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BUSINESSAFRICA.NET NEWSLETTER
ISSN 1563-4108
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| ECONOMIC ANALYSIS | |||
TRUE CAUSES BEHIND THE COLLAPSE
OF MOZAMBIQUE'S CASHEW NUT
INDUSTRY
(Part
1)
CASHEW NUT WORLDWIDE MARKET
PRODUCTION LEVEL AND PRICING STRUCTURE
This delivery is a continuation
to these preliminaries
It is also a continuation to:
"The
Strategy for an African Country"
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For
a global market of 395,000 metric tons / year for all kinds of nuts (cashew
nut, Brazil nut, hazel nut, walnut, almond) cashew nut' share is - for a normal
harvest" - in the average range of 70,000 -75,000 metric tons a year. That
is to say 17.4 % to 19 % of the total. The market is highly concentrated:
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The market is also characterized, year in year out, by unexpected sharp highs
and lows of the global production. Some year, production may suddenly decline
to halving past year's production level. Variations of production occurring
in Africa when Mozambique and or Tanzania production's levels are less or more
abundant than expected.
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Prior to the IMF and the World Bank's dictums to Mozambique
in 1994-1995, only 5% of raw cashew nuts were sold on the global marketplace.
After 1995 till this May 2001 that proportion substantially increased due to by
Mozambique's export of raw nut to India. Click
here for more
Principal importing countries
of processed cashew nut (90% of total of world's imports) are: The United States
of America, European Union countries, Japan and the former USSR countries.
- 1° -
The United States' market is fundamental in cashew nut's trading. It stands for
50% of the total of imports of processed cashew nuts, and therefore, it dictates
international selling prices. Brazil has an export monopoly to that market.
- 2°-
Former USSR used to account for 25 % of the global imports' market of processed
cashew nut. Something in the range of 20,000 metric tons per year before the collapse
and disappearance of USSR. These 20,000 metric tons of processed cashew nuts representing
83,000 metric tons of raw nuts. That market was India exports' monopoly.
The market of former USSR, however, had always played a disturbing role on
the cashew nut's global marketplace. International selling price of cashew nut
used to rise sharply when USSR countries' imports are steady and important. Same
prices nose dive abruptly when these countries demands are inconsistent and low.
That behavior of former USSR market results in highlighting the importance and
predominance of USA's imports, which then represent something in the range of
60% of the global world market of cashew nut; instead of the normal level of 50%
when demands are steady in former USSR's market.
- 3° - Cashew nut' share on the global market of nuts and almonds in
European Union countries is marginal. It accounts for 10,000 metric tons per year
of processed cashew nut or something in range of 3% of the total of imports of
all kinds of nuts and almonds. These 10,000 metric tons are provided by following
countries: India: 20%; Brazil: 20%; Africa: 60% and spread
between importing European countries as follows: Germany 30%; United
Kingdom: 25%; France: 10%; Netherlands: 25% and 10% for other
European countries.
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4° - In Asia, only the Japanese market is important. It accounts only
for 4% to 5 % of the total of the global international export market of cashew
nut. That is to say 4,000 metric tons per year.
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1° - GENERAL CONSIDERATIONS ABOUT THE PRICING STRUCTURE
Selling
price of cashew nut depend on the origin of the product. Pricing is not uniformly
setup.
The selling price of raw nut and processed nut depend
on several factors:
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- The resumption of production in countries like Mozambique and Tanzania. - The increase of plantation's acreage in India and Brazil. |
The
combined effect of both factors may initiate an "explosion" of the production
level. Production output of a certain year can thus double in comparison to previous
year. The amount of all kinds of raw nut can explode from the normal 395,000 metric
tons per year to 790,000 metric tons. The resulting quantities of cashew nuts
swelling from 75,000 metric tons to 150,000 metric tons.
It is obvious
that when that occurs, the market being flooded, selling prices drop sharply.
This is an important fact to keep in mind when one is establishing a processing
line to transform raw nut into finished cashew almonds.
In addition,
as briefly explained above, former USSR countries' import-market plays a disturbing
role on the cashew nut marketplace. The pricing fluctuation, which can result
from the steady high level demand or low level and irregular demand from these
countries can average + / - 20%.
Furthermore, in addition to above
outlined factors, which more or less dictate the pricing evolution, one should
bear in mind that cashew nut is a delicacy, a luxury product in the category of
dried fruits. Its selling price is almost double of the selling price of other
similar nuts and almonds against which it competes on dried fruits' marketplace.
- 2°-
PRICING
Prevailing prices depend on the origin of the product. During
1980-1990's period prices were good for India cashew nut, which selling price
was between US $ 1.188 and 1.012 per metric ton / FOB. During the same period
cashew nut from Mozambique was selling between US $ 330 and 315 / metric ton /
FOB. And product from Guinea Bissau was enjoying a premium pricing of US $ 700
in average.
When raw cashew nut is processed
on industrial scale, the following products are obtained and selling (1980-1990)
at the prices listed in column 4 of Table N°1 below:
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REMARK The technical yield of the
process is 0,21. That is to say: one metric ton of raw nut gives 210
kg of processed cashew almond and other products listed in column number
1 as a - b - c - d - e - f plus 7% of Cashew Nut Shell Liquid (CNSL).
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Above inputs - from the General Considerations' chapter
to the processed products listed in Table N°1 - stand as preliminaries to
deciding upon which products a company, trading in the cashew nut business,
should sell on the cashew nut international marketplace to ripe substantial
profits and increase Return On Investment's ratio.
Let's us consider and discuss
now about the category of products the company should sell: processed cashew almond
or raw cashew nut or a combination of both.
As the technical
yield of the transformation process of raw nut to various almond and products
is only 0,21 one could wonder if it is a profit making operation to implement
the transformation of raw nut to finished almond plus cashew nut oil. (See Table
N°1 above)
Taking into account data listed in Table N° 1
we obtain Table N° 2 - shown below - which gives the proceeds in US $ generated
by products a - b - c - d - e - f plus CNSL for the transformation of one metric
ton of raw nut to finished almonds.:
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One sees that the transformation process of raw nut to processed almonds plus
CNSL-OIL is a profit making operation when one compares the global price obtained
to pricing discussed in Chapter 3-
above:
"Princing and Price Evolution"
By-products have not even been taken into account (the shell and fine particles
of raw nuts and processed almond - 700 to 720 kg per one ton of raw nuts), which
can be used as animal feed and therefore provide additional revenues to the company. And
also the processing of Cashew Apple to candies, jam, chutney,syrup, sun-dried
cashew-apple, carbonated soft-drinks and wine can improve the bottom line.(One
ton of raw nut for 15 tons of fresh cashew-apple)
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| Yellow and Red Cashew-Apple | Whole Cashew Nut | Broken Cashew Nut | Cashew Nut in pieces |
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Data and information listed in Tables N° 1 and N° 2 are not sufficient
to assist the company in making sound and safe investment decisions; particularly
for the initial investment and installation of production lines. The company's
decision making body should get precise and accurate answers to following questions:
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Obviously
not. Taking investment decisions based only on the pricing listed in tables 1
and 2 and Chapter 3 will be suicidal. It is a sure recipe to financial disaster
- sooner or later.
The commercial manager
or production manager are not in the position to provide additional information
and answers to questions raised above and others to be considered soon in part
2 and 3
of this report.
These answers are within the realm of the financial manager and
Accountancy department. They represent an opportunity for the financial manager
to step in and shows his financial analysis acumen. His input will kill or boost
the company as it will determine:
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The productivity and output of the processing plant |
In next delivery are considered data and recommendations of a feasibility study
drafted for the transition of Guinea
Bissau's cashew nut industry from raw nut selling to processed products' marketing.
The critical analysis of the findings and recommendations of said feasibility
study will help us move a step further to determining which entities are responsible
for the collapse of Mozambique's
cashew nut's industry. Click
here for more.
© Dr. Bienvenu-Magloire
QUENUM
Investment and Business Planner
Click here for Part -2
©2001
Dr. Bienvenu-Magloire Quenum. All rights reserved
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Two countries, India and Brazil provide 64 % of the total production.