Page 46 - DMGT545_INTERNATIONAL_BUSINESS

Unit 2: Theories of International Trade

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Case Study the indian cashew Processing industry
ven 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
Efor 65 per cent 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 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
Contd...

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