The cashew production cost refers to all the expenses incurred during the growing, harvesting, processing, and marketing of cashew nuts.
For the cashew processing industry, the main production costs are related to the processes involved after harvest – drying, shelling, peeling, grading, packaging and transporting the cashew kernels to export markets. These processing costs can account for up to 60-70% of the total cost of producing cashew kernels.
It is crucial to have a clear understanding of the cashew production costs before venturing into the cashew processing industry. This helps potential investors to:
– Accurately estimate profit margins and returns on investment
– Decide optimal processing locations to take advantage of local labor, transportation and tax incentives
– Determine appropriate pricing and marketing strategies for the processed cashew kernels
– Effectively allocate resources for operating expenses like equipment, labor, energy, water, and waste management
– Gauge competitiveness against processors in other major cashew producing countries
Having clarity on cost structures right from the planning stage makes cashew processing a more viable and lucrative business.
The major cashew processing costs include:
- Raw material: This includes cost of purchasing raw cashew nuts, which can vary depending on season, quality and source location. It comprises the largest cost component.
- Labor: Wages for workers across various processing steps like batching, drying, shelling, peeling, grading and packing. Labor costs vary across geographies.
- Utilities: Electricity, diesel (for generators), water etc. required to power equipment and during processing.
- Equipment maintenance and spare parts: Regular maintenance and replacement of worn machine parts ensures optimized processing at higher volumes.
- Packaging materials: Metal tins, plastic jars/bags used for packing kernels add to recurring costs.
- Transport and freight: Inland freight for raw material procurement and shipping processed kernels overseas involves export fees, documentation charges etc.
- Administration, compliance and financing costs.
The cashew processing costs can vary significantly across major cashew producing countries due to differences in:
– Labor wage rates in Vietnam are lower compared to India and Africa.
– Transportation and energy costs are comparatively higher in landlocked African countries.
– Import duties for packaging materials differs as per customs regimes.
– Infrastructure costs for setting up factories may be higher in less industrialized areas.
– Compliance costs with respect to food standards and certifications varies.
– Country specific export promotion incentives or tax structures bring down overall costs.
Careful evaluation of these region-specific cost structures is important when deciding optimum processing locations.
Setting up cashew processing units close to the raw material sources (farms) helps reduce procurement and transportation costs for the voluminous raw cashew nuts. However, locating factories close to final export markets (port terminals) also has advantages:
– Savings on inland freight costs for finished kernels
– Faster clearances and ease of custom documentation
– Closer coordination with overseas importers and buyers
– Lower pipeline inventory costs
Hence most processors prefer locating themselves in industrial clusters or special economic zones closer to ports – balancing proximity to both farms and markets. The right location choice ultimately enhances cost competitiveness.
Carefully weighing the merits of the alternative factory location options based on availability of supporting infrastructure, manpower, regulatory costs and accessibility to end markets can contribute significantly to optimizing the overall cashew production costs.