The May 2023 National Bank’s monetary policy report indicates an unusual increase in imports, with a 46.4% rise in consumer goods imports. This surge has accelerated the demand for the dollar and, coupled with a restrained US monetary policy, has made the dollar even more expensive compared to the Rwandan Franc. Agricultural production has also experienced a decline, dropping from 6.4% in 2021 to 1.6% in 2022. In the first quarter of 2023, year-on-year inflation rates reached 35.4% and 75.6% for fruits and vegetables, respectively.

The National Bank attributes the poor performance of the agriculture sector to factors such as adverse weather conditions, limited policy attention from the government, and supply inertia caused by COVID-19. These factors have exacerbated the cobweb tendencies of agricultural production, leading to a decline in gross agricultural output and resulting in trade imbalances as the country relies on imports to meet the demand.

Rwanda remains predominantly an agricultural society, with many farmers engaged in semi-subsistence agriculture. Therefore, the performance of the Rwandan Franc is closely tied to the state of the agriculture sector. To further improve agricultural output, the following measures can complement existing government initiatives:

1. Managed food and cash crop cultivation:

Except for commercial large-scale farmers, prioritizing food crop cultivation over cash crops will ensure that each household can produce for its own consumption and have surplus for sale. When smallholder farmers focus on cash crops to buy food, it puts pressure on available food crops, leading to inflated prices. For instance, during the Chia seeds wave, many smallholder farmers substituted food crop cultivation with Chia seeds for financial gain, causing a drop in gross food crop outputs and negative ripple effects on the economy. Limiting cash crop cultivation to no more than a third (1/3) of a smallholder farmer's arable land will allow them to generate returns from cash crops without risking food shortages for themselves and the entire economy.

2. Setting crop-price incentives for specific output thresholds:

The government can adopt an exclusive-price mechanism where crops like maize, beans, potatoes, and soy are bought at high prices for specific output thresholds. This will motivate capable farmers to produce more and encourage others to strive for the targeted volume. Such a program can replace loan schemes, which often fail to attract enough farmers due to risk aversion.

3. Remodeling community-lending for youth and women agriculture projects:

To reduce loan defaults and expand the program's reach, the Business Development Fund's loan insurance program can adopt a peer-to-peer management scheme. By grouping borrowers based on existing relationships, acquaintances, or proximity of their businesses, and providing loans in successive batches, self-management within the groups can be ensured. Defaulting by one member would affect the creditworthiness of the rest, encouraging responsible borrowing and increasing the program's success rates.

4. Simultaneous planning for dependent projects:

When undertaking projects that rely on others, it is crucial to ensure the proper functioning of the independent project first, as its performance determines the success of the dependent project. For example, the ongoing powder milk factory in Nyagatare is dependent on consistent (not limited by seasons) availability of sufficient milk. However, current statistics show a significant disparity in milk supply between the rainy and dry seasons in Nyagatare District, a major milk shed. Additionally, there is insufficiency of affordable feeds for cattle. Institutions responsible should have ensured an adequate supply of the key raw material before constructing the factory, enabling utmost production capacity without interruptions once the factory starts operations.

5. Overcoming resistance to adopting modern dairy farming models:

The Ministry of Agriculture's efforts to increase milk output must address farmers' resistance to adopting modern dairy farming practices. Understanding the causes of resistance, such as unfamiliarity with borrowing practices and fear of risks, is essential. A financing model for the sector should involve lenders shouldering the burden in case of farmer losses. Additionally, price incentivization, rather than relying solely on loan schemes, can motivate farmers to transition to farming models that yield higher milk output, benefiting from increased milk prices.

Ultimately, stabilizing the Rwandan Franc requires a focus on domestic production to meet local demand and reduce reliance on foreign goods. By increasing domestic surplus, alongside revenue from tourism and service exports, the value of the Rwandan Franc can improve against other currencies.

Steven Caleb Katurebe is a blogger and opinion writer on Politics, Technology and Economic matters.