Risks of disruption in cashew supply chain due to raw cashew shortage

Hoang Son I Joint Stock Company is one of the largest cashew kernel exporters in Vietnam. In addition to domestic raw cashew sources, Hoang Son 1 imports a considerable quantity of raw cashews for processing and export each year. In 2023, Hoang Son 1 imported 90,000 tons of raw cashews from Cambodia and 58,000 tons from West Africa.

Hoang Son I signed a contract to import 53,000 tons of raw cashews from West Africa, primarily Ivory Coast, in early 2024. However, the company is now facing the risk of receiving only half of the contracted quantity at the initially agreed-upon price. Approximately half of the remaining raw cashews will be delivered under the condition that Vietnam accepts significantly higher payment terms than those outlined in the original contract. Additionally, it is highly likely that the company will not receive the remaining 10,000 to 12,000 tons.

According to Ta Quang Huyen, Chairman and Director of Hoang Son I Joint Stock Company, the International Nut and Dried Fruit Council (INC) speculated that raw cashew yield in West Africa will decrease by approximately 7% in 2024. In response to this projection, a group of raw cashew exporters from Ivory Coast has significantly increased their selling prices. Remarkably, raw cashew prices have surged by 400 USD per ton within the span of one month, which is an unprecedented level of volatility in Chairman Huyen's extensive tenure within the cashew industry.

Although shipments of raw cashews are currently in transit to Vietnam, various raw cashew exporters demand Vietnamese businesses to accept new payment terms with substantially increased prices compared to the initial contracts, before releasing the required shipping documents. Notably, several exporters force Vietnamese businesses to procure new shipments of raw cashew at extremely high rates before providing the required shipping documents for previous shipments. On the other hand, a small number of exporters discreetly breach agreements by selling the contracted raw cashews to other buyers at considerably inflated prices.

Cao Thuc Uy, Director of Cao Phat Company Limited located in Ba Ria - Vung Tau province, also confirmed that the prolonged drought has led to a reduction in both the quantity and quality of cashew crops in West Africa. Furthermore, several West African countries have made significant adjustments to  their raw cashew export policies. Namely, Benin has imposed a ban on raw cashew exports, and Ivory Coast has temporarily halted the export of raw cashew.

In an attempt to capitalize on the new market dynamics, international raw cashew traders have exploited Vietnamese businesses by demanding payments at substantially higher levels compared to the contracted prices, thereby excessively inflating raw cashew prices. Namely, a shipment of raw cashews typically had a contract price of 1,050 USD per ton in February 2024; however, the current price for a similar shipment of raw cashews has risen to 1,550 USD per ton. Furthermore, numerous exporters are demanding Vietnamese businesses to lower the previously agreed-upon quality requirements for raw cashew shipments.

After signing contracts to procure raw cashews, Vietnamese businesses must immediately enter into sales contracts for cashew kernels based on the contracted raw cashew prices. The sudden increase in raw cashew prices, in combination with the decline in quality, resulted in substantial losses for these businesses.

According to Nguyen Minh Hoa, Vice President of the Vietnam Cashew Association (Vinacas), Vietnam processes over 3 million tons of raw cashews annually, with more than 70% of the raw cashews originating from West Africa. Raw cashew imports into Vietnam remained relatively stable prior to 2023. However, the raw cashew industry experienced unusual developments in 2024, which include exporters failing to deliver raw cashew shipments or demanding price adjustments. These factors have significantly inflated the price of raw cashews for a short period of time.

Multiple Vietnamese cashew businesses are facing a shortage of raw materials for production as West African exporters delivered less than 50% of the contracted quantities. Without improvement, the shortage of raw cashew may lead to a disruption in the global supply chain due to Vietnam's current position as the world's largest exporter of cashew kernels, accounting for nearly 80% of global exports. Consequently, this disruption will affect cashew roasters, distributors, and retailers worldwide.

In response to these challenges, Vinacas has issued an official letter to the Association of Cashew Exporters of Ivory Coast, requesting their assistance in reminding exporters to fulfill their raw cashew sales contracts.

Vinacas has requested that Vietnamese businesses utilize available resources to fulfill their cashew kernel export contracts, thereby maintaining their credibility. On the other hand, the association will compile information and establish a "blacklist" of discredited raw cashew exporters as a warning for Vietnamese cashew businesses. Moreover, Vietnam will take legal action against exporters who deliberately breach their signed contracts.

Bach Khanh Nhut, Vinacas's Standing Vice Chairman, reported that the association has formed a task force to collaborate with relevant ministries and agencies in addressing current raw cashew-related issues.

With the aim of maintaining Vietnam's position as the world's largest exporter of cashew kernels, Vice Chairman Nhut proposed that local governments and relevant ministries explore solutions for the development of raw cashew production areas and the improvement of cashew varieties to enhance yield and quality. These solutions will allow Vietnam to increase its cashew output and reduce dependency on imported raw cashews.