COMMERCIALIZATION AND DE-RISKING FOR AGRICULTURAL TRANSFORMATION PROJECT
1. Background
The Ministry of Agriculture and Animal Resources (MINAGRI) and the Ministry of Finance and Economic Planning (MINECOFIN) have requested to the World Bank to prepare a holistic and integrated investment operation comprised of agriculture finance and agriculture production and commercialization. The proposed project budget would be made available through the Investment Project Financing (IPF) instrument and comprising of IDA and Scale-Up Window (SUW) funding.
The request for funding for the Commercialization and De-Risking for Agricultural Transformation Project (CDAT) was issued by the Government of Rwanda in April 2019 and the project preparation and approval were completed in 2022. The financing agreement was signed on 2nd May 2022 and the law Nº 018/2022 of 29/06/2022 approving the ratification of the Financing Agreement was published in the official gazette No. Special of 22nd July 2022.
2. Project Development Objectives (PDO)
The objectives of the project are to increase the use of irrigation and commercialization among producers and agribusiness firms in supported value chains and to increase access to agriculture finance. The targeted beneficiaries will be farmers’ cooperatives, commercial farmers and small and medium-sized agri-enterprises (agri-SMEs). It is planned that the project implementation period is 5 years with a total budget of US$ 300 million
3. Target beneficiaries
The estimated number of beneficiaries is 235,977 households which represent 11 percent of Rwanda’s 2.1 million farming households
The project will provide agricultural finance through private finance institutions that directly or indirectly lend to approximately 2,232 beneficiaries
The crop and livestock insurance anticipates benefitting 575,000 and 75,000 farmers, respectively. In total, it is estimated that about 82,000 hectares of arable land will benefit from project interventions, of which 17,673 ha will benefit from rehabilitated and new irrigation infrastructure
4. Project Components
The project will be implemented through 4 components;
Component 1; Value Chain and Infrastructure Development focuses on strengthening market and value chain linkages and improving land use efficiency for commercial production. It is also building up demand for financial services that can unlock investments to modernize and grow the agri-food sector. It has 3 subcomponents; (1.1) Irrigation rehabilitation and development; (1.2) Land husbandry and (1.3) Innovation and services for agri-business development
Component 2; Agricultural Finance and Insurance; is designed for addressing the supply-side of financial services for agriculture, by leveraging and deploying private sector capital and strengthening the provision of instruments to de-risk the sector. The component has 2 subcomponents; (2.1) Scaling up agricultural finance and (2.2) Strengthening agricultural insurance.
Component 3; Project Management and
Component 4; Contingency Emergency Response allows for the rapid reallocation of credit uncommitted funds in the event of an eligible emergency
5. Targeted Value Chains
The project is targeting 6 value chains namely; (i) Horticulture, (ii) Rice, (iii) Bean, (iv) Maize, (v) Irish Potato and (vi) Cassava
6. Project sites
Project interventions related to irrigation development and rehabilitation as well as land husbandry will implement in 37 sites located in 16 Districts (Muhanga, Nyanza, Ruhango, Huye, Gisagara and Nyaruguru in Southern Province, Kayonza, Bugesera, Gatsibo, Nyagatare and Kirehe in Eastern Province, Rusizi and Nyamasheke in Western Province, Gicumbi in Northern Province, Gasabo and Kicukiro in Kigali City).
Other project interventions will cover the whole country.
8. Planned activities/interventions per component
8.1. Component 1: Value Chain and Infrastructure Development (US$210 million)
This component will aim to increase marketable volumes in the selected value chains and provide targeted climate sensitive infrastructure support. It has three subcomponents:
Subcomponent 1.1: Irrigation rehabilitation and development (US$ 154 million)
Irrigation is critical to increase productivity and commercialization. The objective of the subcomponent is to expand the irrigated area and increase marketable output from irrigated agriculture in a subset of value chains. The targeted area is 17,673 ha (including 9,680 ha of new schemes and 7,993 ha of schemes to be rehabilitated) located in 37 sites in 16 Districts. The proposed interventions in this subcomponent will cover development and rehabilitation of irrigation schemes, construction of postharvest facilities in rice production sites as well as capacity building of Water Users Associations.
The distribution of irrigation area by district is as follow:
Subcomponent 1.2: Land husbandry (US$ 19 million)
The objective of this subcomponent is to ensure protection of the watershed areas that drain to the sites to be developed for irrigation, while also increasing the productivity of these areas and preventing soil erosion. Complementary land husbandry and agronomic measures for soil management (erosion prevention and control; improving fertility, structure, cover, organic matter) enhance climate resilience and are necessary to protect and ensure sustainability of the irrigation infrastructure developed through Subcomponent 1.1. The area to be treated with land husbandry technology is 10,986 ha.
The distribution of land husbandry area by district is as follow:
Subcomponent 1.3: Innovation and services for agri-business development (US$ 37 million)
The objective of the subcomponent is to increase value addition and marketability by addressing critical constraints that directly affect the commercialization of the targeted value chains (Horticulture, Rice, Bean, Maize, Irish Potato and Cassava). The six value chains were selected due to their high commercial orientation and the levels of competitiveness they have shown on domestic, regional and international markets.
Based on analyses for each value chain, the project will finance specific interventions that will address key commercialization constraints. These include:
(i) For rice: mechanization of rice production and improvement of commercialization of long grain rice, mainly on the domestic market;
(ii) For maize: reduction in aflatoxins through improved processing and drying infrastructure, to expand access to domestic and regional markets;
(iii) For cassava: increasing processing infrastructure to create diversified products such as cassava starch and refined flour, with a focus on domestic and regional markets;
(iv) For horticulture: reducing post-harvest losses, promoting value addition as well as facilitating local seed production for greater reach in domestic, regional and international markets;
(v) For Irish potatoes: setting processing infrastructure to expand into sectors like potato crisps and frozen chips, with a focus on the domestic and regional markets; and
(vi) For beans: new marketing models to target specific market niches for different types of beans and development of the processed canned beans sector, for the domestic, regional and international markets.
The project will support a market-oriented seed system by strengthening the seed system in Rwanda Agriculture and Animal Resource Development Board, and ensuring backstopping of private seed producers. This will lead to an increase in the adoption of innovative and climate resilient seeds production.
The project will also strengthen market linkages and value addition to facilitate trade. The project will finance the following interventions: (i) technical assistance to private operators to meet sanitary and phytosanitary (SPS) and other quality requirements of the market. (ii) promotion of women and youth engagement in agriculture to enhance CSA appropriate innovative technology in production and commercialization of different value chains; (iii) fostering linkages between farmers and buyers, through support of quality and bankable business plans development (iv) undertaking capacity building activities in post harvesting handling, processing, and marketing; and (v) technical support to value chains actors in marketing and for improved produce aggregation models for cooperatives.
These interventions will be delivered through a mix of instruments, including a Matching Grant Scheme (which will finance up to 50 percent of the asset costs and be complementary to the credit line activities under Component 2), service provision, technical assistance and innovation challenge fund (which will finance up to 70 percent of youth innovative ideas and projects).
8.2. Component 2: Agricultural Finance and Insurance (US$75 million)
The objective of this component is to expand the supply of financial products and services to farmers and cooperatives for the commercialization of the sector. The project will strengthen and scale up existing public financial support mechanisms, in line with the findings from the agriculture finance diagnostic study in 2018 and the government’s de-risking facility concept.
Subcomponent 2.1: Scaling up agricultural finance (US$55 million)
The subcomponent will finance the following interventions: (1) institutional capacity development for participating financial institutions; and (2) credit line for agriculture finance. Both activities will be managed by BRD based on its expertise in agricultural/agribusiness lending and its relations with other Financial Institutions (FIs) developed through its wholesale lending operations.
Subcomponent 2.2: Strengthening agricultural insurance (US$20 million)
This subcomponent aims to strengthen the quality and effectiveness of agriculture insurance offered through the National Agricultural Insurance Scheme (NAIS), which seeks to de-risk the agricultural sector using market-based insurance mechanisms and fintech solutions. The focus will be to strengthen the NAIS, deploy fintech solutions and coordinate with activities supported under component one to promote climate smart agriculture interventions.
8.3. Component 3: Project implementation arrangements (US$ 15 million)
This component will ensure the smooth implementation of the project. Thus, it will support all aspects of project management, such as: (i) project staffing and their training; (ii) procurement and financial management; (iii) environmental and social safeguards implementation and compliance; (iv) monitoring and evaluation; (v) equipment and operating costs; (vi) communication and knowledge management. RAB will ensure the overall coordination of the project, through its current Single Project Implementation Unit (SPIU). It will also be responsible for the implementation of Component 1 and subcomponent 2.2 activities. In this role, the RAB SPIU will absorb the current staff of NAIS, under a CDAT implementation team. BRD will be responsible for the implementation of subcomponent 2.1. BRD will sign a memorandum of understanding or an implementation agreement with RAB to undertake this work.
Given the multi-sectoral interfaces of this project and the long-standing practice in Rwanda, a Steering Committee (SC) will be established to provide strategic guidance during project implementation. The Committee, chaired by MINAGRI and co-chaired by MINECOFIN, will meet regularly, and will include representatives of relevant government agencies (such as Ministry of Trade and Industry, RAB, National Agricultural Export Development Board – NAEB, BRD, etc.), private sector, and other stakeholders. While a Secretariat will support the works of the SC, it will not be permanent and will not require dedicated staff. Instead, it will draw from the existing staff of the RAB SPIU and BRD. The RAB SPIU will head the Secretariat.
8.4. Component 4: Contingency Emergency Response Component (US$0 million)
This component will allow for rapid reallocation of the project’s uncommitted funds in the event of an eligible emergency.
