The global price of the commodity has jumped from $1.15 to $2.40 per kg in the past 10 days.
In the US and Europe, cashews compete with other nuts, like almonds and pistachios. With every increase in cashew prices relative to other nuts, its use in snacks is falling.
The global price rise is inextricably linked to Tanzania President John Magufuli’s recent ‘political manoeuvres.’
Purchase price lower than production cost
Cashew farmers had been holding back from selling after prices fell below what they said it cost them to produce the nuts.
The Cashewnut Board of Tanzania (CBT) had proposed a price of Tsh1,500 ($0.65) per kilogram of raw cashew but the government rejected it, proposing Tsh3,000 ($1.30) as the least price.
Last week, Magufuli stepped in and ordered a 94% increase in the domestic price to help the farmers – setting it at Tsh3,300 ($1.80) a kilo.
However, private buyers baulked at the higher price, so the president instructed a government-owned bank to buy the estimated 220,000 tonne crop at his preferred price.
“We will buy the entire crop, then we will look for buyers and we will eat anything that is not sold,” said Dr Magufuli.
He then deployed the country’s military to supervise the purchase of cashew nuts in southern region and guard it.
Dubbed Operation Korosho, the move is a welcome relief to the aggrieved farmers. The Tanzania Agricultural Development Bank has paid Tsh4.5bn ($2.1m) to cashew nut farmers in Mtwara, Lindi and Ruvuma regions since the operation started two weeks ago.
Pushing up the commodity price
However, the events have pushed the global price of the commodity from $1.15 to $2.40 per kg in the past 10 days.
Snacks account for over 60% of the demand for cashews; however, the rising price is dampening enthusiasm for the nut.
According to Cashewinfo, an India-based industry research organization, ‘Tanzania’s nuts policy is so bad it's good.
‘By buying up the entire cashew harvest at a near-100% premium, the Tanzanian president hopes to help farmers … but [he has now] made it the government’s problem to sell them on. The mainly Vietnamese firms that turn the fruit into tasty snacks are refusing to buy at the elevated prices.
‘The upshot is Tanzania's fruit is vastly uncompetitive. This raises the prospect of the entire 2018 harvest going to waste.
‘Without any buyers … the country is on the hook for an unbudgeted $320m, over 2% of planned 2018-19 spending.’
It added that ‘Magufuli's scheme has a certain base political logic. Farmers are an important constituency: last year, cashews were the most valuable export crop, earning $540m.’
Tanzania's beleaguered cash crop
Cashews are the most valuable export crop for Tanzania's $56bn economy.
The country has about 700,000 hectares under the crop. Lindi, Mtwara and Coast regions account for over 80% of total area, with smallholders forming the majority of the producers.
Tanzania ranks fourth in the production of cashew nuts in Africa and eighth at a global level, with the Far Eastern countries taking the top slots.
However, poor regulation and lack of reliable payments to farmers has posed significant challenges. The lack of domestic processing firms, too, is costing the country vital foreign revenues and thousands of jobs.
Tanzania’s president has become actively involved in reviving its cashew processing industry.
In June, Magufuli threatened to sack ministers who complained about proposed changes to the Cashewnut Industry Act introducing an export levy to be collected and channelled into the National Treasury’s Consolidated Fund, rather than to the cashew nut fund.
Before launching Operation Korosho, he then sacked the Minister of Agriculture and his Industry, Trade and Investment counterpart, disbanded the CBT and revoked the appointment of its board chairperson.