The sub-sector context

Potentialities constraints and sector development strategies

Potentialities. The main factor of agricultural development in general, and of cash crop development in particular, is the will of people to overcome the vicious circle of poverty, and their capacity to adapt the farming system and practices within the constraints imposed by the economic and natural environment. Rwanda has considerable agricultural potential, despite the threat of overpopulation. There are large areas with fertile soils suitable for growing many crops with international market potential, including soils with the right pH for tea and coffee, and high altitude locations with adequate rainfall where production of top quality tea and coffee is possible. Excellent potential for producing a wide range of tropical fruits and spices also exists in most of the country. New air charter freight connections have been opened up between Rwanda, Europe, and the Gulf countries. An important asset is in the current practice of producing coffee and new cash crops without chemical inputs, except for the use of pesticides on coffee growing areas. This provides a good basis for growing organic crops that command good international market prices if adequately certified. In coffee, however, a biological solution to control plant pests must still be found. Finally, farmers’ familiarity with good agronomic practices, including the use of modern inputs, must be mentioned. The non utilization of fertilizers in coffee plots reflects the negative or marginal viability of fertilizer applications to this crop under current input and output prices, rather than ignorance or risk aversion of the producers.

Another important favorable factor for the development of cash and export crops is the existence of many farmer groups, associations, cooperatives, and national NGOs working in the rural areas. Most farmer organizations have little means, but represent the spontaneous structuring of the rural world and signal peoples’ willingness to face the challenge of the future jointly, and in an organized manner. The GoR decentralization policy with its focus on the lower levels of the local government is an important factor of political and social dynamics that can be instrumental in backing up the spontaneous structuring of the rural people.

Finally, the liberalization and privatization policy of the GoR is slowly beginning to bear fruit. This is evident in the several private initiatives in coffee processing, in cut flowers production, in processing and marketing of new topical fruits, and also in the very significant increase of tea yields connected with the management of the only processing factory that has been privatized.

Constraints. Rwanda is a landlocked country. High costs of transport affect the cost of fixed assets and of inputs, which must be imported, and the cost of transporting finished products to foreign buyers. The general underdevelopment of the rural areas increases the cost of any ancillary service that economic operators require. The yields of most cash crops are low by comparison with other producing countries. As a result, despite very low labor costs and grower remunerations significantly lower than elsewhere, Rwanda is a high cost producer. Other constraints stem from the lack of up-to-date research, which affects agronomic practices of traditional crops and of new crops. Finally, marketing strategies and methods are antiquated and poorly implemented. To survive in export markets, Rwanda needs to produce high quality products, cashing in the opportunities offered by the natural conditions, and by the skills already developed among growers and in the processing industry, and to market them in new and innovative ways.

A major constraint that face poor smallholder cash crop producers is the low level of farm gate prices resulting in a lower share of the price of the processed products by comparison with other exporting countries, including nearby Kenya. This can only be partly explained by the high cost of processing and marketing mentioned above, some of which also affect Rwanda’s neighbors. A full participation of smallholder growers associations in the processing and marketing chain is a key to seriously address this constraint.

Experience in other countries (Kenya, for example) has shown that a significant improvement of the returns to smallholders is clearly associated with the full control of crop processing and marketing by the primary producers. In Kenya, several enterprises engaged in tea processing and marketing are fully owned by cooperatives of producers, and provide a service at cost to the cooperatives. All the net profits after mandatory reserves (and eventually allocations to support capacity expansion projects) are returned to growers in the form of higher prices for the raw crops they supply. Such results are only possible in the absence of other (private or public) shareholders of the processing facilities, whose interests and claims on the potential profit of the business are in competition with those of the planters. The IFAD project aims to introducing similar arrangements in Rwanda.

In Kenya, the privatization policy of government tea factories in favor of smallholders was not designed with specific poverty reduction objectives in mind. “Smallholder” tea growers cooperatives include farmers that do not belong to an IFAD target group. Many planters have over 10 ha of tea and are well to do people. In some cases, cooperative members are influential people with a large social and economic capital, a very high level of education, and may hold, or have held, important professional positions in major towns and/or government. Such structure of membership has certainly helped to accelerate the institutional development of the form of production and marketing organizations required to effectively compete in the global markets of today. The project mechanism of adaptation in the Rwanda circumstances and in line with the poverty reduction policy, that are required to achieve the full control by poor smallholders of the ownership of processing and marketing enterprises is discussed in Chapter VII, Section B.

Policy issues and sub-sector development strategy in Rwanda. To increase their export earnings, poor countries in Africa must successfully compete in a global international market, which is constantly evolving. For products that have special characteristics, global markets provide opportunities to fetch correspondingly special prices, which are linked to the area of origin of an agricultural product, and to special processing methods used to handle the crop grown in the special circumstances of that area. Wherever the opportunity exists for high quality export products to feature special characteristics, every effort should be made to transform the conventional export “commodity” into a “product”, so that national producers can acquire adequate protection through specialized marketing techniques, quality control certification and true labeling. Such markets require high and uniform quality standards of produce that can only be obtained by modern production technologies, rigorous quality control, and efficient operations management.

Governments and International Financial Institutions should encourage producers in exporting countries to enter partnerships with those private enterprises of the importing countries that have the means, the know-how, and the established channels to actually put certified labeled products in the specialty and organic products markets. These enterprises would also provide the linkages that are necessary to evolve the products in step with the evolution of market demand in the course of time. This strategic approach should be coordinated with support of Donor Governments and of International Financial Institutions for the Fair Trade movement, aimed at helping to expand the market niche they have developed so far, almost exclusively with private resources. In Rwanda, most premises exist or can be established to seize these opportunities, and to turn them into an effective tool of poverty reduction. This requires, however, a real understanding of the implications for sub-sector policy design and implementation.

Coffee. In the coffee sub-sector, the emphasis of MINAGRI has so far been on replanting high yielding dwarf varieties, with a view to restoring the quantities produced in the past. Attention to issues of quality and of the potential of traditional varieties for the quality market has been inadequate. However, the quality issue cannot be considered an “add-on” to a coffee rehabilitation programme. It is the central issue, which must be solved to secure success and sustainability.

Unlike in Latin America, where they were developed, in Africa the dwarf varieties do not produce the quality of cherries required by high value markets. In Rwanda, the initiatives to produce fully washed coffee by private entrepreneurs, stimulated by the experience of nearby Burundi, are not sufficiently linked to the demand for top quality products or with a national effort to grow coffee varieties that produce quality coffees that can fetch remunerative prices. In the foreseeable future, standard quality coffees are likely to be sold at even lower prices than today. For Rwanda producers of standard (or lower) grade coffees, this would mean lower, not higher, grower prices. A few relatively large coffee farmers may still improve their net benefits from a combination of higher yields and low prices. However, to what extent this would be possible in the case of a large number of poor smallholders is a moot point.

During project formulation, IFAD extensively discussed the issue of quality and marketing requirements with the GoR. Other donors, including the USAID, have also presented similar points of view. A more flexible approach of the GoR is currently emerging. The promotion of high yielding varieties will be more mindful of the quality issue. Smallholder farmers will be encouraged to diversify out of coffee if they do not have at least the opportunity to supply a nearby washing station, or to produce coffee of the quality that can secure adequate prices. At the same time, Government will encourage initiatives which aim at exploiting the opportunities offered by an evolving international market, and by the country comparative advantage for growing high quality arabica. A market driven strategy would call for smaller areas growing high quality coffee and organic coffee, adequately processed and marketed. This approach may well earn the country more foreign exchange than a large area producing inferior products, most of which may not be saleable but below production costs for many years to come. Accordingly, in the best coffee growing areas, the GoR will encourage private enterprise production of high quality coffee, linkages with appropriate marketing arrangements, the development of organic production, including emphasis on research on integrated pest management (IPM). In the areas less favorable for coffee, the GOR should encourage farm diversification, possibly into more attractive new cash crops.

Tea. A good deal of work is still required to formulate an adequate programme for the development of the tea sector, combined with a coherent policy aimed at providing incentives to private investors and at securing adequate income for smallholder tea growers. These ought to include at least the general strategic lines of development of new tea planting and processing capacity, going beyond the statement of principles of the current privatization policy, the implementation of which also needs to be very significantly accelerated. The lack of progress on privatization has indeed been a stumbling block for several years. Donors are reluctant to assist the sub-sector, pending evidence of concrete progress under the privatization policy. Government preliminary plans include the expansion of the area planted two or threefold, without much attention to the potential for increasing yields, demonstrated by the only one privatized operation, and to market prospects, including the implications of nearby Kenya reaching its own production potential of 300 000 tons, which in itself poses a further threat to the stability of the international market price.

Priorities for the medium term are not difficult to identify. The construction of a factory at Nshili is by far the top priority. Most existing factories in Rwanda must be expanded so that they can adequately handle even the currently available green leaves in case of a bumper crop, and the potential production that can be attained if measures are taken to increase yields towards levels more in line with comparable areas elsewhere in the world. The drainage systems of several marais planted to tea need rehabilitation. New areas can also be planted, with careful attention to producing top quality products, to introducing organic tea with all the related measures aimed at increasing the use of farm yard manure and at strengthening land conservation, and to secure timely construction of new factories, which is essential for the financial survival of such initiatives.

Production and marketing organizations. For a Government committed to fighting rural poverty, the development strategy must include mechanisms that would facilitate the participation and empowerment of the poor cash crop producers in the exploitation of the opportunities offered by innovative marketing strategies and systems. Fundamental requirements to seize such opportunities are the development of modern industrial processing units, the introduction of rigorous quality control methods, efficient management, and access to new marketing technology and channels. This means also introducing modern forms of production organizations, with a legal status that permits the organization to engage in all of transactions necessary to operate in the international market, and introducing specific mechanism and arrangements to ensure the control of such organizations by poor smallholder producers.

New cash crops. Diversification is important and is already taking place. To some extent, the development of alternative sources of cash income for smallholders should be coordinated with the farmer’s willingness to get out of coffee in the marginal coffee growing areas, supporting in particular very small poor land holders and women. The strategy would emphasize a variety of crops, responding to private initiatives, and should provide incentives and support for those enterprises that meet the standards of quality required by the international market. This includes assistance to identify and develop new markets and new marketing methods and channels, and to cooperative establishment, training, and management.