Cashew industry: Living in unpalatable times

• India’s cashew exporters have been struggling of late, with exports plunging to a two-decade low in 2018-19.
• This trend has been attributed to external factors such as tough competition from Vietnam and other countries that have cheaper processing costs.
• Domestic factors such as lack of access to institutional credit owing to the crisis in India’s banking sector are also weighing down India’s cashew exports.
• Multiple challenges faced by the industry need to be addressed, while also looking at new growth avenues in processed cashew exports.

India is one of the leading suppliers of cashew kernels to global markets. This is hardly surprising since it produces 6-7 million tonnes of raw cashew annually. In fact, India has the distinction of being the first country to develop the cashew processing industry. It was the leading cashew exporter for several years before being overtaken by Vietnam.  

From around 100,000 tonnes at one point, cashew exports from India have been falling steadily. In 2018-19, India’s cashew exports dropped to a two-decade low, falling by 20% YoY in volume terms to 66,693 tonnes and by 24% YoY in value terms to INR 4,434 crore. This is indeed surprising since the cashew industry is seeing sunny days globally. According to the International Nut and Dried Fruit Council, the international demand for the cashew kernel has increased by 53% since 2010.

Impediments to trade

Stiff competition from Vietnam and other countries that have cheaper processing costs is cited as the main reason behind this development. Currently, Vietnam constitutes about 76% of the cashew imports by US, for instance, where India was a top exporter earlier.

Vietnam has completely mechanised cashew processing, and can process raw cashew into kernels at about Rs 900 per bag. In sharp contrast to this, cashew processors in Kerala do the same at a relatively much higher cost of about Rs 3,500 per bag. What drives up the cost of this operation is the high labour charges in Kerala. Even in other south Indian states, processing charges amount to about Rs 1,400-1,500 per bag.

Misuse of the India-ASEAN FTA is another issue plaguing exports, according to the industry. This pertains to the inclusion of roasted and salted cashews in the list of items qualified for availing duty free status in FTAs/agreements with ASEAN. Importing the commodity by declaring it as roasted cashew or as cattle feed for zero duty is hampering competitiveness (surge estimated at 3,000 MT so far). On the other hand, the import duty for Indian cashew kernels is very high particularly in South Korea, Australia and China compared to competitors like Vietnam and African countries.

What has compounded the problem further is the reliance on raw cashews imported from Western Africa due to the inadequate indigenous availability of the product. It is reported that India meets over 60% of cashew processing needs from imports. What has complicated the matter is the exorbitant raw nut prices, which typically range from US$ 2,100 to US$ 2,400 per tonne. This has forced many units in Kerala to shut down their factories due to non-viability of the trade. For instance, In Kerala’s Kollam district, 700 out of the 834 registered factories have closed their doors in the last 2-3 years due to the paucity of working capital and non-viable operations. The lack of access to institutional credit due to the crisis in banking sector (bad loans & NPAs) has prevented exporters from mechanizing the production process.

Non-tariff barriers are another detriment to imports of raw cashew. “While importing raw nuts from LDCs, the customs are insisting for 100% inspection and checking each bag for markings to confirm the source country.  As per the DFTP scheme, only the Country of Origin Certificate issued by the relevant authority, original Commercial Invoice, Bill of Lading and other supporting documents are required to be produced…. Since, the Raw Cashew Nut is an industrial raw material, normally; the seller uses the used bags of other products.  Hence instances of marking about the consignee are not practical and harassment to the importers,” explains Mr. S. Kannan, Executive Director & Secretary of The Cashew Export Promotion Council of India in an exclusive interview to TPCI.

On the home front, there are also challenges like higher valuation for the imported raw nuts and payment of duty at 2.5% even for the import from LDCs are the real hurdles in selected ports.  For example, it has been observed in Mangaluru, a cashew hub, customs have arbitrarily fixed the floor price of imported raw cashew at almost 30% more than the present market price. This has also eroded the competitiveness of cashew exporters. Further, weak local prices in the domestic market have discouraged exporters from selling their product in India.

Getting the sector back on its feet

First of all, the sector is in urgent need of a strong liquidity infusion. The Indian government has already taken steps like a devising a comprehensive 4R’s strategy for PSBs, revising the Insolvency and Bankruptcy Code (IBC) & monitored high-value loans. Benefits of such measures need to trickle down to the cashew processing units in India.

The government hiked import duty of cashew kernels to 70% from 45% in the recently announced Union Budget, a move that was welcomed by the industry. But they are also demanding for the removal of 2.5% customs duty on raw cashew to make domestic processing viable.

Promoting cashew production so as to shun import dependence is another strategy to tackle the situation. Kannan feels that the government should set a target of achieving 20 lakh MTS of raw cashew nut production in India by the year 2025. The government must also grant some funds in order to facilitate the mechanization of cashew kernel production. While initially expensive, this will eventually bring down the production cost faced due to expensive labour charges.

There is also the need to recapture our traditional markets – USA, Europe, and Australia – and to establish our mark in emerging markets like Korea, Russia, CIS countries, Iran, Iraq.

Just like India pioneered cashew processing, it can take the lead in driving new growth areas for the sector. One such idea is the commercial extraction of anacardic acid from the cashew nut shell liquid, which is being touted as a highly potent cure for cancer. Besides this, many commercial processed food product lines like jams, pickles, juices, etc can be explored for promoting cashew exports.