Opinion

Challenges in the Cambodian Cashew Industry Amid Climate Change

Published Nov 16, 2023
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The Cambodian cashew industry is at a crossroads. Production is under threat from climate change, low profitability, and competition from more lucrative alternative crops. The 2023 harvest will yet again disappoint, at only 650,000-700,000 mt compared to initial expectations of 1mmt. In response to these challenges, the industry is adopting climate-resilient varieties and implementing techniques to positively influence the flowering period. Nevertheless, the sector faces the risk of a potential reduction in cultivation areas and ongoing concerns about low profitability. Compounding these issues are competitive pressures from Vietnam, which accounts for 95% of Cambodia's cashew exports, and challenges related to illegal exports. In a bid to address these challenges, Cambodia is actively working towards establishing its own cashew processing industry and bolstering local processing capabilities. The successful transformation of the industry hinges on adeptly navigating climate uncertainties, introducing new varieties, and intensifying efforts in domestic processing.

Climate Change and Decreased Production

Cambodia’s 2023 cashew crop is expected to reach a mere 650,000-700,000 mt, based on information from the Cashew Nut Association of Cambodia (CAC) and exports to Vietnam. This is far lower than estimates of over 1 million mt earlier this year. Production has decreased significantly after the massive crop in 2021, of about 875,000 to 1.1 million mt (the size of which is still disputed). Declining production is mostly pinned on climate change, as the crop has been devastated by untimely rains in the last two years.

Cashews thrive in hot weather and are known for their resilience to drought. Despite these characteristics, the fluctuating weather patterns significantly affect their production. In both 2022 and 2023, unexpected rainfall had detrimental effects on the crop. During the flowering phase, untimely rains damaged the flowers, resulting in flower drop and the development of empty or poorly formed nuts. Additionally, excessive rain during the harvest contributed to a decline in quality and increased rejection rates. The promotional material from the CAC outlines the impact of climate change in its action plan to address these challenges.

Source: CAC

The 2024 Growing Season and El Niño

Cashew nuts have a long flowering, growing, and harvesting season. Flowering normally occurs in the dry months, from November to March. Early flowering cashews are already harvested in February, and the harvest continues until August. The development of the El Niño weather phenomenon in 2024 could potentially influence production, with a predominantly positive impact anticipated. The El Niño weather phenomenon is connected to precipitation variability and years characterized by strong El Niño are correlated with periods of moderate and severe drought, as indicated by the World Bank. Following a wet Oct-23, rainfall in the first half of Nov-23 has been below average, and forecasts predict minimal rain for the remainder of the month. Cashew trees are currently entering the flowering stage, and if the dry weather persists, it is expected to influence flowering positively. Additionally, soil moisture remains sufficient due to the substantial rains received in previous months.

Source: Tridge, WorldWeather

In the long term, there is a potential for a decrease in cashew production, even if yields improve in 2024. The CAC reports a reduction in the cashew cultivation area by 100,000 hectares over the last two years, bringing it to 700,000 hectares in 2023. This decline is attributed to farmers uprooting cashew trees due to consecutive harvest failures, prompting a shift to other crops, especially cassava. Coupled with the generally low profitability of cashews, there is a likelihood that the area under cashew cultivation might continue to decrease, albeit at a slower rate. In 2023, cashew prices remained approximately 30% below the five-year average, diminishing the overall profitability of cashew production compared to previous years.

Domestic Processing, Competition from Vietnam, and Illegal Exports

95% of Cambodia’s cashews are exported in the form of raw cashew nuts (RCN) to neighboring Vietnam. Vietnam has positioned itself as the world’s leader in cashew processing and top cashew exporters sell around 80-90% of their cashew crops as raw cashew nuts (RCN) to Vietnam. Cambodia exported 614,956 mt of RCN to Vietnam between Jan-23 to Oct-23, and it could reach an estimated 625,000 mt for the whole year. The officially reported numbers are slightly lower than the actual figures, recognizing that some cashew nuts circumvent the official process and cross the border through unofficial checkpoints. This acknowledgment comes from the Cambodian Ministry of Agriculture, highlighting the challenges in accurately capturing the entirety of cashew exports.

Cambodia seeks to establish its own cashew processing industry to enhance the local economy and promote social development. The National Policy on Cashew Nuts, launched by the Cambodian Ministry of Commerce in early 2023, is primarily focused on improving local processing capabilities. The initiative seeks to enhance Cambodia's capacity in producing, storing, processing, packaging, marketing, distributing, and exporting cashew nuts and their derivatives. The ambitious goal is to process 30% of locally produced cashews within the country by 2027. Presently, Cambodia has only 30 small and three medium-sized cashew nut processing factories. To meet the 2027 target, an additional 50 medium-sized facilities may be necessary, according to estimates by the CAC.

Source: CAC, Vietnam Cashew Association (VINACAS)

Transformation of the Industry Needed

With the 2023 harvest now concluded, attention shifts to the uncertainties looming over the cashew industry in 2024. While the growing season may initially benefit from sunny weather and reduced rainfall, brought about by El Niño, there remains a potential threat of mid-season drought. Addressing the decline in cashew farming areas is of paramount importance. Following the Cashew Nut Association of Cambodia's (CAC) recommendations, such as planting climate-resistant varieties and aligning flowering with weather patterns, could significantly contribute to the industry's resilience.

The introduction of new cashew varieties that bear nuts in the second year after planting, as opposed to the traditional five to six years, presents an opportunity to entice farmers. This accelerated timeline might encourage them to switch to these varieties instead of abandoning cashew production altogether. Moreover, processing more cashews domestically is expected to lead to a comparative increase in farmgate prices. Considering the anticipated erratic rainfall patterns in the future, as projected by the World Bank, adapting the industry to remain sustainable and profitable is crucial.

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