An inside view at India’s cashew industry

The 100-year-old Indian cashew industry is in an interesting phase – much to look back on, facing a challenging situation and at the same time, much to look forward to.

Commercial processing of cashew in India started in the early 20th century. The first export of cashew from India was reportedly in 1920 or 1921. For most of the 20th century, India was the predominant player on the supply side although Brazil and East Africa had significant market share at different times in that period.

In the last three decades, there have been lot of changes in the cashew industry – in India and globally.

Last decade of the 20th century saw Vietnam emerging as the second-largest grower as well as processor and kernel exporter. In the 21st century, RCN (raw cashew nut) production in Vietnam has remained stagnant but processing has grown very fast. During the last decade, Vietnam has been the front runner in mechanisation of processing. Now, Vietnam is neck to neck with India in processing but is by far the largest exporter of kernels – about four times what India exports. This development was a game changer.

The 21st century has seen impressive growth in production of RCN in West Africa led by a huge increase in Ivory Coast and reasonable growth in other countries. As a country, Ivory Coast is probably the biggest producer (approximately 750-800,000) with all West African countries accounting for close to 50% of the world production of approximately 3.5 million tonne). Production in East Africa has also grown more than 75% since late 20th century.  Such phenomenal growth has never been seen in any other region. Asia has seen minuscule growth and South America (Brazil) has gone down.

On the consumption side also, there have been many changes. The big change being market share. For most of 20th century, the Western world was consuming over 2/3 of the world production of kernels (with India consuming less than 10%). Today, USA and Europe together consume about 1/3 of world production. India consumes another 1/3. Most of the balance 1/3 is also consumed in Asia. 

Another change – slow & subtle but significant – is market segment. From predominantly direct snack consumption, use of cashew as an ingredient is increasing. Share of this segment is large in India and growing slowly but steadily in other markets.

For India, the “big picture” change has been that from being export oriented, the cashew industry has become one that is exporting the surplus. In the 20th century, India exported 70-80% of the kernels it produced (approximately 200,000)– in less than three decades, kernel exports have reduced to less than 25% of the production (which has doubled to approximately 400,000).

Another change has been the dependence on Africa for RCN. In the 20th century, India’s RCN imports were less than domestic production – now, RCN imports at 1.00-1.20 million tonne are about 40-50% more than domestic production of 700-750,000.

Third significant change has been the spread of the industry within India. For major portion of the 20th century, Kerala was the pre-dominant factor in the cashew industry within India and also globally. In the last four decades, other states started growing and processing cashews. Now, Kerala produces less than 10% of domestic production and processes less than 20% of the quantity processed.

Indian cashew industry – challenges and opportunities
In the short term, supply does not seem to be a problem, especially with the 2018 crop surplus. The spontaneous growth in production that we have seen in West Africa in the last two decades cannot continue much longer. Production in Asia has been stagnant for many years. Production from older trees (in all origins) will reduce.      

With the huge production in Africa, there is aspirational and economic push to process in Africa. Governments, associations and NGOs in Africa are making strong efforts to overcome challenges like infrastructure, logistics, investor interest. This is showing results because processing in Africa is growing steadily. It is expected that processing in Africa will pick up pace in coming years. Movement of RCN from Africa to Asia will certainly reduce over time. This will be the next game changing development.

The biggest challenge for the Indian industry for the next decade or two is security of supply. For this, domestic production has to increase. Multi-pronged strategy – more area, planned planting, higher yielding varieties and so on – is required to increase (and even maintain) the domestic production. 

With mechanisation of processing, it is becoming possible to process in non-traditional areas within India as well as overseas. Although higher fixed capital requirement is certainly an entry barrier for larger units, total processing cost will reduce. 

Within India, processing dependent on domestic production is spreading to all growing areas and processing dependent on imported RCN is moving closer to consuming centres. This is making processing more viable for small and medium enterprises.  And making the product more affordable.

Vietnam took the lead in mechanisation and India followed swiftly. There are still some areas of processing which need fine-tuning to reach the optimum levels of productivity and food safety.

Due to limited domestic range + price volatility + small market size, there has not been much interest of FMCG manufacturers to invest in a pan-India brand in nuts & dried fruit category.

Coupled with growth in spending power & lifestyle changes (including healthy eating), modern retail is helping consumption growth in India. 

Organised retail including supermarket chains with their house brands, wide reach across market segments and economies of scale are making the product visible and affordable. 

On-line retail is making it possible for the regional niche brands to reach the remotest corners of the country.

Strength of these channels can be leveraged to grow the market further and faster.

The Indian cashew industry is the oldest in the world. It has multiple advantages – long experience, good product quality, good image as long-term supply partners.

Indian processors should leverage these strengths to ensure a decent share of the global market (it would be unrealistic to get back to the period when India was the predominant global supplier given the huge increase in domestic consumption coupled with increase in production in other countries).

If Indian entrepreneurs have become significant players in non-traditional sectors (IT, automobiles, steel, pharma, chemicals) there is no reason why they cannot become significant in an industry like cashew.

Consumption in Asia is growing everywhere and faster. Unless something dramatic happens, it is reasonable to expect steady growth to continue. 

And it is steady growth – rather than big changes – which is good for the health of any industry. For this, price volatility must be restrained – it cannot be avoided.  

This is possible only when there is steady increase in production + continuous reduction in costs to keep the product affordable. Demand will follow.

To sum up, although the cashew industry is currently going through a difficult phase, it is only a hiccup. 

The future is bright – the prospects are tremendous – sky is the limit (not for price, but for growth).

To use “flavour of the day” start-up jargon, all the industry needs to do is : pull up its boot straps, debug the system, innovate, be disruptive…and grow.