Rwanda: Selected Issues and Statistical Appendix
Author: International Monetary Fund
Publication Date:
03 Dec 2004
eISBN:
9781451833331
ISBN:
9781451833331
Language:
English
Keywords:
ISCR; CR; export; Rwanda; price; bank; primary sector GDP; columns documents fertilizer productivity indicator; inorganic fertilizer; ABC combination; primary sector GDP growth; Agricultural sector; Poverty reduction strategy
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This Selected Issues paper for Rwanda reports the growth strategy described in the Poverty Reduction Strategy Paper (PRSP). The PRSP constitutes a critical effort aimed at generating poverty-reducing economic growth. Sustained growth in the primary sector serves as an engine of growth in the rural nontradable sector. The consequent rural employment generation provides income to the poorest among the rural poor. In generating an annual rural nonfarm growth rate of 6.7 percent, the PRSP assumes an elasticity of rural nonfarm activities with respect to farm growth.

Abstract

This Selected Issues paper for Rwanda reports the growth strategy described in the Poverty Reduction Strategy Paper (PRSP). The PRSP constitutes a critical effort aimed at generating poverty-reducing economic growth. Sustained growth in the primary sector serves as an engine of growth in the rural nontradable sector. The consequent rural employment generation provides income to the poorest among the rural poor. In generating an annual rural nonfarm growth rate of 6.7 percent, the PRSP assumes an elasticity of rural nonfarm activities with respect to farm growth.

Rwanda: Basic Data

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Sources: Rwandese authorities; World Bank; and Fund staff estimates.

Including net indirect taxes (not included in the three sectors shown below).

Goods and nonfactor services.

Payment order basis.

Actual figures are based on current exchange rates.

I. Agricultural Strategy as Part of a Poverty Reduction Program1

A. Introduction and Summary

1. This paper analyzes the growth strategy as described in Rwanda’s Poverty Reduction Strategy Paper (PRSP). The PRSP constitutes a critical (ongoing) effort aimed at generating poverty-reducing economic growth. Given the many aspects of the overall strategy presented, this paper will focus on the elements of the strategy with a substantial macroeconomic significance.

2. Poverty in Rwanda is mainly a rural phenomenon, as rural population constitutes about 90 percent of the total, and agricultural productivity in Rwanda is relatively low, even by sub-Saharan African standards. As extreme poverty occurs largely among the rural landless, the PRSP targets high and sustained rates of agricultural growth, to be achieved through agricultural intensification and, in particular, through the use of improved seeds and the increased use of chemical fertilizers.

3. This paper focuses on the analysis of this strategy, assessing its coherence, and developing policy issues that will need to be taken into consideration in the formulation of appropriate sectoral strategies.

4. The remainder of the paper is organized as follows: Section B describes the main elements of the growth strategy included in Rwanda’s PRSP. Section C focuses on the market for fertilizer, describing its current workings and analyzing possible problems that prevent high volumes of effective demand to materialize. Section D draws the conclusions. Appendices provide supplementary information on issues addressed in the main text.

B. Poverty Reduction Strategy Paper and Growth Targets

5. Poverty in Rwanda is severe. With an average GDP per capita in current US$ terms of US$200, 60 percent of the population was living in poverty in 2002. Thus, in order to achieve a meaningful improvement in living conditions, overall annual real GDP growth targets under the PRSP are set at 6 percent, compared to the estimated annual population growth rate of 2.5–2.9 percent.

6. Rwanda’s PRSP strategy targets poverty reduction through productivity growth in the primary sector, especially agriculture.2 The strategy draws on a series of papers written under the Agricultural Policy Development Project (APDP).3

Under this strategy:

  • Sustained growth in the primary sector (5.3 percent per year for a period of five to seven years) serves as an engine of growth in the rural non-tradable sector. The consequent rural employment generation provides income to the rural landless—the poorest among the rural poor (as is the case for most sub-Saharan African countries, see Khan (2000)).

  • In generating an annual rural non-farm growth rate of 6.7 percent, the PRSP assumes an elasticity of rural non-farm activities with respect to farm growth.

  • To complete the strategy, the PRSP assumes that the rate of growth of the urban formal sector also reacts to the growth of the primary sector. The posited elasticity results in an annual rate of growth of 7 percent for the urban formal sector.

  • Finally, the PRSP argues for an elasticity of urban informal sector growth with respect to urban formal sector growth that leads to a growth rate of 9.2 percent per year for the urban informal sector.4

7. In short, reduced to its bare frame, the PRSP posits that achieving sustained agricultural productivity growth will generate substantially larger productivity increases in other economic sectors. Strong growth in the primary sector is driven by an assumed robust response of (rural) employment to increases in demand for rural non-farm products. Increases in farm income generate both direct effects through the improvement in the situation of farmers, and indirect effects through the generation of non-farm rural activities that, in turn, decrease (the posited high) rate of rural unemployment, and decrease extreme poverty.5 Mellor (2002a) argues that, given the substantial share of agriculture in GDP, it would be difficult to find an alternative engine of both effective demand and employment, taking into consideration the relative unimportance of other economic sectors.

8. Given the centrality of this growth strategy to the achievement of Rwanda’s long-term objectives, it is worth reviewing the soundness of the growth model and the supporting analysis.

Are PRSP target growth rates consistent with existing data?

9. While agricultural growth constitutes the core of the overall growth strategy described in the PRSP, the coherence of the data set comprising agricultural production in Rwanda is questionable. As will be set out below, these uncertainties call into question the target growth rates for the agricultural sector.6

10. According to national accounts statistics, Rwanda’s Primary Sector is composed of food crops, export crops, livestock and other. Table 1 shows average prices for food crops and export crops in 2000, and also, volumes of production for these crops according to the figures published in GoR (2002a).7 These figures constitute the basis for the calculation of Rwandan national accounts (and are consistent with the figures reported in IMF’s Staff Report (IMF (2002a)) and Statistical Appendix (IMF (2002b)). Table 1 also shows production volumes for selected food crops according to a survey conducted by the Food Security Research Project (FSRP) jointly with the Rwandan Ministry of Agriculture (MINAGRI/FSRP (2001)) during the agricultural seasons A and B of 2000 (2002a).8 In addition, Table 1 displays the target growth rates for each food crop specified in the PRSP.

Table I.1.

PRSP’s Target Growth Rate for Primary Sector’s GDP

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Source: FSRP, PRSP, Rwandan authorities and authors’ calculations

11. Using this information, estimations of gross value, input cost and value added for the primary sector are calculated in order to check whether or not the target growth rate of 5.3 percent for the primary sector is internally consistent, i.e., if it can be derived by using the particular target growth rates assumed on the 2000 values of each component of the primary sector GDP according to the National Account statistics. While this target rate is, in effect, internally consistent, when calculations are performed using the information contained in national accounts (GoR (2002a)), it is not when FSRP figures are used instead.9,10,11

12. The reason behind this difference is that production figures in MINAGRI/FSRP (2001) are substantially smaller than those published in GoR (2002a), and so is the relative composition among subsectors (and food crops). Therefore, when applying the target growth rates for the specific subsectors (and crops) assumed in the PRSP, the primary sector rate of growth in 2001 is reduced to 4.8 percent, i.e., 0.5 percentage points lower than targeted.12,13

13. Which of the data sets is most reliable? Which data should be used in reviewing the viability of the growth strategy and its projected poverty impact? Insufficient resources and a difficult political situation motivated the disruption of the agricultural surveys in 1991, as mentioned above. In the absence of better ways (or to avoid a painful downward revision of GDP figures), the Ministry of Agriculture based (and continues to base) its estimations of agricultural production on informal surveys of surfaces planted per crop, per province. However, the Ministry of Agriculture does not run ex-post checks on how accurate these ex-ante estimations were. The FSRP surveys did exactly that, providing production figures based on a nationally representative random sample, not just ex-ante estimations. Given this, the FSRP data would seem to be the most appropriate basis for measuring agricultural production.

14. Basing the analysis of the growth strategy on the FRSP data leads to three important changes. First, since agricultural production is lower than that included in national account statistics, the growth base will differ from that used in the PRSP. Second, FSRP surveys were conducted only for the period 2000–02 whereas the national accounts continuously overstated estimations of agricultural Third, the overall assessment of poverty in Rwanda, including food security, could be worse than has been actually assessed in the PRSP.14

Data inconsistencies: GoR vs. FSRP/Ministry of Agriculture

15. Table 2 compares selected food crop production for 2000–02 (and gross value of production for 2000) contained in the national account statistics with the surveys conducted by the Ministry of Agriculture. In volume terms, 2000 Ministry of Agriculture totals represent just over 59 percent of those published by the GoR (2002a). For 2001 this ratio falls to 57 percent and jumps to around 70 percent for 2002.15 Obviously, these differences are substantial enough to influence the assessment of food security in Rwanda.

Table I.2.

Differences in Agricultural Production Data

(In thousand tonnes)

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Source: FSRP, Rwandan Authorities and authors’ calculations

16. Finally, as already emphasized (see Table 1), these differences affect the gross value of production for the selected crops included in the Ministry of Agriculture survey. For example, in 2000 the value of production according to the Ministry of Agriculture survey would be over 59 percent of the gross value of production reported by the national accounts.

Table 3 shows yields per hectare for selected crops for 2000–02. As expected, yields per hectare according to the Ministry of Agriculture are substantially lower than those reported by the national accounts.16 As we show later, the differences in yields arise mainly from differences in the volumes produced, although variations in land under cultivation for individual crops also played a role. The total area cultivated as, reported by both sources, was fairly similar, however.

Table I.3.

Yields per Type of Crop

(In tonnes)

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Source: FSRP, Rwandan authorities and authors’ calculations

In Table 4 we estimate (from Tables 2 and 3) how national accounts would have been affected in 2000 if actual production figures had been used. Such estimation is based on a calculation of gross value of production using average market prices for food crops and an assessment of the input cost ratio, using gross value and value added as reported in GoR (2002a).17 Combining this ratio with the gross value of selected crops contained in MINAGRI/FSRP (2001), we estimated a new value of GDP for food crops. Throughout, the value added for the food crops not included in the MINAGRI/FSRP survey was assumed to be equal to that reported in the national accounts.

Table I.4.

Rwanda: National Accounts According to Different Official Sources

(In billions of RF unless otherwise indicated)

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Source: FSRP, Rwandan authorities and authors’ calculations

17. The results of these calculations indicate that if the production figures reported in MINAGRI/FSRP (2001) were used to compute the national accounts, the GDP at current prices for the year 2000 would be about 13 percent lower than that reported in the official national accounts. Primary sector GDP would be 32 percent and private consumption 15 percent lower than those reported in the national account statistics.18 As a result, the primary sector would account for 35 percent of GDP compared to 44 percent of GDP under the official national accounts measure. It is worth noting that the size of the primary sector GDP is a key factor in the poverty reduction strategy as described in the PRSP. Non-farm economic growth is assumed to be driven by rural farm income. The smaller is the size of the primary sector, the larger must be the elasticity to obtain gains in rural non-farm income.19

Measuring potential increases in agricultural production: a simple methodology

18. In order to estimate potential increases in agricultural production, the following methodology can be used. Yields yijρ per hectare of soil j, in province ρ, for crop i can be defined as

(1)yijρ=fij(φ,v⋅l,ϑ⋅s,k;Θ)⋅ɛ,

where φ denotes the level of fertilization, l is labor input (v accounting for quality of labor), s denotes the seed input (ϑ accounting for quality of seeds), k is the level of physical capital, and Θ is a generic variable that accounts for elements difficult to measure, e.g., the influence of land tenure. ε is a random variable, with Eε = 1 and strictly positive variance, which captures the uncertainties associated with agricultural production, most notably weather developments. 20 In the economically relevant region, fijφ, fijv.l, fijϑ.s, fijk > 0. The same production function holds for all provinces provided that the same type of crop and soil are being considered. Furthermore,

(2)φ=min⁡[αi⋅x1,γi⋅x2],

where φ is defined as a Leontief function (with αi > 0 and γi > 0), with inputs of inorganic (chemical) fertilizer x1, and organic (manure) fertilizer, x2. The Leontief technology captures the fixity with which the organic and inorganic fertilizers must be used in order to assure efficiency. For simplicity, the function includes only one (generic) type of inorganic fertilizer.

Production of crop i, in province ρ, is given by

(3)Yiρ=Sρ⋅Σj=1Jθijρ⋅λijρ⋅yijρ,

where Sρ denotes total (arable) surface in use in hectares in province ρ,θjρ is the proportion of that surface accounted for by soil of type j in province ρ, and λijρ denotes the proportion of soil j cultivated with crop i in province ρ. With J denoting the number of different types of soil, Σj=1Jθjρ=1. The total national production of crop i is given by

(4)Yi=Σρ=1PYiρ,

where P denotes the number of provinces in the country.21

19. If data on fertilizer response per type of crop and soil are available, and assuming other inputs can be replicated in real conditions, it is possible to obtain a measure of (total) potential agricultural production. Subsumed in this exercise are data on type of soil per province, and cultivated land per type of crop, soil and province.22 The relationship allows for assessment of potential increases in agricultural production given changes in fertilizer intensification.

20. Rwanda is divided into eighteen different agro bioclimatic (ABC) zones (which determine soil qualities) and twelve provinces. Land is cultivated in all provinces except Kigali-Ville (i.e. J = 18 and P = 11). Berdinger (1993), based on earlier work by J. Gasana on ABC zones, estimated a division of each province into these different zones, i.e., he provided the values of θjρ, ∀j, ρ.23 In addition, Kelly and Murekezi (2000) provided information about fertilizer response for a number of food crops using NPK or combinations of Urea and DAP in the presence of appropriate amounts of organic fertilizer.24 The trials are relevant because they provide information about fij(·), αi and γi. An assumption of their replicability is key to estimating potential agricultural production. Finally, the allocation of land per type of crop for each province may be obtained from either GoR (2002a) or MINAGRI/FSRP (2001). We will use both for comparability purposes.

21. Note that the existing information is insufficient to determine the values of λijρ, ∀ i, j, ρ. To fill this gap, we assumed that each crop is cultivated in different types of soil in proportions that are identical to proportions of different ABC zones for the entire province.

22. It is possible now to extend this simple methodology to the entire agricultural sector. Table 5 provides data on total potential additional production for selected food crops. Given cultivated land per crop, soil and province, we applied the recommended profitable doses of both organic and inorganic fertilizer as reported in Kelly and Murekezi (2000).25

Table I.5.

Rwanda: Estimation of Potential Additional Production Derived from Optimal Fertilizer Utlization

Figures According to National Accounts

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Source: FSRP, Rwandan authorities and authors’ calculations

23. Although the same yield responses are applied, the potential increases in crop output will differ depending on which data on cultivated land per type of crop and province are applied (GoR (2002a) vs. MINAGRI/FSRP (2001). The two sources simply supply inconsistent information about cultivated land per crop per province.

24. Despite its simplicity this methodology is flexible. It has the added relevance of being singled out in the PRSP as the engine of agricultural development in Rwanda. Indeed, Mellor (2002a) assumed that 75 percent of growth of the primary sector GDP can be explained by increases in fertilizer utilization.26

25. The upper part of Table 5 reports the results for potential production gains using the cultivated land per crop as reported in GoR (2002a). Based on these figures, output of selected food crops could be approximately doubled if recommended doses of fertilizer are used. The lower part of Table 5 shows the respective results when applying the data from MINAGRI/FSRP (2001). Following to this latter approach, production of selected food crops could be almost tripled.

26. Although fertilizer intensification would add to the volume of crops it would add less to the value of primary sector GDP. Given the PRSP’s long-term horizon (and the document’s consistency with Vision 2020), it is relevant to estimate how sustainable is the 5.3 per cent target growth rate for the primary sector. Regardless of sources of data, such a rate of growth could not be maintained beyond three to four years.

27. Finally, it is important to stress that this analysis is static in nature, i.e., it does not take into consideration the effects of additional production on prices. Changes in relative supplies could affect relative prices, V/C ratios, and incentives for fertilizer utilization as well as allocation of land for agricultural and non-agricultural purposes.27

The agroeconomic potential

28. For clarity purposes it is important to introduce a concept of agroeconomic potential as specified by theoretical demand for fertilizer. It is defined as the amount of fertilizer consumed which maximizes profits. Basic economic theory teaches us that fertilizer is profitably demanded when its additional cost is more than compensated by the incremental value it generates. This holds for V/C ratios greater than one. At any given time the agroeconomic potential is derived by multiplying the land used (in ha) by the recommended fertilizer doses per crop for V/C ratios greater than one.28 The estimates of the potential are computed in Table 6 using information from Kelly and Murekezi (2000) for both the GoR (2002a) and the MINAGRI/FSRP (2001) data sets. The first set of columns reports the estimates for selected crops using the sources already mentioned.

Table I.6.

Rwanda: Agroeconomic Potential and Marginal Physical Product of Fertilizer for Selected Crops Using 2000 as Base Year

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Source: FSRP, Rwandan authorities and authors’ calculationsNotes: (A) National Accounts; (B) FSRP

29. The second set of columns shows the additional demand for inorganic fertilizer per crop that could be justified on efficiency grounds. These calculations depict the demand for inorganic fertilizer for V/C ratios greater than two, as reported in Kelly and Murekezi (2000).29

30. It also includes the average recommended doses of organic fertilizer that are needed for inorganic fertilizer to be effective. The third set of columns contains an estimation of the current level of fertilizer use per type of food crop. Note the very low level of utilization compared with the ex-ante potential demand. The fourth set of columns approximates the cultivated area for which economically profitable fertilizer trials were in place. This figure, at 25 percent, indicates that more fertilizer trials could be applied for the main ABC zones and crops, as pointed out in Kelly and Murekezi (2000) and Kelly et al (2001b). The fifth set of columns documents fertilizer productivity indicators per type of food crop, measured by marginal physical product.30 Finally, the sixth set of columns shows the current composition of fertilizer utilization.31

Proposed fertilizer intensification and growth targets

31. It is possible now to make an assessment of the consistency between the target growth rates and fertilizer intensification proposed in the PRSP and its supporting documents. To assess such consistency, the target increases in fertilizer included in the PRSP are combined with the data reported in Table 6. The results are reported in Tables 7 and 9 for GoR (2002a) data sets and in Tables 8 and 10 for MINAGRI/FSRP (2001) data sets.

Table I.7.

Rwanda: Proposed Schedule for Fertilizer Intensification and Associated Production Increases

(For selected Crops. Figures According with National Accounts Figures)

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Source: FSRP, Rwandan authorities and authors’ calculations
Table I.8.

Rwanda: Proposed Schedule for Fertilizer Intensification and Associated Production Increases

(For Selected Crops. Figures According with FSRP Survey)

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Source: FSRP, Rwandan authorities and authors’ calculations
Table I.9.

Rwanda: Analysis of the PRSP Target Growth Rate for the Primary Sector

(Figures Consistent with National Accounts Figures)

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Source: FSRP, Rwandan authorities authors’ calculations
Table I.10.

Rwanda: Analysis of the PRSP Target Growth Rate for the Primary Sector

(Figures Consistent with the MINAGRI/FSRP Survey)

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Source: FSRP, Rwandan authorities and authors’ calculations

32. Since the PRSP does not specify how increases in fertilizer utilization are to be allocated among different crops, Tables 7 and 8 approximate this allocation to that reported by Mellor (2002a). Mellor assumes that coffee and tea are strongly fertilized (relative to other crops). This is backed by data regarding current fertilizer consumption. However, it is important to point out that no published results are available with respect to yield response of these crops to inorganic fertilizer.

33. Tables 9 and 10 calculate increases in hypothetical agricultural production, both in volume and in 2000 Rwandan francs (RWF), if fertilizer had been applied as reported in Tables 7 and 8. Again, the estimates depend on the choice of official sources. The first part of the tables shows increases in volumes and the second part increases in value.

34. Assuming the GoR (2002a) data set, Table 9 shows that 0.51 percentage points of primary sector GDP growth in 2000 can be ascribed to fertilizer intensification and 1.61 percentage points to other sources.

35. For export crops we replicate the growth rates of Mellor (2002a), which results in a 0.36 percentage points increase of 2000 primary sector GDP, due mainly to fertilizer intensification. Finally, the remaining categories (including livestock) are assumed to grow at a rate which explains 17.2 percent of total primary sector growth and generates a growth equivalent of 0.52 percentage points of the sectoral GDP.32

36. Adding up all component growth rates of the primary sector gives us the constant 2000 prices growth rate of 3 percent. This rate should be compared to the target rate of 5.3 percent. Additionally, of the 3 percent increase, only 0.87 percentage points could be ascribed purely to fertilizer intensification Therefore, less than a third of the increase in sectoral GDP growth could be explained by fertilizer intensification. This is below the assumed 75 percent.

37. Assuming the MINAGRI/FSRP (2001) data set, Table 10 shows that 0.8 percentage points of primary sector GDP growth in 2000 can be ascribed to fertilizer intensification and 0.97 percentage points to other sources. Export crops explain a higher percentage of the growth rate compared to the previous data set due to a lower production base (0.53 percentage points of growth for 2001). Finally, other subsectors are assumed to grow at a rate which explains 17.2 percent of total primary sector growth.

38. Adding up all component growth rates of the primary sector gives us the growth rate of 2.8 percent. Of the 2.8 percent increase, 1.3 percentage points can be ascribed purely to fertilizer intensification. This implies that using MINAGRI/FSRP (2001) as a base, approximately half of the increase in the sectoral GDP growth could be explained by fertilizer intensification. Again, this figure is well below the hypothesized 75 percent.

39. The above analysis has focused on the year 2001. Its extension to later periods reveals that the projected primary sector GDP increases are never close to the 5.3 percent target. The estimated (simple) average of primary sector growth for 2001–2006 is 3.2 percent for GoR (2002a) data, and 3.8 percent for MINAGRI/FSRP (2001) data.

40. These results should not surprise if current utilization of land per crop (see Table 5) is considered. Higher ex-ante growth rates of primary sector GDP might be possible if a significant redistribution of land takes place in favor of those crop plantings which are most fertilizer-responsive. Finally, we should emphasize a salient assumption of adequate supply of manure, labor and capital which are forthcoming at all levels of output.

Upshots for the overall growth strategy

41. The primary sector has been assumed throughout to be the engine of growth strategy. The key rationale is the large share of this sector in GDP and the large proportion of agricultural employment in total employment.

42. However, the following factors introduce uncertainty into our model:

  • Assumptions about primary sector shares in GDP;

  • internal consistency of sector target growth rates based on available information;

  • sustainability of primary sector growth rates given resource endowments and fertilizer response;

  • assumptions about crop gains for which there are no known fertilizer response trials;

  • assumptions about fertilizer effectiveness and proportions of its application

  • assumptions about land conservation investments and labor/capital supply elasticities;

  • assumptions about size of rural non-farm output potential, rural unemployment, elasticity of non-farm growth with respect to farm growth, and shares of formal and informal sectors in GDP.

43. If for any of these reasons the primary sector expands at a lower rate the overall GDP and employment will lag accordingly. The difference between the GoR and MINAGRI/FSRP statistics alone accounts for 10 percentage points gap in the size of the primary sector. More research on fertilizer response should be conducted for different combinations of crops/ABC zones, as well as on conditions in which inorganic fertilizer is used. Inadequate combinations of organic and inorganic fertilizer could render disappointing results as emphasized in Kelly and Murekezi (2000) and Kelly et al (2001b). Finally, it is important to consider a market for fertilizer which could be a constraining factor. This is specially relevant given the uncertainty associated with land tenure and land tenure institutions.

C. The Market for Fertilizer

44. At this point, it is clear that fertilizer intensification is the main factor behind high targeted growth rates of agriculture. We will therefore examine the current trends in Rwanda’s market for fertilizer. Kelly and Murekezi (2000), Kelly et al (2001a) and Kelly et al (2001b) analyzed this market as part of Rwanda’s FSRP while Abt Associates (2002) and Desai (2002) did the same within the APDP). This section summarizes their findings, with special emphasis on those elements which could hamper effective fertilizer demand.33

The supply of fertilizer

45. The (chemical) fertilizer used in Rwanda is imported from external sources: no domestic production base exist. Fertilizer is imported by a few private traders, mainly through Dar-es-Salaam, which replaced Mombassa as the main port of entry. Some NGOs have also added to the supply in recent years. In 1995–98 the EU supported exports of fertilizer to Rwanda under a sliding scale of subsidy which decreased from 50 percent in 1995 to 20 percent in 1998. From 1999 on the market for fertilizer has become fully liberalized. A Ministry of Agriculture decree, which banned distribution of free or subsidized farm inputs, was followed by two laws (05/2000 and 06/2000) which regulate imports of agricultural products, and which exempted fertilizer from duties and sales taxes for a period of three years.34 These measures support the development of the private sector free from institutional distortions. It appears that the supply response has been good (see Cook in Abt Associates (2002) and Desai in Abt Associates (2002) and Desai (2002)).

46. Mauritius is Rwanda’s largest fertilizer trading partner. This points to unfulfilled potential economies of scale in transportation which could lower prices in the future. The actual supply could be higher than total imports as reported by the National Bank of Rwanda (NBR). The unclassified imports through the Cyanika border post (Cook in Abt Associates, 2000) might explain the difference.

47. There seem to be two main regional markets. The one in the Northwest has a center in Ruhengeri, while the rest of the country is supplied from Kigali-Ville. Informal traders are more common in Ruhengeri and formal traders more common in Kigali-Ville (Cook, in Abt Associates, 2002). Some supply inadequacies prevail (Desai, 2002), Kelly et al (2001a)).

48. Distribution to farmers takes place through cooperatives and wholesale traders who buy fertilizer from importers and sell it on by the sack (50 kgs. per sack). Retailers and producers’ associations sell by the sack or less-than-sack. Wholesalers may grant credit to retailers or buyer by-the-sack, with allocation on a case-by-case basis. In turn, Cooperatives may sell fertilizer to non-members if the latter pay in cash (Cook in Abt Associates, 2000). Sixty percent of fertilizer operations are cash-based (Kelly et al, 2001a).

49. The Agriculture and Rural Market Development Project (ARMDP), managed by the World Bank, attempted to promote a virtuous circle of fertilizer utilization through extension of credit. However, he project met limited success (Desai, 2002).

The demand for fertilizer

50. The main users of inorganic fertilizer are OCIR-Thé and OCIR-Café (Desai in Abt Associates (2002) and Cook in Abt Associates (2002)). Outside of coffee and tea, fertilizer in mostly applied in the Ruhengeri and Gisenyi provinces and for growing Irish potatoes.

51. Individual private demand is feeble and quantities demanded relatively small. According to FSRP figures for 2001, from a sample of 1500 households only 72 bought fertilizer. They purchased altogether 1.59 tones, with a mean of 22 kgs, a median of 10 kgs, and a mode of 1 kg per household (Cook in Abt Associates, 2002). According to Kelly et al (2001b) there exist crop/ABC combinations that could be profitably exploited through fertilizer intensification.

52. A growing number of farmers’ associations seem to benefit from preferential treatment accorded by NGO (Murekezi in Abt Associates, 2002). Farmers’ associations join larger cooperatives, which in turn, grant them credit. Some cooperatives, however, are unwilling to take on new members because of debt collection problems (Cook in Abt Associates, 2002).

Some corollaries

53. Higher import volumes could bring about substantial decreases in the cost of fertilizer, benefiting from economies of scale in transportation. Prices are relatively high due to low import volumes and inefficiencies in the supply chain (Desai in Abt Associates, 2002) and Desai (2002).

54. Low fertilizer demand, which impedes exploitation of profitable opportunities, stems from farmers’ knowledge gaps, cash constraints, and an unregulated land tenure system. Kelly et al (2001a) points at some contradictions of farmers’ knowledge about complementarity of organic and inorganic fertilizer, fertilizer and pesticides application, and the importance of seed quality. It seems that many opportunities are, indeed, already known to farmers. Cash constraints do appear to depress effective demand as agricultural production in Rwanda is mostly of the subsistence type. Many farmers cite high prices as a reason for not using fertilizer (Kelly et al, 2001a). The decreasing average farm size combined with rapid population growth hamper the design of programs addressing this constraint. However, the smaller the average farm, the larger the gains made possible through farmers’ associations. A program like the World Bank’s ARMDP contains many elements needed to solve the cash dilemma. Rwanda’s fertilizer market seems to suffer not from lack of suppliers’ working capital but from lack of effective demand.35 For this strategy to succeed, loan collection rates should increase.36 Fertilizer utilization may not be directed towards the most responsive crops due to poor education. The ubudehe mu kurwanya ubukene decentralization mechanism, as described in the PRSP, could be deployed to correct for this shortcoming.37

55. Low levels of fertilizer demand could also stem from land tenure deficiencies. As Khan (2000) emphasizes, property rights are neither well-defined nor well enforced.38

D. Conclusions

56. The analysis of the agricultural strategy for Rwanda has shown that sustainable economic growth is achievable under the right policy mix. However, poverty reduction consistent with the Vision 2020 targets will be difficult to attain even under the most favorable fertilizer intensification. Notwithstanding the appropriateness of the theoretical approach undertaken here, we feel that the development of the primary sector should remain a cornerstone of any strategy. Agriculture makes up the largest part of GDP and so has the greatest potential to reduce poverty

57. Although the original PRSP considered various sectoral strategies, including one for agriculture, the recent Progress Report recognizes difficulties in drafting a coherent approach. The authorities explain away the delays through lack of resources, although inadequate prioritization plays a role, too. Our findings may serve as guideposts to devise a lucid strategy for the agricultural sector.

58. First, there is an urgent need to improve the methodology of estimating the GDP in general, and the primary sector in particular. The extension of FSRP surveys within the framework of national accounts is a step in the right direction.

59. Second, it would be advisable to conduct fertilizer response trials for those crops and ABC zone combinations which are currently not included in the Ministry of Agriculture/FSRP database. With the current composition of crops fertilizer responses, potential GDP growth rates of around 5 percent are sustainable only for four years at most. Fertilizer utilization surveys should be conducted regularly to estimate marginal physical products for different crops and ABC combinations. This would help identify areas in which lack of organic fertilizer application or soil conservation act as constraints for growth.

60. Third, target growth rates for the primary sector can be achieved only if stronger fertilization than that assumed in the PRSP is in place. More attention should be paid to improvements of other inputs, such as seeds, labor or soil (through conservation investments).

61. Fourth, while the approach taken in this study was static, the problems which Rwanda face are dynamic in nature. In the medium term, most economic variables are endogenous. For example, increases relative supply of some products will affect V/C ratios. An adequate growth strategy should take into account changes in behavior and incentives.

62. Fifth, the development of a well-functioning market for fertilizer is key to achieving the growth objectives specified in the PRSP. Of paramount importance are policies to stimulate effective fertilizer demand. Among barriers we have identified are lack of knowledge, cash constraints, marketing problems and inadequate land-tenure laws. Of those, the former three seem to be the most important.

Two additional points should be made here:

63. Various support programs (public and private) ought to be integrated under one sectoral strategy. This will economize resources, avoid duplication and provide for a coherent effort to fight poverty.

64. Finally, key priority expenditure programs would benefit from an estimation of expected rates of return. This would improve the monitoring process by establishing benchmarks against which results could be compared.

References

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  • Ames, B., W. Brown, S. Devarajan and A. Izquierdo, 2001, “Macroeconomic Policy and Poverty Reduction.”

  • Clay, D. and V. Kelly, E. Mypisi, T. Reardon, Input Use and Conservation Investments among Farm Households in Rwanda: Patterns and Determinants, FSRP.

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  • Crissman, C., 2002, A Proposal for a Rwanda Potato Sector Development Program, Agricultural Policy Development Project, Research Report No. 17, August 2002, Abt Associates Inc.

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  • DeRosa, D. and V. Roningen, 2002, Rwanda as a Free Trade Zone: An Inquiry into the Economic Impacts, Agricultural Policy Development Project, Research Report No. 11, July 2002, Abt Associates Inc.