EDPRS: The Vision for Rwanda’s Tea Industry

BY GODFREY NTAGUNGIRA Rwanda Tea Development Authority is charged with the responsibility of regulating and promoting the tea industry in Rwanda as well as marketing Rwanda tea world wide. It also oversees the smooth and orderly functioning of the industry through policy guidance, licensing, registration and further development of tea trade. Rwanda Tea Industry Vision is to develop a globally competitive tea industry by adding value to the industry’s products. The key intention is to help enhance macro-economic stability and participate in poverty reduction in the country. In Vision 2020 plan, Rwanda set ambitious goals for its development. Between 2000 and 2020, the country has goals to grow its per capita GDP from US$250 to US$900, which implies that the overall economy needs to expand by over 600% when population growth is taken into consideration. Given its historic position as Rwanda’s leading export revenue earner, the tea industry was identified as a priority focus area. Rwanda’s tea industry is one of the country’s top four export earners with revenues approximating US$32 million in 2006.This value provides an income for over 60,000 families. These revenues have improved since the first tea strategy was initiated in 2003, but they remain well below the industry’s full potential. Indeed the new revised strategy states that by 2012 Rwanda can reach total export revenues of US$70 million per year and at the same time almost double the average revenue for tea farmers. However, if Rwanda is to make the shift from its current US$32 million annual exports earnings to a US$70 million industry, both informed strategic choices and the implementation of timely actions are necessary. Under the guidance of the parent ministry, the Ministry of Agriculture, Animal Resources and Forestry (MINAGRI),Rwanda Tea Development Authority is responsible for conception and coordination of production and development of the tea industry in Rwanda. The Industry growth prospects Rwanda tea is sold mainly in bulk through Mombasa Auction market.The tea industry is being restructured. The restructuring involves separation of previous functions of supervision and production. In this case production functions whereby tea factories used to be under the board is now being shifted to the private sector. Privatisation of tea factories is thus a key component of the restructuring exercise. The Board’s new core function shall be to oversee the development of the tea sector in terms of policy development and strategy . Private sector players are thus expected to take the lead in stimulating the growth of the industry in areas such as branding and value addition, increasing production levels and new modes of specialization and increasing private capitalization within the industry. The objective of this new strategy is to increase the processing capacity, while retaining the high quality of Rwanda’s primary tea grades which regionally ranks second after Kenya. Migration from US$32Million bulk tea exports to US$70Million targeted sales of branded teas The key strategic choice that Rwanda must make is to move from the current ‘bulk tea sold at auction’ approach to ‘targeted sales of branded Rwandan quality teas’ capable of being sold worldwide. New strategies focus heavily on improving the marketing and quality of Rwandan teas as well as gradually building a value-added product for international markets. Improved marketing and quality will be essential to avoid the long-term price decline that is likely to continue to be experienced in the tea industry over the next 10 years. However, the bulk of projected increases in revenues will come from higher yields, expanded planted area and also from further value addition. The overarching target of US$70 million requires a yearly growth rate of exports of almost 17% during the next 5 years. Underlying this total export figure of US$70 million intermediary objectives have also been set for value addition and direct sales. These intermediary objectives require a rapid growth in direct sales from less than 20% today to 50% by 2012. The small proportion of blended and packaged tea should increase rapidly once international markets and buyer relationships have been established, but even at the level of 2%, these value added products should provide approximately US$7 million in new revenues. Also, direct sales will ensure Rwandan tea fetch a higher price than they do at the auction. When this is actualized the government would also benefit from greater external borrowing capacity due to the higher inflows of foreign capital from a tripling of export revenues. This is an important benefit, as a lack of export growth could impede government investments, crowd out private investments or lead to higher inflation. The revised tea strategy also includes a clear focus on ensuring that tea farmers benefit from the planned investments. In particular the major impact will be through increased productivity, leading to higher production and hence higher revenues. This should result in an increase of the annual average revenue of US$169 by 2012 up from US$105 per farmer currently. A focus on quality should have further positive impact on farmers’ revenues particularly if a second payment is made based on factory profits. For example, given a constant percentage of the final price, tea farmers would gain US$20 per year if marketing and a higher quality focus were to raise the average price received for Rwandan tea on the market by only 20 Francs. Conclusion Rwanda’s tea industry has experienced rapid growth in recent years due to the successful implementation of several initiatives, including privatization of four factories and increased fertilizer usage. If the tea industry is to continue this existing rate of growth, exports would rise from approximately US$32 million in 2006 to US$42 million by 2012. While this would be a significant achievement, growth rates of more than double this are possible given the investments set out above. Indeed, this strategy suggests that Rwanda could achieve export revenues of up to US$70 million per year by 2012 given investments of US$49.1 million over a three year period. These investments appear to have a current shortfall of approximately US$18 million and seem particularly under-budgeted in the long term for marketing. This will need a concerted effort from industry players and sponsors to meet these financial needs. The impact of these investments is clear; tea farmers, factory owners, employees and the government will all benefit significantly hence realising EDPRS and Vision2020 goals. Ends

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EDPRS: The Vision for Rwanda’s Tea Industry