Despite its huge potential, little attention has been given for the coffee sub sector in Ethiopia, in which close to 30Pct of the population are engaged directly and indirectly. But in recent years, government started to step up in order to boost coffee production and export as well as promoting value added coffee. One of the steps is re-establishing the Ethiopian Coffee & Tea Development and Marketing Authority last year. The Authority, which is accountable to Ministry of Agriculture and Natural Resources, is expected to enhance the sector’s development as well as making Ethiopian coffee and tea products competent in the global market. EBR’s Mikiyas Tesfaye spoke to Sani Redi, Director General of the Authority, about the changes that are coming to the coffee sub sector.
EBR: What is the role of coffee in Ethiopian economy?
Sani: More than five million household farmers are actively engaged in cultivating coffee in Ethiopia. Coffee is also the main source of income for 25–30Pct of Ethiopians directly or indirectly.
The commodity also contributes as much as 30Pct of the country’s foreign currency earnings. Coffee’s role in propelling the country into a middle income country cannot be underestimated.
Do you think the country is benefiting from the coffee sub sector as expected?
The government is cognizant of the fact that the country as a whole is not benefiting as much as its potential because of various reasons. This is one of the reasons why the Ethiopian Coffee & Tea Development and Marketing Authority was re-established last year.
Since its establishment what major activities have been implemented by the Authority?
The Authority has three core missions. The first is working on the promotion, production and productivity of coffee. The second is institutionalizing modern, equitable and legal coffee trading while providing a holistic support for industries that are engaged in value addition of coffee, development of the tea and spices productivity is the Authority’s third mission.
In order to accomplish these missions the Authority laid down a structure that reaches up to Woreda level, hiring new staff and improving service delivery. We also conducted studies and held consultative meetings with model farmers, unions, coffee suppliers, exporters, representatives of global companies and NGOs to identify the opportunities and challenges and boost earnings from coffee, tea and spices. This was very fruitful because it enabled us to identify the root causes of the challenges and also helped us indentify what need to be done. We were also able to identify priority areas to address the problems.
As part of our studies we also took a closer look into the experiences of other countries that have better performance record in supplying quality coffee to the international market in a sustainable manner. We gained valuable experience from world’s top coffee producing countries like Brazil and Colombia, which has an impeccable production capacity of coffee driven mostly by smallholder farmers.
Can you explain the findings of the studies and the experiences gained during the visits?
The studies and the visits helped us clearly identify bottlenecks in coffee research and ways of solving them. Consequently, we were able to produce a directives to address the problems.
The first obstacle identified is the lack of intensive research that can improve the levels of coffee, tea and spices development. So, establishing an institution that conducts research on the commodities is crucial.
Moreover, we underscored that we need to increase productivity by improving our extension program. The package needs to be stronger to enhance quality and productivity. We’ve revised and advanced the package as well as given trainings for the extension workers; and hopefully we’ll reach the farmers this year.
We have also understood that our marketing scheme is not competitive on the global market and demands an overhaul. The supply chain should be shorter, fair, legal, reliable and stable. The marketing expenses associated with it should be minimized also.
What are the challenges encountered by local companies engaged in coffee value addition?
Sustainability of agricultural products supply as well as retaining quality can only be maintained through value addition. Income from the sale of value added goods can be many folds than that of the raw or unprocessed goods. We can look at two general categories that have hindered value addition of coffee in Ethiopia: domestic and global factors.
Domestically, companies that add value to coffee face challenges to access finance, skilled manpower, land for production and marketing. In addition, perhaps more critically, companies that are engaged in the sector were not allowed to source export quality coffee for roasting locally. Instead, local roasters were only permitted to source local grade coffee – this compromised quality. On top of that, they could only source it from wholesalers – this increased their cost.
At global stage, coffee consuming countries prefer to have their own companies working on coffee value addition. So, coffee producing countries are forced to export dry or wet processed (sun dried or washed) coffee. Wholesalers in these countries import the coffee and sell it to roasters that either retail or distribute the roasted beans to local retailers.
We need to break this monopoly and effectively penetrate the market. How? We’ve prepared a strategy to address this particular issue, and it primarily involves doing our homework on the domestic front.
How do you intend to resolve these supply and demand side problems?
Local roasters need to have easy access to credit services. We’re finalizing the legal framework to establish a research and academic institute to address the problem from the demand side. We’ve made gains in providing roasters access to land and reached agreements with relevant institutions to give propriety for industries while allocating production sheds and shops; and most importantly, we have made a tremendous achievement in lifting the ban on accessing export quality coffee by local roasters that export the product.
While addressing the local bottlenecks, we are also taking aim at breaking the international coffee monopoly by big multinational conglomerates. To this end, our strategy involves a concerted effort in marketing and promotion, identifying easily accessible markets and setting foot there as well as promoting exporters’ ability to compete in terms of quality and price.
We are actively taking part in international coffee exhibitions and bazaars not only to promote Ethiopian coffee, but also to learn from the experiences of value adding companies and countries. Ethiopia needs to uplift its promotion game. Taking full advantage of the country’s status as the seat of the African Union and various international organizations, we are planning to sell local roasted Ethiopian coffee to delegates of the African Union, United Nations Economic Commission for Africa as well as using channels like hotels, Addis Ababa Bole International Airport and offices of the Ethiopian Tourism Enterprise. The medium of exchange, however, will be hard currency.
In addition, we managed to bring together one of the local roasters and Ethiopian Airlines to work together in availing roasted Ethiopian coffee on the Ethiopian flights as duty free item.
As part of the government’s efforts to put value added Ethiopian coffee on the map, we’ve reached an understanding with the Ministry of Foreign Affairs to use the country’s missions and embassies to promote Ethiopia’s gear shift into roasted and packed coffee and also to attract investment to the country in the sector. Ethiopia’s foreign missions and embassies will incorporate activities of promoting value added coffee into their plans.
Besides promoting Ethiopian roasted coffee, we held meetings with coffee consuming countries and companies that import Ethiopian raw coffee. We expressed our desire to boost our export volume and get better pay. They were positive that they would like to import more Ethiopian coffee and are willing to pay more, while some have actually started to do that.
The companies, however, noted that Ethiopian coffee, while being of unparalleled intrinsic quality, fails to compete globally because of post-harvest failures. They want us to increase our effort on processing, transportation and warehousing coffee in order to maintain quality. We need to make radical improvement in contract management, traceability and ensuring sustainability.
Has this reform brought any progress since the Authority was re-established?
The reform is only being partially implemented, because part of it requires amending legislation and part of it only needed executive decisions from our office. Even in this capacity, there have been some progresses since the introduction of the reform.
We were able to export a record amount of raw coffee in the last fiscal year earning a record USD882 million. We also earned USD700,000 from roasted coffee, though we planned to generate USD2 million.
What challenges do row coffee exporters face?
Local exporters wanted the coffee grading scheme to be improved. We re-instated the nine points grading scale used in the past to replace the five points scale. Also, we reduced the amount of kilogram needed for quality check from each truck from nine to just two kilograms, reducing costs and boosting foreign currency earnings.
Because coffee is a delicate cargo, we have made the move to enable the commodity to be traded while it is still loaded on trucks, cutting the loading and unloading time and hustle in warehouses that were not necessarily.
Additionally, the cost of transporting, processing and marketing coffee in Ethiopia is very discouraging for exporters. These processes account as much as 40Pct of the final price of coffee, while in Brazil, it only reaches 16Pct. In Colombia and Vietnam, it’s even lower with 10Pct and 6Pct, respectively. We are working to cut the supply chain to reach to these levels.
What is the Authority doing to ensure farmers get an equitable share of the wealth created by coffee?
Coffee farmers in Ethiopia do not earn fairly similar level of income operating on the same size of plot of land despite compared with farmers that grow other agricultural products. They also get lower value for their produce compared with coffee producing farmers in other countries. To address this problem, we have come up with various schemes.
For instance, farmers can now directly sell their produce at the Ethiopian Commdity Exchange (ECX), directly supply to local roasters or they can even directly export their coffee to international market.
What is your advice to local roasters?
They should understand the capacity of their competitors. They need to device strategies to compete at the global market. They have to improve quality in roasting and packaging as well as uplifting promotional activities. Packaging industries need to flourish in the country. We have been in talks with the Ministry of Industry to encourage this sub-sector.
Ethiopia has adopted a climate resilient green economic growth model where the carbon foot print is expected to be minimal. What is the Authority doing to ensure coffee roasting companies and farms follow the suit?
We have a climate change resilient coffee development strategy, which we are currently implementing to help us enhance indigenous knowledge and practices. Soil and water conservation efforts, reforestation and coffee irrigation are part of our strategy to mitigate effects of climate change.
We are also convinced that we need to intensify our research and development in coffee. This is to realize the plan to cultivate coffee on temperate regions, which are less susceptible to the effects climate change.
Does the Authority encourage foreign companies to set up factories in the country to add value to Ethiopian coffee?
There are a growing number of companies from China, Korea and Japan expressing their desire to work in joint ventures with Ethiopian counterparts in this regard. We are working to make the investment regime favorable and identifying every aspect where they might need our support. EBR
6th Year . November 2017 . No.55