Why We Invested: YYTZ
When you buy a pack of cashews from the supermarket, do you ever wonder where they came from? Chances are, the packaging will list the origin as India or Vietnam, when in reality the majority (over 60 percent) of cashews are actually grown in Africa, shipped as raw nuts to Asia for processing, and then shipped wholesale to North America or Europe to be repackaged and sold to you at your nearest retail outlet. That’s a really long journey for such a small nut!
Within sub-Saharan Africa, Tanzania is the fourth largest cashew producer with 85 percent of cashews grown by smallholder farmers. Tanzanian cashews are sold as raw nuts via a government-managed auction where exporters bid for the product. 90 percent of production is exported for processing abroad, mainly to the aforementioned India or Vietnam, where the majority of the market value is captured. While the government has tried to encourage local processing, value addition efforts in Tanzania have been largely limited to manual processing due to high costs and limited financing, resulting in inefficient, low quality operations. Consequently, the low market prices obtained for raw, unshelled nuts have reduced farmer incentive to invest in the maintenance and management of cashew plantations, thus reducing productivity. Due to underinvestment in processing capacity and market linkages, Tanzanian farmers capture less than ten percent of the final cashew price.
Stepping Up to Meet Growing Cashew Demand
Demographic changes and urbanization are shifting consumer snacking trends across regional and North American markets to on-the-go, high protein options that are healthy, convenient to eat, and sustainable. While we may not be as mobile as we used to be due to COVID-19 restrictions, we all know people still love to snack! As the demand for cashew grows, and buyers push for more visibility into their supply chains, there is opportunity for African processors to step up to meet demand and compete with countries that have historically led the market. That is why FINCA Ventures invested in YYTZ, a Zanzibar-based cashew processor that is engaged across the entire value chain to bring more value back to the farmer through a transparent consumer brand that resonates both regionally and internationally due to the quality and traceability of their products.
YYTZ sources raw and semi-processed cashews from 4,700 smallholder farmers and women’s groups in the largest cashew-producing regions in Tanzania. After procurement, they bring the cashews to Zanzibar to process them into a variety of retail-ready products (roasted cashews and cashew butter) for the East African as well as international market under YYTZ’s consumer brand, More Than Cashews. YYTZ is initially launching its product in regional supermarkets in Kenya and Tanzania, will then sell to regional hotels and coffee shops as travel picks back up, and eventually will tap into North American supermarket chains. Selling under a branded product, rather than into the wholesale market, improves their ability to continue to provide farmers with both stable and higher prices during times of market volatility, which directly ties to their mission.
Increasing Farmer Income Through Community-Level Processing
Recognizing that smallholder cashew farmers have historically been shortchanged due to limited processing capacity in-country and significant market volatility, YYTZ is investing in cashew shelling and other mechanization at the community level to bring more economic value back to the farmer, increase farmer productivity and materially grow incomes through guaranteed offtake with timely payments.
YYTZ is able to pay a 50 percent price premium for semi-processed cashews as a result. With access to processing equipment, women in the community are able to increase their productivity while also allocating extra time to other household and economic activities. Furthermore, through expanding processing capacity, YYTZ sees opportunity in utilizing cashew apple by-products that would otherwise go to waste to produce additional revenue streams, reduce post-harvest losses, and make farmers more resilient. We are really impressed by YYTZ’s commitment to finding new ways to get more money into the pockets of the farmers they source from, while also growing their own product offering.
Processing at the community level not only offers farmers a higher price for their cashew, but also results in significant cost savings for YYTZ as it reduces transportation costs. Removing the shell from the cashew reduces its weight by 70 percent and makes it easier to transport to the main processing facility in Zanzibar. YYTZ’s state-of-the-art processing facility is positioned in a Free Economic Trading Zone, allowing for a ten-year exemption from income tax, savings on raw cashew export levy, and duty-free access to North America, EU, and Eastern and Southern Africa markets.
Embedding Themselves Throughout the Entire Cashew Value Chain
The Tanzanian government recognizes that global cashew demand is growing and has launched new initiatives in recent years to strengthen cashew grower networks in new parts of the country where cashews have not historically been cultivated. To support these efforts and better position themselves in the market, YYTZ established a nursery program in 2018 in Singida to distribute 35,000 seedlings and provide training to new cashew farmers. Given its initial success, YYTZ has continued offering this program in 2020 in an effort to expand the national supply of quality cashews, support low-income farmers with an additional source of revenue, and increase their own sourcing capacity.
Young, Inspiring Local Founder
YYTZ is driven by a young Founder, Fahad Awadh, who was born in Tanzania and raised overseas in Bahrain and Toronto, Canada. Fahad was entrepreneurial throughout university (he started a clothing business!) and when he returned to Tanzania in 2013, he saw opportunity to bring value addition back to the farming communities that supply the cashew commodity. We were struck by his passion for supporting smallholder farmers and by how active he is in the local cashew sector – he is a founding member of the Tanzania Association of Cashew Nut Processors, which engages in private sector policy to support the development of this historically underserved sector. Fahad started this company alongside his father (we are excited about adding another family business to our portfolio!) who helped to design the initial processing facility and brings technical expertise and global exposure from his lifetime of experience as a commercial pilot.
In an effort to build out the operational capacity of his team, Fahad has brought on a skilled factory manager with experience at OLAM, the largest cashew processor globally, a community manager based at the cashew source to support the company’s supplier base of smallholder farmers and women’s groups, and a cashew nursery manager to execute on the seedling program in Singida. As sales ramp up, YYTZ will expand their sales team to better establish their brand and their procurement and factory teams to increase capacity in line with increasing demand.
As equity investors, we try to be an extension of the team in any way that we can. We are excited to join the YYTZ team alongside HRSV, who we co-invested with here, and whose insights gleaned from field visits helped to inform our own due diligence, as we were unable to travel during the pandemic. Learn more about how our investment process has shifted during COVID-19 here.
Opportunity for Financial Inclusion
Impact extends to financial inclusion for the farmers that YYTZ engages, many of whom are currently unbanked. Financial service providers (FSPs) have struggled to serve smallholder farmers who are often deemed too risky, even for microfinance institutions. By raising income levels, building up local processing capacity, and providing predictable and well-documented cashflows, YYTZ can de-risk an important population segment and help smallholder farmers become more financeable. This opens up the possibility for partnerships with FSPs, like FINCA Impact Finance and its Tanzania subsidiary, to reach unbanked and underbanked populations.
YYTZ is just getting started on its journey to bring local processing capacity to the farmer level and capitalize on shifting consumer demands, and we are excited to see the resulting increases in income and productivity levels as the company grows with its farmers. With cashews now purchased and ready for processing, and a packaging machine up and running, it’s time for YYTZ to get cracking!