Raw cashew nut price review 2012

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Stakeholder consultation March 27 – April 27, 2012

The Cashew nut price review project

The last Cashew Nut minimum price review took place between January 2009 and the end of
2010. The outcome of that review was the approval of new Fairtrade Minimum Prices and
Premiums for different grades of cashew kernels. Prices for raw cashew nut were not decided
upon at the time, because more research was required. Fairtrade organized a round table
with stakeholders in Accra at the end of November 2011. The Pricing Unit has now started a
new price review for raw cashew nut prices, which aims at requesting the Standards
Committee (SC) to take a final decision on this matter in the second quarter of 2012.

Fairtrade policy background:

In previous raw cashew price reviews, some stakeholders fed back the opinion that small
producer organizations (SPOs) ought to process their raw nuts themselves, to achieve the
empowerment that Fairtrade aims for. Although we appreciate all feedback, it is important that
stakeholders know that Fairtrade International’s applicable producer standard for nuts does
not require SPOs to control the processing themselves. Several certified groups do not own
their own processing facilities, nor are able to subcontract processing. For producers selling
raw cashew nuts, the current system of calculating prices back from FOB level is not very
transparent and thereby does not offer optimal price protection.

The purpose of this document is to start a second round of consultation about the issues
which were not resolved in the past. This paper focuses on:

1. Raw cashew nut minimum price and premium proposals

2. Additional Standard requirements to accompany the prices for raw cashew nuts,
including transparency for producers and regional processing.

Please send your answers to m.loeffen@fairtrade.net before April 27, 2012. Note that we
have to be strict on the deadline of April 27, to be able to meet out time schedule.

If you have any question about this project or this questionnaire, please do not hesitate to
take contact with Margret Loeffen at m.loeffen@fairtrade.net or by phone at +49
22894923283.

We thank you in advance for your participation,

Margret Loeffen

Pricing Project Manager

Standards Unit
Fairtrade International

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How to complete this document
When filling in this document, please try to provide clear responses and take time to explain
your rationale. This will help us to understand why you propose something. You may also put
forward alternative proposals or include any other suggestions.

Confidentiality
All of the information we receive from respondents will be treated with care and kept
confidential. Results of this consultation will only be communicated in aggregated form (a
synopsis of the consultation feedback will be made available to stakeholders and will be
available on the Fairtrade International website). All feedback will be analysed and used to
draw up the final proposal. However, when analysing the data we need to know which
responses are from producers, traders, licensees, etc. which is why we kindly ask you to
identify yourself below.

Questionnaire:

Please indicate the name of the person filling in the document

     

Please indicate the name of the certified or registered FLO partner, the FLO-ID and
country
     

Please describe what your position in the Fairtrade supply chain is (more than 1
answer possible - please consider the options carefully)
Producer who sells raw cashew nuts (but not kernels)
Producer who sells kernels, processed at his own a processing facility
Producer who sells kernels, by subcontracting an external processor
Exporter of raw cashew nuts
Importer of raw cashew nuts
Processor or processor-exporter (not producing (but buying) Fairtrade raw cashew nuts)
Exporter of cashew kernel (not involved in processing Fairtrade cashew nuts)
Importer of cashew kernels into a consuming country
Trader of cashew kernels (in a consuming country)
Licensee
Other, please specify:      
Please describe the consultation you carried out with members of your organisation,
with partners or with external sources of information in order to fill in this document
     

Introduction and background to the raw cashew nut price setting project

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The Raw Cashew Nut (RCN) is the Cashew nut just before the processing. It is the fruit taken
out of its apple and first dried to be ready to be stocked 1. It is the step before the shelling
process to get the kernel.

Below you will find a Fairtrade Minimum Price proposal and related questions, where you can
provide feedback on the proposal. The proposal is for prices for RCN at EXW level, which
would provide transparent Fairtrade Minimum Prices for different qualities of raw nuts for all
producers, including those who do not process their own nuts.. Apart from transparency, raw
cashew nut prices can help to increase sales volumes sold by Fairtrade producers and with
that the amount of Fairtrade benefits flowing back to producers. To do this in a way that
assures that maximum benefits are retained in the region of production, accompanying rules
to go with the RCN prices are also proposed and consulted on through this document.

In the Fairtrade system, RCN prices would only apply to producers selling RCN and not to
producers who process their nuts (whether in their own processing facilities or through sub-
contracting processing) and sell cashew kernels. The FOB prices will continue to apply for
producers who sell cashew kernels., The raw cashew nut prices will apply only for supply
chains in which producers sell RCN. Thus, for each contract, only one Fairtrade Minimum
Price will apply; either the RCN price or the FOB prices for kernels, but not both.

Ex Works (EXW) means that the seller delivers his part of the contract when the goods are
placed at the disposal of the buyer, at the SPO collection point. Goods are not cleared for
export and are not loaded onto any collecting vehicle. The production costs are included as
well as the transportation from the farm-gate of individual producers to the SPO and the
organizational costs of the SPO.

Targeting these aims, Fairtrade International proposes:

1. To fix a Fairtrade EXW Price and Premium for RCN with worldwide validity
2. To elaborate a quality system at RCN to stimulate quality improvement
3. To decide on additional rules to accompany RCN prices.

Costs information:

In March 2009 cost of production data were collected and costs at RCN level were received
and other costs of production were gathered from different external sources.

Because the costs were collected 3 years ago, the Pricing Unit has decided to use the
exchange rate and consumer price index methodology to update the 2009 price proposal for
inflation and exchange rate changes in countries with Fairtrade cashew producers since
2009. The average loss in value (due to exchange rate fluctuations and increases in
consumer prices indexes) between 2009 and now was found to be 9.2%.

According to our approach, the price proposals presented in this document are based on
producer’s organization costs of production plus 9.2%, to compensate for the loss of value
since the collection of the production costs.

Raw cashew nut quality issues

1
This level include a first drying which allows packing in jute or plastic bags (often 80Kg) and storing
before the processing into kernel.

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The pricing system proposed in this document follows the recommendation to set a quality
mechanism for RCN. This quality mechanism is based on the kernel outturn ratio (KOR) and
nut count.

The following price proposal is valid worldwide at EXW level and based on:

1. An average Kernel Outturn Ratio (KOR) 2 value, based on Fairtrade consultation

results received in 2010 on the proposal based on the Technoserve evaluation in 13
different countries. The KOR refers to the amount of useable kernel obtained from a
Kg of raw nuts.
2. An average income gain by 2 points of Kernel Outturn Ratio (KOR)
3. A fixed moisture content of 9%, which is based on the feedback received to the 2009
consultation.
4. An average nut count3 (number of nuts per Kg)
5. A bonus and discount (malus) of 1 cent per difference of 10 nuts, for nut counts below
and above an average nut count
6. An average Fairtrade Minimum Price based on the updated average cost of
production4.

Fairtrade raw cashew nut price proposal:

In the table below you find per level of outturn, a Fairtrade Minimum Price proposal based on
an assumed nut count between 181 and 190. For a lower or higher nut count, respectively a
bonus or malus would apply as described in the table below.

 The line in grey in the table below represents the average situation.
 This price proposal is valid for a 9% moisture content.
 This price proposal is based on 2% income increase by KOR point (4% by 2 KOR
points).
 Nut count: The proposal is based on an average nut count of 181-190 nuts per Kg. A
bonus and discount for different nut counts is proposed to be applied as follows:
Nut count bonus and discount proposal table: 1 cent of
a USD discount per 10 points of nut count
151-160Bonus of 0.3 USD / Kg on FMP161-170Bonus of
0.2 USD / Kg on FMP171-180Bonus of 0.1 USD / Kg on
FMP181-190No adaptation to FMP (see Fairtrade minimum
price in the table under A1) 191-200Discount of 0.01 USD /
Kg on FMP201-210Discount of 0.02 USD / Kg on FMP211-
220Discount of 0.03 USD / Kg on FMP221-230Discount of
0.04 USD / Kg on FMP

A: Raw cashew nut price questions

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KOR: The quantity in pound of sellable kernels per 80 Kg bag of RCN. (This indicator is measured on
a 1Kg RCN sample). The kernel outturn ratio introduces an economic incentive toward quality and
potentially income for producers. The proposal below regarding outturn is based on the work from
Technoserve and USAID.
3
Nut count stands for the number of raw nuts per Kg and as such indicates the average nut size. Since
bigger nuts are more valuable than smaller nuts, nut count is an important indicator of quality and with
that of the value of nuts.
4
For more information about the exact calculation methods in the exchange rate and consumer price
index, please contact the project manager.

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A-1- The average outturn
Outturn is the amount of kernel retrieved from 1 Kg of nuts in shell. It is measured in pounds
of kernel per 80Kg bag of raw nuts. Outturn (KOR) is an important indicator of quality of the
raw cashew nut and determines processing yields. It is as such an important determinant of
the value of the nuts.

Price proposal for conventional (non-organic) Fairtrade raw cashew nuts

KOR Nut count Fairtrade minimum Price Fairtrade Premium
181 - 190 / Kg (if different
<40 0.45 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
40 0.47 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
42 0.49 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
44 0.51 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
46 0.53 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
48 0.55 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
50 0.57 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
52 0.59 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
54 0.61 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
56 0.63 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
58 0.65 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
>58 0.67 USD / Kg 0.09 USD / Kg
bonus / discount applies)

Do you agree with the average value of outturn of 48 presented in the price table above?

Yes No

If No, what other value would be valid?      

Why?     

A-2- Average Fairtrade Minimum Price

Which Fairtrade minimum price would you recommend for the average quality outturn (0.55
USD/Kg according to the table above under A1)?

0.50 USD/Kg 0.55 USD/Kg 0.60 USD/Kg Other?      

Why ?:     

A-3- Marginal price change per point of outturn

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As it can be seen on the proposal above, for 2 points of outturn, the minimum price is raised
or diminished by 2 cents (Note that that is 2% per 1 point of outturn and thus 4% per 2 points
of outturn5). Do you agree with 2 cent marginal change per 2 points of outturn?

Yes No

If No, what other percentage would be valid?      

Why?     

A-4- Bonus and discount for nut count

SHAPE \* MERGEFORMAT
Nut count bonus and discount proposal table: 1 cent of
a USD discount per 10 points of nut count
151-160Bonus of 0.3 USD / Kg on FMP161-170Bonus of
0.2 USD / Kg on FMP171-180Bonus of 0.1 USD / Kg on
FMP181-190No adaptation to FMP (see Fairtrade minimum
price in the table under A1) 191-200Discount of 0.01 USD /
Kg on FMP201-210Discount of 0.02 USD / Kg on FMP211-
220Discount of 0.03 USD / Kg on FMP221-230Discount of
0.04 USD / Kg on FMP

Would you agree to apply bonuses and discounts for nut counts?

Yes No

Why?      

So you agree to take 181-190 as the basis for which no bonus, nor discount applies?

Yes No

Why?      

Do you agree with the proposed bonus and discount of 1 cent of a USD per 10 points of nut
count (which represents 2% bonus or discount per 10 points of nut count)?

Yes No

Why?      

A-5- The organic differential

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1% of 0.55 is 0.0055. The difference is 2 cents per 2 points of outturn, which is 0.02 USD /0.0055 USD
= 3.6%, rounded off to 4%.

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Raw cashew nuts are produced with little or no chemical input and often produced organically
if not organically certified. As such, the difference in terms of cost of production for organic
RCN is mainly the organic certification cost and the compliance costs. At FOB level we have
therefore adopted a relatively (compared to many other products) low organic differential of
13%. At EXW level the same percentage would represent less actual value, which may justify
a slightly higher percentage. We propose 2 percentage points more: a difference of 15%
between prices for organic and prices for conventional cashew nuts. The same bonus and
discount for nut count as for conventional nuts is proposed to apply for organic RCN.

We propose the same Premium for conventional and for organic nuts, as is also the case with
the Premiums for cashew kernels (at FOB level).

Note that we hereby consult on the differential between conventional and organic nuts. If,
based on consultation feedback to the conventional prices, the proposal for conventional nuts
is modified, we plan to make the same changes to the proposal for organic nuts and retain the
15% differential between organic and conventional. The prices presented above are an
example derived from the conventional price proposal. Based on the Fairtrade Price and
Premium proposal presented above for conventional nuts that would imply the following price
proposal for organic cashew nuts:

Price proposal for organic Fairtrade raw cashew nuts based on an organic differential of 15%
to be applied to the proposal for conventional nuts
Outturn Nut count Fairtrade minimum Price Fairtrade Premium
181 - 190 / Kg (if different
<40 0.52 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
40 0.54 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
42 0.56 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
44 0.59 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
46 0.61 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
48 0.63 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
50 0.66 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
52 0.68 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
54 0.70 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
56 0.72 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
58 0.75 USD / Kg 0.09 USD / Kg
bonus / discount applies)
181 - 190 / Kg (if different
>58 0.77 USD / Kg 0.09 USD / Kg
bonus / discount applies)

Would you agree to an organic differential of 15%?

Yes No

If No, what other organic differential would you proposed?      

Why?     

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B: Fairtrade premium for RCN

B-1- Fairtrade Premium value for raw cashew nuts

It is industry practice to express kernels in pounds, while raw nuts are traded in 80 Kg bags.
At FOB level we have a FP of 0.15 USD / pound. In order to be consistent, the Premium value
should be the equivalent between the RCN and the kernel in proportion of the processing
yield, based on the average KOR. An average KOR of 48 stands for an average processing
yield of 27%. This implies that one needs 3.7 Kg of raw nuts to produce one Kg of kernels.
Converted into a Premium per Kg that would be 0.09 USD/ Kg 6.

Would you agree, in order for both Premium levels to be consistent, that the Premium for
RCN is the Fairtrade premium of kernels (0.15 USD / pound) divided by 3.7? Converted into a
Premium per Kg that would be 0.09 USD/ Kg.

Yes No

Why ?:     

C: Additional requirements to be included for cashew in the nut standard

C-1- Transparency to producers

Fairtrade aims at transparency and strengthening the position of producers. Access to

information is a key element in this. Many producers of raw cashew nuts have very limited
knowledge about the processing of their raw cashew nuts and about what happens after that.
Having more information on this can strengthen their position in the supply chain and thereby
helping to offset a risk some stakeholders see in the establishment of raw cashew nut prices,
that is to more strictly limit producers to their position of suppliers of raw nuts.

Would you favour requiring (through Fairtrade Standards) that processors have to share, at
least annually, certain information with producers for transparency? This information is
proposed to be (at least): processing yields, a breakdown of costs incurred by the processor
(including packaging and transportation costs), volumes of each grade of kernel sold,
destination markets and average prices obtained for each grade of kernel.

Yes No

If no, is there any information in the above proposal that you think does or does not need to
be shared Which information should or should not be shared in your opinion?      

Why ?:     

C-2- Regional processing

Some stakeholders indicated during the roundtable in Accra that they would prefer to see the
value added through processing to take place in the region of production, by requiring this

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0.15 USD/ pound divided by 3.7 = 0.0405 USD / pound of kernel. 0.0405 * 2.20462262 pounds
per Kg is 0.09 USD / Kg of RCN

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through the Standards. To further investigate the feasibility of this idea, the Standards Unit
would like to better understand for which volumes processing (into kernels) takes place by
producers and to what extent processing takes place in the region of production of the raw
nuts.

What tonnage of nuts in your supply chain(s) are processed (directly or through
subcontracting a processor) by the producers of the raw cashew nuts and what tonnage is
processed by external processors (which implies producers sell RCN)?

      MT is processed by producers of raw cashew nuts

      MT is processed by external processors (producers sell raw cashew nuts)

Which percentage of the nuts you deal in are processed in the country in which the raw nuts
grow? Which country or countries?

100%, both processing and production for Fairtrade takes for 100% place in      .

Partly. Of the Fairtrade nuts that grow in      , about      % is processed within the
country and the remaining percentage is processed in
(please name all countries in which the Fairtrade nuts are processed).

0%, for all the Fairtrade raw nuts grown in       processing for Fairtrade takes place
abroad in      
(please name all countries in which the Fairtrade nuts are processed).

It is currently allowed to ship raw Fairtrade cashew nuts for processing to another continent,
for example shipping raw nuts from Africa to Asia for processing. While this may not be
optimal from an environmental perspective, it is the case currently. And much processing
takes place in Asia in factories that benefit from economies of scale, leading to a cheaper end
product which more easily finds a market. . However since most of the value adding is
realized during the processing of raw nuts, it may be of interest to each production region to
benefit from processing raw nuts more locally. Processing opportunities in Africa have
traditional been limited, but this is changing.

Would you favour adding a requirement that raw cashew nuts, in order to be Fairtrade
certified, need to be processed in the region of production or in a neighbouring country
sharing a land-frontier with the region of production?
The regions would be determined according to the Fairtrade geographical scope and regions
(see annex 1).

Yes No

Why ?:     

C-3- Date of implementation of new Prices, Premiums and other requirements

Fairtrade would like to implement the new requirements before contracts are signed. Since for
the 2012 season, contracts have been signed and the season is starting, we would like to
implement new requirements and prices for the 2013 season. To do so, we propose to
announce prices in July or August with validity from October 1, 2012. That implies that the
new prices and requirements will be valid for contracts which will be signed after October 1,
2012.

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Would you agree with the announcement of prices in July or August with a validity from
October 1, 2012, that means for contracts signed from October 1 on.

Yes No

Why ?:     

If no, when would be propose Prices to be announced?      

And when would you propose Prices to be valid from?      

THANK YOU VERY MUCH FOR PARTICIPATING IN THIS CONSULTATION!

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 Annex 1: Fairtrade International regions

*Eastern Africa includes: Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius,
Mayotte, Mozambique, Rwanda, Seychelles, Somalia, Uganda, United Republic of Tanzania, Zambia, and Zimbabwe

*Middle Africa includes: Angola, Cameroon, Central African Republic, Chad, Congo, Democratic Republic of the
Congo, Equatorial Guinea, Gabon, and Sao Tome and Principe

*Northern Africa includes: Algeria, Egypt, Libyan Arab Jamahiriya, Morocco, Sudan, and Tunisia

*Southern Africa includes: Botswana, Lesotho, Namibia, South Africa, and Swaziland

*Western Africa includes: Benin, Burkina Faso, Cape Verde, Cote d'Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau,
Liberia, Mali, Mauritania, Niger, Nigeria, Saint Helena, Senegal, Sierra Leone, and Togo

*Caribbean includes: Anguilla, Antigua y Barbuda, Barbados, Cuba, Dominica, Dominican Republic, Grenada, Haiti,
Jamaica, Montserrat, Saint Lucia, Saint Kitts and Nevis, Saint Vincent and the Grenadines, Trinidad and Tobago, and
Turks and Caicos Islands

*Central America includes: Belize, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, and Panama

*South America includes: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Suriname,
Uruguay, and Venezuela (Bolivarian Republic of)

*Central Asia includes: Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan

*Eastern Asia includes: China*, Democratic People’s Republic of Korea, and Mongolia

*Southern Asia includes: Afghanistan, Bangladesh, Bhutan, India, Iran (Islamic Republic of), Maldives, Nepal,
Pakistan, and Sri Lanka

*South Eastern Asia includes: Cambodia, Indonesia, Lao People's Democratic Republic, Malaysia, Myanmar,
Philippines, Thailand, Timor-Leste, and Viet Nam

*Western Asia includes: Armenia, Azerbaijan, Georgia, Iraq, Jordan, Lebanon, Occupied Palestinian Territory, Oman,
Saudi Arabia, Syrian Arab Republic, and Yemen

*Melanesia includes: Fiji, Papua New Guinea, Solomon Islands, and Vanuatu

*Micronesia includes: Kiribati, Marshall Islands, Micronesia (Federated States of), Nauru, and Palau

*Polynesia includes: Cook Islands, Niue, Samoa, Tonga, Tuvalu, Tokelau, and Wallis and Futuna Islands

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