July 05, 2019
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The cashew nut sector is in crisis in Ivory Coast.
Many people are asking for state
intervention to help curb the problem. This vision of the problem is surprising when we
know that the state is part of the problem!
In this article, ESSIS Césaire Régis, tackles the subject from a global angle by rst
analyzing the cyclical aspects of the crisis before analyzing the impact of bad policy
choices on the cashew nut sector.
The author then makes a series of contextualized
propositions that go beyond the "measures" of adjustment.
Drastic drop in prices, diculties in exporting production, this is the current state of the
cashew industry in Côte d'Ivoire.
Between grumbling producers and buyers' strike, voices are
raised to solicit the urgent intervention of the State, under the pretext of countering a bad
economic situation (in particular in the increase of the price edge of the cashew nut eld).
And
if the problem was rather structural? And if the desired state as the solution bearer, was at the root part of the problem.
Cyclical reasons?
The least that can be said is that this situation arises from the concurrence of several
circumstances. Among these is the stagnation of demand.
Indeed, fearing a break in the
supply of cashew nuts that could put their plants at a standstill, Vietnamese industrialists (the largest cashew processors) imported it at a frantic pace during the 2017 season (rising 54% over
the rst nine months of 2017 in volume, compared to 2016).
This resulted in a price spike
(from $ 1,500 / tonne to $ 2,000 / tonne over the same period) and a 2018 season started with
about 200,000 tonnes of unused cashew nuts.
This surge of prices more or less well
supported by the Vietnamese because of the support of the banking sector via a system of
loans, was less so among the Indians who do not enjoy this facility.
This has thus dampened
global demand. It is this combination, combined with slowing global growth, as well as the
poor quality of the harvest due to high humidity, which not only caused prices to fall but also
reduced opportunities for the 2019 crop year.
It is quite natural that the buyers who imported
from January to November 2017 about 435 000 tonnes from the producers of Côte d'Ivoire,
had for the first semester of 2018 imported only 15193 tons and 34602 tons in 2019 on the
same period, suspecting that the remnants of the beginning of the season which had been
kept by the producers hoping for a rise in prices, were mixed with the new production.
State control with perverse effects
If the cyclical causes have their impact, the fact remains that the evil is deeper.
What explains
why local production of cashew nuts kept increasing while the demand did not follow?
Between 2017 and 2018, it had recorded a record increase of 50,000 tonnes and by 2019 it
was expected to reach 800,000 tonnes.
It is simply the price set by the state, above the
equilibrium price of the market that has driven several producers attracted by rent, to go as
far as changing crops to take advantage of the cashew nut boom. where overproduction.
Taking into account the poor quality of the crop mentioned above, this stiness in the price
per kilo makes it almost impossible to adjust the supply down to bring the market balance.
To
make matters worse, the export tax, poorly adapted to the constraints of the sector, is the
fatal blow to all good intentions that could be animated by its stakeholders.
Indeed, when
Ghana (neighbor of Ivory Coast), does not apply any tax on the export of the cashew nut, the
Ivory Coast it, is the country which taxes the most its exports (the Unique Right of Exit went
from 10 F / kilo to 89.25 f from 2017 to 2018).
In all, it is up to 622 billion FCFA collected by the
state in 2018 while producer revenue was estimated at 404 billion over the same period.
A
lack of competitiveness that has serious repercussions. Taking advantage of loopholes in the
neighboring system (unsuitable taxes and an industrial system unable to process cashew nuts
in large quantities), Ghana has exported almost twice as many as 70,000 tons on average in
recent years.
How to break the deadlock?
From January to February 2018, Vietnam pocketed nearly $ 600 million for 54,000 tons of
processed cashew nuts.
While the prot record pocketed by Côte d'Ivoire during a campaign
is 800 million dollars. Thus, processing is more protable than exporting raw cashew nuts.
But
if Vietnam gets there, it is thanks to a system of bank loans that boosts private investment in
this sector.
In Côte d'Ivoire, banks are less inclined to support the players in the sector
although it is dynamic because the land belongs to the state and that de facto, the
investments made there are not quite secure.
It is therefore necessary to reform land, which
will make individual property rights accessible to all and boost private investment.
Secondly,
there is a need for liberalization of the cashew nut sector, which implies the removal of all
barriers to entry, in particular scal and regulatory, to encourage the development of
processing.
Competition will also be able to encourage improvements in the quality of the
product. At the same time, the existence of an independent regulatory authority is essential
to prevent abusive practices.
This liberalization also involves the elimination of royalties and
other payments (registration fee, CCA, CCA / Support Fund, CCA / support structuring etc.)
which in addition to making Côte d'Ivoire less competitive, does not play role of "stabilization
assistance" that the State lends them.
But this liberalization could only be achieved by
respecting the natural law of supply and demand by abolishing price controls.
These are vital
information signals to help streamline decisions for both buyers and producers.
In the face of the poor economic situation, which is hitting the cashew industry in its full force,
the adjustment measures planned by the government are insucient to make us forget the
distortions in the system governing the sector.
The state control that has been practiced so
far has shown its limits, and it is time to change course, in the sense of reforming the rules of
the game, in order to break with the export of raw materials and move towards the creation
of added value.
ESSIS Césaire Régis,
Activist-Citizen
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