Africa Region
The World Bank
State and Markets in Cashew Marketing:
What Works Better for Tanzanian Farmers?
Mwombeki Baregu and Johannes Hoogeveen
June 22, 2009
This note is a technical document of the Staff of the World Bank and does not represent an official position of the World Bank or of its Executive Board. The paper was prepared under the overall guidance of Paolo Zacchia (AFTP2). A copy of the report can be obtained by sending an email to Mary-Anne Mwakangale at
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1.Summary and main conclusions
Since independence, Tanzania’s cashew sector has experienced distinct periods with varying production performance, including rapid growth, rapid decline, and stagnation. In the last few years, the sector is experiencing stagnation, in contrast to the dynamic performance in other developing countries in and outside of Africa.
The review of marketing arrangements carried out in this note indicates that outcomes were most favorable when farmer interests were adequately represented (the 1960s) and when competition was brought into cashew marketing (the 1990s). At present, both conditions do not prevail. Primary societies and cooperative unions do not fully represent farmers’ interests, and starting in 2007, under the so called “warehouse receipt system”, a single marketing channel was introduced in which there is no room for private traders. As a result, data presented in this note reveal that cashew farmers under the current system face most unfavorable terms: the farm gate to export price is about 39% compared to a 64% average since 1991.
The introduction of the warehouse system has thus failed to deliver on its promise of a ‘good price’ for cashew. It has equally failed as a mechanism to enhance competition by providing cash to private traders and reducing the market power of large processors and exporters. And it has created substantial contingent liabilities as the Government guarantees the repayment of the credit provided to the primary societies.
To restore better margins for farmers and fully realize the ability of the cashew sector to reduce poverty, the existing system deserves to be carefully audited while the warehouse receipt system needs urgent reform: some elements of it, such as the single marketing channel, should be abolished, and competition in cashew marketing re-introduced. The warehouse receipt system, if properly reformed, can enhance competition by providing liquidity to all cashew buyers and help reduce the market power enjoyed by large processors and exporters.
The case to introduce competition in cashew marketing is strong, but the appetite for it may be limited. More competition will reduce poverty, increase exports and eliminate the contingent liabilities that are threatening Government’s budget (particularly when the price of cashew drops on the world market). Appetite may none the less be limited as certain groups are likely to benefit from the existing situation. Yet the option to enhance competition needs to be pursued or else one risks a continuation of the existing inefficiencies. The paper presents three such options including an approach followed by China in the 1980s which was politically palatable and while not fully efficient, was contributing to a boom in agricultural production and an unprecedented reduction in poverty.
2.Since the 1960s cashew production has fluctuated. Total production declined significantly since 2000, affecting particularly small holder farmers in some of the poorer regions of Tanzania.
The cashew sector in Tanzania has a history of production swings. Since 1960, five different periods can be distinguished: rapid growth in the 1960s, rapid decline in the 1970s, stagnation in the 1980’s, another period of rapid growth in the 1990s, and another episode of decline and stagnation in the 2000s (Figure 1).
Figure 1: Production of cashew nuts 1961 - 2007
Source: FAO Stat
As periods of decline followed periods of growth, production of cashew in 2007 was at the same level as it was during the mid 1960s. The sector thus exhibits long-term stagnation. Worse, as the population of Tanzania increased from 12.3 million in 1967 to an estimated 39.4 million in 2007, the cashew sector displays an almost 70% decline in per capita production since the 1960s. This is unfortunate as the episodes of rapid production increases demonstrate that the sector has great potential for growth.
The decline in Tanzania’s production is accompanied by loss in global competitiveness as new countries entered the market. African countries such as Côte d’ Ivoire and Guinea-Bissau have emerged as major cashew nut producers in the region, while Vietnam has succeeded at very rapidly becoming a dominant global producer and exporter.
Figure 2: Cashew nut production in Cote d’ Ivoire, Guinnea-Bissau, Tanzania, and Vietnam: 1961 - 2007.
Source: FAO Stat
The most recent decline in cashew production is of interest as it suggests that the sector’s proven ability to grow, generate income and contribute to poverty alleviation are under-realized. It is of concern because the three regions (Mtwara, Lindi, and Ruvuma) where cashew is mostly grown are amongst the poorer in Tanzania. And assales of cashew (re)main an important source of cash income for the approximately 360,000 smallholder farm households who grow the crop, the existing low level of production presents an opportunity to improve the lives of those engaged in it as there is not reason why the increases in production from the past could not be replicated.
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)
Source: Authors’ calculations based on 2002 Agricultural Sample Census
3.Export price fluctuations and different marketing arrangements appear to be key to explaining the observed production swings. The difference between export and farm gate prices is, at present, at its highest level in 20 years, suggesting market power and/or inefficiencies in the marketing chain.
The production of cashew is a function of the profitability of growing cashew, which depends on the production cost structure and the farm gate price of cashew. The latter, in turn, is a reflection of the world market price for cashew (the bulk of cashew is exported) and the institutional arrangements governing cashew marketing.
A glance at Figure 3 illustrates how the world market price for cashew (here approximated by the export price) and the farm gate price fluctuate over time. Export prices were as low as $ 600 per ton between 2001 and 2004 and as high as $ 1,200 per ton in 2007-2009. Like export prices, farm gate prices fluctuated a lot, from as low as $ 310 per ton in 2000/1 to as much as $ 750 per ton in 1999/2000. In absolute values the dispersion in prices at the farm gate is less than that experienced by exporters, but if price variation is expressed as coefficient of variation (which is a relative measure of variation), it is evident that farmers face relatively larger fluctuations in their prices than do exporters: the coefficient of variation is 0.21 for the export price and 0.25 for the farm gate price. It follows that the prevailing marketing arrangements, have failed to stabilize prices.
Figure 3: Export price as % of farm gate price, 1990/91-2008/09
Source: CBT (indicative farm-gate prices- converted to USD using BoT exchange rates); Tanzania Revenue Authority (export prices).
Figure 3 indicates how the margin between the export and farm gate price changed over time. On average, the farm gate price between 1990/91 and 2008/09 was 64% of the export price, but this share fluctuated considerably. After an initial improvement during the 1990s, with an exceptional peak in 1998/99, the percent of the export price going to farmers declined to its lowest point in the past two decades between 1999 and 2001 when farmers received only 38% of the export price. From 2001, the farm gate share improved to reach 87% in 2004/05, after which another rapid decline set in to stabilize at the same low point that was reached in 1999-2001: 38-40%.
Figure 4: Cashew export price ($ / kg) and farm gate price as fraction of export price (%)
Source: CBT and TRA (Converted to USD using BoT exchange rates).
In the presence of fixed marketing costs, the fraction of farm gate to export prices can be expected to fluctuate with the export price, with the farm gate fraction being high when export prices are high, and low when export prices are low. Figure 4 suggests that in reality there is very little relation between the export price and the fraction received by farmers, suggesting that factors other than fixed marketing costs drive the fraction of the export price received at the farm gate. The figure also demonstrates how starting 2003/4 the export price and the fraction received by farmers have started to move in an opposite direction, with the percent received by farmers decreasing when the export price increased, and increasing when the export price came down.
Figure 5: Difference between cashew export and farm gate price ($ / kg)
Source: CBT and TRA
In the last two years, the absolute difference between export price and farm gate price is currently at its highest level ever: 70 dollar cents per kg (Figure 5). This can be explained by an increase of marketing costs due to increased inefficiencies within the system, or by increased market power in the marketing chain, due to a decline in competition or a combination of both.
The remainder of this note focuses on the institutional structures governing the marketing of cashew to explain what has been driving changes in marketing efficiency. It does so by first taking a historical perspective comparing different marketing arrangements and production outcomes over time since 1961, with particular focus on the period since 1990.
4.Different market constellations have led to different market outcomes. Outcomes were most favorable during times with greater farmer representation or with greater competition. Even the more liberalized periods were characterized by administrative interferences.
The Tanzanian cashew nut sector has multiple participants who have operated under different constellations. The key actors are the following:
Producers: According to the agricultural sample census there are approximately 360,000 cashew farmers. The average smallholder cashew farmer occupies about 2.9 hectares of cashew trees, often intercropped with food crops. Large-scale private plantations occupy about 2,000 hectares in Lindi and Mtwara (Sijaona 2002[1]).
Primary Societies: Farmers have no choice but to sell their cashew through primary societies (village level cooperatives) who act as brokers between farmers and the next layer in the marketing chain: private traders or cooperative unions. Primary societies are governed by a board selected by the village. As primary societies have market power, governing a primary society offers opportunities for rent seeking.
Cooperative unions and private traders act as intermediaries between primary societies and cashew processors and exporters. Cooperatives are representatives of the primary societies while private traders typically operate as agents for processors or exporters who provide them with cash to buy cashew.
Processors and exporters buy cashew nuts from private traders and cooperative unions, and since the introduction of the warehouse receipt system in 2007, from the auction. There are 5-8 processing factories purchasing 20 - 30% of the national production[2]. The remainder of the cashew harvest is exported as raw nuts, mostly to India and increasingly to Vietnam. To export cashew an export license has to be obtained from CBT. In 2004 there were 58 exporters[3].
Regulatory Bodies: The cashew sector is governed by the Ministry of Agriculture and Cooperatives who, since 1961 has put in place regulatory bodies with differing powers and mandates. The Southern Region Cashew nut Board (SRCB) set up in 1962, was succeeded by CATA the Cashew nut Authority of Tanzania in 1974. At present the Cashew nut Board of Tanzania (CBT) is the regulatory body. Its main functions are setting the minimum indicative price at which cashew is bought from farmers, research and the provision of inputs. The activities of CBT are financed out of a levy which starting 2005 was set at 10% of the export price and continues to this day.[4]
These various actors have determined the cashew market since independence.
Early Independence 1961 – 1973
During the first period of production growth, which lasted from 1961 – 1973 a single marketing channel for cashew was introduced. To reduce the influence of middle men, farmers were expected to sell their cashew to primary societies, who in turn sold to cooperative unions, who in turn sold to regional marketing boards. Government set the price at which the marketing boards were expected to buy in a way that allowed price differentials across regions. This gave primary societies some influence over the price and some societies turned out to be very powerful marketing agencies that were able to adequately represent farmer interests.
Ujamaa period 1974-1985
This period of expansion was followed by a period of prolonged collapse which lasted from 1974 to 1985 during which farmer influence over marketing gradually declined. The era began with the establishment of crop specific marketing boards which saw the establishment of CATA in 1974. Initially pan-territorial prices were introduced which removed the market influence primary societies had previously enjoyed. With the start of villagezation in 1976, primary societies and marketing boards were disbanded altogether and village authorities, acting as CATA agents, bought cashews from farmers (Bennet et al., 1979[5]). The combination of pan-territorial prices and the replacement of primary societies who acted on farmer’s behalf by village agents acting for CATA weakened farmers’ influence and brought the marketing of cashew firmly under the control of the state (Shivji, 1976)[6]. It resulted in an inefficient marketing system with low farm gate prices and large losses being incurred by CATA and after villagezation had removed farmers from their trees, a almost total collapse of cashew production[7].
Transition 1985-1990
During the period of stagnation which started from mid 1980s, CATA was replaced with TCMB in 1985 following which village primary societies and cooperatives unions were re-instated into the marketing process. Farmer interests were still not adequately represented and political interest continued to dominate considerations of economic efficiency as illustrated by the fact that primary societies, whose organizational structure extended over several villages – which was economically desirable, but which constituted a threat to the village political structure – were directed to limit themselves to one village only (Lindemann 2009 and Putzel [8]).
Likewise the fact that primary societies still cannot sell cashew to traders without PDNs (issued by the DEO) ensures continued administrative control over the primary societies. Inefficiencies in procurement and payments continued to affect production and many cooperative unions accumulated large debts (Sijaona, 2002). By the early 1990s, low prices and late payments meant up to half the farmers did not even bother to harvest their trees.
Limited liberalization 1991-2000
The period of growth which lasted from 1991 till 2000 was characterized by market liberalization. Primary societies continued to be largely political organizations, but private companies were allowed to enter crop marketing and the government relinquished its control on mandatory pan-territorial pricing during the 1992/93 season by replacing it with an indicative (minimum) price system. Primary societies now had a choice to sell to private traders or to cooperative unions who were largely outcompeted as they remained saddled with large debts. Farmers were now paid on time and liberalization led to a significant increase of the farm gate to export price which rose to 60-65%, up from 40% average that was paid between 1985 after the dissolution of CATA and 1990 prior to liberalization. (Mitchell, 2004)[9],[10].
Heavy interference 2000-2006
Starting around 2000, another period of production decline and stagnation set in. Taxation of sector increased with the Local Government Act in 1999 (Fjeldstad, 2001)[11], which added local authorities as collectors of revenues. This also increased red-tape, as it became illegal to transport across district boundaries without proper documentation. To operate as private trader during this period three licenses were required: a buyers license issued by the cashew board (CBT) and a buying permit and trading license issued by the District Executive Director’s office[12]. The buying permit was associated with a ‘contract to buy’ in which the trader indicated the quantity he intended to buy (a minimum of 100 tons is stipulated). A 5% district levy was charged against this intended quantity. To transport cashew across district boundaries private traders as well as cooperative unions required a Product Delivery Note issued by the District Executive Director’s office. In the 2003/04 season there were 46 licensed buyers of cashew, of which 15 were foreign based[13].
Other aspects characterizing this period were some misguided interventions (such as the requirement to only used locally produced bags –Mitchel 2004) and a sudden drop in world market prices (between 1998 and 2000), which caused great confusion as CBT had initially set a (relatively) high indicative price that threatened to lead to heavy losses in the cashew sector, raising tensions between traders and Government. After much turmoil the indicative price was reduced and brought in line with the world market price. In 2005 CBT raised the export levy from 3%, the level at which had been set during the period of liberalization to 10%. Following this in 2005/6 another spate of price uncertainty occurred during which the government stepped in ordering traders to buy cashew at the indicative price. Upon refusal, specific buyers became barred from the market[14].