This would amount to an additional 3-6% increase in total export revenues and a substantial increase in economic growth. As a result of the growth in high-quality coffee production thanks to the increasing number of washing stations, Rwanda has gone from having a handful of trade partners worldwide in 2012 to over 40 today, demonstrating the increasing integration within international trade and participation in the global value chain (Agrilogic, 2018).
While beyond the scope of this report, it should be highlighted that FDI in processing plants (typically for soluble coffee) can bring substantial resources to producing countries and creates direct and indirect employment as well as backward linkages to suppliers.29
The analysis so far has shown that integration of coffee producers in the C-GVC has the potential to generate tangible benefits ranging from higher productivity and improved profitability and revenues to the adoption of enhanced social and environmental standards, technology and best practices. Governments, international and regional development and financial institutions as well as private sector and civil society organizations are engaged in agri-business development and in the C-GVC in particular to implement the 2030 Development Agenda focusing (Kaplinsky, 2016) on those sustainable development goals that are more closely related to the coffee C-GVC (Figure C.9). Recent assessment of links between the coffee sector and the SDGs has been carried out by Sachs et al. (2019). It is worth mentioning the direct link between the C-GVC and SDG 9 on sustainable industry, innovation and infrastructure. As mentioned earlier in the Report, the decommodification of coffee and the opportunities to upgrade in the GVC work hand in hand with reliable infrastructure and innovation. FDI, for instance, in the form of processing facilities in areas where infrastructure might be underdeveloped, incentivizes authorities to invest in and improve the local infrastructure
FIGURE C.9: Sustainable Development Goals linked to the expansion of the C-GVC
Upgrading products and processes improve efficiency of operations and incomes but the extent to which producers benefit from upgrading depends also on the institutional set-up.
This argument has been supported by robust empirical evidence. For instance, Saenger et al. (2014) show how value chain efficiency and product quality can be improved through third-party contract enforcement interventions. 29 For instance, NestlÊ invested USD 154 million in a soluble coffee factory in Mexico in 2018. The investment created 2,750 direct and indirect jobs in the initial phases and the number is expected to increase to 1,200 direct jobs and 12,000 indirect jobs at the end of the expansion. Similarly, NestlÊ keeps expanding the company’s production capacity in India, one of the fastest growing markets worldwide. The company invested in roughly USD 100 million in the state over the past three years. The latest expansion created employment for nearly 250 people. (Information based on company press releases) 28
SOURCE: ICO
THE VALUE OF COFFEE
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Part II: Section C
Functional upgrading is associated with improved operations and incomes, yet the extent to which producers benefit from it depends on the institutional set-up in the country (e.g., governance and contract enforcement) and on the efficiency of the local supply chain.28 A case study from the Rwandan coffee sector underlines this relation: in addition to the increasing number of washing stations, another important trend has been the emergence of larger multinational firms owning and operating multiple CWS (Box C.6). The analysis by Macchiavello and Morjaria (2021) reveals that foreign groups are particularly effective at turning under-performing stations into high-capacity and efficient facilities. Being acquired by a foreign group entails a bundle of changes, but the improvement in performance stems from a combination of stable marketing channels in the export markets, superior management practices and a higher capacity to implement required changes in the washing stations. Good governance practices are important for economic and social sustainability. Global value chains thus play an essential role in diffusion of better management practices and governance along the value chain. In addition, governments need to establish an institutional setup that supports a private-sector-driven transformation of the coffee sector.
C.3. The C-GVC can contribute to achieving the Sustainable Development Goals
