## Introduction

In the period between World War 11 and the early 1970s, Tanzania developed one of the world's largest cashew nut industries, accounting for some 30% of total world production and ranking among the leading exporters. Cashews became one of Tanzania's largest sources af foreign exchange and provided an important source of income for some 250,000 smallholder farmers. Tanzania's cashew nut trade was intitially developed by private traders, although during the 1960s a multi-tiered marketing systemfeaturing local cooperative societies, regional cooperative unions, and a national marketing board-was imposed, with the role of private traders being marginalized and eventually renmoved entirely.

As analyzed by Ellis (1979,1980,1982), this multi-tiered marketing system failed to operate efficiently. Rising marketing costs, together with declining real producer prices, and the forced villagization of smallholder farmers greatly undermined tLe incentives to produce cashew nuts. From the mid-1970s the industry underwent a steady and dramatic decline. By the late 1980s, marketed cashew nut production was only 15% of its level from the early 1970s, with most of the government's large-scale processing factories lying idle and with Tanzania's reputation for a high quality product badly damaged.

With the industry on the brink of complete collapse, the Tanzanian Government announced in 1991 that the cashew nut market would be liberalized, with private firms permitted once again to undertake trade. The liberalization of the cashew nut market was viewed as somewhat of a 'test case', the results of which would influenced the speed and nature of institutional reforms in the processing and marketing of Tanzania's other major industrial crops, including coffee, cotton, and tobacco.

This paper examines the liberalization process within Tanzania's cashew nut industry over the past two years, placing particular emphasis on the nature of the private sector response to market reforms. What types of firms have been able to take advantage of the market reforms? How has the re-entry of private firms into the cashew trade affected the trade of cooperatives and the Tanzania Cashew Nut Marketing Board, and the welfare of farmers? How competitive is the liberalized market and what factors have constrained the emergence of a greater degree of competition? What residual market controls have remained, either officially o: unofficially? To what extent has market liberalization placed the industry on a road to recovery? The liberalization experience within Tanzania's cashew nut industry offers interesting insights for other sub-Saharan African countries where there remains uncertainty about the appropriate roles for marketing boards in liberalized markets, about the ability of cooperatives to compete in such markets, and about the ability of indigenous firms to take advantage of the new trading opportunities.

This paper is comprised of four sections. Section I examines important techno-economic characteristics of cashew nuts (and their production and processing), noting possible implications for the organization of cashew nut processing and marketing. Section 1I reviews the world market situation for cashew nuts and the changing position of Tanzania and other sub-Saharan countries therein. Section III traces the rise and decline of Tanzania's cashew nut industry from the early 1930s until 1990. Section IV then examines the process of market liberalization which has taken place since 1991, emphasizing the nature and effectiveness of the private sector response.

# r. Cashew Nuts: **'Poor Man's Crop and Rich Man's Food**

The cashew (Anacardium occidntale L.) belongs to the Anacardiaceae family of plants which also includes the mango, the pistachio nut, and the noxious poison ivy, poison oak, and poison sumac.<sup>47</sup> The

> 47 The English word 'cashew' is derived from the Portuguese 'caju', which in turn came from the Tupi-Indian 'acuji'. This section of the case study is based on FAO (1969), Northwood and Kayumbo (1970), Rosengarten (1975), and Ohler (1979).