The Wood Foundation

Catalyst: Win-Win for Rwandan Tea

“Imbarutso - Win Win for Rwanda Tea” was launched in March 2011 in joint funding partnership with the Gatsby Foundation and is the second TWF programme in Sub Saharan Africa.

“Imbarutso” will see an investment of up to $9million USD over a six year period with the aim of increasing smallholder farmers’ net income, turning smallholder farmers into viable and efficient Micro and Small Enterprises (MSE’s), and enhancing the overall competitiveness of the sector. 

Rwandan tea is among the highest quality in the world. With production spread throughout 11 Districts, tea is Rwanda’s second most significant export earner and a vital source of income, supporting the livelihood of over 30,000 smallholder businesses and 60,000 households.

In looking to successfully develop Rwanda’s tea industry, there are two important competitiveness issues.  Firstly, Rwanda produces 24,000 MTs per annum of made tea – approximately 7% of Kenya’s annual output.  Even with a planned increase to 35,000 MTs by 2015, Rwanda’s relative production will remain modest.  Secondly, through existing and new planting, about 65% of Rwanda’s tea will come from smallholder farmer production which is sold to the large tea plantations that have a monopoly in their immediate catchment area.

To expand the area of tea under production and significantly increase the volume and quality of tea, a win–win balance must be achieved whereby smallholder farmers have the appropriate financial incentive and professional support services, while factories are able to improve their throughput and profitability. This has the potential to transform the 30,000 smallholder farmers into viable and efficient MSE's capable of significantly improving their rural economies.

During the first half of 2011/12, “Imbarutso” developed an action plan which looked at working with Government, private factories, and smallholder cooperatives to develop projects which would have significant benefits to the smallholder farmer as well as the industry. During this process an opportunity arose through the Government of Rwanda’s Tea Privatisation process to competitively bid for the majority stake of two tea factories, Mulindi and Shagasha, which after privatisation, would have smallholder minority shareholding of 45% and 30% respectively, with approximately 12,000 smallholder farmers as the shareholders.

There is clear learning from Kenya that a key way to increase smallholder tea farmers’ margins is for them to own their own processing factories.  Kenyan smallholder tea farmers, on average, earn an unparalleled 75% of the made tea price, while Rwandan farmers earn 25%. A large number of the factories in Kenya are managed by the Kenya Tea Development Agency on behalf of the smallholder farmers.

Following significant investigation and consultations, The Wood Foundation together with The Gatsby Foundation, established a joint charitable company, Rwanda Tea Investments (RTI) which competitively bid for, and was successful in acquiring the majority shares of both tea factories from the Government of Rwanda in December 2012. This investment of $12 million USD, including working capital for both businesses, was made on the following basis:

  • TWF and Gatsby would provide the upfront finance to purchase the Government shares (55% Mulindi and 60% Shagasha)
  • The Kenya Tea Development Agency would act as operational managers of both factories reporting to each factory board whilst training Rwandans to assume overall factory management in the future
  • The annual free cash flow would be distributed to the farmers as additional payment for the Greenleaf tea and to TWF and Gatsby to recover their investment over a period of time
  • TWF and Gatsby will transfer the shares held in both factories, at nil consideration, to the farmer  shareholders after a period of 7 years, or when certain KPI's have been achieved in the development of the farmers business and governance performance, whichever is the later

This deal, now successfully concluded, is an innovative philanthropic intervention which hopefully, over a period of time, will not only significantly increase the incomes of the 12,000 smallholder shareholders, but moreover will transform the viability of smallholder tea farmers across Rwanda.