NutCo Ivoire: The Cashew Pricing Dilemma

Nutco Ivoire, a cashew nut exporter from Cote d’Ivoire, buys from farmers and sells to buyers in India and Vietnam against forward contracts, often having received at least a partial advance payment. It buys mostly from small farmers, dries the nuts, and ships to buyers meeting the key quality criteria of outturn, the nut to kernel ratio. It guarantees a price at the beginning of the season to its suppliers, advancing nearly 70 percent of the expected proceeds. It has cemented its relationship with the growers they buy from having paid them contracted prices even when market prices fell below the contracted prices. But the growers demanded flexible pricing when in one year prices showed signs of rising above the contracted price. They want to treat growers fairly, but they wonder how they could assume all the risks because they too must honor the contracts with buyers. A case to consider options to manage price risks and ways to replace contracts with relationships.