Private trader response to market liberalization in Tanzania's cashew nut industry

Between World War II and the early 1970s, Tanzania developed one of the world's largest cashew nut industries. In 1973-74, marketed production reached 145,000 tons (about 30 percent of world production), with cashews providing an important source of income to some 250,000 farmers and being the country's fourth largest source of foreign exchange. This trade was originally developed and organized by private traders (of Indian and Arab origin), although in the 1960s a multitiered marketing system - involving local cooperative societies, regional cooperative unions, and a marketing board - was imposed, with private traders gradually removed from the market system. Despite a buoyant international market, Tanzania's cashew nut industry underwent a steady and massive decline through the 1970s and 1980s. The author examines the factors that contribute to this downward spin: Tanzania's village program, a decline in real producer prices, and inefficiencies in cooperative and marketing board crop collection and downstream activities. With the decline in production, living standards in the main cashew-growing regions worsened, and most of the large-scale, donor-funded, government-owned processing factories became"white elephants."With the industry on the brink of collapse, in 1991 the government announced the liberalization of the cashew nut market, permitting private firms to once again buy and sell the nuts. According to the author, the reform process has been characterized by confusion, uncertainty, and latent government controls and interventions, though the industry shows some signs of recovery. Based on a recent survey, the author examines the liberalization process - including its implementation at the national and local levels, the private sector response to renewed trading opportunities, and the resultant patterns of competition, price discovery, and marketing channel formation. The liberalization experience in Tanzania's cashew nut industry offers interesting insights for other sub-Saharan African countries where uncertainty remains about the appropriate roles (if any) for marketing boards in liberalized markets, about the ability of cooperatives to compete in such markets, and about the ability of indigenous firms to take advantage of new trading opportunities. In Tanzania, neither the cooperatives nor the marketing board have fared well in the liberalized market. Although a relatively large number of private traders have recently entered into cashew buying and selling, successful entry into export marketing has proven viable only for a small number of companies. Their characteristics: medium to large in scale, diversified across commodities, involved in trading and agroindustry, not indigenous, and with strong financial and trading links abroad.