Agriculture represents one-third of Rwanda’s gross domestic product and employs 80 percent of its workforce. Therefore, the performance of its agriculture sector has a powerful impact on the performance of the country’s overall economy. Increased use of both organic and inorganic fertilizer and other agro-inputs is necessary to help create food security in Rwanda. However, the use of fertilizer to increase crop yields is in an early stage of development.
The Rwandan government has enlisted IFDC’s assistance to transition away from its previous policy of nationalized fertilizer procurement and distribution. The Privatization of Rwanda’s Fertilizer Import and Distribution System (PReFER) is a U.S. Agency for International Development (USAID) project implemented by IFDC.
From 1994 to 1998, the Rwandan government distributed fertilizers to farmers at no charge due to the emergency the country faced in the aftermath of civil war. In 1998, the government initiated market-driven (privatized) fertilizer importation and distribution. However, the private sector lacked the capacity to implement a timely and sustainable agro-input supply system. Fertilizer adulteration was also a problem. In addition, except for the tea and coffee sectors, fertilizer demand was low.
In 2006, the government resumed nationalized procurement and importation of fertilizers, but left distribution and retailing of agro-inputs in the control of the private sector. From 2006-2009, fertilizer use in Rwanda increased significantly. Now, the government seeks to transfer responsibility for fertilizer procurement and importation to the private sector as well. For this shift to occur a professional network of private sector agro-dealers must be created and a sustainable fertilizer supply and distribution system must be in place.
USAID and IFDC are providing technical and business assistance through PReFER training programs to develop and professionalize agro-dealers across Rwanda.
A market-friendly fertilizer procurement and distribution system aligns with the Rwandan government’s private sector development strategy. IFDC identifies policies that support the private sector’s involvement in the fertilizer market and also contribute to the development of a sustainable supply system. This effort is expected to stimulate fertilizer demand and will support the project’s objectives through agricultural intensification and market development of farm output.
A core project activity is the development of a Fertilizer Business Incubation Center (FBIC), an autonomous center that will offer business support and market information to emerging private sector entrepreneurs involved in fertilizer supply. The FBIC will also provide policy advice to the Rwandan government and serve as a one-stop resource center for all fertilizer sector stakeholders.
Primary project objectives include:
- Transition the fertilizer procurement and distribution supply chain from government control to a competitive private sector by 2015.
- Identify and adopt key policies and specific stakeholder roles for a smooth transition of the fertilizer sector from government to private sector control.
- Improve the operational efficiency and cost-effectiveness of fertilizer supply chains.
- Increase the number of well-trained entrepreneurs/firms and retail market networks by 2012.
- Improve access to, and management of, trade credit in the fertilizer supply chain.
The five-year project (2010-2015) works in close collaboration with the Rwandan government in general and with the Ministry of Agriculture and Animal Husbandry in particular, the CATALIST project (funded by the Netherlands’ Directorate-General for International Cooperation) and the Rwanda Agro-Dealer Development project (funded by the Alliance for a Green Revolution in Africa).
PReFER Progress (October 2010-June 2011)
IFDC began studies to understand current and potential fertilizer demand, and to learn the limiting factors for private investment in the fertilizer sector. The target is to build a solid market foundation by developing a sustainable strategy that is easily adoptable by Rwanda’s stakeholders within the next four years.
The following studies were launched and implemented prior to defining the privatization strategy of the fertilizer sector:
- The Supply Chain of Fertilizer in Rwanda. The study analyzed the fertilizer distribution chain in Rwanda at the start of the project.
- Analysis of the Consumption of Fertilizers by Farmers in Rwanda Between 2005 and 2010. The study analyzed the growth of fertilizer consumption (a six-fold increase in five years) and the unique motivations of farmers to use fertilizer.
- Study on the Business Environment and Recommendations to Attract the Private Sector to the Fertilizer Market. The study analyzed the role of the private sector in the current fertilizer environment. This includes working on an exit strategy for the Government of Rwanda (GoR) while simultaneously providing an enabling environment for the private sector.
- In addition to these preliminary studies, a study of the pathways used by the coffee and tea sectors was also carried out to understand the organization of the purchase and supply of fertilizer in these market areas.
IFDC organized a series of meetings and workshops with distributors to understand their businesses and their needs and expectations. The following were actions taken under this initiative:
- Gain a better understanding of the perceptions, activities and business environment of Rwanda fertilizer distributors. These events allowed distributors to understand the issues in the sector and their motivations to invest and grow.
- Create lines of support for sustainable distributor development. The objective was to define areas in which PReFER will support distributors and other partners in order to achieve privatization, including approaches to prices and channels, access to credit and the creation of a federation of fertilizer professionals. This effort includes developing procedures to allocate fertilizer lots to distributors through auction and allocation of subsidies to farmers through vouchers.
- Initiate a framework for collaboration between the private sector and financial institutions. The goal was to connect the private sector, commercial banks and financial institutions (which provide guarantee support). The next step is to edit the application for credit between banking institutions and the private sector.
Analysis of the Financing System of Fertilizer and Resulting Recommendations
The final action of this period was developing an understanding of the voucher auction system in the financing of fertilizer in Rwanda. During meetings, discussions and workshops with all partners in the sector, it was emphasized that fertilizer sector funding is provided directly or indirectly by MINAGRI. PReFER seeks to sensitize the various stakeholders on the need to establish a solid financial system where everyone is responsible for funding these purchases and sales of products. The printing of vouchers, their distribution before the start of the campaign and the payment of fertilizer will be the basis for successful privatization.
PReFER took the following actions to support this effort:
- Engaged in a study tour to Malawi to understand the voucher system in that country.
- Extended an invitation to a private voucher management company in Mali to meet and field visit with the aim of comparing systems.
Using the results of the different baseline survey activities, PReFER will evaluate the operability of the existing system and continue its collaboration with partners by strengthening its support to the weak points in the system.
PReFER Helps Rwanda to Privatize its Fertilizer Sector (Taken from IFDC Report Volume 35, No.4)
New Project Helps Rwanda to Privatize its Fertilizer Sector