Coffee continues to be Ethiopia’s golden export bringing in as much revenue as the sector can, given the market conditions. While Ethiopia produces some of the best coffee, the lack of quality, unfair market prices as well as low productivity, are affecting export performances.
While the modern trading system has been rolled out through the Ethiopian Commodity Exchange (ECX), it has not been effective enough and so middle men continue to survive by cutting off profit margins from farmers.
Capital’s Eskedar Kifle spoke to Sani Redi about the current status of the sector and what the government is doing to ensure growth
Capital: Give us a briefing on what the situation looks like for the coffee and tea industry.
Sani Redi: Last year we evaluated the performance of coffee and tea and came to the conclusion that the development of the coffee, tea and spice sector was not moving as fast as we would have liked and was not earning as much as we had hoped. As a result we re-established the Ethiopian Coffee and Tea Development and Marketing Authority.
The Authority has been working to identify the opportunities and challenges of the sector and accordingly has put in place ways to harness the opportunities as well as address some of the bottlenecks hindering growth.
Capital: You said you have identified problems and have come up with solutions. Tell us more details.
Sani: Global competition among these commodities is very high. Coffee especially is one of the most highly transacted products in the world. Looking at countries such as Brazil, Colombia, Vietnam, Indonesia, they all have higher production levels; both in quality and quantity, than us.
We are currently the 5th largest coffee producer and exporter worldwide. In the next five to seven years, we are aiming to become the second largest producer and exporter.
Our production of coffee is low; 7.4 quintals per hectare of land while in other countries produce 12-15 quintals per hectare. The gap is very wide and to solve this issue, we will need an effective extension service and better seeds that can give more yield and withstand disease. We have also identified that one of the problems have been markets that don’t pay a fair price to farmers and to solve this we have put strategies in place.
Quality control for coffee starts from the farm. So we are working on providing harvesting technologies to farmers and giving them trainings on how to use these technologies. One of the reasons why the sector is further behind than many countries is because of the backwards trade systems.
The chain from the farmer to the export market is still very long; there are 7 to 8 actors in between that all take some portion of the money. This chain needs to be very short; producers and exporters need to be able to connect more directly and there needs to be a modern trading system.
The trading system has already been rolled out there is the primary market which is where the farmer sells the produce and the secondary market where exporters buy the coffee from the farmers, process it and offers it to the export market which is the Ethiopian Commodity Exchange that is doing that. Even though the modern trading system has been rolled out, it has not been fully and effectively functional as middle men still exist and the farmers do not get fair pay for their produce.
Specialty coffee is special due to the way it was processed which is with a lot of care
The market needs to pay more for a quality product, with either tea or coffee, a producer that brings a good quality produce to the market needs to be paid accordingly. So we are trying to set standards for produces leveling them as first, second class and so on according to the quality.
We really want to encourage those involved in exporting value added products; exporting raw coffee will not be as beneficial to us.
Capital: How unfair is the international coffee market really?
Sani: The international export coffee market has never been fair; it is a monopoly. What kind of prices you get will also depend on the bargaining power of the country. The market is not governed by demand and supply. The buying companies have stock and when they want the just drop the price and raise the price when they want they are the deciding entity.
If we increase the quality and quantity of our coffee and if we are able to increase our bargaining power, within that unfair system, we would still be able to get better prices.
Fine coffee that is produced in Ethiopia for example is sold for twice the price of regular commercial coffee. We need to connect more with interested buyers of specialty coffee, invite them all the way to the farm as well as take advantage of new markets for fine coffee such as Japan and America; the specialty coffee market in those places pays a relatively better price.
Capital: How successful has Ethiopia been in exporting specialty coffee? What percentage of the whole commercial coffee export is actually specialty coffee?
Sani: Our specialty coffee production is low, less than 20 percent of the total export of coffee. However, it is a very good quality, it is very competitive internationally and it is bringing in good revenue. We have to support this sector by implementing policies and regulations; we can help it to grow to 30 to 50 percent of the total export.
When you look at Colombia, their specialty coffee volume is large; from 20 to 30 percent and they sell that with a special price and there are markets that can afforded to pay those prices for them.
Specialty coffee is special due to the way it was processed which is with a lot of care. It starts from how the berries are picked and how they are dried and so on. Most of the quality control responsibility lays with the farmer.
Unfortunately it is like they way I said it earlier. Because the market doesn’t pay fair price to the farmers, the farmers don’t usually bother with the quality of the produce they sell. That is why we need to set standards at the primary market level and set encouraging price differences between those different standard products.
Capital: What is your performance forecast for the coming year?
Sani: So far the weather has been good for coffee growing and our target for next year is to increase coffee export by 20 percent. This means we are targeting to export 241,000 tons; this year, we exported 198,000 tons.
We have generated around USD 750 million this year and we aim to earn USD 900 million next year.