Financial constraints to adding value to small-scale cashew farming in Nigeria

As a drought-resistant crop, the cash tree (Anacardium occidentale L.) is one of Nigeria’s undervalued economic crops despite its ubiquity and huge economic potentials (Ohler., 1979). Cashew apples waste on most plantations in the country due to lack of an efficient market distribution system. When the agricultural produce is finally harvested, local farmers suffer huge losses from unavailable storage facilities, which are prerequisites in the value addition process: grading of kernels, heat treatment, shelled roasting and packaging (Mgbenka R. N. & Mbah E. N., 2016). J. O. Lawal et al (2009) confirmed a significant gap of (P<0.05) in net income recorded per farmer adding value ($487.26) and those who don’t ($306.29), also noting that benefit-cost ratio of value addition was 1:2:30.

This research examines the financial constraints faced by small-scale cashew farmers, including the socio-economic characteristics of value-addition to Nigeria’s unprocessed cashew nuts which currently yields $1,000 notwithstanding its real worth with added value ($3,000) in the international markets. Series of analytical data provided by Clynes Farms Limited on the viability of project funds for cashew production, processing and marketing offered insight on the Pay Back Period, Internal Rate of Return, Return on Investment and Net Present Value.

Introduction:

Commercial cashew seedlings were first introduced in Nigeria Brazil around 1950 (Mitchell J. D. and S. A. Mori., 1987) although formal studies into its cultivation was initiated by Cocoa Research Institute of Nigeria (CRIN) in 1972 as knowledge increased on its economic value.

Africa became the world’s largest producer of cashew nuts in the 70s, having recorded over 67.5% of world production and maintaining the position until year 2000, when output dropped to 35.6%, with Nigeria, Mozambique and Tanzania holding position as the continent’s top three cashew-producing countries. A decline in Africa’s quota to global cashew production spurred Vietnam, India and Indonesia to a 26.8-49.5% increase (Azam-Ali S. H. and Judge E. C., 2001) as shown in the data below.

 

Table 1: Cashew nuts production between 1970 to 2000 (Source: FAO)

Nigeria’s continuous decline in cashew production between 1970 to 2000 was a result of many factors, particularly unavailability of loans from financial institutions due to collateral although inadequate storage facilities also contributed to the significant drop (Olomola., 1999).  Produce from cashew tree (kernel and apple) are currently under-utilized as a foreign exchange earner in Nigeria and local farmers are clamouring for assistance to migrate from primary to processed cashew nuts producers who add value to their products for a chance to benefit from trade balance and generate income for the nation’s oil-dependent economy (Ogusina and Lucas., 2008).

To analyse the socio-economic characteristics of small-scale cashew farming in Nigeria, this study used descriptive analysis whereas budgetary analysis was employed to conduct an estimate of the gross margin expected by Clynes Farms Ltd. An economic analysis of the company’s business forecast shows cashew nuts production is highly profitable with a present net value of 40,541 per tree and a 4-year forecast of $64.189 (2019), $87, 838 (2020), $111,486 (2021) and $135,135 (2022), even for a short harvesting period of just 3 months. These potential highlights the need for cashew farmer groups and co-operative societies to gain increased support through credit facilities from the government’s small-scale enterprise program.

Literature Review

Research publications under interdisciplinary umbrella are rife on different aspects of small-scale cashew farming, but this discourse will revisit topics on production, processing and export of cashew nuts in Nigeria, with emphasis on the need for financial empowerment to agro-based industries, household farmers and co-operatives.

The transformation rate of any economy largely depends on agriculture economy. Moreover, to diversify Nigeria’s monolithic economy and maintain a balance between oil and agriculture, particularly cashew farming, a major proportion of agro-oriented labour force with knowledge on modern techniques of farming is urgently required (Adelman., 2001). There is also need for an adequate and easily accessible working capital as well of reduction or total elimination of obstacles posed by land tenure systems in Nigeria (AMEC., 1992) since the differences in technical inputs, human capital and governmental policies play pivotal roles in determining agricultural productivity gaps among countries (Hayami and Vernon., 1971).

The cashew crop is indigenous to South America and has immense economic and social importance, even for Northeast Brazil, where water and soil salinity have posed great difficulties (Olher., op cit.; Togun., 1977). Although Portuguese explorers first introduced cashew in Nigeria around the 15th and 16th centuries, commercial plantations for the crop started by the Eastern and Western Nigerian Development Corporations at Oghe and Eruwa/Iwo, according to Olunloyo and Igboekwe (1985).

Cashew nut is ranked top of other tree crops in Nigeria such as rubber, cocoa, coffee and cola notwithstanding their equally great cultivation potentials (RMRDC., 2004). Africa is blessed with multi-variant climate and soil conditions that are conducive for cashew farming and nearly 70 percent of the African population rely of agriculture as a means of survival.

Tanzania presents a good example economic recovery through agriculture after its collapse in the 80s. From a low point of 29,868 tons in 1990/91, market production significantly increased to 121,207 in 1999/2000, with export earnings totalling $107 million (1998) from less than $4 million it recorded in 1990 thanks to some effective economic reforms, particularly exchange rate adjustments and trade liberalization which started in 1986. An overhaul of the cashew industry started in mid-90s and was highlighted by the abolishment of a long-lasting monopoly held by the Cashew Nut Marketing Board (World Bank OED., 1998; AFJ., 2001).

In Nigeria, the tropical nut tree has not only been a source of income, food and industrial raw material, the crop earned 24 billion naira (about 160 million U.S. dollars) from exports in 2014 with only 5% of the nuts sold in processed form (Adeigbe., 2015). Nigeria is a frontline producer of cashew nuts in world, having ranked second in 2010, 2011 and 2011, but its position has been in doubt due to discrepancies emanating from poor record keeping (FAOSTAT., 2013).

This research will therefore focus on identifying how financial assistance from the government and financial institutions, including a shift in agricultural policies can improve small-scale cashew farming in Nigeria.

Cashew Farming and the Need for a Diversified Economy

Industrial Benefits

Agriculture occupies a major part of Nigeria’s Gross Domestic Supplies (GDP) and over 80 percent of cashew nut producers are smallholder farmers who rely mostly on basic production resources despite an increased awareness of the crop’s economic benefits (Mgbenka R.N. & Mbah E. N., op cit). While renewed interests from government and private bodies aimed at improving cultivation through effective policy formulation, funding, and researches in the agro-business have made positive contributions toward boosting Nigeria’s economy (NBS., 2011), the efforts are yet to yield expected results since cashew produce are sold in in their raw forms. Value is added when agro raw materials such as cashew is processed into innovative products that are acceptable in the world market, and the multiplier effects are as follows: high foreign exchange revenues, improved standard of living for household farmers, employment generation through activities such as packaging, marketing, retail and exports as well as reduced dependency on oil, among others (Olife et al., 2013).

The apples are crushed and processed for products such as vinegar, juice, juice concentrate, liquor, chutney, pickle, beverages, jam, candied products etc. Cashew nut shell is also rich in Cashew Nut Shell Liquid (CNSL), an inedible oil with high quantities of phenolic compounds used in the auto manufacturing industry for vehicle brake lining compounds as well as floor tiles, preservatives, plastics, typewriter rollers, water-proofing agents, oil and acid-proof cement, among others (FAO., 1992).

Health and Nutritional Benefits

Cashew nuts are nutrient-packed, with about 553 calories found in 100g. The agricultural products offer vitamins, minerals, soluble dietary fibre and lots of health-promoting phyto-chemicals that protect the human body from several diseases. It contains large quantities of heart-friendly mono-saturated fatty acids such as oleic and palmitic acid, which health experts recommend for people lower cholesterol (LDL). These are also effective in preventing coronary artery diseases and paralysis as well as improving the quality one’s blood lipid (Frank., 2011).

Table 3: Nutrients from cashew nuts (Source: USDA)

Herbal usage of its bark, leaves and apple from the cashew tree offers treatment for diarrhoea, increases sexual libido, kills bacteria and germs, cure fever, and manage blood sugar level as well as blood pressure. Cashew nut, just like many other nuts, is effective against gallstones, obesity, migraine headaches, fatigue and soreness. It is also high in magnesium, which ensures healthy bones and teeth structure (Hill et al., 1997).

Governmental Benefits

Since nearly a decade, Nigeria has regained its position as one of the world’s largest producer of cashew nuts. An estimate on the value of annual cashew nuts export from Nigeria stands between US$ 25 to 35 million although data from some unofficial sources suggest that actual figures are higher. According to a 2015 report from the International Trade Center, Nigeria’s cashew industry earned about 150 million naira locally and nearly US$ 183 million from raw cashew exports in the same year (Market Insider., 2015).

Image 4: Top cashew nuts-producing countries in 2010 (Source: FAO)

About 49% of the world’s cashew crop production comes from nearly two million small-scale cashew farmers in Africa, and the sector serves as an income earner to over 10 million Africans (Taraf., 2014) thanks to the skyrocketing interest from investors in Asia, Europe and America. However, the impact from cashew farming in Nigeria has been generally discouraging due to the country’s inability to exploit opportunities presented by a huge capital base from both internal and external financiers. Economists believe the incentive required to add value in small-scale cashew production is low in Nigeria and is a pitiable reason the nation’s raw nuts prices are discounted by 20 to 30% in the world market when compared to those of neighbouring countries. Inadequate financing is responsible for the export of over 90% cashew nuts in its raw state, and the consequence is “an avoidable” loss of processing value addition (Azam-Ali S.H. & Judge E.C., 2000).

An Analysis of Cashew Farming in Tanzania

Literature in employment, household income and foreign exchange earnings show there’s a strong link between the cashew industry and Tanzania’s economic development thanks to the government’s adoption of effective strategies such as removal of subsidies on farm inputs, waiving off taxes on all cashew processing equipment, and offering export expansion grant, which bourgeoned cashew kernel exporters and processors to a record 20% increase in foreign earnings. The Tanzanian government has been applauded for regularly negotiating for favourable credit facilities on behalf of processors to enable them increase productivity (Sijaona., 2002). The following are some of the trends in cashew farming:

Employment: Topper et al (1998) confirmed that over 280,000 smallholder farmers in Tanzania earn their livelihoods from cashew farming. A study by Mitchell (2004) also verified that as of 2001, the country had about 20,400 workers whose job was to shell over 107,000 tonnes of cashew nuts, adding that the value added each day by manual processing was nearly three times of wages earned by average workers.

Taxes: Mitchell found that cashew nuts held a central role in Tanzania’s economy, with 18% of merchandize exports accruing from the industry. The government expanded its coffers through district taxes paid by cashew traders before purchasing cashew nuts. Gross tax profits amounted to about 18% of the producer amount. The policy was productive thanks to the teeming responsible traders and farmers in the industry who recognized the need for tax payments.

Foreign Exchange: Between 2000 and 2001, Tanzania earned a total of $220.7 million from cashew exports while Ghana recorded $42,998.09 for trading its 139,440.75 tonnes of cashew nuts between 2006 and 2008. In 2001, Nigeria also received $7.5 billion from cashew nuts trade in the foreign markets (Ezeagu., 2002)

 

Credit Facilities and Incentives: To reduce cost of producing cashew nuts and increase profits accruing to processing companies, the Ghanaian government together with the Ministry of Food and Agriculture (MoFA) and African Development Bank (ADB) between 2004 to 2007 provided 4,580 farmers with GH¢ 2,417,013.00. The recipients were registered under the auspices of Cashew Development Project (CDP). These points prove there’s great potential in cashew farming.

Hypothesis:

  1. An adequate and timely supply of farm inputs from the private sector is necessary for improving small-scale cashew farming in Nigeria.
  2. The Nigerian Agricultural Extension System can revamp small-scale farming if administered by qualified, responsive and accountable staff.
  3. Smallholder farmers require an extensive education for proper use of modernized agricultural tools and farming methods.
  4. The inability of local governments to provide heavy duty farming equipment at subsidized rates and adopt farmer-friendly land tenure systems contribute to smallholder cashew farmers’ incapacity.

Problem Statement: Some of the factors mitigating against cashew production, processing and marketing in Nigeria include: non-participation of women in cashew farming; insufficient labour; high cost of transportation; inaccessible roads; lack of adequate storage facilities and processing industry; including an unsupportive financial sector (Ezeagu., 2002), which presents the bedrock of this academic research.

According to Akinwale et al (2001), over 70% of participants in an agricultural survey conducted to identify the main challenges faced by small-scale cashew farmers in Nigeria agreed on inadequate capital as the major concern whereas lack of storage facilities earned 5.5%, among others. The study showed that most cashew farmers find it difficult to obtain loan approvals from banks which require collaterals, and with less incentives, the country’s goal of achieving sustained production will remain elusive if not properly addressed.

Specifically, the following research questions will need to be addressed:

  1. What is the current state of cashew production in Nigeria?
  2. What are the major constraints to cashew nuts production in Nigeria?
  3. What sources of finance are available to small-scale cashew farmers?
  4. How will adequate finance solve the problem of cashew farming for smallholder farmers?

Objectives: This research will focus on the following areas:

  1. To examine cashew farming activities in selected states of the federation.
  2. To assess the prospects of small-scale cashew farmers in Nigeria.
  • To ascertain the major sources of finance and financial constraints encountered by small-scale cashew farmers in Nigeria
  1. To suggest ways of transforming the cashew industry for increased production.

Policy makers, financial institutions, investors and researchers will have access to the result of this study, and I am optimistic that its proper use will be meaningful in Nigeria’s drive for agricultural sustainability through constraint management and visionary scheduling.

Methodology:

The author will employ purposive sampling technique for this analysis on financial constraints on small-scale cashew farming in Nigeria, with focus in the Southwestern states of Oyo, Osun and Edo in the South East. To present a comprehensive description of the socio-economic variables of participants in the survey and determinants of cashew production in the chosen area(s) of study, detailed information collated through a structured questionnaire will be scrutinized using multi-variate regression analysis and descriptive statistics. In addition, data supplied by Clynes Farm Ltd will prove useful in the financial analysis of cashew farming.

Results and Discussions

Table 1 shows the economic characteristics of cashew farming between 2018 and 2022.

Table 6: Clynes Pro Forma Cash Flow

Clynes total budgeted initial capital outlay is N114,647,050 whilst its Net Present Value is N14,064,458,961. Using the Internal Rate of Return Method, the Project potentially has the probability of generating an internal rate of return of 1038% within five years of operation. Using the Profitability Index Method, the Project also has the probability of generating a profitability index of 123.68 within the period under study.

Table 6 shows the costs and returns from cashew production within a 5-year period by costing both fixed and variable inputs, and highlights the viability of Clynes’ net present value (N14,064,458,961) plus the required value to be added for smallholder cashew farming firms and the economy to achieve productivity.

Table 7: Clynes Profitability Index

Using the Discounted Payback Period Method, the Project potentially has the probability of generating cash Inflows to recoup the initial capital outlay within 45 Days of implementation.

Considering the results generated by the appraisal methodologies as shown in the presented data, cashew farming presents a massively profitable investment opportunity, which will not only maximize the wealth and value of the company and its shareholders, but will improve the economy growth of the economy, especially during this period of choosing the best economy diversification policies to improve the Gross Domestic Product (GDP) and primary sectors as well.

Outline:

  1. Introduction
  2. History of cashew in Nigeria
  3. An overview of cashew nut production in Nigeria
  4. Cashew varieties and mode of propagation
  5. Benefits of cashew production
  6. Prospects of cashew research
  7. Literature review
  8. Constraints of cashew production in Nigeria
  9. The role of finance in small-scale cashew farming
  10. Strategies for improved cashew production in Nigeria
  11. Improving cashew nut production in Nigeria: A case study of Mozambique and Ghana
  12. Miscellaneous problems that require urgent attention from the government
  13. Methodology
  14. Introduction
  15. Research design
  16. Sources of data
  17. Data analysis
  18. Scope of Research
  19. Presentation and analysis of data
  20. Socio-economic characteristics of cashew farming
  21. Farmers’ enterprise characteristics
  22. Distribution of farmers using access to loans, extension services and ownership of farm record
  23. Relationship between farmers’ net income and their financial challenges
  24. Relationship between sources of finance and accessibility to farmers
  25. Results and Discussion
  26. Conclusion
  27. Recommendations

References:

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