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The Ethiopian Coffee and Tea Development and Marketing Authority (ECTDMA) is on track to surpass its projection for coffee exports in the second Growth and Transformation Plan (GTP II).
ECTDMA was formed a year ago and tasked with reforming coffee production and marketing.
Since the Ethiopian Commodity Exchange (ECX), began operating in March 2008 by exclusively trading coffee, people in the coffee industry raised concerns. In the past few weeks coffee was unable to earn the revenue or obtain the growth hoped for. The smuggling of export standard coffee to local markets and nearby countries has visibility affected coffee exports.
When new coffee exporters joined the sector to get hard currency form their imports it also brought chaos to the coffee trading floor.
In response the Authority conducted reforms such as allowing changes to how coffee was traded on the exchange.
The draft reform ratified the last day of parliament came as a result of discussions with stakeholders and Prime Minister Hailemariam Desalegn and his advisors.
During a joint press conference on Wednesday July 12; ECX, CTDMA and Ethiopian Commodity Exchange Authority announced the new reforms.
Shafi Oumer, deputy director of ECTDMA, told Capital that the authority targeted to export over 264,000 tons of coffee in the 2017/18 budget year.
“Our projection is more than the goals of the GTP for the budget year,” he added.
The GTP projected that the country will export 254,000 metric tons in the third year of the second GTP. The new projection adds an additional 10,000 metric tons.
The authority marketing head is confident that the plan will be achieved. “The coffee export has been boosted in the past few months since we introduced the reform. So if the reform becomes fully implemented the plan shall be easily achieved,” he said.
According to Shafi, in the last half of 2016/17 budget year about 27,000 tons of coffee exports raised the total amount of coffee exported last fiscal year to 225,000 metric tons. However the initial target was to export over 241,000 metric tons of coffee. A year ago the total volume of coffee exported was 198,000 metric tons.
“In the past two decades the total export volume grew by over 75,000 metric tons, while in the past three months we have improved by 27,000 metric tons,” he added.
The new reform is expected to reduce the trading chain and make coffee farming more profitable.
When the market chain is reduced the cost of the bean will be reduced and that will make the country more competitive on the international market, according to the officials of the authority and the trading floor.
The reform document came up with solutions to eleven major problems. One of the major changes it says must happen is more traceability and quality control to make better coffee at a higher price.
Traceability, which was affected in related with the commencement of the new trading scheme at ECX is also the other issue that mentioned on the reform. Quality, traceability, sustainability and direct sale have been raised by international buyers who complained about the quality and sustainability of coffee.
“When we keep the sustainability and traceability we can sell the product at a higher price,” Shafi added.
Coffee makes up 26 percent of the nation’s hard currency earnings and quarter of the livelihood of the population. That figure declined dramatically, according to the reform document Capital obtained. Coffee has not been as effective as it could be because lack of accountability has decreased customer satisfaction and hindered export revenue.
ECX, the Ethiopian Agricultural Commodities Warehousing Service Enterprises (EACWSE), which spun-off from ECX about two years ago, and the Ethiopian Commodity Exchange Authority, are being partially blamed for some of this lack of accountability. In addition the warehousing service for coffee has negatively impacted the sector, according to the report. It goes on to argue that the operation at the warehouse makes traceability of coffee more difficult, requires additional time and cost for stuffing and un-stuffing the product, and leads to exporters not being paid at ECX.
As a solution it recommended dissolving the service and management of coffee under ECX and selling 90 percent of the product three days after it is loaded onto trucks.
According to Ermias Eshetu, CEO of ECX, since the new system was implemented in just one day 104 arrived on bonded yards selected by the government in nine Ethiopian locations.
In this scheme suppliers and buyers can connect directly without the interference of intermediary members from ECX.
The new reform mentioned a method called Identity Preserved Trading that will identify the owner of the coffee and other information. This is being called a ‘new coffee trading model’ and improves traceability.
Ermias said that the identification process might be similar to the trading system before the formation of ECX. “However, it will not be as vulnerable as the former system to corruption,” he said.
The locations selected for bonded yards are Bonga, Bedele, Jima, Dire Dawa, Hawassa, Gimbi, Sodo (Welayta) and Addis Ababa.
The trading floor will only have to facilitate the yards, cupping and grading and facilitating the electronic trading, while some of the traders who want to buy or sell the product via the trading floor will use ECX as usual.
By the end of GTP II Ethiopia plans to be the second largest coffee producer and exporter in the world, next to Brazil.
The country produces about 700,000 tons of coffee per annum out of it over 57 percent is consumed locally. There has been more contraband in recent years. The export volume is about one third of the total production, while the balance is smuggled illegally to other countries.
In the past budget year 11,700 tons of coffee worth 35 million birr has been sized for passing through the border illegally.
The new law issues harsh punishment for contraband activity.
Recent studies recommended expanding the production in new regions besides Oromia and SNNP. Amhara, Benshangul Gumuz and Gambella regions were selected in the strategy to expand the cultivation of the coffee bush in new production areas. The regions are expected to commence practical work in the coming year.
The Agrer Consortium study conducted few years ago recommended a meaningful and effective strategy involve increasing quantity, quality, sustainability, and consistency of supply and the geographic identity of Arabica coffee.
A research center was also added in Jima.
The new system is also expected to reduce the number of exporters from the current 400, Shafi said. Brazil has only 230 exporters.
The new system for coffee trading reduced the role of ECX. Since then the intermediary members that have a right to sell and buy the commodity on behalf of their customers and themselves expressed their concern.
“They claimed that the new system on the bean will reject their role, while we are members at the exchange to undertake a business,” they claimed.
Members at the exchange are involved after they bought seat at the exchange.
CEO of ECX said that the new system has to be considered as optional window.
“The new scheme is applied for the benefit of the country and the exchange is carried out the trading of various products that they will continue as usual,” Ermias rejected the argument from intermediary members.
“Many more products will be also included on the trading floor,” he added.