Inside Rwanda’s new $100 million dairy project

Rwanda has a launched a six-year $100.37 million (approx. Rwf127 billion) dairy development project which intends, among others, to increase income of targeted rural households, and build resilience of the dairy sector against climate change as it raises its output, The New Times understands.

It seeks to deal with climate change and variabilities that influence feed and water availability for cattle, as well as issues around animal health, which make dairy farming vulnerable, and have effects on milk production and quality.

The projects is building on the previous six-year $65.1 million Rwanda Dairy Development Project (RDDP) which was launched in March 2017.

While RDDP was able to have a positive impact on the sector and its target group, challenges remain that limit the viability and sustainability of the value chain, indicates the Rwanda Dairy Development Project (RDDP) – Phase 2 Project Design Report by International Fund for Agricultural Development (IFAD).

The challenges are, among other issues, sub-optimal milk productivity levels of cows due to limited access to quality forage and water, low capacity of producers and cooperatives across value chains, poor market information and infrastructure, and lack of investment across the value chain, it indicated.

The project’s interventions will benefit approximately 175,000 rural households corresponding to 700,000 direct beneficiaries, as per the report.

On February 8, Parliament approved the financing agreement between Rwanda and IFAD for three loans totaling €18.9 million (approx. Rwf25billion) for financing the project – as the first batch of its funding.

While justifying the relevance of the project financing in Parliament, the Minister of Finance and Economic Planning, Uzziel Ndagijimana said that the project will contribute to the advancement of the dairy sector in Rwanda.

Recognising the reality that milk production and supply fluctuate with relatively abundant produce during the rainy season, and limited supply during dry season, Ndagijimana said the project aims to “achieve a dairy farming that is resilient to climate change such that there are no milk shortage because of dry season.”

According to information from IFAD, the project will contribute to “greening” the dairy value chain and reduce its greenhouse gas emissions to approach or reach carbon neutrality, in line with national commitments in National Determined Contribution and the Global Methane Pledge.

Project timeframe and implementation area

RDDP-2 will be implemented over a six-year period (2024-2029) in 27 districts, which include 14 initial RDDP districts to further consolidate the transformation of the sector, and 13 new districts to upscale the process.

It will target 45 per cent female beneficiaries and 25 per cent youth beneficiaries.

The Project Development Objective is to enhance income, nutrition and resilience of rural households through a more inclusive, sustainable, digitalised and competitive dairy sector.

Expected impact at a glance

It is expected that, under the auspices of the project, 80 per cent of dairy households will increase their incomes by 30 per cent while creating 3,400 new jobs.

Also, 53 per cent of the dairy households will have adopted environmentally sustainable, climate-resilient technologies and practices, while 45 per cent of the households are expected to see improvements in their nutrition security.

It will construct or rehabilitate 164 milk storage/processing facilities, equip 95 milk collection centres with digitalised milk transaction management system, and support 85,000 people in dairy entrepreneurship through improved access to finance, the report showed.

Climate smart innovations in dairy farming

The project plans to introduce, test and disseminate climate resilient fodder varieties and technologies and promote agroforestry systems, including plantation of fodder trees, legumes, grass into grazing land and cropland.

Multiple benefits are expected from such practices, and encompass climate change mitigation through soil carbon sequestration [absorption], as well as climate change adaptation through improvements in soil fertility and increased capacity of farmers to meet production needs during dry periods and to respond to climate-induced pests and diseases, according to the report.

Also, it plans to deploy energy-efficient and GHG (greenhouse gas) emission reduction technologies for production (that is biogas, solar, among others) and promoting capacity building on carbon accounting.

Funding allocation to project components

The total project costs are estimated at $100.37 million (approx. Rwf127 billion), which will be disbursed over six years, shows information from IFAD.

Such funding will be allocated to three components of the project.

They are “increasing productivity and resilience of dairy smallholder production systems” which accounts for 41.3 per cent of the total project costs ($41.44 million); “increasing dairy VC (value chain) efficiency, through scaled-up investments, improved market access, and consumption of dairy products” which represents 48.2 per cent (or $48.41 million), and “policy support, and project management, monitoring and evaluation, and knowledge management” which will get $10.52 million (10.5 per cent).

Financiers

The project funding sources include IFAD’s contribution amounts to more than $20.547 million (20.5 per cent of the total project budget), and OPEC Fund for $20 million (19.9 per cent).

It will also leverage financing from a regional GCF (Green Climate Fund) operation covering Rwanda – “Pathways to Dairy Net Zero” – estimated at $8.5 million (8.5 per cent), Equity Bank Rwanda will participate in the project by financing approximately $10 million (10 per cent) in loans to smallholder farmers, and other entities along the dairy value chain.

Heifer International confirmed the contribution of a $6 million grant (6 per cent), Government of Rwanda’s contribution is estimated at $17.64 million covers 17.5 per cent of total project costs, and it is expected beneficiaries will contribute $9.52 million (9.5 per cent).

A financing gap of $8.16 million (8.1 per cent) may be covered by IFAD resources, or by other co-financiers.

Rwanda’s annual milk production registered a steady growth, reaching more than one million tonnes (one billion litres) in 2023, from 891,326 tonnes in 2020, and more than 372,600 tonnes in 2010, according to data from the Ministry of Agriculture and Animal Resources (MINAGRI).