the hypothesis that the capital intensive factories were not efficient has been borne by the developments.

Finally, the evidence so far suggests that the industry has adapted to the external shocks and restructured itself. This restructuring is also being aided by higher processing margins extracted by the industry. Through collective action and support from the donors through Technoserve and export credit guarantees, a more efficient processing system has emerged.

One can interpret these developments as the state again placing its support for the new class of industrialists and traders. Maintenance of export taxes and trading limitations, coupled with changes in the labor regime suggest such a bias. The support to the smallholders has been more limited both through the lack of non price support and the behavior of exchange rates which have limited the pass thorough of higher international prices. But a more definitive conclusion requires more research into the cost structures of the processors and the farmers.

# **3. The Cashew Producers**

Despite positive developments and effective restructuring of the cashew processing industry, raw cashew output has not increased nearly as much as was expected when the reforms were enacted. While we have analyzed some of the reasons for this slow response, a detailed look is needed to understand the economics of the smallholder cashew producers. A series of surveys, supported by the World Bank, were undertaken during the late 1990s on the behavior of smallholders (World Bank 2001). Survey findings, at least until 2001, support our previous conclusion that real cashew producer prices as well as their share in cashew export prices increased after the reforms.

An important finding of the surveys is that investment in new trees and better treatment of the existing trees have not taken place to the extent expected when the reforms were implemented. The lack of interest in cashew cultivation has, over time, resulted in an aging stock of trees of low productivity. Roughly 13 percent of trees are deemed to be too old by households. Tree diseases, primarily the powdery mildew _oidium_ , afflict around 25 percent of a household’s tree stock. Analysis of the determinants of disease treatment show that producer prices have no bearing on the decision to treat tree diseases, not even in Nampula where raw nut commercialization displays relatively strong price responsiveness. Indeed, when asked for reasons for not treating diseases, a large percentage of survey respondents point to lack of knowledge and information on disease treatment and unavailability of chemicals. There is, therefore, a large role for agricultural extension services, and in some areas private sector provision of inputs – from processors.

The surveys also show that cashew is not only a cash crop but also a food crop meeting some of rural households’ nutritional requirements. Only about 85 percent of farmers in Nampula sell any part of their harvest, a figure relatively unchanged between 1996 and 1998. Moreover, only about 64 percent of what they harvest is commercialized. In Gaza, only about 47 percent of cashew producers sell any part of their harvest and in Inhambane, less than one-third market their 14