Project description and activities

Tea development in Gikongoro Province

This component (USD 12.070 million of base cost) has two sub-components: (a) Integrated smallholder tea production processing and marketing in Nshili district (USD 10.601 million of base cost), and (b) Smallholder tea plantation development in Mushubi district (USD 1.469 million of base cost).

Integrated smallholder tea production processing and marketing in Nshili District (USD 10.64 million). Since IFAD primary objective in funding this sub component is to achieve full control of production, processing and marketing by its target group of poor farmers living in the District, no other scenario will be explored under the flexible project implementation strategy. Under this sub-component the project will support:

• The minor rehabilitation of the existing 965 ha OCIR-Thé industrial estate at Nshili, and the continuation of services required to sell the green leaves to other factories and to supply the required agricultural inputs, until a new factory at Nshili becomes operational;
• The establishment of 200 ha of tea by 800 new poor smallholder tea growers within the OCIR-Thé land concession area;
• The rehabilitation of the houses of OCIR-Thé damaged by the war to the extent required by the staff of a processing factory to be constructed at Nshili;
• The distribution of the land planted to tea to about 4 000 smallholder growers (0.25 ha each) living in the surrounding area, a minimum of one third of the beneficiaries being women head of HH;
• The services required to organize the beneficiaries of the distribution and the new smallholder planters into primary cooperative societies, to train them to properly manage their plots of tea and to monitor their performance, and to assist women head of HH to manage their tea crops, ensuring that no child in school age is prevented from attending school because of the labor requirement in the tea plots;
• The preparation of a detailed construction plan and feasibility study for a new Nshili tea factory with a capacity to produce 1,800 t of black tea;
• The establishment of a new private company to build, own and operate the tea factory, such company to be funded along a financial engineering package that would secure a sound capital structure, and provide for the take over by the primary societies of tea growers in the course of time;
• The services required to manage the company for an initial period of five years and to help leaders of the primary societies to acquire sufficient experience to take over control of the company;
• Agriculture research activities required to test and adapt in Gikongoro new technology obtained abroad in tea production; and
• The connection of the factory site to the national electric grid.

The project would fund the necessary measures to secure the full production potential of green leaves at Nshili. This includes the rehabilitation of the tea bushes of the industrial plantation of the OCIR-Thé. About 10 percent of the area needs refilling (equivalent to 100 ha). In addition, about 200 ha of new smallholder planting will be done, to ensure the total production required to supply the full capacity of the new factory against possible shortfall of the smallholder planters during the initial years of operation of the factory. About 800 poor smallholders will benefit from this extension of the tea planted area. They will be given a plot of 0.25 ha, planting material of the correct varieties produced by private nurseries funded by the project, and an initial stock of fertilizers and of biodegradable weed killers. The size of the plots is in line with the plots managed by smallholder tea planters elsewhere in the country.

The industrial plantation will be divided into about 4 000 plots of approximately the same value, allocated to an equal number of poor farmers living in the neighborhood. Between 33% and 50% of the assignees will be women head of household. The project will fund the cost of distributing the land. This includes detailed mapping of the plantation, preparation of the detailed plan for splitting the area into about 4 000 small plots of approximately equal potential for tea production, demarcation of the plots boundaries, selection of the beneficiaries,^[1] and issuance of certificates of right to use the land for tea production. Beneficiaries will pay a symbolic fee for the use of the land, will lose their right to it if they do not tend the tea bushes properly, and will not be allowed to grow other crops on the land. This operation will be entrusted; to a national firm of Quantity Surveyors for the technical topographic side, and to OCIR-Thé, acting in very close cooperation with the Sector and Cell Development Committees of the District, for the selection of beneficiaries and actual allocation of the individual plots.

The beneficiaries of the distribution of the industrial plantation will supply the labor to clear and shape the 200 ha of land for the new smallholder tea plots, to plant the tea seedlings in the new plots, and to plant the missing tea plants in the existing plantation. This procedure will reduce the disparity of treatment between the beneficiaries of the distribution of the plantation, which is in full production, and those who will receive a plot that will take time to begin to produce an income.

Many of the potential beneficiaries of the tea plots distribution are experienced tea growers. However, most of the potential women beneficiaries have only been employed as tea pickers. The project will provide training to those people in properly handling all the aspects of tea growing. OCIR-Thé, will to provide the technical support to the growers. The beneficiaries of the distribution must have sufficient labor in the HH to be able to tend their tea plots without a negative impact on the production of food crops on their other smallholdings. This may handicap the participation of women head of HH, who constitute an important part of IFAD target group. The project will make a special effort to overcome this difficulty, in close consultation with women headed HHs, by devising arrangements that would enable at least 1,500 poor women head of HHs to participate without jeopardizing the production potential of the plots assigned to them.

The new tea growers will be encouraged to form primary cooperative societies with a legal personality (personnalité juridique). The number and membership of the primary societies will be set according to the potential members own freely expressed preferences. However, the project will encourage the formation of several relatively small primary societies with a view to securing social cohesion, easy access of all members to the elected leaders and transparency of operations, and to avoid concentration of status and influence. The project will fund the animation/training organization and consulting services required to form a number (possibly 10 to 12) primary societies among the 4 800 beneficiary HHs. The same approach mentioned for the primary societies of coffee growers will be used. The project will entrust TWIN with the implementation of the cooperative development activities at Nshili. TWIN will be responsible for organizing and training the primary societies. It will provide direct services and recruit one or more national NGO(s) to work directly with the societies on a regular basis.

The construction of a tea factory at Nshili is estimated to cost about USD 4 million, including necessary ancillaries. A detailed design and construction plan and feasibility study will be prepared under the project to confirm the cost estimate. In selecting the Consultants, preference will be given to Kenya or Indian firms with experience in building and operate comparable factories. The Nshili Tea Company (NTC) will be established to build and operate the factory. This company will be ultimately owned by the primary societies of tea growers. For an illustrative financial projections aimed at working out the broad lines of the financial engineering of this company see Working Paper 12. Details of the main technical features and of the cost of the factory are given in Working Paper 9a.

The project would also fund the rehabilitation of the housing compound of OCIR-Thé, consisting of 18 houses, a canteen and a dormitory. It was originally built for the plantation staff and workers, and was severely damaged during the war. Since the buildings will be needed from the start of the project implementation at Nshili, the project will pre-finance this activity, and the assets will be transferred to the Nshili Tea Company once established. In addition, the GoR will arrange for the transfer of the woodlot plantations of OCIR-Thé at Nshili to the newly established company.

The project will include a fund of USD 6 million adequate to funding the Nshili Tea company (inclusive of construction, equipment, vehicles, interest during construction, working capital, start-up expenses and deferred revenue expenditure). The mission estimates of the financial requirements are presented in Working Paper 12. Details of the financial package (equity capital, long term loans, and overdraft facilities) will be updated by the RDB after the implementation of the detailed design and feasibility study funded separately by the project. It is envisaged that sound funding of the Company would require an equity capital of about USD 1.25 million, in addition to a long-term loan and overdraft facilities to be provided in accordance with sound development financing of industrial projects. The shares of the company will be issued in the name of the cooperatives of the smallholder beneficiaries of the distribution of the industrial plantation and of those undertaking the new planting. The project would pre-finance the shares of the cooperatives, through the fund just mentioned, and the shares will be deposited in a fund-in-trust with the RDB as described in Chapter VII, section D. The project will provide 75% of the overdraft facilities and the remaining 25% will be extended either by RDB or any participating Rwanda Commercial Bank. The financing plan of the Nshili Tea Company will be approved by the Rwanda National Bank, after IFAD review and clearance.

The Nshili Tea Company will be managed by an independent private service provider of proven capacity for an initial period of 5 years, including the factory construction period. The service provider will be contracted directly by the Nshili Tea Company. The preliminary capitalization of the company includes and amount of USD 100 000 per annum for five years to pay for this service. Part of the remuneration of the service provider will be linked to efficient construction of the factory and to profitable operations of the company. By this contract, and under the control of the companies Board of Directors, the service provider will have the overall responsibility for the construction of the industrial facilities, related procurement of goods and services, and for the ordinary business, 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. Tea marketing will be done under conditions that include: quality control and certification by TWIN/OCIR-thé, options to purchase by FT network organizations the share of products that meet FLO standards, other produce sold in accordance with marketing strategies agreed by TWIN. TWIN will help marketing a share of the produce under FLO certified packages labeled for origin. It will control and certify the produce of the factory, and channel part of the production through the associated Thé-Direct company or other recognized Fair Trade organization.

The company will recruit all technical management positions, including the financial controller, among national professionals with the required experience, drawing on the surplus staff of OCIR-Thé after privatization of its factories.

Tea is continuously harvested during the year and tea growers receive regular payment for their deliveries. Traditionally in Rwanda tea leaves are paid for two weeks after delivery. This provides a steady cash flow for the growers, and greatly reduces the need for production credit. With a view to helping the new planters to get started, the project will provide a free input package to each smallholder new tea grower in the form of the fertilizers and chemicals needed for the first six months of their new activity. Thereafter, they will be in a position to purchase inputs for cash. The Tea Company will encourage them to set aside a small amount from each payment for the green leaves to accumulate the sum required to receive the inputs at the time required in the field. In addition, and as an alternative if so preferred by the growers, they may use their borrowing capacity under the smallholder credit scheme to purchase fertilizers from the cooperatives, as described below under project component four.

Finally, under this sub-component, the project would fund the construction of the power line required to connect the Nshili factory site to the national grid, at an estimated cost of USD 2 million. The Rwanda Electricity Company has provided the cost estimate. The mission was in no position to verify the cost indicated which will be confirmed during project implementation. The power connection will not be for the exclusive use of the factory, although for a time the factory may well be the largest costumer of the Rwanda Power Company in the District. The cost of the power line will not be charged to the tea factory.

Development of smallholder tea in the Mushubi district of northern Gikongoro (USD 1.62 million of base cost). Under the sub-component, the project will:

• establish 1,200 ha of new smallholder tea plantations, based on individual plots of 0.25 ha each;
• establish 500 ha of firewood plantations, of which 200 ha of District plantations and 300 ha on individual farmers’ plots, to provide fuel to power the new factory;
• undertake adequate soil surveys, prepare a master plan of the tea and woodlot plantation programme, and carry out a study of the feasibility of introducing organic tea production in the new smallholder plantations.

The farming system in Mushubi is constrained by altitude and soil acidity. Banana and cassava cannot grow in the district, the cropping pattern is limited to seasonal crops, and double cropping requires soil correction by liming or intensive manuring to obtain reasonable yields. This is a major reason for the extreme poverty of the district. Although the total size of individual land holdings is not much larger than elsewhere in the province, some of the land is left fallow, but could be planted with tea that tolerates a fair level of soil acidity. The project will support individual smallholders to plant 0.25 ha of tea each on their follow land, up to a total planted area of 800 ha.

The project will also support smallholder tea planting on 200 ha of land which is of marginal value for food-crop production, including parts of the terrasses radicales constructed with IFAD funds through the recently closed IFAD project PDAG (Loan RW 232). In addition, new smallholder tea planting will be done on 200 ha of district land, which has been recently allocated to poor vulnerable returnee HHs, transferred there from the forest reserve of Gishwati (Gikongoro province) where they had found a temporary settlement.

The project will fund a soil survey of selected locations suitable for tea production in the district, and a study of the potential and feasibility of undertaking organic tea production in the new plantations. The conclusions of these investigations will provide guidance about the agronomic practices that farmers should follow in tending their new tea crops.

The organization of smallholder tea planting will be entrusted to OCIR-Thé. Acting in close contact with the District DALF and the Cell and Sector CDCs, OCIR-Thé will determine the farmers willingness to participate in the planting programme, plan the plantation campaigns, organize smallholder group nursering to produce the required tea seedlings, arrange for the distribution of the seedlings, and provide the technical assistance required for the smallholders to properly plant their plots of tea.

The development of sufficient tea production to the point of requiring a new tea factory in Mushubi would take between six and eight years. Government is committed to find the resources required to construct the factory by that time, and IFAD is prepared to eventually consider extending another loan to Rwanda to co-finance the Mushubi factory under similar arrangements as those planned for Nshili, if the latter prove successful. In anticipation of the energy requirements of the new factors, the project will fund DALF activities aimed at the establishment of 500 ha of woodlot plantation, of which 200 ha will be on District land, and 300 ha on individual plots responding to farmers demand.

Structure of the component cost. To summarize, the cost of the tea component is structured as shown in Table 7a and 7b.

Table 7a: Cost of the Nshili Integrated tea development sub-component

Table 7b: Cost of the Mushubi smallholder tea development sub-component

^[1]Selection of beneficiaries will be done through sector-CDCs neighbouring the industrial estate in a fair and transparent manner using the broad selection criteria as found in WP 2.