Brazilian Cashew Industry at Critical Juncture

Despite the cashew tree being native to Brazil, the country has been sluggish in embracing new cultivars, particularly dwarf varieties that are now standard in major producing nations. Due to the comparatively low profitability of these traditional and extensive production systems, the area under cashew trees has decreased to 425,151 ha in 2022, down 44% from 708,808 ha ten years earlier. However, Brazil's cashew production was 115,000 mt in 2022/23, similar to the ten-year average of 120,000 mt, as enterprises that have replanted aging traditional cashew varieties with improved dwarf varieties, compensate for the steep decrease in areas.

Source: IBGE, Banco do Nordeste

A more intensive production system under dwarf varieties offers the following advantages:

• Earlier production: Dwarf varieties bear fruit as early as the first year and become profitable by the third year, unlike traditional varieties that take until the third year to produce fruit.
  
• Smaller size: Dwarf varieties grow to a maximum height of 6 meters, making harvesting easier compared to traditional varieties that can reach 14 meters.
  
• Harvesting cashew apples: the large size of traditional varieties often requires farmers to wait for the fruit to fall to the ground, leading to the degradation of cashew apples. In dwarf varieties, cashew apples can be directly picked from the tree. Cashew apples are already important in Brazil for food and juice production.
  
• Higher planting density and yields: Due to their smaller size, more dwarf trees can be planted per hectare, resulting in higher yields.
  
• Profitability: Dwarf varieties offer greater profitability per hectare due to the aforementioned factors.
  

There is clear evidence to support these advantages. On a global scale, Brazil's average yields are only approximately 299 kg/ha, significantly lower than the global average of 589 kg/ha. Countries like Vietnam and Cambodia achieve yields as high as 1,000 kg/ha. Vietnam has exclusively planted dwarf cashew varieties since the 1990s, and Cambodia's relatively new cashew industry has based its production on Vietnamese varieties and techniques.

The domestic industry in Brazil also provides compelling reasons to embrace modern varieties and production techniques. Virtually all of Brazil’s cashew production takes place in the country's Northeastern region. Ceará is the largest cashew-producing state, contributing up to 65% to the national production. In Caerá, the area under cashews fell to only 271,636 ha in 2022, from 405,466 ha ten years before, however, the area planted with dwarf varieties increased over the same period. In 2022, the area planted with dwarf cashew varieties was 97,000 ha or 36% of Caerá’s total cashew areas, yet production from these areas made up 56% of the state's production (36,000 mt). Yields from these plantations average 466 kg/ha over the last five years, compared to 187 kg/ha from traditional plantations.

Source: IBGE, Banco do Nordeste

Yet, despite the clear advantages, Brazilian farmers have been reluctant to make a large-scale switch to dwarf varieties. The initial investment required to replant existing areas under cashews is substantial. Even though new varieties can already start producing fruit in the first year, there is also a long waiting period before a return on the initial investment is made. Other options, such as soybeans and other field crops, are more profitable and provide a quicker return on investment.

In years of low production, Brazil often imports in-shell cashews, almost exclusively from Ivory Coast. This is done to keep the processing industry running at full capacity. There haven’t been any imports in the first five months of 2023, despite the relatively small crop. This is due to the large carryover from 2022. Cashew kernel exports in the first five months of 2023 were 5,232 mt (20,928 mt on an in-shell basis), lower than the five-year average of 6,021 mt (24,084 mt in-shell). However, there is evidence that Brazil can play a successful role as a cashew processing hub in the Americas, much like Vietnam does.

*Only production data for 2023

Source: IBGE, International Nuts and Dried Fruit Council (INC), ITC Trade Map, Tridge

The low prices from the last two years have brought the industry to a defining phase. There will be little investment in replanting cashew plantations at current cashew price levels. Traditional cashew varieties and extensive production are also not profitable at current price levels. The total cashew areas could continue to drop as traditional cashew varieties make room for more profitable crops and the area under modern varieties stagnate until cashew prices increase. If production continues to decrease over the long term, the processing industry will have to consider becoming a more active importer and processor. However, a best-case scenario would be rapid industry modernization. Despite existing government incentives, including the provision of modern variety saplings, the most important motivation will be an increase in global cashew prices, prompting private investment.