The Cashew Market...Not a Laughing Matter

This year's Cashew Market Update at the recent Peanut and Tree Nut Processors' Convention ended with a segment that included a tongue in cheek version of financial acronyms, substituting their meaning with phrases illustrating the recent debacles in the cashew industry: CD = Contract Defaults, MBS = Might Be Shipped, etc. There were also joking references as to what constitutes a "Top Tier Shipper", "Medium Shipper" etc. - "a top tier shipper ships good quality product that arrives on time..." No mention was made of the standards adhered to by the facility itself, in terms of sanitation, Good Manufacturing Practices, etc. This is certainly not the time to simplify the supplier selection and screening procedure.

$40 Million in Lost Trade Differentials is No Joke

Although presented in the spirit of comic relief, the reality is not a laughing matter. The fact is that over 2000 containers of cashews were defaulted on last year, which resulted in over $40 million in lost trade differentials during 2008. The dramatic price increases that resulted caused added problems in our industry at a time when we did not need another obstacle to dissuade retailers from purchasing nut products.

We have seen how devastating it can be if we are unaware of conditions in facilities that directly affect the integrity of the food products produced (the recent peanut recall is an all too painful example). We have seen the result of purchasing based on pricing only, with limited information on the caliber of the facilities or the integrity of the supplier.

It's time that we started to learn more about where and from whom we source our food products. We need to know our suppliers, and be certain that the agricultural products we import and offer for public consumption are processed under acceptable conditions. The fact is, conditions in these facilities directly affect the integrity of the food products we offer to consumers. We also have a moral responsibility to do everything in our power to ensure that workers who produce the goods we import are fairly treated and compensated.

A More Holistic Business Philosophy

The business models that have been recently in fashion have emphasized the maximization of short term profits. Perhaps it is time to revisit a business philosophy that is more comprehensive, one that has a basis in psychology, sociology, economics, and statistics. I'm referring to the teachings of the late Dr. W. Edwards Deming, who is widely credited with being a major factor in Japan's amazing recovery and rise to becoming a world economic power after the devastation of World War II.

14 Key Principles and The Seven Wastes

Dr. Deming developed a management system based on 14 key principles designed to increase business effectiveness. He also cited seven obstacles to development "The Seven Wastes" which could cause a business or business sector to stall. Among the most important of the 14 principles is "Build quality into a product throughout production". Another key principle is "End the practice of awarding business on the basis of price tag alone; instead, try a long-term relationship based on established loyalty and trust."

Impromptu Fixes Are Costly

Increasingly, in the cashew business, price became the driving factor behind every transaction. Even when there were quality problems, even when there had been devastating defaults, the supplier who could offer the lowest price was the one who got the business. Quality problems were common, but were dealt with on a case by case basis. Infestation? Freeze it for two weeks and hope you don't miss the retailers deadline. Scorched? Do your best to fix it in the roast. Foreign material? Hope that your added production costs for unanticipated refinement don't eat too much into your profit margin. You've been advised that your supplier will not ship the cashews you contracted? Quick, try to find some on the spot market (probably at a significantly higher price), or devise a delaying tactic and see how long you can keep your customer at bay. It's impossible to guess how much these impromptu 'fixes' may have cost the industry, but we do know that the price tag for the defaults, which were mostly by Vietnam, was in the neighborhood of $40 million.

Stop Stamping Out Fires

The second part of Dr. Deming's management system,"The Seven Wastes" contains another principle that could have avoided the default disaster ; "One of the worst mistakes a company can make is to focus on short term profits, as opposed to long term goals." In the short term, "buy cheap" may look like the way to go. But the road to true success lies in developing a steady, reliable supply, and consistently delivering high quality to our customers.
It is outside the scope of this article to delineate Dr. Deming's management principles in their entirety, but they merit consideration. It would be appropriate to end this article with one of his best known quotes "Stamping out fires is a lot of fun, but it is only putting things back the way they were." Many in the cashew industry have become adept at dealing with crisis after crisis. Isn't it time we became proactive and improved things at the source?

Forging Strategic Partnerships

The CCC is a means to forge strategic partnerships with quality overseas suppliers. It empowers the buyer with the knowledge that their product has been handled responsibly at the source, and can be traced back with accuracy.

The CCC has come under a great deal of resistance from segments of the American importing community. The next time you are on the phone with your importer, ask the question "Why would you be against an initiative to support responsible sourcing from facilities that maintain good manufacturing practices and fair labor conditions?". Let them give you an answer and feel free to post it in this blog .

If you have any specific questions about our program, please feel free to call either David Rosenthal or Mary Smith at 804-745-2848.