Given its historic position as Rwanda’s leading export revenue earner, the tea industry was identified as a priority focus area in 2003 and a detailed tea industry strategy document was accepted by Cabinet in 2004.
This document provides a revision of the 2003 tea strategy based on new primary research into international tea markets, a progress report on implementing the original strategy, and an analysis of the current key constraints to tea industry growth. In its Vision 2020 plan, Rwanda set ambitious goals for its development. Between 2000 and 2020, the country targets per capita GDP growth from $250 to $900, which implies that the overall economy needs to expand from approximately $2billion to $14billion when population growth is included.
For the specific case of the tea industry, reaching these revenue targets will require that each tea farmer farms 0.5 ha of land of tea, with a yield of 10,000 KG of GL/year/ha, and with a green leaf price of FRw 100 Kg (Figure A).
Currently, 70% of all tea farmers work an average of approximately 0.25 hectares of tea, with a production level of 7,000 kg of GL/year/ha, selling at a maximum of FRw 70 Kg. This revised tea strategy provides some of the key short-term actions up to 2012 necessary to realize this long-term Vision for tea industry stakeholders by 2020.
This strategy document shows that addressing this gap requires improved yields and quality, through better fertilizer application, plucking and pruning training, and improved transportation. At the same time, investments in factories are urgently needed both in terms of an expansion of factory capacity to process the increased green leaf, but also in terms of new types of processing to ensure product diversification.
Finally, improved marketing of teas by targeting specific channels for high-end teas will be essential in order to ensure that Rwanda does not suffer from the likely bulk black tea price decline over the next 8 years. In the long term efforts are required to consolidate land plots.
Global tea markets are undergoing a dramatic period of change. While there is an increasing oversupply leading to a likely long-term price decline for bulk black tea, demand and prices within the high quality and niche tea markets are increasing.
These projected trends in the global tea market indicate that Rwanda cannot sustain rapid growth in export revenues by continuing its focus on bulk black tea supply. The good news is that Rwanda has naturally high quality teas and could build on this to compete for high quality, branded, and packaged teas.
The first tea strategy, in 2003, highlighted significant constraints to the future growth of the industry, many of which have been overcome or are improving. During the last five years the government has gradually privatized the tea industry and restructured OCIR-Thé. Four factories are now privately-owned and an additional private factory is being built, with plans for a total of five new factories to come on-line in the next several years.
OCIR-Thé has a new institutional structure and many of its capacity constraints have been addressed. The industry has succeeded in raising revenues from $23 million in 2003 to $34 million in 2007, while raising productivity, primarily due to training and fertilizer application in 2007.
Some progress has also been made in generating more local sales and in value addition. However, the key challenges facing the sector in 2003 have not yet been fully overcome by 2008, leaving opportunities for significant future export growth. Production yields are still well below optimum, quality can be further improved, and the lack of both diversified products and direct sales remain a brake on export earnings.
As discussed above, the oversupply of bulk black tea on international markets is likely to worsen over the next 5-10 years and hence overcoming these key challenges is becoming more urgent.
While revenues, both of exports in total and for tea farmers specifically, have improved since the 2003 tea strategy, they remain well below their potential. Indeed this revised strategy indicates that Rwanda can reach total export revenues of $80 million for the year 2012 and at the same time more than double the average revenue for tea farmers.
To do this, Rwanda needs to move from producing almost solely bulk black tea, the majority of which is sold at auction, to producing better quality teas, diversified teas, and branded Rwandan packaged teas, which are sold directly to buyers with whom strong relationships have been built.
This vision is supported by five strategic pillars that highlight the priority areas for action to continue and accelerate the transformation of the tea sector. These strategic pillars have been agreed by the industry cluster working group and tackle key constraints to growth at each stage of the value chain.
These pillars, which must be built on the basis of restructuring Rwanda’s key tea institutions, especially OCIR-Thé after privatization, will focus Rwanda’s tea industry on:
• Raising yields to increase tea growers’ income and export revenues;
• Investing in factories to ensure sufficient capacity to process all green leaf;
• Improving quality to avoid bulk market price decline;
• Developing a gradual migration path to a higher-value product; and
• Creating a Rwandan tea brand to signal quality and engaging in targeted marketing.
Comprehensively supporting these five pillars will require approximately $41 million of priority investments in twenty-three specific areas. These investments have been agreed and require action from all stakeholders not just the government or OCIR-Thé, but also tea factories, farmers and other agencies.
As such, the investment plan set out in this strategy is not meant to replace OCIR-Thé’s detailed action plan, but includes actions within this plan as well as broader actions that are outside it and which will be taken forward by private factories or by donors.
Nevertheless OCIR-Thé has a crucial role to play in implementing this plan with almost 50% of the investments being made by OCIR-Thé. Specifically OCIR-Thé’s budget will address US$ 18.8 million of the required investments in the next two years alone.
For example, key OCIR-Thé activities that support this plan include the establishment of nurseries for infilling and expansion, as well as factory rehabilitation. The rest of the financing for this plan will need to be provided by private factories, private investors and donors.
The tea industry working group together with OCIR-Thé will lead the implementation of these actions. By involving all stakeholders in the development of these priorities and in the implementation, the priorities should be tackled comprehensively and immediately. Nevertheless, OCIR-Thé will continue to lead in the implementation and monitoring of these actions in the short-term, while in the long-term, with the ongoing privatization process, it will begin transforming itself into a tea industry service provider and regulator.
The detailed action-plan included in this document highlights key investments, the project leaders, funding gaps, as well as potential funding sources.
As shown above, by increasing the productivity of Rwanda’s tea planted areas and developing a high quality brand, Rwanda can raise its tea industry revenues significantly. By building relationships with buyers and adding value to its teas, these revenues can be further increased. The impact on the economy of these actions will be much broader than simply export revenues, including a rapid growth in incomes for the 60,000 families involved in the tea industry.
The tea industry should therefore remain a key priority for the government and every effort should be made to enable the investments detailed in this document