1 February 2014

Ethiopia: Trouble Brewing for Coffee Exports

Concerns remain about the performance of coffee in the export market, following the recent six-month export report from the Ministry of Trade.

The projected coffee export volume was some 470,000 tons for the year 2013/14, with earnings set to reach USD 1.5 billion, yet actual figures reveal an alarmingly different outlook. Coffee is central to the Ethiopian economy and the largest contributor of foreign exchange revenue, yet the six-month volume stood at 66,000 tons and the revenue amassed some USD 222.5 million. The poor performance of the coffee subsector is often associated with issues like low productivity per hectare (0.73 tons), and inadequate service provision for the smallholder farmers who cultivate some 95 percent of the entire country's production. These points were highlighted by the US Department of Agriculture (USDA), which went on to criticize the inexistence of a specialized institution to provide extension support for the country's coffee producers. Yet commentators like Wondossen Mezlekia, who blogs about Ethiopian coffee, blames the grading system. Only beans able to score grades one and two, and occasionally three, are destined for the export market as qualified by international regulations. This process is known as Q-grading (Quality grading) under the Ethiopia Commodity Exchange (ECX), and is followed by the warehousing system through which commercially labeled coffee has to pass. However, much of the country's supply is rejected under some nine additional placements in the grading system, most commonly due to weight. Wondossen claims that the Q-grading and warehousing procedures are the two major gray areas for complaints, while also mentioning that the sector is liable to errors and bribery acts among exporters and the ECX.

The rejected coffee means a golden egg to local wholesalers, where the local market places a higher cut against the international markets. In most supermarkets across the capital Addis a kilo of grade one labeled coffee (of unknown origin) costs around 200 birr. Whereas the Yrigachefe washed and "A" grade specialty coffee brings in 73.5 birr per kilo. According to Yaekob Yala, the minister of state at the Ministry of Trade (MoT) who appeared before parliament last week, this traditional processing of coffee is hindering export volume. Most practices in Eastern Harar - for some the capital of specialty coffee - use mortars to process coffee, leading to a majority being "unfit" for export. Fekade Mamo (Lieutenant), chairperson for the board of Ethiopian Coffee Exporters Association, told The Reporter that "reject" coffee is the major controversial issue for the subsector. Although a thorough investigation is yet to be conducted, Fekade believes that many of those involved in the export and import business are abusing the market. Since foreign exchange is in critical supply, the importers (who are also the exporters) sell coffee at lower prices in the international market, then buy the same coffee at a higher price on the ECX trading floor.

According to Fekade, there are a growing number of suppliers and the black market in town is rapidly expanding. Most of the black market-traded coffee is sourced either direct from the ECX or elsewhere in the country, he claims. Both Fekade and USDA agree on the expanding nature of local coffee consumption. The roadside coffee shops are the new ventures for the increasing status of local consumption, yet the ECX has a separate trading floor for local coffee supply. However, the wider price disparity between the local and international market is critical for the dwarfed export performance of coffee. However, it is not only coffee which fell way below the target; almost all the export commodities performed poorly compared with the targets set by the government. Tefera Deribew, minister of agriculture, refutes claims of poor harvest for export commodities. He reported to parliament that coffee production has increased compared with last year's status, and the challenge is on the export side. The blueprint of Ethiopia's Growth and Transformation Plan aims to amass some USD two billion in revenue and produce some 700,000 tons of coffee by the end of 2014/15.

Ed.'s Note: Yohannes Anberbir of The Reporter has contributed to this story.

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