Overview of the cashew industry in Benin

African Cashew Alliance (ACA)Benin country meetingSeptember 2006

Agenda

Production Trade / MarketingProcessing

• Volumes• Farmers• Farming practices• Productivity / outturn• Associations• Pricing and trade of

raw nuts• Quality

• Volumes• Supply• Main players• Processing practices• Productivity• Pricing and trade of

kernels

• Volumes• Geographies• Main players• Branding• Pricing and trade• Packaging• Quality

Logistics

Policy

Financing

Production /1

Export of Raw Cashew from Benin (MT)

0

10

20

30

40

50

60

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Produced elsewhereProduced in Benin

• Cashew production growth in the last 15 years: 40-50% a year (see chart)

• Now the second largest agricultural export after cotton

• One of top 10 producers globally

• Most of Benin apt for cultivation of cashew (see chart, grayed areas)

• Over 30,000 farmers, or 90% of those in the producing areas

• Small average farm size at 1-2ha

• Low productivity per tree at 2-3 kilo/tree, vs. up to 10 in India, largely due to irregular spacing and young trees

• Avg cashew-related income at approx. $180 yearly, sometimes up to half of the total net income for the farmer

Source: ONS, Brook Adam (Peace Corps)

BorgouDonga

Atacora

Collines

Zou

Production /2

• Largely unmonitored and unplanned production; little or no inputs

• Existing farmers associations, primarily led by NGOs; however, lacking resources and common strategies

• Large networks of agents, sub-traders and speculators substituting officially registered Beninese agricultural traders as intermediaries; hence risk to leave raw cashew unsold (2,500MT in 2006) and no reward quality at farmgate

• Highly reputed quality of the Beninese raw cashew, hence higher than average prices

• Producers not benefiting fully from better quality as inflow from neighboring countries (10-20% of total) drags quality and prices down

• Farmgate prices tend to be set globally, however they vary very significantly, ranging from 320 to 650 USD/MT in the last 3 years

• Due global to production increasing faster than demand, esp. in Vietnam, this year prices are lower at 320/480 USD/MT

• Minimal transparency of prices at farmgate

• By products such as cashew apple and shells are not exploited

Source: ONS; Brook Adam (Peace Corps)

Processing

Processor YearEst.

Capacity(MT)

Processed(MT) 05 06

Location Technology Marketing

Dest Retail

Pride of Benin 2003 800 35 10-40

Savalou, Glazoué, Bantè, Tcharou

Semi-Manuel Export/Retail 100 % (Currently)

Afokantan Benin Cashews

2006 1500 0 700 Tcharou Semi-Manuel Export None

Source: Brook Adam (Peace Corps), WATH cashew study

• Cashew processing in Benin (SEPT and SONAFEL) not capturing its potential

• Processing still a marginal activity in Benin, with some 97% of raw cashew being exported

• Benin as one of the most promising country for cashew processing globally, thanks to its high quality and generally low costs

• New realities have started in the last 3-4 years (details below):

• The Pride of Benin group sells directly to the end-consumer, currently mostly in Benin, while Afokantan will sell to Global Trading, its business partner, a Dutch trading company

• Small semi-industrial activities also exist, such as Boulamb, selling locally

Trade / Marketing

Raw nuts

• 95-97% exported to India

• 4 players leading the market (see chart)

• Registered intermediaries negotiating both at local markets and at farmgate

• Growing role of unregistered speculators, adding liquidity, but jeopardizing balances

• Pre-financing is common place at all stages

Cashew kernels

• Afokantan to Global Trading

• Members of Pride of Benin sell on the local market; umbrella brand targeted to international markets but never operating

• Boulamb packages and distributes in Benin

• Artisan / Women’s groups also active

NOMAX26%

OLAM24%

AgroBenin11%

Other23%

Sakson16%

Source: Brook Adam (Peace Corps)

Logistics: flow of goods

Farm

Localmarket

Trader

Processor

Int’l trader

Local end market

Foreign end market

• Complex, expensive, very mediated flows of goods, lacking transparency

• Most of the volume as:

farm > market > trader > international trader > distributor > foreign market

• Producers and end users completely detached as a consequence

Distributor

Financing

Medium

High

Low

Medium

Need for credit

Some

No

Growing

Mostly in urban areas

Microfinance

Medium

High

Medium

High

Need for new financial solutions

?RarelyFarmer associations

NoYesProcessors

NoOnly larger, registered ones

Traders

NoOnly larger 5-10%

Producers

Ad hoc / privileged funds

Traditional banks

Access to finance

• Few financial solutions for industry players

• Pre-financing as a common solution to spread risk, increasing financial complexity

• Development of the industry requiring innovative credit opportunities, especially, but not only, for producers and processors

• New solutions to be financially sustainable for lenders, but institutional incentives are possible

Policy /1: many institutional players

• Research– INRAB-PRF: Institut national des recherches agricoles du Bénin - Programme de Recherches

Forestières– PTAA: Programme Technologie Agricole et Alimentaire– PAPA: Programme Analyse de la Politique Agricole– PPAB: Programme de Professionnalisation de l’Agriculture au Bénin

• Regulatory– DPQC: Directeur de la Promotion de la Qualité et du Conditionnement des Produits Agricoles– CIFP: Commission Interministériel de Fixation des Pris des produits agricoles et intrants– SONAPRA: Societe Nationale pour la Promotion Agricole– CNEX: Counsel Nationale pour l’Exportation– CARDER: Centre d’Action Régional pour le Développement Rural– DEDRAS: Département du Développement Rural et d’Assistance Sociale

• Civil Society– PADSE: Programme d’Amélioration et de Diversification des Systèmes d’Exploitation– PAMRAD: Projet d'Appui au Monde Rural dans l'Atacora et la Donga– Oxfam Quebec– UEEB: Union des Eglises Evangéliques du Bénin– CASPA: Composante d’Appui au Secteur Privé Agricole– SNV: Netherlands Development Organisation– GTZ: Deutsche Gesellscraft für Technische Zusammenarbeit (German Development Agency)

Policy /2

Production Trade / MarketingProcessing

• No institutional incentives to create farmer associations

• No incentives• Industrial minimum

wage

• Raw cashew traded only by registered Beninese traders (only country forbidding foreign traders buying directly from farmers)

• Tax on export: 0.8%• Tax on sale:

depending on volume

• Bottom price set by CIFP, in consultation with stakeholders

• Currently institutions intervene on the industry by:

– Setting price

– Limiting trading entities

– Taxing exports and sales

• No institutional incentives to operate or grow

• SONAPRA to acquire significant role in the future

Conclusions

• The cashew nut industry in Benin is growing fast and has many attractive features

• However, a number of problems remain, calling for a coordinated effort

• Some key themes:

– Lack of transparency at farmgate / detachment of producers from end users

– Role of informal trade / inflow of foreign nuts

– Marginal role of farmers associations

– Processing of raw nuts: marginal, but profitable and growing

– Institutional incentives for production and processing

– Lack of appropriate financial services

– Need for an entity coordinating the industry (role of SONAPRA)

– Little or no coordination with other African countries / the possible role of the African Cashew Alliance