Sunday, January 15, 2012

Mozambique Cashew Reforms Revisited

Cashew policy reforms in Mozambique have been controversial. They are often invoked by critics as an illustration of how agricultural policy reforms supported by international financial institutions may fail to have their intended effects. This paper revisits the reforms and their outcomes almost two decades later. While the reforms resulted in higher producer prices and an increase in output, lack of consensus on the specifics of the reforms and associated non-price support arrangements created a situation in which the sector was not able to withstand international price shocks that ultimately led to a collapse of both the processing industry and cashew production.

Non-price support by donors improved the efficiency of the processing industry but this was not complemented by an expansion in cashew nut supply as such support did not extend to smallholder cashew producers. For the reforms to have had their intended results, greater investment in—and support to—smallholder production was needed to increase yields and overall output. Such a more comprehensive approach to cashew policy reform would have required a greater focus on achieving consensus on the causes of the cashew sector’s problems and agreement by all stakeholders on a common institutional framework for pricing and nonprice support.

Cashew is a tropical nut grown in developing countries. It is produced primarily by smallholders. World cashew production and exports have grown rapidly over the last few decades, faster than world agricultural trade and output.2 The value of world cashew exports, raw and processed, was US $532 million in 1990/91, US $1005 million in 2000/01 and US $2,436 million in 2007/08.

During the 1960s and 1970s, East Africa (mainly Tanzania and Mozambique) was the major cashew producer and exporter. It also had a very capital intensive cashew processing industry, unlike India and Brazil, which used more labor intensive processing techniques. India and Brazil became the major exporters in the early 1990s, having 43 and 22 percent of world exports. By 2007/08, their export shares had declined to 27 and 8 percent, respectively, and these shares were replaced by Vietnam and West Africa, whose world export shares increased from 5.5 and 6 percent in 1990/91 to 26 percent 18 percent in 2007/08, respectively. By 2008 Vietnam had become the largest exporter in value terms. East African countries (Kenya, Mozambique and Tanzania) saw their shares decline further from 7.5 percent in 1990/91 to 5 percent in 2007/08. India and Vietnam have also become major cashew processing locations and import significant quantities of raw cashews from Africa, while Africa is primarily specialized in exporting raw cashew to these two countries. More recently East African countries have started again to process their cashews.

Mozambique’s cashew production and exports collapsed during the 1980s due to the civil war, nationalization of the processing facilities, very low producer prices caused by bans on raw cashew exports, and little non price support to the producers. By 1990/01, Mozambique only exported cashews worth US$15 million which was just 2.8 percent of world exports.

A very contentious reform process was initiated during the early 1990s to return this sector to its pre independence level of production and maintain the processing industry.3 The reforms, which became a cause célèbre of globalization and trade liberalization skeptics, basically involved the elimination of export controls on raw cashews in return for a reasonably high rate of export tax that gradually decreased and then eliminated. Processors, which had bought the privatized cashew processing plants and had made new investments insisted on maintaining the requirement that the producers first sell their raw cashews to the processors before raw cashews could be exported by traders. At the end, export controls were eliminated and replaced with high export taxes which are kept until today.

These reforms pitted a group of new business elites, closely connected to the political leadership, against another new stakeholder, the donors. The fact that the farmers, which were supposed to be the beneficiaries of the reforms, came from locations that voted for the opposition party did not help. The reform program was highly controversial and there was little consensus on how to move forward. Even towards the end of the initial reforms, little agreement was reached on the nature of the policy and institutional structure that could accelerate production growth and accommodate future developments. INCAJU, the agency that was the parastatal supporting the cashew industry, was privatized but acted effectively as a quasi parastatal and did not deliver effective non price support to the farmers. Aksoy and Onal (2011), which analyzes nine cases of reform in sub-Saharan Africa (SSA), classified this reform process as unsuccessful.

Real producer prices increased during the initial stages of the reforms creating an aura of success. These increases also transferred income from the processors to the farmers creating greater conflict among the stakeholders. Declines in international prices after 2000 led to the collapse of both the output and the capital intensive processing industry. More recent international price increases were not fully passed on to domestic prices because of the serious appreciation of the currency.

There was little non price support to the smallholders. A World Bank project for cashew production was terminated because of lack of quality management by the Ministry of Agriculture and there was no active program to improve the cashew orchards after decades of deterioration. Donors, such as the World Bank, have not focused on the cashew sector mostly because of the very acrimonious debates on the reform program. INCAJU, which was privatized in the early 1990s, has effectively been a quasi parastatal and have not been very effective in supporting the smallholders despite its programs of spraying and replanting.

The capital intensive processing technology adopted by the processors and supported by the government has not been able to be competitive with the manual systems despite high export taxes on raw cashews. This has led to the exit of one group of processors, and the entry of another of group. This new group of processors employs labor intensive production technologies, is more efficient, and is supported by the donors. This new group, like the earlier processors, has not been able to establish effective production and support relationships with the smallholder producers.

Despite a series of actions, programs, and controversy; cashew exports only increased from an average of 24 thousand tons in 1993/94 to an average of 44 thousand tons of raw cashew equivalent in 2007/08. While this is an increase of 86 percent, it also corresponds to a decline from 2.1 to 1.6 percent of world exports. Therefore, it has been a sector that has performed badly relative to the rest of the world and even to the rest of SSA (Annex I). In the process, output, producer prices, and the share of the export price received by the producers all increased after the reforms and exports reached 50 thousand tons in 1998. However, a steep fall in international prices in 2000 of some 50 percent led to a collapse in output to below pre reform levels. A subsequent gradual increase in producer prices, slightly higher support to producers and new donor support programs for the processors led to a recovery in exports to reach almost 50 thousand tons in 2008.

World Bank. M. Ataman Aksoy. Fahrettin Yagci.Policy Research Working Paper. 5939


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