Overview of the Tea Component

Initial Design: Rationale and Planned activities

The choice of a crop focused project responded to the challenge of assisting the GoR to develop sub-sectors of agriculture, which are of key importance for the growth of the national economy, and, at the same time, to seize emerging opportunities for combining such economic development objectives with poverty reduction objectives. In Rwanda, the rehabilitation and development of the export crops sub-sector, and the maximization of related foreign exchange earnings, are key factors of sustainable economic growth and balance of payment equilibrium. Rwanda has good potential for significantly increasing the quantity and the value of the traditional export crops and for diversifying the production of cash crops to meet both export and local market demand. Several areas of Rwanda produce valuable tea crops, for which current export prospects are still favorable. There is scope to increase tea production, expand processing facilities, and improve marketing, especially with regards to new market opportunities such as ‘Fair Trade Organization and Network’.

The initial design of the Tea component was twofold: (a) integrated smallholder tea production processing and marketing in Nshili District and, (b) development of smallholder tea in Mushubi district. As far as the first sub-component was concerned, it included the following activities: (i) privatization of the existing plantation in Nshili (OCIR-Thé concession) which would be equally divided among 4,000 beneficiaries (each beneficiary receiving 0.25 ha) out of which 30% should be women head of households, (ii) development of 200 ha of new tea plantation within the OCIR-Thé concession area distributed to 800 beneficiaries, (iii) setting up of a private tea company that would build, own and manage a tea processing plant for the production of the privatized and newly developed plots and, ultimately this private company to be owned by smallholders planters cooperative societies, (v) connection of the new factory to the national power grid, (vi) capacity building of tea growers’ representatives to ensure their ability to manage the factory and to play their role as major shareholders, (vii) rehabilitation of the 965 ha owned by OCIR-Thé to be privatized among beneficiaries, (viii) continuation of services to farmers for sale of their green leaves to other existing tea factories and for supply of agricultural inputs until new factory becomes fully operational, (ix) TWIN involvement for implementation of tea growers’ cooperatives and training of their members, for tea quality control and improvement and, for facilitating access to new markets especially with regards to ‘fair trade organizations and markets’, (x) rehabilitation of OCIR-Thé assets, (xi) access to new technologies and techniques developed in other tea producing countries, (xii) access to long-term financing through participating financial institutions and, (xii) pre-financing by the project of smallholders tea company shares on their behalf and implementation of a specific financial mechanism for smallholders to buy back their shares thanks to dividends distributed by the tea company.

As far as the development of tea plantations in Mushubi was concerned, the actions to be undertaken by the project included: (i) technical, logistic and financial assistance for the plantation of 1,200 ha, (ii) establishment of 500 ha of firewood plantations of which 200 ha of district plantations and 300 ha on individual farmers plots to provide fuel to power a new factory^[1] and, (iii) undertaking a feasibility study on organic tea production in these new plantations.

The financing of the tea component was as follows: (a) IFAD loan for an amount of USD 5.84 million^[2] ; (b) BADEA loan for an amount of USD 5.66 millions^[3] ; (c) beneficiaries’ contribution for an amount of USD 0.33 million; (d) local commercial bank for an amount of USD 0.31 million; (e) TWIN contribution for an amount of USD 0.12 million and, (f) GoR contribution for an amount of USD 0.98 million. The total amount of the component reached USD 13.25 million out of which USD 11.50 millions were earmarked for the Nshili sub-component and USD 1.75 million was earmarked for the Mushubi sub-component.

[1] GoR, IFAD and other potential partners were to discuss the possibility of a new project that would include the construction of a tea factory in Mushubi. The institutional, legal and financial arrangements set up for the Nshili tea factory could be replicated for Mushubi.

[2] IFAD would fund the equity capital of the Nshili Tea Company on behalf of the cooperatives of smallholder growers. The overdraft facility required by the company would be funded by IFAD to the extent of 75% and by other Rwandan financial institutions to the extent of 25%.

[3] BADEA would fund the cost of the detailed design and feasibility study for the tea factory, the construction of factory buildings and ancillary facilities including the water supply, the purchase of the factory equipment, and the connection of the factory site to the national electric grid.