Vietnam: Material shortage causes headache to cashew nut exporters

There are two big problems that cashew exporters are facing: lacking capital and lacking materials, which may make the target of exporting 1.4 billion dollar worth of products in 2011 unreachable.

Low output anticipated

It is now the peak cashew harvesting season, and farmers have warned that 2011 is a year of bad harvest, with the modest expected output of 350,000 tons in total.

Nguyen Thai Hoc, Chair of the Vietnam Cashew Association (Vinacas), said that the quality of the cashew and the output both will be lower than the previous year due to the bad weather.

Pham Van Nguyen, a cashew expert of Vinacas, also said, that the cashew quality in 2011, would be worse than the previous year due to the insects and the rains which have made cashew nuts small and peels thick.

In principle, Vietnam can import materials from other countries to process domestically to fulfill export contracts. However, according to Hoc, due to the fighting situation in the Ivory Coast, the main supplier of raw materials to Vietnam; enterprises would only be able to import cashew nut materials after May 15.

In 2010, Vietnam purchased 217,000 tons of cashew nuts from the Ivory Coast and is planning to import the same volume this year from the country.

Vinacas said, that to date, Vietnamese enterprises have signed the contracts on purchasing 150,000 tons of cashew nuts, but deliveries will only come after May 15. Vietnam is also planning to import 300,000 tons of cashew nuts from Africa until June and July from Africa, but it is still not sure if there are enough cashews to import.

Vietnamese enterprises have every reason to worry about that. Olam Vietnam Company has said that the prices of raw materials in the countries are at high levels.

It is very likely that Brazil would purchase 20,000-40,000 tons of raw materials from Africa, while African processing factories would need 80,000 tons a year to make products for domestic consumption. As such, about 100,000-120,000 tons will be retained and will not be sold to Vietnam and India. Therefore, the material supply would be short.

Meanwhile, cashew material prices have been predicted to increase further, which may make it impossible for enterprises to purchase enough materials, because enterprises are lacking capital.

Lacking capital, enterprises have to dump products

According to Vinacas, enterprises now have to collect cashew materials from farmers at 26,000-27,000 dong per kilo, which means that the cost price would be no less than 38,000 dong if counting on the toll and other kinds of expenses.

This spells that if enterprises sell at less than four dollars per pound (0.545 kg) of W320 product, enterprises would incur the loss of 500 dollars per ton, according to Hoc.

Meanwhile, foreign importers are trying to force the prices down to 3.8 dollars. Some small Vietnamese enterprises have accepted to sell at that price level, because they lack capital and they have to sell products right after processing.

According to Vinacas, some enterprises have to export products at low prices because they need to get money to pay due bank debts.

Hoc has warned that with some enterprises accepting to sell at the prices lower than the production costs, trade disputes may occur in the time to come.

“If enterprises offer to sell at less than four dollar and get involved in disputes, Vinacas will not settle the case,” he said.

He went on to say that the cashew nut price in the world market would increase in the third and fourth quarters of the year. Therefore, enterprises will lose money if they hurry to sign contracts to export products at low prices at this time.

(Source: http://english.vietnamnet.vn/en/business/7440/material-shortage-causes-headache-to-cashew-nut-exporters.html)