Venture philanthropy in Rwandan tea factories
Jo Mackie, chief executive of Wood Family Trust (WFT) believes her organisation is “taking venture philanthropy to the next level” through its “unique” work in Rwanda.
She says the project could have a huge impact, fulfil the WFT’s aim of “making markets work for the poor” and provide a model to be replicated elsewhere.
In December 2012, Rwanda Tea Investments (RTI), a jointly owned Scottish charitable company, established by WFT and the Gatsby Foundation, invested £7.5m in two Rwandan tea factories.
RTI purchased the majority shares of the factories, Mulundi (55%) and Shagasha (60%), from the Rwandan government during its privatisation of the tea industry.
The aim of the investment is to increase the incomes of the 12,000 smallholder tea farmers, who are minority shareholders in the factories. Full ownership will be transferred to them, at no consideration, once they meet business and governance key performance indicators (KPIs) and when seven years have elapsed.
KPIs cover how the factories are managed, including engagement and interaction with a wide range of farmers, to guarantee that the business will be able to grow.
Mackie says: “For us to hand the business over we need to know that management and governance are robust enough to work over time.”
She believes the project is starting from a strong base, stating that there is expertise within the communities, including an executive from Rwandan Toyota and they have good farmers’ representatives with key skills. However, they still need to reach a ‘critical mass’ of leadership.
The seven-year time span will allow WFT and the Gatsby Foundation to recoup their investment (they only seek the return of the principle) and to monitor its impact.
Kenya Tea Development Agency (KTDA) is managing the project. It owns about 65 small factories in Kenya. The tea industry in Kenya has a greater yield per hectare and higher wages for smallholder farmers than its East African near-neighbours.
KTDA is charged with providing management positions for local Rwandans as well as training and development opportunities to increase the leadership capacity within local communities. WFT has also secured observers and external support for governance and corporate management. It’s all designed to ensure that the investment improves the lives of farmers.
“We take our relationship with the smallholder farmers very seriously,” says Mackie. “From the time we first thought about buying factories we knew it would be a joint venture with them. Although we deal with the leadership, we want to make sure all 12,000 farmers are part of this process.”
The all-important relationship with farmers is improving all the time, Mackie adds. She attributes this to KTDA following best practice within the tea industry such as paying farmers directly and on time, providing fertiliser on credit and having clear throughput agreements.
Mackie states clearly: “The business will fail if the farmers aren’t on board.”
WTF and the Gatsby Foundation also run two ongoing projects in East Africa: Imbarutso (Win Win for Rwandan Tea) and Chai (Tea for the Development of Tanzania). There are strong early signs of success from these initiatives. In Tanzania, the Trusts’ programme has helped increase smallholder tea farmer income by 70% and increased yields per hectare by 22%.
This innovative investment could have an even greater impact for smallholder farmers, which could be replicated as the Rwandan government privatises existing and green-field sites. The crop is already Rwanda’s second most significant export earner, and smallholders produce more than 65% of tea in the country.
Despite the risks, three factors helped WFT to decide to take on the project. As an organisation, it has three years’ experience in the tea industry. It also has a vital 50:50 funding partnership with the Gatsby Foundation and access to strong local management in Rwanda.
Perhaps surprisingly, Mackie says: “We didn’t set out to be a social investor. Using equity and making loans to businesses was the best way for us to achieve the impact we seek.”
But Mackie doesn’t think it is a silver bullet: “If there was one, I think it would have been found by now. I think we’re talking about incremental change and success.
“We have seen early signs of success. The project has the potential to change the way we do things. But you need to come back in five years.”
By that time, if the early signs of success continue and develop, Mackie says, it’s unlikely the initiative will be unique.