private sector development in...

Report No. 9686-BU

BurundiPrivate Sector Development in Agriculture

January 22, 1993

Agriculture Operations DivisionSouth-Central and Indian Ocean DepartmentAfrica Region

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This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may not otherwisebe disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency unit = Burundi franc (FBu)Period Average: 1992 US$1 = FBu 200 (as of March 1992)

1991 US$1 = FBu 181.51990 US$1 - FBu 1711989 US$1 - FBu 1591988 US$1 = FBu 1401987 US$1 - FBu 1241985 US$1 FBu 121

Weights and Measures

Metris Inte national Standard System

ACRONYMS AND ABBREVIATIONS

ABEC Association Burundaise des Exportateurs de CafeAFDB African Development BankBCC Burundi Coffee CompanyBNDE Banque Nationale de Developpement EconomiqueBNR Banque Nationale de la RdpubliqueCCCE Caisse Centrale de Cooperation EconomiqueCOGERCO Compagnie de Gerance du CotonCOTEBU Compagnie des Textiles du BurundiCOOPEC Cooperative d'Epargne et de Credit (Saving and Credit Cooperatives)DGPAE Direction Gdnerale de l'Agriculture et de l'ElevageEAP Enviromnent Action PlanEEC European Economic CommunityFACAGRO Faculte d'AgronomieINECN Institut National pour I'Environnement et Conservation de la NatureIPC International Potato CenterIRAZ Institut de Recherche Agronomique et LootechniqueISABU Iri.-titut des Sciences Agronomiques du BurundiISTEEBU Institut Statistiques et Etudes EconomiquesMOAL Ministry of Agriculture and LivestockMLDTE Ministry of Land Development, Tourism and EnviromnentMRD Ministry of Rural DevelopmentNSP National Seed PlanOCIBU Office des Cultures Industrielles du BurundiOTB Office des Thes du BurundiRDC Regional Development CompanySAC Structural Adjustment CreditSODECO Societe de Deparcharge et de ConditionnementSOGESTAL Societe de Gestion des Usines de Lavage de CafdSOSUMO Socidte Sucriere du MossoUNDP United Nations Development ProgrammeUSAID United States Agency for International Development

GOVERNMENT OF BURUNDI FISCAL YEARJanuary 1 to December 31


TABLE OF CONTENTS

EXECUTIVE SUMMARY ........... ............................... i

CHAPTER I: INTRODUCnON AND BACKGROUND ....................... 1A. Introduction . ............................................ 1B. The Role of Agriculture in the Economy .......................... 1C. Adjustment Performance and Sector Policy Background ................ 4

Structural Adjustment ...... .... ......................... 4Agricultural Policy Background ....... ............. 4

CHAPTER II: SECTOR PERFORMANCE IN THE 1980s . . 7A. Food Production ......................................... 7

Food Crops. 7Livestock. 9Fisheries .11Food Security .12

B. Agro-industrial Crops .17Coffee .17Tea .19Cotton .21Other Export Crops .22Import Substitution Crops .24Supply and Demand Projections for Agro-industrial Crops .25

C. Forestry .27D. Institutional Performance .28E. Private Sector Institutions and Performance .30

CHAPTER HI: CONSTRAINTS TO AGRICULTURAL GROWTH . .31A. Macroeconomic Constraints .31

Exchange Rate Policy .31Government Expenditure Policy .32Tax and Tariff Policies .32

B. Microeconomic Constraints .33Fixed Input and Output Prices .33Government Control of Agricultural Inputs .34Labor .34Credit .35

C. Sociopolitical Constraints .36The Effect of Government Policies on Rural Initiative .36The Oxymoron of Growing Poverty and a Dynamic Rural Sector .38

D. Institutional Constraints .39Government Activity in the Sector .39Poorly Coordinated and Defined Extension and Research Programs .40Marketing Constraints .41Education .42

E. Environmental Constraints .42

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

CHAPTER IV: STRATEGY FOR AGRICULTURE-BASED GROWTH ..... ....... 44A. Introduction ........................................... 44B. Promotion of a Dynamic Private Sectr .......................... 45C. The Evolving Role of the Government ........................... 46

Research and Extension ................................. 46Creation of Supportive Regulatory Environment .................. 47Public Expenditures .................................... 48A National Environmental Policy ........................... 48Institutional Reforms ................................... 48

D. Conclusions ........................................... 49

TECHNICAL ANNEXES AND BACKGROUND PAPERS

Annex 1. Proposed Policy Matrix .................................... 50Annex 2. Comparative Advantage Analysis of Burundi Agriculture ................ 58Annex 3. Strategy for Private Agro-industrial Enterprise Development .............. 74Annex 4. Statistical Appendix . ...................................... 90

MAPS

1. Physical Map (Rainfall and Altitude)


PREFACE

This is one of two reports, written in parallel discussing the issues and prospects indeveloping the private sector in Burundi. The other, entitled "Private Sector Development in theIndustrial Sector," was issued on December 31, 1991. That report covers the enablingmacroeconomic environment, legal and regulatory constraints, and institutional and promotionalmeasures for the secondary and services sectors.

This report is based on the findings of a mission that visited Burundi in October 1990. It waswritten by Jean-Frangois Barres (mission leader), with key contributions by Messrs. J. C. Fayd'Herbeand J. Rwamabuga (Resident Mission, Burundi), Mr. F. Julien (Caisse Centrale de CooperationEconomique, agro-industries), Mr. J. Meerman (AF3AG, macro-economic environment), Mr. A.Yates (AFTAG, research and extension), Mr. H. Andrews (consultant, seeds), Mr. Scott(international Potato Center, tuber crops), Mr. Manangwari (consultant, land tenure issues), Mr. A.Guichaoua (consultant, social and institutional constraints), and Mrs. Louise Cord (consultant,economic analysis). Earlier drafts benefited from comments by Mr. Peter Hazell, lead adviser, andfrom Mr. Michael Cernea, peer reviewer. The report was discussed with the Burundian authoritiesin April 1992.

EXECUTIVE SUMMARY

1. Burundi is a small, landlocked country in East Central Africa. With a population estimatedat 5.7 million (1992), Burundi has the second highest population density in Africa (193 people persquare kilometer). The country's population is concentrated in its eastern highlands, and more than50 percent of the country's available arable land area located mainly in Burundi's southwest regions,remains unused or underused. Agriculture is the most important economic activity, accounting forabout 50 percent of gross domestic product (GDP), and 90 percent of exports (of which 80 percentis coffee). The secondary sector (mining and industry) generates only 14 percent of GDP and 5percent of exports, arnd the services sector provides 25 percent of GDP.

2. Burundi is one of the few sub-Saharan African countries where increases in food produc:ionduring the last decade (at 3.1 percent per year) have kept pace with population growth (also at 3.1percent per year). This expansion reflects an increase in acreage rather than yields, and has beenpossible because the country is not as land scarce as its northern neighbor, Rwanda. However,marketed food production has stagnated as has the purchase of agricultural inputs, and the productionof cash crops has advanced only slowly, with the country unable to make important inroads indiversifying away from its main export, coffee. To achieve sustained agricultural growth in thefuture, production increases have to be attained through better productivity and a lower growth inland use; more emphasis needs to be placed on market expansion and the development of newmarkets; and to avoid a decline in soil fertility, the use of inputs will need to be increased.

3. 'IThere are good reasons to believe that Burundi's agricultural growth could be accelerated andwell exceed population growth in the medium term. First, the country possesses relatively fertilesoils, large areas of which are unused or under-utilized; even in densely cultivated areas, yields ofmost crops are low and could be increased. Second, the Government has shown a willingness tofollow sound macroeconomic policies, including exchange rate adjustments that maintain thecompetitiveness of the country's agricultural exports and facilitate export diversification.Comparative advantage analyses have shown that, despite Burundi's distance from markets, most ofits agricultural tradables, including coffee, are internationally competitive. Third, the country hasa well developed transport and communications infrastructure, and a small but dynamic private tradeand agro-processing sector that, under the right policy framework, is capable of rapid expansion.

4. To fully exploit the sector's potential, Burundi must overcome a number of constraints. Untilrecently, deep ethnic and political divisions in the country created an environment in which theGovernment felt obligated to intervene in the sector's ?rincipal activities at both the central level andin the field. This has severely linited the initiative of private entrepreneurs in production, trading,and .gro-processing. It has also led to management and investment inefficiencies in the public sectorand to cost and price distortions in public enterprises in agro-processing. Also, the Government'stop-down approach in its provision of agricultural services (extension and research) has led toinefficiency because the services have been responsive to policy instructions rather than to the needsof producers. In addition, although Burundi has adequate land tenure laws, the Government has untilrecently lacked the political will and the administrative and legal institutions to implement the laws.As a result, ownership and user rights remain in dispute for large tracts of land, precluding their fullexploitation. Finally, agriculture is hampered by physical constraints, particularly in the populatedhighlands, where erosion and declining soil fertility pose a threat to the continued growth of the

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5. This report identifies the development of a dynamnic private sectr, and a reduction in the roleof Government as the main elements necessary for achieving agricultural growth. It focusses on twopriority actions: the liberalization of agricultural production and agro-industrial processing andmarketing activities from excessive regulation, and the restructuring and privatization of pub!icenterprises, as the main elements to develop more dynamic marketing as well as new markets foragricultural produce. For smallho'der farmers, this means the ability to behave like entrepreneurs-toallocate resources according to undistorted market signals-and to organize into autonomousprofessional groups and cooperatives. For private traders and processors, it means the ability toorganize into professional associations and to organize contractual arrangements that would bringclose contacts with farmers, facilitating the transfer of technology and the development of marketingchannels. And for the Government, it would have to change its focus to (1) creating a competitiveenvironment; (2) eliminating input subsidies and fixed producer prices for export crops, liftingregulations detailing input use, sources of input supply, and cultivation requirements, and endingcompulsory sales to public enterprises; (3) providing adequate support services in research andextension ; (4) developing and applying a proper regulatory framework for land tenure, forestrymanagement, phytosanitary practices, animal health, and quality safeguards; (5) undertakinginvestments with significant externalities, such as land development (erosion control, irrigation,drainaga), and better air transport links; and (6) developing a coherent environmental policy.

6. Government gradually began to move in the direction of a new agricultural policy some yearsago. The new approach called for a shift in the role of Government from producer and processorto regulator and promotor, and for the development of the private sector and cooperatives. In the1988-91 period, Government ended its coffee export monopoly and established a coffee auctionsystem open to private traders, and opened up coffee processing to private investment; it alsoliberalized the marketing of rice, food crops and agricultural inputs (fertilizer). In 1992, Government(1) ended the obligation to cultivate cotton in the paysannats; (2) permitted producers to uproot coffeein marginal production zones; (3) liberalized the marketing and processing of tea, cotton, sugar, palmoil and dairy products; and (4) began the process of privatization of public enterprises in tea, cottonand sugar processing.

7. A lot remains to be done, however, to ensure that these changes in orientation are dulycarried out and satisfactorily completed. The Government would be much strengthened in its resolveto privatize and allow further liberalization, if a broad response from the domestic private sector isforthcoming; if professional organizations of farmers and traders alike wIll gather strength and takenew initiatives with positive results; and if private investment, with the proper encouragement, wIllbe expanding. Also, Government wIll have to make further progress in creating an environmentfavorable to private initiative, by clarifying and properly applying its land tenure laws, by executinga coherent environment policy, and by focussing on public investments with significant externalitiesfor the agricultural sector, such as the development and propagation of new technology and theimprovement of rural infrastructure as well as access to international markets (road and air transport).It is on these actions that Burundi's main aid donors will have to focus their assistance and financing.

I/ Other consraints not specific to agiculture, such as tax policie, labor laws, and the regulatory and legal framework forbusiness, are addressed in 'Burandi: Industrial Policies and Private Setor Development (9422-BU)".

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CHAPTER : INTRODUCTION AND BACKGROUND

A. Introduction

1.1 Burundi is a small, landlocked country in East Central Africa, with an area of 27,834square kilometers (km) and lying 1,200 km from the Indian Ocean and 2,300 km from the Atlantic.Witn an estimated population of 5.72 million (1992) and an annual population growth rate of 3.06percent, Burundi has the second highest population density in Africa (193 people per squarekilometer). Although demographic pressure is high in rural areas, urban migration has been limited,and urban dwellers presently comprise only 7 percent of the total population (1992). Despfte acidicsoils, Burundi is relatively well suited for agriculture: 86 percent of its land area is potentially arable,the climate permits two rainfed cropping seasons, and irrigation is possible in its bottomlands.Agriculture is Burundi's most important economic activity, accounting for approximately half of Itsgross domestic product (GDP), 90 percent of its en.ployment, and 90 percent of its exports (of which80 percent is coffee). The industrial sector generates only 14 percent of GDP and 5 percent ofexports, and the services sector provides 25 percent of GDP (1989).

1.2 Burundi's GDP per capita, estimated at about US$215 (1991), ranks among the lowest onthe continent. Its annual per capita GDP growth has been consistently above average levels for Sub-Saharan Africa since the mid-1960s however, and followed the typical pattern of moderate growthin the 1970s and slow growth in the 1980s. The country's economic and financial situation has beenclosely linked to the international price for coffee, which has followed a constant downward trendover the past six years and is now at its lowest level ever in real terms.

1.3 Burundi's approximately 1 million smaliholder farmers play a major role in the productionof its export and food crops. Manufacturing, energy, construction, and the processing and exportof primary commodities are dominated by the quasi-monopolistic public sector, which generates halfof the country's formal employment.

1.4 Burundi has been plagued by repeated ethnic strife, which has slowed the development ofa modern private sector. The ethnic conflict has reinforced the tendency, common among Africancountries, for the Government to intervene in the economy. In the 1970s and the early 1980s a largenumber of public enterprises with monopoly rights were created in key sectors, and complexadministrative controls were introduced allowing the Government to retain substantial discretionarypowers over business activity. Since the Third Republic came to power following a military coupin late 1987, the country has been gradually moving toward a more liberal economic and politicalregime. A national policy of reconciliation and unity among the country's major ethiic groups hasbeen largely successful: peace has been restored, and a significant opening up of the political systemis underway. A new constitution introducing a multiparty political system was adopted in March1992, and national and local elections are expected in early 1993.

B. The Role of Agriculture in the Economy

1.5 Agriculture generates a large share of Burundi's GDP-one of the largest shares in theworld-with 50 percent of GDP coming from the primary sector. Agriculture also supplies most ofthe inputs for Burundi's small formal and informal industrial sectors: more than half (55 percent) ofits industrial production (not counting wood and paper industries) was based on agro-industrial

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activities in 1989 (table 1). !/ Agricultural production is generated mainly by the subsistence sector;food production (including livestock and fisheries) accounts for 86 percent of primary sector GDP,and cash crops and forestry account for 9 percent and 5 percent. Smallholder farmers, working onsmall, hilly plots averaging 0.7 hectare (ha), cultivate 90 percent of Burundi's exploited, arablefarmland. The rest is devoted to industrial plantations (1 percent) and artificial forests (9 percent).

Table 1: Coqposition of Gross Domestic Product 1n Current Prices, 1991

NitLions Share in Share in GDPSector of FBu Sector (percent) (percent)

Primery Sector 105,935 100 soFood Production Subtotal 97.518 92 46Food Crops 83,428 78 39Livestock 8,144 8 4Fisheries 564 1 .3

Forestry 5,382 5 2Export Crops 8,417 8 4

Secondary Sector 30,382 100 14Manufacturing 9,354 31 4Agriculture based manufac. 5s783 19 3Agricultural Processing 601 2 .3Food Industries 4,054 13 2Textiles, Leatt-Itr production 1,128 4 .5

Other Secondary 24,599 73 12

Tertiary Sector 55.213 100 26

Indirect Taxes, net of subsidies 22.370 100 11

GDP at Market Prices 213,900 100 100

a. Indirect taxes include import taxes minus subsidies.

Source: Ministiy of Plamning, Econonic Buruxdaise 1990, Cadrage macroconomique, 1993-1997

1.6 Between 1980 and 1989, the share of agriculture in real factor GDP declined from 62 to50 percent, reflecting the relatively weak performance of the dominant food crop sector and the fastergrowth rates in industry and, especially services sector (table 2). During the 1980s, food cropsincreased an average 3.1 percent a year in volume, compared with 16 percent for export crops. Thesignificant growth in export crops reflects increased Government investment in the sector, the use ofimproved inputs, and, most important, an expansion in the area under cultivation. The relativelysmall increase in food crop output is due mainly to increased acreage, as cultivation techniques andyields changed little during the past decade. Most food crop production is to satisfy on-farmconsumption needs, as farmers are hesitant to rely on markets. Consequently, there is little incentiveto expand food crop production faster than the population growth rate of 3.06 percent.

1.7 Livestock production grew at an annual rate of only 1.4 percent in the 1980s, and fishery

2/ Agro-industries use the following agricultual products: COTEBU uses COGERCO's cotton fiber, QUAIMI itscotton thrcid, and RAPINA its cotton seeds; BTC uses tobacco leaves; Bnrudi uses SOSUMO's sugar,MPEKE brewety uses sorghum; and SAVONOR uses palm oil.

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production actually declined. This production record reflects traditionally low levels of investmentin livestock and the overexploitation of fish in Lake Tanganyika. In addition, the share ofagricultural exports in total exports has declined since the mid-1980s, dropping from 95.6 percentIn 1982 to 89.9 percent In 1989. But this reflects the deterioration in world coffee prices rather thansignificant changes in the volume or composition of exports.

Table 2: Average GroWth Rate for Real Factor GDPby Sector, 1980-90

(percwnt)

Sector Average Anrual Growth Rate

Primary 3.2Food Cropti 3.1Livestock 1.4Fisheries -2.3Forestry 2.9Export Crops 16.1

Industry 4.8

Services 5.7

Real Factor GDP 4.1

Source: Minisry of Planning.

1.8 Burundi's agricultural sector is characterized by traditional pioduction methods, and fewmodern inputs are used (table 3). This reflects persistent weakness in research and dissemination ofimproved technology, high tariffs on capital imports, and inadequate, Government-dominated inputmarketing and distribution channels. Intermediate goods (improved seeds, fertilizers, implements)represent about 6 percent of the value of food and export crop production, and less than 1 percentof the value of livestock and forestry production. Only fishery production-especially in the modernsector-appears to be relatively capital-intensive. Fixed capital and wages (hired labor) each accountfor less than 1 percent of the value added of food crops. The sector's low capitaliz -tion provides apartial explanation for its low sensitivity to the exchange rate adjustments of the late 1980s.

TabLe 3: Share of Inter mediate Goods in AgricuLtural Production, 1988(Percent)

Subsector Intermediate Goods asPercentage of Value of Production

Food Crops 5.5Livestock 0.4Traditional Fisheries 13.3Export Crops 6.1Forestry 0.9Modern Fisheries 39.2

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C. AdJunment Performance and Sector Poicy Background

Struur Ajustment

1.9 In 1986 Burundi began a structural adjustment program ained at stabilizing domestic andexternal finances, liberalizing the economy, improving the allocation of resources, and redefining therole of the state in the productive secto-. Performance has been mixed and has suffered because ofpolitical instability, climatic variability, and the collapse of the international price of coffee. Theprogram's stabilization component. which emphasized short-run balance of payments equilibrium, wasgiven priority in the conduct of Burundi's economic reform policies. The greatest progress was madein instituting trade (exchange rate and tariff) and monetary policy reforms, and restricting demand.3/ Structural adjustments have been minimal, however, and except for the restructuring of the coffeesubsector (which just started) and the privatization of the state-owned dairy farms, dairy processingplant, and flour mill, the Goverm-ent's direct role in productive activities through public enterpriseshas remained basically unchanged. This has inhibited the anticipated supply response tomacroeconomic adjustments, as increased export earnings from devaluations were almost entirelyabsorbed by the agro-industrial public enterprises. The continued importance of the public enterprisesector has also precluded reform of the financial sector, which has been dominated by government-guaranteed loans to public enterprises. The contraction in demand, coupled with the absence of asupply response, led to a deceleration in the rate of growth of real GDP during the adjustment periodfrom 5 percent in 1980-85 to 3.8 percent in 1986-89; however, it is still slightly positive in per capitaterms and compares favorably to growth rates in low-income Sub-Saharan Africa, where averageGDP per capita declined by 0.4 percent in 1980-87. Despite the stated policy of exportdiversification, the economy remains hignly dependent on coffee. This dependence, combined withthe decline in wocrld prices for the commodity, helps explain the decline in the ratio of exports toimports over the adjustment period, from 54 percent in 1986 to 38 percent in 1989.

Agricultural Policy Background

1.10 Since 1968 the Government has adopted four five-year development plans that haveconsistently emphasized food-crop production for food self-sufficiency, and cash crop developmentfor foreign exchange. The first two plans focused on traditional agro-industrial crops. The third planhad more diverse objectives, emphasizing import substitution, export diversification, the developmentof livestock and fishing, and control of erosion and deforestation. The fourth plan increased theGovernment's role in the agricultural sector through the public enterprises, and promoted thedecentralization of economic and social services through the creation of Regional DevelopmentCompanies (RDCs) to "ordinate and implement development activities in their geographic areas.The RDCs figured prominently in the fourth plan, and were to absorb about 70 percent of allinvestments in the sector. But only 57 percent of funds allocated under the plan to the agriculturalsector were disbursed, even though 82 percent of total plan funds were invested. The food cropsector has been the most affected by this weak implementation.

1.11 As part of its structural adjustment program, the Government adopted a new agricultural

3/ Between 1987 and 1989, the exchange rate was devalued three times, resulting in a 50 percent devaluation in realterms. Quantitative restrictions on Wipots were removed--except for products competing with products of publicenterprises--and replaced by import duties, and the fist phase of a comprehensive tariff reform was introduced.The number of tariff rates was cut, and the tariff range for non-luxury goods was narrowed from 0-280 to 15-50.

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sector policy in 1988 In accordance with the Agricultural Policy Statement of the Second StructiralAdjustment Credit. The policy was updated during the 1991 Agricultural Round Table. The newpolicy seeks a shift in the role of the Government from producer and processor to regulator andpromoter, awd an increase in the role c private cooperatives and other farmers' organizations. Toachieve these objectives, the Government agreed to liberalize the marketing of coffee, rice, foodcrops, and agricultural inputs (fertilizer). Environmental issues have also become a high priority;these will be addressed by an Environment Action Plan (EAP) under preparation by the new Ministryfor Land Development, Tourism and Environment.

1.12 To support the Government's agricultural reform program, the World Bank is financingtwo agricultural sector operations with policy and investment components. The Coffee Sector Project(Cr. 2123-BU) promotes a package of inat!tutional and financial reforms to improve the efficiencyof the industry and open it up to private management and capital. The project finaaces investmentsin coffee-washing stations and in research and training to increase Burundi's output of the high-value,fully washed coffee (annex 2). And to assist the Government in liberalizing input marketing,eliminating subsidies, and developing improved technical packages, the Bank is financing anAgricultural Services Sector Project (Cr. 2024-BU). This project supports the restructuring ofBuyenzi and Kirimiro RDCs, which will transfer responsibility for the agricultural services to theGeneral Directorate for Extension of the Ministry of Agriculture and Livestock (MOAL) and spin offthe management of the coffee-washing stations to autonomous enterprises, Societes de Gestion desUsines de Lavage de Cafe (SOGESTALs), open to private or cooperative ownership.

1.13 Despite these moves toward agricultural sector reform, the Government, through publicenterprises, remains the sole real economic agent for the principal export crops (except tobacco,although the Burundi Tobacco Company is currently under the Government's trusteeship) and importsubstitution crops (palm oil, sugar), and food production has not yet been stimulated by the reforms.The absence of a broader supply response among Burundi's rural farmers can be explained by severalfactors: (1) weak domestic demand for food crops; (2) low producer prices for cash crops; (3)inadequate access to land and agricultural inputs; (4) capital constraints; (5) poor soil fertility due toerosion and overuse; (6) the reluctance of farmers to increase their dependence on a largelyGovernment-controlled mraket economy because of the country's political and social history; and (7)climatic variability. Nevertheless, in resi onse to the Government's more positive attitude toward theprivate sector and the adoption of macroeconomic reforms, new export diversification initiatives(green beans, passion fruit, flowers) have emerged. They reflect the dynamic response of a smallgroup of export-oriented urban entrepreneurs who are well integrated in the modern economy andhave relatively easy access to capital and good coLnections in Government circles. The averagenumber of commercial and industrial enterprises created each year has doubled since 1986, as hasthe number of importers.

1.14 The continued expansion of exports (traditional and nontraditional) and agro-industrialactivities will depend on the ability of the modern private sector to offer the necessary financialincentives to producers and on the ability of the Government to provide rural entrepreneurs withtechnical support to stimulate agricultural production. Only if rural incomes are increased throughmore competitive prices for cash crops will farmers have the revenues to invest in food cropproduction and expand output to meet a growing domestic demand.

1.15 The objective of this report is to identify a strategy for implementing Burundi's newagricultural policy that will tap the potential of rural and modern agricultural entrepreneurs andpermit the simultaneous expansion of food and cash crop production. After reviewing the agricultural

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sector's performance and the principal constraints to its growth, the report presents the steps neededto stimulate the private sector, to permit it to respond to signals from a less distorted market and tofilly exploit Burundi's agricultural potential. The report defines the new role of the Government asa promoter and regulator of private sector development, and concludes with a review of the Bank'sefforts to support private sector development in Burundi.

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CHAPTER HI: SECTOR PERFORMANCE IN THE 1980s

A.. Food Produgtion

Food CQoins

2.1 Agricultural output in Burundi is dominated by food production, and particularly by foodcrops. Food production accounted for 87 percent, and food crops for 76 percent, of primary sectorGDP in 1989. Food crops are cultivated mostly by women using traditional production methods andrelatively few capital inputs. 4/ Food-crop production has, in most regions, a subsistence orientation,with 90 percent for on-farm consumption. Food crop markets, with the exception of a fewinstitutional (army, schools, hospitals) and urban markets, and some cross-border trade, are poorlydeveloped. Thus, most regions in Burundi are self-sufficient in food and the principal incentive toincrease production is population growth. That explains why food crop production grew at anaverage annual rate of 3.1 percent, closely approximating the estimated population growth rate of3.06 percent. I/

2.2 The expansion of food crop production reflects mainly increases in acreage as yields areestimated to have stagnated during the 1980s. The intensification of food crop production has beenconstrained by several factors:

(1) the weak market demand, and the ability to satisfy local demand through expansion inacreage because of the availability of unused land in the east and south of the country;

(2) the scarcity of cost effective technical packages for food crops (in fact, the demand formost improved seeds has declined because the increased output they offer does not cover the cost ofthe seeds and fertilizer I/ if all the components of the technical package are not applied);

(3) the availability in some border regions of cheaper maize from Tanzania and cheaperbeans from Zaire;

(4) the difficulty in obtairing access to inputs for food crops-most inputs are provided byparastatals and companies involved in agro-industrial crops, and the private input market is poorlydeveloped;

(5) the fact that food crops are cultivated mainly by women who, because of their workload, are often unable to attend sessions with extension workers, and receive inadequate attentionfrom extension staff.

4/ The principal exceptions ar the uwo of fetlizer for bean and sorghm produ tion in Kirimir and impmvedvarieties of rice on the Imbo Plain.

5/ Data on food cwps are sketchy and unrliable. The last corehsive analysis of the sector was done by theUNDP in 1986, and has since been updated only by regional surveys.

6/ The fiLaci profitty of improved bean production in the Mosso and Buy*=z regions ia approximatey 10percent lower than that of traitional bean production (annex 6).

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2.3 In the coming decade, increases in food production will occur in areas with unusedagricultural land (Imbo and Mosso), and in regions with a comparative advantage in food cropproduction (mostly Bweru), where a small amount of intensification is possible with existing technicalpackages. To meet their growing demand for food crops, highland regions, which have a significantcomparative advantage in Burundi's high-value export crops, could specialize in those crops and relymore on imports from neighboring regions and countries. But the perishable, high-bulk food crops,such as colocasse, cassava, and bananas, that account for most of Burundi's food crop output aredifficult to trade and will continue to be produced nationwide. Furthermore, in order for highlandfarmers to increase their specialization in cash crops and their reliance on food purchases, marketswill have to supply them with relatively steady revenues from cash crops and a relatively stablesupply of food.

2.4 Bananas (of which 90 percent are for beer), followed by roots and tubers (cassava andsweet potatoes), account for most of Burundi's food crop production; cereals (mainly maize) andbeans contribute a much smaller share of total output (figure 1). Production of bananas and rootcrops expanded in the 1980s (at an average annual growth rate of 4 percent), cereal production roseonly slightly, and bean output declined. Legume production dipped in 1984 as a result of poorclimatic conditions and its vulnerability to inadequate rainfall. The 1984 drought encouraged rootand tuber cultivation; because of the relatively high yields of roots and tubers and their resistance to

1.4-

1.2-

09

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~~ 0.09

0.8a R T 0 Ba oL

0.5 -'

0.4 - o1 01 01 0ol

0.2 -1 1 1

1980 1981 1982 1983 1984 1985 1988 1987 1989 1989

R B& T [rSq Bananas cerealis Legumes

FIGURE 1: FOOD CROP PRODUCTION 1980-1989 (M)

drought, their production represents a low-risk investment for ensuring food security. The popularityof banana cultivation stems from the cultural importance of banana beer in Burundi and from the

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marketability of the crop, which ensures farmers a ready source of cash. 7/ Despite significantincreases in rice production (due to Government investments in irrigated and rainfed rice, theintroduction of high- yielding varieties, and a growing urban demand), cereal production grew at anaverage 2.3 percent a year; this growth rate reflected stagnation in the production of maize, theprincipal cereal in Burundi. !/ Legume production declined slightly during the 1980s, despite effortsto introduce improved bean cultivation methods in Burundi. This reflected low crop yields--due tothe sensitivity of beans to Burundi's increasingly poor soils, the bean fly, and drought--relatively lowmarket prices, and difficulties in obtaining fertilizer for food crops.

Livestock

2.5 About 20 percent of Burundi's I million farmers raise cattle, about 450,000 head ;i total.Cattle provide the largest share of Burundi's meat (38 percent) and almost all its milk. Smallruminants, especially goats, are also an important source of meat in Burundi. About 45 percent ofBurundi's farmers raise small ruminants, 3.3 on average, and about 5 percent raise pigs, 1.6 onaverage. Sheep production is relatively limited because of the traditional ban against the consumptionof lamb. Hog production, although limited by the African porcine pest, accounts for 12 percent ofBurundi's meat output. Livestock also provides farmers with manure and, in some cases, is used fortraction. 9/

2.6 For most of the 1970s, Burundi's cattle population was large, numbering about 800,000,but since 1978 it has declined significantly, though irregularly, numbering about 431,000 in 1990(figure 2). In contrast, the number of goats has increased fairly steadily from about 600,000 inthe early 1970s to almost 920,000 in 1990. The number of sheep has fluctuated, but has increasedfrom about 300,000 in the 1970s to 348,000 in 1990. The pig population has increased aboutfourfold since the early 1970s, to about 103,000 in 1988. These growth trends reflect goats' greaterresistance to drought compared with sheep and cattle, and the rising popularity (mainly in urbanareas) of pork. By 1979 goats had overtaken cattle as the most largest livestock herd in the country.

2.7 The livestock sector currently provides 5 percent of total factor GDP and 10 percent ofprimary sector GDP, and hide and skin exports account for 1.8 percent of agricultural exports.Burundi is not self-sufficient in meat and milk, which comprise about 20 percent of all food imports.During the 1980s the sector grew at an annual rate of 1 percent. Given the increases in herdnumbers, this low annual growth rate suggests that livestock productivity declined during the 1980s.The relatively small contribution of livestock to the economy reflects the uncertainty of land tenurerights, which encourages pastoralists to engage in extensive livestock production (which offers lowyields), the lack of improved breeds and feed inputs (until recently), and the low priority given tothe sector by the Government. Livestock received only 3.5 percent of total investment and 6.3 ofprimary sector investment in the fifth Five-Year Plan. Nevertheless, the success of the small, butgrowing, intensive peri-urban dairy farms augurs well for decreasing dairy imports and increasing

7/ Bananas have other values: their stenm and leaves are useful as mulchins mterials, and, when planted in anappropriate manner, they are useful in controlling erosion.

8/ The stagnation in maize production and the decline in bean production may reflect their relatively low financialprofitability (annex 6), the lack of improved maize technical packages suitable for Bumndi, and the availabilityof cheaper maize from Tanzania.

9/ The use of animnl traction in Burundi is not widespread because of the traditional separtion of livestock andagricultural production.

10

0.9

0.8

0.7

0.8

b N 1 L0. .

0.4

0.3

0.2

0.1_ 1 |lLE h

0-t1972 |19 74 176 |1978 19S0 | 192 |19 1986 1988 1990

1973 1975 1977 1979 1981 1983 1985 1987 1989

Cattle E Goats

S1eeP OM Swine

Figure 2: Burundi National Livestock Herd 1972-1990 (heads)

the sector's contribution to GDP.

2.8 The four principal objectives for the livestock sector in the coming decade are (1) toimplement development policies targeting the different types of livestock (cattle, small ruminants,poultry); (2) to use intensive peri-urban entrepreneurs as catalysts in the modernization of thetraditional and smallholder livestock production systems; (3) to focus and limit the role of theGovernment to regulatory (and, sanitation, and marketing codes) and extension and research activities(forage crops); and (4) to encourage the involvement of the private sector in distributing inputs(improved breeds, animal feed, prophylactics) and providing health services. 'I To achieve theseobjectives, professional associations, ad hoc groups, and private cooperatives should be encouragedto develop. 1I/ By bringing modern and traditional producers together, modern producers couldtransmit technology and inputs to rural herders. And, as the intensive, peri-urban producers becomeinvolved in the processing of livestock products (dairies, canneries, tanneries), they could provide

0/ Initially, the public sector could provide support services using cost recovery mechanisms.

/ In July 1991 the Assocaon for Agro-Pastoral Davelopmeat (ADAP) was stablished. The organizafion is open

to all agro-pastoralist and will seek to expand the use of intensive livestock production nehods, improve thecollection and marketng of livestock products, and aSist the produces in communmicating their needs to the

Government (see annex 12 for the organiation's statutes).

11

rural producers in neighboring areas with the necessary marketing outlets to support the increasedcapital costs associated with the subsector. As the livestock sector gradually develops, both in termsof the complexity of both inputs (improved breeds, animal heath and feeding) and outputs (milk, milkproducts, meat), the need to regulate health, sanitation, and marketing conditions will become critical.The Government needs to establish the necessary regulations and the means to implement them. Andbecause about a third of Burundi's unused arable land is pasture, the Government must clarify landrights to pastoral areas to limit land tenure conflicts and facilitate exploitation of this land.

EFiseries

2.9 Fish production in Burundi makes only a small contribution to agricultural GDP (1 percent)and to the diet of Burundians. Lake Tanganyika supplies 95 percent of the country's output of fish.Fish production statistics, although highly unreliable, show that production rose steadily until the mid-1970s, but declined in the late 1970s and 1980s (figure 3). Artisanal production has picked upslightly since 1985, but industrial output has continued to drop. LI/ This suggests that Burundi'ssouthern territorial fishing waters in Lake Tanganyika are overexploited. Other reasons for the fallin output are declining prices in Bujumbura due to the cheaper imports from Tanzania, and inadequateregulation and taxation of industrial output. Industrial fishermen (mainly Greeks) are required by lawto unload their entire catch at the docks for sale at Bujumbura's central market. This leads to highermarketing costs for exports and rural sales of fish, subsidies for urban consumers, and feweropportunities for fish processing activities (smoking and drying). In addition, industrial producerspay much higher taxes than artisanal fishermen, who pay only the communal tax. To ensureappropriate exploitation of Lake Tanganyika several measures should be taken: (1) the coastalcountries should coordinate their fishing and marketing policies; (2) the Government of Burundishould administer this agreement by selling licenses to fishermen of all categories; and (3) betterregulations, including with regard to the size of nets, should be designed and enforced. The sale oflicenses would provide the Government with revenue, permit a reduction of the tax burden onindustrial fishing, and provide a means for ensuring a more rational exploitation of LakeTanganyika's fishery resources.

2.10 Aquaculture is gaining popularity in Burundi, but its production (estimated at 120 tons ayear) is still less than 2 percent of Burundi's catch from Lake Tanganyika. Fish pond farming inBurundi, which became widespread only after independence, is based on tilapia niotica, a small fishthat thrives in Burundi's climate and its altitude. It is estimated that there are now more than 4,000ponds between one and two acres, producing, on average, 2,000 kilograms (kg) a year per hectare.Commercial-scale pond complexes are unknown in Burundi. In recent years many ponds have beenbuilt without benefit of technical assistance, and many are poorly constructed and failing. Althoughan increase in fish production would have only a small effect on agricultural GDP, fish are rich inanimal protein, and increases in tilapia harvests would make an important contribution to improvingnutrition in Burundi, which is deficient in animal protein. Aquaculture's potential to contribute tonational food security suggests that it merits more attention than it has received.

Food Security

2.11 Thanks to the ingenuity of its farmers, Burundi has for the most part been able to maintainself-sufficiency in food in the 1980s. In 1989 the average intake of calories was 105 percent of the

12/ The an 40 to 800 artisanal fishing tam, which us caamans; each industia unit uses to 6 fishing boats.Traditionsl fishemen rernain close to the dsore and uw pirogues.

12

2221 -20-1o

18

1s

Is~~~~~~~tn

14

1312

11

4J 8

6

4

2

1972 1974 19'7S 19!79199 g 1994d'2 T19416199991973 1975 1977 19Q 1991 1993 1995 1997 1 98

tons0 Tota I

+ Industrial Artlsanat A Traditlonal

Figure 3: Fish Production by Category (1972-1990)

norms set by the Food and Agriculture Organization (FAO) of 2,200 calories a day, and the averageintake of protein was 123 percent of the FAO norm of 60 grams protein a day. Nevertheless, thequality of the diet is declining, for several reasons. First, root crops (cassava and sweet potatoes)are increasingly substituting for higher-protein cereals (maize) in the diet. Second, as a result of thelow rates of growth in meat and diary production, the share of animal protein in the diet is only 5percent, compared with the recommended 20 percent. And third, there is a deficit in the dailyrecommended intake of fats and oils of about 50 percent.

2.12 Because of Burundi's relatively high food self-sufficiency, food imports represented lessthan 2 percent of the value of food production in 1990. Food aid averages a negligible 8,000 tonsa year, although 20,000 tons was received in 1984 because of the drought. The share of food importsin total imports declined from about 11 percent in 1980 to 7.7 percent in 1990, and their valuedropped by 19 percent during the same period. Wheat flour and sugar are the most important food

13

imports (table 4). Relatively small amounts of dairy and meat products, prepared food, alcoholicbeverages, and vegetable oil are also imported.

Tabte 4: Cap2osItfon of food 1qert, 1990

Value Percentage ofCategory (mIllions of FBu) Total Inports

......... ............. ......................................................... . ............ ....................... e

Wheat Flour 943.4 2.3Sugar 530.9 1.3Dairy Products 432.3 1.1Prepared Food 328.3 0.8Alcoholic Beverages 218.1 0.5Salt 190.3 0.5Meat and Fish Products 112.0 0.3Vegetable OiL 56.5 0.1Other Food Products 268.8 0.7

Total Food Inports 3,080.6 7.7

Total Imports 40,179.3 100.0

Sourc: BRB

2.13 Food crops provide almost all of the population's energy and protein intake (table 5). Cerealsprovide about 25 percent of Burundi's protein and calorie intake, and beans provide 27 percent oftheir calorie intake and more than half of their protein. Roots and tubers, which are becomingincreasingly popular (para 2.4), provide 26 percent of Burundians' calorie intake, but make arelatively small contribution to their protein consumption. Sugar, oil, vegetables, and especiallyanimal and fish products are consumed mainly in urban areas; cereals (except wheat and rice) androots and tubers (except potatoes) are the principal components of the rural diet. Potatoes, cassavaflour, wheat and rice are popular in both urban and rural areas. The average diet is satisfactory, andcould lead to overoptimistic conclusions if regional and seasonal variations, or the situation of youngchildren, who suffer from malnutrition during the weaning period, are not taken into consideration.

14

Table 5: Cmposition of Catoric an Protein Intake In 1990

Share of ContributIon Share of ContributionSource to Calorie Intake to Protein Intake

Food Crops 97.5 96.9Roots and Tubers 26.4 8.8Cereals 28.4 23.8Legunes (beans) 26.6 51.1Fruits (bananas) 7.7 7.7Sugar and Honey 1.3 0Vegetables 1 1.9Nuts and Oil Crops 6.3 8

Animal Products 2.4 2.9Meat 0.5 1.3M1ilk 0.5 0.9Eggs less than 1 teas than 1Fish 0.1 0.6Animal Fats and 1.2 0

Vegetable Ofis

Alcoholic Beverages 0.1 0.0

Total (calories/grams) 2319.00 73.5

FAO Requirements (calories/gram) 2200.00 60Percent Coverage of Requirements (percent) 1.05 1.23

Source: UNDP

2.14 Projections of the future demand for food crops in Burundi suggest that, by 2000, percapita demand of beans, bananas, and roots and tubms (except potatoes) will decline, andconsumption of cereals (especially wheat), vegetables, sugar, fruits, and oils will rise (table 6)."Modem crops (sugar, vegetables, oil, fruit, potatoes, wheat), consumed mainly by urban dwellers,will likely experience an annual increase in demand of 8 percent or more.

2.15 Burundi should encounter no important problems in satisfying its rising demand for foodcrops-except potatoes, maize, wheat, fruit, and vegetables-if the growth rates of the 1980s continueinto the next decade. Burundi currently imports maize from Tanzania and wheat from internationalmarkets, and the data suggest that these imports are likely to increase during the next 10 years. Astudy by the International Potato Center identified the shortage of fertilizer and improved seeds asthe principal constraint to the development of potato production in Burundi (annex 4). Fruit andvegetable production is currently carried out on a relatively small scale in Burundi, and the abilityof farmers and traders to meet the projected increases in urban demand for these commodities is notyet clear.

2.16 To ensure that the growth rates of food crops achieved in the 1980s continue into the

3/ The estimate are based on income and price elastcities for other Afiican countris. As averae anmual total GDPgrowth ratw of 3.8 pecent is assuwd. The nual populaton is estimated to reach 6.5 million by 2000, and theurban population 0.83 million. The unknown is price, especially becaue nmny of the goods are not nowproduced in large quantities in Burundi. Price lovels will depend to a large extet on the supply rescp of the

agicultural sector and its ability to develop commercial links betwoen producing and non-producing nrurl regions.

1S

1990s, Burundi will need to adopt a two-pronged strategy. This strategy would include, first, theadoption and implementation of land tenure and environmental policies that permit the sustainableexploitation of unused, disputed, or fragile arable lands and, second, the Intensification of food cropproduction through the use of improved seeds, inputs, and extension services. To enable farmers tobear the financial costs of intensification, the profitability of food crop production will have toincrease. This is likely to occur in areas with a comparative advantage in food crops, but only if,first, farmers' earnings from cash crops increase as a result of the liberalization of traditional exportcrop marketing and the expansion of private sector exports, and, second, regional specialization takesthe place of the traditional subsistence-oriented garden farm and farmers become willing to rely onmarkets to satisfy their food needs. Agricultural policies should be evaluated according to theircontribution that makes these changes possible.

16

Table 6: ProJected Demand for Food Crops In 2000

Urban Demand Rural DemAnd Average Average Required2000 2000 1988-89 arowth Growth Rate

(thousands Rate 1990-2000Food Crop Percentage Percentage of tors) 1980-89 (percent)

of Total of Total (percent)Tons Demand Tons Demand___ _ _

| Roots and Tubers -_ _ _

Potatoes 16,860 31 38,388 69 37.500 1.5 4.6

Yams 253 4 6 398 96 6150 2.1 0.7

colocasse 5,058 5 95,970 95 106,300 -0.5 0

Cassava 57.324 9 575 820 91 632.950 5.5 1.6

Sweet Potatoes 10.748 2 601,412 98 652,150 3.2 0.8

Cereals = =_____

Sorghun 843 1 95,970 99 66,550 3.4 3.5

Rice 38,778 68 18,554 32 28,000 15.3 6.7

Maize 2,529 1 300.706 99 157,450 0.2 6.1

Wheat 25,290 38 40,947 62 16,900 5.4 13.2

Eleusine 506 4 12,7 96 13,150 4.7 0.1

Legumes _ _

Beans 29,505 9 287.910 91 262.400 3.8 1.8

Peas 3372 7 44786 93 31,300 4.9 4.0

Pigeon Peas 169 4 3,839 96 6,750 0.1 4.6

VegetabLes 21,075 52 19.194 48 17,800 7.7

Fruits 12,645 18 57,582 82 34,300 18 6.7

Sugar 5,901 24 19,194 76 8,000 83 ' 10.3

Oi ls _ b ___ __ __

Palm Oil (edible) 1,030 12 19,194 23 24,600 17 12.3

Palm Oil (for industry) 1.500 100 19,194 97 16,500 n/a 10.5

Cotton Oil 1,190 100 0 88 550 8

Other Oils (soy, 680 12 4,870 0 550 n/a 23.4sunflower)

Bananas

Banana Beer 16.860 0.02 959,700 _ 0.98 1,015,500 4.41 -0.39

Other Banana 42 150 0.07 556,626 0.93 598,350 9.41 0.01

a. Growth rate for 1988-89.b. Demand based on an average consumption of 5 grams per person per day.c. Includes 450 tons of imports.

Source: Baris/Zalawsky UNDP study (1986) for demand projections; ISTEEBU for average for 1988-89.

17

B. Agro-industrial Crp

2.17 Burundi's soils and climate permit the production of high-quality agro-industrial crops. Arecent study LI/ evaluating the competitiveness of Burundi's principal agro-industrial crops concludedthat Burundi has a comparative advantage in the production of cotton, tea, coffee and tobacco exports,and in the production of sugar as an import substitute (annex 3). Although their contribution toprimary sector GDP is relatively small (8 percent), agro-industrial crops account for 90 percent ofBurundi's export revenues, and s igar and edible oils also reduce Burundi's import tIl. Agro-industrial exports have traditionally been dominated by coffee, with tea, cotton, and hides accountingfor smaller shares. In the 1980s tne composition of Burundi's agro-industrial exports graduallychanged. Coffee's share in exports d3clined from 92 percent in 1979 to 80 percent in 1989, and theshare of tea rose from 2 percent to 6 percent and that of hides from 1 percent to 3.4 percent.Similarly, the past few years have witnessed the development of several nontraditional exports that,although still a small proportion of total agro-industrial exports (4.6 percent), are rapidly increasing.The 1980s also saw the introduction of domestic production of sugar and edible oils in Burundi.

Coffee

2.18 Burundi's coffee exports followed a generally increasing trend between 1980 and 1986, butsince then they have declined (figure 4). The dips in coffee exports in 1980, 1983, and 1987 reflectmainly climatic variation and, to a lesser extent, irregular use of inputs and variable unrecorded tradewith Rwanda and Zaire. Fluctuations in production and in world prices cause Burundi's coffee exportreceipts to vary annually by as much as 67 percent. Despite the general increase in exports duringthe 1980s, the development of other exports, coupled with declining international coffee prices(between 1987 and 1990 the average export price of coffee fell by 28 percent) has caused Burundi'scoffee export revenues to decline from 92 percent of its total revenues in 1979 to 80 percent in 1989.

2.19 Coffee cultivation covers about 4 percent of the country's total land area, and involvesabout half of Burundi's 1 million farmers. About 85 percent of Burundi's coffee is arabica, whichis grown in the highlands. The lower-quality robusta is grown on the Imbo Plain bordering LakeTanganyika (map 5). The Government's traditional policy has been to promote coffee cultivationnationwide, and the quality of plantations varies with yields ranging from 300 to 1,000 kg of export-grade coffee per hectare, depending on the potential of the area. Burundi enjoys a comparativeadvantage in washed and fully washed coffee, with domestic resource cost (DRC) coefficients of 0.80and 0.93 (annex 3). Ls/

2.20 Until recently, the Government was the sole investor and the dominant actor in coffeeprocessing and export and, to a large extent, in coffee production as well. LI/ Its principal

14/ SOOES.AIRD "Etude sur lee avanteges comparatifs entre divaes. cultures dam lea rdgin dtu Moom at duBuyenzi," AugUst 1991.

15/ The DRC was calculated using the exchange rate PBu 170 = SI and the 1990-91 sliding coffee sale. It mes_the cost in domestic resources of earning a urit of foroign excha generad by coffee expoit. If the DRC fora good is less than one, the economic coat of domestic resource used in producing it is le than tho econonkivalue added created and the country has a comparative advantage in its production. Convendy, if the DRC isgreatr than unity, the economic coat is grater than the vahlu added and th country hs no compaaveadvantage.

16/ Although coffee is grown by smalUholdems, its cultivation has been highly subsidized by the 0ovemmraL

18

48

244

40

la

t980 19~ '1982 1S8 1964 13 '116 1 19089 19190L 1 I ,19B1 19B3 195 1987 19B9 19

a Product Ton

+ ExD4rtl

Figure 4: Coffee Production and Exports (tons of green coffee)

objectives were to increase product output and quality. But recognizing the potential for higherretums from the sector, the Government has invested over the past 17 years, with the assistance of

the Bank and other donors, in the production of the high-quality fully washed coffee, which receivesa i0 to 15 percent premium on the international market. Semi-washed coffee is depulped manuallyby the producers, but fully washed coffee is depulped by washing stations, which purchase the coffeedirecdy from the producers. The Goverrnment, the Bank, the Caisse Centrale de CooperationEconomique, and other donors invested in the construction of 88 such washing stations and two newhulling factories in the early 1980s.

2.21 The world coffee market has been deeply affected by the suspension of the economicclauses of the International Coffee Agreement (ICA). On July 3, 1989, following the breakdown ofdiscussions on the agreement, quotas were suspended, leading to a 30 to 35 percent fall in worldprices. The main issues surrounding the suspension were the insistence of consumer countries (andsome producing countries) on easier access to the type of coffees, especially higher quality coffees,that conisumers want, and a m,-.-/1anlim to ensure price equity between quota and nonquota markets.In Septe- nber 1989, ICA mem:bers renewed thie agreement with-jut the all-important economicprovisions (quotas and price mech.onism), whtich have remained suspended.

2.22 Despite these cireu;mstances, Burundi is in a good position to benefit from the present worldcoffee situation. First, it produces the tjpe~ of hiighland arabica coffee for which there is a growingdeirand. Second, the Goverimlieni bps been -ursuing- a policy-, reflected in its investments, aimed atincreasing the proportion of ful;- w.4siaed coht;a. Butundi would also benefit from an eventualre!ntroduction of export quotas for higb -quality c-offee

2.23 The coffee sector is now being reformed wit! sI ippfv.t f,, m i-7)e Bank (Coffeb Sectr Project

19

CR. 2123-BU, annexes 2 and 4). The reform program seeks to increase the sector's efficiency andthe production of fully washed coffee, which is now 36 percent of total production. And it aims toreduce Government's involvement in the industry, limitirig it to mainly regulatory functions, and toestablish an incentive structure that rewards the production of high-quality coffee.

2.24 To achieve these objectives, the Office des Cultures Industrielles du Burundi (OCIBU) hasgiven up its operational activities and expanded its re'ulatory functions. It is now the Office du Cafe,responsible for policy formulation and supervision oi the industry. Unlike the OCIBU, which wasa fully owned and operated Government parastatal, the Office du Cafe is a joint venture companywhose shareholders are representative groups from the industry and the Government. In addition,the legal ownership of the sector's physical assets (88 washing stations and three bulling factories)has been transferred from the RDCs and the OCIBU to the Service du Patrimoine, under the controlof the Office du Cafe. The management of the washing stations has been contracted out to five jointventure companies, Societes de Gestion des Usines de Lavage de Cafe (SOGESTALs) and themanagement of the hulling factories to another joint venture company, Societe de Deparchage et deConditionnement (SODECO). The reform program also ended the BCC's monopoly over coffeeexports; private entrepreneurs are now able to purchase coffee for export through an auction systemadministered by the Office du Cafe (30 percent in 1991 and 50 percent in 1992). 1L/

2.25 Another key element of the industry's reform program is the replacement of the cost-basedremuneration system by one linked to market results with built-in incentives to reward quality. Inaddition, the new payment system seeks to clearly delineate government revenues from the sector.Earlier, the Government received all positive balances; now it receives only a set export duty (12percent). The new payment system will reward value added rather than cost added forintermediaries and producers. Upon delivery, producers are to receive a preestablished price, andlater in the season they will receive a premium from the SOGESTAL based on the quality of theircherries and on world prices. The new payment mechanism will be administered by the Office duCafe.

2.26 In the 1990-91 campaign about 30 percent of production was exported by the private sector,and the value added system had been set up for the washing stations, the coffee traders, and thehulling factories. Although the legal ownership of the washing stations and hulling factories has beentransferred to the Service du Patrimoine, the SOGESTALs and SODECO are not leasing theequipment; rather, they pay a user fee based on the volume of their production. Private investmentin the joint venture companies reached 23 percer,t in 1992, and is more than 50 percent in oneSOGESTAL. Moreover, the private sector has expressed interest in investing in vertically integratedfirms.

TM

2.27 Tea production, introduced in Burundi in 1962, is well suited to its high-altitude regionsand is found mainly in the Zaire-Nile Divide. A tea DRC of 0.98 for tea indicates that Burundi'sexports are competitive on international markets (annex 3). The share of tea in Burundi's exportsrose from 2 percent in 1979 to 6 percent in 1989. The volume of tea exports also rose between 1980and 1985, but has since tended to stagnate (figure 5). This reflects the poor management of teafactories, insufficient producer incentives, and fertilizer supply problems. In 1991 tea plantations

17, An association of exporters (ABEC) has bwen fonned, and more than 50 candidates have registerd to participate

in the auctions.

20

covered 6,400 ha, or about 7 percent of the area devoted to coffee. Initially, tea was cultivated onlyon industrial plantations, but they account for only 26 percent of the area under cultivation today; theremainder is cultivated by about 60,000 smallholders (map 5). Green leaf yields are higher onindustrial plantations, which occupy the more productive soils, than on smallholder plantations,especially the older ones. But actual yields on industrial plantations are only 60 percent of potentialyields (1,850 kg of black tea per hectare), compared with 70 percent for smal1holder farms (1,100kg per hectare). The relatively low yields reflect poor management of industrial tea plucking,inadequate smallholder collection systems, and poor price incentives for tea pluckers and forsmallholder farmers, which discourage them from fully harvesting their output.

2.28 Tea processing and export were, until 1990, under a de facto monopoly of the public sectorin Burundi. Now, a small private firm produces tea bags for the local market, and another privatefirm exports bulk tea to Oman. Farmers sell their harvested green leaves for a fixed price toBurundi's five tea factories, for processing. The Office du The du Burundi (OTB) is responsible formanagement of the tea factories, and OTB's commercial services, assisted by foreign experts,competently handle the marketing of black tea on the world market. Because of its high quality,Burundi's tea receives top prices at the London auction.

2.29 The tea sector has received substantial support from the European Economic Community(EEC), which financed a rehabilitation program in the early 1980s designed to improve the qualityof tea. In 1987 the EEC helped prepare a comprehensive medium-term tea development plan thatis now being implemented. The plan proposes to (1) increase the efficiency of the management ofexisting factories and expand their capacity; (2) strengthen the OTB's financial management; (3)increase the area cultivated by sma1lholders to 10,000 ha; and (4) improve extension services andmarketing and export activities. In addition, the CCCE has financed a new tea factory that startedoperation in 1992' (Buhoro factory).

2.30 Recently, as part of the structural adjustment program, the Government initiated costrecovery on fertilizers. In the past, the free fertilizer supplied to smallholders (400 kg per hectare)was often diverte4 to other crops or sold to other farmers in neighboring regions, thus providingsmallholders with -a indirect income subsidy. In 1991 fertilizer subsidies were substantially reduced,and the producer price for green leaf tea was raised from FBu 18 to FBu 26 a kilogram. But despitethe increase in the: roducer price and the Government's continued subsidization of other inputs(plantings, small equii;ment), tea production in Burundi is taxed: because the producer price is stilllow, the financial value added of the product is only 31 percent of its economic value added (annex3). With the higher tea and fertilizer prices, the break-even yield is 4,286 kg green leaves perhectare, a yield achieved by only 38 percent of the smallholders. Consequently, the new pricestructure is expected to lead to increased productivity and output on farms in high-potential areas andto the abandonment of tea cultivation by farmers on marginal lands. This combination of inputsubsidies und low, fixed output prices-which discourages increases in prices and the efficient use ofresources-is a common constraint in Burundi's agricultural export sector. Under the Third StructuralAdjustment Credit (SAC Im), the Govermment has eased regulations prohibiting the uprooting of teaplants and will facilitate the reconversion of marginal land to other crops.

2.31 In the next stage of reforms, which could be supported.by the Bank's agro-industryrestructuring project now under preparation and by SAC m, input subsidies to producers are to beeliminated and the OTB is to be reorganized. The reforms will seek to improve the tea processingfactories' efficiency, production capacity, and quality of output by increasing their financial andmanagerial autonomy. The factories will eventually be able to sell their output to 0TB marketingservices, to a private contractor, or directly on the international market, and thus to receive better

21

4.5

4

35

3

2.5

2

0. 51980 1982 194 | 9isas 1 1 1 i9ga l

1981 1983 1985 ,87 1989 1991

0 ProductXon

+ Exports

Figure 5: Volume of Tea Production and Exports (tons of dry tea)

prices for higher-quality output. This will help phase out the Government's cost-plus pricing system,which provides no incentive to the factories to produce high quality tea.

Cotton

2.32 Cotton is a smallholder crop in Burundi, cultivated in the plains bordering Lake Tanganyikaand in the Mosso region (map 5). It presently covers about 6,600 ha, divided among some 20,000farms. The production of high-quality long-fiber cotton increased in the early 1980s, reflecting anacreage expansion in the area under cultivation, but it has declined since 1986 (figure 6). The declineis due to noncompetitive producer prices, which have remained constant in nominal terms since 1987,low and stagnating yields (about 1 ton per hectare), and irregular supplies of inputs from themanaging parastatal Compagnie de Gerance du Coton (COGERCO). The parastatal buys the cottonfrom producers at fixed prices and transforms it into fiber. It sells almost all of the fiber toCompagnie des Textiles du Burundi (COTEBU) for textile production and exports the remainder.

2.33 Burundi has good potential for increasing both cotton yields and the area under cultivation.But these increases cannot be achieved under present price and production arrangements. Fixed priceand volume contracts have favored a regular supply of cotton fiber to COTEBU at relatively lowprices that are shielded from world market prices. In 1990 COGERCO's sale price to COTEBU(FBu 216 per kilogram) was 22 percent below its export price, but only 4 percent of COGERCO's

22

production was exported. LI/ Further, management and production inefficiencies at COGERCO andCOTEBU lead to high production costs. Together, these policies have led to low producer prices forfarmers. As othei crops have offered more attractive returns, the farmers have become increasinglyunmotivated to grow cotton. As a result, the area under cultivation declined in the late 1980s (from7,532 ha in 1988 to 6,608 ha in 1990), mainly on the Imbo Plain, despite COGERCO's impositionof a required minimum cotton acreage on farmers settled in paysannas.

2.34 As part of the SAC m conditionality, the Government is committed to considering severalreforms in the sector: (1) granting COGERCO the right to sell its cotton fiber on world markets andbasing COGERCO's sale price to COTEBU on world prices; (2) permitting producers in the Imbopaysa'nats not to grow cotton; and (3) establishing a payment mechanism for the participants in thesector based on quality and value added.

Other Export CrOps

2.35 In addition to tea, coffee, and cotton, Burundi has traditionally exported small amounts ofanimal hides and aquarium fish. In the mid-1980s, in response to the Government's more positiveattitude toward the private sector, entrepreneurs began to export tobacco, fresh produce (passion fruit,green beans), flowers, plants, rice, quinquina and small amounts of animals and animal feed.Burundi's export promotion policy, adopted in 1988, signaled the Government's intent to establisha favorable environment to r private sector development. Since then, several fiscal incentives havebeen introduced, such as rebates of import duties for inputs and the turnover tax for exportedproducts, and a preferential tax on export profits. In addition, exporters have benefited from theGovernment's efforts to devalue the Burundi franc to keep exports competitive.

2.36 Although the contribution of nontraditional exports to total export revenues remains small,at 8 percent, including hides and tobacco, their high average annual growth rates since 1985 (table7) underscore the dynamism of the emerging private sector and its ability to respond to profitableincentives. The significant increases in hide and rice exports are due to the Government'sderegulation of these products in 1988. The increase in rice exports also reflects the temporaryincrease in Rwandese demand due to the war. Tobacco exports increase in response to priceincentives and the technical and input support offered by the Burundi Tobacco Company (BTC) tofarmers under contract. The BTC was Burundi's most important private agro-industrial firm untilit was placed u.lder government trusteeship in 1989.

lS/ COGERCO's sale price to CaOTBU is from 'Compagnie de Grance du Coton, Rapport Amnual, Canyagn1989/1990."

23

3.4

3.2

2.8

2.8

2.4

2.2

2

1.8

1. 6

1.4

1.2I-~~~

0. 8

0. 6

0.4

0.2

0 1979 19281 1983 19aS 1987 19189 1991i1980 1982 1984 1986 1988 1990

a Exports

+ Product. Ctlber)

Figure 6: Cotton Fiber Production and Exports of Cotton Lint

Source: BRB

Table 7: Average Annuat mainal Grouth Rates of T Other Exports (1985-1989) (1)

Average Annual Share of Nontraditional Share of TotalExport Good Growth Rate Export Revenues 1989 Export Revenues 1989

Rice 239 a 15 1.24Fruits and Vegetables 106 b 2 .14Flowers and Plants 56 3 .22Hides 46 43 3.444uinquina 64 3 .26Aquarium Fish 37 4 .35Tobacco 24 b 16 1.32Textiles -14 0 0.98Feed Inputs -82 b 1

Total 100 8.07

Note: Nontraditional exports excluded from this list because they were a very small share of totalexports, or were not exported in 1989 are, live animals, beeswax, and cottonseed cakes.

a. Average growth rate for 1987-89.b. Average growth rate for 1988-89.

24

2.37 Demand is not likely to be a constraint for most of Burundi's exports, at least in the shortterm, given their relatively small share in world supply and their high potential quality. Burundi'shigh-quality coffee and tea represent a growing share of world markets and command high pricepremiums even in the presently depressed markets. In addition, significant potential exists for furtherexport diversification. Burundi has a wide variety of fruits and vegetables (mangoes, wildraspberries, black currants, papayas, endive, avocados) that could be exported once its exportersacquire the necessary market skills. Silk production, not now carried out in Burundi, could bedeveloped as it is labor-intensive and well suited to Burundi's climate and soils. Finally, suchproducts as jam, concentrated juices, and canned fruit also offer export potential. If thesenontraditional exports continue their rapid growth, tripling in value by the year 2000, they couldincrease to 30 percent of the projected value of coffee exports compared with their current 13 percent(assuming constant 1990 coffee prices). Tlhus they offer Burundi the possibility of reducing itsdependence on coffee revenues and increasing is supply of foreign exchange. For this to occur,however, private exporters will need to improve their marketing skills and work with producers andextension workers to develop production and harvesting techniques that satisfy the demands ofimporting markets. In addition, credit, labor, and tax constraints (discussed in chapter Ell) will needto be addressed.

Import Substitution Crops

2.38 Sugar production was introduced m Burundi in the mid-1980s, primarily for :mportsubstitution. This decision was not economically justified, however, as Burundi's sugar, with a DRCof 2.43 (assuming that the full investment costs are taken into account), is not competitive withimports in the domestic market. L9/ Sugar is produced and processed in Burundi by a Governmentagro-industrial firm, Societe Sucriere du Mosso (SOSUMO), which then sells the product to localwholesalers and downstream agro-industrial enterprises, mainly BRARUDI. To date, all of thesugarcane milled by SOSUMO has been grown by the company, using hired labor, on its own partlyirrigated plantations, but sugarcane grown in the first large-scale experiment involving non-irrigatedsmallholder production is now due to be harvested for the first time. Both forms of productionappear to be financially and economically attractive as long as existing investment expenditures (inthe factory and other infrastructure) are regarded as sunk costs. Sugar production has expandedrapidly since 1988 (table 8), mainly as a result of SOSUMO's policy to expand the area undercultivation. Sugar recovery within the factory has improved because of good management practices,but yields of cane per hectare have fallen slightly, reflecting the lower productivity of ration cropsand the poorer soils of the new areas brought under cultivation. On a sunk cost basis, sugarproduction is financially profitable; SOSUMO earns FBu 25 per kilogram of sugar produced, andsugar wholesale.rs receive a net profit of FBu 19 per kilogram. The sale price of sugar is based onthe import-equivalent price, which incorporates a 40 percent import tax.

19/ However, to sugar tefinev imesbna coœs we ovrsad beeaus, of somm overbifling problems.

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Table 8: Sugar Production Indicators, 1988-91

Indicator 1988 1 1989 1990 1991

Total area (ha) 1,104 1,529 1,735 2.184

Area harvested 320 669 896 1 338(ha) _ _ _ _ _ _ _ _ _

Sugar (tons) 4,657 8.517 10,310 14.385

Agricultural 14.5 12.7 11.5 10.8yield (ts/ha) . . .

Industriat yietd 10.40 11.23 11.91 11.7(ts/t cane) .

Source: SOSUMO.

2.39 Oil seed production also experienced rapid growth in the 1980s, estimated at an averageof 16 percent a year. Palm fruit is the main source of edible oils; other sources are cottonseed andgroundnuts. Oil production was stimulated by a rising market demand, as well as by investments bythe Rumonge RDC in improved palm trees, and by a joint venture company, L'Huilerie de Palmede Lumonge, in oil refineries.

2.40 Rice is grown mainly in irrigated perimeters in the Imbo RDC and, increasingly, in smallplots in high-altitude swamps. Production from the Imbo Plains is sold in Bujumbura, and non-irrigated rice is grown for on-farm consumption. In the 1980s production grew at an average annualrate of 15 percent. This rapid growth reflected increases in acreage and yields in response to arelatively high fixed Government producer price. But the RDCs were unable to recover all of theirharvesting, processing, and marketing costs because of the presence of cheaper rice imports inBujumbura, and as a result they required state assistance to cover their budgetary deficits. As partof the structural adjustment program, the Government abandoned fixed producer prices in 1990 andbegan permitting private entrepreneurs to hull rice in 1988, eliminating the RDC's monopoly. Onthe Imbo Plain producers are now free to sell their paddy to the RDC or to the many private hullersthat have appeared. The liberalization of rice prices and the authorization of private hullers have ledprices to rise as high as FBu 42 per kilogram from the official 1989 price of FBu 35 per kIlogramof paddy. In addition, the margin of the RDC has declined further, forcing it to reduce costs andaccelerate the transfer of some maintenance and input distribution tasks to a growing number ofproducer associations.

Supply and Demand Projections for Agro-industrial Crops

2.41 Burundi's principal agro-industrial crops are projected to grow an average 8 percent a yearbetween 1990 and 2000 (table 9). These projections, except that for fruit, appear conservative,especially for tea and sugar, given the average annual growth rates for these crops in the 1980s.Burundi's production of the higher quality fully washed coffee is expected to rise 9 percent a year,while its production of washed coffee will decline. The projected increase in output of fully washedcoffee is expected to result from improved cultivation practices and the addition to the country'snetwork of washing stations the 100 stations to be built under the Bank-financed coffee sector project.The introduction of a quality-based pricing system will also encourage farmers to produce higher-quality coffee, yielding higher per unit values. An increase in the production of fully washed coffee

26

will permit Burundi to respond to the industrial countries' demand for high-quality coffee, which isexpected to grow despite the anticipated shrinkage in overall world demand, and should be seen asan important step in export diversification.

2.42 Tea production is expected to rise by 9 percent a year as a result of improved cultivation(assuming higher production incentives), the extension of smallholder cultivation, and the moreefficient factory tea processing that should result from the anticipated restructuring of the industry.The improved quality of tea will also leaa to higher per unit revenues. Although the world demandfor tea is expected to rise by only 2 percent annually over the next decade, Burundi's small marketshare and the high quality of its product should prevent any difficulties in selling its output if itsexporters master adequate marketing practices.

Table 9: Projected Growth in Production of Agro-industrial Crops, 1990-2000

Annual AverageEstimated Annual

Actual Production Estimated Growth Growth1990 Production 2000 Xate, Rate,

(tons) (tons) 1990/91 1980/81-1999/2000 1989/90

________________________ ________________ _______________________ (percent) (percent)

Coffee, Washed 24,000 17,000 .3 8

Coffee, fully Washed 14,000 33,000 9

Tea 4.300 10.000 9 14

Cotton (Lint) 2,800 8,000 8 6

Sugar 11,000 23,000 8 42

Tobacco 900 _ 26 58

Palm Oil (Rumonge) 1,300 6,400 17

Palm Oil (Nyanza) 800 1,400 6

Other Palm Oils 100 100 0 16

Soja/Groundnut/ 10 5,100 b 48sunflower Oils

Cotton OiL 550 1.190 4

Total Edible Oils 2,760 8,700 12

Fruit 35,000 70,000 7 0.18

a. The hlgh growth rate for sugar reflects the fact that sugar production started on a small scale in 1988and has expanded rapidly in its development phase since then.

b. Supply necessary to meet projected demand with same level of imports (450 tons).

2.43 Cotton lint production is expected to grow 8 percent a year during the next decade, as aresult of an increase in production incentives as the sector is liberalized and an expansion in cottoncultivation in the Mosso area. The demand for COGERCO's fiber is limited by world demand,which is expected to increase only marginally during the next decade. But because of its highquality, Burundi's fiber is less affected by fluctuations in world prices and obtains a premium of 5to 10 percent on world markets. COGERCO is currently the only source of raw material forCOTEBU, the textile company that supplies local and regional markets. As clothing manufacturers

27

continue to appear in Burundi in response to the improved climate for the private sector, the demandfor COGJERCO's fiber and COTEBU's textiles will increase.

2.44 Edible oil output is expected to rise at an annual rate of 12 percent over the 1990s,reflecting increases in production, mainly of palm oil, due to the maturity of improved palm treespecies, and rising prices stemming from a growing urban demand. Diversification (soja, sunflower,groundnut) is also expected to permit an increase in output. The private sector is expected to expandthe industry's processing facilities.

2.45 Increases in acreage, an intensification of the cultivation of existing fields, and a smallexpansion of SOSUMO's refinery are expected to lead to an increase of sugar production of 8percent . To produce a parallel increase in local demand, SOSUMO needs to adopt a moreconsumer-oriented marketing strategy.

C. Forestry

2.46 Production statistics on Burundi's forestry sector are poor, but it is estimated that the sectorcontributes 3 percent of the country's GDP. Wood provides 80 percent of household energy and isused by the construction industry. About half of Burundi's wood is from plantations, and theremainder is from public and private forests. Forest resources are estimated to cover about 220,000ha, or nearly 7 percent of Burundi's total land area. About 160,000 ha are plantations, and 60,000ha are protected, natural forests. Half of the plantations are owned by the central or localgoverments (communes), and the other half are scattered in farmers' fields, mainly in the Buyenziand Kirimiro regions. The Ministry of Land Development, Tourism and Environment (MLDTE)manages the natural ,)rests and public plantations and carries out policy directives. Since the late1970s the forestry sector has received significant support from the Bank, the United NationsDevelopment Programme (UNDP), France, the EEC, and the Government aimed at the developmentof basic forestry services and public and private plantations. The effect of these efforts was limitedfor many of the plantations, however, because of their location in relatively inaccessible mountainousregions, which raised their marketing costs.

2.47 Local shortages of wood can be observed in Burundi, but the fact that Government-ownedplantations have difficulty selling their wood indicates that on average demand is largely met byprivate plantatior,.. The current system of harvesting and marketing wood encourages its overuse.In theory, a small fee is collected on wood harvested in government plantations, but no charge islevied on wood harvested in natural forests and private plantations. As a result, the financial costof production is underestimated, and the current market price of wood is estimated at 62 percent ofits economic value Oong-term marginal cost of production). This low price undermines incentivesto use wood efficiently and to develop alternative sources of energy. Although the Governmentcollects a stumpage fee (about 40 percent of the current market price of FBu 1,000 per cord), only25 to 30 percent of wood is sold commercially.

2.48 Clearly, the nat,onal management and marketing strategies for the sector need to bereviewed. In addition to meet the increased demand for wood, the Government should continue toemphasize agro-forestry and afforestation programs, which are cheaper and offer more ecologicaladvantages than densely planted plantations. To ensure their sustained implementation, theseprograms must provide farmers with the necessary financial incentives, and technical support andprivate management of public plantations should be considered.

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D. Instiuoal Permance

2.49 Since the partition of the Ministry of Agriculture and Livestock in 1988, three ministrieshave become involved in the agricultural sector: the Ministry of Agriculture and Livestock, the newMinistry of Land Development, Tourism and Environment, and the Ministry of Rural Development(MRD). The MOAL is in charge of policy planning and the coordination of all activities in thesector. It has authority over the provincial services, projects, RDCs, the OTB, and the Office duCafe. Since 1988 four General Directorates have reported directly to the Minister of Agriculture andLivestock: Planning, Agriculture, Livestock, and Extension.

2.50 The National Directorate for Extension (DGV) is a new directorate. Before it was created,extension was channeled through 70 projects executed by about 50 implementation units (agriculturaldevelopment projects, RDCs, and ministry departments), and there was little coordination andsupervision of the projects. Local extension activities were decentralized and managed at the regionallevel by autonomous RDCs and projects. With the reorganization, the head of extension services ineach province will have overall responsibility for the execution of the MOAL's program and reportdirectly to the Director General for Extension. The extension service has been ineffectual, sufferingfrom a lack of appropriate technical packages, especially for food crops. Extensive efforts have oftenbeen limited to ensuring compliance with Goverment-decreed national objectives (requirements togrow coffee or tea, or to apply fertilizer), and, as a result, the service has followed a top-downapproach that does not incorporate the input of farmers into its programs. In addition, extensionefforts have been diluted by heavy burdens of unrelated duties. The number of staff has beenadequate, but their educational background has often been insufficient. Furthermore, because ofbudget constraints, transportation and training programs have been inadequate, hampering contactwith farmers and the development of the service.

2.51 The RDCs were established to promote integrated rural development. In addition toextension services, the RDCs were (and some, including the Imbo and Runoy RCDs, still are)responsible for commercial and industrial activities, construction, and even social services. Andbecause of their mandate to promote integrated rural development, the RDCs took on many activities,which led to questions of sustainability. A 1986 IDA study of the financial and managerial problemsof the RDCs proposed the separation of commercial and industrial activities from support serviceactivities. Implementation of the study's recommendations began in the late 1980s, with a newgeneration of projects that departed from the integrated rural development approach. Several ofthese, the IDA-financed Muyinga project and the EEC-financed Rutana and Cankuzo projects, aimto strengthen agricultural services (extension, adaptive research) at the provincial level. Andagricultural services in the five provinces under the Buyenzi and Kirimiro RDCs are beingrestructured with the support of the Coffee Sector Project and the Agricultural Services SectorProject.

2.52 Agricultural research is carried out by the Institute for Agronomic Science of Burundi(ISABU). The Faculty of Agronomy (FACAGRO) of the University of Burundi, under thesupervision of ISABU, also implements research programs on fertilizers and small ruminants.Research programs are generally well balanced and of high quality. Coordination with internationalresearch programs is adequate, but coordination efforts within the Communaute Economique des Paysdes Grands Lacs (CEPGL) region (Burundi, Rwanda, and Zaire) should be reinforced though the

29

regional Institut de Recherche Agronomique et Zootechnique (IRAZ). 2/ The research programsuffers from an overreliance on expatriate researchers: ISABU has 38 expatriate and 80 localresearchers. Another problem in the past was weak link between research and extension, due in partto the academic orientation of the research. Agricultural research is currently being re-organizedaround Regional Multi-disciplinary Research Units (Ateliers), which work directly with a networkof farmers in addition to conducting more traditional on-station research programs. Agriculturalresearch has had a more noticeable effect on export crops than on food crops, mainly because moreresources have been allocated to export crops and because of the difficulty in Sub-Saharan Africa indeveloping cost-effective technical packages for food crops. High yielding varieties of coffee, teaand cotton have been selected for the technical packages, but except for cotton, product quality wasnot given enough attention. Food crop research has focused on varietal selection with some successfor rice, potato and maize, but disappointing results for cassava, sweet potatoes, beans, sorghum, andgroundnuts. Little research has been done on plant protection against disease and on fertilizer usefor food crops.

2.53 The role of the MOAL's agricultural directorate in input marketing and production isevolving from direct implementation to coordination, as these activities will be progressivelytransferred to the private sector. All subsidies on inputs are to be eliminated under the third phaseof the structural adjustment program. Fertilizer subsidies were reduced in 1991, a step that isexpected to (1) terminate artificial demand in areas in which application is not technically feasible;(2) redirect fertilizer to areas in which it has demonstrated usefulness, at prices lower than parallelmarket prices; and (3) facilitate private sector involvement. 21/ A national committee for fertilizerhas been created to oversee the liberalization process.

2.54 Seed production, previously carried out in 45 seed centers, has been reorganized under aNational Seed Plan supported by Belgium and the U.S. Agency for International Developmcnt(USAID). Under the plan, seed production is the function of the National Seed Company, using theexisting facilities. The seed company is now only to produce foundation and improved seeds on itsown farms or purchase them from farmers. The company's long-run objective is to become a privateenterprise. The National Seed Service of the MOAL will conduct quality control and certification,and ISABU, which will no longer produce foundation seeds, will provide the pre-basic (breeder)seeds.

2.55 Forestry, fisheries, erosion control, and land tenure management are now theresponsibility of the new Ministry of Land Development, Tourism and Environment (MLDTE), whichalso has authority over the National Institute for Environment and Nature Conservation (INECN).The Ministry is responsible for the development of a land tenure code and a rural cadastre. TheMinistry has few staff at the provincial and communal levels, although the forestry projects financedby foreign aid are better staffed. Discussions are under way with the MOAL to coordinate regional

ao/ The bean progmm receives assistance from the CenIntenmationl d'Agiiculture Tropicale (CIAT), sweet potatoprograms receive assitance from the Intemational Potato Center, maize and wheat are coordinated withCIMMYT, and the banana program is integrated with the regional research institution Institut de RechercheAgwonomique et Zootechnique (IRAZ) and the International Network for the hprovemcnt of Banana and Plantains(IIAB).

21/ Por fertilizer, the MOAL is still involved in the management of grants, mainly the Japaneue grant (FBu 350

million in 1989). These inputs are then sold to RDCs and projects. The private sector will import fertilizers forthe first time, in 1992.

30

activities between the two ministries.

2.56 The Ministry of Rural Development and Handicrafts was reorganized in 1990 and chargedwith responsibility for cooperatives, handicrafts, and rural housing. The cooperatives, whose mainpurpose is to supply basic consumer goods and assist in the marketing of food crops, were initiatedby churches. In the early 1980s, however, the Government took over the management andsupervision of the cooperatives' independent federation (FECOBU), and placed the federation underthe Ministry of Rural Development. Management of the cooperatives has been controlled mainly bylocal civil servants, with little participation by farmers. Now, however, the Government iscommitted to withdrawing from direct involvement and facilitating the privatization of the cooperativemovement.

E. Private Sector Institutions and Performance

2.57 Savings and Credit Cooperatives (COOPECs) have been established through a nationalproject supported by French bilateral assistance and the Centre International du Credit Mutuel(CICM). Each COOPEC accepts savings deposits from its members and offers them credit (annex2). The COOPECs have become the most important nongovernmental organization (NGO) inBurundi. Between March 1984 and October 1990, 70 COOPECs were established with membershipnumbering almost 100,000. The COOPECs have been very successful in mobilizing rural savingsbecause they permit the safekeeping of monetary assets, an important need in rural areas. Much ofthe success of the COOPEC movement reflects the strict standards imposed by the centwal COOPECoffice and the Government's willingness not to become involved in the operations or contol of themovement. With the exception of housing loans in Gitega, COOPECs offer credit without col0ateraland the loan repayment rate is 89 percent. Management has a flexible credit policy, with no lowerlimits on the amount of a loan.

2.58 As the COOPEC movement expands to cover the entire country, it needs to developrecruiting and personnel procedures to permit the hiring of Burundians to replace technical assistancestaff. Training programs are needed to provide branch managers, board members, and supervisorswith the accounting and management skills needed to perform their duties. And, as the rapid growthof the movement increases its exposure to political pressure from both central and local authorities,legal steps need to be taken to ensure the movement's autonomous status, which the Government hasagreed to in principle. Finally, both men and women, need to be made aware of the availability ofcredit through COOPECs and how to use it.

2.59 Until recently, private sector organizations, such as the Chamber of Commerce and theAssociation to Promote Exports, were set up by the Government and treated more as a departmentof the Ministry of Industry and Commerce than as independent organizations. Although the Chamberof Commerce is becoming increasingly involved in policy issues, it still does not represent a dynamicorganization of private entrepreneurs. In 1990 however, several new organizations were formed(Association of Fruit and Vegetable Exporters, Association of Coffee Exporters, and Association forAgro-Pastoral Development), suggesting that the private sector is becoming more organized and willbe able to strengthen its negotiating position with the Government. But these organizations consistmainly of urban entrepreneurs and modem farmers. Their challenge, one that they recognize, willba to incorporate the rural farmer and entrepreneur in the coming decade and to stimulate theirproductive capabilities.

31

CHAPTER 111: CONSTRAIS TO AGRICUILTURAL GROW1T

3.1 This chapter reviews the constraints to the expalsion of agricultural production in lBurundiand the development of a dynamic private rural sector. The chapter first examines macroeconomicand microeconomic constraints, and then by institutional and social barriers. It concludes with areview of environmental problems facing the sector.

A. Macroeconomic Constraints

Exchange Rate Policy

3.2 The Burundi franc (FRu) is pegged to the SDR at a rate that is periodically adjusted,primarily in response to fluctuations in the world market for coffee, its principal export. Betweenmid-1986 and end-1989, the exchange rate was adjusted three times, resulting in a nominaldevaluation of 50 percent and a real devaluation of 40 percent between 1985 and 1990. Morerecently, in August 1991 the Burundi franc was devalued by 15 percent in foreign currency terms.The effects of the devaluations on agricultural output have varied, depending primarily on the extentto which they are felt by rural producers. The sector appears to be constrained less by an overvaluedexchange rate than by Government-controlled price systems that do not transmit the periodicadjustments to rural producers.

3.3 For coffee the devaluations have permitted nominal producer prices to remain constant andthe coffee subsector to export, until recently, at a profit. At the FOB Dar es Salaam price of 85 centsper pound in 1991, however, the Government would have run a deficit for the sector of Fbu 614maillion 22/; this was the main reason for the mid-1991 devaluation. In addition, producer prices inreal terms have declined, causing farmers to shift out of coffee and, thus, production to fall. Theexchange rate policy has had different effects on tea and cotton. World market prices for tea andcotton fiber have either remained stable or improved, thus the devaluations should have increased theprofitability of these crops, permitting higher producer prices. But the OTB and COGERCO, the teaand cotton parastatals, maintained fixed producer prices despite the devaluations. The larger marginsfcr the OTB compensated for inefficient production and management, and COGERCO transmittedmost of the windfall profits to COTEBU through compulsory sales at lower than world market pricesuntil the end of 1991. Thus, producer prices for both tea and cotton did not benefit from thedevaluations until recently.

3.4 For tobacco, rice and most other nontraditional exports (fish, fruit, vegetables, flowers,quinquina), the devaluations had clearly beneficial effects. For these exports, for which the producerprices are market-determined, or the benefits of the devaluations were passed on to the producer, thedevaluations led to higher producer prices and increased production and exports. This demonstratesthe ability of Burundi's agricultural sector to respond to exchange rate adjustments by increasingexports when producers feel the effects of the adjustments through higher producer prices.

22/ The FOB price is the weighted avenge for washed and fully washed coffee for July 1991, and the exchange rateused in the calculation is Fbu 172 = USS 1. The losses reflect total export receipts minue total production,maieting, and processing costs.

32

Government Expenditure Policy

3.5 The development of agriculture in Burundi Is constraineOl not by insufficient investment,but by poor allocation of funds within the sector. The 1991-93 Public Expenditure Program (whichincludes operational and investment expenditures as well as donor assistance) favors large-scaleinvestment projects for agro-industrial crops at the expense of basic agricitural s;upport services,extension and research. Between 1984 and 1989, agriculture's share in the Ordinary Budget declinedfrom 3.4 percent to 2.6 percent while its share in the Extraordinary Investment Budget rose from17.4 percent to 30.4 percent. Thirty-eight percent of the 199l Public Investment Program (PIP) forthe agricultural sector was allocated to agro-industry and export crops, and 40 percent of the 1991-93PEP is directed to export crops. And despite efforts since 1991 to limit the Government's role Inagro-processing, 88 percent of the public enterprise sector invemnients in the 1989-91 PIP wereallocated to agro-industries, with a large share of the budget programmed for the tea subsector. ThePublic Investment Program's emphasis on large agro-industr.al investments stems from the fact thatit is still largely supply-driven, and based more on the availability of funding and on donors'preferences than on economic and financial priorities. !/ Within the 1991-93 agricultural PEP only0.8 percent is allocated to forestry, a small commitment given tbe sector's critical role in preventingfurther environmental degradation and erosion. The agricultural PIP and PEP also reveal that theGovernment's budget overstates expenses for the agricultural sector, as they sometimes includeexpenditures on rural infrastructure, health, and education .

3.6 The poor performance of state enterprises, to which most large-scale investments have beenallocated, suggests that the overall return on these investments will be poor. Between 1986 and 1988net Government financial subsidies to public enterprises increased by a factor of more than 200, fromFbu 14 million to Fbu 3.2 billion. Public enterprises owed 58 percent of Burundi's external debtservice in 1988, but paid less than one-third, with the remainder financed by the Government.Almost three-quarters of the debt service is owed by six public enterprises, including OCIBU. TheGovernment also provides significant indirect subsidies to OCIBU, to the OTB (through the coffeeand tea payment systems), and to COTEBU (through cotton fiber prices set below the internationalprice).

3.7 These findings suggest that some far-reaching changes are needed in the management ofBurundi's public resources for the agricultural sector. The state-owned agricultural processingindustries need to be managed more autonomously and to be accountable for their performance. Theyalso need to be weaned from Government subsidies, both direct and indirect, which requires that theybe opened up to private investment and ownership. In addition, PEP resources need to be shiftedaway from public enterprises toward operating budgets for agricultural services. Finally, donors needto reach a consensus on eliminating the investment bias in their commitments and reducing the shareof aid funds directed to parastatals.

Tax and Tariff Policies

3.8 The differential application of taxes and tariffs places the formal private sector and, inparticular, livestock entrepreneurs at a disadvantage with respect to public enterprises, the productive

23I In 1989 gmnt funds finanecd more than SO percent and conceuuional loans 23 percent of the investmeat in thesector.

33

activities of NGOs, and the informal agricultural sector. 24/ Since February 1989 neither privatenor public firms in the agricultural sector have been subject to import duties or turnover taxes oninputs, except for livestock inputs. !/ But private companies, unlike public enterprises must initiallypay the taxes and then are reimbursed through lengthy and cumbersome procedures. This raises thecapital costs of private firms by tying up working capital and increasing the need for short-termloans.!!/

3.9 In theory, all registered businesses pay corporate taxes (45 percent of profits), a transactiontax on outputs (15 percent), a statistical tax (4 percent) and property taxes. But public enterprisesare in reality exempt from paying taxes, and informal enterprises largely evade taxes. !/ Likewise,the NGOs in Burundi that earn income from the production and marketing of livestock products (beef,poultry, cheese) are not taxed for that income because of their nonprofit status. With the exceptionof coffee exporters, all private companies pay a 5 percent export tax, while public enterprises exportduty free. Since June 1991 there has been a 12 percent export tax on coffee for both privato andpublic enterprises. But the payment regulations for the coffee export tax place private exporters ata disadvange: while the Government coffee exporting company (BCC) does not pay the tax untilit receives its export receipts, private firms are obliged to pay when they purchase coffee at theauction.

B. MicrQeconomig Constraints

Fixed inMut and )utput Prices

3.10 Although Government intervention in th" production and marketing of food crops isminimal, the Government's price policy distorts input and output prices for agro-industrial cropproduction and leads to an inefficient allocation of resources in the sentor. !I For sugar, productioninputs are taxed slightly, but producer prices are highly subsidized, reflecting the Government'spolicy to develop sugar production in Burundi. By contrast, prices for tradable and non-tradableinputs (fertilizer seeds, small equipment, plantings) for cotton, coffee, and tea production aresubsidized 70 to 95 percent, and producer prices for these crops are 10 to 60 percent below theequivalent international reference price. The net effect of the Government's price policy for cotton,tea and tobacco, but not fully washed coffee, is that subsidies on non-tradable inputs permit a small!evel of protection. Ironically, the Government's interventicn in the fMI'- washed coffee marketactually penalizes the production of Buruadi's most important export, reducing the country's foreignexchange earnings. In all cases, the low producer prices, coupled with subsidized input prices,encourage the inefficient use of inputs. In addition, the Government's tax structure favors public

24/ Sce the sector report 'Private Sector Development in bIdustry' for completo coverage of tax and taiff policie.

25/ Unlike fertilizer, imnorted veteaiary produW and i Lcing animals a subject to a15 pacnt transaction tax,a 10 percent import tax, and a -4 perct statieal tar.

26/ According to the BRB, the need ro piy tlh tnwaction tax was a chief factor F-,hind the 39 pecent ris in short-tenn borrowing by Bunandian furm in 1959 over the pevious year.

As of June 1991, the BCC was legally exempt from the twrnovex tax on coffee expwtag.

28/ Fcr a fuler discussion of tih effet of the Ouvemmen's price policy for the prcipal food arid ago-indutialorps, see anmex 5.

34

processing and export parastatals over private firms. H1gb taxes for the BTC's exports and tradableinputs cause the financial value added of tobacco exports to be 13 percent lower than their economicvalue added. Production costs in the Mosso region led the BTC to experiment with contra-ting outextension activities in tobacco to a private operator.

3.11 Controlled prices lead to losses in economic efficiency but they also lead to advantages forsmall farmers through the low-risk environment that they guarantee. A two-phase payment system(such as the one under preparation in Burundi's coffee sector), under which farmers are first paid aguaranteed fixed price and then later in the year receive a second, variable payment that reflects theactual export price (annex 2), would have a stabilizing effect on farmers' income and would rewardquality.

Government Control of Agricultural Inputs

3.12 Burundi's input suipply system is unable to satisfy the growing demand for modem inputs.The import and marketing of agricultural inputs is controlled, directly or indirectly (throughexternally financed projects), by the MOAL and parastatals . Their bureaucratic procurementprocedures, cash management difficulties, and lack of credit worthiness, coupled with below marketinput prices, have led to an unpredictable supply of modem inputs, which has discouraged their use.In Kirimiro, the RDC cannot satisfy a growing demand for food crop fertilizers. Similarly, becauseof COGERCO's inability to procure inputs in a timely fashion and to advance their marketing anddistr.bution costs, it delivered no fertilizers and pesticides in 1988 and 1989. This failure is estimatedto have reduced production by 1,200 tons in 1988 and 1,450 tons in 1989.

3.13 Burundi's input marketing was liberalized in 1991 as part of the Agricultural ServicesSector Project. The Government raised fertilizer prices in March 1991 by 33 percent in the KirimiroRDC, to reflect its financial costs and to permit the RDC to import fertilizer, but shortages persistbecause the imports have not yet arrived. As a result, the black market price is twice the previousofficial price (FBu 75 per kilogram). Fertilizer is still subsidized for cotton producers, to whom itis sold at aboult 30 percent below cost. The tea factories also sell fertilizer below cost (they excludemarketing costs). The National Fertilizer Policy Committee should assume a more active role tofurther advance liberalization and to coordinate the use of inputs financed by grants. The committee,which was established under the Agricultural Services Sectcr Project, comprises members fromministries, regional departments, and parastatals (annex 1-B).

Labor

3.14 Until recently, Burundi's excessively strict labor laws, applied mainly in the formal privatesector, discouraged the use of hired labor and the development of modern farming and agribusinessactivities. Complex labor laws regulated entry and exit in the labor market and established minimumwages for different categories of permanent workers. The laws also mandated automatic wageincreases. As a result, labor costs were up to three times higher in the formal sector than in theinformal sector, encouraging capital-intensive activities. 29/ Consequently, the significantemployment potential of the agricultural sector remained only partially exploited and agro-industrialexporters were forced to pay noncompetitive wages. In addition, Burundi's labor laws prohibitedpayment by task (the most common form of payment for harvesting), and temporary employment was

29t Except for the minimt:m wage requirement, Burundi's labor laws do not apply to the informal sector, whichincludes family-owned modem farms.

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legally limited to no more than 12 days a month for a three-month period. These restrictions led tolosses for fruit and vegetable exporters, who had to hire permanent workers for seasonal harvestingand packaging. Increased employment will depend upon greater labor mobility and labor costs thatare in line with international norms. Without these changes, the transformation of farming systemsand the development of regional specialization will not be possible.

Credit

3.15 Rural Credit. Traditionally, rural credit in Burundi has been provided by publicenterprises, RDCs, and development projects. Loan recovery rates have generally been low,reflecting poor management of credit components and the forced use of fertilizer credit. In addition,credit activities have focused almost exclusively on agro-industrial crops, at the expense of other ruralproduction activities (artisanry, cottage industries). For example, the BTC has provided credit andrelated services to encourage small farmers to grow tobacco. Despite the success of COO('ECs inmobilizing the savings of rural farmers, their credit services in rural areas have thus far been limited(only 13 percent of total savings), and have been provided mainly for housing. Recently, however,the COOPECs have started to provide preharvest credit to coffee growers for consumer goods, aneffort that should be extended to other producers. Preharvest consumer credit is very popular, and,because farmers need this type of loan regularly, its repayment rates tend to be high. Burundi stillneeds a specialized institution, similar to the well-known Grameen Bank in Bangladesh, to providesmall amounts of credit to rural entrepreneurs with no credit history who are seeking to invest insmall scale production activities.

3.16 Agribusiness Credit. One of the main constraints to the development of private agro-industrial firms in Burundi is access to credit. With the notable exceptions of fisheries and tobacco,most of the past investment in the sector has been public, financed by external funds, and channeledthrough public enterprises. The largest share of credit has gone to OCIBU, which received FBu 2.05billion in short-term credit in 1990, at a subsidized interest rate of 6 percent, for coffee purchases.This was about 70 percent of total short-term credit to parastatals. Despite the potential for privatesector activities in agriculture, the share of agricultural loans by the Banque Nationale deD3veloppement Economique (BNDE), the public bank that traditionally has focused on assisting newentrepreneurs, is small and declining. On December 31, 1989, agricultural credit, excluding coffeesector operations, comprised 18 percent of the BNDE's loan portfolio, compared with 29 percent forhousing and 24 percent for industry (table 10). Although the BNDE's portfolio grew by 8.83 percentin 1990-91, agriculture's share declined in all categories of lending, by 2.02 percent for long-term,16.53 percent for medium-term, and 11.10 percent for short-term.

3.17 The principal problem constraining access to credit for small new agro-industralentrepreneurs is not a lack of liquidity in Burundi's financial system, but the following procedural,institutional, and social constraints:

(1) Small entrepreneurs have insufficient sources of the equity capital that they need to meetbank loan requirements.

(2) Strictly defined bank collateral and guaranty requirements allow only a narrow rangeof physical, assets and no nonphysical assets-such as crops in the field-to be used as collateral. TheFonds National de Garantie was established to help guarantee loans for entrepreneurs, but it supportsonly a limited range of loans, and few borrowers have benefited.

(3) The low level of technical skills among entrepreneurs makes it difficult for them to

36

provide the necessary feasibility studies and business accounts required by the banks for loanapproval.

(4) The credit approval process is lengthy, especially for loans financed from external linesof credit, such as APEX. BNDE loans may take up to two years to process.

(5) Private banks tend to provide credit to well-known, wealthy entrepreneurs, and torestrict their loan operations to short- and medium-term financing of buildings and productive assets.

(6) Banks prefer to provide low-risk, Government-guaranteed loans to public enterprises.

(7) Small loans are unavailable to entrepreneurs with no credit history.

Table 10: 8reakdau of SE La Portfotio, by SectorDecber 1989

Share in LoanSector Portfotio

(percent)

Housirg 29.2Industry 24.4AgricuLture 17.9Cottage industrIes/comerce 14.2Domestic equipment 10.2Tourism 4.2

Source: BNDE

C. Sociopolitical Constraints

The Effect of Government Policies on Rural Initiative

3.18 Until the recent political changes in Burundi, the Government has sought to control theproductive and commercial activities of the country's 1 million farmers, both to generate the foreignexchange vital for maintaining and developing Government institutions and to exert control over therural population. 30/ This interventionist governing style, the economic stagnation among Burundi'sfarmers, and their physical dispersion have led to a disillusioned rural population, one that is notalways willing or able to modernize agricultural production. Interaction between the Government andthe farmers has been lopsided; there has been no official channels of communication allowing farmersto participate in local government and to express their goals and problems, and all communicationand organizational structures flowed from the top down. These conditions created formidableconstraints to agricultural development. In addition, although tapping the resources of the agricultural

30/ Baed on Xh findingp of tihe 1991 study: 'Lee contraintes sociales et institutionnelles du d6veloppemenl agricoleappr4hnddes au niveso des communes."

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sector to support development of the rest of the economy is not unique to Burundi, the ethnicimbalance that has until recently characterized Government institutions has given a special socialdimension to the rural economy. Four of the most important vehicles used by the Government tocontrol the farmer have been (1) extension and marketing institutions; (2) the local communegovernment; (3) the cooperative movement; and (4) unclear land tenure policies.

3.19 Extension and Marketing Institutions. The top-down structure of the extension servicewas inherited from the colonial era, when the cultivation of coffee, tea, and cotton was mandatory.Although not systematically enforced, the legal framework regulating cotton cultivation, prohibitingthe uprooting of perennial crops (coffee and tea), and directing coffee production (mulching andpruning) has never been formally abolished, but it will be eased under the third phase of the structuraladjustment program. Extension workers have tended to rely more on authority than on convictionbased on successful demonstrations in order to impose uniform-and sometimes ill-designed-technicalpackages. In this top-down approach to extension, the farmer was treated as a laborer rather thanan independent entrepreneur.

3.20 The creation of RDCs in the early 1960s enhanced the Government's control over thecultivation of export crops, especially coffee. Nationwide campaigns, rigid, uniform technicalpackagjes, and local governments' involvement in coffee 'campaigns' helped convince the farmer thatcoffee production is prinarily 'for the Government." This perception was further bolstered byGovernment-fixed producer prices and the free supply of coffee seedlings, pesticides, and, sometimes,fertilizers. A farmer's revenues came to represent merely a wage based on the productivity of hislabor, and he had little incentive to exploit the comparative advantages of different crops and torespond to market signals.

3.21 Commune. In Burundi the commune is the lowest level of government authority, and theone most relevant to rural society. It has a critical influence over the distribution of land, the mainfactor of agricultural production, and it controls the development of off-farm activities (trade, cottageindustries) through marketing regulations and taxes and, in some instances, through the impositionof community work. The commune officials receive their instructions from the national level, andfarmers lack channels at the local level through which to express their needs. For example, there areno procedures for the participation in decision making with regard to the distribution of public land,the regulation of local trade (market days, ambulatory trade), or the management of communalproperty (forests, roadside plantations). The one-sided relationship between the farmer and the localgovernment representatives has created tension between the two, and the events of August 1988 drewpublic attention to the critical role of the local government in maintaining social peace andovercoming ethnic tension. The new constitution adopted in 1992 addresses these issues byestablishing democratic institutions at the commune level that are likely to improve relations betweenthe rural population and the central administration.

3.22 Land. Burundi has no lack of land policies, but those that exist are poorly implemented,often because of the Government's indifference. The Government's vague land tenure policies havehelped to preserve the rights of Burundi's traditional landowners to unused land, contributing to asituation in which a relatively high proportion of pastures, swamps, and arable land that is notexploited to its full potential (map 4). And insecurity over land rights has encoturaged manypastoralists to engage in extensive livestock production to maintain their rights over pastoral lands.

3.23 A coherent legal framework has nullified arbitrary land allocation decisions made by thecommunes and the traditional rights of rural landowners, and provicles guidelines for the distribution

38

of land at the provincial and national levels. LI/ But even the best legal and regulatory frameworkdesigned in Bujumbura has little significance in the farmer's life until it is correctly interpreted andimplemented at the provincial and communal levels. In Burundi the rule of man (the communeadministrator) has too often prevailed over the rule of law. Although the commune's authorityshould be limited to communal lands (mainly artificial forest) conceded by the central Government,the communes interfere with the allocation of public lands, allocating swampy valley bottoms andpastures with little knowledge and respect for the land law. Although land concessions are supposedto be subject to a development contract, valuable and sometimes irrigable land on the Imbo Plain andalong the shores of Tanganyika Lake has nevertheless been allocated to civil servants andentrepreneurs without development contracts. Local administrations' allocation of land tononresiderts has increased farmers' suspicions that they are partisan.

3.24 The precariousness of Burundi's land tenure system has led to conflicts between the localpopulation and migrants in the Imbo and Nyanza Lac regions, and to tension when usufructuaryfarmers have been asked to pay rent on land they consider their own. Lack of access to land and theinsecurity of land tenure have impeded the development of agricultural settlements in the Imbo Plain,Rumonge, and Nyanza Lac regions. And uncertain rights over pastureland, which constitutes 34percent of Burundi's arable but uncultivated land, are a major constraint to the development ofextensive livestock and mixed farming systems, particularly in the Mugamba and Bututsi regions.

3.25 Cooperatives. The arbitrary power of the local administration is not counterbalanced bycredible farmers' organizations. In the early 1980s, when the Government took control over thecooperative movement (FECOBU), it establisheLi official cooperatives to procure and sell consumergoods and assist in agricultural marketing. The Government considered the cooperative movementan instrument for implementing its development strategy. It established a cooperative in eachcommune, and local government representatives and civil servants often dominated the management.As a result, the cooperatives do not reflect traditional forms of community cooperation (informalcredit activities and work parties). The official cooperatives have performed rather poorly. Inoffering credit for goods purchased at the cooperatives, they have extended more credit-mainly toadvisors, civil servants, and traders-than they have capital. Poor management and inefficient supportservices led to the bankruptcy of 41 cooperatives between 1985 and 1989. Foreign assistance hasbeen used to support the cooperatives, but a recent study suggests that their financial performanceis better when they have minimal external financial support. The protected environment provided bythe donors encourages mismanagement and benefits primarily the non-farmer members of thecooperatives. Cooperatives should be treated as private businesses with no special privileges.

The Oxymoron of Growing Povert and a Dynamic Rural Sector

3.26 Rapid population growth, limited land, and low mobility in rural areas has led to a

31/ Decree-Law No. 1/191 of December 30, 1976 nullifie the traditional allocation of land, the collection of rent,and other land rights prviously conceded by the communes. Decree-Law No. 1/19 of June 30, 1977, abolishedthe pmctice of ubufererwa the traditional rights of landlords, and grnted the land to the fanners who cultivateit. Law No. 1/008, of September 1, 1986 confrmned the above laws and established guidelines for the allocationof public lands. The authority to allocate land rests with the governor of the province for mral tracts smaller than4 ha, with the MLDTE for tract smaler than 50 ha, and with the President of the Republic for tracts larger than53 ha.

39

reduction in the size of farms, and growing rural poverty. 32/ As a result, there is an increasing lossof faith in the ability of the rural sector to ensure economic and subsistence security. Although theolder generation has become somewhat resigned to its situation, the younger, educated farmers (threeout of four farmers will have a primary education by 2000) have become disillusioned with rural lifeand have sought to migrate to urban areas or to find work in the off-farm informal sector. Butemigration and off-farm activities, have traditionally been limited by the Government. Until recently,petty trade was forbidden, and when the Third Republic came to power, populatioa movements werecontrolled.

3.27 Emigration and part-time, off-farm employment undermines the productivity of the sector.First, one result of emigration has been an increase in the number of women who are the de factohead of household. This affects productivity because the demands on women's time are too great topermit them to adopt the more labor-intensive practices of modern agriculture, and because womenreceive less attention than men from local extension services. Second, farmers who have off-farmemployment, but continue to farm part-time, are less able to specialize, and their farms' productivityis lower. There are several signs of low agricultural productivity and rising poverty in Burundi: (1)increasing preharvest sales of standing crops, which reduces the incentive for careful farming; (2)increasing sales of mulching material for fertilizer; and (3) the development of labor and land rentalarrangements. Growing poverty, together with the compliance of the older generation and thedisenchantment of many younger farmers, undermines the initiative of the rural population and itswillingness to intensify and modernize agricultural production. Until the farmers' productiveenvironment (and allocation, input use, prices and crop allocation decisions) is liberalized andcommunity-based systems of rural participation are created, farmers will be unwilling and unable toassume ownership of agricultural production and to transform agriculture into a dynamic sector.

D. Institutional Constraints

Poor Coordination of Government Activity in the Sector

3.28 Burundi is presently reshuffling the institutions involved in rural development at both thenational and the local level. Still lacking, however, is a formal mechanism to coordinate theinterventions of the three ministries concerned with rural development. And only the MOAL hasadequate local staff and external support to engage in policy analysis and budgetary planning. Inaddition, the agricultural statistical system has suffered from restructuring. The Service Nationald'Etudes Statistiques has been replaced by a new institute, Institut de Statistiques et EtudesEconomiques (ISTEEBU), causing delays in the construction of a national data base of the regionalagricultural surveys (implemented with assistance from Technical Assistance II and TechnicalAssistance IHo.

3.29 At provincial and communal levels the restructuring of agricultural services in the Kirimiroand Buyenzi RDCs has left agricultural staff confused. For the past two decades RDCs have servedas the foundation for public agro-industrial activities and the provision of agricultural services. Butbecause of their high costs and inefficiency, the Government, with the support of the Bank and other

32/ In 1991 the average siz of afann for a family (S to 10 people) ws 0.7 ha, and it is expected to drop to 0.S by2000. Near urban and densely populated areas, up to 40 pet of thc households already own plots smaller than0.4 ha.

40

donors, separated services from commercial and industrial processing activities and shifted theprocessing activities to the private sector. The Bank's Coffee Sector Project is assisting theGovernment in creating independent management companies for the washing stations (SOGESTALs).And the Government, with the assistance of the Bank's Agricultural Services Sector Project, isshifting extension activities from the RDCs to the MOAL. One consequence of the incrcasingprivatization of the sector, however, has been a loss of qualified agricultural personnel from theGovernment as experienced officials leave to join the private sector.

Poorly Coordinated and Defined Extension and Research Programs

3.30 The extension system suffers from several weaknesses. First, it has been characterized bya top-down approach and based on pre-independence technical packages, and, until recently, has notsolicited input from the farmers or from the end users of agricultural output (agro-processingindustries, consumers). As a result, the system is not yet responsive to the needs of farmers, marketdemand, or the sector's current problems, and technical packages too often have to be imposed onfarmers, often with the help of local commune officials. Because of the lack of farmers' input, theextension service can hardly keep up with farmers' own initiatives-for example, the selection of pest-resistant beans by Buyenz,'s farmers, and the spontaneous development of tuber cultivation as aresponse to recurrent drought. Second, extension services have focused on promoting rapid increasesin production without adequately evaluating their long-term implications for the sector. Despiteevidence of increasing soil acidity, for example, there has bcen no change in the formula for fertilizerused on beans. Third, extension and research activities have concentrated on maximizing the yieldof export crops, but have ignored the quality requirements of international markets, thus precludingthe sector from maximizing export revenues. Fourth, extension services are aimed almost exclusivelyat men, even though women are primarily responsible for cultivating food crops, and, increasingly,cash crops as well. Finally, although the service has sufficient staff, including 2,200 field extensionworkers and 200 technicians and agronomists, !/ the educational background and technical skillsof the field extension workers are often inadequate.

3.31 The overall quality of agricultural research in Burundi is high, but the research servicehas been undermined by distortions in the allocation of research funds, excessive reliance onexpatriate staff, and insufficient coordination with research programs of similar countries. Althoughexcellent use is made of international research organizations, contacts with other African countries,particularly Rwanda, need to be strengthened.

3.32 The allocation of research funds has traditionally favored the improvement of seeds overissues relating to soil fertility, but in recent years this imbalance has been corrected. The mostsignificant remaining distortion has been overexpenditure on rice research, which receives 40 percentof all funds allocated to food crop research, and about the same amount is allocated to all exportcrops combined. In contrast, research in the livestock sector has been poorly directed and ofinsufficient quantity. For the past 50 years livestock research activities have focused oncrossbreeding the local Ankole cattle with the Swahiwal to improve extensive pastoral productionsystems, but only limited results have been achieved. Research to improve intensive milk productionsystems begun more than 10 years ago, remains diffuse and uncoordinated; the research is testingexotic breeds at different locations without conducting any careful comparison of results. In foragecrop research considerable attention has been given to forage plant species, and ISABU is distributingseed to farmers, but there has been little assessment of the palatability of the species. Forage

33/ Annual salary cost in 1991 was PBu 858 million, or 40 peroat of oxtansion cots.

41

research has also ignored the need to develop leguminous fallow crops that produce forage duringthe dry season and nrovide protection from erosion during the rainy season. Finally, there has beenalmost no research aimed at improving the productivity of small mixed farming systems and smallruminant production-two areas with significant growth potential.

3.33 Other areas of research that have been neglected and that should receive more attention arequality improvements-rather than yield maximization-for export crops; better integration ofmeteorological data in crop research and production; and the development of appropriate crops foredible oil production. Research on edible oils has focused only on palm oil; no research has beeninitiated on groundnuts, sunflowers, and soybeans, which might be better adapted to the ecology ofBurundi. The introduction in Burundi of s;.rflower cultivation, which has been very successful inMalawi under conditions similar to those in Burundi, has been delayed by the lack of suitablevarieties.

Marketing Constraints

3.34 How Burundi's marketing network has affected its agricultural development is a matter ofcontroversy. The general wisdom has been that Burundi has a weak marketing network that hasconstrained agricultural development and precluded regional specialization in food crops. Recentstudies have suggested, however, that Burundi's markets are relatively wee integrated except in theMosso region. *'raditionally, Burundian farmers' production has been oriented toward self-sufficiency, and trading has been socially and administratively discouraged. Although local taxes ontrade are small, they are numerous (commune, market presentation, transport) and, combined withthe national transaction tax and regular road blocks, they create financial and administrative barriersto trade. It is difficult for food traders to obtain information on prices and markets, and formalcredit, 34/ and they face onerous legal licensing requirements. In addition, traders' marketing costsare relatively high because they must gather small amounts of production in dispersed areas.Although -rundi's road infrastructure is well developed, access to hillside farms is often difficult.Furthermore, rural markets also occur on the same day, making it difficult to develop an integratedmarketing chain. And because of the relatively small quantities traded and the absence of vertic2land spatial integration, prices fluctuate significantly, which discourages farmers from relying on themarket to meat their consumption needs.

3.35 The inadequacy of the regional and domestic markets is a significant constraint. If demandand prices were sufficiently high, the barriers to effective markets could be overcome. !3/ Butdemand for marketed food crops will increase only when farmers have sufficient incentives tospecialize in cash crop production. Significant food crop marketing in Burundi is unlikely to occuruntil the agro-industrial sector is liberalized and further developed. Regional marketing activities,although poorly documented, appear to be gradually expanding, primarily in response to growingdemand from urban consumers (for potatoes from Rwanda, and rice and cattle from Tanzania). TheIDA's Kagera Basin and Kivu marketing study is currently evaluating options for the expansion ofregional marketing.

I4/ Informal credit is available at an annual inteest ratc of more than 120 permat.

35/ The relative sucoc of institutional markt arangewnts for procuring rce (Imbo Plain) and beans (Muyinga)for the army, hospitals and schools, and the success of maracuja exporters in mobilizing nual production,demontatm tht wf do respond to profitable and orgnzed marketng opportnitie.

42

Educatior

3.36 Burundi's technical education system is oriented more toward producing governmentofficials than training private entrepreneurs or modern agricultural farmers. Courses need to bedeveloped in accounting, management, and small business development. Burundi's primary schoolprograms focus solely on preparing students for the country's rigorous secondary school exams,which only a small percentage pass. Those who fail the exams, having built up high expectations,quickly become disillusioned with farm life. Because there is little chance that sufficient jobopportunities will develop in the non-farm sectors in the immediate future, it is recommended thatprimary school programs start to focus on the needs of small farmers and on rural off-farm activities(cottage industries, commerce).

3.37 Public services and public enterprises lack a comprehensive human resources policy.Vocational and on-the-job training is poor, and its financing is heavily dependent on foreign aid. Thepoor training programs, combined with an uncompetitive salary structure, leads to a reliance ontechnical assistance and a high turnover in the staff of public enterprises and, more recently, in theadministration. A UNDP project is currently addressing public administration reform, and humanresources development is receiving high priority in the ongoing restructuring and privatization ofpublic enterprises.

E. Environmental Constraints

3.38 Erosion. Erosion is becoming a serious problem in Burundi, and unless action is takenquickly, the decline in soil fertility that it is causing is likely to limit the ability of the rural sectorto meet the country's food and foreign exchange requirements in the future. Burundi is confrontingtwo types of erosion. The first type, progressive erosion, is caused as rising population pressureleads to the expansion of agriculture onto marginal and fragile land (including swamps and valleyfloors), and to overgrazing and deforestation, which are gradually reducing the land's productivepotential. The second type, dramatic erosion, is caused by storms, floods, and landslides; it destroysroad networks and river beds and leads to expensive damage to rural and urban infrastructure.

3.39 Progressive erosion is slow, but pervasive, and therefore the more difficult type to check.Marginal and fragile soils constitute more than 50 percent of Burundi's cultivated land, and erosionis often cited as a main constraint to the sustainability of the farming system. The most affected areasare the steep slopes of Mumirwa and the fragile soils of Mosso, the densely populated centralhighlands, and the swampy areas. Earlier erosion control efforts were uniform strategies for the entirecountry, imposed from the top down, that emphasized infrastructure development. Implemented insome cases by community work programs, the erosion control activities offered no apparent gain tofarmers. As a result, they did not gain farmers' support and were not properly maintained. 3/ Aland management program must be centered on the farmer and his community. Because only theycan manage their land, and based on a continual dialogue among farmers, extension staff, andresearchers. And the program must use techniques that can be easily and inexpensively implemented.Intensification of production, conservation of water, and maintenance of soil fertility should beemphasized as means to control erosion. Soil management (organic fertilization, mulching), slopereduction, crop diversification (perennial tree and forage crops, planting hedges along with food

36/ For example, the labor-intensive contour ditches, promoted during the past SO years were neither wited to nmoof the stcep slopes of Bunindi nor accepted by the farmers.

43

crops), agro-pastoralism, and agro-forestry techniques should be promoted as means to preserve soilquality and intensify production. And because environmental problems reflect regional differencesin soil composition, crop cultivation patterns, topography, population density, and climate, a flexiblenational strategy should be developed that recognizes the needs of each region.

3.40 Burundi's 120,000 hectares of swampy valley floors (often with peaty soils) are a specialconcern. Swamps are part of a delicate ecological and hydrological system that plays an importantrole in the country's food security, because it permits the cultivation of a third crop (of paddy, maize,beans, and tubers) during the dry season. Most swamps are developed by farmers withoutpreliminary study and guidance and using traditional techniques, which can have devastating effectson peaty soils. Even developments using modem techniques are not always carried out with tbcnecessary care. Burundi currently has no master plan providing an inventory of swampy areas to beprotected and guidelines for their development. This problem will be addressed by a UNDP-flnancedand FAO-executed study on the design of a master plan for swamp development. 37/

3.41 The destruction of rural and urban infrastructure by dramatic erosion is expensive tocorrect, and repairs require direct state intervention and financing. Regional and nationalgovernments need to develop a land use plan that identifies high-risk areas for comm ies, swamps,forest regions, pastoral zones, and arabie areas. And the Government needs to emphasizeenvironmental protection not only in technical schools, but in elementary and secondary programsand in the broadcast and print media.

3.42 Irrigation. The presence of several rivers (Gikoma, Murago, Muzazi, Musenyi, Gifurweand Mpanda) on the Imbo Plain and along Lake Tanganyika offers the potential of expandingcultivation (especially cotton and rice) through irrigation (map 3). There are about 25,000 ha ofpotentially irrigable land on the Imbo Plain, and 20,000 ha in Bururi and Makamba Provinces. Ifconstructed, the irrigation systems must manage their water flows so as to minimize evaporation, andappropriate drainage networks must be incorporated to avoid problems of salinization of the land,which has already started in the irrigation schemes controlled by the hnbo RDC.

37/ 'Eaboaton d'un schEma directour d'am6nagemat do misi on valour dos maais' (BDI/87/01 1).

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CHAPrER IV: STRATEGY FOR AGRICULTURE-BASED GROWTH

A. Introduin

4.1 A new strategy for agricultural development in Burundi has evolved out of the currentdialogue between the Government and donors. This chapter highlights the principal features of thatstrategy. The central theme is the need for the Government to shift agricultural production, processingand marketing activities from the public to the private sector, and to structure its agricultural servicesand institutions so that they respond to the needs of their users-rural producers and agro-industrialentrepreneurs-and support protection of the environment. The principal objective of the strategy isto create the economic, sociopolitical, and legal environment, and the technical opportunities,including conservation of natural resources, that will stimulate the productive capabilities of Burundi'sfarmers.

4.2 Burundi possesses significant agricultural growth potential-despite its erosion problems-sufficient to permit output to increase at a rate faster than the country's population growth rate in thmedium term. Aithough some parts of Burundi are densely populated, 60 percent of the land thatis potentially usable for agriculture or livestock is not cultivated. According to contested estimates,about a third of that land is pastureland. Thus, the expansion of the land under cultivation or underpasture remains possible, although the quality of the available land is uneven. Also promising growthare the bigh quality and international competitiveness of Burundi's export crops, and its we:l-developed transport and agro-industrial infrastructure. And there is potential to exploit the country'scomparative advantages through regional specialization and the development of interregional andinternational trade networks. The Government's willingness to adjust the exchange rate to maintainthe competitiveness of Burundi's primarily agricultural exports will support their sustaineddevelopment and diversification. In addition, the Government's recent efforts to open up thecountry's political and economic structures to all Burundians is creating an environment moreconducive to economic and social development; this in turn will stimulate productivity amongBurundi's 1 million smallholder farmers. Finally, th6 past decade has witnessed the emergence ofa small, but dynamic, modern sector, particularly in livestock and nontraditional exports, that is likelyto expand rapidly if the macroeconomic environment remains favorable.

4.3 There are, however, several constraints preventing the full exploitation of Burundi'sagricultural potential. First, until recentiy, the state's interventionist attitude and the deep politicaldivisions in the country have led the Government to exercise strong oversight and control over thesector's principal economic activities at the national and communal levels. This has led toinefficiencies in management and investment, poor allocation of resource at the farm level, and theinhibition of producers' initiative. Second, the Government's top-down management style has createdagricultural service (extension and research) institutions that do not respond to the needs of producers.Third, although Burundi has satisfactory land tenure laws, the Government has lacked adequateadministrative and legal institutions to enforce the laws at the commune level. As a result, ownershipand user rights remain in dispute for large tracts of land, particularly pastures, and this land is notfully exploited. Fourth, Burundi's high population density, particularly in the northern highlands,has pushed cultivation onto marginal lands, which has led to erosion and the degradation of soilfertility. Fifth, the small size of the domestic economy leads to natural monopolies and oligopolies,which raise the sector's costs and the prices of its products while reducing its output. So far, thishas happened mainly in the public sector, but it could happen in the private sector as well if freecompetidve entry is not ensured from the beginning and anti-trust legislation is not adopted. Finally,although Bumndi's regional markets are spatially integrated, weak domestic demand and theinefficiency of storage technologies leads to significant price variations. This discourages Burundi's

45

risk-averse farmers from specializing and taking full advantage of the country's regional comparativeadvantages (map 5). This chapter presents a blueprint for action to enable Burundi to overcome theseconstraints and fully exploit the potential of the agricultural sector. It first describes actions necessaryto turn the sector's productive activities over to pri -- te entrepreneurs, and then proposes a new, morelimited role for the Government in agriculture.

B. Promotion of a Dynamic Private Sector

4.4 Burundi's 1 million smallholder farmers and its with a small number of urban entrepreneursare the source of its agricultural growth. The issue the Government and donors face is how toprwvide agricultural producers, especially those in rural areas, with the socioeconomic and politicalenvironment and the te;chnical tools that will enable them to behave like private entrepreneurs. Inthe late 1980s the Government did adopt a more positive attitude toward the modern, urbanentrepreneur. This was evidenced by (1) the opening of coffee exports to the private sector and thesubsequent creation of an Association of Exporters- (2) the participation of the Chamber ofCommerce in policy discussions; (3) the appointment of a livestock entrepreneur to the board ofISABU; (4) the privatization of public livestock farms; (5) fiscal and foreign exchange reforms tosupport exporters of nontraditional crops; (6) the liberalization of rice marketing; and (7) the decisionto privatize cooperative services. This positive attitude has been extended mainly to the modern,urban-educated entrepreneurs, however, and the smallholder farmer is not yet fully recognized as aprivate entrepreneur.

4.5 Burundi's rural private sector will not develop until several aspects of farmers' liveschange. First, in order for farmers to behave like entrepreneurs, they need to be able to allocateresources according to market signals. The Government, well aware of this, has taken a number ofpolicy measures toward freeing farmers to do so as part of the third phase of the structural adjustmentprogram. It has eliminated input subsidies and fixed producer prices for export crops; abolishedregulations on input use (application of fertilizer on tea), sources of input supply, and cultivationrequirements; and undertaken liberalization measures that have had positive effects on the ricesubsector (para 2.40). It has lifted the regulations prohibiting the uprooting of coffee and tea plantsand those requiring cotton cultivation in Imbo. And it is undertaking the liberalization of the coffeemarket, supported by the Coffee Sector Project. To ensure fair competition and efficient use ofinputs, prices have been liberalized and subsidies on inputs supplied by public enterprises eliminated,and inputs financed by grants (Japanese Fund) will be sold at public auction. Additional changes thatare needed are to make tariffs and taxes on inputs identical for all users and subsectors, and to makefarmers' participation in community works voluntary, not mandatory, so that they are free to allocatetheir labor.

4.6 Second, to intensify production and increase their reliance on markets, farmers need areliable source of credit, particularly during the difficult preharvest season. The independence of theCOOPEC movement should be preserved, and to protect its financial viability protected by subjectingit to the regulations of the banking system. Burundian professionals should gradually assume theresponsibility for technical assistance to the COOPECs, and the Gitega Central Office should retainfull control and accountability with regard to recruitment, training, and compensation. In addition,a financial institution devoted exclusively to providing rural entrepreneurs with small amounts ofcredit should be established.

4.7 Third, farmers need freedom to organize themselves into autonomous professional groupsand cooperatives. These organizations would help farmers articulate their needs to the Government

46

in an organized fashion, which is critical to ensuring the two-way flow of information that should beincorporated in the Government's extension and research services. Professional groups would alsobring the modern, urban farmer into contact with the rural farmer, permitting technology transfersand marketing contacts between them. The Government's present policy is to promote professionalassociations and NGOs, and it is limiting the role of the cooperative department in the Ministry ofRural Deveiopment to the regulatory functions specified in the law on cooperatives.

4.8 Also necessary to promote the development of the agricultural sector is intensification ofefforts to privatize the public enterprises. Public enterprises' assets should be sold at public auction,or leased to or placed under management contracts with private entrepreneurs. This privatizationstrategy is being implemented under the Coffee Sector Project, and will be extended to other agro-industries with the support of thie Agribusiness Promotion Project (Cr. 2419-BU). Commercial andindustrial investment in agro-industrial enterprises should be left to the private sector and financedthrough normal financial intermediation. In addition, to further encourage the development offishing, already controlled by the private sector, the requirement to sell all fish in Bujumbura shouldbe abolished, tax rates revised, and a regional conference held to discuss fishing rights, marketaccess, and appropriate exploitation levels.

C. The Evolving Role of the Government

4.9 In line with the above strategy, the Government needs to shift its focus to the creation ofan enabling environment that supports private initiative. First, it should limit its involvement in theagricultural sector to five areas: (1) the provision of support services (research and extension); (2)the development and application of a regulatory framework for land tenure, forestry management,phytosanitary practices, animal health and sanitation, and quality control of exports; (3) sectorinvestments with significant public externalities; (4) the deveiopment of a coherent environmentalpolicy, and (5) institutional reforms to improve the MOAL's planning and policy analysis capabilities.Second, the Government needs to change its attitude toward the consumers of these services;Government offilcials must recognize that agricultural entrepreneurs are fully equal and rationaldecision-making partners in the country's development. This recognition should lead to, for example,less imposition of services and more seeking out of feedback; broader critical examination of resultsand a willingness to adjust actions and policies; and better links between research and extension.

Research and Extension

4.10 Research and extension services have been criticized by both farmers and Governmentofficials for poor performance and lack of relevance. To regain credibility, research and extensionservices should become responsive to farmers' needs, both those currently perceived by the farmersand those expected to become critical within the long time frame of research; this requires developinga dialogue with farmers and a sensitivity to the feedback received in this dialogue. The extensionservice should develop regular contacts with specialists, provided by agro-industries, who would workwith it to ensure thal; agricultural products satisfy market demand. ISABU's new policy of organizingagricultural researcl around Regional Multi-disciplinary Research Units that work directly withfarmers should be enforced. The extension service should disengage itself from input marketing,which should be carried out by the private sector, including agro-industrial firms. Finally, theextension service should hire female extension workers and direct more activities toward women andyoung farmers, and it should inform producers of relevant regulations (forestry and land tenure,phytosanitary).

47

4.11 The three main lnsuuimenLs d.at the research a^xd extension services should use tr' achlevethese objectives are (1) the trainia-r:-and&i-it method, empha;..7ng farmers' feedback and a criticalexamination of results; (2) farming system. assessments that collev.: data on soil fertility, land tenure,production practices, food security, and socioe;onomic conditions in order to assess the constraintsand objectives of farmers, identify promising cultivation practices, and design on-farm testing of newpractices; and (3) network organizations that link Government extension, planning, and researchofficials with private professionals (farmers and agro-industrialists) and professional organizations,facilitate the transmission of information, and help identify sectoral constraints and problem-solvingtechniques. 38

4.12 Extension services should be administered by the MOAL's regional staff, and no longerprovided independently by dispersed and uncoordinated projects and RDCs. In addition, the technicalefficiency and financial profitability of extension packages should be demonstrated, so that there isno longer a need for local governments to impose them on farmers. To help farmers distinguishbetween the public and private sectors and make a transition from dependence and submission toautonomy and initiative, the local administration must avoid interfering with agricultural extensionactivities.

4.13 Agronomic research by ISABU and FACAGRO should emphasize integrating farmingsystems research with anti-erosion and soil fertility programs; improving the quality of export crops;developing oil seeds; supporting livestock research; and developing national research capabilities.The ongoing farming systems research should develop models based on regional spec.alization andcomparative advantages, as alternatives to the current subsistence-oriented garden farm. The farmingsystems research should also incorporate an integrated approach to promoting anti-erosion techniquesand soil fertility, an approacn that involves all crops cultivated by the farmer. Agronomic researchshould focus on improving the quality of traditional and nontraditional export crops, and researchersshould work with agro-processors and exporters to ensure that the requirements of internationalmarkets will be met. Finally, to help Burwidi achieve self-sufficiency in edible olls, ISABU shoulddevelop crops to complement palm oil (which is not well adapted to Burundi's iemaining unusedarable land) which offer a high oil content, such as groundnuts, soybeans and sunflowers.

4.14 Livestock research must reflect the diversity of the sector, which includes three productionsystems: (1) extensive pastoralism; (2) mixed farming, which includes cattle and small livestock(goats, sheep, poultry, rabbits); and (3) the newer intensive, peri-urban production. For each systemresearch is needed on different breeds, forage crops, feed supplies, and marketing technologies, andon the integration of livestock with soil fertility maintenance activities The research institutionsshould reduce their excessive dependence on expatriate researchers, and increase the number ofBurundian researchers with planning and managerial abilities. Few national researchers have beengiven the opportunity to pursue higher degrees.

Creation of Supportive Reguiatory Environment

4.15 As the Government shifts out of productive activities, it needs to focus on creating andimplementing a regulatory framework that would make the rule of law transparent to all privateentrepreneurs in agriculture. The Government needs to develop and implement fair procedures forthe distribution of undeveloped communal areas, and to reinforce the land ownership rights of farmerscultivating disputed lands in the South Imbo Plain. These procedures could be communicated and

38/ A network for cattle was created in May 1991.

48

enforced by appropriate technical and inspection services of the MOAL and MLDTE. In addition,the Government needs to revise and clarify marketing (quality control) and sanitary (animal health)regulations, and it should permit professional associations to propose regulations that support theirproduction and marketing activities. Finally, the Government should evaluate and simplify its laborlaws to promote use of the most important resource in Burundi's rural sector-labor.

Public Expenditures

4.16 T'he adoption of a private sector-oriented agricultural strategy would entail profoundchanges in public expenditure patterns. Fiist, public expenditure would decrease substantially, as newinvestment in agro-industries is left to the private sector or discontinued (public forestry and perennialcrop plantations). Second, it would shift toward investments with significant public externalities, suchas land development and protection (irrigation, watershed protection and management, swampdevelopment and protection, erosion control), and some seed production, and toward support for theprivate sector in the form of research and development grants and marketing services. Third, theshare of Government spending allocated to the operating expenses of agricultural services and thenewly created regulatory framework would increase. Finally, cost-recovery mechanisms would beintroduced for animal health services, seed distribution, and irrigation maintenance. Public sectorexpenditures programs undertaken by the MOAL in 1992 will provide better knowledge of actualresource allocation and contribute to the implementation of the new public expenditure policy.

A National Environmental Policy

4.17 The National Institute for the Environment and Nature Conservation (INECN), which ispart of the Ministry for Land Development, Tourism and Environment, is currently preparing anational environmental policy with the support of the UNDP, the Norwegian Fund, and the Bank.The policy will center on (1) identifying and conserving endangered and marginal lands (naturalforests, swamps, watersheds); (2) developing regional soil fertility programs that integrate livestockand agro-forestry anti-erosion techniques and use chemical and lime fertilizers; (3) increasing privatesector irvolvement in the forestry sector, with the phasing out of state control and ownership ofplanted forests and tree nurseries; and (4) protecting Lake Tanganyika's fish and water resourcesthrough improved regulatory and tax codes and international agreements. The INECN would be theexecutive secretariat for Burundi's national enviromnental policy, which will be implemented byGovernment ministries, professional organizations, and NGOs.

Institutional Reforms

4.18 The MOAL's Agriculture and Livestock Planning Directorate, which is supported by theIDA Agricultural Services Sector Project, Germany, and the UNDP should continue to be responsiblefor planning and policy analysis. Subsector working groups (forestry, fishery, soil and watermanagement) should be formed of representatives from the modern private sector and farmers'organizations. In addition, an Interministerial Coordination Committee (ICC) has been proposed toreview proposals and monitor and evaluate their implementation. To support the MOAL's policy andplanning capabilities, the Agricultural Statistics Service should be reinforced and take over theresponsibility for agricultural statistics from ISTEEBU, which should focus on methodologicalsupport. The Agricultural Statistics Services should collaborate closely with the Early Warning andInformation Management system supported by the FAO.

49

D. Cnclusins

4.19 This memorandum presents a relatively reassuring scenario for food self-sufficiency inBurundi and argues that there will be significant growth potential in the agricultural sector for thenext decade. The growth potential reflects mainly Burundi's unexploited arable land, the qualitypremiums for its industrial crops, and agricultural yields that will increase, as rural producers becomemore motivated with privatization of the sector and the garden farm by increased specialization. Inthe long-run, however, growth is more likely to stem from the development of small-scalemanufacturing, agro-industry, and services, and Burundi is likely to become less self-sufficient infood production.

4.20 Therefore, during the next decade, when Burundi can still enjoy significant agriculturalgrowth, it must lay the foundations for the development of its industrial and services sectors and foran economy less dependent on agriculture. It must produce a high-quality labor force, which willhave to be one of Burundi's principal assets in the development of manufacturing and serviceindustries. A critical role in creating a dynamic, skilled labor force will be played by themodernization and privatization of the agricultural sector. And the Government must create aneconomic and political environment suitable to the development of manufacturing and serviceindustries in the 1990s. 39/ This it can do by addressing the constraints to the development ofnontraditional exports and the private sector reviewed in this report.

39/ Consains to the development of am privat sector, paficumlary for the manufacun and ervices induies,arn addresed in 'Bunindi - Indusrial Policies and Private Sector Developmment (Reoit No. 9422-BU).

BURUIDIAGRIBUSINESS PROMOTION PROJECT

Proposed Policy MatrixMArea objectives Neasures Tinetabte1. Agricultural Production Liberalize sector in order to Circular Letter confirming the contractual and luplementedstimulate productlon according votwltary character of cotton farming forto comparative advantage seitLholders.

Circular Letter specifying the modalftles of the leplementedreconversion of tea and coffee plantations carriedout with pubilc fumis.

Policy note on the programming and financing of new Iiplementedcoffee and tea plantations.

Producer price liberalization for agro-fnrdstrfes lqplementeditole respecting the price ceilings currently in

place.

Price liberalization of Inputs. lempl-wnted

Liberatization of the purchasing. marketing and ptlementedprocessing of agricultural products includingcoffee, cotton, tea, palm oil, sugar.

Disseamination of the land taw for allocating lpltementedpasture, Irrigated and saup lands to smallholderswnd aogribusinesses.

" SAC m-ll Third Structural Adjustment Credit PSD = Private Sector Development Project APP = Agniusinr Pvmotio Project 0

Area oblectives Measures Timetable

It. Pubtic Enterprise Reform Reduce fiscal burden of PEs and Signature of the Circular Letter applying a loplementedthe role of the state In the moratorium on new investments In non-financial PEsproductive sectors to enhance to be privatized.ecorafmic efficiency throughcompetition. issue Invitations to bids for the privatization of September 1992

the capital of all PEs slated for privattzatfon an (sAC 111)1992 and signature of private mwnagement contractsfor those PEs whose management Is slated to beprivatized In 1992 equivalent to 14X of assets Inthe state's portfolio. Timetable for reform of the26 PEs recently reclassified.

Restructuring of SCEP and putting in place of the September 1992Monitoring Mechanism for those PEs to be privatized (SAC fit)or liquidated. Finalizatfon of the liquidation ofSCEP's Intervention Fund.

Approval of bidding docutents for the recruitment September 1992of TA for preparation of privatizatfon (APP)

Introduction of a producer price fixing mechanism Moveer 1992based on cotton quality (APP)

Completion of the privatization of the equivalent Doceber 1993of 6X of the statess portfolio (In asset term) for (SAC 111)those PEs whose capital will be privatized and theequivalent of 49X of the state's portfolio forthose PEs whose managemnt wfil be prfvatized.Goverrent decisions regarding the next steps forunsuccessful cases of PE privatizatfon (e.g.,restructuring, liquidation, private _wagement orleasing).

I~~~~~~~~~~I* s

Area Oblectives Neasures Timetable31!. Privatitation of P"btic Agro- Reckace tu m rer of local staff Study nd design of an lncentice package that Dece br 1992Industries stluulates production nd resolves ambiguities In (APP)

improve financial s anagement ond tend tenure practices In resettled landst. Privatization of COGERCO marketing performances

Selectlon of consulting fir for preparation of January 1993Increae farmeras Incse. and privatization (APP)prodictivity

Improve the coqiecitiveness of Restructurirg of COGERCO accouting system to Jaruary 1993cotton on the local and insulate acconUts of the Massc Oevetopment Project (APP)International markets

Socio-economic study, technical wnd financial February 1993/MayAedectfon of extemnsion costs valuation, humen resources study, 193

asaets/l)abillitles verffication CAPP)Repl cesent of axpetriatetecnimcat assistance br local Promotion of pilot cotton-growors assoihtions for Narch 1993*xportisa purchasing of cotton (APP)

ICP review of consultant report and propatsls for September 1993privatitation (APP)

Approval of bidding docmmmnts for the recruitment Sept?aer 1993of TA to the TIC (APP)

Selection of the consulting firm for the TEC Decee tr 1993(APP)

fSetabilohmnt of the Technical EvaluationCiseeson (TEC) for COGEICO Jawasry 1994

(APP)

Audit, technical wid financial evaluatiom.financiat projections as mt and liabiltties February 19941Junevaluation. restructuring of the accounts, 1994preparation of bidding docasents for privatination (APP)

ICP review of consultant report and pripoals andInvitation for bids Auguat 1994

(APP)Selection of the core fnvestor

MovoWbr 1994(APP)

Area Ob]ectve Measures TJmetable

2. Privatization of OTB increase the share of private Approvat of management contracts between each tea blpteentedinvestment in the tea sector factory and 07B central mnragement

Reduce investment costs and Approval of marenement contract between 0TB and the IlepmmntedIncrease profitabilfty of ta Govermment (APP)productfen In BururndiInvifte private investment proposals for the erm Septomber 1992

Redoce turnover of local stoff tea factory (APP)Iqxwe financial maagement and Introduction of a producer price fixing *echanim September 1992marketing performances based on tea quatity (APP)Increase farmer's income and Irplex entation of a new staff benefit system based September 1992productivity on technical and fifnacial performance (APP)Increase export earnings from Design and implementatfon of measure to Icprove Septecber 1992tea smalt holder tea yietds and quality (APP)Red4ction of extension costs Approval of bidding documents for the recrultment September 1992

of TA for preparation of privatization (APP)Replacement of expatriatetechnical assistance by local Study on the impact of suppresslon of sutaidies on September 1992expertise fertilizers (APP)

Promotion of pitot tea-gromers associations for Decr 1992purchasing of tea leaves (APP) L

Selectian of consulting firm for prepration of Jwmry 199privatization CAPP)

Soclo-economic study, technical and financfal February 1993/Julyvaluation, humn resources study, 193assetse/labilities verificeation (APP)

ICP review of consultant report and proposal for lNaneber 1993preparation of privatfzation (APP)

Approval of bidding documents for the recruitment Novber 1993of TA to the TEC (APP)

Selection of the consulting ffrm February 1994(APP)

Establishment of the Technical Evalustion Narch 1994Commission (TEC) for OTO (APP)

Ii

Area oblectives Measures TimetablePrivatization of OTB Audit, technical and financial evaluations, March 1994/Augmt(cont.) financial projections, assets and llabilIties 1994

valuatfon, restructuring of the accouts, (APP)preparation of bidding doctuents for privatization

ICP reviet of consultant report and proposals and November 1994inwitation for bids (APP)

Selection of the core investor for Butioro tea February 1995factory (APP)

Transformation of OTB Into a Nixed-Capital corpmW March 1995(APP

Offering of shares to privatlze firms and other 1995factorfes (APP)

Sale of shares to the'eployees, the farmers and 1995the general pubtic (APP)

Privatization of the other tea factories (core 1996investor or management cofpanies) (APP)

ILn5

Goo

Area Oblectives Measures Timetable3. Preparation of Reduction of sugar production Establishment of the Technical Evaluation Septerber 1992privatization of SOSuio costs Comission (TEC) for SOSUO (APP)

Reduce turnover of local staff Approval of bidding documnts for the recruitment September 1992of TA for preparation of privatization (APP)Ioprove financial management and

marketing performnces Selection of consulting firm for preparation of Jamry 1993privatization (APP)Increase farmer's Income and

productivity Soc1o-ecormic study, technical and financial February 1993/valuation, human resources study, May 1993Replacement of expatriate assets/liabilities verification (APP)technical assistance by local

expertise ICP review of TEC report and proposals and April 1993invitation for bids (APP)Increase SOSUI0's market share

in the region Selection of core fnyestor July 1993(APP)

Transformation of SOS06M Into a Mixed-Capital August 1993company (APP)

ICP review of consultant report and proposals for Septeaber 1993prfvatization (APP)

Approval of bfdding documents for the recruItment September 1993of TA to the TEC for second phase of privatization (APP)

Selection of the consulting firm for TEC December 1993(APP)

Audit, technical and financifl evaluations, February 1994/Junefinancial projectionsr assets and liabilities 1994valuation, restructuring of the accounts, (APP)preparation of bidding documents for privatization

ICP revfew of consultant report and proposals and August 1994Inwitation for bfds for second phase of (APP)privatIzation

Second sale of shares Nloveber 1994iAPP)

Thfrd offering of shares 1995(APP)

Sale of shares to the etployees, the farmers and 1996I _______________ _______________ __________________________ the_general public _the generat pub lic_

o0%

Aret oblectives Measures Timetable4. Restructuring of SROI and loproe the coopetitivness of Study on the restructuring of SRDI September 1992privatization of the rice lmbo rice on naktional and (APP)mill regional markets

Approval of bidding documents for the recruitment Septeer 1992nrnemse farmers fcm and of TA for preparation of privatization (APP)productivitySelection of consulting firm for preparation of Jawusry 1993Reduction of extension costs privatization (APP)

Reduction of maintenance costs Socio-economic study. technical and financial February 1993/Julyof irrigation nd drainge works valuatfon, human resources atudy, 1993assets/liabilities verification (APP)Replacement of technicat Approval of bidding docueents for the recrultment Septber 1993assistence by local expertfie of TA to the TEC (APP)

ICP revfew of consuttant report and propoSals for November 1993privatination (APP)

Selection of the consulting firm for TEC Deceber 1993(APP)

Establishment of the Technical Evaluation JaIary 1994Comlsulon (TEC) for SoDl (APP)

Audit, technical and financial evaluationsr Februryfinancalo projections assets and liabilities 1994/April 1994valuation. restructuring of the accounts.preparation of bidding documents for privatization

ICP review of consultant report nd proposals nd Jun. 1994invitation for bids (APP)

Privatizatfon of the rice mill and restructuring of September 1994SODI (APP)

01

57 Annexpage8 of 8

lIL

0-~~

0u

58

Annex 2page 1 of 16

A COMPARATIVE ADVANTAGE ANALYSIS OF BURUNDI AGRICULTUREM

I. Introduction

This annex examines the compartive advantage and the economic and financial profitabilityof producing, processing and marketing the principal food crops grown in Mosso and Buyenzi, aswell as several of Burundi's main agro-industrial crops. The objective is to identify the regional andinternational export (or import substitution) potential, as well as the profitability and efficiency of thecurrent incentive structure. The analysis provides a tramework to evaluate the impact of governmentpricing, investment and exchange rate policies on the agricultural sector. The exchange rate used inthe modelling is 170 FBu = US$1.00.

E. Afro-Industrial Crops

A. Qffee

Burundi enjoys a comparative export advantage in washed and especially fully washed coffee,with domestic resource cost (DRC) coefficients of 0.80 and 0.93, respectively, as indicated in tableL1y Under the current pricing structure, coffee production is profitable for the farmer, with fullywashed coffee offering a slightly higher return per kg (39 FBu/Kg) than washed coffee (22 FBulKg).The farmer's return to labor for both types of coffee production are similar and equal the estimatedcost of family labor (105 FBu/day). The washing stations (currently SOGESTALS formerly theRIDCs) earn a small profit of 6 FBu/kg for depulping the cherries, while SODECO (formerly OCIBU)achieves 24 FBu/Kg) to hull fully washed coffee, and only 9 FBu/Kg to hull washed coffee. Giventhe world prices used in the model, coffee exports are subject to losses especially in the case ofwashed coffee (5 and 15 FBu/Kg for fully washed and w&i.hed coffee respectively). This suggeststhat the Government of Burundi would have to subsidize coffee exports, especially washed coffee,assuming the exchange rate is not adjusted in 1991.

liThis annex Is based on: SOGES/AIRD. Etude sur tes Avantases Cgmaratifs Entre Diverses Cuttures Dans lesd Vots. I & Ii (Version Provisoire), Ministere de L'Agricutture et de lEtevage*

euJt bure, INY91.

iThe coffee ode' Is based on the 1990/91 sliding scale. The FOB CAR price for futty washed coffee is S2318/ton and for washed coffee It fs S 2021/ton

59

Annex 2page 2 of 16

TABLE IA: FULLY WASHED COFFEE

Farm Ex-Factory Uhotessle Exoort |

(FBu/Kg) (Flu/ha) (FBu/day) (Flu/Kg? (Flu/Kg) (Flu/KF )

ORC ___ 0.80

Economic Profits 68Financial Profits 39 49729 104 45 69 64

NPC - Inputs 0.12 1.04 1.03

NPC - outputs 0.82 1.01 1.00

EPC 0.85 1.00 1.00

ESC 0.89

TABLE 1B: WASHED COFFEF

|_________ .____ Farm Ex-Factory Wholesale Export

l (FBu/Kg) (FBu/ha) (FBu/day) (FBu/Kg) (Flu/Kg) (FBu/Kg)

DRC _ 0.93

Economic Profits . . 19

Financial Profits 22 40884 102 31 16

NPC - nu;ts 0.13 1.05 ._ _ 1.04

NPC - outputs 0.93 1.04 1.00

EPC 0.97 1.04 1.00

ESC 1.01

An evaluation of the Government's price policies suggests that they simultaneously subsidizethe producer's input costs (seedlings, pesticides, extension, poudreuse), while taxing output prices,particularly for fully washed coffee. The nominal protectien coefficients for inputs and outputs,shown in table 1, indicate that producers of fully washed coffee pay only 12 % of the economic valueof their tradeable inputs, while they receive only 82 % of the economic value of their coffeeproduction. The net effect, when subsidies on non-tradeables are taken into account is that thefinancial value added is only 89 % of the economic value added. This suggests that coffee producerprices are too low and that the Government's price policy discourages the production of fully washedcoffee. The price of washed svffee reflects 93 % of its economic value, while the farmer pays only13 % of the economic value of his inputs. However, the effective subsidy coefficient of 1.01suggests that washed coffee producers are more adequately remunerated, as the producer price moreaccurately reflects its economic worth. Consequently, the Government's price policies undervalue

60

Annex Ipage 3 of 16

the production of filly washed coffee, where Burundi has a strong comparative advantage, whereasthey are relatively neutral for the production ofwashed coffee, where Burundi has less to gain.Nominal protection coefficients for OCIBU and BCC indicate that they purchase inputs at theequivalent world price, as these indictors are relatively close to unity for both of these enterprises.

B.

The analysis for tea reveals that Burundi possesses a comparative export advantage with asmal)holder DRC of approximately 0.98 y The data suggests that tea production is quite profitablefor the small farmer, yielding a return to labor of 140 FBulday, which is higher than for coffee.Likewise, table 2 indicates that tea processing is not financially profitable for OTB, which experienceslosses of S FBu/kg of smallholder tea. However, 0TB compensates for its processing losses throughexports (reflecting the high quality of Burundi's tea), which earn OTB a net profit of 12 FBu/kg onsmallholder tea exports.

TABLE 2: TEA (TRADITIONAL PRODUCTION NETNOD)*

Farm Ex-Factor2a iholesale ExPort

(FBuKg) (FluIha) (FBuldaY) (FBu/K) EFBuM)

ORC _ 0.98Econormic Profits _ 6FinancOil Profits 24 265040 140 - 5 _ 17

NPC - Irnputs 0.a8 1.08 1.09

NPC - outcuts 0.76 0.76 _ 1.00EPC 0.24 0.60 1 _ 0.93

ESC 0.31

* Date based entfrely on secondary sources and model results are preliminary.

As for coffee, the incentive structre facing tea producers subsidizs inputs and taxesprod: ction. Smal1holder tea producers pay only 88 % of the economic value of their inputs,reflecting subsidies on tea plants and equipment, while they receive only 26 % of the economic valueof production. The net result of government price policy on farm level incentives is to discouragetea producdon, as shown by the effective subsidy coefficient of 0.31. Similar to coffee production,the incentive structure facing OTB for exports is fairly undistorted.

kh. FOB price I. $ 24471ton of dried toe. The modat aouse that producers pay part of the ferti ltfer costs.

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Annexpage 4 of 16

C. CQ=

With a DRC of 0.88, Burundi cotton is competitive on the international market.4' Given thecurrent pricing struture, cotton production appears to be a financially viable crop, offering theproducers a profit margin of 35 FBu/kg for fibre equivalent and returns to labo. of 161 FBu/day,which is the highest for all of the cash crops with the exception of tobacco. Given the price andexchange rate assumptions of the model, COGERCO loses 15 FBu/kg on cotton fibre sold toCOTEBU, while it loses only 6 FBu/kg for exporis. This highlights the fact that COGERCOsubsidizes COTEBU's textile production, and suggests that COGERCO needs to reduce its costs toachieve financial stability.

TABLE 3: COTTON

| fanslarm Ex-Facto!X Wholesate Export

| (Flu/Kg) (F8u/ha) (Flu/day) I (FBu/Kg) FlBu/Kg) I Flu/Kg)

ORC 0.88Economic Profits 23Financial Profits 35 13662 161 10 29

NPC - In4_uts 0 32 0.96NPC - outPuts 0.70 1.00

EPC 0.87 1.02ESC 1.10

As for coffee and tea, the Government appears to subsidize the use of inputs (seeds, fertilizer,insecticide, COGERCO's infrastructure support, extension) in cotton grain production and to taxcotton production. Farmers pay roughly 32 % of the economic value of their inputs, and receive 70% of the economic value of their product. However, the combination of the Government pricepolicies produces an effective protection coefficient of 0.87 for cotton, which rises to 1.1 whensubsidies on non-tradeables are taken int account. Consequently, the financial valued added isslightly higher than the economic value added, suggesting that cotton grain producers benefit froma small amount of protection under COGERCO's current input pricing policies. The protectioncoefficient on the parastatal's exports indicate that there is relatively little price distortion at this level,as the financial value added closely approximates the economic value added.

5t oiton far budgets based on Prolet de DdveloauMent de la Culture Cotomlfre dans ta Rdaion Neturelte OmMP80. uritten in January 1989 by COGERLJ. Currentty, cotton is not grown in noso, dO data reftects onlyexpectations. Average estifated yield: 1,000 kg/ha. Transformation rate of grafn to fibre, average COGERCO rate:

39 S. The FOB price (Bujumbura) is S 1587/ton. No export taxes are charged on cotton.

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Annex 2page 5 of 16

D. Sugar

Assuming SOSUMO's investment expenses are treated as a sunk cost, Burundi possesses acomparative advantage for sugar production up to the wholesale (Bujumbura) level. However,Burundi sugar is not competitive with the area's regional exporters (Zambia and Malawi), as theexport DRC (see table 4) indicates that It requires Burundi 11 FBu/kg more than its trading partnersto export sugar. When SOSUMO's investment costs are incorporated, Burundi has no comparativeadvantage in sugar production, and the DRC rises to 2.43 at the local wholesale level. Recentefforts to develop sugar cane production on small private plots using family labor may offer arelatively more efficient method to produce sugar in Burundi, given the tentatively lower DRC exportvalue of 1.16.

TABLE 4A: SUGAR (REFINERY INVESTMENT COSTS INCLWED)

.________________ .Fam _ Ex-factory Wholesale Export

.____ . (FBu/Kg) (Flu/ho) (FBu/day) (Flu/Kg) (FBu/Kg) (FSu/Kg)

DRC 1.36 2.43 ative

Economfc Profits ._-10 -Z3 -_50

|Financiat Proffts -294 Z5 44 36

rNPC - Inputs .0.62BuJumburs

,

UPC - outputs 5.31B ululabura

|EPC.. .Bujumbura

TABLE 48: SUGAR (REFINERY INVESTMENT COSTS EXCLUDED)

- ________________ j (R Farm Ex-Factory Wholesale Export

(_Fu__K_) (Flu/ha) (Flu/day) (FBu/Kg) (Flu/Kg) (Flu/Kg) IDRC L 0.55 0.70 1.36

Economic Profits 30 16 -1t

FInancial Profits 13 25 -34

UPC - inputs 1.15Bulubura

NPC - outputs 1.36Bujumbura . .

EPC 1.54Bujumbdura -__

&ftsed on esttmtes from SOSUMO for Its own fIelds nd for smalt fanrer outgrowr production based upon recenttrials. The CIF price for Bujumbura is 77 Flufkg and the FOB at Mpultungu Zambia is S 525/ton.

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Annex 2page 6 of 16

TABLE 4C: SUGAR (PRIVATE RAINFED PRODUCTION)

ntoe Ex-Factory Uholesale Export

____________ (FBu/Kg) (FBu/ha) (FBu/day) (FBu/Kg) (FBu/Kg) (Flu/Kg)

DRC 0.46 0.63 1.16

Economic Profits 39 22 6-6

Financiat °rofits 67683 29 47 -31

NPC - inputs 1.19Bulumbura e

NPC - outputs 1.34Bujumbura__ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _

EPC 1.46Bujumbura ._._ ______.

The sugar production and processing parastatal, SOSUMO, currently gains '5 FBu/kg onsales of processed sugar, whereas privately cultivated sugar cane is estimated to be more efficient,yielding 29 FBu/kg ex-factory. The sale of sugar in Bujumbura is financially interesting, providingwholesalers with 19 FBu/kg of profits, as shown in table 4. However, no financial incentive existsfor SOSUMO or wholesalers to export sugar as they would incur losses of 78 FBu/kg and the countryhas a whole would lose 34 FBu/kg, as indicated in table 4. Clearly, under the current pricestructure, there is no export potential for sugar, but it is economical as an import substitute.

Sugar appears to be the only industrial crop under analysis where the wholesale price ishigh., ;ubsidized by the Government (assuming investment costs are treated as sunk). Table 4reveals that the financial price of sugar in Bujumbura is approximately 35 % above its economicvalue, indicating that the sector is protected. Furthermore, if the Government's payment ofSOSUMO's investment costs is included, the parastatal pays only 62 % of the economic value of itstradeable inputs. As a result of import taxes and the subsidy on its investment costs, SOSUMObenefits from extremely high rate of protection, as the effective protection coefficient indicates thatthe financial value added is 5.31 times greater than its economic worth. If the Government subsidyis excluded, the analysis indicates a less distorted pricing system for sugar, as tradeable inputs aretaxed an average of 15 %. Consequently, without the Government subsidy, the financial value addedof sugar production is only 54 % above the economic value added, reflecting the Government'sefforts to protect local sugar production with restrictive import taxes.

The evaluation of sugar production indicates that investment in new sugar refining capacityis inefficient, while the expansion of current production to meet existing refinery capacity should beencouraged. The SOSUMO refinery is currently operating at about 69 % of its capacity, meaningthat another 5,000 tons/year of sugar could be produced (on approximately 1,000 ha). The analysisof producing sugar cane on small private farms suggests this may be preferable to industrial irrigatedproduction. While the data on sugar production is limited, it appears that it is only financiallyprofitable for the individual farmer on rainfed plots.

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Annex 2page 7 of 16

E. Tobacco

The economic analysis of tobacco production, based on the price received for burley tobaccoat the port in Mpulungu, Zambia, indicates that Burundi has a significant comparative advantage inburley tobacco production, with a DRC of 0.88.'

The analysis also reveals that tobacco production is the most profitable cash crop, offeringfarmers about 34 FBu per kilo of dried tobacco leaves or about 221 FBu/day, as indicated in table5. However, the export of tobacco produced in Mosso would not be profitable for the BTC, whichwould experienc. losses of 36 FBu/kg on tobacco delivered to Mpulungu. The financialunprofitability of tobacco exports may reflect the higher costs of collecting tobacco in the Mossoregion (compared to IMBO), the relatively high cost of BTC's extension services (estimated at 45,217FBu/ha), associated with the introduction of tobacco in the Mosso region, and the relatively hightaxes imposed on BTC, which are not imposed on the above parastatals (turnover, export taxes)

TABLE 5: TOBACCO (OSSO)

Gate IEx-Fatory Iholesate Exprt

tFSu/Kg) (Flu) (F tFBu/day) l (FBu/K9) (FBu/Kg) (FSu/Kg)

DRC L_. _ .. 0.88

Econrnic Profits 22

Financial Profits 32 60591 221 .-2

NPC - inPuts 0.21 _ . 1.19

NPC - outDuts 0.42 1.00

EPC 0.57 0.87

ESC 1.08

The BTC's (tobacco producer price) and the Government's (input prices) incentive structuresappear to support tobacco production, while discouraging exports. While the producer pricerepresents 42 % of its economic value, high subsidies on tradeables (fertilizer, pesticides, plants,extension, and BTC overhead) and non-tradeables create an effective subsidy coefficient of 1.08.This suggests that tobacco farmers are protected, as their financial profits exceed those gained by theeconomy. In contrast, BTC's input costs exceed their economic value by 19 %, while its export priceobviously reflects the world price. The net result is that the BTC receives only 87 % of its economicvalue added.

The above analysis reveals that Burundi has a comparative advantage in tea, coffee, cottonand tobacco exports, while sugar is competitive only on local markets as an import substitutioni crop.With the exception of sugar, the analysis also highlights contradictory strategies of

IThe FOB price for tobacco in Nputungu, zambis is t 1.81/kg.

6S

Annex 2page 8 of 16

government intervention for agro-industrial crops. At the farm level, input prices are subsidized byroughly 9S % to 70 %, while product prices are taxed by approximaely 10 % to 60 %. However,with the exception of fully washed coffee, subsidies on non-tradeable inputs permit a small level ofprotection, especially for tobacco. Nevertheless, by distorting input and output prices, theGovernment does not promote an efficient allocation of resources. Ironically, the Govement'sintervention in the fully washed coffee market, actuly discourages the production of Burundi's mostimportant export, reducing the country's foreign exchange earnings. Finally, the low producer pricessubsidize the processing/export parastatals at the expense of the producers.

Financial incentives to process and market export crops do not appear to be very differentfrom their economic value. This is not surprising since in all three cases, exports are monopolizedby government agencies, which for the most part are neither directly subsidized nor heavily taxed.Tobacco presents an exception, as the taxes paid by the BTC significantly reduces profits to the pointwhere exporting burley tobacco from Mosso may not be financially profitable.

Farmer's earn financial profks on all of the export crops. The lowest financial returns tolabor are for fully washed coffee, suggesting little incentive for the farmer to expand coffeeproduction. While overall Burundi earns financial profits from its agro-industrial exports, the netmargins of the processing and export parastatals are negative with the exception of fully washedcoffee and sugar. This suggests that the processing and marketing costs of the tea, tobacco andwashed coffee factories are too high to permit a financial profits and that they are currenly receivinggovernment subsidies. Privadzation or at least a greater degree of financial independence wouldlikely promote a greater degree of efficiency. In contrast, SOSUMO and OCIBU receive high profitsmargins for sugar and fidly washed coffee exports, at the expense of the producer.

HL Food

The folowing section examines the economic and financial profitability of the impact ofGovernment iterventon on food crop production and marketing. The analysis focusses on cropproduction in Buyenzi and Mosso and evaluates trade opporunides for regional and iternationalmarkets.

A. o-.ebe

Colocase, banana and sorghum beer, banana legume, and bananas are treated as non-tradeables, implying that no reasonable import substitute exists for the product. The empiricalanalysis, summarized in table 6, suggests that all five are financially and economically profitable forthe firmer, offering a return to labor exceeding the estimated family labor wage rate.1 The low perunit value and perishability of these crops (especially colocase and banana legume) combined witha relatively low urban demand makes Inter-regional trade unprofitable and inefficient. The nominaland effectve protection coefficients indicate minimal government intvenidon in the markets, as inputand output prices are relatively undistorted.

Zfecause they are treated as non-tradubles, the finaciat profits slso retlect emmic profits.

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Annx 2page 9 of 16

TABLE 6. NON-TRADEABLES (SORGHUI BEER, BANANA (MOSSO); BANANA LEGUME(BANANA BEER, COLOCASSE (BUYENZI)

Local Market Urban Market

____________________ (FBu/Kg) (FBu/Ha) (FBu/day) (FBu/Kg)

Financifl Profits

Sorghum Beer 6

Banana 2 20597 142

Banana Legume 4 61857 173 -4

Banana Beer 3 46808 112 -6

Colocase 2 46191 179 .3

NPC- inputs 1.12 *_||

NPC - outputs 1.00

EPC 1.00

TABLE 6A. BAUA LEGUME (BUYENZI)

Local Market Urban Market Export(Bujumbura)

(FBu/Ka) (FBu/Ha) (FBu/day) (FBu/Kg) CFBu/Kp)

Financial profits 4 61857 173 -4 n/a

NPC - inputs 1.12

NPC - outputs 1.00

EPC 1.00

TABLE 68. BANANA BEER (BUYENZI)

Local Market Urban Market Export(Buiumbura)

(FBu/Kg) (FBu/Ha) CFBu/day) CFBu/Kg) (FBu/Kg)

Financial profits 3 46808 112 -6 n/a

NPC - inputs 1.12

NPC - outputs 1.00

EPC 1.00

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TABLE 6C. COLOCASE (BUYENZI)

Local Narket Urban Market Export_Buluibura)

(Flu/Kg) (FSu/Ha) (Flu/day) (Flu/Kg) (FluK

Financal profits 2 46191 179 -3

NPC - nuts 1.12 _ .

NPC - outouts 1.00 _ __

EPC 1.00

TABLE 60. BANANA (NOSSO)

Local Market Urban Narket Export(Oujumbura) _

(Flu/Kg) (Flu/Ha) (Flu/day) (Flu/Kg) (Flu/Kg)

Financial profits 2 20597 142 n a

NPC- inputs 1.12

NPC - outPuts 1.00

EPC 1.00

TABLE 6E. SOROHIL 8UER (MOSSO)

Local Market Urban Market Export________________________ (lulLabura)______________________ tFSu/KS"FltgHa) (FSu/day) (Flu/Kg) (Flu/Kg)Finacfal profits 6 . /. n/a

NPC - fruts _ 1.12

NPC - outPuts 1.00 _ _

EPC 1.00

B. Beans

Table 7 reveals that both Buyenzi and Mosso have a comparative advantage in satisfying localand regional consumption (Bujumbura and Gitega), while beans from Mosso requires approximately10 FBu/kg fewer resources than Zaire beans to arrive CIF BujumburaE

mhe latter should be fnterpreted with caution, however, as Rosso currently does not export bean.

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Annex 2page 11 of 16

TABLE ?A. BEANS (TRADITIONAL NETHOD)

Local Market Urban Market Export

Fug (flu ) (FBu/Ha) (FluLd r ..... (FBu/Kg)

DRC (Zaire)

BuvenzJ 0.73 0.94 1.12

Nosso 0.43 0.65 0.80

Econmic Profits

Buyenzi 20 5 .8

Mosso 44 24 13

Financial Profits _

BUY nzi 1 15369 102 6 -SO (wortd)

Nooso 0 5045 100 11 10 (Zaire)

NPC - inputsBuyu _ 1.23 __

Nosso__ _ _ _ _ _ _ _ _ _ 1.38 _ _ _ _ _

NPC - outputs |

i uyenzi 1.03

Rosso 0.84

EPC __ =l_____

Buawnzi |_| 1.02 _

Nosso 0.79 .

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Anex 2page 12 of 16

TABLE 7P. BEANS (IPROVED METHOD)

Locat Narket Urban Market Excort

._________________ . CFBu/Co) (Flu/Hs) (FBu/day (FBu/Kg) (FBu/Kg)

DRC (Zatre) l

BWOnz' 0.74 0.97 1.18

MOssO 0.45 0.69 0.88

Economic Profits l

luyenZi 18 2 11

Mosso 39 19 7

Financial Profits l

Buvenzi -2 .1719 93 4 -11

Rosso -3 1m 87 7 6

NPC - Inputs__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

BSuenz 1.08 _

Mosso 1.16

NPC - outputs ____ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

!BuYenz 1.03

Css . 0.84

lu e i i _ _ _ _ _ _ _ _ _ _ _ 1.06 _ _ _ _ _

Mosso _______ __ _ _ _ _ 0. 77-

Financially, the analysis reveals that under traditional production systems, farmers barelymarket beans for a profit, while improved bean production offers them little financial gain. In botlhregions, the reurns to labor for traditional and improved beans are below the estimated family wagerate of 105 FBu/day. Buyenzi farmers receive a slightly higher return to bean pro.action than Mossofarmers. In contrast, the marketing of beans by traders in regional markets (Gitega and Bujumbura)is financially profitable, particularly in Mosso where traders earn 11 FBu/KG sold for traditionalbeans.1 Bean exports from Buyenzi to Zaire are not financially profitable, however, there Is a smallpotential profit for bean exports from Mosso to Zaire (via Bujumbura).

nhe protection coefficients evaluate incentives to produce and market Buyenzi and Mossobeans in their respective local markets (Bujumbura and Gitega). The analysis indicates that beaninputs are taxed, reflecting direct taxes on irported tools, and implicit taxes on transportation.Output prices are sinilar to Zaire reference prices in Bujumbura, indicating that imports could

5bespite the apparent profitabilfty of bean trade between uyenzi arnd Bujumabura, no trade actually occurs,suggesting that fnterregional trade betwen Ngozi wid PuJudrw 18 not well Integrated.

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Awn2page 13 of 16

occur. Bean prices are below the reference price in Gitega, indicating that they are too low to atractimports (CPNp of 0.84) in Mosso. In general, the impact of govemment price policy appears doesnot to have a strong influence on the production and marketing of beans. The data suggests that beanproduction in Buyenzi is profitable and efficient for local and regional markets, while bean productionin Mosso also appears to offer a potential for export revenue.

C. Maize

The economic analysis suggests that the production and marketing of maize in Buyenzi's localand regional markets is not efficient, as local maize production uses the equivalent of I1 FBu/lkgmore in resources than imports from Tanzania, as shown in table 8. This suggests that the productionof maize for other than on-farm consumption is not an efficient use of resources. The financialanalysis highlights that maize production is not profitable, as the farmers' return to labor in thisactivity is only 45 FBu/day, significandy below their return in other crops. The analysis of theprotection coefficients indicate that maize growers face relatively undistorted prices, and thatgovernment intervention is minimal.

TABLE 8: MAIZE (IU'fEMRI)

___________________ L Eocat Market Urban MOrket Exoort

(Flu/Ka) (Flu/Ha) (FLu/d) (Flu/Ka) (Flu/Kg)

DRC 1.35 1.86 1.5

Econanmc profits -11 -23 -20

Ffnancial profits -13 4594 45 64

NPC - inouts 1.08 _ - .

NPC - outPUts O."5 __ _

EPC 0.95

D. Sorghum

The economic analysis of sorghum production bases the reference price on U.S. imports, andreveals that local production is economically efficient in both urban (Gitega) and local (Kinyinya)markeds with DRCs of 0.79 and in of 0.52, respectively. Sorghum production and marketing is alsoprofitable financially, as farmers ear a return to labor of 144 FBu/day. Traders selling Kinyinyasorghum in Gitega receive a modest financial gain of 10 FBuAkg, as depicted in table 9. Dcspite a47 % tax on tradeable inputs (mainly seeds), prices in Gitega are above the equivalent importsubstitution price, producing an effective protection coefficient of 1.11. This suggests that sorghumproduction and marketing is protected, and that consumers pay high prices for beans.

71


TABLE 9: SORGUM (MOSSO)

I_____________________ Local Market Urban Market Export

l_____________________ (FBu/Kg) (FBusHa) (FBu/daY) (Flu/Kg) (Flu/K)

DRC 0.52 0.7-9 nye

Economic profits 24 9 n/a

Financial profits 3 11840 144 13 n/a

NPC - liouts 1.47

NPC - outputs ___ _ 1.15

EPC . 1.11 _ .

E. Peanuts

The economic analysis of peanut production in Kinyinya examines the comparative advantageof local production versus importing peanuts from Tanzania. Table 10 demonstrates that Mossopeanuts, are economically competitive with imports in both local and urban markets. In exportmarkets, assumed here to be world markets, peanuts do not enjoy a comparative advantage (DRC of1.64). Ihis indicates that peanuts should be produced for local production but should not beexported.

TABLE 1OA: PEANUTS (TRADITIONAL METHOD: NOSSO)

Local Market Urban Market Export

|____________________ . (Flu/Kg) (Flu/Ha) (Flu/day) (Flu/Kg) (Flu/Kg)

DRC 0.64 0.99 1.64

Economic profits 20 1 -26

Financial profits 14 15764 158 26 -40

NPC - Inputs . 1.48U

NPC - outputs _ 1.52

EPC L___ ._ .. 1.53

72


TABLE 109: PEAWTS (IMPROVED METHOD: MOSSO)

Local Market Urban Market Exort

(FBu/Ko) tFBguHa) e FludaY) (Flu/Ku) CFBu/KCp)

DRC 0.45 0.65 1.64

Economic oroftts 39 24 -26

Ffnancil Drofits 18 27026 188 31 -35

MPC - inputs _ 119NPC - outputs _ 1.52 1

EPC I 1.64

The financial analysis suggests, that the production and marketing in Gitega of peanuts is aprofitable activity. Improved peanut cultivation provides the highest return to labor of all of the foodcrops of 188 FBu/kg. Marketing peanuts in Gitega also provides trader with the highest return ofall food crops of 13 FBulkg.

The analysis indicates that peanut prices in Gitega are higher than equivalent Tanzanianimported peanuts (NPCp of 1.52). Input prices are highly taxed (NPCi of 1.48), reflecting indirecttaxes on fuel and construction at the wholesale level. As a result, the effective protection on peanutsin Gitega is relatively high, and the financial value added is 53 % above the economic value added.The relatively high rate of taxation reflects indirect taxes on the wholesaler, while the relatively highprice of peanuts in Gitega reflects the small likelihood of Tanzanian imports (given the lack of astrong trading network), rather than explicit barriers to trade.

The production and marketing of non-tradeable food crops (banana and sorghum beer, bananalegume, colocase and bananas) for local consumption is economically and financially profitable andappears to receive little government intervention. Tradeable food crops analyzed in the study allenjoy a comparative advantage in local and regional markets (Bujumbura for Buyenzi and Gitega forMosso) with the exception of maize cultivation which is efficient only for on-farm consumption.Furthermore, bean production in Mosso also appears to be competitive on regional export marketswith Zaire beans.

Peanuts appear to offer the highest return to labor for the tradeable food crops, followed bysorghum, beans and maize. Financial incentives for regional trade in Buyenzi are limited with theexception of bean sales in Bujumbura. In contrast, regional trade appears more lucrative in Mosso,with profitable opportunities for sales of peanuts, sorghum and beans. In addition, some financalincentives appears to exist to export Mosso beans to Zaire. In general, food crop production operatin an unrestricted environment and the Government has no direct role in establishing food prices.Government intervention appears limited to indirect taxes on inputs.

Improved peanut production appears to be more efficient and financially profitable thantraditional production methods and merits further analysis as the data is still preliminary. In

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Annx 2page 16 of 16

contrast, improved bean production does not appear to offer any efficiency gain over the traditionalmethod and is less financially profitable for the farmer.

m. Summary and Conclusions

Burundi possesses a comparative export advantage for all the agro-industrial crops evaluatedexcept sugar. Aside from a hypothetical comparative export advantage in beans grown in Mosso,the food crops analyzed in the study are competidve only for sale in Burundi's local and regionalmarkets. The exception is maize cultivation, which is only efficient for on-farm consumption.

While government intervention in the production and marketing of food crops is minimal,government price policy distorts input and output prices for agro-industrial crop production. Withthe exception of sugar, tradeable and non-tradeable input prices are heavily subsidized, whileproducer prices are set below the equivalent international reference price. The net effect of theGovernment's price policies is to provide a small subsidy for cotton and tobacco production. Forcoffee, government intervention taxes producers of the fully washed variety, while leaves washedcoffee producers unaffected. In all cases, government price policies provide producers with distortedsignals, which leads to an inefficient use of inputs and factors of proW.uction. In the case of coffee,government policy depresses production of the country's most important export. Excluding theGovernment's investment in SOSUMO's refinery, inputs in sugar production are slightiy taxed whileproducer prices are highly subsidized, reflecting the Government's policy to develop sugar productionin Burundi. Government involvement in the processing and export of agro-industrial products isminimal, with the exception of BTC, whose tradeable inputs are taxed, causing the financial valueadded of exports to be 13 % less than the economic value added.

From the producer's perspective, tobacco, followed by peanuts, tea, colocase, legume, cottonand bananas in descending order all offer reurns to labor around 150 FBu/kg. However, tobaccocultivation offers by far the greatest profit with a return to labor of 221 FBu/day. Coffee and beanshave a return to labor around 100 FBu/day, while maize yields only 43 FBu/day.

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Annex,page 1 of 16

Strategy for Private Agro-industrialEnterprise Development

J. Constraints and Prospects

A. Constrant

1. Apart from whatever constraints may be associated with the country's macroeconomicpolicies, its legislative and regulatory environment, and its institutions, there are also obstacles atcompany level which hamper the growth and development of the domestic private sector in Burundi.Up until now, these factors have not been sufficiently taken into account when development policiesand programs were being formulated. The most important of these factors are discussed below:

(a) Narrowness of th,e domestic market and difficulties gf access to the regional market,Burundi's small size and low per capita income limit the potential demand for manufactured products.Low prices on cash crops to rural producers (90 percent of the population) have exacerbated thissituation. Attempts to expand demand by resorting to the regional market are handicapped bynumerous obstacles, in particular, tariff and nontariff barriers and the fact that neighboring countriesproduce a similar range of goods. Nevertheless, trade obstacles have been partially circumventedthrough reliance on informal trading.

(b) Burundi's landlocked position adds greatly to the costs of transporting goods. Inaddition, the unreliability of access routes obliges companies to keep large inventories of goods,inputs and spare parts, which increases their working capital needs. However, the fact that thecountry is landlocked also provides natural protection that works to the advantage of certainmanufactured products that use local raw materials.

(c) Shortage of capital. The low level of savings in Burundi undermines the ability ofpotendal business promoters to mobilize investment funds. This is a major obstacle which hurts thenew generation of businessmen with more innovative ideas. There is also resentment toward the fewbusinessmen who have succeeded in Burundi, since in most cases they have utilized their owngovernment position, or connections as a means of accumulating savings that have ultimately enabledthem to commence a business venture. Burundi possesses no institution or mechanism through whichrisk-capital financing can be obtained.

(d) Difficulty of access to credit: Except for a small group of companies and individuals,it is generally difficult to obtain credit, and more so if long-term financing is being sought. Thecommercial banks devote a major part of their credit to financing import and export activities, whichare very profitable and involve a relatively low degree of risk. As to the development banks, BNDand SPF, the majority of their medium- and long-term lending activities finance purchases of durablegoods (vehicles, household appliances) and real estate. A very small

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AwnaIpage 2 of 16

proportion of lending goes to productive investments with longer maturation periods. Furthermore,banks require prohibitive guarantees (generally in the form of mortgages on existing buildings)equivalent to two or three times the value of the loan itself. This is not a situation that can beexplained simply as the result of normal bank conservatism, but rather it reflects some fundamentalstructural reasons, namely:

(i) The history of the banks themselves: The two oldest and largest banks in the country,created during the colonial period, were merely the local agents for their head offices in Belgium;they had no authority to decide important questions such as the types of business they would engagein. Tbeir key mission was to facilitate commercial transactions between the colony and themetropolis and to maximize earnings in the process (commission on payments, interest andcommissions on letters of credit and documentary remittances). It appears that the same low riskbusiness attitude prevails today. The banks have no objective reason to finance risky operations andclients (e.g. industrial investments by SMEs), despite potential short-term profits and the limited riskinvolved.

(ii) The predominance of public enterprises where the most important products - coffee,tea, cotton and textiles, tobacco, and rice - are concerned means that bank credits during the seasonsfor picking, storage, processing and export are concentrated among six public enterprises: OCIBU,BCC, OTB, COGERCO, BTC and SRD-Imbo. As a single group, they are respo. lible for 82percent of all products exported by Burundi, they are guaranteed by the Government and presentalmost no risk for the banks. It is therefore understandable that the banks, which reap excellentprofits on these sectors, manifest little interest in fields of activity in which numerous small - andriskier - operators are engaged.

(iii) The banks have not developed either modern project evaluation techniques or thecapacity to supervise and monitor the projects they finance. In Burundi, it is rare, to find a bankerwho pays any attention to cash flow projections beyond two years.

(e) Industrial infrastructure and support services: Although basic infrastructure services(water, power, roads and telecommunications) are quite good, access to them for new businesses isdifficult and costly. No adequately equipped industrial zones or buildings exist ". New industriesare obliged to provide their own access to infrastructure services and to put up their own buildings,factors which increase start-up investment costs and make the launching of a new business a lengthyaffair. In the case of most small- and medium-scale manufactring projects, and even commercialservice projects (i.e., NAB Confection, Poissonerie, Folyclinique - financed by APEX), buildingcosts alone account for 50% of required investment. Maintenance and repair services either do notexist or leave much to be desired where certain types of even quite simple equipment are concerned.This means that additional capital costs are incurred, since each company tries to ensure that it hasits own repair shop, or else equipment wears out before it; time and the production process isfrequently interrupted by breakdowns.

U This will be eddressed by the recently approved Private Sector Development Project.

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() Mn g T ere are few bushss executives, promoters and managers whohave proved their worth in Burundi. Most enterprises - whether small, medium or large in size -do not use modern management techniques. It is Srequent to find that no management and costcounting systems are maintained, which means that prices are set arbitrarily above or below real costprices. The use of marketing plans as a mangement and growth tool is still unkmown, withbusinesses being content simply to produce and wait for buyers to come to them. Few managersdevelop revenue and expenditure projections, and are not able to anticipate their casbh flow needs andprepare the jtmancing for them in advance. Even profitable companies often find themselves in cashflow difficulties because of the inability to prepare budgets. Few heads of enterprises have beenexposed to efficient business management practices. Furthermore, high protective barriers, that havebenefitted the nascent manufacturing industry, have allowed them no opportunity to learn to stand ontheir own feet in situations where competition is stiff.

(g) Shortage of skille manpower. Since Burundi is an agricultural country, whereindustrial development is still in its very earliest stages, skilled workers with experiencemanufacturing experience are not abundant, and the capacity to products requiring sophisticatedtechnology is limited. Nevertheless, the existing technical schools are training students who, withappropriate on-the-job training programs, could learn the missing skills rapidly.

%-h) Utiizatim gfincsalld i;. Despite an increase over the last few yeas in capacityutilization rates, under-utilization problems persist. The shortage of foreign exchange at certainperiods has been one of the chief causes of under-utlization. But the chronic problem it suggests inmost cast', particularly public enterprises, is the overscaling of plant size and machinery. For mostprivate enterprises, under-utilization is due to the very advarcet state of obsolescence of their plantand equipment, which breaks down frequently. Becuse of unctainties in the past, and the highdegree of effective protecton afforded them, these enterprises have preferred to fbllow a strategy of"milking the cow' since their plant and equipment were long ago amortzed, they continue to earnrofits despite the low utilizaton of their installed capacity as most of their costs consist of variableJsts.

(i) Productivity, factor in iy unit posts and efficiency. The problem of decliningproductivity is serious in public enterprises. In additiont, rigorous quality control has not yet becomepart of Burundi's approach to manufaturing. 'Me result of this overal situation is that unitproduction costs are very high while the poor quality of the country's m:nufactured goods rendersthem uncompetitive in comparison to imported goods and stfi more so on external markets.Furthermore, earlier government policies placed no presse on manfacturers to be competitive.High effective protection rates, prohibitions on importing, restrictions surrounding competition, andadministered price system based on costs do not induce manufactrers to lower their costs.

O) A large blic set In the past, the Government has attempted to accelerate thecountry's industrial development by creating public enterprises to engage in import substitution. Insome isances, it has nationalized (the coffee sector), or has taken equity positions in existingprivately owned corporations (brewery and commercial banks), to gain control of industries

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regarded as strategic and/or highly profitable. Protective measures, designed to benefit the PEs create: tate-run monopolies, prevent private enterprises from breaking into the major productive sectors of' le economy. One of the justifications for direct government intervention in the sector was the lackof initiative on the part of Burundi's private citizens. But public expenditures have been biased infavor of large scale investments (despite the narrowness of the domestic market), which are highlycapital-intensive and dependent on imported inputs. This prevents small entrepreneurs from gainingaccess to available resources and markets. A public sector omnipresent throughout the productivesegment of the economy, that is inefficient and overprotected, has crowded out small- and medium-scale enterprises that might have been able to play a complementary role.

2. Continuation of the present situation cannot ensure sustained economic growth in Burundi,which can only come from the private sector. However, the recent experience of the two Bank SALsshows that macroeconomic measures are not sufficient to induce rapid and positive supply responses.Although a propitious business environment and attractive incentives are required, it is also necessaryto devise specific measures aimed at enterprises if tangible results are to be achieved within areasonable period. There is a risk that growth will stagnate or decline if the authorities continue torely on the public enterprise sector; nor will there be any broadening of the economic fabric or anydiversification in the range of export product-. This last factor is an especially crucial one, givenBurundi's heavy dependence on coffee and the rather gloomy outlook for this commodity.

3. Recent initiatives in the privat. secto. involving nontraditional exports (e.g., fruit andvegetables, flowers, hides, apparel) dem istrate that private enterprises are more innovative andpossess the flexibility indispensable to the conquest of external markets. In the future, it is thereforeprivate enterprises which will have the job of diversifying exports and mobilizing resources.

4. Despite the constraints and obstacles enumersed abov.3, there is a way to develop the privatesector, namely by capitalizing on what already exists and introducing certain innovations. Privatesector development should be founded on the premise that Burundi is a small, open economy in aworld where interdependence is increasing. Burundi is not in a position to opt for inward-orienteddevelopment or to isolate itself. The goods it produces, whether for domestic consumption orexternal markets, have to compete with similar goods produced elsewhere. The strategy shouldtherefore be to develop products that are competitive on cost and quality grounds, rather than to trustin protectionist policies whose failure would be almost certain. Burundi should identify those sphereswhere it possesses a comparative advantage, and from there to d,';neate potential avenues ofdevelopment for the private sector. The next step will involve u- .ing what resources can bebrought into play to circumvent the constraints and obstacles alrc4Ay discussed, so that existingopportunities can be seized.

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Comparative advanga and strategic Dositioning

5. The agricultural sector has already demonstrated that Burundi holds a comparative advantagein the production of high-quality agri-foodstuffs for which premiums are paid not only on externalmarkets but also on the domestic market, as is the case with coffee, tea, cotton, tobacco, sugarcane,fruits and vegetables.

6. The economic liberalization programs introduced in recent years appear to have put Burundiahead of other countries in the region. This, in combination with its geographic location, givesBurundi an advantage it could exploit profitably provided, of course, the liberalization can beaccelerated and consolidated convincingly.

I. Opportunities And Avenues of Development

A. Export Markets

7. Commodities afford realizable opportunities for increasing and diversifying Burundi's exportsover the short or medium term. Rapid-impact projects can be undertaken in agriculture andstockraising. These spheres of activity present a number of key advantages: (a) the products can beobtained in their natural state, with a minimum of preliminary processing; (b) they lend themselvesto the creation of rural, small-scale enterprises; (c) once a certain volume of these products isreached, commodity processing activities can be started, adding value to the products themselves andcontributing to industrial development. Although more detailed studies may generate other findings,a preliminary analysis indicates that commodity development should focus on the following products:

(a) Traditional export crops (coffee. tea. cotton): Although these products are ofexcellent quality and absorb a considerable share of public resources, land, and agriculturalmanpower, output appears to have leveled off because of inefficiencies in the various subsectors(controlled by public enterprises) and of pricing policies biased in favor of the enterprises themselvesand the Treasury, to the detriment of producers. Radical restructuring of each of these subsectorsso that they are more open to private entrepreneurs is clearly indispensable if they are to berevitalized.

(b) Non-traditional export crops provide an opportunity to increase export volume andrevenue while at the same time diversifying the country's products and potential markets. The rapidexpansion in crops of this type, entirely on private initiative, has demonstrated the innovative capacityof private businessmen, their ability to work in harmony with producers, and their efficiency. Suchinitiatives are worth supporting and encouraging. Potentially interesting products include tobacco,rice, flowers, ornamental tropical plants, exotic fruits, vegetables, mulberry trees, spices.

(i) Tobacco: Although Bumndi farmers have always grown tobacco for their ownconsumption, it was never regarded as a manufacturing input until 1982, when a private cigarette

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manufacturing concern, the Burundi Tobacco Company, formed in 1979, began implementingexpansion plans. BTC reached an agreement with farmers in two regions (Cibitoke and Kirundo) toprovide them with seed, fertilizer, pesticides, crop extension services, drying and processing, and topurchase their output at a price agreed upon in advance. Since this arrangement was mutuallyprofitable to both company and farmers, the response from the latter was exceptional. At Cibitoke,where 'Burley' tobacco is grown, total output rose from 14 metric tons in 1983 to 900 tons in 1990,while the number of planters increased from 50 to 2,429 over the same period, and the area undertobacco from 10 ha to 575 ha. Similar developments took place at Kirundo, where another type oftobacco, "Flue Cured," is produced. Total output in this district rose from 2 tons in 1983 to 518 tonsin 1990; the number of planters rose from 10 to 708 over the same period, and the area undertobacco from 2 ha to 507 ha. The tables below provide details of this change:

Table 1: Produetion of Burley Tobacco in Cibitoke

_82/83 83/84 8485 85/86 86/ 8788 8/89 §890

No. of pilnters 50 161 525 1,064 1,500 1,770 2,257 2,429Area (ha) 10 44 87 200 273 433 570 575Output lt) 14 57 187 295 478 764 844 900Yield (kg/ha) 1,429 1,310 2,152 i,473 1,750 1,764 1,480 1,565Avg. area/planter (are) 20 27 17 19 18 24 25 24Avg. output/planter (kg) 280 354 356 277 319 432 374 371

Production of BurleyTobacco in Cibitoke

(t)

1000 OO

800 0

600O

400a

200 0

o aO _ _ _ _ _ _ _ _ _ _ _ _

82/83 83/84 84/85 85/86 86/87 87/58 88/89 89/90

Sourge: Burundi Tobacco Cowpany, internal report, August 1990

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Table 2: Production of Flue Cured Tobacco in Kfrwndo

_ 82/83 __83/84 841 885 _ 85/8_ _ 86/87 87/88 88/89 89/90

No. of ptlnters 10 67 164 514 642 699 671 708Area (ha) 2 22 97 214 430 508 300 507Output (t) 2 16 128 225 545 594 437 518Yield (kg/ha) 870 719 1.322 1,050 1,268 1.168 1,454 1.022Avg. area/planter (are) 20 33 59 42 67 73 45 72Avg. output/plenter (kg) 200 239 780 438 849 850 651 732

0Productfon of FlueCured Tobacco fnKirurido (t)

600 0

400 0

200 Oa00

82/83 83/84 84/85 85/86 86/87 87/88 88/89 89/90

Almost all (90%) of the Burley product is exported as leaf tobacco to Zimbabwe, 80% of the FlueCured product is used for domestic cigarette production, and the rest is exported to Zaire as cut tobacco.Trends on international tobacco markets favor the two types of tobacco produced in Burundi. This isreflected in the high demand for Burundi tobacco and the quality premium buyers are prepared to pay.For instance, a buyer in Zimbabwe pays US$1 .75/kg fob Mpulungu for Burundi Burley (comparable withthe price paid for the best African Burley, from Malawi, namely, US$1.80/kg), while Burley fromZimbabwe (Africa's biggest producer) sells at US$1.69/kg on the Harare Auction floor. This same buyer(one of the 15 largest "international leaf merchants") is willing to sign a five-year contract to buy 5,000tons per annum. Barundi Burley, which is partially re-exported under the Burundi label to westerncountries such as Switzerland, Germany, Mexico and South Africa, has attracted attention from buyers,several of whom have already contacted the Burundi Tobacco Company, offering to negotiatearrangements for cooperation. In view of these contacts, BTC management estimates a potential annualdemand of 10,000 tons, not an unrealistic figure, considering that Malawi, with an annual output of100,000 tons, currently sells almost all of it while it is still in the ground.

Despite potentially high demand, BTC is producing and exporting only 1,000 tons a year. Thequestion, then, is whether output can be increased to take advantage of the opportunities offered onextemal markets. Several regions of the country have already been identified as suitable for tobaccogrowing; and even the potential of those areas already within the BTC network have not been fullyexploited. The company plans to increase its output of Burley by 500 tous a year, to reach 3,500 tonsin 1995, and of Flue Cured by 100 tons a year, to reach 1,000 tons in 1995. Similar efforts in other

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parts of the country would accelerate this type of increase in output. Furthermore, with very liberalpolicies and a carefully devised system of producer incentives, Burundi could profit from its geographiclocation as regards the output potential of neighboring countries. It could adopt the same type oforganization as similar countries (Malawi, for example), which have succeeded in raising their outputfrom 12,000 to 101,000 tons over a 20-year period, achieving an annual growth rate of 16% over thefirst 10 years. Since the growing cycle of tobacco is short (four months), and given the availability ofsuitable land as well as considerable interest on the part of farmers, Burundi r ssesses the wherewithalfor a production drive.

Additional investment will be needed to expand drying facilities, resolve warehousing problems(which have already arisen, even with the present level of production), and improve pre-exportprocessing. On the basis of its current production program, BTC estimates its investments at FBu 250million, or approximately US$1.5 million. However, according to studies it has carried out, as soon asoutput reaches 2,500 tons a year, it will be essential to start intermediate processing of the tobacco(mechanical threshing). This would make it possible to: store the product for more than 2.5 months;resolve warehousing problems while it is in transit through the port of Bujumbura; justify increasing thetransportation c'pacity of Lake Tanganyika barges; and ensure proper handling in the port of Mpulunguin Zambia. Preliminary estimates put the necesswy investment at US$7.5 million. Although likelyfinancial rates of return still have to be analyzed more thoroughly, preliminary data indicate a potentialfor profit. The intermediate processing or treatment referred to would, of course, add value: strippedtobacco, with its moisture content reduced to 14 percent, easily sells for US$3/kg. Assuming a 20percent mark-up and annual export of 2,500 tons, the investment would amortize itself in less than fouryears.

(ii) Rio: Large-scale rice growing was introduced in Burundi in the early 1970s. At that time, thecountry consumed more of this commodity than it produced and imported to close the gap. After majorinvestments in the Imbo plain, roughly 30,000 tons of rice a year is now produced, leaving a surplus overand above domestic consumption. The steps taken in 1989 to liberalize paddy marketing led to anincrease in exports of hulled rice by private companies. The value of exports rose from FBu 53 millionin 1988 to FBu 182.9 million in 1989. Although there is potential for export to neighboring countrieslike Rwanda and Zaire, the complexity of distribution networks means that only private companies arecapable of exploiting it. Output projections for the areas now under rice indicate that it wou'd be possibleto triple exports.

(iii) Ornamental flowers and plant: A recent study (COLEACP) has concluded that Burundipossesses a potential for producing ornamental flowers and plants for export to Europe. Flowers arealready exported, but on a very small scale. This type of business could be increased within a relativelyshort period, provided private entrepreneurs are allowed the necessary flexibility, given access to the rightlogistical facilities and the benefit of simpler and more flexible administrative procedures (especiallycustoms).

One private enterprise which is already exporting successfully, forming part of an internationalnetwork, has a well-advanced project ready for implementation. An appropriate location has beenidentified near Bujumbura (where the country's international airport is located) for growing

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spray carnations. According to the feasibility study, a five-hectare fluwer farm would require investmentof US$620,000 and involve annual operating costs of US$413,000. Yield per hectare is estimated at2,050,000 stems. The average price for carnations over the last three years on the Netherlands auctionmarket (VBA Auction, Aalsmeer) has been NLG 0.27 per stem. Assuming this price continues to beobtained, expected revenue per hectare planted would be NLG 553,500 per season, or NLG 2,767,500per five-hectare plot. From this figure, it would be necessary to deduct air freight charges (NLG840,000) and marketing costs (commission to an agent in the Netherlands and fees for use of auctionsystem) estimated at NLG 609,000. This would give a cash flow of NLG 1,318,500, equivalent toroughly US$732,500. After deduction of annual operating costs estimated at US$413,000, the net profitmargin would be US$319,500 per five-hectare plot, or US$63,000 per hectare. This is a yield perhectare which none of Burundi's traditional export crops is able to provide. Obviously, a more detailedstudy of the proposed project's likely financial rate of r,tu will be essential, although this briefpreliminary analysis shows a very high potential for financial and economic benefits. There will be nodifficulty in finding at least 50 hectares suited to this type of product. Export revenues of approximatelyUS$7.3 million could be expected, which is 1.2 times the revenue generated by tea exports (US$6 millionin 1989).

Success depends on two key factors: faultless management of the flower farn itself and accessto flower marketing networks. Management should be in the hands of an individual who is a specialistin flower farming, has an excellent knowledge of Africa, and is stationed permanently on the farm. Sinceno such specialists are to be found in Burundi, the services of an expatriate will be indispensable. In theimmediate and medium-term future, access to marketing networks will be obtainable only through anaccredited agent who possesses excellent connections with the systems through which flowers are soldat auction. The services of such specialists are costly and will have to be paid for in foreign currencies.In the case of the marketing agent, remuneration will be paid in the form of commissions. At the presenttime, Burundi's foreign exchange regulations prohibit a Burundi businessman from paying a freelynegotiated commission to a foreign agent in foreign exchange, an obstacle that will have to be eliminatedif export business of this type is to be promoted.

(iv) Vegetables and exotic fruits. Exports of fruit (in particular the Maracuja r ission fruit) andvegetables (green beans) was begun several years ago on private sector initiative. Even if volume is stillonly low, these exports have grown rapidly and illustrate how a successful initiative taken by anindividual or group of individuals can serve as a catalyst. At the moment, there is a rush amongentrepreneurs to produce green beans and passion fruit for export, and there is certainly room forincreasing output here. As with tobacco, an approach based on mutually profitable collaboration betweenexporter and producer is the most effective, and paves the way for a better sharing of export revenuebetween exporter, producer and the Government. Burundi possesses a wide variety of fruits andvegetables-for instance, wild raspberries, black currants, mangoes, papayas, endives, mushrooms,pineapples, certain rare species of banana, spices (pilipili, types of pepper), etc. By looking at theseasonal availabilities of different products, conducting market studies that focus particularly on thepractical realities of life in Burundi, and working up long-term projections, it is possible to identifyparticular market niches. What was true in the case of flowers is also true here-bureaucratic red tapeand strict foreign exchange controls will need to be mitigated if potential

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exporters are to have the necessary freedom of movement and so be in a position to play by the rules ofcompetition that govern their intended markets.

(v) Silk is another example of a product that could prove interesting on various counts. Exportscould begin within a relatively short period, since silk has a brief production cycle, and would-bepartners, with connections to external markets, are readily available. The world demand for silk exceedssupply; it is a commodity for which the soils and climate of Burundi are eminently suitable; it requiresintensive rural manpower, which is certainly plentifil in Burundi; and it is a commodity that affordspotential for industrial development in a subsequent phase.

The annual world demand for silk is estimated at 80,000 mn, while supply at present is in thevicinity of 60,000 mi, the major producers being China (36,000 m3), India (10,000 in) and Japan (6,500m3), with the balance offered by Thailand, Brazil and various small producers. Brazil is a good exampleof a country which, with no tradition of silkworm breeding, began from scratch and in very few yearssucceeded in obtaining a high-quality product. China, the largest producer and exporter, has recentlyrestricted exports, thereby only reinforcing trends already favorable to producers. Producing raw silkinvolves three key activities: (i) cultivation of the mulberry trees to produce the leaves on whichsilk-worms feed; (ii) breeding of the silk-worms which secrete the silk thread: and (iii) unwinding of thesiUk thread from the cocoons. A study conducted by a team of experts from India (the second largestproducer after China) indicates that, with the right kind of technical assistance, Burundi could produceraw silk on an advantageous basis.

Silk can be sold: in the primary state, that of the dried cocoon, at US$4/kg; in the raw state, onspools, at US$50/kg; or as silk fabric or garments (at a price two or three times higher). Initially,Burundi should limit itself to the first two phases. With 400 hectares of carefully selected land and aninvestment of US$3.2 million to establish the necessary mulberry tree plantations and to build and equipthe facilities for unwinding/spooling operations, it would be possible to produce 32,000 kg of spool silka year. At US$50 per kg, this would generate revenue of US$1.6 million annually, from which operatingexpenses of US$0.6 million would have to be deducted, resulting in net revenue of US$1 millionannually. Once again, here is an illustration of a new type of comtdodity possibly worth malcing part ofthe country's development strategy. In other words, it is one of a series of commodities which isexportable in a raw state but affords processing potential at a later stage, calls for little land or physicalcapital, requires the intensive input of agricultural, artisanal or semi-qualified labor, offers the prospectof high yields, and affords potential for the integration of other processes at both the pre- and post-production stages.

(vi) Sgtckraising: This is another sphere which affords real potential for increasing or diversifyingthe country's exports. More intensive breeding of cattle in certain areas of the Imbo plain and of smallruminants (goats) in densely populated zones would increase the output of milk and its exportable by-products such as cheeses (in which border trade is already substantial). It would also result in increasedproduction of meat for domestic consumption and for export to regional markets (e.g. Zaire). Amongthe livestock by-products which are already exported successfully are raw hides - especially since thehide trade was deregulated in 1988. Exports of raw hides, which had declined during the period of themonopoly granted to SNP (Socite Nationale des Peaux), rose again in 1988 and 1989, increasing from

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666 tons in 1987 to 783 tons in 1988 and 1,000 tons in 1989, producing revenues of FBu 181.8 million,FBu 295.5 million and FBu 509.4 million, respectively. Thi example Ulustrates the benefits of freecompetition, not only for such economic agents as breeders, fteers and bide traders, who earn betterprofits, but also for exporters, who obtain access to a part of the market and a proportion of profits,.andfor the Government, which sees Its foreign exchange revenue rise. Rehabilitation and reopening of theexisting tannery by private investors would add value to hides exported - for example, by getting themto the -wet blueN stage, which Is intermediate between that of the raw hide and leather. In the case ofthis commodity also, Bumundi could take profitable advantage of its geographic location as regards otherzones of production In the region and the main avenues of inational trsportion.

Proessing fox wr

14. Once a production level has been attained that allows for economies of scale, agricultural outputcould be processed instead of beig exported in its crude state. Tbis would increase value added and,consequently, export revenues, while at the same time creating new industries. Sucoess in this attemptwill depend on: (a) the ability of farmes/stockbreeders to produce the necessary inputs in sufficientquantity to sustain industrial processing ventures; and (b) the ability of industrial entrepreneurs to reachjoint-venture agreements with foreign partners, which will not only bring them the necessary technologicaland managerl know-how, but also access to international marketing networks. The examples lookedat briefly already - tobacco, flowers, silk, hides - indicate that this is feasible, and within the short term.Potential also exists as regards other products not yet mentioned - for instance, canned fit, vegetables,concentrated juices, jams, etc. - whose viability has been demonsed by recent experience in othercountries similar to Burundi.

15. The production of some manufactured goods for export is also a possibility. For the moment,apparel is the area where potential could be taken advantage of soonest. Although competition is verystrong, the experience of a few existing private enterprises such as tIAB, for example, and otherminformal exorters has shown that it is posstble to find niches in cean segments of western markets.These niches, which are too small to upset the major marketing networks, are however sufficiendy largeto absorb the output of several enterprises on the scale found in Burundi. Here too, the setting up of jointventures between Burundi enterprises and foreign partners appears to be the most promising method ofexploiting this potential. Several projects currently on the drawing board could reach the implementationstage soon if a way can be found around various obstes, some of them regulatory and othersentrepreneurial (access to bank credit, teical support with project preparation, etc.).

16. By way of example, one promoter has contac with a French firm engaged in garmentmanufacturing and the wholesale distribution of articles of apparel. The representatives of this firm havealready visited Burundi to test COTEBU's textile products. They would be prepared to: (a) provide theplant and equipment needed to turn out 600-800 pieces a day, for an approximate price of US$100,000;(b) provide necessary technical support with the design, making up and finishing of models; and (c) signa long-term contract guaranteeing an outlet for at least 60 percent of the Butundi firm's annual output.

85


Estimates put the likely export revenues from this project at at least US$1 million. Thws far, thepromoter has been unable to assemble the necessary financing.

B. Domestic Mparke Production

17. The domestic market, although small and with limited buying power, also affords potential forthe emergence and development of the private sector, particularly in the following spheres: oilseeds, cropand agro-industrial residues.

18. Analysis of the structure of major imported products and products currently manufactured iaBurundi shows that, given the extent of effective domestic demand, there is still room for certain importsubstitutes. However, any import-substitution strategy needs to be very selective and to avoid themittakes made between 1970 and 1980, since the existence of a certain demand does not necessarilyguarantee financial and economic feasibility. The numerous white elephants created in the public sectorattest to this eloquently, for instance: SOSUMO (sugar), the Muramvya flour mills, VERRUNDI(bottleworks), ONAPHA (pharmaceutical products), etc. Earlier policies have favored mega-projects,despite the narrowness of the domestic market. In the case of Burundi, it is absolutely essential toremember this basic fact when any industrial investment strategy or project is being formulated. It is theldnd of case to which the slogan 'Small is beautiful' clearly applies.

19. Likewise, priority should go to those which are intensive in unskilled labor and use relativelysimple technologies. Various opportunities exist for products of this type, for instance:

(a) Current and projected oil-palm, cottonseed, soybean, groundnut, maize and sunflower cropswould support the establishment of small industrial units for the manufacture of vegetable oils.There is already effective demand for them and it would increase further if production costs couldbe lowered enough to make their prices accessible to a wider segment of the low-incomepopulation. This branch of activity also affords the possibility of by-products that are much indemand - for example, soap and detergent, animal feed, soil fertilizers and the like producedfrom residues.

(b) Certain crop or agroindustrial residues such as coffee pulp, coffee parchment, paddy hills,sugarcane debris, etc., could be used by small manufactring units to produce organic fertilizersat prices in keeping with farmers' low incomes. Likewise, limestone and phosphate depositscould be used to produce fertilizers to take the place of the imported chemical varieties. A studycarried out in 1987 (World Bank, "Burundi: Fertilizer Usage and Potential for LocalProduction") demonstrated that it would be agronomically and economically advantageous toproduce limestone in Burundi itself (through BIOCARTH and BERM), relying mainly on localinputs, very limited capital investment, and technology that is relatively simple but has beenproven in countries comparable to Burundi.

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mI. Means of Circumenting Obstacles and St.ingy OQportunities

20. The avenues to development discussed in the previous sections of this paper and the opportunitiesthey may afford will remain unexploited unless appropriate measures are taken to create an c, -"omic,legislative and regulatory climate that favors private enterprise. However, by themselves, such measurescannot be sufficient, given the still embryonic state of the industrial sector and the numerous obstaclesat the microeconomic level which interfere with the emergence and growth of new enterprises.

At the macroeconomic level

21. Measures intended to create the right kind of climate were introduced as part of the social andpolicy ref' -ms and structural adjustment programs the Government has brought into place over the lastfew years. These efforts should be continued with the idea of consolidating and strengthening incentivesystems that favor private enterprise. They should focus principally on: (a) dismantling governmentmonopolies which inhibit competition and stifle the emergence of private enterprises in the most dynamicsectors; (b) establishing exchange rate policies that are sensitive to market forces; (c) introducing a single,low tax-rate structure, so as to encourage economic agents to operate openly within formal structures;(d) revising labor legislation so as to reduce manpower costs and enable entrepreneurs to change theirstaffing in accordance with the inevitable fluctuations in levels of activity; (e) adopting modern businesslegislation, as well as rapid, simplified and transparent regulations and procedures governing the settingup of business enterprises; (f) softening the regulations governing imports and exports; and (g) eliminatingprice controls.

At the microeconomic level

22. A series of specific steps are needed to overcome the numerous obstacles that now hamper theexpansion and blossoming of the private sector.

23. ostering entrereneurship: Contrary to the widely held view, the entrepreneurial spirit doesflourish in Burundi, as may be seen from the constantly increasing number of new enterprises. It couldprove even more dynamic if more importance were given to programs designed to foster entre-preneurship and targeted on the numerous potential business promoters who meanwhile remain in thewings, contending alone with the numerous obstacles confronting them. A good many of the ideas fornew business ventures mentioned in the previous sections of this report were put forward by membersof this group. With greater efforts and a systematic approach, it would be possible to pinpoint a muchlarger number of projects, which would then have to be scrutinized so that attention could be concentratedon the most promising. Entrepreneurship development programs that have already proved successfulelsewhere could be adapted to the Burundi context, so as to alert potential business promoters tounexploited market opportunities. In particular, it is essential to inculcate in them the habit of remainingattentive to the tone of the business climate, since it is composed not only of constraints but also ofpotential for profit.

87


24. Technical Assistance. At the present time, there are no management assistance programs focusedspecifically on private businessmen. Practical programs of this type should deal with the key functionsof the modem manager: (a) preparation of business and operating plans; (b) design and implementationof viable general and cost accounting systems that permit the accurate measurement of production,operating costs, and revenue generated by each activity; (c) establishment of production systemscompatible with prevailing technical standards; (d) introduction of modem personnel managementsystems: recruitment, training, keeping turnover rates low, incentives to encourage productivity andimprove all aspects of performance, etc.; and (e) implementation of studies and devising marketingstrategies appropriate to each product and the market segment being targeted.

25. This assistance should be channeled directly toward each business enterprise, so that bureaucraticinstitutions associated with the authorities, or for that matter, with donors are avoided. The role of theauthorities and donors should be limited to providing general information and the subsidies for acquiringspecific information and technical assistance. The enterprise or its private promoters would requestthemselves the assistance and would use it to seek from other private entities they themselves select (e.g.,private consulting firms, individual consultants, or other foreign or local private enterprises). In thiswhole area, it is essential that both the Government and donors change their approach, since efforts madein the past by public organizations to support private enterprises have failed completely. One concernof this assistance should be to foster and facilitate the establish-ment of direct financial links betweeninterested private-sector business promoters, either in the form of joint ventures or of marketing networksor other private arrangements. The latter proves to be the most effective channels for the transfer oftechnical or managerial know-how - rather than the conventional approach of technical assistancechanneled through public institutions, NGOs or government agencies. All known instances of successin Burundi bear this out: e.g. BTCF (tobacco), FRUITO (fruit juices and fruit exports), NAB (apparel),vegetable exports, etc.

26. Practical training courses should be designed and made avaiiable to businessmen in short sessions.A well-balanced curriculum, dealing succinctly with basic management concepts and supported by casehistory work, should cover at least three key concerns of modem management: financial management(with emphasis on accounting and its uses and on cash flow management); marketing (with particularemphasis on projuct/market-segment targeting and how to devise the right wrarketing mix of r- . lCt,price, pipelines and promotion); and production and operations management. Concurrently, theinstruction in management and its techniques given in formal training institutions should be strengthenedby being oriented more toward practical applications and not only toward exclusively theoretical concerns.

27. Access to creKi: Since access to bank credit is the major stumbling block as far as the emergenceand development of new small- and medium-scale domestic enterprises is concerned, some way has tobe found to make existing financial institutions shake off their lethargy. Injunctions in the form ofregulations or government coercion are certainly not the best means of doing that. In fact, they are evendangerous and likely to bring abuses in their wake that would endanger the viability of the bankingsystem. On the other hand, there would be advantages in fostering greater competition by opening thedoors to new private-sector financial institutions with wider fields of activity. For instance, theGovernment might attempt to cut back the almost complete exclusivity of the banking oligopoly byauthorizing the introduction of new, more modern and more aggressive deposit and lending instrumentsoutside the existing bank structures. Private investment and brokerage houses

88


could he opened. Tbis would assist in the creation and transfer of instruments such as bonds, preferredstock, dcbentures, and other types of commercial paper currently nonexistent In Burundi. Even withouta stock exchange, these instruments could be bought and sold on a small scale over the counter until suchtime as a stock exchange finally develops, a process that wIll certainly take longer. Factoring operations,which are common in many parts of the world, cannot be engaged in officially in Burundi by anyeconomic agents other than banks, which manifest virtually no interest in them.

28. Risk apital: IThe virtual impossibility for the new generation of entrepreneurs to assemblesufficient capital of their own to undertake an activity of any real scope is the other major stumblingblock. The commercial banks cannot be counted upon to finance risk capital. This is not one of themissions of commercial banks and is a type of operation which is very risky, matures only slowly, anddepends not just on very expert appraisal/selection of new projects but also on very close supervision ofany projects financed. The country's present financial institutions have neither the required expertise northe necessary personnel resources with which to monitor the management of new projects.

29. On the other hand, there can be no real hope of promoting a still embryon;c private sector in acountry in which the level of saving is low, and where bank intermediation is still in a clearly elementarystate, without setting up a mechanism for the financing of venture capital needs. Although there is anobvious need to fill the void and gaps in the banking system as it now stands, the basic rules governingsuch a mechanism should be those of a market economy. Certain basic criteria which need to be met ifsuch an institution is to be able to sustain itself are:

(a) Tbis institution should function on a strictly for-profit basis, not as a charitable orphilanthropic organization. Even if public funds or the proceeds of external aid arechannelled into this institution, it should not be a new public-sector enterprise or bemanaged as such. Its decision-making and management organs should be completelyindependent of the public authorities. Its management staff should consist ofprofessionals who have experience of the private sector and modem financial institutions.Expert knowledge and experience of a high order will be indispensable if the institutienis to be launched successfilly. Specialized entities in the more developed countries canassist in identifying and contracting for the services of the kinds of expert who will beneeded.

(b) Rigorous selection of projects to be financed. This means involvement solely in projectswith high rates of return. The minimum anticipated rate of return should be 30 percent.Projects should be in sectors with high growth potential (15 percent annual growth inturnover).

(c) The institution would operate by taking an equity holding in the new couapany or lendingto it for the long term, preferably in conjunction with other bankers. The shares held bythe promoters of the business themselves would be gven to the institution as coilateral,up to the amount financed, with the possibility of the institution's becoming the majorityshareholder should the promoters themselves default. The underlying agreement between

89

Anex 3page 16 of 16

the institution and the promoters should make provision for the case where the businessprospers; here, the promoters should be required to gradually buy up the ordinary orpreferred stock held by the institution.

(d) As a matter of course, the institution should occupy one or several seats on the Board ofDirectors of te new company, and have the option of nominating managers of its ownchoice should the managerial capacities shown by the promoters be likely to jeopardizethe viability of the enterprise.

Nawhn GOm Domedw c Prodit by Sw tor 0rsg 6-01%6o FU stcura.w prca

1905 ING6 19807 1tH8 569 1900 1901P.*OySe:w TM6 72n057 70.T7W 73270 86.153 0,979 t05s.sFoodeops 63,12 56,056 53.03 55,373 67.921 77,66 63.428LU kk 5.384 5,519 5,716 .13 0,168 6,o75 S.144FW" 210 342 350 434 473 522 564Fomay 3.273 3,40e 3,650 3.031 4.118 4,816 s.32EXpotCmps 5.0 Ml671 7,014 73se 7T47S 8.128 8.417

x sryS.do 16.407 16.604 21,668 22,514 232M4 2.1097 30.2UJ _WKAWLffv hD5,07 8.139 7222 6e049 6A36 730 9.354Agf*uJ I g 70 309 365 493 514 526 601Z 'F Fsxxod tdm 1,060 2.55 3,336 2,806 2.7t l s, 4.064Teilwmaditwpodxwt1 707 1n40 I 05O 1.012 1047 s6 1,128Ohrwisiss 2.179 2,t33 2.449 2.639 2,5 3,122 371w.kmft OM2 4.653 720 7.26 8224 9.2t0 10.534ConsZuctim s59 4.02 s5.B 6,170 0.630 7,09 6.703rtiroIg dEIUU 63 o06 1,456 1,482 1535 1se6 1.791

T.swSedor 32.129 34.426 35.03 30.280 43.422 40.726 55213P hafh'so 1664 17,066 M.S67 T 02 22SD0 20.041 28.627T1'qmpdai mmx1ww 2,94 3540 3.719 3.762 4.147 4.S44 4,066Trde M0,750 11,072 11n1o 13.tO 13,64 15.009 17sC ohur 1,781 16a6 2.217 2.500 2636 3.32 3,843OP at card1 126.10 123,123 12793 135.073 152,609 172,2 11t530

KITIMMI,s4g Lskif 12.597 14,078 1I55 5 16,01 2tses 10*04 22.3700Pdaraptbse 136.79D 137301 13D5 1504 174,3W 180.7ce 21319W

acklosstm%) t17.5 (1.1) 1.7 8.9 14.6 8.5 12.7Samw.sEcrs Buiandu 1 OM Ckdrmg Mro-mwmi$I. 1002-1005a 1003-- f7or,Ide ul*uPin

1065 1066 1067 ee6 1o06 1000 1900PduwySar 55152s76 52510206 50.66413 462153M 4040;05 St1 O6 49s2479Foodemps 4ss2342 40856845 36022203 36.36235 3.4607 40.642 30s072Uvestwk 3792420 40924 4.007344 4s37se4 35366112 3.s516030 .073866FiS 01577923 02402603 02551879 0265630 02712202 0275021 '3.23746Fosby 2.356230D 2.5264072 2.610303 2Mf6e 23612791 2.S31367 2516100Eqo GCrcps 4.034123 4.2294 s7949 4.666421 4266t175 42624027 3s50163SeowdrySector I.21456 12M1289 1553259 14.61As1 13.22476 1302714 142036Min1nia 4.0NO964 44744571 5.767S3 4S.727s3 3.107921 4n27939 4373071sAg*tp*,a p-*sAo 0.076 02006142 627sOM7 0.3244189 02047206 02771306 020w24Foodkkim1d 1.4122DS4 1.64176 23927457 1.4049 1s73602 1J312251 1.s6s276Text6mw6 w podz.a 0.52M34 0.784s7s 0.752661 o0 071 00343 O.s51050 0.5273402klbs 1.560078 1.546833 1.7s5420 1.73esss 1.473417 1J440240 1.66917

3265600 3.331746 52256101 5215706 4.7ISs4 46256 4.247811can3towtim, 4.0341523 3.020145 4.0641 4.0641204 3S06S 415224S5 4.067237Uning-WdEn 0.46076 o63o 104s5238 oa20oN OMIM75e 0250984 0.37371Twtiyecstr 23.149362 25.091653 25-52004 25s54149 24Jee3e4 26.10700 2581220Pul s s 11a6360 13.086738 1373714 13.0472' 13.0753 1.720520 13S60Tsuo*madcctwxmbkima 2.1572150 2SSO50t 2.6oes2 2.4755863 2.377s076 2.6041405 2t310030Trade 7.7455140 6.0600120 7MON2 s620427 7.324750 8621570 8.40e471Oewm we*i 12632336 1*542175 1.591006 1.7102734 I.s126406 1.726809 1.7031302(OPatimwoos 00125607 e96.73141 91.717142 6668467 6.21346 901.0064 a0.54141

FllctTwMn ddsjdis .07602 10258 62e2ss72 11.115132 1235S 8S101359 10458A15MOPatu= pdm t1 0a0 109 100 100 too 103

8IAusuOlRe a Gr Dosomes PsctbV Secs q Orion 06s5-s1

(Mlo Ftu at 190 pIcbesw1s 166 1967 196 l06 106 1991

PM"F e w 57.2 50.64 6e65 63.652 a2wl 6s.735 67.106Food aops 45.115 47.651 49.747 m 0o.6 4060 s5s5 53.757Lh..Iock 5.873 3.927 3,979 4.032 4,067 4.445Fksin*t 60 66 72 04 go 101

CM F ery .060 3.142 .210 3.30 3.410 as32EXPOdcO 6S,065 4.756 se5.0 52 4566 3100 5.27t

U Soon 8.cw 13_251 113427 14.423 U4.503 1466 s.702 17.115z A t _9 * Z a 5 4.0 453 3 5 4 4.0 530 604x I- AWku1 mI proe-Mng 435 456 542 5s2 612 467

Food Ih eses 660 66 66s 34 6s7 703Tzeridassespodualon 0 1.18t S.= 1.126 11.2 1.170Otleblamm 2.190 2.213 2a77 2A4 L451 2.00

Heodneib a456 3.570 3.a66 3.77 3sm 1, 4Sft3 4,734Constudon 4.756 4.56 4.246 4.03 4.0 4.706 5M2WntandEawW 744 631 1.6 1.37 1.361 1.311 16s1

Tud" Seow 25.060 2963 23.514 30.844 31.612 8.so 1 3S3S64ftb kteft 14.0 14.947 Mme6 ut467 1&.430 20506 21.17TrW mlsnDcOamAWiaSt _2 Z696 Zs520 z514 zs1s ?An6Trad 036 0.505 0.S20 04 so"77 0.065Otha_ 1146 1,6 1.762 1,700 1.5 6 .11

GoPal clrCost 66L612 101.644 15 M40e40 106*699 0 116.1857 t120.16

gdse. nltol subsde 6.150 6236 906 13.A4 Is0. 111.46 1 w7n

GODPgmuImIpiIo 100.671 110.130 116.221 1 136 ae0 16.022 134.310

-'4 GIOW6.am bEI) 11.46 3 S1.5 4.0 1.6 as 40GDPd(1s06 -1002 130.1 1240 12DD 1327 1410 147.7 1S55

Source: E _ _IOudBw h6e Nr. CedgeM _ _o-econon ClQ 102-10M

----------- _-----------------.--------------___------------------------_----------_----

Gronl b psout

1065 10 1097 low 1060 1900 10

PImmI S.cbq 4.1202262 19044127 1.666360 -Z16960 5027620 z090210Food,o 5525201 4.8646s 2.4065 -a2.2060 540o00o2 2.W53sLkv*ck 1.4726682 1.3241660 1.*310920 1.864073 5.7504812FbNt 4ns66666 -1516161 S30555 5.3191460 Z2.96020

F ao" 30163934 .1642266 30620605 3.063440 3S.77712E& t Co -011926 11.7973061 -7.8007 -70642 4.00647 .1706740

ScAnv Seob 1.3262016 7.41178600 e.ss460 e7101971 7.5037655 1.0066516MenaMA-kwnobl3064062 15.67SY46 0.2375640 -s77s62s 72228348 1Z5201Arua prooesat 46e275662 1550640 -7.360073 1.90 2018 -4.626112Foodkm*nMs -C.44S430 2.652652 7.153264 -1.2152S 10.38106T _s b endl _es poducon 10637462 3te1eess1 -ass s 19.271756 -1161608OUkwh,Stle oe624365 25576140 .7763375 -15.01366 1s0o1040

Handcb 32906111 210644 8.0650345 10447445 1Zz1621 &026SSConawu"on -8105 -736 -a700 403607 7.15160611 72437357 7.1011603Wft and w0E 11.4035 54.031267 9.14062S -1 .45311 -5.0687f00 &a31625

Teu5u ft., 72.120515 2.20022 .12224z7 &840I956 1t1.44106 44s57605PubNose.g 6.2104730 49240650 4.s000435 11.075466 1,.2045l2 14060510Trupqod 7d xo.urnllon 31766 -2535-2s0351190 -0030777 11416635Trade -1.$7G04 0.157010 07773100 -&431102 11.005004o3 "Axw -2166647 -1.32600 -0729517 -10s1441 14403032

GoPattscbolot 33200 46640778 1.7860 -0101830 7.5634961 s4317719

kndred Texs ne od tssdes .1.670M 16.051o 39s04009 14J30643 -=27120 20

GoPd inmpdic 321511170 5S221120 417520 1.468369 3014673 401165

4NNEX 492 Table 3

we *11 I *j,, ! # ,,S f I,

ri~~~~~~~S

I's | ¢ i X P * C i X T § 2 X r aI.

0

C~ ~~ tea 2o#|ih

@iOub!~ S 11Z t-lgi }

wX

tUl0 I ds"§i iX I~

BURUNDI

FOOD CROP PRODICTION ('000 TONS) AND ANNUAL COWTH RATE

x Go 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 averagez a

% dtangez q _______________ __ ___ __ __ _____________

Roots and Tubers 1030 1091 1073 108 1174 1218 1336 1381 1448 1423 42096Cassava 400 451 444 444 511 504 554 580 624 642 5.50%Sweet Potatoes 500 497 490 502 517 555 611 624 643 662 4.40%Cdocass 95 100 98 100 103 112 122 127 130 62 -1.10%potatoes 30 36 35 36 37 40 42 43 43 32 -0.60%Yans 5 7 6 6 6 7 7 7 8 5 -0.90%

Cereals 208 216 211 216 214 244 256 274 280 241 2.30%Maize 140 146 144 148 139 157 164 174 160 135 -0.20%Sor0lum 52 53 52 53 49 59 61 64 64 69 4.40%Rice 10 10 9 9 18 20 23 26 28 28 21.10%Wheat- 6 7 6 6 8 8 6 6 a 9 5.50%Eeusine 9 11 10 11 10 12 12 13 13 13

Legumes 328 339 334 326 175 ^aO 364 380 358 287 -1.90%Beans 290 294 290 280 141 301 313 327 304 221 -2.60%Peas 26 30 29 30 18 32 33 34 33 29 4.60%Soja 12 15 15 16 16 17 18 19 19 17 200%

N Sbods 25 27 26 27 26 29 30 32 31 69 20.20%

EBaana 1100 762 1220 1160 1197 1384 1436 1504 1501 1638 4.40%Fmt 400 782 450 428 441 510 S38 557 S90 60? 4.50%Beor 700 770 732 758 874 900 947 lo01 1091 4.40%

Leaves 39 42 41 4. 43 47 50 52 51 94CXxgs 44 53 52 53 55 S9 6a 67 53 55

Fnut 30 31 30 31 32 35 36 372 39.8 2L.

FLE NAME FOODPER.WI

-X tn

Z-DZ Xz.o

BURUNDILIVESTOCK (000 heads)

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990-------------------------------------------------------------------__--------__---------

Cattle 600 548 600 nla 415 378 479 422 429 423 430Goats 731 737 750 n/a 798 747 723 762 778 838 920Sheeps 330 304 n/a n/a 369 316 329 313 350 327 348--T Swine 54 48 70 n/a n/a 60 77 80 115 91 110Source: Ministry of Planning

-It la BURUtNDI

x '- FISH PRODUCTIONZ0 ------------------------------------------------------------------------------------------------------- __ _ _ _ _ _z toIC I- 1974 1975 1976 1977 1978 1979 1990 1981 1962 1983 1984 1965 1986 1967 1988 1989 1990

VOUMEbndustlal 6.211 6.144 8,717 6.642 4.017 4.?40 6.202 4.118 3,641 3.199 3.454 2.591 2,333 1.963 1.545 1.784 1.769A&Esarf 3.127 4.746 7,649 12jS53 10.017 4.756 8.565 5.687 4,461 3.147 2.879 2.691 4.176 2.925 4.946 10.336 14.498TradikkxW 1.568 1,765 4.526 3.665 627 4.540 1.754 117 43 29 18 29 a6 125 121 186 173

TOW(tams) 10.906 12,655 21.092 23.160 14.661 14,036 16.521 9.922 8,145 6.375 6.351 5.311 6.55 5.013 6.612 12.306 16.440

VAWUEIndusal .t06 128 171 177 195 214 192 202 209 233 197 154 189 202 143 143 142Arfbhan 45 52 101 181 150 208 110 4 236 209 171 182 275 273 419 600 1,318Tr#iadonld 25 60 45 13 121 77 2 3 2 1 2 5 10 9 14 15 97

ToW (Wm FBu) 176 240 317 371 466 499 304 209 447 443 370 341 474 484 576 956 1557

Saic. DGPA. EwFumion du Plan Ounquwmal

an

96 A~~~~NNEX 4

Table 7

I 2 I 1l

I I

I I8

I I

*~ i i

I I

I lip

I I

I I!

I oo o oI

I i I

I I _

I _I

1IS a IZ

9URUNMEKPORTS (CURRB4T PRICES)

1979 t960 1961 1962 1963 1984 1965 low 1971 1966 1969 1990 1991COFFEE (1)Vdakn M 27.137 18652S 27,106 30.461 24.85 29.001 34,401 28.281 30,578 35.052 32.225 32,196 36.UnitVaJimFB 317 283 219 232 263 342 337 430 284 416 371 286 342

- co Vdus uiao) &6.12 5.237 5.944 7.061 6.542 9.930 11.491 12.053 8.623 14.459 11.874 8A67 13.170

X .# TEA (2)Z D Vokau 1545 1.073 1.729 1,702 2.101 3.073 8,795 3.788 3.770 3.541 3.101 3.741 4M94

Ft 1 U nitVakusQT g) 121 128 124 151 109 263 167 146 170 220 268 382 324VaIu(F,u&6lw t65 136 212 255 226 864 630 550 642 779 69 1.426 1.610

COTTONVolmU ( 1.70 737 781 2.063 1,923 404 221 140 23 509 15 100 0Lk*tVaku(FBukg) 113 139 144 106 130 203 192 144 157 216 209 240 0ValusBuMio) 198 102 113 223 249 62 44 20 502 110 31 26 0

HDESVakas 363 181 245 192 649 425 588 6S9 666 76 10 1106 766U*Lt Vaki (Ffk 260 296 143 45 106 192 198 225 273 377 504 560 565VakusFUuMio) 94 54 35 9 69 82 125 .151 182 296 509 581 434

OTMPFRAARYVokN. (I 1.,25 831 1.051 327 463 464 712 1.109 t1 3.681 4.467 2,875 2.0t1U1Vdu( F9uAg) 155 296 247 238 420 669 705 437 376 116 132 202 286VdusFlu) 206 246 260 78 203 311 502 482 397 427 591 560 576

vamn@ 963 136 139 2,79 2.066 427 .759 S 13.942 11.234 4.467 3.331 2,107o ALMV&%(f&*o 5? 75 13 so 99 139. 191 125 114 91 146 213 305Vak FlMb) aS 1 602 IS 271 205 a6 716 1AS1 16 1.021 6M 711 639

OlHE AND RE-EPORr 207 407 217 688 234 t10 176

TOTALVMfibMD) 9,950 5.'i16 6.744 7,697 7.495 11.626 13.715 14.744 12,161 17,460 14.795 12,424 16800

FBLsJSSfaNaj so 90 90 0 9Q96 119.71 120.69 114.17 1235 140.4 1w 171.8 1t6.S

Sowc ftiu.ds Is PApubiqum du, &uxmI1 FOBDw.S&1n21 FOB Mcmbn

98ANNEX 4

BURUNDI TabLe 9Agricultural Exports (Other than coffee, tea and cotton)

'TONNES)

1985 1986 1987 1988 1989 1990

Fish 1.0 1.0 1.0 2.0 2.0 2.0Flowers and ornmental plants 221.0 323.0 229.0 366.0 548.0 403.0Animals - - 5.0 - 2.0 4.0Fruits and vegetables - 6.0 - 38.0 90.0Rice - - - 855.0 2710.0 563.0Pepper - - - -Palm oil - - - - - 175.0Tobacco 154.0 - 531.0 924.0 824.0 724.0Fabric 419.0 564.4 155.0 210.0 101.0Cigarettes - - - -

Cotton oil cake - 20.0 105.0 180.0 -

Vegetable oils - - - - -

Timber - - - - -Medecinal plants - - - - -

Ecorce de quinquinna 18.0 64.0 47.0 69.0 248.0 30.0Uvestock feed - - - 1077.0 205.0Bee wax - - - - 4.0

Total 813.0 978.4 1073.0 3721.0 4734.0

source: (*) DGPAE: Evaluation du Ve Plan Quinquennal.BRB: Rapport annuel 1990 (Declaration en douanes)

Fielname:Nontradv.wk1

99 ANNEX4Table 10

a 1 - a

a F

ca - asg _ - _, f

I I

I I

o j-

i ,

I~~ , a i! !

100ANNEX 4

T&ble 11

iiI *,

i o W3@ @ o 02boU *@ *

I~~~~~~~ c

I ! U-o@M-*i0- MEN I C 4 40 4 bF

*; ... 2 awi M4i hh4

, " ,

* C" 'a.@N o s0wi t k S0

|^; S e X| . X 5i ig {0 I -

I~ ~~ _i-3

*o ° -Wo*g2'iil

iON 0 403 W!i :i5

ii ~ ~~~~ w a.!XSe 4 !f

BUFUBCoon Ar. Production Yied. Prim

19s8 t981 tm 1963 1984 19S5 t986 1987 ts88 1989 1990 1991

Arm #A) 6.372 6.714 6.149 4.8S4 6.493 6.596 6.664 6.760 7.532 7.149 6.608 7,189kibo- Nkx1h 2.144 2;290 2,319 t.467 2.071 2.143 2.019 11908 2,119 1.978 1596m 2.040

Ciwt 1.241 1;203 1.87 1.095 1,320 1290 1273 1.248 1.628 13'm 1.307 1S364N Sbxdh 2.9J7 3.221 2743 2.272 3.031 2862 - 2J157 _844 2,877 2.724 2Z949 3.180s - N,_ m-Lc 20 71 192 326 412 519 553 289 338

X O k4mmID t t1089I9 346 369 524 467 257

Z D Nb^tbfidFmu 15.742 14.913 1408 127 14j501 1561 16.5i9 16.921 19.347 18.947 19.773 20.8X9

Pmdudsion(r 5.614 S6.39 5.701 4.738 6.56= 7.155 7.694 7.907 7J508 7.200 5.475 7,212FiOu2f U5.33 6.422 5.412 4.577 6.446 7.024 7.756 7.834 7.458 7.200 5.458 7,179SsmiQ_m 591 217 269 161 67 131 139 70 S0 0 17 4S

Ymfttqo* 68i on 927 97 1,006 1.085 1.1S 1.170 99 1,0D7 629 1.003

PFaAcon (A 2M015 2.341 2077 1.6 25t22 2.5es 3.115 3.070 2,959 29 2,182 2,906FhdGufta th806 0 2280 9 1.6 22 2A532 8.04 3.08 2.99 2655 2165 2.668So _dudly 09 81 100 S5 31 51 51 32 0 14 7 16

Gm gUca 35 35 AIS 3S 8 85 39 3 31 40 40 40

LoadSd 500 677 733 1.117 2,512 725 IM 2355 2.416 2.407 2.069rm Ias 737 781 2.069 112S 404 221 140 S203 110o I 100 0

Lawd cs(RuQi ) 143 112 t6S 200 177 168 173 165 195 240 1*EVMtpI=Fbilq s8 93 120 200 192 124 tS2 1S 273 :73 WA

FhOGuA 26 29 aS 35 35 35 35 35 40 40 40 a8wiiQuNI 10 tO 10 10 10 10 10 10 10 10 10 10

RoduamprimaIdmnirw *nqAku4Fkdua_y 7 8 82 so 8 8 8 8 97 a s9 101 100 100 124SecndOu.% 26 28 27 28 28 28 25 2B 25 25 25 25

SoaFtoducdIm S,43S 4.126 S,479 2.90 4.043 4,997 4092 4.79S 47 4.202 8.184 4.201

4.572 4.779 4.637 4.54 4.331CcnmAslaaipUicma I I I IIPAM t FVwy 3W.974 4.262 4.205 4.0t2 8J739 2,a7 3.786Book 311 328 452 368 414 305 403AWiuFu.d 112 12 75 0 20 15 40

* Rdndss&nb AFE 6 6 6 6 a 9 9

Sawcs GdUw- aCdmfX3GBW%

BURUNDITobacco: Area, Producticn, Yield, Egport

XC 0

.Z X 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990BweyqtobaocArea 0 10 44 87 200 273 4.33 570 5-,5Produdion (tonw) 0 14 57 187 295 478 764 844 900Yiddx 1,429 1,310 2,152 1,475 1,751 1,764 1,481 1,565Plue cured tobaccoArea 0 2 22 97 214 430 S08 300 507Production 0 2 16 128 225 545 594 437 S18Ywilds 1,000 1,310 2,152 1,051 1,267 1.169 1,457 1,022

Eaport (1eaves)Voluwvr (tmos)

44 530 924 824 724Vulue(Mio Fbu) 11 133 203 195 223

O Source Burundi Tobacco Ompany'-

x 0 BURUNDIU- ~~~~~~~~~~~~~~~FEFMUZER Sz.o

z s

1980 1981 1962 1983 1984 1986 1987 188 1989 1990 1991

Mtogen W500 900 3C0 737 421 67 5 4.701Phosphate 300 100 400 87 87 80 877 2,771 46 5.455Polasiw 100 100 400 219 293 82 16 147 1,964 379CONeKs 2686 555 892 2,102 5.521 1,828 6.728 1.498 3.015 39

Tvdi Pts) 3.586 1.655 1,992 3.937 6.701 1,990 8.042 4.483 5.030 10.574 5.029 7.898VALUENitogen 0.7 36.7 18.4 2.8 0.6 31.5Phosp 10.7 5.0 44.8 34.3 36.2 3.6 62.0 137.8 136.0 0.3Polasium 10.1 2.0 4.4 137.1 180.8 2.8 1.1 4.0 79.6 4.6Oft"s 972 15.4 47.4 51.1 42.9 102.9 4102 67.6 103.6 641.6T1 (Oft Flu) 118.0 22.4 97.3 259.2 259.9 109.3 491.7 212.2 319.8 678.0 35.0 272.0

en Soco: Mni*y dAWbAure6 DIR0

-i~~.

104 ANNEX 4BURUNDI Tbe1Tabte 15

POPULATION 1990

Population Density

PROVINCEBubanza 225,800 208Bujumbura 596,200 300Bururi 392,900 160Cancuzo 142,200 73Cibitoke 282,600 173Gitega 564,100 286Karuzi 301,700 207Kayanza 443,700 360Kirundo 404,600 238Makamba 240,700 123Muramvya 440,300 287Muyinga 385,500 210Ngozi 483,800 329Rutana 198,000 102Ruyigi 254,100 109

Total 5,356,200 207

Source: Ministre de l'Interieur

'0XG)X

¢Es4

BURUNDINLtCLORCLAOICALDATA

LOWIM AliWe _my Feb" Mawl APit may jut July Alm Sqpekber Ocu&. tb_inb D_8., Yew Mmm mMor(U)

3luUS&(B*Iubm) 8es 94 109 121 125 57 1t 5 11 37 64 lto 114 847SsbEfaLomlmaimo) t250 168 152 182 202 94 8 t 3 38 85 1Ut IS 1244H8bo&(K1sml) 2155 6 16 64 1t 174 189 1447

AveupdeaykpeI z (C*bs)

Ruubvq(Bumb-) 8uS 23.7 23.8 238 23.7 239 233 23.1 24.1 25 248 23.7 235 23 28J 13 Souhf"Eas b Olmo) 1260 216 21.7 21.7 21.7 21 20 19.8 21.2 22.7 22. 2L7 215 215. 27.9 iso I_di ( 21S5 16.7 16 16 167 163 15.1 133 163 17 17.1 17 6?17 22 19

IBRD 2319829,00* 29s30& 3

R N A N D ABURUNDI £ &ho\000 il

RAINFALL AND RELIEFZA REPARTITION DfS PLIIES ET LA RELIEF 1¾

2-30 '

Kwundo2

44k'0 ) MUYINGA,

b0 K nzol 4/NGOZI Nya!,WJ,3

30 KQ\% S tg-X?t\0 B ANZA RtN'Ob'o /

- BULUMBURA $

'6nv k* l { <|g M ,, go ( \ 't,5\) RUYIGI // (b~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~N

$ .;BURURI R I o ELEVATION INMETERS:2500+

4'00' 1 \ Qf et ) w g 7 ~ ! 2000 - 2500 -j/ /,</' /'\w- -///j __' <1500. 20001000 -<1500

[29r0 \ ,/\ ,/< _ SOHYETS

!UGANT ISOMAL . ,X n E A,KENYA /' ). i

PROVINCE CAPITALSRWAN 9 X 9 t 2 I J tCHEFS-LIEUX DES PROVINCERWANI

f _te R VERStBURUNDI \ adna, FR.INTERNATIONAL BOUNDARIES

ZAIRE ~~~~~~~~~~~~~~~~~~~~~~~~~~FRONTIERES INTERNATIONALESS TANZANIA 30 10 20 30 40 KILOMETERS

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