Cautiously optimistic: economic liberalization and reconciliation in Rwanda's coffee sector.

Author:Boudreaux, Karol C.
 
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  1. INTRODUCTION

    In some countries, particular industries play especially important roles. In the United States, for example, the automotive industry has provided hundreds of thousands of jobs and helped shape the image of America as the land of the automobile. (1) More recently, the computer industry has helped create a new image of the U.S. as a high-tech, well-connected service economy. (2) These industries have contributed to the development of an "American identity."

    Coffee has played a unique role in Rwanda's development. For decades, coffee has been Rwanda's top export and chief source of foreign exchange. (3) Thousands of Rwandans have been involved in coffee's cultivation and sale. In the twenty-first century, the industry continues to provide a livelihood for some 500,000 Rwandan families, (4) many of whom work in cooperatives and grow coffee on small plots on the country's hillsides. (5)

    Over the past decade, the coffee sector has been transformed from a highly controlled, politicized industry to one that is liberalized and quickly developing a prized niche product: specialty coffee. Rwandans have successfully built a reputation for quality that buyers in the U.S., Europe, and Asia recognize. These changes are translating into increased income and greater economic empowerment for some Rwandan farmers. (6)

    In addition to improving incomes, the liberalized coffee sector increases opportunities for commercial cooperation among Hums and Tutsis. Smallholders are now free to sell their coffee on world markets at prices they negotiate, creating incentives to form cooperatives in order to benefit from economies of scale. (7) Because smallholders retain profits from coffee sales, they also have incentives to work together to improve the quality of their product. And because coffee in Rwanda is grown by smallholders, who make up the vast majority of the population (90%) (8), liberalized coffee policies have the potential to benefit many Rwandans--Hums as well as Tutsis.

    Rwanda's coffee liberalization, therefore, is likely different from liberalizations that benefit elites (such as Russian privatizations or Kenya land titling reforms). (9) It is, to date, an inclusive reform with positive distributional effects. Because coffee-sector liberalization has raised income, rather than costs, for the rural poor, this liberalization is less likely to promote conflict than liberalizations where costs are spread widely (such as the removal of subsidies) and benefits are narrowly concentrated (such as many privatizations). (10) We note that this is an issue that requires further research. (11)

    Journalistic evidence suggests that commercial cooperation exists among Hum and Tutsi members of coffee cooperatives and that this cooperation may contribute to informal reconciliation. (12) In June 2008, we sponsored and participated in exploratory survey work in Rwanda to investigate this issue. Over ten days, 235 smallholder farmers and employees at coffee washing stations completed surveys regarding their attitudes toward reconciliation, among other issues. (13) Results from these surveys are encouraging, if not dispositive: membership in a coffee cooperative, as well as longer-term association with a coffee washing station, and economic and general life satisfaction are significantly correlated to positive attitudes towards reconciliation. (14) Farmers we surveyed reported an increased willingness to engage in socially inclusive behavior today in comparison to the past. Members of cooperatives were less likely to report high distrust than workers not associated with a cooperative. With respect to material prosperity, farmers are earning more for their coffee beans today than they were in the past and are reporting greater economic satisfaction compared to five years ago. (15)

    Changes in levels of economic satisfaction stem in part from income earned through the sale of specialty coffee. Farmers who earn more from the sale of coffee, and who work together with others in cooperatives (or at private washing stations), express an improvement in the way they view others. (16) We caution though, that to the extent that reconciliation is taking place, it is unclear if the reconciliation is short-term and necessitous or longer-term and sustainable. This is another question that requires further research.

    We believe the Rwandan experience suggests an interesting question: do government policies that expand commercial interaction among former enemies, and that spread the benefits of trade to many, prompt commercial cooperation and perhaps even reconciliation? This suggestion runs counter to some literature on liberalization and conflict, which suggests that economic liberalization often contributes to conflict. (17)

    The Rwandan reforms may be distinctive in that they have the potential to benefit all farmers, Hutus as well as Tutsis. And, as a vast majority of Rwandans are still engaged in agricultural production, this liberalization creates opportunities for a broad swathe of people to increase their income. (18) Such policies provide for commercial cooperation and may create a climate in which informal reconciliation takes place. If so, then in post-conflict environments, similar broad-based liberalization policies may present an important complement to more formal reconciliation efforts such as international tribunals and local court proceedings. (19)

  2. COFFEE AND POWER IN RWANDA

    The history of the coffee industry in Rwanda, until recently, is that of unfortunate politicization. (20) Successive governments used control of the coffee trade for their political and financial gain. Through compulsory production, export taxes, and a government-controlled export agency, successive regimes captured the profits of coffee farmers and used these funds to maintain power. (21) So long as international coffee prices remained high, the system was stable; however, once prices dropped in the late 1980s and early 1990s, a key government source of revenue shrank. (22) By the early 1990s, the government lost its ability to pay farmers a subsidized price for coffee, putting at risk its base of rural support. (23)

    Missionaries may have first introduced coffee into Rwanda in the early part of the twentieth century, but official government involvement began in the 1930s with the Belgian colonial government's "coffee campaigns." (24) Under these policies, government authorities built nurseries and supplied seeds, but they also required Rwandan farmers to plant coffee trees. (25) The colonial government introduced a mandated minimum price for coffee, created mandatory quality guidelines, and issued special licenses that allowed only some firms to purchase coffee. (26) They imposed export taxes on coffee sales and individual income taxes on the local producers, most of whom were Hutu farmers. Tutsi chiefs collected these taxes, which supported the colonial government and their Tutsi allies. (27)

    The post-independence Kayibanda government (1962-1973) maintained a tight grip on the coffee sector. (28) Under this regime, a government agency (OCIR), together with a monopsony export company (Rwandex), purchased and then sold on world markets all coffee grown in Rwanda. (29) The farm gate price paid to coffee farmers was set by the government (by OCIR-Cafe after it was created in 1978). (30) Middlemen bought beans from farmers and sold them to a monopsony exporter, Rwandex. The markets where smallholders brought their beans for purchase acted as "the economic arm of the Gitarama (i.e. Kayibanda) regime." (31)

    Heavy government involvement in the coffee sector continued under the Habyarimana regime (1973-1994). (32) During the 1970s and 1980s, as world coffee prices increased, coffee exports provided between 60 and 80 percent of Rwanda's export revenue. (33) Habyarimana ensured control of these important rents by appointing relatives and supporters to positions of authority at the powerful and lucrative state-run coffee agency, OCIR-Cafe. (34)

    A rise in coffee prices allowed the government to modestly increase the price it paid to farmers, although the government continued to retain much of the difference between the gate price paid to smallholders and the world market price. Verwimp states: "The very high world market coffee prices allowed the [Habyarimana] regime's elite to increase both its personal consumption and its power over the population." (35) The government used its additional revenue to buy loyalty in rural areas (through higher prices paid for coffee and through subsidized agricultural inputs) and to spend more on monitoring the population. (36)

    A crisis began when worldwide coffee prices tumbled in the late 1980s and the government rapidly lost revenue. (37) For a few years it attempted to keep payments for coffee stable, hut this was an unsustainable policy--especially as, from 1990 onwards, the government needed resources to fight the invading Rwandan Patriotic Front (RPF) forces. By the early 1990s, the government lowered the price it paid to smallholders; price supports to coffee farmers ended in 1992. (38) Storey writes: "[f]or the great mass of ordinary people, the benefits accruing from the fact that they were ruled by Hutu rather than Tutsi were wearing thin, with the result that a rupture between rulers and ruled was deepening." (39)

    With their income falling, farmers wanted to shift into production of another cash crop, bananas, but this was forbidden by law (the government may have refused to modify the law because of coffee's role as the major source of export revenue and a lack of readily available, viable substitutes). (40) With an extensive system of local monitors in place, it was difficult for farmers to ignore the law. (41) However, in the face of falling income and hunger, farmers uprooted as many as 300,000 coffee trees (42) and planted food and other more attractive cash crops. (43)

    The fall in coffee prices, coupled...

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