An Endless Spiral

BUSINESS & ECONOMY   cashew An Endless Spiral Global recession has forced a retreat for Indian cashew processors, says SAUMIL SHARMA IT’S IRONIC that, during a general global recession, the Indian cashew manufacturing industry has a supply shortage — and cannot meet demand. But that’s where the good news ends: the reason is that the sector was over-producing in the last quarter of 2008. At a time when global demand fell by 5-10 percent, cashew production had a serious overcapacity problem. Says Kalbavi Prakash Rao, president, Karnataka Cashew Manufacturers’ Association: “The surplus was sucked up by the domestic market, but now the market is under supply pressure.” Vicious cycle Workers at a cashew processing factory Since October 2008, fear of uncertain demand patterns in the US, European, and Japanese markets triggered a retreat of forward contracts, leading to a large surplus of cashews. It was only the peaking of local demand (festival gifting) that helped pick up this surplus. “India’s fortunate to have a domestic industry which peaks during this season,” says Shashi Varma, Cashew Export Council. Unstable export conditions made manufacturers veer away from producing at the risk of potential losses, and suddenly the supply capacity has fallen below demand levels. “Kerala Cashew Development Corporation is researching to shift focus to Russian and Chinese markets, as US exports have badly deteriorated,” says Dr. Retheesh, managing director, KCDC India imports 50 percent of the raw cashew required by processing units in the country. Varma agrees that “advance purchase was made at higher than parity prices, making it difficult for Indian manufacturers to continue producing at current price levels of processed cashews”. Extreme climatic conditions further troubled an industry already under the gun. Half-way through an underperforming Indian season, which winds up in mid-May, a grim outlook for African and Vietnamese supply has induced an acute uncertainty. Another blow is a 10 percent labour decrease in the labourintensive industry. Because of such a combination of reasons, cashew processing factories are shutting down. The future of Indian cashews, at present, seems to rest with the home market.

From Tehelka Magazine, Vol 6, Issue 15, Dated Apr 18, 2009

Story Link: http://www.tehelka.com/story_main41.asp?filename=Bu180409an_endless.asp