Management Case

describes a situation faced, a decision or action taken by an individual manager or by an organization at the strategic, functional or operational levels.

TCI Packaging Division

M Narayanan

In June 1993, Mr D K Sharma, the Marketing Manager of TCI Limited, Madras had scheduled a meeting with the product development team on cashew packaging for exports to discuss the issues involved in developing a packaging solution for bulk cashew exports. The team had just returned from a trip to Quilon in Kerala where they had demostrated their new method of packaging. The meeting addressed the following questions: * What are the problems faced by the cashew industry regarding packaging of cashews for exports? * Is the cashew packaging market attractive enough? * What are the stakes of different stakeholders in cashew packaging? * What should be the marketing strategy for our new pack ?

Mr D K Sharma, the Marketing Manager of TCI Limited, Madras, is contemplating on the strategies to adopt in developing a new packaging solution for bulk cashew exports. Readers are invited to send their responses on the case to Vikalpa office. M Narayanan is a Student of Fellow Programme in Management, Indian Institute of Management, Ahmedabad.

TCI and its Growth

TCI was established in!910asa cigarette manufacturing and marketing organization. Today, more than eight decades later, it is a 1.5 billion dollar enterprise [Rs 3750 crore approximately] and a multi-product, multitechnology, and multi-market group. TCI is one of the most diversified and professionally managed business houses in India and has investments in seven main businesses. These are tobacco and cigarettes, packaging and printing, hotels, seeds and edible oils, paper and board, financial services, and international trading. It has a distribution network that encompasses the entire sub-continent. TCI is a star trading house and is the highest earner of foreign exchange in the Indian private sector. The annual report for the year ending 1992-93 showed that thecompany had earned a profit after tax of Rs 155 crore from a gross income of Rs 3810 crore. The foreign exchange earnings of Rs 834 crore during this period was the largest in the private sector. The total export earnings were Rs 761 crore, of which agro-exports accounted for Rs 650 crore which includes cashews, mango, spices, and tobacco.

TCI's Packaging and Printing Division

TCI's Packaging and Printing Division [PPD] is presently India's largest manufacturer of value added folded cartons, meeting out not only the packaging needs of the cigarette division of TCI but also the requirements of a
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wide range of brand leaders in domestic and export markets covering industries like liquor, foods, detergents, personal products and matches. PPD's facilities have been upgraded with new computer-controlled machinery to meet international standards. Its comprehensive packaging know-how covers the innovative use of machinery and research and development to create packaging solutions that had won several national and international awards. Demonstration of its excellence is borne by the fact that this division had won three World Star awards in a single year. PPD's technical collaboration arrangement with Box-Liquid Corporation, USA, to manufacture and market " Wunder-Pac" Bag-in-Box [BIB] packaging system had resulted in availability of this bulk packaging system for liquids like edible oils, lubricant oils, etc, in India. PPD's BIB packaging in case of lubricant oils was successfully used by a leading manufacturer of lubricant oils and in case of edible oil by TCI's own Edible Oil Division. The success of BIB packaging was mainly because it was convenient to use, more hygienic, tamper proof, and cost effective.

oils and edible oils. This team was also involved in developing the 'packaging solution' for bulk cashew exports from India.

Production of Cashew Kernels

The cashew kernels exported from India can either be from cashewnuts produced indigenously or from cashewnuts imported from countries like Guinea, Nigeria, Ivory Coast, Indonesia, Tanzania, and Vietnam. In recent years, the amount of cashewnuts imported has increased considerably. This might be due to the fact that the production of cashewnuts in India has been highly unorganized. Cashewnuts are conditioned by sprinkling water and are kept for 24 - 72 hours after which they are sun dried or roasted. In case of sun drying, the recovery per cent of cashew kernels from the nuts will be 20 only, while in case of roasting, it can be as high as 25-28. The roasting could be done either by the drum roasting method or the oil roasting method. The roasted cashenuts are then shelled manually with wooden hammers. In this process, kernels get separated from the nuts. The kernels are then dried immediately and a process called 'borming' is done. This process helps to prevent insect attack on cashew kernels. Finally, the outer skin of the cashew kernel is peeled off manually. These kernels are graded manually, based on the number of counts per pound. After grading, the kernels are humidified to reduce the brittleness and then they are packed. The steps involved in the processing of cashewnuts to kernels are given in Exhibit 2.

Product Development Team

Mr D K Sharma, the Marketing Manager of PPD and head of the new product development team, joined TCI 14 years ago, immediately after completing his PostGraduation in Management from a well-known management institute in India [ WIMI]. He was assisted by a team consisting of members with different technical backgrounds. The partial organizational chart of PPD is given in Exhibit 1. Mr Shiva had completed his Post-Graduate Diploma in Packaging from National Institute for Packaging, Bombay. He joined TCI in 1992 and has helped in technical matters of development of packaging solution with BIB technology. Mr Jeyan had a degree in engineering and was involved in the development and designing of liquid fillers for major clients of PPD in soft drinks and agro-processing industries. This part of developing the fillers was a part of the 'total packaging solution' offered by PPD to its clients. Mr Thomas was involved in direct relation with customers and provided the feedback from the market which is useful in the development of 'total packaging solutions' for PPD's clients. Mr Doss managed the planning and production function in the factory site, so that the production facility can be used effectively for research and development purpose. This team was highly successful in the development of packaging solutions with BIB technology for lubricant
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Cashew Exports from India

Cashew kernels occupy a prime place among India's agricultural commodity exports. India's exports of cashew kernels had increased from a mere 16.9 thousand tonnes in 1947 to 64.5 thousand tonnes in 1972. Thereafter, during the latter half of 70s, it declined to 24.0 thousand tonnes in 1978 and started improving throughout the 80s. The cashew kernel exports from India during 1991 was 46.8 thousand tonnes and for nine months ending September 1992, the exports from India stood at 35.2 thousand'tonnes. Even though India's exports of cashew kernels were increasing, the share of Indian exports in the total world exports showed a declining trend. The quantity of cashew kernel exports from some major exporting countries during the period 1947 to 1991 is given in Exhibit 3. The total value of cashew kernels exported from India rose from Rs 258 crore in 1988 to Rs 601 crore in 1991. The value and quantity of cashew exports to different destinations from India over the period 19881991 are given in Exhibit 4. Vikalpa

There are two major international markets for cashew kernelsthe New York market and the London market. The prices (monthly average) quoted at the international level [C & F] in the New York market are given in Exhibit 5. The international prices have declined from US $ 3.45 per Ib.in January 1987 to US $ 2.302.35 per Ib. in December 1992. The international prices of cashew kernels are affected by the total production of cashewnuts in the producing countries. Until early 60s, India had a major share in the exports of cashew kernels at the international level. America and USSR (erstwhile) were the two major countries importing Indian cashew kernels accounting for more than 60 per cent of total exports from India. With the entry of Brazil in the international market, India is facing tough competition as the US marketa traditional market for Indian cashews-now imports cashew kernels from Brazil. Brazil has the advantages of proximity, low prices, and better delivery of the product in proper quality and in required time. Presently, India exports major quantities of cashews to countries like the Netherlands, Japan, Singapore, Australia, UK, and Hong Kong. After devaluation and full convertibility of rupee in current account in 1992, exports were expected to increase due to the fact that exporters would realize more rupee per dollar by exports. Even though the import content of cashew kernel exports was increasing, the value addition by processing was greater. The percentage of indigenous production in the total exports of cashew exports from India is given in Exhibit 6. Export Marketing Channel for Cashew Kernels The buyers for the cashew kernels are mostly chain stores, especially in the US. The kernels which are sent in tin boxes of 25 Ibs capacity are repacked at the retail stores and packed in their own lot sizes with their own brand names imprinted in most of the cases (about 60 to 70 per cent). The trading part on behalf of the processors is done mostly by the agents who do forthright purchases from the processors, either based on future contracts (20 to 30 per cent of the cases) or go in for one time spot transactions or both (in most of the cases). Thus, a majority of the Indian processors do not have direct contacts with most of the channel agents on the other side of the shore. It is only the agents who bridge the gap between the producer and the con sumer. The export marketing channel is shown in Exhibit 7.
Vol. 21, No. 1, January - March 1996

Packaging of Cashew Kernels

The system used to pack cashew kernels for bulk exports is called the 'vitapack' system. The cashew kernels are packed with a net weight of 11.34 kgs. (25 Ibs.) of kernels in tins weighing 1 kg. each. Two such packed tins are kept in a carton made of cardboard and steel strapped for exports. The overall dimensions of the carton and the tins are as per the shipping specifications which are 490x240x350 mm3. In the vitapack system, the tins are kept in the fillers and cashew kernels are filled by jerk movements. These tins are weighed and tightly packed. They are then placed under a 'bell jar' and vacuumized up to 26 inches. Because of the vacuum created, the carbon-di-oxide is flushed inside which would be immediately absorbed by the kernels. These tins are then sealed with tin lid and lead soldering. Production of Tin Containers for Bulk Cashew Export Packaging The tins required for packaging of cashew kernels are made either by the exporter himself in his workshop or by the sub-contractors. At present, these are procured from Virudhunagar in Tamilnadu and Quilon in Kerala. Tin plates are procured from Calcutta and are cut into pieces of required dimensions. Each piece would form one wall of the tin. Two such pieces are hinged together on a groove and soldered on the hinge with lead. Similarly, the top and the bottom pieces are hinged and soldered to make a complete tin. These tins are then immersed in water to test if they are leak proof and are certified as leak-proof by the Export Inspection Agency officials [EIA], either in the godown of the tin manufacturer or in the godown of the exporter. Such a production unit would require an investment of Rs 15 lakh and can produce about 1000-1200 tins per day. The tins are sold at Rs 46-52 per tin, with an average price of Rs 50 per tin. The net profit in tin manufacturing would be around 10 per cent. The outer cartons, used as a secondary pack for cashew exports, are produced by the small scale industries in Madras and Quilon. The cost of this carton ranges from Rs 12-;20 per carton and the average cost is around Rs 16 per carton. Problems in Bulk Packaging of Export of Cashews from India The cashew industry has been using tin containers for cashew exports for the last 40-45 years. At present, the industry is facing pressure from the importing countries to adopt alternative packaging methods. 43

The major problems in tin packaging, according to the importers, are: * Lead Solder Contamination: The process of produc tion of tins involves usage of lead solders which makes the tins leak-proof. The lead solder used for this purpose has 50 per cent lead and 50 per cent tin mixture. This concentration of lead is considered to be health hazardous. Also, fears were expressed about the lead solder getting in touch with the cashew kernels near the mouth as they were tightly packed. The increased health consciousness and awareness of lead poisoning world over had made the importers of cashews to pressurize the exporters to adopt alternative bulk packaging methods. * Disposability: The tins which reach the destinations of the importing countries, after being emptied, are to be stored and then scrapp ed. Since these tins are not collapsible,they occupy a huge floor space in storage. In some countries, the importers were asked to pay for scrapping and disposing of these tins. * Recyclability: In most of the western countries, consumers are forcing the markets into becoming 'green' and more environment friendly. In fact, they have formulated guidelines for packaging and are demanding recyclable packs. * Safety Aspects: Tin packaging was considered to be unsafe as the tins, when cut, have sharp edges and may injure the person handling them. Even though this problem had prevailed in the past, the importers were now keen to get rid of this problem by having a safe pack. Features Required in Bulk Packs To overcome the above-mentioned problems and to evolve new methods of bulk packaging for cashews, the Association of Exporters and the Council for Cashew Exports and Promotion (CCEP) formed a committee and was expecting the recommendations of this committee. According to the exporters, the new packaging should take into account the following features: * Enough strength to withstand the pressure of handling and transport: Cashews are transported from factories to godowns and from godowns to port dockyard. They are again shifted to the ship. Since the packs are handled at many points, they have to be strong. * Containers should be leak-proof: The cashews should be protected from air, light, and moisture as they tend to become rancid if they are exposed.
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* *

Shelf life of the cashews: Considering that the transportation time involved would be almost two months as they are transported generally by ship and that cashews are sometimes traded in the forward market, the required storage life by the importers is around 6 months to 1 year. Splits and broken percentage: The normal rejection level should be less than 5 per cent, i.e., out of 100 numbers of cashew kernels, only 5 should be broken or split. As the percentage of broken or splits increases, the quality of the cashew lot is reduced and it fetches a very low price in the international market. Resistance to pest attacks in godowns: As the smell of cashews attracts the rats, the packaging solution should be smell-proof. Price of the bulk packs: Presently, the exporters pay around Rs 100-130 on tin containers for 50 Ibs. of cashew packs which is about 3 per cent of the total value. The importers are not willing to increase the price of the cashews as they feel that any new method of bulk packaging would not increase value addition to them. The processors and exporters are, however, willing to forego their margin to some extent by paying more for a new packaging solution provided it satisfied all the needs of the importers. Investments: The filling machine and the vitapack system involve an investment of Rs 15-20 lakh. Most of these packaging systems have serviced only half of their life period. At present, exporters are not willing to invest any major amounts in new packaging systems without knowing their feasibility.

Cashew Industry's Response to the Packaging Problem The Association of Cashew Exporters and CCPE had formed a committee to look into the development of alternate packaging solutions. CCPE had entrusted a premier institute in packaging in Bombay to develop an alternate packaging on consultancy basis. Most of the exporters in the industry feel that they have to change over to new types of packaging system as demanded by the importers in order to retain the markets. The importers had formally expressed their concern about the tin packs through the CCPE and expected the Indian cashew industry to change its bulk packaging method before the next season. However, the exporters wanted more time to change over to the new type of packaging as the tin containers in stock had to be exhausted. Vikalpa

An informal association of tin container manufacturers responded aggressively towards this move of replacing tins with newer packaging technology. They felt that the importers were putting unnecessary pressure on cashew exporters to reduce the cashew prices. They also argued that the problems mentioned by the importers existed earlier and this pack has been in use for the last 40 years. Some of the exporters made a few innovations in the existing methods of tin packaging. They are: * Tin containers soldered with reduced tin concen tration: A mixture of antimony and lead was used to reduce the concentration of the lead content in the solder used but it was found that liquidity of the solder had increased considerably. This had rendered the tin containers more prone to leaks. * Tin with adhesive rubber compound and electro plating: This alternative could solve the problem of usage of lead solder. But, this was not a viable alternative as electroplating requires high power electricity connection. The present method of production of tins did not require any power connection. * Tin container's mouth sealed with a secondary lid: This was done so as to prevent the danger of the lead solder coming into contact with the cashew kernels near the mouth of the tins.
Kovak Packaging

This technology has been extended to bulk packaging of cashews and is in the testing and development stage. The cost of production of such cans is, however, considered to be very high. But, it would require only minor modifications in the existing packaging system.
TCI's Bag-in-Box Flexi Packs

Recently, some of the exporters have tried using flexible packs. Known as the 'kovak packaging' method, this process involves packing cashew kernels in an aluminium foil pack which is closed on three sides and has an opening on one side. The strength of the aluminium foil pack to wear and tear is not very clear. In addition, the aluminium foil is a non-recyclable material. However, this particular packaging, widely used by Brazil cashew exporters, is found to withstand the wear and tear of small distances, viz, between Brazil and US market.
CAM Company's Packaging

TCI has been trying to adapt the BIB technology to evolve an alternative bulk packaging solution for cashews. In this packaging, a flexi pack made of aluminium foils and HDPE (High Density Poly Ethylene) of four layers is used as a container. This flexi pack would have a spout which could be made to protrude outside the box. The outer carton could be made with a handle also. The product development team of PPD has developed a flexi pack which can hold 25 Ibs. of cashews and the results have been encouraging in the testing stage. The team is also trying to develop a bulk pack which could hold 50 Ibs. in a single pack. TCI demonstrated the new packaging solution to the committee appointed by CCPE as well as to the exporters. Ithad also tested the new pack by sending one full container load of cashews to Japan through TCI's Agri-Business division. While the results have been encouraging, a few problems still persist. For instance, the broken and splits component is around 7 per cent and the new pack is susceptible to rats. Mr Sharma was confident that he would be able to start the commercial production from the next season. He was also sure that these new packs could be offered at a lower cost than the tin containers. The expected changes to be made in the vitapack system to accommodate this new pack were also minimal.

CAM company is a group of companies which also does cashew exports at a relatively lower level. This company has tried to produce a new type of bulk pack through its packaging production unit. Cashew exporters have been using composite cans for small consumer packs up to 1 kg. These carts are made of hard cardboards which are glued after rolling them into required shape. The top and the bottom of the can is made of tin sheets. Vol. 21, No. 1, January - March 1996 45

Exhibit 1: Partial Organization Chart of PPD

General Manager

Divisional Financial Controller

Divisional Marketing Manager

Branch Manager

Works Manager

Projects Department Mr D K Sharma New Product Development Team

Mr Thomas Marketing Flexible Packs & Product

Mr Shiva Product Development, Flexi Packs

Mr Jeyan Liquid Package System, Filler Development

Mr Doss Production & Planning [BIB]

Exhibit 2: Cashew Processing Flow Diagram

Storage

Imported or indigenously produced cashewnuts Stored in gunny bags Sun dried for long storage Sprinkling of water for 24-72 hours Utmost care should be taken as it may affect the final quality of the kernels 1) Sun drying for 3-4 days, recovery % is low 2) Drum roasting: 3-5 minutes in hot drum, recovery % is high, shell liquid is lost 3) Oil roasting: 350-400 F for 1-2 minutes, oil recovery is high Done by light wooden hammers; manually done; a very important activity in getting high % of wholes and less brokens Called 'BORMING.' This is done before peeling of the red skin, at a temperature of 70-90 C for 3-7 hours Done manually Done manually, by experience, 36 different grades W-180, W-320, W-500, etc. - 50%wholes Splits, brokens - 50% brokens W-180 means 180 kernels per pound Humidification, done to reduce the brittleness of the cashew kernels By 'VITAPACK' system, in tins of specified dimension by EIA; can hold 25 Ibs; tins weigh 1 Kg; price ranging from Rs. 46 to Rs. 52 [landing cost]; outer carton can hold 2 tins,price ranging from Rs. 12 to 20

Conditioning

Roasting

Shelling

Drying

Peeling Grading

Conditioning Packing

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Vikalpa

Exhibit 3: Export of Cashew Kernels by Major Exporting Countries Year 1950

India 22424 31452 39436 53793 54074 59174 31836 40553 37376 32455 44197 48764 46841

Mozambique 34 1014 1355 4069 1476 21195 15600 2307 6000 7000 6000 3878 3107

Tanzania 35 48 2853 4000 3463 932 1043 1860 1089 1043

Kenya
-

Brazil
-

Total 22458 32466 41578 58830 78336 95960 67241 66043 74817 79782 85075 81071 75622

1955 1960 1965 1970 1975 1980 1985 1987 1988 1989 1990 1991

152 196 143 170 1781 2474 1509 1884 1018 340 1202

600 724 6499 11421 14561 20709 29000 37000 32000 27000 23429

Exhibit 4: Export of Cashew Kernels from India

Zone American East Europe West Europe African West Asia Oceanic

1988

1989 6491 528157 14549 1151134 12146 984997 37 1488 116275 2167 183594 7356 622846 44197 3587040

1990 4546 369751 27909 2457792 8236 677838 5 737 760 64319 1169 101981 6139 540325 48764 4212743

1991 15350 1948886 4396 485594 14038 1847167 1 190 2031 272450 2552 346919 8473 1111185 46841 6012391

1992 (Jan-Sept)
12310 1759865 1199 191062 11975 1789612 20 2734 1717 256461 1562 223554 6418 815465 35201 5038753 47

Q
V V V

6122 471501 5069 387686 11598 935580 30 2563 1402 113552 1543 127989 6691 541851 32455 2580722

Q Q

Q V Q
V V V
V

South East Asia Q Total Exports

Vol. 21, No. 1, January - March 1996