Enhancing Coffee Quality in Rwanda: A Cost Benefit Analysis of Government Policies

Abstract

Over the past two decades, Rwanda has positioned itself as a leading producer of specialty coffee. The strategic move from ordinary to specialty coffee has overall been economically beneficial to the country. However, the multitude of incentives provided by both the Government and international donors spawned a rush to build a large number of coffee washing stations (CWS) throughout Rwanda. This trend gave rise to an oversupply of these plants, with most operating below their processing capacity. Our study uses cost benefit analysis to estimate the economic welfare loss that Rwanda has suffered owing to the combined effect of the oversupply of CWS, the coffee zoning policy, and the government regulated cherry coffee prices. Our results reveal that, if the coffee industry were rendered more competitive by dint of a reduction in the number of CWS, then the annual savings to Rwanda would be substantial. Furthermore, farmers could potentially receive prices that are 150% higher than the mandated fixed prices they are currently been paid. Our analysis could potentially be beneficial to Rwandese policy makers in devising fairer incentives to keep farmers interested in coffee farming, thus ensuring the sustainability of the coffee value chain in the long term.