The benefits of professionalism in the Rwandan agricultural sector
Co-written with Edward Kadozi, Founder and President of the Center for Development Policy (CDP)
SCOPEinsight has been assessing agribusinesses in Rwanda since 2012. Over the years, we have assessed over 650 agribusinesses with various tools. Based on this data, we have noticed three important things about Rwandan agribusinesses: 1) They often struggle to access finance, 2) Their market access is limited, and 3) As a result, the agricultural sector is not reaching its full potential and contribution to the economy.
The Rwandan agricultural sector
Agribusinesses are the backbone for growth and poverty reduction in Rwanda. Agriculture accounts for nearly one third of Rwanda’s GDP, and it employs 70% of the workforce. Some of the biggest crops include coffee, tea, beans, potatoes, rice, and wheat. Coffee and tea are also major exports. However, the sector is constrained by issues such as limited commercialization, low skill levels that negatively affect productivity, lack of specialized farming, less agricultural inputs, and a lack of post-production facilities, to mention but a few.
Approximately 75% of the agricultural production in the country is done by smallholder farmers, who are mostly organized into cooperatives. Recently, there has been a greater shift towards a cooperative movement, whereby smallholder farmers are encouraged to join cooperatives. But most of these cooperatives are still informal businesses and not professionalized. According to the National Institute of Statistics in Rwanda, 52.4% of cooperatives are informal enterprises against 93.3% of total private enterprises. This negatively affects the growth and professionalization of cooperative enterprises.
Since 2012, SCOPEinsight has assessed 665 agribusinesses in Rwanda. Over half of these agribusinesses are classified as “maturing,” which means they score between a 3.0 and a 3.9 out of 5 on a SCOPE assessment. Some hallmarks of maturing agribusinesses are that they:
- ● Only have rudimentary policies & processes,
- ● Have weak business & financial planning,
- ● Have weak or no strategic & operational planning,
- ● Have weak or no human resources,
- ● Lack support systems/technologies,
- ● Are vulnerable to external shocks/low resilience, and
- ● Engage in environmentally unsustainable practices.
Because of these challenges, maturing agribusinesses are also less competitive in local and regional markets, and they find difficulties in accessing financing. These agribusinesses find it difficult to be as productive and resilient as they could be. However, with targeted interventions, their professionalism can be increased. This will help to solve many challenges in the Rwandan agricultural sector.
How professionalism can empower local agribusinesses
There are many benefits to agribusiness professionalism. Professional agribusinesses have higher profits, greater sustainability, and more access to finance and markets. These benefits can, in turn, strengthen the entire agricultural sector. Many challenges that agribusinesses in developing economies face can be mitigated, at the very least, by increasing professionalism.
To support the professionalism of agribusinesses, SCOPEinsight, in collaboration with our partners, offers four different assessment tools that can be used to determine the current level of professionalism of an agribusiness. The assessments highlight the agribusiness’s strengths and weaknesses, which then allows for targeted capacity building. The tools assess different dimensions of professionalism, which include, among others, financial management, sustainability, and market access.
More professional agribusinesses use more modern techniques
A challenge that many agribusinesses in Rwanda face is a lack of modern technology and techniques in agriculture. This includes low use of fertilizer, improved seeds, and pesticides. There are many reasons for this lack of use, including a shortage of supply and a lack of affordability. However, modern techniques can be very important to productivity. A study in Cameroon, for example, found that maize farmers produced 1.42 times as much when using improved seeds.
A common obstacle preventing the adoption of modern techniques is the price. Many agribusinesses cannot afford to purchase improved seeds, for example, or to install irrigation systems. They would require loans to do so, but access to finance is a massive challenge for many agribusinesses globally. Due to the perceived risk, financial institutions are wary of lending in agriculture. This leaves agribusinesses underfunded and unable to grow.
An increase in professionalism can bring about an increase in access to finance, and through that, an increase in modern technique usage. More professional agribusinesses are more able to access finance as they are more able to prove themselves to potential lenders. There is a distinct positive correlation between an overall SCOPE score and the size of a loan received by an organization. Together with the Center for Financial Inclusion (CFI), and with support from the Alliance for a Green Revolution in Africa (AGRA), we have developed a tool for increasing access to finance called the Bankability Metrics. When agribusinesses can take out loans, they can afford to utilize modern techniques.
Greater professionalism leads to greater access to markets
For agribusinesses to be able to sell their produce, it is essential that they have access to markets. This access gives them a place to sell their products reliably and for a fair price. These markets can be both domestic and international. To gain access to these markets, however, agribusinesses must prove that they can meet the required standards. They also must be able to reach the markets and negotiate with the representatives. For many agribusinesses, this is a challenge, due to lower levels of quality or challenges in negotiations.
There are multiple dimensions of professionalism that overlap with market access. Operations professionalism, for example, has a strong positive correlation with market access. Professional agribusinesses in general are more able to meet quality standards and negotiate effectively with market representatives. This gives them an advantage when it comes to gaining market access. An effective marketing strategy is also an important aspect of professionalism, and this helps agribusinesses in their efforts to gain access to markets. Professionalism is thus an important metric by which you can determine the likelihood that an agribusiness will be able to gain access to markets, and more professional agribusinesses have a higher chance of gaining that access.
Examples of successful projects in Rwanda
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The future of Rwandan agriculture
The National Policy on Cooperatives in Rwanda, as designed by the Ministry of Trade and Industry, includes a ranking system for cooperative classification and graduation. Cooperatives are ranked as category A, B, or C, based on their current capacity. Scores from the SCOPEinsight assessments are very much aligned to this vision and could be very useful in this ranking process. In this way, cooperatives can be ranked for the policy and also given suggestions on how they can improve. Furthermore, the SCOPE Rapid assessment can give the government of Rwanda a good overview of the needs of their cooperative sector, in the same way as Uganda has benefited.
The benefits of increasing professionalism are many, and the need for more professional agribusinesses is clear. The Rwandan agricultural sector has a great deal of potential, but its challenges constrain it from being able to reach that potential. We must move from a project-by-project way of addressing this problem and employ solutions which are standardized and quantitative. Only when systemic, market-based actions are taken to address these issues will the Rwandan agricultural sector become as productive and professional as it could be. This is why SCOPEinsight has teamed with the Center for Development Policy (CDP) to create a service offering for governments and capacity builders alike to achieve this vision.
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