ISABELA STATE UNIVERSITY

COLLEGE OF BUSINESS, ACCOUNTANCY AND PUBLIC ADMINISTRATION

INTERNATIONAL BUSINESS AND TRADE

Name:____________________________________________ Section:____________________

Case Study: The Indian Cashew Processing Industry

Even though the cashew tree grows fruit, it is best known for its nuts. India is the world’s
largest producer, processor and exporter of cashew. In 2000, India accounted for 65 percent
of the $208 million in total global exports. The fruit of the tree (known as the cashew apple),
however, drew the earliest attention. The Tupi Indians of Brazil, first harvested the cashew
apple in the wild. They later introduced it to the early Portuguese traders, who, in turn,
propagated the tree in other tropical countries. But attempts to grow the tree on the
plantations proved unsuccessful, because it was vulnerable to insects in the close quarters
of plantations. Instead, some of the abandoned plantation trees propagated new trees in the
wild forests of India, East Africa, Indonesia and South-East Asia.
Two other factors inhibited the early harvest of the cashew nut. Firstly, cashew fruit matures
before the nut and the fruit will be kept only about 24 hours, after harvesting the nut. So, the
fruit is usually discarded in the pursuit of the nut, which, if dried, can last a year or longer.
Secondly, the processing of cashew nuts is tedious and time-consuming. In the 1920s,
however, India developed a cashew-processing industry in response to the growing demand
for cashew nuts among Indian consumers.
The processing required much manual dexterity and low wage rates, because the nut is
contained beneath layers of shell and thin skin. To remove the shell, the workers must place
the nut in an open fire for a few minutes and then tap it (while still hot), with a wooden
hammer. If the nut breaks from the tapping, its value decreases considerably. Once the
workers remove the shell, they place the nut in an oven for up to 10 hours, after which they
remove the skin by hand, while the nut is still warm, without the use of fingernails or any
sharp objects that can mark or break the surface. The workers then sort the nuts into 33
grades, based mainly on size and wholeness. The highest grades sell for several times the
price of the lowest grades, which are sold almost entirely to the confectionery industry. India
maintained a virtual monopoly on cashew processing, until the mid-1970s. This monopoly
was due to three factors:
1. India was the largest producer of cashews.
2. Early demand occurred largely in India, meaning that any other country would
have to incur added transport charges to reach the Indian market.
3. Most importantly, the Indian workers were particularly adept at the process
technology.
Through the years, other factors threatened India’s prominence as a cashew producer.
Firstly, a shortage developed, when the demand for the nuts grew in the United States and
the United Kingdom. Secondly, because the nuts were ill-suited for plantation growth, India
could not produce enough and thus turned to East Africa, especially Mozambique, Tanzania
and Kenya, for supplies. Those countries were experiencing high unemployment and were at
first eager to sell the raw nuts, which grew in the wild. But by the 1950s, they began to
realize that they could bypass India, by processing the raw nuts themselves. Cashew-
processing methods were well known and did not require the East Africans to invest in
expensive machinery. So there was no technological obstacle. Mozambique became the
 ISABELA STATE UNIVERSITY
COLLEGE OF BUSINESS, ACCOUNTANCY AND PUBLIC ADMINISTRATION
INTERNATIONAL BUSINESS AND TRADE

world’s largest cashew grower by the mid-1970s and processed cashews became the
country’s leading export. However, because the Indian labour force worked on making
handicrafts at home as children, by the time they were employed in cashew processing, they
could perform delicate hand operations efficiently. Without such training, the East Africans
were at a fatal disadvantage. Further, the Mozambique government neglected reinvestments
in the state-owned processing plants and many of the trees became diseased and too old to
be productive. By the 21st century, Mozambique was no longer a major player in the
industry.
Although the Africans’ inability to compete, granted a reprieve to the Indian industry, it put it
on notice, that it was vulnerable to supply cut-offs. The Indian Council for Agricultural
Research, the International Society for Horticultural Sciences, and the Indian Society
for Plantation Crops, expanded their efforts to increase India’s production of raw nuts.
Concomitantly, three different companies developed mechanical equipment to replace hand
processing. They sold equipment to East African countries and Brazil in the 1970s. These
countries reduced their exports of raw nuts to India to maintain supplies for their own
processing.

Three factors have kept India’s hand-processing industry afloat:

1. The machinery breaks many cashew nuts, so Indian processors have had
an advantage in the sale of higher-grade nuts. At any time, however, newer
machinery might solve the breakage problem, again threatening the
approximately 200 Indian processors and their 300,000 employees. Moreover,
there is an increased competition for the lower-grade output.
2. Indian processors have been able to obtain increased supplies of raw nuts,
partially as a result of the increased Indian production. Pesticide technology now
makes cashew tree plantations feasible, increasing the number of trees per acre.
Nevertheless, about 97 per cent of nuts come from trees in the wild. Indian
experimentation in hybridization, vegetative propagation and grafting and budding
techniques, promises to increase the output per tree to five times what it was in
the wild. Further, India has been increasing its imports of raw nuts substantially,
primarily from Tanzania.
3. India uses fewer fertilizers than Brazil, the biggest export competitor and the lack
of fertilizer apparently gives, Indian nuts, a better flavour.
Because its exports consist of a higher portion of higher-grade nuts and because of the
flavour differences, Indian exports sell for a premium in comparison with those of
competitors, for example, about 15 percent more than nuts from Brazil. However, yields are
usually higher in Brazil, and Brazilian processors pay only between 30 and 36 percent of the
price, the Indian processors pay for raw nuts. Further, because of differences in domestic
demand, India typically exports about 50 percent of the raw kernels that it processes,
whereas, Brazil exports about 85 percent. In the mid-1990s, Brazil suffered crop problems,
which enabled India to gain an increase in the global export share of processed cashew
kernels.
 ISABELA STATE UNIVERSITY
COLLEGE OF BUSINESS, ACCOUNTANCY AND PUBLIC ADMINISTRATION
INTERNATIONAL BUSINESS AND TRADE

During the 1990s, India depended heavily on imported raw nuts from Vietnam. However,
Vietnam has since, become a competitor by processing its own nuts and by importing nuts to
process from other countries. The Vietnamese government is spending heavily to introduce
high-tech strains into production in order to improve both quantity and quality. Vietnamese
exports are of high quality and so the country’s exporters are not only targeting India’s
largest export market, the United States, but also emerging markets such as China, Saudi
Arabia and Russia. If Vietnam’s growth in exports continues at the same rate, it will surpass
India as the largest exporter by 2010.

There is potential for an excess supply of cashew nuts, which might result from plantation
techniques and improved technology in India and elsewhere. To find outlets for a possible
nut glut, the All-India Coordinated Spices and Cashew Nut Improvement Project has focused
its efforts on increasing nut sales in small markets and on finding new markets for products
from the cashew tree. For example, experimentation is going on to harvest both the fruit and
the nut. The fruit is also being studied for commercial use in candy, jams, chutney, juice,
carbonated beverages, syrup, wine and vinegar. Another area of research is in the use of
cashew nutshell liquid (oil), which was once discarded as a waste product. It is now used
extensively in industrial production of friction dusts, for formulation in brake linings and clutch
facings. However, the extraction of cashew nutshell liquid has been too costly, to make the
product fully competitive with some other types of oils. There is also a potential for short-
term cashew shortages, such as that occurred in 1999, because of unfavourable climatic
conditions. This has led India to try to increase its production and its foreign supplies.

Questions
1. What trade theories help to explain where the cashew tree products have been
produced historically?

2. What factors threaten India’s future competitive position in cashew nut

production?

3. If you were an Indian cashew processor, what alternatives might you consider to
maintain future competitiveness?