BISSAUZINHO, Guinea-Bissau (Reuters) - The next time you grab a handful of cashew nuts at a party, think that you may be holding the economic heartbeat of one tiny West African state in the palm of your hand.
Cashew nuts are the main export of Guinea-Bissau, a former Portuguese colony wedged between French-speaking Senegal and Guinea. Its 1.6 million people are ranked among the third poorest in the world in development terms by the United Nations.
As world leaders chase solutions to the global crisis caused by soaring food and fuel prices that threaten millions with hardship, Guinea-Bissau's peasant farmers are looking to their cashew crop to see whether they will eat or go hungry this year.
Across this Guinea Coast state, which is watered by numerous creeks and rivers, large swathes of the tangled tropical bush consist mostly of leafy cashew trees, mixed with oil palms.
At Bissauzinho, a hamlet west of the capital Bissau, Janette Chico and her friend have collected a few kg of raw cashew nuts to sell at the store of Mustapha Issa, one of many Mauritanian traders who live from commerce in Guinea-Bissau.
As they chat in crioulo, the amalgam of Portuguese and local languages that is the lingua franca of the country, Issa weighs what they have brought and pays them in tattered CFA franc notes, the common currency of most of francophone West Africa.
Guinea-Bissau's farming families use the proceeds from their cashew sales each year to buy rice, their preferred daily diet.
So the comparative prices of these two commodities -- one a prized cocktail snack in the rich world, the other a food staple throughout the globe -- add up to the mathematics of survival for the bulk of Guinea-Bissau's rural population.
"It's an economy that's a captive of cashews," said agronomist Rui Fonseca, the assistant representative of the U.N. Food and Agriculture Organisation (FAO) in Guinea-Bissau.
The nuts make up 90 percent of the exports of the West African state, one of the top world producers of unprocessed cashews. Most of the crop is shipped to India which processes the nuts for added-value sale to U.S. and European markets.
Guinea-Bissau's exports this year are forecast by the IMF to total nearly $94 million, against $71 million in 2007. Cashew nuts are expected to account for $87 million of the 2008 total.
As a comparison, larger neighbor Guinea, the world's biggest exporter of the aluminum ore bauxite, had estimated total exports of $894 million in 2007, according to the CIA. Guinea-Bissau has bauxite deposits, but these are undeveloped.
Last year, government pricing and commercialization blunders triggered a collapse in local producer cashew prices that caused a disastrous cashew harvest for poor local farmers, who found themselves struggling to afford food for big extended families.
"Last year, we could only sell our cashews at 25-30 CFA francs (6/7 U.S. cents) a kilo. We suffered a lot and couldn't buy rice," said Chico, a teenage girl with tightly braided hair.
"Now a kilo of rice costs 500 CFA francs ($1.19), last year it was 250 CFA," Chico added, reflecting the squeeze on pockets and bellies that the global food crisis has inflicted in Africa.
But Guinea-Bissau's cashew farmers are happier this year.
Prices paid to farmers for the raw nut have multiplied this season to 300/350 CFA francs a kilo, one of the best levels ever, after the government allowed more foreign buyers into the market and left the price to be set by supply and demand.
"I sold at 300 CFA ... but the price could be even better," said 46-year-old farmer Jose Humberto da Silva, sitting on the porch of his mud-walled home near Bissauzinho. Nearby, a woman relative pulped cashew nut fruit in a trough to make cashew wine, the acrid heady scent of which fills the air of rural villages.
"The price was good, but we still have to sell two sacks of cashew to buy one of rice," da Silva added. A few years ago, the ratio was one to one.
Experts say that had it not been for this year's high prices for cashews, Guinea-Bissau's farmers would have faced a catastrophe inflicted by the soaring food and fuel prices.
"The cashew season looks to be a good one and the rain seems to be there. That will help offset the impact of (food and fuel) price rises," said Gaston Fonseca, an economist for the International Monetary Fund in Guinea-Bissau.
This was expected to help lift economic growth to about four percent this year, compared with 2.6 percent last year. Fishing licenses are also an important source of state revenue.
But the FAO's Rui Fonseca said the peasant farmers' situation remained precarious as the price increase could mean the country would not be able to import all the rice it needed.
"The situation could get worse in July, August ... it's not being felt now because the farmers have money," he said.
The FAO was trying to encourage Guinea-Bissau's farmers to diversify and grow other crops, such as sweet potato and manioc.
In recent years, a more noxious product -- also viewed by many as a party pastime of the rich -- has seeped its way into the society and economy of this small state prostrated by poverty, which was further weakened by a 1998/99 civil war.
Colombian cocaine cartels looking for an easy route for their wares into Europe started using Guinea-Bissau's scattered offshore islands and jagged, unpatrolled coastline as a transit hub for their flotillas of delivery boats and planes.
International law enforcement experts say the fragility of Guinea-Bissau's state institutions has allowed the drug cartels' penetration, a process lubricated by corruption.
"Guinea-Bissau has now become famous for the Colombian connection ... the most visible signs are the flashy cars on the streets, but some people are also building and buying residences, which are another sign of illegal activity," said one financial expert, who asked not to be named.
International bodies like the IMF are now trying to gauge what impact the drugs trade has on the economy. Some experts suspect drugs proceeds are being laundered in the cashew sector.
The United Nations and western governments have sounded alarm bells about the risk of Guinea-Bissau becoming a "narco state" and are helping its hard-pressed and under-equipped police to try to fight back against the cocaine barons.
Anti-narcotics experts say this task is hampered by the involvement and complicity of high-level government and military figures in the drugs trade. But while trafficking profits may benefit a few, others see it as a blot on the country's image.
"Before when people thought about Guinea-Bissau, they remembered Amilcar Cabral (the country's liberation war and independence hero)," said Trade and Tourism Minister Herry Mane. "If everyone's talking about drugs, who will come and invest?"
(Editing by Keith Weir)
For full Reuters Africa coverage and to have your say on the top issues, visit: africa.reuters.com/