Case The Cashew
The cashew tree today is best known for its nuts, which account for about 20 percent of the value of nuts produced worldwide about equal to the value of almonds or hazelnuts. U.S. imports of cashew nuts in 1995 totaled about $245 million, about 60 percent of the world market and more than three times the imports into Europe, which is the next largest market.
The fruit of the tree (known as the cashew apple), however, drew the earliest attention. The Tupi Indians of Brazil first harvested the cashew apple in the wild. They later introduced it to early Portuguese traders, who in turn propagated the plant in other tropical countries. (See Map 5.2 for major production locations.) But attempts to grow the tree on plantations proved unsuccessful because the cashew was vulnerable to insects in the close quarters of plantations. Instead, some of the abandoned plantation trees propagated new trees in the wild where they thrived in the forests of India, East Africa, Indonesia, and Southeast Asia.
Several factors inhibited early use of the cashew nut. First, cashew fruit matures before the nut, so the fruit is spoiled by the time the nut can be harvested usefully. Second, the processing of cashew nuts is tedious and time-consuming. In the 1920s, however, a processing industry developed in India, and the nuts became more valuable than the fruit because they became so popular among Indian consumers. India maintained a virtual monopoly on cashew processing until the mid- 1970s. This monopoly was due to three factors.
1. India was the largest producer of wild cashews.
2. Early demand occurred in India, meaning that any other country would have to incur added transport charges in order to reach the Indian market.
3. Most importantly, the Indian workers were particularly adept at the process technology.
Cashew nut processing was very labor-intensive and required manual dexterity and low wage rates. The nut is contained beneath layers of shell and thin skin. To remove the shell, the nut must be placed in an open fire for a few minutes and then tapped (while still hot) with a wooden hammer. If the nut is broken in the tapping, its value decreases consider- ably. Once the shell is removed, the nut is placed in an oven for up to ten hours, after
Cashew nut processing was very labor-intensive and required manual dexterity and low wage rates. The nut is contained beneath layers of shell and thin skin. To remove the shell, the nut must be placed in an open fire for a few minutes and then tapped (while still hot) with a wooden hammer. If the nut is broken in the tapping, its value decreases considerably. Once the shell is removed, the nut is placed in an oven for up to ten hours, after which the skin is removed by hand while the nut is still warm. Removal is done without the use of fingernails or any sharp objects that can mark or break the surface. The nuts are then sorted and graded into twenty-four different categories by the size of the pieces. The highest grade typically sells at about four times the price of the lowest grade, which is sold almost entirely to the confectionery industry.
Through the years, several factors began to threaten India's prominence as a cashew producer. As demand for the nuts grew in the United States and the United Kingdom, a shortage developed. Because the nuts were unsuited to plantation growth, India turned to East Africa, especially Mozambique, Tanzania, and Kenya, for supplies. Those countries were experiencing high unemployment and at first were eager to sell the raw nuts.
By the 1950s, India was no longer the world's major consumer, and the East African countries began to realize that they might be able to bypass India by processing the raw nuts themselves. Cashew-processing methods were well known, so there was no techno- logical obstacle. There was another barrier, however, that blocked early competition from East Africa. The Indian labor force worked on making handicrafts at home as children and, as a result, by the time they were employed in cashew processing, could perform delicate hand operations efficiently. Without this training, the East Africans were at a fatal disadvantage.
Although the Africans' inability to compete granted a reprieve to the Indian industry, it put them on notice that they were vulnerable to supply cutoffs. The Indian Council for Agricultural Research, the International Society for Horticultural Sciences, and the Indian Society for Plantation Crops expanded their efforts to increase India's production of raw nuts. Concomitantly, three different companies developed mechanical equipment to replace hand processing. The Sturtevant Tropical Products Institute developed a method now used by a London equipment manufacturer, Fletcher and Stewart, which cracks the shells with a steel plate. Oltremare Industries of Italy and Widmer and Ernst of Switzerland both developed shell-cutting machines. Equipment was sold to East African countries and to Brazil in the 1970s. These countries decreased their exports of raw nuts to India in order to maintain supplies for their own processing.
Three factors have kept India's hand-processing industry afloat. First, the machinery breaks many cashew nuts, so Indian processors still face little competition in the sale of higher-grade nuts. At any time, however, newer machinery might solve the breakage problem, again threatening the approximately 200 Indian processors and their 300,000 employees. Furthermore, there is increased competition for the lower-grade output. Second, Indian processors have been able to obtain increased supplies of raw nuts, partially as a result of Indian production increases. Pesticide technology now makes cashew tree plantations feasible, thus increasing the number of trees per acre. Furthermore, Indian experimentation in hybridization, vegetative propagation, and grafting and budding techniques promises to increase the output per tree to five times what it was in the wild. In addition, India has been increasing its imports of raw nuts substantially, primarily from Tanzania and Vietnarn. Third, India uses fewer fertilizers than Brazil, the biggest export competitor, and the lack of fertilizer apparently gives Indian nuts a better flavor. Because its exports consist of a higher portion of higher-grade nuts and because of flavor differences, Indian exports sell for a premium in comparison with those of competitors, for example, about 1 5 percent more than nuts from Brazil and about 25 percent more than those from Mozambique. However, yields are usually higher in Brazil, and Brazilian processors pay only between 30 and 36 percent of the price the Indian processors pay for raw nuts. Further, because of differences in domestic demand, India typically exports about 50 percent of the raw kernels that it processes, whereas Brazil exports about 85 percent. In the 1993-1995 period, Brazil suffered crop problems, which enabled India to gain a temporary increase in global export share of processed cashew kernels.
The Indian processors were adversely affected by the thawing of the Cold War. Because India could no longer compete as well in its traditional North American and European markets for lower-grade nuts, a larger proportion of those nuts was sold during the 1980s to the Soviet Union, which became India's largest cashew nut customer in terms of tonnage. The Soviets bought the nuts at a price above world market levels, and their buying habits were believed to have a political motive. These sales decreased substantially when the Soviet Union broke up.
There is potential for an excess supply of cashew nuts, which might result from plantation techniques and improved technology in India and elsewhere. To find outlets for a possible nut glut, the All-India Coordinated Spices and Cashew Nut Improvement Project has centered on finding new markets for products from the cashew tree. The cashew apple, for example, is available in far greater tonnage than is the cashew nut. It has been discarded in the past because processors could get either fruit or nut but not both, and the nuts have been considered more valuable. Experimentation is going on to harvest both the fruit and the nut. The fruit also is being studied for commercial use in candy, jams, chutney, juice, carbonated beverages, syrup, wine, and vinegar. A second area of research is in the use of cashew nutshell liquid (oil), which was once discarded as a waste product. It is now used extensively in industrial production of friction dusts for formulation in brake linings and clutch facings. So far, however, the extraction of cashew nutshell liquid has been too costly to make the product fully competitive with some other types of oils.
Questions
1. What trade theories help to explain where cashew tree products have been produced historically?
2. What factors threaten India's future competitive position in cashew nut production?
3. If you were an Indian cashew processor, what alternatives might you consider to maintain future competitiveness?