Breaking the green curse: Ethiopia’s journey towards exporting roasted coffee.

In Ethiopia, coffee is a means of  economic gains for close to 30Pct of the population. Despite being among the top coffee producing countries in the world, Ethiopia lags behind in export earnings. In fact, export revenue from coffee only increased by 22.7Pct to USD882 million from USD719 million seven years ago. Part of the problem is the decline of price observed in the international market especially since 2011, which had adverse effect on the country’s earning. To reverse the situation, the Ethiopia government has been focusing on boosting the volume of export of raw green coffee in the past, which has low value globally compared with roasted coffee. However, there have been interventions in legislations and institutional setups that facilitate the environment for local value adding accompanies in the sector. EBR’s Mikiyas Tesfaye explores Ethiopia’s expedition towards exporting roasted coffee that has more than twofold value compared with the traditional raw green coffee in the international market.

For the country that prides itself as the origin of coffee and home to some of the world’s finest coffee varieties, the fact that almost a third of the true value generated from coffee export actually bagged by big international conglomerates that roast and retail the green stuff is a jaw dropping occurrence. In fact, the wealth Ethiopia generates from the commodity is depressingly low and reflective of the systemic negligence of value addition to coffee.

Virtually all of Ethiopia’s contribution in the fundamentally distorted supply chain of coffee (unfairly titled towards folks at the top) is overwhelmingly restricted to the provision of raw green coffee which fetches little compared with the final price.

In 2016/17, for instance, the country’s coffee export broke records in volume with 225,499 tons of coffee supplied to the international market. All of this was, of course, in the significantly less valuable green form, still earning the country USD882 million from coffee in a single fiscal year, according to the information obtained from the Ministry of Trade (MoT). Ethiopia’s second-best coffee performance was in 2010/11 when it exported 196,118 tons of coffee and earned USD719 million.

On the other hand, 90 tons of roasted coffee was also exported during the last fiscal year fetching USD700,000 although the plan was USD2 million. This means, Ethiopia earned USD778 for 100 kilogram of roasted coffee it exported last fiscal year, on average. This is much higher than the USD391 Ethiopia earned for the same amount of raw green coffee exported during the period. This shows it is possible to double export earnings from coffee by processing it and adding value locally.

Coffee is indeed the bread and butter for Ethiopia. The Central Statistics Agency’s latest estimates put 6.4 million household farmers in Ethiopia directly engaged in the production of coffee, while the total number of people whose livelihoods is directly or indirectly linked with the commodity is around 30Pct (roughly 30 million) of the total population. A total area of 700,475 hectares of land was cultivated with coffee in 2016/17 in the country.

Coffee’s contribution to the country’s foreign currency earnings may have dwindled to 30Pct in the past few years from its heydays contributing 70Pct two decades ago. This is due to the rise of the contribution of other exportable commodities.

Though Ethiopia is the fifth biggest coffee producer in the world, it receives very little of the profit made. Although the best way to get the most out of coffee is to sell it with value addition, such activity still strictly controlled by big international conglomerates that import the raw bean from coffee producing countries like Ethiopia and roast and pack it for the final consumer.

According to a book entitled ‘Fair Trade Coffee: The Prospects and Pitfalls of Market-Driven Social Justice written by Gavin Fridell, an assistant professor in the Department of Politics at Trent University, and published in 2009, since the beginning of 2000, just a few coffee roasting companies dictate the global coffee industry. This includes Kraft General Foods, Naslle, Sara Lee and Procter & Gambel, which have coffee brands worth USD1 billion. In 2004 only five companies were responsible for purchasing nearly half of the global supply of the row green coffee.

In recent years, Starbucks, an American company that has presence in 74 countries with 23,768 stores, have emerged as the largest coffee roasting and chain in the world in terms of revenue, according to Statista, an online statistics, market research and business intelligence portal. In 2015, the company’s annual sales reached USD19.16 billion while its closest competitor, Costa Coffee, British multinational coffeehouse company that operates with 3,401 stores across 31 countries pocketed USD1.7 billion in sales revenue in 2014.

Ethiopia, just like the top four coffee producing countries– Brazil, Vietnam, Indonesia and Colombia, however, remains cursed only limited to exporting the green bean and fetching unfairly low earning. For instance, Brazil produced a staggering 3.4 million tons of coffee beans in 2016/17, according to the report published by Global Agriculture Information Network (GAIN) and coffee export is forecasted to be 1.7 million tons for the entire period. Brazilian roasted coffee exports expected to fetch only USD647,000 by exporting 3,654 tones in the same period.

There is no need to sugar coat it; countries like Ethiopia supply the world with the best quality coffee around and get very minimal profit in return, mainly because they do not roast and pack their coffee.

The two critical factors hindering the country from getting what it deserves from its coffee can be classified into domestic and international bottlenecks. From the domestic side, Ethiopia has always been considered as raw coffee exporter, not a supplier of high-end processed coffee. In this regard, every piece of legislation and policy framework has since time memorabilia, addressed only export of raw coffee and neglected or prohibited processing coffee for export by local companies.

“The country has always been exporter of coffee in its green form.” Ahadu Woubshet, managing director of Moyee Coffee told EBR. The company was set up a little over three years ago with the aim of exporting value added coffee. Moyee is among a few but rising number of local companies aiming to disrupt the status quo of international coffee marketing.

“The only way to ensure sustainable development in coffee is through value addition, and we have clearly realized every stage of the coffee production in Ethiopia and its value chain has to be reformed for the country to be competitive in the international market.” Sani Redi, director general of the re-established Ethiopian Coffee & Tea Development and Marketing Authority said.

The Authority was re-established in 2016 with the triple missions of improving production and productivity in coffee, tea and spices as well as identifying the challenges and opportunities in the sectors. In addition, it aims to promote modern, fair and legal coffee marketing; and supporting industries that export coffee adding value to it. With these missions in mind, the Authority sets out conducting a study to best realize these goals.

Through various consultations with stakeholders and referring to studies, the Authority soon discovered the domestic (supply side) bottlenecks for coffee in Ethiopia are multifaceted. The domestic aspect of the problem starts at the grassroots level of coffee production. “Low levels of production and productivity which currently stands at 6 quintals on average per hectare is not helping supply of greater volumes of coffee.” Sani noted.

“Sourcing coffee for roasting with sufficient volume is always an issue in Ethiopia.” Meraf Gashaw, local sales and  brand manager at Abyssinia Coffee said. The company has been active in the coffee business in Ethiopia for a quarter of a century. It exports raw coffee and roasts and packs the green beans to the local and some regional markets, and is finalizing preparations to commence a more concerted export of roasted coffee to the international market.

Of course, Ethiopia may be among the top coffee producing countries in the world, but securing enough amount of quality coffee for local roasters is an issue partly hindering the performance of such companies in the country. For instance, in Vietnam the average coffee production per hectare stood at 24 quintals while in Brazil and Colombia it stood at 14.9 quintals and 9 quintals, according to GAIN.

This statistics supports the opinion of Samson G. Moges, who is operations manager at Tarar Coffee. “Among the many challenges faced by local coffee roasters is the unreliable supply of sufficient quantity of coffee.” he complained.  The company has been roasting coffee for the domestic market for over a decade now and has been engaged in the export of roasted coffee for the global market in the last three years.

Insufficient quantity may be the start of the problem for local roasters in Ethiopia. But quality has always been the Achilles’ heel for companies engaged in coffee value addition. Buying ‘Q1 coffee’, the highest grade of coffee grade with nine sub grades, was legally banned for roasters until the proclamation of coffee trading was revised by the parliament in July, 2017.

As such, local roasters could only get their hands on under grade coffee, characterized with numerous defects and poor taste, to process and sell to the international market. “We sometimes have to discard as much as 30Pct of the coffee we process to remove defects and maintain good taste in the roast.” lamented Meraf. This Proclamation quandary has always shattered local roasters’ chances of breaking into the highly competitive international coffee market where quality is the ultimate factor in making or breaking deals.

“It is very ironic that value addition of coffee has been proactively discouraged in Ethiopia.” complained a coffee marketing expert who works at private coffee roasting company. “Even companies that export roasted coffee were forced to source the ‘rejects’ – industry jargon for under grade coffee – and were expected to compete internationally with sub-quality input.”

The expert was also puzzled that ‘rejects’ at times actually cost more than the higher grade ‘Q1 coffee’ in the country. “The coffee market in Ethiopia is such a mystery that more often than not, an under grade coffee is actually more expensive than the export grade.” he told EBR.

One of the quintessential marks of a good quality coffee marketing is the suppliers’ ability to ensure traceability, especially for particular customers that demand the origin and the consequent history of the coffee. “We source our coffee from the Ethiopian Commodity Exchange (ECX). Though it is a great platform for modern trading, it is not perfect in ensuring traceability.” Meraf noted.

Sani is well aware of the local roasters’ challenges in this regard. “Most local roasters buy coffee from ECX or worse from wholesalers that buy it from the Exchange and sell it again to roasters. The process is cumbersome, costly and likely to lose track of the origin of the coffee.”

In a move widely considered as a no Band-Aid solution, the Parliament approved the amended Coffee Quality Control & Marketing Proclamation last July to overhaul the coffee value chain in Ethiopia. The proclamation is hoped as the wind beneath the wings of local roasters in particular, who are hopeful that the reforms will address their longstanding problems of quality, traceability and fair trade.

Ahadu underscores the proclamation is timely and describes it as a classic case of one stone – multiple pigeons. “We were not able to directly source high grade coffee from farmers and this affected not only the quality of the coffee we roast but it failed to offer us the platform for that final handshake with the farmer where we can actually ensure they get a fair deal.” underscored Ahadu whose company has introduced what it calls a ‘Fair Chain’ where everyparty in the value chain of coffee gets as much as what it deserve. “By paying famers that directly supply our roaster; our story can resonate with our marketing philosophy.”

Betlhem Tilahun, founder of Garden of Coffee, an up and coming company that roasts all its coffee by hand, believes the reforms introduced by the proclamation will have numerous effects. “We at the Garden have what we termed as the ‘4th Wave’ where the people who grow the coffee should have a maximized benefit, and by roasting the coffee locally and directly delivering it to the consumer, we ensure that farmers get maximized profit.” she noted.

Unlike the other top coffee exporting nations, Ethiopia consumes as much as half of the coffee it produces locally. In contrast, Brazil only consumes 11Pct of its coffee, Vietnam 10Pct, and Colombia 9Pct. Coffee is intricately woven into the fabric of the Ethiopian way of life. Local roasters are aiming to capitalize on this potential as well.

Experts point out that roasting good quality coffee is not just about sourcing single origin or specialty coffee. It is also about packaging the product with suitable and attractive packaging that is easy on the eyes and friendly to Mother Nature. “This is important because coffee by its very nature is highly hydroscopic and attractive packagings are good business.” the expert noted.

All roasters import the packages for their coffee destined for export. “We use locally produced packages for the domestic market, but they are of poor quality and cannot compete in the international market,” Samson said. Tarar Coffee sources its packaging materials only from Chinese and Indian companies that have certificate to testify they are producing in an environmentally friendly manner.

On the other hand, Garden of Coffee imports its packs from the UK; Abyssinia Coffee from China; Moyee from the Netherlands and China – highlighting the number of obstacles local roasters face in attempting to break the barrier to the international market.

Determined to solve the problem from its roots, Moyee has recently purchased a state-of-the-art packaging machine from an Italian company. The company hopes to manufacture its own packaging by giving emphasis for flexibility for custom designs and greater attention to the environment. “We hope we’ll be able to ethically source our own packages as part of our expansion strategy into our new 10,000 square meters facility.” Ahadu underscored. The company is also installing an after burner to limit noise and smoke pollution to the environment.

While getting enough quantity coffee with good quality limits local coffee roasters performance from the demand side, the dominance of multinational coffee roasting companies in the international market pose a threat for local roasters. “Coffee importing companies took roasting as a monopoly that should be processed by their own companies and aggressively discouraged coffee exporting countries not to add value to coffee.” Sani explained.

To address this critical obstacle, officials are saying that the government held successive meetings with coffee importing companies in recent years, where they established an understanding that Ethiopia wants to boost its earnings from coffee exports. Countries that import Ethiopian coffee also expressed, according to Sani, their willingness to import increased volumes and also pay more.

In addition to holding meetings with Ethiopian coffee export destination countries, the government and some of the local roasters are actively pursuing a charm offensive to put value added Ethiopian coffee on the map. “Everybody knows Ethiopia as a source of great raw coffee, but the same cannot be said about roasted Ethiopian coffee,” Ahadu underscored.

To address this problem of poor perception in the market, the country is about to embark on a bold marketing scheme where consumers can buy first grade value added coffee in selected venues in Addis Ababa, like the African Union, United Nations Economic Commission for Africa, and some hotels. This move will be complemented with the marketing of value added coffee as an in-flight duty free item on selected Ethiopian Airlines flights starting from October 2017. In fact, Moyee coffee recently made a deal with the national carrier to supply the coffee.

Moreover, local roasters are implementing innovative sales strategies such as selling their products online. Considering the logistical challenges of retailing roasted and packed coffee, for instance, Moyee has partnered with a Dutch company to help it plant its roots in the European market.

It is understood that local roasters face formidable competitors on the global stage, but the tide seems to be shifting in their favor with favorable government policy, better investment regime and most importantly direct access to the quality Ethiopian coffee to break the international market.

Nevertheless, stakeholders stress that value addition should not be conceived as a mere roasting and packing process. It should go beyond that and create brands that are recognized all over the world. “Value addition is a great buffer for the government in face of stagnant export revenue and rampant foreign currency crisis.” noted Ahadu. “You don’t see the books of Starbucks going down when the price of coffee goes down, because people are buying the brand.”

That is what Ethiopian roasters should strive for. Consumers in North America, Europe and Asia should line supermarket shelves buying Ethiopian brand roast coffee. As Ethiopia shifts its focus into agro processing, the curse of only selling coffee in its green beans is very likely to be broken.

6th Year . November 2017 . No.55

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