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
Items |
Financial internal rate of return (%) |
Economic internal rate of return (%) |
Industrial bloc
ˇ
New
planting
ˇ
Rehabilitation |
37
62 |
35
61 |
Home garden
ˇ
New
planting |
42 |
42 |
Global for the whole tea component |
|
18 |
|