EVFTA: Potential of cashew exports to the EU

Situation of cashew supply and cashew exports of Vietnam

Circumstances of Vietnam cashew production

Vietnam’s cashew acreage tended to decrease continuously from 2012 to 2016 and started to increase again from 2017. However, by 2019, the cashew growing area leveled off and decreased slightly compared to 2018. Cashew prices have continuously fell off in the previous period, that led to many cashew growers switch to crops with higher economic value. 

In 2019, the estimated cashew area is 297.2 thousand hectares, down 3.8 hectares compared to 2018. The average cashew yield of the whole country reached 10.2 quintals/ha, increase more than 1 quintal compared to 2018.

Raw cashew production in Vietnam, 2013 – Q1/2020

EVFTA: Potential of cashew exports to the EU for enterprises Source: VIRAC

In the first 3 months of 2020, during the cashew harvest in Vietnam, the production of raw cashew nuts reached 149.8 thousand tons. This figure is more than half the amount of raw cashew nuts in 2019. This time until the end of June and July is the harvest season. So if the weather is favorable, the cashew output in 2020 will reach over 300,000 tons, higher than the same period in 2019.

Cashew exports situation

Vietnam’s cashew industry ranked first in the world in exporting cashew kernels in 2019. In the first three months of 2020, Vietnam’s cashew exports reached 101.4 thousand tons. The number is up 25.48% over the same period in 2019, equivalent to export value of US$ 705.8 million, increasing only 8.94%. On the average in Q1/2020, cashew prices have dropped by 13.78% at the same time in 2019, all 3 months fell deeply. 

Due to the consequences of the COVID-19, demand for consumption reduced makes the price of domestic raw cashew nuts fall off sharply. It is predicted that in 2020, cashew prices will be difficult to recover owing to severe shortage of demand.

Output and value of Vietnam’s cashew exports, 2013 – 3M/2020

EVFTA: Potential of cashew exports to the EU for enterprises

Source: VIRAC 

Currently, there have been 101 countries importing cashew nuts from Vietnam. In the first 3 months of 2020, the US was the largest importer of cashew kernels with more than 32.4 thousand tons, equivalent to 32% market share. However, the trend of strong increase in cashew volume but slow rising price continues in Q1/2020. The Netherlands market ranked second with 10.6% market share. EU countries also increased the import of cashew nuts from Vietnam with more than 63 thousand tons, equivalent to US$ 441.19 million. 

The Chinese market in Q1/2020 has dropped to the fourth rank with only 5,299 tons of cashew nuts imported, equivalent to 5.2% of the market share. In all 3 months, production and value plummeted, especially in January and February – the outbreak’s time in this country. On average, the amount of cashew nuts exported to China decreased by 49.78%, the value dropped by 58.34% over the same period in 2019.

In the first quarter of 2020, the branch of Olam Vietnam Co., Ltd. in Bien Hoa II Industrial Zone is Vietnam’s largest cashew exporter with 9.9% market share. Follow up are Long Son JSC, Olam Vietnam Co., Ltd, Hoang Son 1 JSC with volume of export accounting for 3.9%, 3.4% and 2.4%, respectively. Enterprises of Vinacas group export more than 50% of cashew market share in Q1/2020.

Opportunities for cashew exports industry when EVFTA takes effect

Due to the spread of infectious disease, Vietnam’s commercial activities were seriously affected in Q1/2020. However, the disease has been mainly controlled recently. And when signed free trade agreements (FTAs) have come into effect, it is expected that cashew export turnover will increase again in second half of 2020.

Great potential for cashew exports

The two biggest export markets of Vietnam are the US and the EU. On June 8th, 2020, the FTA between Vietnam and the European Union (EVFTA) was officially ratified by the Vietnamese National Assembly. This provides opportunities to export goods in general and cashew products particularly.

Demand for cashew nuts in the European market has been developing recently, due to the scientific evidence of the nutrition of cashew nuts published in the media.

Export tax rate of 0%

Under the provisions of the agreement, tariffs on cashew products imported from Vietnam will be applied the tax rate of 0%. The lowest tax rate will help enterprises grow cashew export quantity to potential EU markets.

Challenges for enterprises exporting cashew to the EU

One of the biggest challenges for Vietnam when applying the EVFTA is to meet the strict standards of traceability and food safety.

Rules of Origin

The EU utilizes the rules of origin of Regional Value content (RVC). Therefore, in order to benefit from tariffs, Vietnamese cashew products must be processed from cashew raw materials produced domestically or from countries signed FTAs with the EU.

The cashew industry in Vietnam has depended largely on cashew nuts imported from other countries, mainly from Africa. Therefore, to achieve the EU’s rules of origin, exporters need to develop an autonomous production strategy that is less susceptible to external supplies.

Non-tariff barriers

Although the tax rate applied is 0%, the non-tariff barrier is an actual challenge for Vietnamese businesses. Currently, the non-tariff barriers mainly applied to Vietnamese agricultural products include TBT (Technical barriers to trade) and SPS (Sanitary and Phytosanitary Measures ).

TBT (Technical Barriers to Trade)

Technical barriers are standards and technical regulations applied by a country to imported goods and/or the conformity assessment process of imported goods.

For exported cashew nuts products, the EU provides regulations on product packaging. These are requirements for the substances that can cause allergies and poisoning in cashews. Fruits and vegetables imported from abroad in general and cashew nuts in particular must comply with the EU’s common market quality standards.

SPS (Sanitary and Phytosanitary Measures)

SPS are requirements for products to protect human and animal health… from possible harmful substances in the product. The European Commission has strict regulations on the concentration of toxic substances, the amount of pesticides in cashews (Maximum residue level – MRL).

Non-tariff barriers imposed by the EU, although in principle is to protect the health and safety of consumers, are also to protect domestic production. The EVFTA opens a great opportunity for cashew exporters. But in order to take advantage of it, local businesses need to focus more on improving the quality of products, to meet the technical standards demanded by the EU.

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