Mozambique
Mozambique wins battle over cashew and sugar

Misanet.com / afrol.com, 31 January - Mozambique has banned the export of unprocessed cashew nuts, ending a five-year battle with the World Bank and International Monetary Fund (IMF), and allowing a protection of the former principal export industry, processed cashews. Meanwhile, the IMF has allowed Mozambique to protect its expanding sugar industry; IMF directors overrode opposition from their own staff.

Allowing Mozambique to protect its two most important agro-industries is a remarkable reversal by the international financial institutions. It results from intense pressure from the Mozambican government, trade unions and business, taken up by international campaign groups.

Cashew became a symbol of mindless trade liberalisation when in 1995 the World Bank forced Mozambique to allow the unrestricted export of unprocessed cashew nuts to India. The World Bank argued that peasant producers would gain higher prices from the free market. But it did not happen - as a monopoly buyer, India pushed down the price; transfer pricing also lowered the price paid to Mozambique; and traders within Mozambique pocketed larger margins. So the peasants lost out, while nearly 10,000 industrial workers (half women) became unemployed.

For five years Mozambique has campaigned for the ban. Finally, on 18 December the IMF Executive Board agreed a policy under which some cashew factories will be closed, but the rest will be protected. The protection is two-fold, an 18 percent export duty on unprocessed cashew nuts, plus the local industry given the right of first refusal - to purchase nuts before they are exported. In light of this, the government banned the export of raw cashew nuts in mid-January. 

On the surface, the IMF continues to take a hard line on cashew. Notes of the 18 December Executive Board meeting, published 17 January, say: "Directors welcomed the authorities' commitment to trade liberalization. They urged them to stay the course of trade liberalisation, and to resolve the problems of the cashew processing industry." 

However, the line in the joint IMF/government Memorandum of Economic and Fiscal Policies, published 19 December, is more subtle: "The government is making progress in addressing the problems of the cashew sector. Thus, the government has accepted in principle the liquidation of several nonviable processing plants. It has also decided that the export tax on raw cashew nuts remain at 18 percent for the coming crop year, and that acceptable modalities for the first-right-to-purchase - granted by the law to local processors - be worked out by the exporters and processors themselves under the auspices of the Cashew Institute. The government has also endorsed the Cashew Institute's recent master plan for the promotion of farm production of cashew nuts". 

The government expects to pay Mt 100 billion (about US$ 6 million) to cashew processing companies to pay accumulated back wages to the workers, according to the memorandum.

Underinvoicing
According to the Mozambican media "Metical", the government also moved because it suspected massive underinvoicing on the part of the exporters. The government could not believe that the export prices (on which the companies would have to pay the 18 per cent surtax) could be as low as the exporters claimed. They alleged that this season's export price varied from 355 to 440 US dollars a tonne. 

The government, however, does not want the nuts exported for anything less than an FOB price of 650 dollars a tonne. The exporters claim that the price is low because of the poor quality of the Mozambican nuts, which have supposedly been assessed by the Indian buyers and by a pre-shipment inspection company.

Mozambican customs does not believe this story. On 19 January the customs service ordered that 8,000 tonnes of raw nuts currently in the port of Nacala, should not be exported at the rock bottom prices quoted by their owners. Customs based its decision on the world market price of cashew as cited by Mozambique's Export Promotion Institute (IPEX). The IPEX bulletin for January gave the world market price of raw cashews as between 660 and 800 dollars a tonne - about twice the price the exporters say the Indian companies are paying them.

Sugar
Meanwhile, the IMF Executive Board rejected a demand from its own staff, and agreed that Mozambique can protect its sugar industry, which is now being rehabilitated with major foreign investment. IMF staff had argued that since Mozambique could import sugar cheaper than producing it, it should allow duty-free import of sugar. Investors had demanded protection and were backed by the government. On 18 December, the IMF board agreed with the government and not its own staff.

Sugar has been an issue, with the government wanting to impose an import duty to protect the domestic sugar industry. It argued that virtually all sugar producers do this (including the EU), and that it was essential to protect the tens of millions of dollars in investment planned for the industry. IMF staff had in late 1999 called for Mozambique to be the first big producer not to protect its industry, but Mozambique has now won the battle to maintain protection. FAO backed the Mozambiquan view.

Cashew and sugar are both about similar issues: Mozambique wants to create and protect tens of thousands of industrial jobs (cashew and sugar are the country's two largest industries). On the other hand, the international financial institutions (IFIs) argue that free trade and globalisation will bring more long-term benefit, outweighing the cost and disruption of massive unemployment. The IFIs believed they could impose their policies, but the international outcry over cashew made them rethink, and accept that they had to listen more closely to elected national governments.

Source: Based on texts from Joseph Hanlon, OpenUniversity, AIM, Metical and afrol archives

© Joseph Hanlon / afrol.com.    You can contact us at mail@afrol.com