Impact of global trends on the Impact of global trends on the international value chain of international value chain of

cashews cashews Presented by:Presented by:Hari NairHari Nair

Western India Cashew Co. Pvt. Ltd., IndiaWestern India Cashew Co. Pvt. Ltd., Indiamail@wenders.commail@wenders.com

OverviewOverview

Value Chain of African CashewsValue Chain of African CashewsGrower Grower –– Processor Processor –– Roaster Roaster –– RetailerRetailer

Trends in CashewsTrends in CashewsProduction Production –– Cultivated as a lowCultivated as a low--maintenance cropmaintenance cropProcessing Processing –– Shelled & peeled manually into kernelsShelled & peeled manually into kernelsConsumption Consumption –– As a sophisticated snackAs a sophisticated snack

Harnessing Trends to increase farmer valueHarnessing Trends to increase farmer value

ImportWarehousing

RoastingPacking

PromotionLogistics

SupermarketConsumption

ImportWarehousing

RoastingPacking

PromotionLogistics

SupermarketConsumption

ImportShellingPeelingGrading

Quality ControlInert Packing

Shipment

ImportShellingPeelingGrading

Quality ControlInert Packing

Shipment

IndiaIndia USA / EUUSA / EU

RCN $650CK $3,000RCN $650CK $3,000

The Cashew ValueThe Cashew Value--ChainChain

RCN = Raw Cashew CK = Cashew Kernels. RCN Equivalent of cashew kernels = 4.5 timesPrice Sources: Africa: Trade Est.; India: Export Prices, Customs; USA: Retail Price Ave from IRI 2006.

RCN = Raw Cashew CK = Cashew Kernels. RCN Equivalent of cashew kernels = 4.5 timesPrice Sources: Africa: Trade Est.; India: Export Prices, Customs; USA: Retail Price Ave from IRI 2006.

GrowingCollectionTransport

DryingJute Bagging

Port CostsShipment

GrowingCollectionTransport

DryingJute Bagging

Port CostsShipment

AfricaAfrica

RCN $1,000CK $ 4,500

RCN $1,000CK $ 4,500

RCN $2,500 CK $11,500

RCN $2,500 CK $11,500

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Year

Qua

ntity

in M

.Ton

s

East AsiaE.AfricaW.AfricaVietnamBrazilIndia

World Cashew ProductionWorld Cashew Production

Low Crop caused high prices in 98-2001 This spurred growth in the crop 2 years later.

Source: The Cashew Export Promotion Council of India and Trade estimates

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Year

Qua

ntity

in M

.Ton

s

East AsiaE.AfricaW.AfricaVietnamBrazilIndia

World Cashew ProductionWorld Cashew Production

Prices fell from 2000-2004 Low prices stop crop growthTwo years later

Source: The Cashew Export Promotion Council of India and Trade estimates

Trends in Cashews Trends in Cashews -- ProductionProduction

The world cashew crop doubled since 1998. The world cashew crop doubled since 1998. Prices moved in a 30% range.Prices moved in a 30% range.

W. Africa and Vietnam: Explosive growthW. Africa and Vietnam: Explosive growthVietnam grew with much higher productivity.Vietnam grew with much higher productivity.

India, East Africa and Brazil: much slowerIndia, East Africa and Brazil: much slowerPrices went up in 2003Prices went up in 2003--04, despite a much 04, despite a much larger croplarger crop--base than in the late 90s.base than in the late 90s.Sudden priceSudden price--fall in 2005fall in 2005--06, because growth of 06, because growth of 20042004--05 was not absorbed at higher prices.05 was not absorbed at higher prices.

The African ValueThe African Value--ChainChain

CultivationCultivationSmall farmers. Low incomes. Small farmers. Low incomes. CreditCredit--requirements not met.requirements not met.Low yields Low yields -- 1/8 of possible yields 1/8 of possible yields –– no crop inputs.no crop inputs.Pricing uncertainties Pricing uncertainties –– political/commercialpolitical/commercial

Production has been growing phenomenally.Production has been growing phenomenally.Ivory Coast: >50K MT in Ivory Coast: >50K MT in ’’96 to 250K MT in 0696 to 250K MT in 06Prices have still held up Prices have still held up –– in comparison with other in comparison with other hihi--growth tropical agricultural products.growth tropical agricultural products.

Trends in cashews Trends in cashews -- processingprocessing

718 695

869

1038

869

609695 675

871 865930 927

1067

1337

1163

955 947906

1077 1110

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

Average Value of Raw Cashew Import to India

Average Value of Kenel Export from India Equated @ 1:4.5 yield

Source: Indian Customs

The Indian processing valueThe Indian processing value--chainchain

Organized cluster of factories with about Organized cluster of factories with about 500,000 people in a small rural region.500,000 people in a small rural region.Works with a 30Works with a 30--35% Value 35% Value AddnAddn..

No other comparable intNo other comparable int’’l product processing.l product processing.Subject to International priceSubject to International price--movements.movements.

Partner for growing African cashew production.Partner for growing African cashew production.Ready buyer for cashews round the year.Ready buyer for cashews round the year.Has managed shipment uncertainty.Has managed shipment uncertainty.Able to process varying product on proAble to process varying product on pro--rating.rating.

Trends in cashews Trends in cashews –– Processing Processing

IndiaIndiaPrice passPrice pass--through is visible. through is visible. Local market has developed.Local market has developed.

VietnamVietnam has become a significant processorhas become a significant processorPrices, quality, costs and exports rival IndiaPrices, quality, costs and exports rival India

AfricaAfrica –– significant logistics advantages over India.significant logistics advantages over India.Should the farmer subsidize the factory?Should the farmer subsidize the factory?Develop scale to avoid discounting.Develop scale to avoid discounting.

LogisticsWarehousingReal EstateMerchandisingPromotion

Price-banding

LogisticsWarehousingReal EstateMerchandisingPromotion

Price-banding

RoastingSalting, Flavouring

PackingPromotionBrandingLogistics

Long-term prices

RoastingSalting, Flavouring

PackingPromotionBrandingLogistics

Long-term prices

ImporterImporter RoasterRoaster RetailerRetailer

The USThe US--EU ValueEU Value--ChainChain

ImportWarehousing

CreditPrice Insurance

Quality replacement

ImportWarehousing

CreditPrice Insurance

Quality replacement

USA / EU ValueUSA / EU Value--chainchain

Costs & Margins comparable with other snacks.Costs & Margins comparable with other snacks.Tight Chain. PriceTight Chain. Price--fluctuations reach consumer.fluctuations reach consumer.Supermarkets stock many alternative snacks. Supermarkets stock many alternative snacks. Roasters have choice Roasters have choice

Five other nuts, mixes of nuts and many other Five other nuts, mixes of nuts and many other savourysavoury snacks.snacks.

Cashew are promoted only when great value.Cashew are promoted only when great value.Demand falls when prices move out of a bandDemand falls when prices move out of a band2006 demand fell after prices went up 30%2006 demand fell after prices went up 30%

US consumption of TreeUS consumption of Tree--nutsnuts

0

0.5

1

1.5

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Lbs

Almonds

Walnuts

Cashew+minor nuts

Pecans

Pistachios

Almonds grew from 1999

Source: USDA Trade Data

US consumption of TreeUS consumption of Tree--nutsnuts

0

0.5

1

1.5

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Lbs

Almonds

Walnuts

Cashew+minor nuts

Pecans

Pistachios

Cashews started growing in 2001

Source: USDA Trade Data

US consumption of TreeUS consumption of Tree--nutsnuts

0

0.5

1

1.5

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Lbs

Almonds

Walnuts

Cashew+minor nuts

Pecans

Pistachios

Almonds fell in 2004-06 because the crop stagnated

Source: USDA Trade Data

US consumption of TreeUS consumption of Tree--nutsnuts

0

0.5

1

1.5

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Lbs

Almonds

Walnuts

Cashew+minor nuts

Pecans

Pistachios

Cashews fall in 2005 despite crop increaseNot yet picked up despite lower prices.

Source: USDA Trade Data

Nut Consumption trendsNut Consumption trendsHigh growth itemHigh growth item

For nuts, a pause in their growthFor nuts, a pause in their growthIf consumers could design the perfect nutIf consumers could design the perfect nut……

it would be organic (for purity), it would be organic (for purity), lowlow--sodium (for better health), sodium (for better health), private label (value prices). private label (value prices).

While While equivalizedequivalized units have grown in three out of units have grown in three out of the past four years, there are signs of consumer the past four years, there are signs of consumer price resistanceprice resistance……

AC Nielsen, April 2006AC Nielsen, April 2006

Nut Consumption TrendsNut Consumption TrendsHealthHealth--driven growthdriven growth

What's giving nuts their sales energy?What's giving nuts their sales energy?A magnet to the nutrition-inclined - they're high in protein, fiber, calcium and iron, with many fats, the good kind…packers are adding new flavor varieties such as black pepper cashews…

people may be thinking of nuts as a "healthier" salty snack, and the category appears ready to gain snack share and a more prominent role in meal recipes.

AC Nielsen, April 2006AC Nielsen, April 2006

Nut Consumption TrendsNut Consumption TrendsPiggybacking on other nutsPiggybacking on other nuts

Among the major treeAmong the major tree--nuts, all except cashews nuts, all except cashews are grown in developed countries.are grown in developed countries.Almonds, pistachios, walnuts and macadamias Almonds, pistachios, walnuts and macadamias give very high $ yields to the farmer.give very high $ yields to the farmer.All of them have organizations with funds to All of them have organizations with funds to conduct promotions and healthconduct promotions and health--research.research.NutNut--consumption grew because of their efforts.consumption grew because of their efforts.Cashew demand grew with other nuts, but will Cashew demand grew with other nuts, but will only do so as long as prices are attractive.only do so as long as prices are attractive.

Increasing producerIncreasing producer--valuevalueSequential developmentSequential development

1.1. Reduce waste Reduce waste –– Dry the product.Dry the product.2.2. Make the turns quicker.Make the turns quicker.

Infrastructure and FinanceInfrastructure and Finance3.3. Improve the Product Improve the Product -- min 30% outmin 30% out--turnturn4.4. Grow the crop.Grow the crop.

Increase yields Increase yields –– from 300kg / HA to 1 MTfrom 300kg / HA to 1 MTPlant more.Plant more.

5.5. Increase productIncrease product--value value –– drive consumptiondrive consumption6.6. Add value at Origin Add value at Origin

partner customers, choose niches.partner customers, choose niches.

Partnerships for DevelopmentPartnerships for Development

Leverage Partnerships & increase value in Africa.Leverage Partnerships & increase value in Africa.Government and PrivateGovernment and Private

Farming Farming –– better treebetter tree--yields, outyields, out--turns, size of nuts.turns, size of nuts.ICAR in India, FAO, etc.ICAR in India, FAO, etc.

Infrastructure Infrastructure –– Logistics. UpLogistics. Up--country and Ports.country and Ports.Procurement Procurement –– Banking, MicroBanking, Micro--credit, Certifications.credit, Certifications.Processing Processing –– Rural factories, Machinery, Training.Rural factories, Machinery, Training.Promotion Promotion –– Contribution from African Aid Agencies.Contribution from African Aid Agencies.

Partnerships for DevelopmentPartnerships for Development

The US FDA approved a healthThe US FDA approved a health--claim for claim for other treeother tree--nuts which excludes cashews.nuts which excludes cashews.Only with category promotions and health Only with category promotions and health research, can cashews grow as a research, can cashews grow as a commodity without pricecommodity without price--shocks.shocks.NGOs could help raise resources for such NGOs could help raise resources for such research and lobby for cashews.research and lobby for cashews.

Increasing producer valueIncreasing producer value

3030--50% value50% value--creation possible in RCN.creation possible in RCN.Farm practices: 2 MT/HA demonstrated.Farm practices: 2 MT/HA demonstrated.Quality: OutQuality: Out--turns, Size of nuts, Defectives %.turns, Size of nuts, Defectives %.

Drying of RCN Drying of RCN –– Success of Tanzania thru trainingSuccess of Tanzania thru training

Logistics inefficienciesLogistics inefficienciesReduces farmer value as costs are highReduces farmer value as costs are high

Government PoliciesGovernment PoliciesPromotes monopolies, restrictions.Promotes monopolies, restrictions.High Taxes reduce farmerHigh Taxes reduce farmer--value in tight valuevalue in tight value--chains.chains.

Increasing producerIncreasing producer--valuevalue

Good drying of Raw Cashews can increase Good drying of Raw Cashews can increase value by 10value by 10--20%.20%.

Farmer education Farmer education –– do it early.do it early.Farmer credit Farmer credit –– holding capacity.holding capacity.UpUp--country collection centers.country collection centers.Trader / collector training. Yields and Trader / collector training. Yields and DryageDryage..Commercial Commercial –– wet is heavierwet is heavierDrying Facilities at port. Last control point.Drying Facilities at port. Last control point.

Increasing producerIncreasing producer--valuevalue

No LotNo Lot--mixing. Single origin = better yield mixing. Single origin = better yield Prompt transport and shipment.Prompt transport and shipment.

Inland transport Inland transport –– trucks.trucks.Port infrastructure Port infrastructure –– costs, deterioration.costs, deterioration.Port storage, drying, inspection facilities.Port storage, drying, inspection facilities.Container availability. Container availability. Enough DryEnough Dry--bags in containers.bags in containers.Weekly sailings and shorter transit.Weekly sailings and shorter transit.

Increasing producer valueIncreasing producer value

Government Policies Government Policies –– nurture the nurture the business.business.

Good crop forecasts Good crop forecasts –– aids Marketing plans.aids Marketing plans.Crop Promotion Crop Promotion –– Low exportLow export--taxes.taxes.Infrastructure Infrastructure –– reduce systemic costs.reduce systemic costs.More exporters More exporters –– better farmer prices.better farmer prices.Security.Security.

TakeawaysTakeaways

African RM Price > 25% of Retail Price.African RM Price > 25% of Retail Price.Better value for Origin than other African crops.Better value for Origin than other African crops.Fluctuations due to tight valueFluctuations due to tight value--chain. chain.

ValueValue--based promotion. based promotion. Therefore demand is priceTherefore demand is price--sensitive.sensitive.PricePrice--increases can cause misery when demand falls.increases can cause misery when demand falls.

Nut consumption is growing Nut consumption is growing –– invest in the cropinvest in the cropValueValue--add, but not at expense of growth.add, but not at expense of growth.

NGOs in Africa, NGOs in Africa, plspls help to market cashewshelp to market cashews

Thank YouThank You

Hari NairHari NairWestern India Cashew Company Pvt. Ltd., Indiawww.wenders.com