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

!X GJ .- / POLICY RESEARCH WORKING PAPER 1277 Private Trader Response Since 1991, the Tanzanian government has moved to to Market Liberalization liberalize the market for in Tanzania's Cashew Nut cashew nuts to reverse a long-term decline in this Industry important traditional export industry. AIthough the liberalization process has Steven Jaffee been confUsing and nontransparent, and although problems of logistics, finance, and protected vested interests remain, some positive results are evident - and the future prospects for the recovery of the industry and for the returns to participating farmers and traders are favorable. The World Bank Agriculture and Natural Resources Department Agricultural Policies Division U March 1994  I POLIcY RESEARCH WORKING PAPER 1277 Summary findings Between World War II and the early 1970s, Tanzania and sell the nuts. According to Jaffee, the reform process developed one of the world's largest cashew nut has been characterized by confusion, uncertainty, and industries. In 1973-74, marketed production reached latent government controls and interventions, though the 145,000 tone (about 30 percent of world production), industry shows some signs of recovery. Based on a recent with cashews providing an important source of income survey, Jaffee examines the liberalization process - to some 250,000 farmers and being the country's fourth including its implementation at the national and local largest source of foreign exchange. This trade was levels, the private sector response to renewed trading originally developed and organized by private traders (of opportunities, and the resultant patterns of competition, Indian and Arab origin), although in the 1960s a price discovery, and marketing channel formation. multitiered marketing system - involving local The liberalization experience in Tanzania's cashew n cooperative societies, regional cooperative unions, and a industry offers interesting insights for other Sub-Saharan marketing board - was imposed, with private traders African countries where uncertainty remains about the gradually removed from the marketing system. appropriate roles (if any) for marketing boards in Despite a buoyant international market, Tanzania's liberalized markets, about the ability of cooperatives to cashew nut industry underwent a steady and massive compete in such markets, and about the ability of decline through the 1970s and 1980s. Jaffee examines indigenous firms to take advantage of the new trading the factors that contributed to this downward spin: opportunities. Tanzania's villagization program, a decline in real In Tanzania, neither the cooperatives nor the producer prices, and inefficiencies in cooperative and marketing board have fared well in the liberalized marketing board crop collection and downstream market. Although a relatively large number of private activities. With the decline in production, living traders have recently entered into cashew buying and standards in the main cashew-growing regions worsened, selling, successful entry into export marketing has prov and most of the large-scale, donor-funded, government- viable only for a small number of companies. Their owned processing factories became "white elephants." characteristics: medium to large in scale, diversified With the industry on the brink of collapse, in 1991 the across commodities, involved in trading and government announced the liberalization of the cashew agroindustry, not indigenous, and with strong financial nut market, permitting private firms to once again buy and trading links abroad. This paper - a product of the Agricultural Policies Division, Agriculture and Natural Resources Department - is part a larger effort in the department to assess the division of responsibilities between the public and the private sector providing agricultural services and agricultural marketing activities. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Cicely Spooner, room N8-041, extension 32116 (42 pages). March 1994. 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