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Econ 2: Daily Reading: Emiko Terazono in the FInancial Times: Courted for Cashews, West African Farmers Gain Market Strength

Jeff Sachs once told us younglings that the Financial Times was "the real newspaper... the newspaper you all need to be reading if you want to become economists..." IMHO, he was correct.

Here we have Emiko Terazono writing about supply, demand, market equilibrium--and the consequences of a shift in preferences that strengthens demand: the dance between nut-snackers in the North Atlantic's, China's, and India's middle classes, cashew traders and brokers, and the cashew farmers of Africa:

Emiko Terazono: Courted for cashews, west African farmers gain strength: "Under the darkness of midnight in Seketia, a farming village in western Ghana, cashew traders and middlemen go knocking from door to door looking for supplies of harvested nuts.

“During the peak harvest, they visit us late at night, trying to get us to sell,” says David Enkamah, a cashew farmer.

Worldwide demand for cashew has grown about 7 per cent a year over the past decade on the back of healthy snacking habits. The treenut, along with sesame seeds (favoured by the Japanese, South Koreans and Chinese) and pigeon peas, a common ingredient in Indian kitchens, are among a number of crops where the balance of power has tilted a little towards African farmers. Growers of cashew, buoyed by demand from India and China as well as resurgent consumption in Europe and North America, are among those defying the stereotype of smallholder farmers in developing countries rendered powerless against the might of multinational companies and market forces.

During the harvest season, which starts in January, 30 to 40 agents and traders looking for supplies for processors and exporters descend on Seketia. During the peak months of April and May, west Africa, the world’s leading producer of cashew, is the scene of a scramble for farmer loyalty.

As a handful of growers in Seketia gathers to discuss the current crop and prices, Mr Enkamah notes: “Even now, somebody might be contacting some of the farmers.”

Far from accepting the first bid, Seketia farmers wield mobile phones to communicate with fellow growers in other communities, pitching offers against each other to get the best price.

Buyers are also finding they need to offer longer- term incentives. About a third of the farmers in Seketia work closely with Olam International, an agricultural trader in Singapore which is the world’s largest cashew dealer and processor. Olam is looking to improve long-term relationships with the growers by providing them with zero-interest loans and training.

They need to see there is a possibility of a livelihood in farming, and they can educate their children,” says Samir Kumar, head of cashew for Olam Ghana.

In spite of strong demand, farmers cannot suddenly command high prices for their cashews, which compete with other treenuts. Annual incomes for many African cashew farming households still total less than $1,000. About a third of this comes directly from the treenut, according to the African Cashew Initiative, which is backed by the German government and co-ordinates public and private partnerships.

Much of Africa’s raw cashews are processed in India and Vietnam, but Olam is increasing its African processing capacity. The company, which operates processing plants in Ivory Coast, Tanzania and Mozambique, believes that local processing encourages loyalty among farmers who can see a ready market for their crop. It also says the operations generate revenues for the wider community, especially female factory workers.

To keep growers interested in supplying cashews, buyers need to offer a balanced portion of the profit margins, says Rita Weidinger, executive director of the cashew initiative. “Leaving the concept of fairness aside, from a business model point of view, it’s just not sustainable,” she says.

But for all their efforts to nurture long-term relations with the growers, Olam executives are quick to acknowledge that price is king when negotiating with the mobile phone-wielding farmers during the harvest. “Of course you need to match the highest bidder,” says Mr Kumar. “You’ll be fooling yourself if you think you can get away with offering lower prices than your competitors.”