Kerala's cashew industry seeks central, state support to stay afloat

Nearly 90% of the 865-plus factories have shut down, over 80% of 3,00,000 workers are jobless; most units have become NPAs

The cashew processing industry in Kerala, which accounted for almost 85 per cent of the country’s production ten years ago, is looking for central and State government support and a total revamp of its traditional factories to save itself from a complete shutdown. Almost 90 per cent of the over 865 factories in the State are closed down and around 250,000 of the total 300,000 workers are jobless now, as most of the factories have become Non Performing Assets (NPA).

The Cashew Export Promotion Council of India (CEPCI) has come out with a revival package for short-, medium- and long-term implementation to save the crisis-ridden industry. A decision by the State government in 2014 to increase wages by an unprecedented 35 per cent has increased the cost of production to Rs 3,200-3,400 per bag of 80 kg. This is almost five times as much as in Vietnam, where the cost is the equivalent of Rs 700 per bag or around $500, said CEPCI Chairman R K Bhoodes. 

Other states in India also have much lower production costs, ranging between Rs 1,000 and Rs 1,800 per bag. The steep hike in wages a few years ago was beyond the absorption capacity of any industry member. In other states the wage hike was in tandem with their capacity. 

Besides, in other States the industry was able to improve productivity by mechanisation and automation processes. This faced high resistance in Kerala. In he other States the productivity multiplied by two to three times.

The council also seeks central government and state government support to the industry. “There should be some clear understanding with trade unions also. Revival is difficult without everybody working together and making sacrifices,” Bhoodes said.

“We have developed a model under which the productivity will be doubled. This will bring the cost of production down to around Rs 1,850 per bag from the current levels of Rs 3,400,” Bhoodes added.

Considering that several companies have already shut their operations, for the revival package to work, the eroded working capital has to be converted into term loan repayable on EMI basis. Fresh working capital would also be required. Besides, the industry should go for some mechanisation and automation processes, for which it require some investment. At a breakeven level, the cost has to be reduced to Rs 1,300 level, to manage the loans in the medium to long term.

For the short term the industry expects support from states, the centre and banks of the kind provided to the leather and textile sectors.

The council has requested the state government to provide support by paying the provident fund and ESI for the workers. Talks are also with the trade unions in the sector, to bring in some consensus. While the wage levels have risen, many companies have scaled down operations to very few days in a month, which has affected workers’ wages.

From Centre has allocated Rs 37.50 billion for the revival of the Small and Medium Enterprises (SME) which could be used to support the Cashew industry. 

While the state government has announced plans to set up a company in Tanzania to participate in auctions, in order to buy raw cashew at competitive prices, industry experts say it would be difficult to predict the plan’s success, as it wouldn’t be easy for the government company to compete with corporate giants there.

While the Centre has reduced import duty from 12 per cent to five per cent and later to 2.5 per cent, the cashew processing industry is seeking a complete removal of duty, said I Nizamuddin, secretary, Federation of Cashew Processors and Exporters.