Project description and activities

The Coffee diversification component

Coffee diversification (USD 6,109 million of base cost). Under this component the project will fund:

• In selected suitable locations of the project area, the required rehabilitation and replanting of existing poor smallholder coffee plots and their expansion to enable the smallholders to produce 8 000 to 10 000 tons of cherries of top quality arabica coffee;
• The agricultural research required to back up the continuous improvement of the quality of the coffee produced, and to introduce viable environment-friendly agricultural practices, with special emphasis on integrated pest management and on production of organic coffee;
• The services of TWIN and of national organizations required to: (i) identify and train those spontaneous poor coffee planters willing to group into primary cooperative societies, with a view to participating in the processing and marketing of their crop, and who commit to apply the cultural practices required to improve their production as required to achieve set quality standards; (ii) animate and organize the primary societies and train their leaders; and (iii) monitor their performance;
• The construction of coffee washing stations and hulling plants by CPMCCs, adequate to process up to a total of 10 000 tons of cherry coffee and to produce 1 200-1 400 tons of fully washed green coffee of high quality, with sufficient funding to cover investment in fixed assets, working capital, and start up costs, in accordance with sound development financing practices;
• The services of TWIN required to coordinate the technical and administration management of the CPMCCs for an initial period of five years, and to help primary societies leaders to acquire the experience necessary to take over management;
• The services of TWIN required to control and certify the quality of produce of the CPMCC, to promote the image of the Rwanda high quality coffee in the world market, and to help them develop access to FT coffee specialty and organic markets; and
• If proven advisable and of interest to the CPMCC, the establishment of a coffee marketing and export company, as a joint venture of the CPMCCs and TWIN, with a view to securing the continuation of the quality control and special marketing arrangements after the IFAD project completion; and
• The feasibility study of converting two coffee growing areas of the project to organic coffee production, and the cost of organic conversion and certification to the first three years if proven feasible.

The location of the project intervention within the four provinces will be selected by a technical committee chaired by the project coordination, and including TWIN and OCIR-Café. The criteria for selection will include the suitability of the location to produce top quality coffee, the intensity of coffee planting around potential washing station sites, availability of water, the degree of poor planters social organization, and their willingness to establish primary cooperative societies of producers meeting membership and management standards acceptable to TWIN and IFAD.

Assuming an average production of 5 000 kg/ha of fresh cherries (café parche equivalent 1 000 kg) in the good areas, the coffee rehabilitation programme would involve a total of about 2 000 ha planted to coffee around the processing factories envisaged. Such an area would include as many as 20 000 smallholder growers HHs with the most frequent coffee plots having 200-250 bushes.

Not all of the existing smallholder coffee plots require rehabilitation, and those that need improvement may require interventions of different intensity. It is envisaged that most coffee bushes over 30 years old will be gradually replaced with new plantings. In addition, a number of farmers will be willing to expand their coffee plantation, responding to project incentives. To these growers, the project would distribute free seedlings of the appropriate varieties along with the initial package of chemical inputs. Nurseries run by local farmer groups will produce the seedlings. Sufficient basic planting material of the appropriate coffee varieties (acceptable to TWIN) will be obtained from the EU funded in-vitro multiplication project (see paragraph 85). As in the case of other IFAD projects in Rwanda, the project will supply the nurseries with the basic planting material and tools, and guarantee the nurseries’ market within the framework of the coffee replanting and new planting programme agreed between the growers and the project recruited service providers.

The project would mobilize the technical staff of OCIR Café to train and equip the nursery farmers, and to distribute planting material and tools to the primary societies for delivery to the members wishing to rehabilitate their coffee plots. The primary societies will collect the growers’ demands, and organize the input distribution. The technical staff of OCIR-Café will assist growers with the advice required to properly rehabilitate and expand their plots, and to apply the agronomic practices required to produce the quality cherries demanded by remunerative markets. Local cell and sector development committees will be informed of the project opportunities and will be animated to play a key role in promoting the formation and strengthening of the primary societies.

The existing production will be very important to enable adequate and financially sustainable processing and marketing activities to start. The project will make a determined effort to improve farming practices in the short term, with the view to increasing yields and, in particular, to securing the good quality of the cherries delivered at the washing stations. Training to this effect by the OCIR-Café technicians will be undertaken by TWIN. A study will be conducted in year 1 of the project regarding the feasibility of converting one or two coffee growing areas of interest to the project to organic coffee production. If the technical and financial viability of organic production is proven, an action plan will be prepared, and TWIN will arrange for the necessary training of the OCIR-Café technicians to train farmers accordingly. TWIN will supervise, guide, and monitor the technicians’ extension work, to ensure that the information required about the practices that produce high quality coffee are correctly transferred and fully appreciated by the growers, and that the evolution of quality market requirements over time is reflected in the extension programme.

OCIR-Café and TWIN will ensure the necessary linkages with the agricultural research outfits supported by the project. Growers will be encouraged to adopt integrated pest management practices, intensify manuring rather than use chemical fertilizers, and to adopt adequate soil conservation practices. Pending a decision about organic coffee conversion, the project would also provide spraying equipment and initial chemicals to the primary societies, in quantities sufficient to secure that the entire area that supplies the washing stations associated to the societies is adequately protected against major pests, irrespective of whether the coffee plots belong to people who have accepted to participate in the project.

Farmers’ incentive to participate in the project will be secured by introducing a grower price policy based on the following principles: (i) the growers will sell fresh cherries, which will relieve them of the painstaking and unclean work required to produce café parche by manual methods. This in itself is an innovation most welcome by farmers, particularly women coffee growers; (ii) producers will be paid an average price for the fresh cherries higher than the corresponding price for café parche presently paid by traders; and (iii) however, the price paid for each lot of cherries delivered to the washing stations will differentiate according to quality, the best lots will get more than the average price, the lower quality lots will receive less. Sub-standard lots will be rejected.

Under this component, the project will provide funds to Rwanda and/or Regional/International agricultural research outfits to improve the country capacity in the field of coffee agronomy. Research would concern varieties, with particular emphasis on high quality of the coffee produced in the conditions of the project area. Priority will be attached to integrated pest management, investigations on the causes of the “potato” taste and remedial action, and to cropping practices suitable to produce organic coffee. Other research themes may also become relevant for the project performance during implementation. The project will fund technical advice from international coffee growing experts and foster relationships with research institutes abroad.

A major thrust of the component will be cooperative organization and management. The project vision about the role of the coffee producers’ organizations is fairly ambitious. The objective is to put them in a position to run processing factories that produce top quality coffee, and to enable them to trade in the international market on a strong basis. This requires intensive training, practice of management experience, and above all the acquisition of the right corporate culture of rigorous management, quality and cost control, as well as transparency of financial transactions. To this end, the cooperative development function will be entrusted to TWIN, who has a strong experience of dealing with export crop coffee producers associations in several countries, and can arrange linkages with FT organizations interested in buying at the FT price the share of coffee that meets FLO certification standards, thus securing higher and more stable grower prices. TWIN will select and train national service providers to work at the field level on a regular basis under TWIN supervision.

The number of growers cooperatives included in the project will depend on growers initiative. TWIN and the associated national service provider will work closely with the district, sector and cell development committees, who will help to motivate the local communities and spread information about the project. In carrying out their activities under the project, TWIN will pursue its own statutory mandate for cooperative development. IFAD concurs with the objectives and standards set by the FT organizations, and by TWIN in particular, concerning the democratic nature and the social and economic development objectives of the farmer associations they are prepared to support. In addition, the project will require that the great majority of the primary societies members are poor smallholders, and that women head of HHs be specifically helped to meet the standards for participation imposed by the FT trade. To this end, the service providers will acquire knowledge about the local communities using, as required so far as feasible, the approach described in the IFAD document entitled “Gender and Poverty Targeting in Market Linkages Operation, A Sourcebook and a Toolkit for Practitioners”.

To implement the project policy smoothly, the size of the primary societies should be rather small so that direct and full participation of all members in decision making is facilitated. Primary societies will be formed around each one of the coffee washing stations. Washing stations have a capacity of 500 or 1 000 t of fresh cherries each, and will be supplied by about 800 and 1 500 growers respectively, living within a radius of 3-4 km. Decisions about the specific number of the primary societies and their membership will be made by the communities, building on the associations and groups that already exist in the area. As a reference information, the size of a cell, the lowest level of the local government, is about 300-400 HH. Around the smaller washing stations there may be two or three primary societies, and five or six in the case of the larger stations.

The primary societies will be asked to perform a role with respect to pest control in the coffee growing area. The project will distribute sufficient spraying equipment to cover the entire coffee producing area where cooperative members operate. This practice was once common in coffee growing areas. Cooperative members will pay an annual membership fee sufficient to buy the chemicals required for spraying, and to replace the equipment when necessary. In addition, members will commit to provide the labor required for such work. Spraying will be necessary for adequate coffee growing in most areas of Rwanda, until a favorable outcome of the research on IPM funded by the project would significantly reduce the requirement for chemical pest control and the cost to the farmers.

Training will include primary society members and elected managers. Training subjects includes cooperative organization, procedures, accounting, management, control of quality, store keeping, efficiency principles, and savings and development. Cooperative members will be introduced to the project scheme that envisages them becoming owners of the processing facilities in course of time. The ultimate advantages of their ownership will be explained, along with the conditions that must be met for them to obtain and maintain the benefit of such ownership.

To comply with the flexible strategy approach, under this component the project would provide funds of about USD 3 million to finance newly established CPMCCs. The fund will be disbursed through the Rwanda National Bank to the RDB, who will be the major channel for these funds to the ultimate users. Different scenarios and investment options concerning the use of the funds will be explored during implementation, and specific decisions about the release of funds to the RDB will be taken following IFAD clearance that the project policy has been correctly applied in each case.

For purposes of illustration, and to provide a basis for project costing and for the financial evaluation of coffee commercial operations, the project appraisal is based on one possible scenario. This involves the establishment of four CPMCCs, each one to be ultimately owned by the primary societies of smallholder coffee planters of its area of operation. Each company would construct and operate two or three coffee washing stations with the combined capacity to process 2 000-2 500 tons of fresh cherries, and a small hulling factory that would produce 300-350 tons of fully washed coffee per annum. In accordance with the financial engineering policy discussed in Chapter VII, the shareholders of each company would be several primary societies of planters, cooperative will own one share of the processing company. The company shares will be held in trust by the RDB until fully paid through the company’s dividends accruing to the shareholders. In the interim period, the RDB would represent the shareholders in the Board of Directors of the companies.

The technical management of the coffee processing plants will be entrusted to national professionals, a national deputy manager and an accountant will be recruited by each one of the CPMCC. The General Manager and the Financial Controller of all the four companies will be provided by TWIN for a period of five years. Under the control of the companies Board of Directors, TWIN, as the provider of general management services for the CPMCCs will have the overall responsibility for the construction of the industrial facilities, related procurement of goods and services, and for the ordinary conduct of business of each one of the CPMCCs, including the obligation to associate selected members of the cooperative leadership to the conduct of the business, with a view to facilitating their acquisition of the necessary experience to take over in due course. Produce marketing will be done under conditions that include: quality control by TWIN/OCIR-café, options to purchase by FT network organizations of the share of products that meet FLO standards, FLO certification of labelled products sold by TWIN or other FT organizations, other produce sold in accordance with marketing strategies agreed by TWIN.

Under the assumed scenario, the companies will be responsible to supply the agricultural inputs demanded by the members of the primary societies. Inputs will be purchased by the CPMCC, in cash, using funds provided to the primary societies by the smallholder credit scheme (see “Guaranteed Credit to Smallholder Cash Crop Growers” component below). Repayment of loans extended by the primary societies to their members under the scheme will be deducted from the payment due at the time of crop delivery to each primary societies.

Structure of the component cost. To summarize, the following table shows the cost structure of the coffee diversification component:

Table 6: Cost of the coffee diversification component