NAF-International Working Paper Series, 2014This study examined the root causes of incessant market failure problem facing Tanzanian cashew nut
industry. The overarching hypothesis was that the industry challenges are both structural and institutional.
Competition status and economic coordination in the industry were thus duly scrutinized. Key informant and
questionnaire interviews were carried out with key industry stakeholders and cashew farmers respectively.
Data analysis entailed operationalizing the Institutional Analysis and Development framework, the DFID
Competition Assessment Framework and estimating the Stochastic Frontier Production Model. Results
showcased a systematic positive effect of the Warehouse Receipt System (WRS) on indicative and final
producer prices over the years. Concentration ratio results professed the industry as being fairly
concentrated and hence oligopolistic. Farmers’ input use efficiency was calculated at 51% on average
suggesting that majority could be high cost producers. The WRS was vindicated as an effective system for
the industry though its high transaction costs due to hiked administrative costs, weak institutional
arrangements along the value chain, cooperative monopoly and inadequate enforcement of underlying
regulations counteract its strength. Fair competition in the industry is stifled by clandestine buyer collusion
and predatory pricing at the expense of local processing. Production cost would overstate indicative price if
used as a basis for its setting given inefficient farmers. For better results the industry needs to depoliticize,
change warehouses’ ergonomics, eliminate unnecessary WRS administrative costs, break cooperative
monopoly to accommodate private buyers’ participation, strengthen regulatory enforcement mechanisms,
restore export parity pricing procedures and establish an advisory to sieve conflicting scholar
recommendations.Funded by iAGR
