Wednesday, November 9, 2016

63. Cost of Production research paper announced

November 9, 2016
Feeling a little proud and anxious today as Michigan State University announced to my department, (Community Sustainability in the College of Natural Resources), that I will defend my "Masters B Project" on January 11. Below is the announcement. All invited!

Estimating Farmer Cost of Production: Implications for
Sustainable Growth in Rwanda’s Coffee Sector

Master’s B Project Proposal Defense
By Ruth Ann Church
Wednesday, January 11, 2017, 10:00am
Room 130 Natural Resources Building

A better understanding of costs of production is essential to understanding the profitability and sustainability of coffee in Rwanda where the crop is a main source of household income at the farm level, and of export revenue at the national level. Toward this end the present research seeks first to provide an analysis of the major components of producer cost of production. Further, the study describes a methodology and quantitative estimation process that can be used to collect the necessary data and generate CoP estimates in other coffee producing countries with predominantly smallholder production. Applied to Rwanda, the estimation procedures arrive at mean and median CoP values of 177 RWF/KG and 122 RWF/KG cherry, respectively. These costs for many farmer groups are higher than the average cherry prices being paid in Rwanda. This finding has serious implications for Rwanda’s long-term production as the country continues its transition into higher quality and higher priced specialty coffee markets.

In addition to satisfying the above dual objectives, (an analysis of components of CoP and an estimation methodology) this study provides an analysis of five external determinants of coffee cost of production and how they affect farmer costs in Rwanda: number of trees, years of farmer’s experience, cooperative membership, gender of head of household, and steepness of the slope of the coffee field. The research shows that the number of trees on a farm plantation is significantly and inversely related to CoP. It is recommended that this finding be used to guide both the design and the evaluation of farmer training programs. Programs should maximize impact by seeking to target their resources according to the scale of the targeted coffee producer. The study also shows how the main determinants of CoP can help to explain notable regional differences in production costs.   

With this research on costs of production, those who set cherry prices in Rwanda and those who purchase coffee anywhere in the coffee value chain are better able to adjust the incentive structure to motivate Rwanda’s coffee farmers to invest in their coffee plantations and to raise their productivity levels. We recommend that the cost of production estimated in this study (177 RWF/KG cherry) be incorporated into the formula and process for determining the floor price for coffee cherry in Rwanda. We also see the need for steps to regularly update CoP estimates in the future.  Tracking such cost estimates over time will be helpful to NAEB and washing stations in their strategic planning and as well as day-to-day management decisions. A more accurate formula for establishing cherry floor prices based on multiple years of data will be an essential step towards ensuring Rwanda’s “second sunrise” for coffee.

Committee Members:
Dr. Daniel C. Clay (Chair)
Dr. Maria Claudia Lopez

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