Margin pressure confines Palasa cashew exporters to domestic market

Sreenivasa Rao Dasari

Cashew processors and exporters in Andhra Pradesh mostly from Srikakulam district, feel the heat of soaring cashew prices in the global market. The import price of raw nuts soared to over $2,000 per tonne from $1,200 the previous year. Adding to their woes, the area under cashew cultivation is shrinking day by day. With the recent announcement of demonetisation by the government, their cup of woes seems to be brimming over. The cashew industry is majorly a labour-intensive one and demonetisation has made it really difficult for the industry to keep its head out of troubled waters.

With such developments, there’s no other option for the businesses but to focus on the domestic market. We are now dependant on cashew imports, remarked Malla Srinivas Rao, President, Palasa Cashew Manufacturers Association.

Speaking to The Dollar Business, Rao said, “Shrinking cashew acreage has forced Palasa manufacturers to depend on African imports, which accounts for 75% of the requirements, while the rest comes from domestic production.”

Andhra Pradesh has two varieties of cashew –the Palasa variety grown in Srikakulam and the Vetapalem variety which is grown in Prakasam district. These two cashew varieties are popular for their rich taste.

However, the decreasing production in the State has forced cashew processors to import more from African countries. Cashew imports from Africa rose to over one lakh tonne in 2015-16 from 10,000 in 2007. Cashew imports are likely to be over one lakh tonne this year too, forecast local manufacturers.

“More than 400 processing units are in Srikakulam district alone. We’re facing several problems including increase in price of raw nuts from Rs100/kg to over Rs150 in less than a year. The Centre has levied excise duty of 9.36% on cashew nuts and this is further increasing the pressure on our margins. In such a situation, how can we export? Until a year ago, we used to export cashew. Now, high price and supply shortage have become major hurdles for exports. Luckily domestic consumption is increasing. We are catering to the local market and importing cashew nuts from African countries,” explains Rao.

In the past two years, production of cashew crop fell 30% in Andhra Pradesh, in which over 46,000 hectares of area under cashew cultivation are located in the districts of Srikakulam, Visakhapatnam, East Godavari, West Godavari, Krishna, Guntur, Prakasam and Nellore. The annual production is pegged at 12,500 tonne of raw nuts in the State.

“Cashew crop area has been shrinking mostly due to real estate expansion. With land values going up, many agricultural fields are turning into real estate ventures,” says Surya Suresh, proprietor of a local processing unit and exporter of cashew.

Cashew exporters attribute the main reason for the price rise in raw cashew to Vietnam’s aggressive buying. Vietnam is importing heavily to cater to the increased requirement of its cashew processing industry. Cashew retail prices are hovering 50% higher at Rs.1,000 /kg in the domestic market.

With over 600 cashew processing units, AP comes third in the country in terms of the total number of processing units and third in the processing capacity of cashew nuts. In Srikakulam district alone, over 400 tonnes of cashew nuts are processed every day.

“The processing capacity needs to be enhanced. The average capacity of a processing unit is one tonne per day. Unless we have units with a capacity of more than two tonne a day, we cannot export,” added Rao.

The cash crunch is crushing down the cashew processing activity in Andhra Pradesh. It is estimated that over 95% of cashew processing units have closed thanks to demonetisation.

“Almost all the units were facing several problems before demonetisation. 50% of the units had closed shop, the currency crisis drove the final nail into the cashew processing industry. Considering the current situation, it is unviable to keep them running . That is the sole reason why you can see no unit working properly here,” Suresh added.

According to the Cashew Export Promotion Council of India, cashew exports declined by 25% to 36,895 tonne worth Rs 2,138 crore during the second and third quarters of 2016. Cashew exports from India were 94,150 tonnes valued at Rs 4850 crore during the 2015-16 fiscal, a 21% drop in volume and 11% in value when compared to the previous financial year.

India imports raw cashew nuts from African nations mostly from Tanzania, Ghana and Ivory Coast. The raw nut imports also declined to over 30% to 5,00,329 tonnes in the first half of 2016.