About 13 years ago, Betrework Alemu, an owner of a commercial farming company, started to plant coffee with a characteristically courageous morale after seeing the success of other coffee investors.
He is the sole proprietor of one of the biggest coffee farms in Benchmaji, Gurafarda, a village located in the south-western part of the country.
For over a decade, Betrework harvested tonnes of coffee on his 520ha of land and sold to the global market, shipping to European countries no less than 72 tonnes of coffee annually. And like many other growers in the country, he mostly gets international customers as well as buyers through agents and commercial representatives.
He is among the farmers who have been irritated by high-profit margins captured by intermediaries, who help him get suppliers.
“They disturbed the whole market,” Betrework said. “There were times when I doubted the very existence of my business due to these agents.”
The coffee production sub-sector has been the foundation for the country’s economic development for more than the past half century. Its importance to the economy cannot be overstated. The country has around 400,000ha of land planted with coffee across major coffee growing regions.
Being the most traded item in the country, coffee accounts for over 26pc of agricultural foreign exchange earnings and four percent of Gross Domestic Product (GDP). It is estimated that over 16 million people in the country rely on coffee, impacting six percent of the population.
To the surprise of many, the majority of the coffee production, as high as 95pc, comes from smallholding farmers, who cultivate below two hectares of coffee.
Although coffee is perishable like any other consumable good, the tendency of getting the crop with a much smaller number of intermediaries is becoming hard to see in the country as the supply chain is old fashioned and inefficient, involving more than 10 intermediaries between the farmers and the final consumers.
In most stances, it is difficult for many coffee farmers to get market access and information, forcing them to depend on middle men to introduce and sell their unroasted coffee to the market, resulting in 40pc of the revenues across the value chain going to the middle men.
With an increasing number of intermediaries, the supply chain deters the small farmers from profitable activities as much of the revenue are captured by the middlemen. On average, smallholding farmers sell coffee three dollars a kilogramme while people who are at the top of the supply chain make as high as 200 dollars.
Heiru Nuru, head of the director general office of the Ethiopian Coffee & Tea Development & Marketing Authority, says these intermediaries have no legal identity.
“There is no single registered intermediary in the country,” said Heiru. “We don’t know from where and how these people come except knowing that they are illegal.”
Besides the intermediaries, the major players in the coffee market are exporters, domestic wholesalers, suppliers, collectors and cooperatives from the demand side, whereas small scale as well as commercial farmers are principal actors from the supply side.
The coffee supply chain has seen two developments in the past decade.
One of the developments was before the Ethiopian Commodity Exchange (ECX) came to the scene in 2008. Coffee beans were allowed to be traded between wholesalers and licensed exporters, or through an auction held by the then Coffee & Tea Authority. At that time, the coffee was brought to the capital for the sake of inspection and then traded. It was not compulsory to trade through the auction.
The second development was a decade ago when the country passed a law that obliged farmers to sell the coffee to the primary market, which is selected by the Ministry of Trade (MoT), from where cooperatives and traders, and wholesalers buy and transport it to the ECX warehouse, where the crop will be standardised and graded.
This resulted in a higher number of players added to the field and more restriction in the coffee market of the country. It became necessary for all traders and exporters to trade coffee through ECX unless they are producers, cooperatives, or they export straight from their commercial plantations.
ECX, which was set up to organise coffee trading in the country, has handled 90pc of the coffee trading in the country over the past decade. The emergence of ECX has brought two sided changes to the supply chain of the coffee market.
“Although it brings more rationalised marketing with competitive prices and lower margin for suppliers, the fact that warehousing became compulsory deterred us from being unique and competitive in the volatile international market of coffee,” said Fekadu Hailemariam, shareholder and general manager of Homeland Organic Coffee.
This, according to Fekadu and many other players in the industry, hinders the traceability of coffee beans and has destroyed the trade relation that producers have with coffee importers from abroad.
Although the government made a move to respond to the criticism over the loss of traceability in 2010 by launching a direct speciality trade, it was not that much effective to identify the history, location, use and processing of the coffee as the crop was mixed in the warehouse of ECX.
“It’s hard to compete in the international market without having a traceable product for us,” said Betrework, the coffee grower, exporter and buyer. “Unless we come up with competing, better and unique coffee beans, it is very hard to be preferred by the international companies.”
Realising the problem, the Authority, mandated to control the coffee market, drafted a bill after organising consecutive meetings between the Prime Minister, exporters and coffee growers, reducing the time and the cost spent in the market by half.
Ibrahim Hussien, who owns 150ha of coffee farms in Limu area, is among the farmers who heard the approval of the new reform by the Parliament last week.
“It is a rebirth for the coffee market,” he said. “At least, traceability and originality won’t be an issue anymore.”
Tadesse Haile, state minister for Exports & Investment in the Economic Section at the Prime Minister’s Office, agrees.
“This reform is one of the big policy changes in the history of the country,” Tadesse said.
The new proclamation enables the traders to buy or sell anywhere without reaching the floor of ECX or the involvement of the Ministry of Trade transactions centre, which marked the second significant development in the country’s coffee market.
The role of ECX is limited to handling contractual agreement between the traders and setting up a bonded yard for the consignments until they get sold, according to the new proclamation.
Furthermore, the results of the reform have already been observed in the market as the country managed to raise the export proceeds made from coffee by 20pc to 866 million dollars in the recently ended fiscal year. This has bucked the trend comparing to what has been in the past five years, where foreign exchange earnings from coffee have declined.
“We have observed a drastic surge in export earnings since the announcement of the reform in April,” said Heiru.
Nevertheless, the market does not seem to be the only worry of the coffee traders as most of the growers still face the most difficulty in accessing finance and improving their skills in risk management. It has prevented coffee farmers and exporters from investing in their businesses.
“Almost all banks are less willing to give the loan to coffee growers,” said Fekadu. “They think it will default since it takes more than three years to grow a coffee plant.”
He believes that special incentives to get financial access should be given to bolster earnings from the sector.
“As a number one export commodity, all banks, especially the Development Bank of Ethiopia (DBE), should give attention to the sector,” Fekadu added.
Hailu Mesganew, acting communications director of DBE, says it is not neglected as it is treated like any other sector.
“Although we don’t give any loan for commercial purpose as it is far from our mandate, we always support by providing financial access to those who develop the coffee plant from scratch,” he said.
A part of the coffee market, the crop itself has also been in risk of production decline due to the effects of climate change, according to studies and environmental specialists.
A month ago, Kew Research, a centre for botanical and mycological knowledge in London, reported that the coffee market will be in danger over the next century due to climate and economic reasons unless action is taken.
The decline of summer rains, rise in deforestation coupled with frequent drought is among the major indicators showing that the problem has already been observed in the past three decades.
The country, according to the study, might lose between 40 and 60pc of the coffee growing areas by the end of the current century.
Acknowledging the effects of temperature on the coffee market, Heiru says that their assessment is in contrast with their observation.
“In a country where coffee grows in high-temperature areas, the increase in temperature is not a concern,” he said. “Nothing is going to happen in the country’s coffee production.”
For Sebsebe Demissew (Prof), an environmental specialist with three decades of experience, who was involved in Kew’s research, a business as usual approach will put the commodity at risk.
“All stakeholders need to sit and discuss the issue to prevent the crop’s risk of vulnerability to the environment,” the professor remarked.
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