The cashew industry focuses on investing in quality and brand to overcome difficulties

With over 60% market share of the total export value of cashew nuts, Vietnam cashew industry continues to maintain the world’s No. 1 position in processing and exporting cashew nuts. However, the difficulties during previous years continue, causing losses in many businesses.

In 2018, many cashew nut processing enterprises fell into a loss situation. Photo: N.Hien

Many uncertainties

Vietnam Cashew Association (Vinacas) rated the results of 2018 as a "sad record" in the history of the industry. Accordingly, although the output of cashew nut exports increased by 7.8%, reaching 391,000 tons, its value decreased by 3% compared to 2017, reaching only 3.52 billion USD.

According to Vinacas, 2018 was the year when the international raw cashew market had strong fluctuations, hundreds of thousands of tons of raw cashews imported to Vietnam and India in the second quarter of 2018 had been waiting a long time at ports and foreign warehouses, The main cause of this situation was goods quality and credit difficulties of importers, as well as the rapid and strong fluctuation of the global cashew nut market. Most of the contracts that received the goods at the end of the second quarter and the beginning of the third quarter must be reviewed for quality, renegotiation and discount. This made the average quality of the cashew this year much worse than every other year. This is because the material was not sufficiently dry, because it had to be in containers for a long time when transported by sea. Then it was sun-dried in Vietnamese seaports, and after that it was put into bonded warehouses for retail if the export process had not been conducted.

Moreover, the relationship between sellers and buyers in the raw cashew market was alarming. The sellers were no longer interested in the raw materials compared to previous years, because this year, not only importers but also raw cashew businesses had suffered heavy losses. Notably, although many small businesses and brokers did not have the financial resources, but still actively participated in the raw cashew market, these caused disturbances in the material market. More and more domestic and foreign enterprises have joined the market, invested in cashew processing facilities in Vietnam, especially some processing establishments have invested in export processing zones along the border areas of Vietnam and China, near the line "a belt - a road" of China,...

Facing the difficulties of the cashew industry, the banking sector has tightened credit to import raw cashew due to risk aversion, especially for those customers who are small businesses and new enterprises participating in the cashew market. This made many businesses relying heavily on bank loans having to renegotiate with their partners, even forcing them to cancel the contract, and accept deposit losses. According to Vinacas, during this year, commercial disputes occurred at a higher frequency and level than in every previous years. Most cashew nut processing enterprises fell into deficit.

Invest in quality, brand

Facing many difficulties, Mr. Cao Thuc Uy, Standing Executive Member of Vinacas advised processing enterprises not to store raw cashew from the beginning of the year. Because in the 2019 crop year, it is estimated that the world supply of raw cashew would exceed demand when the output from key production areas such as Africa and Cambodia will increase sharply. This is because farmers here will produce effectively and with reasonable prices. "Cambodia will have a frantic harvest in about 15 days. According to experience, processing enterprises should look at buyers' moves then follow them. The buyers prefer 2-3 month terms, the processing enterprises should also buy raw materials under that cycle to limit damage" – said Mr. Uy. Mr. Nguyen Minh Hoa. Vice President of Vinacas also said that African countries have invested in processing cashew, but not effectively, so within the next 5 years they still have to export raw cashew nuts to Vietnam and India. Therefore, enterprises should not compete to buy at high prices early.

Meanwhile, Mr. Pham Van Cong, Chairman of Vinacas said that the cashew industry was actively building the Reconciliation Council and Information Council. Currently the Reconciliation Council has been supporting the handling of many purchasing disputes. According to Mr. Cong, the Vietnamese processing enterprises need to seriously implement and respect the rules and practices of international trade. This is because the disputes that now occur are mostly because of the incomplete sales records of both parties.

In the context of many difficulties, the cashew industry aims to maintain export of 350,000 tons in 2019. At the same time, maximizing the export value through the promotion of processing and export of cashew nuts with high added value under the policy of "reducing quantity, increasing quality". To achieve that goal, Vinacas asked the Ministry of Industry and Trade to support the implementation of the Vietnamese food brand program named "Cashew of Vietnam" and National Brand programs for products and businesses, designing enterprises’ products, ...

Vinacas also asked the Ministry of Finance to study solutions to control the operation of foreign trade enterprises, FDI enterprises operating in Vietnam, to encourage these enterprises to invest in deep processing, instead of trading, buying and selling raw materials in the form of outward processing, which has caused significant impacts on the cashew market in Vietnam in recent years.

In addition, Vinacas said that the Association has coordinated with the Ministry of Agriculture and Rural Development (through the Agro Processing and Market Development Authority) and some functional agencies to successfully build the National Standards (TCVN) about raw cashew nuts, which is expected to be officially released in 2019. This is the first national standard for raw cashew nuts. The promulgation of this important standard will help businesses minimize problems related to goods quality in raw cashew trade in the future.

In addition, in the last months of 2018, the Finance and Customs sector accelerated the implementation of the provisions of the Law on Export Tax and Import Tax and increased control of import activities for processing export goods. According to some experts in the cashew industry, this was a necessary task to restore order in the raw material market and minimize unfair competition

According to the Vinacas’s report, in 2018, Vietnam had 450 enterprises participating in cashew nut exports, but only 40 of the leading ones had export turnover of over 10 million USD - these were also enterprises with methodical investment in processing equipment, applying international standards (GMP, HACCP, ISO,...). The cashew processing industry continued to have strong changes from processing primary products to deep processing, diversifying products, processing organic products... for export and domestic consumption. According to some quality inspection organizations (Vinacontrol, Cafecontrol, SGS, ...), in 2018, in general, the quality of cashew nut exports from Vietnam continued to be improved, there were few cases of goods being returned. However, due to the large number of cashew processing establishments, for many export clues and pure commercial enterprises (not involved in processing), quality control continued to face many difficulties.