Cracking the Cashew Conundrum: Ghana’s Battle for Value Addition

This article from BBC news provides an in-depth look at Ghana’s cashew processing struggles through the lens of economic theory, making it an essential read for students of development economics.

A bag of roasted cashews sold on the streets of Accra costs about 75 cents—4,000% more than what a Ghanaian farmer earns for the same weight in raw nuts. This staggering markup encapsulates a critical economic challenge for many Less Economically Developed Countries (LEDCs): how to move beyond the production of raw materials and into value-added processing. Ghana, the world’s third-largest exporter of raw cashews, is struggling to climb the value chain, facing financial, logistical, and structural barriers that hinder local processing.

The Value-Added Gap

Ghana exports 80% of its cashews in their raw, unshelled form, generating around $300 million annually. However, the real profits are made elsewhere. International roasters and retailers buy raw cashews for $500 per tonne but sell them for anywhere between $20,000 and $40,000 per tonne once processed. This is a textbook case of the Prebisch-Singer Hypothesis, which argues that countries reliant on primary commodity exports face deteriorating terms of trade over time.

The logic is simple: raw materials have a low price elasticity of demand (PED), meaning demand does not rise significantly when prices fall. Meanwhile, processed products have a higher PED, allowing firms further up the chain to adjust prices and capture greater margins. Without domestic processing capabilities, Ghana is locked into the lower end of the market, leaving local farmers and entrepreneurs without a share of the lucrative cashew trade.

The High Cost of Processing

Despite the apparent benefits of domestic processing, Ghana’s entrepreneurs face formidable barriers. One of the biggest is access to finance. Mildred Akotia, CEO of Akwaaba Fine Foods, a small-scale Ghanaian cashew processor, highlights the problem: “If you go to a local bank, it will cost you 30% interest to get a loan.”

Such high borrowing costs make capital-intensive investment in processing facilities nearly impossible. This is a classic example of imperfect capital markets, where high-interest rates and lack of credit access stifle industrial expansion. Without affordable loans, local processors cannot compete with larger, foreign-owned operations in countries like India and Vietnam, which dominate global cashew roasting and packaging.

A Failed Policy Experiment

In 2016, the Ghanaian government attempted to force more local processing by banning raw cashew exports. The move backfired spectacularly. Without an established domestic processing industry, demand for raw cashews collapsed, prices plummeted, and nuts began rotting in warehouses. The policy was quickly reversed, but the episode highlighted a deeper issue: without addressing supply-side constraints such as finance, infrastructure, and skills development, protectionist policies alone cannot drive industrial growth.

Infrastructure, Institutions, and Investment

Beyond finance, Ghana’s weak infrastructure further undermines value-added activities. Poor road networks increase transport costs, while unreliable electricity supplies make industrial production more expensive. Economist Daron Acemoglu, an expert in development economics, argues that LEDCs need to fix their “workforce, infrastructure, and institutional environment” before they can successfully integrate into global supply chains.

Moreover, corruption and bureaucratic inefficiencies discourage investment. Many of Ghana’s most talented business minds leave for opportunities abroad, leading to a brain drain that deprives the country of the entrepreneurial talent needed to build domestic industries.

Domestic Demand and Market Growth

One overlooked solution is increasing domestic consumption of cashew products. Bright Simons, an Accra-based economic analyst, argues that a strong domestic market would provide a stable base for processors, reducing reliance on volatile export markets. If more Ghanaians developed a taste for cashews, it could create sustained demand for locally processed products, incentivizing investment in the sector.

This aligns with a broader structural transformation strategy: moving from a dependence on external markets to fostering internal consumption. By encouraging Ghanaians to consume their own cashew products, processors would have an incentive to scale up production, improving efficiency and lowering costs over time.

The Way Forward

Ghana’s cashew industry reflects the broader challenges faced by commodity-dependent economies trying to move up the value chain. The key lessons include:

1. Financial Reform – Lowering interest rates and improving access to credit for small businesses is essential to fostering local processing industries.
2. Infrastructure Development – Investing in transport and electricity networks would reduce production costs and make Ghanaian processing more competitive.
3. Institutional Stability – Reducing corruption and bureaucracy can encourage local and foreign investment.
4. Market Development – Strengthening domestic demand for processed cashews can provide a stable market for local producers.

Ultimately, without addressing these foundational economic barriers, Ghana risks remaining stuck in the raw material trap, watching other countries reap the rewards of its agricultural production. By fostering a more business-friendly environment, Ghanaian entrepreneurs like Mildred Akotia could finally crack the cashew industry and claim a greater share of its value.

Glossary of Key Economic Terms

• Value Chain – The full range of activities needed to bring a product from conception to end use, including production, processing, and distribution.
• Vertical Diversification – Expanding into different stages of production, such as moving from raw material extraction to processing and manufacturing.
• Prebisch-Singer Hypothesis – The theory that countries exporting primary commodities face declining terms of trade over time, reducing their relative wealth.
• Price Elasticity of Demand (PED) – A measure of how sensitive quantity demanded is to changes in price.
• Imperfect Capital Markets – Financial markets where access to credit is limited or comes with prohibitively high interest rates, restricting business investment.
• Protectionism – Economic policies that restrict imports or exports to protect domestic industries.
• Brain Drain – The emigration of skilled workers from a country, leading to a loss of talent and expertise.
• Structural Transformation – The shift from an economy based on agriculture and raw materials to one focused on industry and services.