Click here for search results

Rwanda - Economic Liberalization in the Coffee Sector

ABOUT THE PROJECT

The African Success story is a World Bank research study anchored in the Africa Region Chief Economist’s Office Unit. The project intends to document recent African success stories across a broad range of topics with a view to: (1) broaden dissemination and knowledge within the region of the remarkable transformation that is taking place in many African countries; (2) examine what has worked and why, including re-evaluating some widely accepted past successes, so as to deepen our understanding of the drivers of success in the region; and (3) draw practical lessons with a view to informing policies and interventions.

Its main goal is to promote regional learning and disseminate lessons learned with particular attention to transferability and adaptation. Read More

The project is anchored by the Africa Region’s Chief Economist’s Office and led by Punam Chuhan-Pole (Lead Economist, Task Team Leader). Africa Region staff provides inputs at various stages of the project, including in selecting case studies, developing case studies, and providing guidance to case study authors. The work is carried out under the guidance of Shanta Devarajan, Chief Economist of the Africa Region with contributions from other institutes such as the AfDB, AERC and the IMF.

Close Window

Rwanda’s approach to liberalizing its coffee sector has resulted, most importantly, in the country’s 500,000 coffee farmers now having the opportunity to sell higher-quality beans for a higher price. Download Full Story (PDF)

Challenge

Agriculture is the main source of livelihood for 90 percent of the Rwandan population. Though most farmers are subsistence farmers, some produce crops for export. Coffee is chief among these. For many years, however, the coffee sector was stuck in a “low-quality/low-quantity trap.” Compulsory production, substantial export taxes, and a monopsony export control agency meant that producers had little incentive to invest in the production of high-quality coffee. Erratic world coffee prices in the 1980s (and the government’s profit-taking during years when prices were high), coupled with the economic destruction of the country during the genocide in 1994, left coffee producers in an even worse situation.

The average export price per kilogram of Rwandan coffee nearly doubled between 2003 and 2008, from $1.60 to $3.10

APPROACH

Changes in Rwanda’s coffee sector were implemented in several waves. The first began shortly after the genocide, when the government removed a variety of barriers to trade, created incentives for groups and individuals to transfer their efforts from semi-washed to fully-washed coffee as an end product, and facilitated entrepreneurship in the coffee industry. More substantial reform efforts began in 2000, when the government, working with consultants and donors, studied the potential for adding value to Rwandan coffee through the production of higher-quality, washed, and fermented specialty coffee. In 2002, the government issued a National Coffee Strategy that outlined a plan for capturing a larger share of the specialty-coffee sector. In the intervening years, more than 100 coffee washing stations have been built.

RESULTS

Rwanda’s approach to liberalizing its coffee sector has resulted, most importantly, in the country’s 500,000 coffee farmers now having the opportunity to sell higher-quality beans for a higher price. Indeed, the average export price of coffee nearly doubled between 2003 and 2008. For smallholder farmers and other participants in the coffee value chain, producing specialty coffee means not just more income, but expanded connections to world markets and positive effects from informal economic cooperation at coffee washing stations. Importantly, coffee washing stations had created 4,000 jobs as of 2006. Rwandan coffee exports generated more than $47 million in revenue in 2008, compared with $35 million in 2007.

LESSONS LEARNED

Perhaps most importantly, aspects of the approach to the coffee sector could be replicated in other sectors, thus helping push Rwanda toward its goal to become a stable, middle-income economy. The shift in incentives from the public to the private sector in the context of the coffee sector reforms is also significant. Finally, it is clear that Rwanda could take steps to further improve the coffee sector—for example, by implementing further price incentives for producers to focus on high-quality coffee, improving management of producer cooperatives, and reducing still-high transportation costs related to poor infrastructure and Rwanda’s landlocked status.

View by Country

View by Sector

RELATED STORIES & LINKS




Permanent URL for this page: http://go.worldbank.org/E24AFSSLQ0