Coffee Chain Actors

The Rwanda coffee chain is comprised of a myriad of actors and influences. Figure 4.3 below, shows the supply chain flow from Producers to Processors and finally Exporters. Related influences from external, non-governmental forces as well as potential for financial flows among actors throughout the chain are common, if not encouraged. The enabled vertical integration of actors across the chain has resulted in greater financial flow, business overlap, influence and incentive structures among and between actors, often filling gaps left by the Public Sector. This diagram does not show market regulations, which is examined in detail in Chapter 6. The specific business segments selected for this research are identified in

red: Producers, Processors and Exporters due to scalability across the chain, but also chosen because they form the main elements of the coffee chain, allowing for further study through comparison with Ethiopia.

Figure 4.3. Rwanda Coffee Chain and Sector Influences

Smallholder Producers

Similar to Ethiopia, small-scale producers dominate the Rwandan coffee sector. While relatively large farms exist72, unlike Ethiopia, large-scale private commercial farms are not classified differently than smallholder producers. Producers typically have three market options:

a. Sell high quality cherries to cooperatives or private processing stations b. Sell lower quality cherries to local traders

c. Illegally produce semi-washed coffee on farm and sell directly to local markets (Murekezi and Loveridge, 2009; Mujawamariya et al., 2013).

Given the multiple options for supply, producer decision-making habits often go beyond comparison of price and/ or a cost-benefit analysis. Importance of transaction costs as well as relationships in terms of trust and loyalty can weigh heavily on supply decisions (Mujawamariya et al., 2013). In addition, smallholder producers have high degrees of difficulty accessing formal financing (MTI, 2008; R_1, 2014). As the sector has become more competitive, it was observed that entrepreneurial processors and exporters have begun to introduce payment tiers related to quality grades as incentives to producers. Improvements to grading and corresponding pricing systems have resulted in significant improvement in prices with premium coffee cherries more than doubling since 2003 (MTI, 2008).

Traders

Traders can offer additional sales outlets for producers as well as competition to local cooperatives or washing stations. Considered as middlemen or opportunists, traders can absorb large volumes of lower grades, selling on to local or regional markets (Mujawamariya et al., 2013). A producer may decide to ‘side-sell’ to local traders for multiple reasons: better price for lower quality cherry, opportunity for credit, trust, shorter distances to market, payment in cash at an agreed spot-price or even personal relationships (Mujawamariya et al., 2013). Traders, while potentially entrepreneurial, are not used for research purposes within this specific study.

Cooperatives

Coffee Cooperatives started to emerge in Rwanda from the mid 1980s with the aim of improving producer livelihoods through the opportunity to benefit from economies of scale, pooled resources, and improved access to market information and customers, as well as a reconciliation mechanism for rural communities, post 1994 (Mujawamariya et al., 2013; TechnoServe, 2013b). However, it is estimated that only 20% of Rwandese coffee producers are members (Elder et al., 2012; Mujawamariya, et al., 2013). Despite the potential benefits, cooperative businesses can fail to become profitable due to insufficient planning, poor business decisions or improper management (TechnoServe, 2013b). Despite intensive efforts in capacity building by NGOs, many cooperatives remain “fragile, unorganized and dysfunctional” and the mishandling of finance from national banks has plagued the sector in attracting new or increased investment (Boudreaux, 2010, p. 6). Cooperatives are not considered an entrepreneurial entity and are thus not used as a research segment within this specific study.

Processors – Coffee Processing Stations

Since 2002, Rwanda has significantly improved its national processing capacity. Strategic and directed investment, largely from the renewed private sector, significantly increased the number of processing stations throughout the country from just two in 2002 to 229 stations (both cooperative and privately owned) in 2014 (MTI, 2008; NAEB, 2014). However, during this research, only 38 privately owned processing stations were operational in the 2013/14 Season. The increase in number of processing stations resulted in reduced transportation costs for many producers and increased the amount of fully washed coffee able to be processed. However financial challenges felt by some stations can be traced to high operational costs (namely transportation and labour), micro-smallholders with limited (inefficient) supply volumes as well as poor management and inefficient financial structures and practices (MTI, 2008; Selvarajah, 2012).

While additional volumes are needed to ensure profitability, improvements can be done at the processing level such as improving selection techniques for low to high-grade cherries (MTI, 2008). Access to adequate water is also key to the capacity of Rwandan processing stations

in order to adequately process high-volumes of fully washed coffee (ITC, 2011). Low volumes of high-grade cherries and poor cash flows have at times incentivized washing stations to process commercial grade coffee for lower margin, but with quicker turn-around sales when prices are low or additional volumes are needed (MTI, 2008).

Exporters

Prior to the sector’s liberalization in 1995, the State exported all coffee and as such, the development of local, private coffee export businesses are a relatively recent phenomenon. Export of green beans prior to 2000 consisted solely of commercial grade (MTI, 2008). To a large degree, specific bean types and qualities of Rwandan export businesses are paired largely with the corresponding import contract demands, however more lucrative opportunity exists in exporting higher, speciality grades. In many respects the Government, in collaboration with new private Exporters, played a key role in enticing buyers to experience Rwanda’s coffee with the private sector solidifying these relationships through product development (MTI, 2008).