Mozambique's cashews get dose of Dutch disease

MAPUTO (Reuters) - Mozambique's cashew industry is ailing, and the symptoms point to a bad bout of "Dutch disease."

In a nutshell, this illness strikes an economy when the discovery of a resource such as oil draws in a flood of dollars, boosting the local currency but making all other exports uncompetitive.

The term was coined to explain the decline of manufacturing in the Netherlands after the discovery of North Sea oil and gas in the late 1950s.

In Mozambique's case, an investment boom in the nascent coal and gas sectors hoisted the metical by a whopping 33 percent against the dollar from September 2010 to the end of 2011. It has since held on to the bulk of those gains.

Foreign direct investment soared to $2.1 billion last year - when the metical was the top-performing currency against the dollar - compared with just $7.8 million in 2010, central bank data showed.

While the government will welcome the money, it has crushed any cashew comeback and put the livelihood of tens of thousands of peasant farmers at risk in a country where agriculture still accounts for a third of gross domestic product.

The tropical southeast African nation and former Portuguese colony was once the world's top producer of the coveted nuts, but - as with most of its economy - the industry was gutted when civil war erupted after independence in 1975.

The end of conflict two decades ago allowed the cashew sector to sprout anew, and in 2010, sales rose to a post-war peak of 113,000 tonnes, the third-highest in Africa behind Ivory Coast and Guinea-Bissau, according to the Ghana-based African Cashew Alliance.

But sales then tumbled to 63,000 tonnes last year.

Market and industry players say the currency's appreciation prompted buyers in India, where most of Mozambique's cashews are processed, to search for cheaper options elsewhere.

"Prices last year got to all time highs and that really hurts demand," said Richard Rosenblatt, of the Richard Franco Agency, a U.S.-based nut broker.

Oil-rich Angola, another former Portuguese colony on the other side of Africa, also highlights the impact of Dutch disease on agriculture.

Before independence in 1975 and the chaos of its civil war, Angola was the world's fourth-largest coffee producer, churning out 200,000 tonnes of beans a year.

Now, a decade after the fighting ended, it is vying with Nigeria to be Africa's biggest oil producer, while its coffee industry remains in a rut with annual output of a paltry 4,000 tonnes.

One solution being explored in Mozambique is to process its cashew nuts at home.

"The cashew nut is consumed externally so it is the international price that dictates things," said Filomena Maiopue, director of the National Cashew Institute in the capital, Maputo.

"We've reached the conclusion, in discussion with the Ministry of Agriculture, that in order to minimize that effect, we need to intensify local processing," said Maiopue.

Even if the government does get its act together, there is little immediate relief in store for farmers as money continues to pour in from mining giants such as Brazil's Vale to develop the Mozambique's vast coal fields.

Joaquin Solomon Nhantumo, a farmer in southern Mozambique, has been forced him to grow lettuce and tomatoes in his back-yard orchard to provide for himself and his eight children.

But he says there is only one crop that will keep him in business in the long run.

"The cashew nut is our sole means of survival."

Source: http://news.yahoo.com/mozambiques-cashews-dose-dutch-disease-130512871--sector.html

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