Expansion ahead: Efforts under way to rejuvenate domestic cashew and cotton production

Under the guidance of the newly established regulator, the Cotton and Cashew Council (Conseil du Coton et de l’Anacarde, CCA), the two dominant crops of northern Côte d’Ivoire are projected to expand rapidly over the next several years to meet government objectives for production and processing. Growth in the cashew and cotton sectors will be facilitated by new regulations inspired by the success of the cocoa and coffee reforms, including the introduction of a minimum 60% cost, insurance and freight (CIF) price.

Cashew

Producing 400,000-500,000 tonnes, Côte d’Ivoire is the second-largest global cashew producer after India, and is poised to continue expanding under CCA supervision. Olam International accounts for a quarter of cashew exports, while smaller players also maintain international connections with locations as far away as India and Vietnam.

CCA reforms are expected to address price insecurity by establishing a 60% minimum CIF price, to be announced in early 2015. Although details were not available at the time of writing, sector observers expect that the move will incentivise cotton production by offering farmers price security.

The process of setting a minimum price for cashews is a more challenging task than for other soft commodities, because cashew nuts have no terminal reference price and are not a future-traded commodity. Trade is largely restricted to three processing hubs in India, Vietnam and Brazil, and within this trade Ivorian farmers are at a disadvantage due to the varied global production timetables.

With the season’s start in February each year, cashews produced in Vietnam are the first to arrive on the international market, followed by Indian cashews and then West Africa cashews. By this time, there is normally an excess supply of raw nuts that puts downward pressure on prices; therefore, West African farmers take the brunt of low prices for raw cashew nuts. Although Côte d’Ivoire already has a minimum price, set at around CFA310 (€0.47) per kg in 2014, the price was regularly flouted, and farmers received only CFA125-150 (€0.19-0.23) per kg.

In 2015 the priority is to ensure that the minimum price is respected, which will support production while also helping to stabilise the international market. The fact that one of the world’s largest cashew exporters has set a minimum price helps provide certainty to the market. Industry players may argue about whether this price is too high or low, but it nevertheless becomes a key reference point.

Comparative Advantage

Average yields are currently low relative to international competitors; India produces around three tonnes of cashews per ha compared to an average of 1.8 tonnes per ha in Côte d’Ivoire due to better access to credit and agricultural inputs, and better farming and irrigation practices. However, land in Côte d’Ivoire is significantly cheaper than in India, thus the output per unit of cost is more productive in Côte d’Ivoire, though output per unit of land is better in India.

Given that cashew has been growing in a largely unorganised manner in Côte d’Ivoire, there is significant potential. Even with today’s production at 500,000 tonnes per year, this developed with very limited organised investments and has been largely the result of good weather conditions and soil fertility. Recent efforts to organise farmers and production are likely to increase output volumes thanks to better education and the use of improved farming practices. Industry players suggest that Côte d’Ivoire could emerge as the world’s largest producer of cashew.

Processing

About 90-95% of production is currently exported raw to major processing hubs, but by 2016 the government aspires to increase local processing to 35% of output, or around 230,000 tonnes. The state’s promotion programme will incorporate four strategies to encourage the establishment of a viable local processing industry, namely facilitate access to credit, reinforce processing capacity, support the commercialisation process and improve the quality of nuts.

In January 2014 at a seminar to inform local players about cashew processing, the Ivorian minister of industry and mines, Jean-Claude Brou, announced that credit would be made available to promote processing. Financing is accessible through the Ivorian government (CFA22bn, €33m), the West African Development Bank (CFA7bn, €10.5m) and the World Bank, which will provide regulatory assistance and a line of credit worth CFA15bn (€22.5m).

Côte d’Ivoire has few cashew processors at present, the largest of which is Olam, with two units and a total capacity of 40,000 tonnes. The company established the continent’s largest cashew processing facility in February 2012 in Bouake, with an annual capacity of 30,000 tonnes, worth CFA17bn (€25.5m).

Despite increased access to credit, the government has a number of other issues to consider in order to realise its goal. “The country is starting from scratch – it needs a marketing strategy, processing facilities, new warehouses and tax incentives to compete with India and Vietnam, who have the comparative advantage in terms of labour, economies of scale and other processing costs, such as the cost of electricity,” Edward George, head of research at Ecobank, told OBG. “There is no consumption of cashews locally; therefore, fiscal incentives are needed to support the domestic industry,” he added.

A New Beginning For Cotton

Once a leading producer in the sub-region, Côte d’Ivoire’s cotton industry has suffered over a decade of neglect due to low international prices and local unrest. Nevertheless, higher world prices and state provision of fertiliser and pesticides since the end of the war have encouraged the steady recovery of domestic production. In 2015 the state anticipates that production will reach 400,000 tonnes, surpassing pre-conflict levels. A lack of access to fertilisers, pesticides, seeds and inadequate farming practices have been identified as one of the largest impediments to increased output; government support will thus continue in order to double annual production by 2016 to 600,000 tonnes.

“Thus far, government efforts to boost production have been very effective, and output has risen dramatically as a result in the last two seasons. A total of 600,000 tonnes may be ambitious, but cotton has a bright outlook and production will likely catch up with regional leaders,” said George.

Many farmers also receive farming support from major ginners like Olam, which provides resources like seeds, pesticides and technical training to enhance productivity. “Farmers have no access to finance in this country; therefore, we pre-finance close to 99% of farmers’ crop and provide support throughout the supply chain to ensure that producers meet their targets,” Augustin Apetey, general manager of Strategic Investments at Olam, told OBG.

The Interprofessional Fund for Agricultural Research and Council is responsible for evaluating the quality of extension support offered by private companies and competitively ranks programmes, facilitating continued improvements in support programmes. Public and private assistance will be crucial to achieving state production objectives in light of low average yields, which remain around 1000 kg per ha relative to competing cotton producers, who produce as much as double the Ivorian average.

Côte d’Ivoire was once home to a profitable cotton processing industry that included cotton crushing, threading and textile production, but the collapse of local production led to the crash of the processing sector. “All of the country’s cotton is being exported raw. There are no longer any real value-added activities here. The irony is that Ivorian lint is being exported to China, turned into t-shirts, re-exported to Côte d’Ivoire and worn by Ivorian farmers,” said George. The CCA hopes to rejuvenate domestic processing activities; however, the re-establishment of a local industry will require not only support in the form of fiscal incentives, but also improvements in electricity. “Until electricity improves, the processing industry is a no-go. Otherwise, companies need to import fuel and generators, which is unviable,” George said.