Re: query on cashews

[Brad De Long <delong@xxxxxxxxxxxxxxxxx>]

I have seen summaries of a Deloitte and Touche report supporting the
Mozambique cashew-nut producers, described as saying:

The new study was carried out by international consultants Deloitte &
Touche and >the World Bank's previous policy "should be abandoned"
[because]:
> 1) Indian subsidies to its industry "tilt the playing field" and
> make competition unfair.
>
> 2) Peasants did not gain anything from liberalised exports;
> extra profits were all earned by "traders" and those few farmers
> who were able to store nuts until the end of the processing season
>
> 3) "Improved management practices continue to contribute
> to factory efficiency" in the newly privatised Mozambican factories.
>
> 4) Mozambique can earn an extra $130 per tonne by processing
> its own cashew kernels--increasing total earnings from about $750 per
> tonne to $880 per tonne..


My first reaction is that something's wrong with the subsidy
argument. If India *subsidizes* its cashew nut processing industry
than Mozambique can capture part of that subsidy by letting Indian
workers do the processing--the bigger the subsidy, the stronger the
argument for exporting raw nuts. (Unless, of course, you think there
is something special and important about the learning-by-doing
generated in the cashew processing industry, which I don't).

My second reaction is that, as Paul Krugman wrote, any claim out of
Africa that "peasants did not gain anything from liberalized exports;
extra profits were all held by the traders" should be viewed with
great suspicion: it is a remnant of the old-fashioned belief--
criticized by Dumont a generation ago--that the countryside is a
stagnant source of resources to be taxed and exploited to support
urban development, that it is important to foreclose any options that
rural producers and marketers have that would increase their
bargaining power.

Over the past generation such policies have been a disaster for rural
Africa. Thus anyone making such an argument should have to answer two
questions: Where does the extraordinary market power held by these
traders come from? And why weren't they exercising it under the old
trade regime? To argue that it is good to redistribute wealth from
rural peasants to urban factory-owners by cutting off their ability
to export raw nuts is one thing. To argue that cutting off the
ability to export raw nuts does not harm peasants is something else
entirely and is hard to credit.

My third reaction is that management consultants--like Deloitte and
Touche--always claim that the firm they are studying is about to
experience enormous increases in managerial efficiency, and they are
almost always wrong.

And my fourth reaction is that Mozambique would probably be better
off spending the money needed to realize that $130 a ton on schools
and transportation. Vietnamese and Indian cashew-nut processors are
willing and able to pay higher prices on the dock at Maputo than are
domestic producers--that's why the domestic industry is crying for
protection. And if your domestic industry can't match the costs of
foreign producers, that's a powerful sign that this is not an
industry into which a country should be pouring its resources.



Brad DeLong