Benefits, Justifications and Risks

Economic Analysis

The general assumptions taken into consideration for the economic analysis include: (i) implementation period of 5 years; (ii) economic life of tea ranging from 25 years to 40 years; (iii) benefits and costs are in 2005 base prices; (iv) standard conversion factor of 0.9 used to convert non-traded inputs into border values and, (v) daily labor cost in the estate sector at FRW 500 per day (following the latest increase in daily wages from the GoR).

Quantifiable tea component benefits computed for financial and economic analysis comprise the value of incremental green leaf and made tea, resulting from investments in rehabilitation and new planting of the industrial block and smallholder home garden new planting of tea. Nursery development was not considered as it was not a commercial venture but was producing solely for the above three activities. The financial and the economic return of the Nshili tea factor cannot be calculated since the cost estimates of the new factory are still not available. Since the land earmarked for the smallholders from the industrial block would be worked collectively, financial analysis was carried out for a holding of 1 ha. The analysis of the industrial block indicates that each smallholder will enjoy incremental income from the first year of bearing from both rehabilitated and the new planting of tea. Return to each household will be FRW 2,575 per month to from the 3rd year of the rehabilitated tea in the estate while the returns will reach the maximum from the 11th year to FRW 12,553 per month. The returns from new plantings from the tea estate will bring FRW 1,225 per month to each household while this amount will reach FRW 9,184 per month from the 11th year of production. From each home garden plot developed under tea in an extent of 0.15 ha, each household income will be FRW 1,007 from the 5th year of bearing while this will reach the maximum of FRW 44,866 per month on the 11th year. Thus from all three sources, the income of each household from tea cultivation will be FRW 2,575 per month starting from the 3rd year. In the 5th year, the monthly income will reach FRW 3,807 and from the 11th year, it will peek to a maximum return of FRW 66,603 per month. In addition, some of the farmers will get employment both in the tea estate owned by the PI and some others will be employed in the Nshili Tea Factory as casual hands.

The financial and the economic internal rate of return (IRR) for the activities of the tea component and the economic internal rate of return (EIRR) for the whole tea component are illustrated in the table below:

Table 2: Financial and Economic Internal Rate