Value chain analysis Rwanda Coffee

The mission of the CBI (Centre for the Promotion of Imports from developing countries) is to connect small and medium-sized enterprises (SMEs) in developing countries with the European market and thereby contribute to sustainable and inclusive economic growth. The goal of this value chain analysis is to serve as input for the development of a detailed business case for a three to five-year project that focuses on seizing opportunities for exports to Europe and tackling obstacles that hamper or hinder these exports.

In Element 1, the export market and value chain competitiveness is explored. Almost all of Rwanda’s coffees are exported, amounting to 18,000 metric tonnes (MT). Rwanda exports its semi-washed coffees mostly to Switzerland, and the fully washed and higher grades coffees mostly to the US. Other coffees exported from Rwanda are robusta varieties, roasted coffees, and since recently also natural and honey processed coffees. Over the years production has slightly decreased, but qualities have gone up considerably: from 30% fully washed coffees in 2010, to 60% in 2016. However, this was not directly translated into value, because of low coffee prices and declining volume. Wet processing facilities are considered of good quality, and have shown an enormous increase in numbers: from two coffee washing stations (CWSs) in 2002 to nearly 300 today. In addition, since 2012 Rwanda has gone from five trade partners worldwide to over 40, showing the effectiveness of the investments made over the years in processing capacity and marketing.

The growth of the European coffee market is slower than other markets, although a clear premiumisation trend can be identified. Certification is important as a way to access the market, reflecting credibility. However, for the specialty buyer this is less relevant, as quality prevails. Organic might be the exception though, as there is a clear trend in all markets towards more organically produced and certified products. According to trade statistics, countries within Europe showing potential growth in the specialty market segment are the UK, France, the Netherlands, Norway and Poland. This is backed up by the buyers, who indicate both the Scandinavian countries and eastern Europe to be good growth markets for specialty. Germany shows potential according to the ITC, but the value per kilogram and value growth is relatively low. Since Rwanda is a small country, volume is less relevant. Opportunities probably mostly lie in focusing on the smaller consumer countries exhibiting faster growth, countries that appreciate high-value coffees. Targeting these markets will help increase market share and improve brand recognition.

If only quality and volume are taken into consideration, Rwanda has little competitive advantage compared to the other specialty coffee producing countries in East Africa. Its competitive advantage is very much related to its relatively consistent good qualities, its “storytelling” capacity, its (current) pricing, its CWS infrastructure, and the ease of traveling and doing business. Rwanda does show high potential though for further quality improvements, as well as improvements in processing efficiencies.

In Element 2, the structure, governance and sustainability of the value chain was elaborated upon (see also Figure 1). On the production side, there is an asymmetry to be observed between the fragmented small coffee washing stations (CWSs) and the other larger processors and exporters. Rwanda’s coffee industry is dominated by a few medium to large traders and exporters, such as RTC, IMPEXCOR, Dormans and RWACOF. Many of them are related to the larger international trading houses. Together they control 64% of the theoretical capacity, but they are thought to be responsible for at least 85% of the exported volume. Their vertical integration into the value chain has reduced the bargaining power of suppliers and considerably increased competition for the raw material (cherries). The smaller processors and exporters are seen struggling in such an environment.

There are different challenges at each level of the supply chain. On the farmer side they relate to low productivity, which has multiple causes, such as low soil fertility and increased pest and disease pressure, and which is also due to changing weather patterns. Farmers are tempted to invest in other subsidised crops that fetch higher prices in the market, including horticultural crops and irrigated crops, such as maize and rice.

Due to the highly competitive environment, the scarcity and quality of raw material, the lack of business skills and the very small size of the operations, smaller CWSs have a weak position in the market. They have difficulty obtaining finance and accessing the services and knowledge required to be able to successfully compete. Although operating costs will always be relatively high for Rwanda, given that it is a landlocked country with limited resources, there are many improvements that can be made in terms of efficiency. Both at the CWS itself, by applying better cost control systems, as well as more sector-wide, by improving the coordination between the smaller processors and exporters.

With regard to sustainability, climate change interventions are still very small-scale, though it is a serious threat to the sector and is already being felt by many of the growers. There seems to be limited focus on youth employment. Opportunities here lie especially in improving the skills of labourers, increasing employment as business service providers to the sector and potentially also as promotors of Rwandan coffee domestically, as well as in the tourism industry as baristas and/or guides.

Labour risks can be identified at CWS level, including occupational health & safety hazards for workers and unfair terms of employment. This is because labourers work in the informal sector and are therefore not protected by law. Interventions should support CWSs to obtain certification, such as Rainforest Alliance/UTZ or Fairtrade, as these apply strict labour standards which are audited regularly.

Rwanda’s enabling environment provides a lot of opportunities. It is structured, there is a supportive government and it is easily accessible, so many possible synergies can be created. It has a relatively high level of internet and mobile phone penetration, supporting communication and helping to monitor business performance. Intervention activities for the specialty value chain should, as this analysis concludes, focus on improved coordination between the smaller processors and exporters, improved access to finance, and improved processing efficiencies, in order to achieve better qualities, better business relationships and increased competitiveness. Improving quality and volume at farmer level also greatly depends on policy developments. In the meantime, farmers and labourers should be supported to further contribute to a thriving specialty sector in the country of a thousand hills.

As there are many major coffee projects ongoing and planned for the near future, we advise the CBI to first and foremost link up with the most important stakeholders involved, to align activities and find the synergies needed to bring the SMEs in the sector to a higher level.