Determinants of Farmer Investment in Coffee Production: Finding a Path to Sustainable Growth

Daniel C. Clay, Aniseh S. Bro, Ruth Ann Church, Alfred Bizoza, David L. Ortega. 2016. Determinants of Farmer Investment in Coffee Production: Finding a Path to Sustainable Growth in Rwanda’s Coffee Sector. Feed the Future Innovation Lab for Food Security Policy Research Paper 32. East Lansing: Michigan State University

EXECUTIVE SUMMARY
Coffee production has been at the core of farm family livelihoods in Rwanda for many generations and today it serves as source of cash income for over 355,000 households across the country. Since 2001, the coffee value chain has seen a transformation in quality (fully-washed coffee) and is now well-established in specialty coffee markets around the globe. With the construction of 245 washing stations, the processing segments of the sector have prospered. Dry mills and export companies, both domestic and international, have similarly emerged during this period. While the value-added from this transformation has benefited Rwanda, those at the base, the coffee producers, have shared the least in the new prosperity. This research posits that failing to include the producers as full partners is the main reason that coffee production in Rwanda has declined and stagnated in recent decades. Sub-par compensation for their cherry, an average of 24 percent below the revenues of their counterparts elsewhere in the region, has resulted in the neglect and disinvestment in coffee by many producers, particularly largeholder producers.

Findings presented in this report show that the true cost of production in Rwanda, including household and wage labor, inputs and equipment, totals 177 RWF/Kg of cherry, a figure well above that currently used as a reference for establishing cherry floor prices in Rwanda. As a result, a large proportion of growers suffer unsustainably low margins or even net losses in coffee (over one-third in 2015). These farmers would make more by working as agricultural wage laborers on the farms of other, more productive farms.

Three predominant types of producers are identified based on their relative capacities and their incentives to invest in coffee. Understanding how these producer groups differ and perform in terms of productivity and gross margins (profits) helps us to think more clearly about steps that can be taken to improve overall sector performance.

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