The prospects for Ethiopian coffee look bright. As the number-one coffee exporter in Africa, the country produces one of the finest arabicas in the world, and it has much potential as a low-cost producer catering to the global specialty coffee market. Unfortunately, this potential is largely lost due to downstream hurdles in the coffee value chain.
One of the key requirements of the coffee market in Europe and the US is sustainability: it is a prerequisite for most retailers. Ethiopia is well-placed for this challenge, as it is one of the lowest-cost arabica coffee producers. But to unlock this advantage, improvements need to be made at the processing and logistical levels, which are among the least efficient in global terms.
Streamlining the logistical challenges is one of Ethiopia’s key issues. Complicated logistics once the coffee leaves the farm create relatively high costs downstream. Options for international buyers currently include buying from large-scale farms or cooperative unions, and forming close partnerships with good exporters.
More than 80% of the coffee has to pass through the Ethiopian Commodity Exchange (ECX), an auction system bringing together suppliers, exporters and traders. This is where the coffee is graded and tested. Large farms and cooperative unions are allowed to export directly, accounting for the remaining 20% of exports. For small farms, the collection and trading system is inefficient. The exporters are crying out for an overhaul of the auction system, as the logistical efficiency is low.
Unlocking new export growth
The ECX has to ensure a revised regulatory framework, which enables tracking and tracing upstream for specialty coffees. Sustainable and certified coffees command prices up to 30% higher and have experienced less price volatility over the years. Regulation to solve this challenge could unlock new export growth.
Sierk Plaat is a senior analyst at Rabobank. This article is a summary of the Rabobank report ‘The Buzz Surrounding Ethiopian Coffee: Unlocking New Export Growth’.