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Rwanda’s coffee success story

From Gimme!Coffee in NoLita, NYC

A walking tour through some of the trendiest coffee shops in the NYU vicinity reveals a common element: creatively packaged, expensive Rwandan coffee for sale.

Given our long-standing interest in 1) good coffee and 2) the potential of entrepreneurship for development, this phenomenon clearly merited investigation. The work of Karol Boudreaux, who has been following the Rwandan coffee sector for several years, helps to sketch the outlines of a partially donor-funded development success story now unfolding.

Coffee on sale in Whole Foods, Soho, NYC

The history of coffee in Rwanda is intertwined with the country’s political fortunes, and stretches back to the 1930s when the Belgian colonial government required Rwandan farmers to plant coffee trees, while setting price restrictions and high export taxes, and controlling which firms could purchase coffee. These policies helped create a “low-quality/low-price trap” that would bedevil the post-colonial governments that continued similarly heavy-handed policies. They also ensured a national distaste for the stuff—reportedly even today many Rwandans prefer tea.

Coffee beans at Third Rail Coffee, another NYC gourmet shop

In the late 1980s global coffee prices plummeted, and the economic devastation following Rwanda’s 1994 genocide wiped out what remained of the struggling industry. In 2000, there was no functioning infrastructure to wash and process coffee beans, meaning that what little coffee was produced was of poor quality.

Fast forward ten years to today: Rwanda has a National Coffee Strategy. Rwandan specialty coffee is winning international competitions, commands some of the world’s highest prices, and is sought out by Starbucks, Green Mountain Coffee, Intelligentsia, and Counter Culture Coffee. There is preliminary evidence that the coffee industry is creating jobs, boosting small farmer expenditure and consumption, and possibly even fostering social reconciliation by reducing “ethnic distance” among the Hutus and Tutsis who work together growing and washing coffee.

How did this happen? First, the Rwandan government lowered trade barriers, and lifted restrictions on coffee farmers. Second, Rwanda developed a strategy of targeting production of high-quality coffee, a specialty product whose prices remain stable even when industrial-quality coffee prices fall. Third, international donors provided funding, technical assistance and training, creating programs like the USAID-funded Sustaining Partnerships to Enhance Rural Enterprise and Agribusiness Development (SPREAD). SPREAD’s predecessor started the first Rwandan coffee cooperative as an experiment in 2001, and the project continues its work improving each link in newly-identified high-value coffee supply chains.

Source: Bill Easterly/ Aid Watch

Source: Bill Easterly/ Aid Watch

Some problems and constraints still plague the Rwandan coffee sector. For example, transport costs remain high, and poor management at some coffee cooperatives points to a persistent need for good training and financial management skills.

Still, Rwanda’s revenues from coffee are still growing in the face of global recession, and these revenues bring real benefits to Rwanda’s rural poor.

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15 Comments

  1. I’ve heard Bill on many occasions argue persuasively against the notion that governments should pick winners. Does this experience run against that argument?

    Posted May 12, 2010 at 1:04 am | Permalink
  2. Sam Gardner wrote:

    Nice story, and hopeful for cash crops. I remember that even in the eighties in the region, it was n theory economically sound for a farmer to abandon food crops and grow coffee instead, buying food with the proceeds. In practice, the risks were so high (a genocide was awaiting, markets unreliable), you would be stupid not to provide some strategic reserve of food. In the case of Rwanda and Burundi, the climate and altitude authorizes the best coffee varieties to grow. I remember in the eighties that most of the coffee plantations were still the shrubs planted in colonial days, sometimes abandoned, but with some rejuvenation just waiting for better prices.

    Posted May 12, 2010 at 1:08 am | Permalink
  3. geckonomist wrote:

    People respond to incentives, that shouldn’t surprise Prof. Easterly. Arabica prices have been around 130ct/lb for 4 years now, and the gourmet coffee chains add 20% to that (rough rule of thumb).
    If this money is passed on to the farmers in a competitive market, they make good money.
    Therefore they produce more of the stuff, and put in extra effort in quality if this effort pays off.

    And really unique for the coffee farmer: the higher the quality, the higher the quantity.

    We’re talking much more money here that goes to the poorest farmers than any aid campaign that Prof. Easterly ridiculed Starbucks for.

    There is only one big problem with coffee trade in East Africa : THEFT
    In cooperatives, it goes like this: The cooperative gets the coffee on credit from their member farmers, exports and the managers steal the incoming money. Bad luck.
    The smarter cooperative managers do this in a leveraged way, they steal the pre-financing (from a coffee trading company) , buy the coffee on credit from their members, but export to a different company for hard cash…
    This leaves the cooperative farmers not only unpaid, but also on the hook for repaying the debt to the pre-financiers.
    This happened in 2005 to probably the biggest coffee cooperative in East Africa, the Bugisu Cooperative Union.
    Bonus: all the time this particular cooperative had the “Max Havelaar FAIR TRADE label” . Go figure.

    When I read such a sentence: “poor management at some coffee cooperatives points to a persistent need for good training and financial management skills”, I can not agree.
    This poor management deserves tough jail sentences for the thieves.

    But I guess the aid sector prefers to dole out “management trainings”.

    The aid sector might be the prime victim of tougher sentences for thieves, so it’s wiser not to focus much attention to fraudsters.

    Posted May 12, 2010 at 5:13 am | Permalink
  4. geckonomist wrote:

    I must correct my comment above, because in East Africa the coffee market is not really liberalised in Kenya. This constitutes the biggest theft of all, because farmers get very low prices, and the rest of the money disappears.
    Also Ethiopia doesn’t seem to have a clean sheet when it comes to free coffee markets.

    Posted May 12, 2010 at 5:29 am | Permalink
  5. Word_Bandit wrote:

    Nice entry.

    I especially liked this “possibly …. reducing “ethnic distance” among the Hutus and Tutsis who work together growing and washing coffee.”

    Thanks.

    Posted May 12, 2010 at 10:00 am | Permalink
  6. Adam Hooper wrote:

    I came to this post from your tweet: “When you think of Rwanda, you think of course of….gourmet coffee?! A surprising success story.” Since the airport’s baggage claim leads arriving passengers straight into a gourmet coffee shop, my answer is an ironic, “yes.”

    Bourbon Coffee charges even more than Starbucks. It has vastly better coffee and much friendlier service.

    But those graphs give a misleading sense of scale. If you start off in 1994, _any_ of Rwanda’s development indicators follow a growth curve like that. Is $50M lots or a tiny amount?

    Posted May 12, 2010 at 10:29 am | Permalink
  7. Donna wrote:

    Hi Bill,
    Having been in Rwanda last year – just after Starbucks announced their deal to purchase beans from Rwanda and market them in most of their stores – I am curious what value you would place on their involvement. Both from the standpoint of direct economic benefit but also from a visibility standpoint.
    Thanks

    Posted May 12, 2010 at 4:52 pm | Permalink
  8. Rebecca wrote:

    I think Bourbon Coffee (mentioned by Adam Hooper above) is a really interesting part of the story. Bourbon Coffee’s founder started out by marketing to larger international retailers, but now has a chain of retail stores in Rwanda as well as a retail outlet in DC (L St. and 21st). The founder is a Rwandan who spent time in the U.S. working at P&G.
    Perhaps part of the positive Rwandan story now is the flip side of the “brain drain”? Rwandans who have left over the years are coming back with international business experience. Could this be a good sign for places like Liberia?

    Posted May 12, 2010 at 7:36 pm | Permalink
  9. terence wrote:

    Really interesting post – thanks Bill and Laura! One thing I’m interested to know more about:

    First, the Rwandan government lowered trade barriers, and lifted restrictions on coffee farmers.

    How did lowering trade barriers (I’m presuming these were import not export barriers) contribute to this success?

    Posted May 12, 2010 at 9:33 pm | Permalink
  10. Laura Freschi wrote:

    Whirled Citizen, That’s an interesting question, but I think the answer is no.

    In this case, the Rwandan government didn’t so much pick a winner as it did get rid of heavy-handed policies that had hindered the growth of the sector for decades.

    The government is now less involved in the coffee sector than it has been at any point since the Belgian colonial government started requiring Rwandans to plant coffee trees in the 1930s. From Karol Boudreaux’s paper cited in the blog post: “Through compulsory production, export taxes, and a monopsony export control agency, [colonial and post-colonial] regimes captured the profits of mostly poor coffee farmers and used these funds to help maintain political power.” In the 70s and 80s, the Habyarimana government used the coffee industry as a tool of political control. It stacked the state-run coffee agency with relatives and supporters, set an official price for coffee, restricted which firms could purchase coffee, and prohibited coffee farmers from uprooting their coffee plantations and diversifying to other crops.

    So a major part of what the RPF government has done here is to simply dismantle regulations on coffee farmers to create a more
    enabling environment for coffee farmers and entrepreneurs—now farmers can choose whether to grow coffee or mix in other crops, and they can
    choose whom to sell their coffee to.

    True, government strategy and policies have tried to create incentives for farmers to grow and process higher quality coffee, bringing in higher prices, but I don’t think this is quite the same as “picking winners.”

    Terence, I hope this answered your question too- they were export barriers.

    Posted May 13, 2010 at 12:22 am | Permalink
  11. terence wrote:

    Thanks Laura that does.

    Posted May 13, 2010 at 12:41 am | Permalink
  12. Dan wrote:

    Hi Bill,

    Thanks for bringing attention to this growing success in Rwanda. The successful development occurring around coffee in Rwanda, however, both extends beyond, and requires more than, rising revenues. This is particularly evident when discussing USAID’s SPREAD Project, which you cited as an import source of technical assistance.

    SPREAD does great work educating farmers, coordinating logistics and yes, offering financial assistance, but the reason it was created, and what separates it from its predecessor PEARL I & II projects, is that successful development is more than economics. SPREAD takes a population-health-environment (PHE) approach and is incorporating health objectives into its established economic development activities.

    “Improving lives and livelihoods” requires more than just raising incomes, SPREAD’s Irene Kitzantides says of the proejct’s impetus.

    Kitzantides recently spoke about the SPREAD Project and its PHE approach at the Woodrow Wilson Center in Washington, DC. Her presentation elucidated the importance of and benefits to be gained from a wider-scale approach to development and was extremely insightful. A description of Kitzantides presentation, Coffee and Contraception: Combining Agribusiness and Community Health Projects in Rwanda, can be found here and the Wilson Center will soon be posting a summary as well as archived video of the event.

    Posted May 13, 2010 at 10:42 am | Permalink
  13. Dan wrote:

    The link I inserted appears not to be working. Irene’s event can be found at this URL: http://www.wilsoncenter.org/index.cfm?topic_id=1413&fuseaction=topics.event_summary&event_id=608523

    Posted May 13, 2010 at 10:43 am | Permalink
  14. What’s amazing is how quickly this has happened. I came back from Rwanda in 2005 and attempted to buy some Rwandan coffee at the Whole Foods flagship in Austin. The barista informed me that the chain wouldn’t source coffee from Rwanda because they couldn’t verify its fair trade status. When I asked why not, he said something to the effect of, “Because we won’t send our verification teams into the killing fields.”

    What a difference five years makes.

    Posted May 13, 2010 at 1:42 pm | Permalink
  15. Rising Tides wrote:

    I liked this post…what a difference it can make when governments work to accommodate this type of growth. Just goes to show how important it can be to better allow trade and give support to those who have something valuable to produce.

    It’d be nice to see similar models in other developing countries where the government and aid agencies got behind the production of local resources in this same manner.

    Posted May 15, 2010 at 11:12 am | Permalink

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    The Aid Watch blog is a project of New York University's Development Research Institute (DRI). This blog is principally written by William Easterly, author of "The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics" and "The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good," and Professor of Economics at NYU. It is co-written by Laura Freschi and by occasional guest bloggers. Our work is based on the idea that more aid will reach the poor the more people are watching aid.

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