The Political Economy of Building Up a Domestic Agricultural Value Chain: Exploring Success and Failure in Coffee Farming and Coffee-Processing in Post-2000 Rwanda

Building up agrarian value chains holds substantial economic development potential for many low-income countries. However, coordinating industrial polices to simultaneously boost the agricultural production and agro-processing node entails enormous challenges. This article develops a simple political economy framework based on political settlements theory and then applies it to analyze the peculiar development of the Rwandan coffee sector over the last two decades. From 2000, the Rwandan government put high efforts in both doubling coffee production and upgrading coffee-processing. Twenty years later, it had achieved remarkable success in the latter and painful failure in the former. Using primary qualitative evidence collected in 2019, the article traces the evolution of both sub-sectors and finds that the tripartite power configuration between the government, farmers, and processors influenced both policy design and its outcomes. In coffee-processing, a combination of the Rwandan state’s and donors’ determined interventions provided the technological expertise, financial support, and enforcement power to set up, foster, and discipline processors, steer farmers, and thus engineer an impressive upgrading transformation. In coffee farming, policy measures of area expansion and yield boosting were insufficient to outweigh overbearing price disincentives for producers resulting from policy errors and a lop-sided power distribution vis-à-vis downstream actors. This case study demonstrates both the intricacies of effective policymaking in agricultural value chains and the usefulness of the provided framework to make sense of agrarian upgrading trajectories in Rwanda and beyond.