What do you mean: fair prices?
How do fair prices improve farmer's living income?
Should we focus on living income or price per kg?
Typically, a cashew farmer’s income is composed of different crops. We aim to help the farmer grow his income from his cashew crops. His cashew income is determined by price and volume. At nuts2 we help farmers improve their price and their volume.
1. Nuts2 helps farmers obtain organic and fair trade certificates.
Organic certified product sells at a premium and the farmer therefore receives a better price. The fair trade price mechanisms are explained below. Certification requires training and administration for which we work with our partners Woord en Daad and FairMatchSupport.
2. Nuts2 helps farmers with training
Our farmer training comprises pre- and post harvest activities, basic pruning techniques, orchard keeping and beekeeping (see Youtube clip). This contributes to increasing the yield per tree, significantly, up to 100% (a doubling of their harvest), but also to improve the quality and size of their nuts, which improves their average price. Not because we pay above the market price, but because farmers produce a better nut.
More ways to improve farmer's income
3. We aim to minimize procurement through middlemen.
They eat out of the margin in the supply chain and when we are in need of more raw cashew nut, we may want to buy from them, but only if farmer (groups) have no more product available. Instead we buy directly from farmer groups, who deliver straight to the factory. Farmer groups take responsibility for logistics and in turn we have good traceability of our nuts.
4. We have a local factory; we will always buy locally.
We need to feed our factory. Most of Africa’s raw cashew nuts are transported to Asia for processing. Demand for local small holder farmers is strongly depending on price volatility so their demand is unreliable. However, even when traders are absent, as they were in Q2 of 2020 during COVID-19, Nuts2 is still accepting raw cashew nuts and therefore providing income to the farmer.
So when we say we pay a fair price, this is what we mean.
This is how we work with our own(ed) factories, our so called A route. We do have other supply routes, explained below.
How does fair trade certification help improve farmer income?
Fair trade certificates requires buyers to apply minimum prices, guaranteeing farmers a certain profit.
All the fair trade certified product we are selling has been bought under these preconditions. FLOcert as an organisation executes audits to make sure these claims are substantiated. We work with fair trade certification, because it generates a premium, that is paid to the farmer cooperations we do business with.
Are we totally happy with the fairtrade approach? Not completely.
We do appreciate the guaranteed minimum prices and price premiums that come with fair trade certification (fairtrade price table; search raw cashew). Premiums are paid out to the cooperations and strengthen their position. These funds can be used to shared resources; eg a proper warehouses or transportation vehicles. We value strong farmer cooperations as they help us in developing long term relationships for reliable sourcing.
We do appreciate the rules around labour conditions (including child labor) and the audits which are performed to ensure compliance.
However,
as buyers and processors we can be faced with a squeeze between minimum raw cashew nut prices and kernel prices in the world market. Loss making business is not sustainable and puts a strain on our continuity. Worst case we may have to stop buying fair trade RCN. Instead we’d rather work with roasters and retailers to ensure stable prices throughout the chain, limiting profits at each link in the chain, for sustained and fair returns.
Our A route: sourcing from Nuts2 owned local factories, known local farmer (groups).
This is our preferred route, best control over prices. This is the route Nuts2 aims to maximise.
So what about our cashew from other sources?
B route: sourcing from other African processors
This way we support partner factories in developing their local economy and job creation. Even though we have less control over prices paid to farmers, we still buy all grades from partner factories, enabling them to buy the farmers’ whole crop. This route helps us to diversify, spread business risk in markets and sourcing. Yet it contributes to our mission of creating jobs in Africa.
C route: buying from African farmers for processing in Asia.
We apply this route when there is more supply than our factories can handle. It also helps us to prepare the set up of a new factories in new territory, ensuring reliable supply sources.
D route: buying from Asian processors, origin of nuts unknown.
Some of our customers still prefer cashews from Asia because of bad experiences with African processors. In these instances we source directly from our Vietnamese or Indian partners.