Starting a cashew processing factory in Tanzania: My experience
By Fahad Awadh, founder of Tanzanian cashew nut company YYTZ Agro-processing
Andy Grove, former CEO of Intel, outlined when he described what happens to businesses in tumultuous times: “Bad companies are destroyed by crisis. Good companies survive them. Great companies are improved by them.”
Great individuals, like great companies, find a way to transform weakness into strength. They can take what should have held them back and use it to move forward. As it turns out, this is one thing all great men and women of history have in common. The ability to see obstacles for what they are; confront the most brutal facts of their reality and at the same time retain faith that they will prevail in the end, has proved powerful for coming back from difficulties not weakened, but stronger.
As entrepreneurs there are many things outside our control, but as a young African entrepreneur, this becomes even more pronounced. Buried deep within all our challenges, there is an opportunity and a silver lining. It is our responsibility to recognise those opportunities and to retain faith that in the end, you will be better because of those challenges.
I have faced my fair share of challenges but have always retained faith that I will not only prevail through it but that there is an opportunity to improve embedded in it. Early in our business, we were able to win funding from the Africa Enterprise Challenge Fund, as US$500,000 was committed to help us build our inclusive cashew nut value chain. This funding came with conditions; the biggest one being that we must get a bank loan for $250,000, which was to be used for our raw material purchases. It is important to note that I started this company in 2015, we won this funding in 2016 and we had expected to start production in 2017. Unfortunately, all the banks we approached in Tanzania were not keen to lend to a new agribusiness with a young entrepreneur at the helm. It also didn’t help that many cashew processing companies had failed in the past.
During the time that we could not start processing, due to the lack of working capital financing, we decided to focus on the core of our business – the farmers and communities. Despite not being able to start purchasing, we were building relationships in the key cashew-growing areas of Tanzania. I would travel to the south of the country several times a year to meet smallholder farmers and the women’s processing groups we wanted to work with. I would listen to their stories; I would learn that many of them had been working tirelessly to process their own cashew nuts for over 15 years. The single biggest challenge they faced was access to a secure market.
We had planned to purchase semi-processed cashew nuts from these farmers and women’s groups. This would allow us to pay them more and provide a secure market for their value-added products. By including them in the value chain through processing, we would be able to ensure that more value reaches these rural communities.
The idea we had was novel but simple: include rural farmers and women’s groups in the processing – something they were already doing – and provide higher prices for their value-added cashews. This way real value can reach these communities where cashews are grown.
I spent these years building relationships in the cashew communities at the rural farmer level, local government level, regulatory level with the Cashew nut Board of Tanzania and at the federal level with the Ministry of Agriculture.
Cashew nut processing in Tanzania has always been very limited, despite Tanzania being one of the largest cashew nut producers in the world. Tanzania was processing less than 10% of its production; most of the production was being exported in shell for processing in Asia. The idea for Tanzania to process more of its cashew nuts was not new, but it was beginning to garner more attention.
In 2018, I was still trying to secure a bank loan to be able to begin purchasing and processing cashew nuts. We had secured export contracts with buyers in the Netherlands and in the US. We just needed the finance to fulfil those contracts. Later that year, we had advanced discussions with Equity Bank, our bankers in Tanzania. In 2017, I had met a director from their head office at the SIMLESA conference in Arusha where I gave a dinner speech. She really liked my speech and the ideas that I had put forth on how to encourage youth entrepreneurship in agriculture.” I would travel to meet her again at the Equity Bank head office in Nairobi, she really became a champion for our business and wanted to support us. She introduced me to the country director in Tanzania and I had a great meeting with him, which gave me the confidence to apply for a working capital loan. In September of 2018, I was invited to speak at the Africa Green Revolution Forum in Kigali, where she introduced me to Dr James Mwangi, the group CEO and founder of Equity Bank. James and I had a great discussion, he loved our business idea and as a young entrepreneur, he really wanted to support me. As a seasoned entrepreneur himself, he knew how tough it was to get funding when he was first starting out. This was a vote of confidence from one of the region’s top businessmen. As I continued the process with the Equity Bank team in Tanzania, I was confident that it would come together.
It is important to note that loan applications must first be approved by the credit committee at the country level before being sent to the head office in Nairobi for approval. Weeks had gone by, and I hadn’t heard anything from the Equity Bank team. I reached out to the credit manager to get some feedback. He informed me that the loan application had been rejected by the credit committee. He went on to share that one of the committee members had said, “Having an order for a Boeing 787 Dreamliner, is not the same as actually delivering a Boeing 787 Dreamliner.” Upon hearing this, I quickly realised that they were comparing cashew nut processing to building one of the world’s most advanced aircrafts – something that still baffles me to this day – given that cashew nuts are sold on every street corner in Dar es Salaam. Upon hearing that, I told him that one way or another we were going to prevail and get the financing that we needed, albeit from somewhere else.
During this time, we focused on building our core competencies and our relationships with farmers, we knew that our ability to source the best cashew nuts would be our competitive advantage.
Focus on the opportunity
In 2018, the cashew nut kernel market suffered a 40% drop in prices, from record highs the previous year. Without financing for raw materials, we were not able to participate in the 2018/19 cashew nut season. In hindsight this was for the better; with rock bottom prices and a difficult environment for cashew processors, many processors in Vietnam went out of business.
It was during this time that I saw an opportunity to focus on further value addition. We wanted to build a business that paid farmers fair prices, but with volatility in the trading of cashew nuts as a commodity, we would not be able to keep our promise to farmers. We had plans to develop our own brand of single origin sustainable cashews, and it was now the perfect time to fast-track its development.
We purchased roasting and flavouring equipment and began designing our retail packaging. We were developing a brand that focused on the needs of the conscious, sustainably minded consumer. We began developing a first-of-its-kind blockchain traceability system that would let consumers know exactly which cashew farmer their pack of cashew nuts came from. We wanted to bring transparency and intimacy to a product that not many consumers knew about; did you know 60% of the world’s cashew nuts are produced in Africa?
With a consumer-packaged product, we are able to pay better prices to the farmers and women’s groups we work with. We are able to protect them from volatility in the cashew commodity prices. Prices for consumer packages products are not subject to the same price shocks that affect commodities. This ensures that we can provide value to both the consumer and the farmer.
While developing our product, we were introduced to Eva Teekens from Rabobank Foundation in the Netherlands. We began discussing our business and our need for working capital financing. On your journey you will meet people that become champions for your idea, when looking back, it is easy to see that their support was in fact invaluable. Eva quickly became a champion for our business.
We had lots of discussions about how Rabobank could support us with our financing needs and what terms we would be able to accept. It was a back-and-forth discussion and at the end of it, we agreed on terms that we were both happy with. We did not fit in the typical box; we were a start-up in a volatile market, and I was a young entrepreneur. Rabobank’s support was a vote of confidence in our business and came at a time when we were not able to get any support from lenders in Tanzania.
We secured the financing from Rabobank in mid-2019 and were able to order our packaging equipment and materials and be ready to start processing in the 2019/2020 season. By focusing on the opportunity regardless of the difficulties, I was able to retain faith that we will prevail in the end. I have been fortunate to embark on this journey to change the way cashew nuts are processed in Tanzania; it is the journey and the experience that have made me stronger.
We began purchasing semi-processed cashew nuts in November 2019, with farmers and women’s groups lining up from 6 am to 10 pm to sell their cashews. With cashew nut prices much lower than the previous year, we were paying 70% above the market price for raw cashew nuts, and the response was incredible.
Focus on the customer
Kenya was the first market we pursued with our single origin, sustainable retail product. With a vibrant retail sector and a growing middle class, we saw that we could offer a high-quality product at a price that provided value to the consumer. I leveraged my network and was able to set up meetings with buyers from four of the leading supermarket chains in Nairobi. I provided samples of our selection of dry roasted cashew nuts and the response was unanimously positive, with several of them agreeing to list our product on the spot and seeking exclusivity for 90 days. The response was exhilarating for me as an entrepreneur, as I always knew we had a great product, it was great to see the same response from the market. Our products are now distributed in East Africa, Europe, UK and we are starting exports to the US this year.
We are focused on creating high-quality products for conscious and sustainably minded consumers. Our advantage is the work that we have done at the rural level and the relationships we have built in those communities. We are able to source the best cashew nuts and provide real value to the farmers and women’s groups that we work with.
This article was first published by the African Cashew Alliance.