Persisting efforts to reposition Ethiopian coffee in the international market have begun to bear fruit, as the price of the nation’s specialty coffee has grown by 35Pct from last year, notwithstanding coffees fetching way above that during the recent Cup of Excellence competition. Yet, international markets are still not working to the interest of coffee growers but rather for processors, who use Ethiopian coffee to spice up their final coffee recipes and thus compensate for low quality coffees bought in bulk from other countries.
Ethiopia has undertaken substantial investment in increasing productivity, as well as straightening the local supply chain. However, such accomplishments domestically are not equally backed with efforts of reasserting the worth of Ethiopian coffee in international markets. Ethiopia still has no decision-making power over its coffees internationally, as coffee is mainly exported just to generate foreign currency. EBR’s Ashenafi Endale explores the remaining homework in removing the glass ceiling looking down on Ethiopian coffee.
For the past decade, Ethiopia’s coffee export earnings have been swinging between the USD600 and 800 million mark despite production and exporter numbers surging substantially. But, for the first time this June, foreign currency earnings jumped to USD927 million during the just ended 2020/21 fiscal year. The improvements can be attributed to both plausible domestic adjustments as well as shifts in the international coffee market.
Though the volume exported kept steady at around 240,000 metric tons—26Pct of total production—Ethiopia’s coffee is currently fetching USD4,000 per ton, up 35Pct from the price of two years back of USD2,800, according to data from the Ethiopian Coffee and Tea Authority (ECTA). Ethiopia domestically consumes 48pct to 50Pct of its 900,000 tons of annual coffee production. Only around 20Pct of coffee production is the consumable bean, with the balance consisting of skin, pulp, and parchment.
Yet, the recently concluded Cup of Excellence (CoE), a global competition in search of quality coffee, showcased the international coffee market’s unjustness and how Ethiopian beans are worth much more than the current USD4,000 per ton. Participant Ethiopian coffee suppliers garnered between USD200 and USD370 per kilogram. Unlike direct negotiations used in the international market, the competitors sold their coffees through an international auction. Reputable coffee buyers from Japan, the Middle East, UK, and USA bought the coffees for unusually high prices.
More than 1,860 Ethiopian coffee samples were submitted to the competition, of which 30 were picked as the best after rigorous evaluations including tasting procedures across dozens of tasting centers across the world. International buyers from 33 countries participated in the open online auction to get their hands on top Ethiopian beans.
“I sold a kilogram of coffee for USD370, for a total sale of around USD1.2 million. Under normal export circumstances, I sell a kilogram for USD33. Cup of Excellence has brought a revolution to Ethiopia’s coffee sector. I myself became a coffee exporter and was encouraged to compete in 2021’s competition after my friend won the 2020 edition. He is also from my birthplace of Bensa, in Sidama. After the Bensa coffee won, coffee growers in that area are now getting 45Pct higher prices than other coffee growers in Ethiopia,” said Tamiru Tadesse, winner of CoE 2021.
Objectives of the competition, which has been running for 20 years in over 50 countries, is to provide opportunities to promote the very best coffees to international markets and create linkages with international buyers not familiar to the flavors of the beans at the farm level. The contest is also indicative of international consumers’ interest in the origin of specialty foods and beverages.
“The prices under CoE are like the Olympics of coffee. It is extraordinary. Prices went up from last year’s USD24 to USD32 per pound this year, indicating a growing interest globally for Ethiopian coffee. The competition is more of a branding opportunity and awareness creating endeavor. It is an opportunity to link local coffee farmers and suppliers to top buyers in Japan, Europe, the USA, Korea, and others. It is like an art collection for these top buyers.
For Ethiopia, these winning coffees boost the sector in its entirety. In terms of volume, small quantities are exported under CoE. But, the outcome is huge in branding and creating awareness,” said Ian Chesterman, Chief of Party at Feed the Future Ethiopia Value Chain Activity, funded through USAID. It has organized the competition in 2020 and 2021, in cooperation with the global Alliance for Coffee Excellence and ECTA. But starting from 2022, the contest will be taken up by the newly-forming Ethiopian Coffee Association, as the USAID-funded program is ending this year.
While CoE has shown the tip of the iceberg of the unexplored potential and globally disadvantageous position of Ethiopian coffee, it has also indicated that a marketing strategy is as critical as quality.
Clearly, Ethiopia has not exerted enough efforts in devising a strategy to become a critical player in the international coffee market. The reputation of Ethiopian coffee—created naturally by virtue of quality—is what attracts buyers, rather than the promotional and selling strategies of the government or exporters.
Domestically, the government embarked on straightening two major bottlenecks hampering the sector at the production and market levels. “We are successfully undertaking reforms for both. Productivity has increased from six quintals per hectare two years ago to the current 7.5 quintals. We have shifted the marketing model from the Ethiopian Commodity Exchange (ECX) to vertical marketing, from this year onwards. Coffee growers can now directly export to international buyers. Over 90Pct of Ethiopian coffee is now exported with this new method, outside of ECX. The exchange is no longer a viable platform for coffee, unless they profoundly reform their system. The vertical marketing method has also increased traceability and quality. This and other external factors have resulted in the price fetched for Ethiopian coffee in the international market to increase from USD2,800 two years ago to USD4,000 per ton currently—a growth of 35pct,” said Adugna Debela (PhD), Director General of ECTA.
However, Netsanet Tesfaye, Communications Officer of ECX, argues that coffee exports are not completely out of the platform. “Only 65Pct of Ethiopian coffee is exported outside of the exchange.”
Yet, Ian argues that Ethiopia’s possibilities in both coffee productivity and marketing have barely been scratched. “In the past, Ethiopia did not market its beans based on their flavor, but rather only on originality. Globally, consumers buy flavors. Cup of Excellence reinforced the concept of Ethiopian coffee flavor.”
He additionally, agrees that the shift of the coffee market platform from ECX to direct marketing is generating tremendous results in boosting quality coffee exports. “Some of the issues with ECX and other institutions should not be politicked as they are mostly market commonsense. For example, approved samples and the final bulk product shipped showed inconsistencies, affecting buyers’ confidence and causing huge frustration. This is what we gathered through assessments on international coffee buyers. Another issue was that global buyers, roasters, and consumers want traceable coffee. This is common for wine and foods, for example. If you want to sell coffee, it has got to not only be of great quality, but it also must have a story behind it. The global industry wants this. The institutional politics in Ethiopia do not serve these factors. Technically and commercially sound communication with global buyers, a professional website, and the encouragement of young professionals to join coffee cultivation and marketing, are critical. This what Ethiopian institutions need to do, not politics.”
A problem perhaps overlooked is the fact that coffee in Ethiopia is exported majorly to secure foreign currency. Though there are 1,500 licensed coffee exporters, only 850 exported this year. “Most exporters are importers who have joined the coffee exporting business just to generate foreign currency for their import business. They care less for the long-term fate of Ethiopian coffee in the international market. They export for just a few times and leave when they have accumulated enough foreign exchange. They also export substandard coffee despite contract obligations. This has deteriorated international buyers’ perspective of Ethiopia’s coffee,” said Adugna.
The ‘dollar scavenger’ exporters compete for the few international buyers. Usually, that battle is won by the slashing of prices far beyond international rates. This trend, coupled with the scramble for access to exportable coffee in the domestic market, has pushed out genuine and professional Ethiopian coffee exporters who had been in the business for decades with long-established customer relationships. As a result, Ethiopian coffee has been fetching anywhere between USD2 to USD90 per kilogram, with due consideration for grading variances.
This course of competing by slashing prices was reversed significantly after ECTA set a threshold last year. “Now, Ethiopian exporters are not allowed to export and sell coffee at more than 5Pct lower than international rates. We update this global price weekly and inform the customs commission and central bank. Exporters can no longer export at any price they wish,” said Adugna.
“The old way of exporting coffee just to generate foreign currency for imports has had negative repercussions on the Ethiopian coffee industry. But now, nearly half of coffee exports are directly traded between farmers/ suppliers and international buyers, after ECTA enacted the vertical market mechanism. The companies exporting coffee directly are working to market Ethiopian coffee for the long-term and do not see it as mere trading. But exporting coffee primarily as a dollar source is still the reality, it exists, and it is the future of the industry. The solution is to boost Ethiopian coffee in terms of volumes and value. As more foreign currency is generated, it will dilute the negative impacts of such exporters,” added Ian.
He urges that the reforms in the domestic coffee sector must align with Ethiopia’s coffee marketing strategy in the international marketplace, stressing that Ethiopia must intensively work on promoting the quality of its coffee to international buyers and consumers. “Cup of Excellence has benefited and taken advantage of the reforms in Ethiopia since 2017—which encouraged vertical marketing, coffee traceability, and a fluent market chain. The CoE benefited much from this broad reform. There are big changes ongoing in the Ethiopia coffee sector. This will keep generating more foreign currency earnings and also reward Ethiopian farmers for their specialty beans. International buyers must be linked directly to growers, irrespective of the domestic market structure.”
However, Ian says bulk international coffee prices cannot reach the high prices fetched under CoE. “The vast majority of globally traded coffee is commodity coffee, subject to the forces of supply and demand. The commodity price for the last few years has been low and unsustainable for farmers. This was not only affecting Ethiopian coffee farmers but also global growers. The struggle is to work global demand and supply fluctuations to fetch returns for Ethiopia. Simply, the global coffee market is not indicative of the quality of coffee; it is rather a supply-demand determined price.”
Coffee promoting strategies, such as CoE, have a tremendous impact in stirring the whole coffee sector in Ethiopia, and not only the winners, according to Kidist Mulugeta, Advisor of the competition. “For instance, in coffee growing areas where last year’s winners came from, coffee prices for all types of beans doubled and tripled. It is not about one person winning the contest, the whole community in the area benefits. International buyers are paying top money for Cup of Excellence winning coffees, mainly because they trust the coffee. The winning beans pass rigorous testing processes in different countries. It is locally tested three times, after which the sample is sent to eight global cupping testing centers. We have received more than 1,860 coffee samples just for this competition, from all over Ethiopia. The winning 30 coffees, are the best of the best beans in the nation. Farmers previously had very limited access to global buyers. After this competition, growers are now exporting directly. A large number of international buyers registered to compete and buy Ethiopian specialty coffees from CoE, indicating the huge market out there. In the last two years, we have managed to attract the top buyers globally.”
According to Ian, what makes Ethiopian coffee the best is its natural genetics. “Ethiopia has more extraordinary genetic ranges than any other coffee growing country in the world. Another vital factor is the nation’s high altitude as it has been proven that the higher the beans grow, the better their taste. Colombia also has this altitude advantage but a lot of the other growers are low-altitude countries. As such, they produce commodity coffee, which is of lower quality. The process in Ethiopia is also unique. There is forest coffee, shade coffee, organic coffee, low-input coffee, and smallholder coffee.”
Ethiopia has also been undertaking efforts to shift exports from raw to value added coffee. However, such exports could not exceed USD3 million, due to stiff competition in the global market.
“Most of the global buyers are roasters. They want green beans, not processed coffee. Ethiopia has opportunities to export roasted coffee as already seen with some innovative entrepreneurs. But the proportion will be small. International buyers need Ethiopian coffee for its high quality which they use to blend and enhance other coffees from Brazil, Vietnam, and Colombia, for example. If you export roasted coffee from Ethiopia, it is going to be a high-quality and niche product. It will remain a small specialized portion of Ethiopian specialty coffee,” adds Ian.EBR
9th Year • September 2021 • No. 100