We have expanded our partnership with the Wood Foundation Africa in tea sector development from Tanzania to Rwanda. The Imbarutso Project is working with government, factories and farmers to bolster the sector’s competitiveness and ensure that smallholders benefit from its growth.
Rwanda’s tea sector has significant potential to benefit large numbers of poor people. The crop is already Rwanda’s second most significant export earner and is a vital source of income for more than 30,000 smallholders and 60,000 households across 11 of the 30 districts in the country. These smallholders produce more than 65% of Rwanda’s tea. Moreover, Rwanda produces among the highest quality tea in world markets, giving it a strong base to further develop international competitiveness.
Gatsby and the Wood Foundation Africa (WFA) are well-placed to help the country take advantage of these opportunities, having partnered on a programme developing the Tanzanian tea sector since 2009. Therefore, in 2011 we extended our partnership to Rwanda, launching the Imbarutso Project.
Imbarutso, meaning “catalyst” in Kinyarwanda, is bringing stakeholders together to identify and tackle the sector’s constraints, boosting its competitiveness while ensuring that smallholders benefit from its growth.
DEMONSTRATING THE COMMERCIAL POTENTIAL OF SMALLHOLDER FACTORY OWNERSHIP
Triggering inclusive development of the sector will require increasing smallholders’ share of the made tea price. In Rwanda, smallholders earn about 25% of the made tea price, compared with the 75% earned by farmers in Kenya. Research suggests this is largely because Kenyan farmers own their own processing factories and have developed greater efficiency and quality on farms and in factories. Therefore, in late 2011 when the Government announced it was privatising two tea factories, Imbarutso saw an important opportunity to transform the sector.
Gatsby and WFA entered a competitive bidding process and acquired majority shares in Mulindi and Shagasha factories in conjunction with farmer groups, intending to eventually fully transfer ownership of the factories to the smallholders.
There are clear dangers and examples of failure in farmer-owned enterprises. However, to limit these risks and ensure the businesses are run in a professional manner, we contracted the Kenya Tea Development Agency (KTDA) to serve as the initial management agent for the factories. KTDA is the world’s largest producer of smallholder tea. It manages 66 Kenyan tea processing outlets on behalf of smallholders, representing about 600,000 farmers and producing about 12 per cent of the world’s black tea.
We have since recruited leading tea experts with global experience to the key management positions. They are responsible for providing professional field and factor management services and running a formal capacity-development programme to ensure the gradual transition to 100 per cent Rwandan-staffed factories over time.
We will fully exit and transfer our shares over to the farmers when the investment has been repaid and the smallholders have met key performance indicators on management, governance and transparency, leaving in place professionally-run factories fully-owned by smallholders.
This approach should greatly raise the incomes of the farmers involved. Moreover, if successful it potentially provides a model for the privatisation of other factories and the development of new sites, both in Rwanda and beyond.
Beyond the factories, Imbarutso is also exploring ways to support the broader sector, including by developing the capacity of farmer co-operatives to provide high quality agronomic services, production logistics, professional management, and stakeholder representation for their members.