How Ruto ruined the cashew sector

cashew

The cashew nut sector had been a lifeline for thousands of Kenya’s coastal communities before the collapse of the Kenya Cashew nut factory in 1997.

The collapse of the factory situated in Kilifi town rendered destitute many coastal families. It also led to the disintegration of the whole sector.

In 1975, the government formed Kenya Cashew nut Limited (KCL) and established a large-scale processing factory in Kilifi, with a capacity to process 15,000 metric tonnes of cashew nuts per year.

Before the formation of the Company, the cashew nut sector was dominated by Mitchell Cotts.

The government took control of the whole sector granted the National Cereals and Produce Board (NCPB), a legal monopoly to buy all the cashew nuts from farmers.

NCPB, the Industrial and Commercial Development Corporation (ICDC), the Industrial and Development Bank (IDB) were the shareholders representing the government while the Kilifi District Cooperative Union (KDCU) represented farmers’ shareholding.

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Farmers’ cooperatives spread all over coast region from Lamu to Kwale.

Lake Kenyatta Cooperative Society (LKCS) from Mpeketoni in Lamu and KDCU from Kilifi were the largest cooperatives then.

John Safari Mumba, who served as managing director at KCL said farmers never missed payment for the cashew nut they supplied.

“The factory was a game-changer for the economy of the coast region. Money was in constant circulation and people were empowered. KCL used to finance NCPB in advance so that farmers are paid in time. We would determine the raw material requirements and the excess would be exported in shell to India. Essentially, the factory guaranteed a stable farm gate price and provided a predictable and reliable market,” said Mumba

The success of KCL started in 1982 when it made a net profit of Sh26 million, up from Sh3 million in 1975 – nearly a ten-fold increase in just seven years.

With a workforce of over 4000 employees under its payroll, the majority of whom were women, the coastal economy grew steadily.

Dwindling fortunes

The downfall of KCL started in 1989 after suffering financial and governance challenges. In February 1990, it rendered a large chunk of its employees redundant.

The woes deepened in November 1992 when the Parastatal Reform Programme Committee (PRPC) recommended the sale of 65 per cent of the shares the government held in KCL through NCPB, ICDC and IDB.

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The PRPC recommended that KDCU, the owner of the remaining 35 per cent of the shares, be granted pre-emptive rights to buy the 65 per cent government shares.

A parliamentary committee later discovered that partly due to the high cost involved in buying these shares, the three main directors of the KDCU had decided to strike a deal with some of President Moi’s closest business friends.

A Ministry of Agriculture report in 2009 noted that with a value of Sh141.2 per share, the 65 per cent share of the government was valued at Sh78 million.

Debts acquired by the KCL in previous years that were owed to NCPB, ICDC, the Treasury, and the Italian government amounted to over Sh118 million. The company also owed Sh33 million in redundancy payments to former employees. In total, the KDCU would have had to invest roughly SH 228 million to finance the acquisition of the company – money it did not have.

In 2000, the Public Investments Committee (PIC) recommended that the factory be handed back to the farmers. The same year, a subsequent cashew nut report tabled in Parliament by PIC noted that the factory’s shares were illegally acquired by Moi’s cronies.

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A Ministry of Agriculture report in 2009 noted that the actual majority shareholders had the KDCU appoint themselves as the management agents of the factory, which was renamed Kilifi Cashew Nut Factory Limited (KCFL).

In 1996, the KDCU received a loan of Sh2 million from its main owner, Kenya Plantations and Products Limited, to purchase raw cashew nuts (RCN) – which it secured with its shares, valued at a much higher Sh28.07 million in 1992 – as collateral for the loan.

When it failed to pay back the loan, these shares were transferred to private investors. Eventually, in 1997, KCL collapsed under its financial and operational burden.

Unable to service an outstanding loan of about Sh95 million, Barclays Bank placed the factory under KPMG- managed receivership in 2000, and on 8 May 2002 sold all its assets, including the plant and machinery, to Millennium Management Limited (MML) for Sh58 million In just a few years, the marketing monopoly that the NCPB enjoyed and the logistical machinery it had put in place to procure cashews came a cropper.

The board completely withdrew from marketing cashew nuts. This decision led to the disappearance of key functions, such as financing cooperatives and reliably supplying KCL with affordable raw cashew nuts.

New players  

With the stake of the factory diminished, and the end of its monopoly in cashew nut matters, exporters of raw cashew nuts emerged.

These exporters were able to offer significantly higher and faster payments due to the high rebates they enjoyed for exporting raw materials that would in turn create jobs in the importing countries. By buying through middlemen – who became the sector’s main players – the new market structure undermined the role of cooperative societies that had enjoyed state-sanctioned market support.

They could not survive and all but collapsed. The first main processor, Wondernut Ltd, came into the country in 2003. Kenya Nut Company (KNC), and Equatorial Nuts, which predominately deal in macadamia nuts from the Mount Kenya region where their factories are based, made forays into processing cashew nuts as well.

With the Kilifi Cashew Nut Factory (partially revived by MML) and the later entry of another Central Province macadamia processor, Jungle Nuts, the number of active cashew processors in Kenya had expanded to five. Even so, these five processors had to compete with the well-established exporters of raw, unprocessed nuts who had gained favour with farmers due to their market flexibility and higher prices.

In the 2007/8 season, for instance, exporters of raw cashew nuts went on a buying spree that saw the share of processed export nuts drop by over 20 per cent that season. This posed a huge threat to local processors. Despite a total ban on the export of raw cashew nuts in 2009 (which nut processors had called for) the industry has gone horribly wrong in the last decade.

In their call to the government to ban exports, the nut processors argued that the ban would allow them an opportunity to gather enough harvest to enable them to utilise their excess installed processing capacity.

A baseline survey that had been done on the crop in 2009 by the Institute of Development and Business Management Services (IDS) on behalf of the Micro Enterprises Support Programme Trust (MESPT), a value chain government initiative, had revealed a sector reeling in distress.

This is the situation that the sector found itself in 2009 when the Nut Processors Association of Kenya (NutPAK) – the result of processors pulling together resources – was formed to lobby for the industry’s protection, with a keen focus on the export ban.

William Ruto, the current Deputy President who was then the Minister of Agriculture, met stakeholders in the cashew nut industry at Pwani University in Kilifi in March 2009. He ordered a Cashew Nut Revival Task Force (CNRTF) on 9 April 2009 to submit a report by the end of April and to come up with recommendations on measures to be taken to revive the cashew industry.

John Safari Mumba, the former Managing Director of KCL and former MP for Bahari Constituency, and then the Chairman of the Kenya Cashew Growers Association, led the four-member task force.

When the task force finally submitted its report based on views it received from various players, it recommended banning the export of raw nuts. That same year, Ruto heeded their call and pronounced an export ban on RCN after the four-member task force hastily collected views from the industry’s key players.

On 16 June 2009, barely one month after the task force’s report had been submitted, Ruto published “The Agriculture (Prohibition of Exportation of Raw Nuts) Order, 2009” banning the export of raw cashew and macadamia nuts. The government also announced that all nuts would be sold through the NCPB, which was then struggling to buy maize from farmers.

It would later sell the produce to processors. The population of cashew nut trees then stood at about 2 million, with 20 per cent of them beyond the production age and more trees projected to graduate to the unproductive age bracket in just a couple of years.

Inadequate crop husbandry, the IDS study further revealed, saw farmers exploit less than half of the total crop’s potential. A disorganised nut market that followed the exit of KCL and the coming up of new entrants (largely exporters of RCN who relied mainly on brokers), affected the growth of the crop’s production and productivity since these traders would only emerge during the harvest season and did nothing to promote the crop.

The exporters of RCN shifted base to neighbouring Tanzania, one of the world’s leading producers of cashew nuts that exports most of its nut produce raw.

The vibrancy of the industry led to the spring up of towns like Kiwandani and the Korosho Primary school

About the Author

Moses Okitae
Moses Okitae Writes about Science stories, food security and human interest stories.

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