Setting minimum cashew prices in Ghana: Getting it right

The cashew sector is increasingly becoming one of the most important agricultural sectors in Ghana. The sector has grown into one that contributes significantly to economic growth, particularly in job creation and poverty reduction.

The African Cashew Alliance (ACA) estimates that over 800, 000 people are directly and indirectly employed across the cashew supply chain, including farmers, factory workers, buyers, and exporters of the commodity in Ghana. With an estimated annual production of between 110, 000 and 130, 000 tons of raw cashew nuts (RCNs), about 85% of which are exported, cashew has for the past five years been one of the top non- traditional export commodities in Ghana. According to data from the Bank of Ghana, the country earned 128.70 million dollars from cashew nuts exports in the first quarter of 2021.

Cashews are produced in Ghana mainly in the Bono, Bono East, Ahafo, Savana, and some parts of the Volta and Northern regions. There are about 14 cashew processing factories in Ghana, which transform RCNs into finished and semi-finished products both for local consumption and export.

There are also several companies and individuals who buy and export RCNs.

Cashew pricing has, however, been a major issue of contention among farmers, buyers, and processors in Ghana. RCNs are normally sold in Ghana around 4 cedis and 5 cedis per kilo. However, this could sometimes fall as low as 2 cedis per kilo, which mostly comes as a big challenge to farmers, most of who depend on cashew as their main source of income, especially during the hunger months of January and February.

Price volatility of cashew makes it difficult for actors of the sector, especially local processors, to effectively plan their operations for the year and this does not only affect these actors, but also the growth of the entire cashew sector.

The level of price volatility of cashew in Ghana over the years is largely because the sector has not in the past been properly organized and regulated. Unlike the cocoa sector and cashew sectors in other African countries like Cote d’Ivoire, the cashew sector in Ghana, for many years, was without a regulatory institution.

Even though there had been several actor associations like the Ghana Cashew Traders and Exporters Association, farmer associations and as recent as 2016, the Association of Cashew Processors Ghana (ACPG), the sector still lacked proper organisation and adequate supply chain linkage.

The lack of proper coordination among the various actor associations meant that these associations sometimes pushed the interests of its members and not the sector in its entirety.

This also resulted in illegal activities like smuggling of nuts to and fro neighbouring countries, and gave way for unauthorised buyers and exporters to buy directly at the farmgate at lower prices and without allowing proper drying to be done by farmers.

All these contributed to the price volatility of cashew and resulted in the low level of local processing in Ghana.

The passing of the Tree Crops Development Authority (TCDA) bill into law (Act 1010) in December 2019 and the subsequent inauguration of the Board of the TCDA in September 2020, is therefore one of the greatest things to happen to the cashew sector in Ghana.

The TCDA is now the regulatory institution for cashew and five other tree crops. It is mandated to regulate and develop the production, trading, processing, and marketing of cashew, shea, coconut, mango, rubber, and oil palm, by conducting research into developing these sectors, providing technical support as well as coordinating and facilitating the capacity building of producers, processors, and traders of these crops.

For many actors of the cashew sector, especially farmers, the creation and operationalisation of the TCDA marked the end of the adverse issues relating to cashew pricing in Ghana.

As pertains in Cote d’ Ivoire, farmers expected the Authority to determine cashew prices. This explains why, as revealed by the Chief Executive Officer (CEO) of the TCDA, Hon. William Agyapong Quaittoo, at the 15th ACA annual Cashew conference, a lot of cashew farmers started putting pressure on the Authority to set cashew prices immediately after the inauguration of the Board in 2020.

It also explains concerns regarding the modalities that will be used in setting these prices.

In response, the young TCDA, with the support of development partners like African Cashew Alliance, Competitive Cashew (ComCashew) initiative, and the Swiss State Secretariat for Economic Affairs (SECO), has held several stakeholder consultations to discuss the modalities that should go into cashew pricing. As indicated by the CEO during the Cashew Traders and Exporters Association of Ghana’s annual conference and inauguration ceremony in Sunyani, the Authority will be announcing prices for the next cashew season in December 2021.

What are the international industry practices?

Issues of cashew prices have been a major subject of discussion not only in Ghana but in the entire African cashew industry. While some countries set minimum prices for cashew, others operate an open market regime where the forces of demand and supply are allowed to completely determine how low or high prices go.

In Cote d’Ivoire, the world’s biggest cashew nuts producing country, the Cotton and Cashew Council, the regulatory body for cashew and cotton, determines the minimum farmgate price for cashew, in consultation with actor associations and enforces it throughout the country.

Speaking on a panel at the 15th ACA Annual Cashew Conference in September 2021, Director General of the Cotton and Cashew Council, Dr Adama Coulibaly, explained that setting minimum prices is a mechanism used to protect farmers and ensure that they get fair prices.

This he said, is determined based on market analysis and extensive consultation with major actors and stakeholders of the cashew sector in the country.

In determining the minimum price, the Council takes into consideration the interests of farmers, processors, and traders of the commodity to ensure that the price that is announced does not disadvantage any group.

According to him, the minimum price motivates farmers to put efforts and resources into production, which is currently reflecting in Cote d’ Ivoire’s production levels, as the highest producer of cashew in the world.

This also promotes local processing as the minimum price makes RCNs more affordable for processors. Having minimum price also makes it easier for government to intervene and buy cashew nuts at the minimum price in case of eventualities like the Covid 19 outbreak.

Burkina Faso, and Benin are among cashew producing countries that have minimum price mechanisms.

Unlike Cote d’Ivoire, in Tanzania, one of the great cashew producers in Africa, the minimum price mechanism has not been used in the past three seasons. According to the acting Director General of the Cashewnuts Board of Tanzania, Francis Alfred, cashew prices are allowed to be determined the market forces with no minimum prices.
India, Vietnam, and Nigeria all do not have minimum price mechanisms.

Effectiveness of the minimum cashew price mechanism in Africa

The minimum price mechanism is often adopted by cashew producing countries to protect cashew farmers and ensure that they get good prices, motivate farmers to increase production, to protect the interest of local processors, and to foster transparency and trust among value chain actors and ultimately develop the cashew sector.

A study conducted by the ACA on cashew regulatory policies in Africa, however, indicates that, while minimum prices work effectively and produce results in some countries, particularly in Cote d’Ivoire, it has failed in other countries like Senegal, Guinea Bissau, and the Gambia.

There are also major challenges with the system in Burkina Faso, and Benin.

The challenges with minimum prices, and why it has failed in some countries include, poor enforcement, lack of proper understanding of the mechanism, and lack of proper stakeholder consultations.

A Market Information Systems and cashew expert, Jim Fitzpatrick, explains that there are no clear correlations between successful cashew industry at national levels and having a minimum price mechanism.

This means that countries do not necessarily need a minimum price mechanism to develop their cashew sectors. A clear example, he said, is a country like Tanzania, whose cashew industry is relatively successful without minimum price.

Prerequisites for an effective minimum cashew price in Ghana

Ghana’s cashew sector is considered by many cashew supply chain analysts as having the potential of becoming one of the greatest producers of the world, and to contribute even more to economic development through job creation and poverty reduction.

For this to be realised, there is the need for the country, to among other things, increase its productivity. Motivating farmers with fair prices is one of the important measures of increasing productivity.

Also, for a sustainable cashew sector, there is the need to encourage local processing of cashew.

Some level of stability in prices of RCNs is necessary for the growth of local processing.

These factors, and the fact that there have been consistent calls from farmers, suggest that setting minimum cashew price in Ghana is necessary.

However, the challenges with the mechanism in countries like Burkina Faso, Benin and Senegal are clear indications of what challenges the mechanism is likely to face in Ghana.

It is therefore pertinent to ask: whether there has been proper engagement with major actors and stakeholders of the sector in determining the minimum price; whether people, especially farmers and buyers, are well informed and educated about the minimum price mechanism and how it works; and whether there are proper enforcement mechanisms in place?

These are important questions that need consideration for an effective implementation of minimum cashew pricing mechanism.

Indeed, there has been some engagement and consultations with major stakeholders of the sector, including the Cashew Council Ghana (CCG), the mother association of all cashew sector associations, individual actor associations like ACPG, farmers’ associations and the traders’ association, as well as development partners such as the ACA and ComCashew.

The CCG pricing workshop held in November 2020, for instance, brought together the various actors and stakeholders of the sector to deliberate and propose a cashew pricing model.

This was followed by a TCDA workshop in 2021 with the same group to develop the pricing model.

These consultations and engagements are in line with Hon. Quaittoo’s explanation at the ACA conference that, the minimum price for cashew will be determined by the actors themselves through the various actor associations of the cashew industry, which will be endorsed and announced by the Authority, the legal body.

Also, the price that will be announced is to serve as a reference price and not the price at which cashews must be sold.

He also indicated that the price will only be applicable at the farmgate.

But do the actors of the sector, especially farmers at the local level, really understand the minimum price mechanism, in terms of the modalities used in determining the price, and how it works?

Discussions with stakeholders suggest that some level of education is still needed, especially at the local level.

Ideally, educating the people on the mechanism should be done by the various actor associations, especially farmer cooperatives.

However, some of these actor associations, farmer cooperatives in particular, are still not properly organised to do this. It is therefore the duty of the TCDA to empower these associations and cooperatives to educate the people on this and other policies it will be rolling out.

Proper enforcement is a key determinant of the effectiveness or otherwise of the minimum price mechanism. The mechanism is highly successful in Cote d’Ivoire because, as explained by Dr Coulibaly, there is strict enforcement of the minimum price across the country.

He highlighted measures put in place by the Cotton and Cashew Council to enforce the mechanism, including enforcement agents who ensure that people do not abuse the system, and toll-free telephone numbers that farmers can call to report people abusing the system.

There is also a proper legal framework that ensures that people who abuse the system are prosecuted.

Also, because the cashew sector is well organized in Cote d’Ivoire, the Council can track down buyers and exporters who abuse the minimum price mechanism and sanction them, sometimes by revoking their licences.

As a young Authority that is not fully operational yet, does the TCDA have what it takes to enforce the minimum price for cashew and the other tree crops now?

Does the TCDA have a comprehensive data of buyers and exporters of cashew that will enable it to track down and sanction those who abuse the system?

It is important for the Authority to work towards building a comprehensive database of all actors, especially buyers and exporters, as well as put proper enforcement mechanisms in place to assure a successful implementation of the minimum price mechanism.

Conclusion

Setting minimum price for cashew is a good initiative, which when properly implemented, will not only have the tendency to protect and increase the income levels of farmers but also motivate farmers to increase production, promote local processing of the commodity, and develop the entire cashew sector in Ghana.

This will make the sector an even better contributor to economic development of the nation.

It is encouraging to see that the TCDA, as young as it is, is putting a lot of efforts into organising and regulating the sector.

It is also refreshing that the Authority is showing signs that it is indeed a private sector led authority by listening to actors of the sector and introducing minimum prices.

However, their initiative requires proper education of the local people, and measures to ensure proper enforcement.

Proper organisation of the sector, especially registration and licencing of cashew buyers and exporters as well as forming and strengthening farmer cooperatives, will make the minimum price easier to enforce.

Without these, the Authority will be setting up such a good initiative to fail.

Source: Myjoyonline