USAID AgCLIR Roundtable: The Enabling Environment for Agribusiness in Tanzania

Case Study on Cashews – World BankPresented by Mwombeki Baregu

Tanzania cashew production compared

Figure 2: Cashew nut production (‘000 Tons) in Cote d’Ivoire, Guinnea-Bissau, Tanzania, and Vietnam: 1961 - 2007.

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1961 1966 1971 1976 1981 1986 1991 1996 2001 2006

Tanzania Vietnam Cote d’Ivoire

Cashew nut production (‘000 tons) 1961- 2007; Tanzania, Vietnam, Cote d’Ivorie

Cashew market participants

• 360,000 producers (mostly small scale)• 0 traders just primary societies• 5 - 8 processors (20%-30% of production)• 58 exporters for raw cashew• 2 export markets for raw cashew (India and

Vietnam)

Producer profile: many smallholders

Table 1: Cashew farmers, by size of cashew farm holding Area under cultivation (acres) Number of

cashew farmers Share of Cashew

farmers (%) area = 0 (mostly intercropping) 243,034 68%

0 < area <=1 47,353 13%

1< area<=2 26,203 7%

2<area<=3 12,523 4%

3<area<=4 7,496 2%

4<area<=5 4,573 1%

5<area<=10 10,776 3% Area>10 4,158 1% Total number of farmers 356,116 100 Average cashew holding 2.9 (excluding zero holdings)

Production and history

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120,000

140,000

160,000

1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005

Tonn

es

Warehouse receipt system

Single marketing channel introduced, farmers represented by primary societies

Global Price Drops

Villagezation, coops disbanded

Coops return

Liberalization; traders enter market

Implications from historical trend• Coops work– If they represent farmer interests– If they have not been captured

• Markets work– Competition helps guarantee farmer interests

• So what works best?

– Currently there is single marketing channel under cooperatives, lets see how this has performed…

Developments in cashew marketing:The Warehouse Receipt System

Background:

• Adopted in 2007

• Is a return to single marketing channel by cooperatives practiced prior to liberalization

• The return is in part a reaction to:– Tensions between buyers and

sellers– The liquidity power enjoyed by

buyers– Price disputes

Elements as packaged :

1. Single marketing channel (the cooperatives)

Only cooperatives can buy cashews from farmers

2. WarehousesWarehouses as storage centers

Warehouses as auction centers

3. The auctionClosed bidding system is used (not auction)

Farmers not enjoying some of highest prices for their cashews

Increasing marketing margins

Issues associated to single marketing channel

• Inefficiencies– Farmers have no control over cooperative costs– Cooperative fees account for over 30% of marketing

expenses

• Lack of transparency– Auction prices remain unknown– Cooperative books and tendering process is

unaudited

• Contingent liabilities

Single marketing channel:“Kangomba”

• By law farm gate exchange can occur only through the primary society, which acts as facilitator for the exchange.

• When a farmer sells cashew illegally to traders it is called “kangomba”

• Kangomba is usually at discount to the indicative price and is criticized due to the way that cashew is sold (by volume not weight).

• Kangomba however remains pervasive:– Transaction bottlenecks at

primary society– Barter trade for other

goods and services– Convenience– Liquidity preference (get

full payment at once)

Single marketing channel:The case of Masasi Farmers Association

• Village association – 6 villages,– 900 members– Founded in 2007– Apex company

established in 2008.

• Goal is to increase member incomes– go into input supply– marketing cashews– increasing knowledge

• In 2008 wanted to rent processing capacity at a processor in order to export processed kernels

• The processing factory however was in Dar es Salaam, thus requiring MFA to bring raw cashews to Dar es Salaam for processing

• MFA was not able to receive PDN to transport raw cashews out of their district ( District Executive)

• MFA had to sell its raw cashew to cooperatives

• In 2009 MFA established a factory in Masasi

• PDNs are still required to transport raw cashew within district

• PDNs were not allowed to be distributed until primary societies were ready to purchase cashews

Cashew on the news• Prime Minister proposes review of warehouse receipt system

– The Guardian, 24th November 2009– “The Prime Minister Mizengo Pinda, has proposed that the warehouse

receipt system currently being used by cashew nut farmers be reviewed because the operating costs are too high”

• PM vows to end use of `kangomba` measure – The Guardian, 25th November 2009– Why was it that in the past cooperative unions were constructing

roads, paying for school children, and now these things are no longer being done?” wondered the PM.

– He said the current cooperative unions were self-centred instead of being concerned with the farmers' interests.

– “We must sit down and correct these systems. I view these cooperatives as centres for embezzlement,” he said.

First best solution

• Provide farmer choice in marketing channel– Farmers can integrate upwards, sell to markets of

choice, negotiate with buyers (local and international)

• Offer warehouse receipt credit to private traders not just coops

Options to improve functioning of cashew sector

Cashew marketing prior and after WRS

Pre-WRS WRS