkages, increased RCN production and an enhanced share of processed RCN Productivity Productivity Farme Farme r r linkag linkag e e Processing Processing 2009 Cashew Farmers linked cashew farmers (Total) Linked 1% RCN Production MT Processing Volume/Cap MT RCN processed MT installed capacity 2,5% as share of total RCN Production (Total) Linked 20% MT +25% 1,05% as share of total RCN Productio n 9-14% as share of total RCN Production MT RCN processed MT installed capacity 18-28% as share of total RCN Production

13 Market overview - Fitzpatrick 13

14 The presentation on the International Cashew Market 2012 provides an overview on the current market and gives an outlook till 2020 The Market now, current situation Major Trends in 2012 Price Volatility In-shell Season & Prices 2012 Looking forward Projected demand 2020 Projected Supply 2020 Africa 2020

15 In 2012, the cashew market experienced some challenges notably fallen prices Today's market position kernels The market is in a quiet phase: traded volumes are low : processors hopes are high based on upcoming festival seasons Prices are 15 cents /lb above the lows for the year and far below the highs of last year Processors in India are well sold and looking for opportunities to procure RCN Small & medium Processors in Vietnam are in a difficult position and looking to make sales especially of lower grades Demand: USA buyers are not chasing the market: The European market is looking for retail tenders for 2013 : Indian market has yet to get going for the festival season. Today's market position in-shell (RCN) Higher inventories than usual: Imports down: 20% of World crop Oct-Dec. Low quality from West Africa is being imported with disputes to India & Vietnam: Quality problems mean lower outturn / more brokens: Inventories sufficient to end Oct. Guinea Bissau has unsold RCN between 50,000 and 70,000 tonnes some say as high as 120,000 tonnes Côte D Ivoire: low outturn stock left for sale estimates vary Indonesian crop started: forecast good: traded $1300 Cfr Brazil: Crop predicted poor again due to drought conditions. Tanzania: growers/market await government pricing Timeline Last quarter 2012 / First Quarter 2013

16 The historical market trends show volatility in prices around $3/lb kernel Cashew Kernels WW320 Five Year Prices FOB Lowest priced origin US$ per lb $4.80 $4.55 $4.30 $4.05 $3.80 $3.55 $3.30 $3.05 $2.80 $2.55 $2.30 $2.05 $1.80 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Five Year Prices WW240 WW320 WW450 FS/WS LWP/LP September 2012 $3.65 $3.25 $3.00 $2.20 $1.50 Average $3.45 $3.13 $2.94 $2.46 $2.07 High $4.90 $4.60 $4.50 $4.15 $3.90 Jan-12 May-12 Sep-12 The market has been undergoing a price correction since mid 2011 from unsustainable levels. The tight supply/demand balance which caused price movements out of proportion with the fundamentals has been resolved for now looked like a steady fall in prices but the supply scares in Cote D Ivoire and Guinea Bissau in April and May caused a price rally Unjustified? The chances of a return to the high prices of 2011 are receding given average crops and demand. Prices should trend flat to slightly down with chances of a sharp fall in early 2013 growing. Today s prices compared Prices are just below the five year average but still circa 50% above the five year lows. It has been a very volatile period WW320 Low of $2.15 and high of $4.60. The most volatile period for prices since There is room for further falls in price this year but processors will react by marking prices up if demand improves. Low $2.55 $2.15 $1.97 $1.50 $1.20 +/- High -26% -29% -33% -47% -62% +/- Low 43% 51% 52% 47% 25%

17 The trend in supply and demand of cashew show scope for expansion of supply in Africa Supply Trends Vietnamese inshell (RCN) production has stopped growing and is beginning to fall better options for farmers based on soil and climate e.g. rubber Indian production is moving north away from traditional growing areas of Kerala in the south. Production volume is static to slowly rising despite government programmes. Production in West Africa and Tanzania is increasing due to development projects such as ACi and better prices for farmers. Fast increase in inshell production in West Africa without major increases in processing volumes is placing strains on the supply chain infrastructure to evacuate RCN in a timely and cost effective way. This is often reducing the quality of cashews due to poor post harvest storage and drying facilities. Production capacity in West Africa has increased : latest increases are largely based on large factories with high levels of mechanisation. New technology especially new peeling machines and poorer quality RCN is producing much larger volumes of pieces which has collapsed in price in Vietnam Demand Trends Demand in traditional markets of North America and Europe still accounts for 40% of World demand. Demand has not grown in these markets but is slightly down (USA 2012 imports +1%, EU 2011 imports -5.5%) Recession, high prices, volatility, competition other nuts and cheaper snacks. Brazil & India have lost share in these markets to Vietnam. Far forward buying previously the norm has been very much reduced since India is the largest market in the World and is growing very quickly. India is a major net importer of cashews. Food safety, traceability, health are major factors which cannot be ignored. There may be an advantage for new African processors in this. Buyers want new processing origins to protect their supply, give an alternative to Vietnam in particular and to build new food safe processing plants. There is more interest in processing, investing and buying from Africa than ever before.

18 However, issues of market speculation and mistrust of industry players remain unchanged The RCN market is still largely speculative and thinks short term: It is dominated by a few traders who can move the market Prices for both kernels and RCN remain volatile maybe even more than before Good market information remains difficult to find - gossip, rumour and propaganda persist as the information chit chat grows and the quality of that information declines Many factories in India, Vietnam and elsewhere have not got the food safety message yet Default of contract or renegotiation at every level is common in the supply chain from farmers to RCN exporters to kernels exporters it happens in every origin every year. Its not only sellers who default in rising markets buyers do so too in falling markets. Short term thinking remains the norm in the cashew business Linkages in the supply chain remain underdeveloped between growers and processors and between processors and roasters/packers and between roasters/packers and retailers. Despite these factors: Production and consumption has grown massively in the past ten years Prices are higher Farmers get a better share of the final price Processing remains a profitable business Quality has improved

19 Price volatility continue to increase due to demand and supply gaps Cashew WW320 Annual Range FOB Prices (Sept) $5.00 $4.50 $4.00 $3.50 $3.00 Cashew Prices have trended higher over the past 15 years. The highs are higher and the lows are higher than in the past. Prices are more volatile the annual range between the high and low is wider. Why? Prices have responded to the tight supply demand balance. $2.50 $2.00 $ Greater dependence on larger volumes of RCN from West Africa has created volatility e.g. political problems in Cote D Ivoire and Guinea Bissau and the pressure on the supply chain infrastructure brought of much larger volumes The current pattern looks very like previous patterns. Major price increase followed by correction but the correction stays above the lower price range Source: ISS/Fitzpatrick Price Volatility is bad for business 1. Packers, roasters and retailers have difficulty planning forward demand and promotions. 2. The incidence of contract infidelity increases more defaulted contracts 3. Discouraging development of demand and new cashew based products 4. Processors: Cannot predict their cash flow: Eventually forward buying is reduced so processors end up carrying the price risk. 5. Farmers can end up in a boom/bust cycle.

20 By end of 2012 Inshell (RCN) Season, Prices and Quality of RCN contributed to each other s performance Inshell African Origins Cfr India January st September 2012 per tonne Cfr India $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 01/09/ /08/ /08/ /08/ /08/ /08/ /08/ /07/ /07/ /07/ /07/ /07/ /07/ /06/ /06/ /06/ /06/ /06/ /06/ /05/ /05/ /05/ /05/ /05/ /05/ /04/ /04/ /04/ /04/ /04/ /04/ /03/ /03/ /03/ /03/ /03/ /03/ /02/ /02/ /02/ /02/ /02/ /02/ /01/ /01/2012 Tanzania Nigeria Cote D'Ivoire Benin Senegal/Gambia Guinea Bissau Moz Source: ISS/Fitzpatrick, Trade The 2012 season was characterised by declining quality during the season in the largest origin Côte d Ivoire. This has been mirrored to a certain extent by prices from Guinea Bissau The sharp fall in prices reflects this drop in quality especially outturn yield as well as changes in the market. March Prices flat Tanzanian stock 80K weighs on market Buying slow: Crop expected high April C D I crop late Shipments slow 12/4 Coup Guinea Bissau Buyers take up Tanzanian stock May Serious questions on C.D I crop Congestion Abidjan & Cotonou G.B. open but reduced quantity June Shipments improve Quality falling Clearly now a poor quality but not a poor quantity crop July Buyers lose confidence and refuse documents Kernels prices falling August Prices falling lower quality Inventory at destination Disputes & default

21 Source: ISS/Fitzpatrick Based on these trends, it is projected that by 2020, demand patterns would change per destination...

22 ... And supply patterns by origin Production is only increasing very slowly in India and Brazil Production is falling in Vietnam Production is not increasing in Indonesia Production in Africa is not rising quickly enough to fill the supply/demand gap Can African countries supply enough cashew to keep demand/supply balanced? Source: ISS/Fitzpatrick

23 For Africa to fill in this demand gap, it must increase its production by 9% per annum until 2020 If demand continues to grow in the current pattern & If supply on other Continents continues to follow recent trends 1.Then African countries would need to increase production by 9% per annum to keep supply and demand balanced. 2. These volumes could not be handled as RCN exports with the existing infrastructure. 3. Therefore more processing in Africa is essential to keep cashew prices at levels which support growth. Source: ISS/Fitzpatrick