16 November 2017

Ethiopia: Export Reform to Boost Forex From Coffee

Photo: Supplied
Coffee

Ethiopia has come up with new export reform to boost foreign exchange earnings from primary export commodities. The reform is set to introduce value addition and new marketing system, improve productivity and reduce transaction cost.

The country has been and still is highly dependent on primary agricultural exports for foreign exchange earnings. Despite having huge potential, absence of value addition and modern marketing system in coffee exports, among others, has forced the nation to lose large amount of foreign currency.

Ethiopia has planned to generate 13 billion USD by the end of the Second Growth and Transformation Plan (GTPII) from the export sector, Brihane Gidey, Education Relations and Information Supply Directorate Director at the Ethiopian Commodity Exchange Authority (ECEA) tells The Ethiopian Herald. The economy has also earned close to three billion USD during the last years of GTPI.

Coffee, the major export commodity of the country, is expected to generate 2.2 billion USD by the end of GTPII. But this could be difficult to achieve because of some existing challenges.

According to Brihane, the nation has been losing 40 per cent of coffee export revenue because of huge marketing or transaction costs. This is due to the fact that there were too many actors or brokers who involve in the transaction process. In addition, the coffee has to be stored in a store for twenty days before it is exported.

"When there are many actors involved in the market, the farmers would not be able to reap the benefits of their hard work. And the only beneficiaries were the brokers, who do not add value to the transaction," he says.

The other challenge was absence of traceability system. Even though both exporters and importers are well aware of the quality of Ethiopian coffee, they could not trace information about the overall production and marketing process, including where and by whom the coffee was produced. Hence, whenever quality problems occur, it would not be possible to trace those who are accountable.

He also notes that the export system used to restrict farmers or individuals from involving directly in export for they are required to have membership seats at Ethiopian Commodity Exchange (ECX).

He adds that during the previous trend, exchanges took place only between members who have seats at ECX. The transaction used to have two natures, as members play the role of both suppliers' and exporters' brokers.

But he also argues this system, which came about with the establishment of ECX was better than the previous one. Before ECX came into the picture, there was no organized system. Farmers used to supply their coffee for exporters through brokers and sometimes went back home empty handed receiving only fake cheque from the buyers.

On the other hand, enterprises that roast and pack coffee were restricted to supply their products only to the local market. They were not allowed to take part in the export business, according to Brihane.

Ethiopian Coffee and Tea Development and Marketing Authority (ECTDMA) Communication and Information Technology Director, Sintayehu Girma agrees with the aforementioned factors but argues that the nation's trading capacity has not been as strong as other coffee exporting countries.

Though, the nation's coffee export is better in terms of volume, the trading capacity has been very low, he stresses. "Other countries have their own institution and also use other International Public Relation Institutions to promote their coffee. Hence, they can lobby large companies and even other countries to buy their coffee. Such institutions are not available in our country," he says.

On the other hand, Sintayehu believes that less productivity is the other major issue. Even though there are some model farmers who produce 20-22 percent per hectare, the average productivity nationwide is 7.8 per cent. This is by half less than the leading coffee producer countries.

All these factors have been challenging the export sector and the nation from generating better amount of forex from its green gold.

Meanwhile, assessing the overall situation and discussing the issue with coffee farmers, all export actors and international partners, the government has started to implement new export reform strategies.

Sintayehu says the new proclamation, 1051/2017 has been endorsed by the House of Peoples Representatives and is being implemented.

According to Brihane, the ECEA is given with mandate to give direct export recognition for farmers that can provide twenty and more quintals of coffee. "This means, coffee producing farmers and cooperatives can directly sell or involve in export whether they do or do not have membership seats at the ECX. As a result, it will enable farmers, cooperatives and the nation avoid unnecessary transaction costs.

Corporate Communication Manager at ECX Netsanet Tesfaye for his part says a new Preserved Coffee Trading System has been launched as of July 2017. Thus, the coffee will not come to the market randomly or with contract but through Identity Preserved Model.

"We send free trade information for the buyers via social networks," he says. "Ensuring traceability is also the other major system of the reform which involves more than 1400 washing and milling stations throughout the country."

The other significant measure that comes about through the reform is the track selling system. This system enables to reduce the transaction period and the time the coffee is stored in ECX's store from twenty to three days.

Moreover, Netsanet says that ECX is also about to introduce a new electronic marketing system which will make the trade effective, efficient and transparent.

However, if the nation has to achieve the GTPII goals in coffee export, efforts need to be intensified to improve volume and quality of exports. Increasing productivity and value addition should also be priority concerns, according to Netsanet. Currently, the nation has increased its value addition on coffee from 30 to 35 percent.

Assessing the results of the new reform during the past quarter of this budget year, ECTDMA's report indicates that there are certain improvements. Sintayehu says 55,825.6 tons of coffee has been exported during this time, generating 215.35 million USD, achieving 98.72 and 87.9 percent of the plan respectively. In comparison with the same period last year, it has shown significant increment of 16.5 and 34.5 percent in terms of export volume and forex earning respectively.

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