USDA’s annual review of the Ethiopian coffee sector, published in May 2014, highlights the importance of coffee to total Ethiopian export earnings (25.3%), and livelihoods (15 million people directly and indirectly involved), but notes how in 2013/14 Ethiopia got caught out by declining global prices. While Ethiopian export volumes increased (+8%), total export earnings actually fell.
Ninety-three per cent (93%) of all coffee exporting companies in Ethiopia are privately owned, 5% are farmers’ co-operatives and 2% government enterprises. The Ethiopian coffee market is strictly regulated: USDA notes that “all coffee traders must purchase coffee through the [Ethiopian Commodity Exchange/ECX] market, with the only exceptions for co-operatives and large-scale growers”. The coffee export business is also reserved for Ethiopian citizens. Given the importance of coffee to export earnings, the Ethiopian government issued a regulation in May 2011 “limiting the amount of stock that an exporter can store” (500 tonnes), and introducing strict penalties for hoarding of coffee.
Ethiopia mainly exports its coffee in the form of green bean, with little roasted locally. Most of its exports are unwashed (70–80%), thus commanding lower prices on most export markets.
Ethiopia is itself a major consumer of coffee, consuming half of national production. Locally marketed coffee is generally of lower quality, consisting of coffee that fails to meet ECX quality standards. Despite these quality differences, prices of coffee on the local market are often higher than export prices. It is, however, illegal to sell export-grade coffee on the local market.
USDA observes that given the traditional production methods used, with limited use of pesticides, fertilisers and improved seeds, yields are “very low”. However, given these production practices, 95% of coffee produced in Ethiopia claims to be organic. While little of this is certified organic, this could provide a basis for international marketing of Ethiopian coffee.
The government of Ethiopia is currently looking to restructure the sector “by designating a specialized institution that can provide technical support to the coffee value chain”.
In 2012/13, 49% of Ethiopian coffee by volume was exported to seven identified EU countries, with this accounting for 40.1% of the value of export earnings. There are wide discrepancies in average prices paid on different EU markets – average prices paid on exports to the UK are nearly 56% higher than average prices paid on exports to France, and 47% higher than on exports to Germany.
Ethiopian coffee exports in value and volume by destination for 2012/13
|Country||Volume ’000 60kg bags||Value US$ ’000||% share in volume||Unit value of exports ($/bag)|
Source: USDA (see below); columns 1 to 4 from Table 2, pages 6–7.
International coffee prices have been improving since February 2014, but in April 2014 were still 25% below April 2011 peaks (302.71 US c/lb).
Coffee, other mild arabicas (ICO, US cents per pound)
Source: Indexmundi.com (see below)
As the Ethiopian government looks to restructure support to the coffee sector, a critical issue is the development of strategies to reduce vulnerability to volatile global coffee prices and maximise revenues from exports to the different markets served.
Promoting internationally recognised organic certification could offer one means of reducing vulnerability to declines in general coffee prices. This, however, will require the development of local certification capacity to keep costs of certification down. For the EU market, problems could be faced in view of pending regulatory changes intended to establish stricter compliance with common EU organic standards (see Agritrade article ‘ EC tables new regulation on the organic sector’, 11 May 2014). This may require the exploration of opportunities for organic coffee sales in other markets where demand is growing (e.g. China) and negotiation of recognition of local standards for organic certification (see Agritrade article ‘ Report highlights expansion of organic production for local markets in t...’, 13 June 2013).
Scope would also appear to exist for improving marketing. For example, if prices obtained on exports to Germany and France could be raised to the EU average, this would boost total revenues by 3.2%, while if they could be raised to UK levels, total revenues would increase by 13.7% (US$95.4 million). Moving away from undifferentiated commodity exports to the targeted marketing of coffee beans, and even coffee products, would appear to represent a considerable opportunity for Ethiopia.
If marketing issues are not addressed, efforts to boost production and exports could once again fall foul of volatile global coffee prices, with increased exports generating lower export earnings.