Coffee Concerns

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Ethiopian coffee is in high demand in Europe and Asia but the country has not fully utilized its potential to earn as much coffee can bring in. Illegal coffee trading, lack of value addition, coffee prices and the way coffee is promoted hinder coffee’s earnings. Another challenge is traceability. Although both exporters and importers are well aware of the high quality of Ethiopian coffee, they are often unable to find information regarding production and marketing. Last year Ethiopia managed to secure 838.2 million USD from the export of 238,465 tons of coffee, which is 44 percent less compared to the earnings from the same period of preceding year.
Historical records indicate that when coffee was introduced to Yemen from Ethiopia in the fourteenth century, it was referred to as “qahweh” (kaffa). Ethiopia boasts 99.8% of the genetic diversity of Arabica coffee, which is renowned for being the highest quality.
Jemal Ahmed Abdu, owner of Co-founder of Horizon Plantation argues that problem based research should be done to solve the coffee challenges in Ethiopia. “We must update ourselves we must do more to get more results,’’ he argues. Capital’s Reporter Tesfaye Getnet sat down with Jemal to learn more about the Ethiopian coffee market. Horizon Plantation with a starting capital of 190 Million birr in 2003 developed green projects in agriculture and manufacturing and expanded its projects to 15 companies that have a cumulative capital of over 10 billion birr.

 

Capital: If Ethiopian coffee is as good as it sounds, then why is it not as pervasive as Vietnamese or Colombian coffee?
Jemal Ahmed: Ethiopian coffee has a unique flavor so it has been able to carve out a niche for itself on the international market. This is especially true when it comes to blending specialty coffees. I don’t think Vietnam influences our market, because most of that country’s exports are Robusta. That type of coffee, Robusta, is not traded in NY, it is traded in London and has a different market, although most roasters do use it for blending as a filler. Our strongest competitor in the washed coffee business is Colombia. They have excelled in the area of value addition. All of the coffee Columbia processes is washed whereas in Ethiopia around 30 percent is washed. They have the most advanced technology when it comes to pulping, fermenting and drying. My company procured machines that were not only made but also invented in Colombia. Coffee is traded in the differential market. Ethiopia’s mainstream natural coffee is sold for less than 20 percent of the world’s average price but our washed coffee is traded for between 30 and 100 percent more than the average price. As far as I am concerned, this is where our value addition in coffee exports should focus. Our national average is only 30 percent. My company Horizon Plantation processes up to 90 percent washed coffee. That is how we survive in this depressed international market.

Capital: What does coffee production look like today? Where is it heading? What is it missing?
Jemal: Our coffee production as a nation is growing fast. More and more farmers and commercial farm developers have entered into the coffee business. Places like Gurage zone have started growing coffee. The Amhara region has done impressive work introducing coffee growing to farmers. However, when it comes to traditional farmers, the khat crop is a major challenge because it has an ever growing local market and a very stable price, not to mention a relatively low regulatory and logistical cost. The biggest challenge is the lack of research in new varieties which we will need to face climate change and the international market demand for flavor and aroma.

Capital: What are the biggest problems exporters face today?
Jemal: The uncontrollable influence of hedge funds on the world’s futures trading, which depresses the New York market. Very powerful conglomerates have no knowledge about growing, trading or roasting, they just invest in futures trading with other commodities and they have found coffee to be the best commodity for them to keep their money or liquidate assets. They have experts and all the information of the growers and the market demand. They have much better and more accurate data about our production than our concerned government institutions. Most of the time our experts in the government use their data for their presentations. We also have a major problem with the behavior of our exporters. Almost every coffee exporter is offering coffee at 20-30 percent less than their cost. They compensate their loss with the high margin they get on their imports. Even worse now is the ever increasing elicit trading of forex by importers. International coffee buyers know this very well, when they negotiate the price they will say: “you can make your profit with your import’’. It affects our differentials. One example is Sidamo washed coffee. This previously would make 80-100% of premium, it now has gone down to 30%.

Capital: Illegal coffee trading and lack of value addition are also challenges in the coffee sector, how can Ethiopia overcome these issues?
Jemal: I beg to differ on this one. Why do we have illegal coffee trading?? We are coffee producers and consumers, so why can’t we make coffee as free as other products. I believe our policy which denies the local market should be looked at. Whether we like it or not we are a coffee drinking society, our local market should be given a competitive chance with our export. I personally believe, if we liberalize the local coffee market where more than 80 % is traded through unofficial channels, our differential and volume of export would increase. A tourist who comes to our country thinks of sourcing good quality coffee while the official local market only allows rejected coffee. This is counterproductive. As for the value addition, not all major coffee growing countries are known for their roasted coffee, the main market for our quality coffee is the western world, which has a very different market controlled by very few companies. The best value addition we can do is on our green coffee processing like Colombia.

Capital: Globally Climate change and structural factors threaten the coffee industry’s prosperity, how can Ethiopia reduce this challenge?
Jemal: I do believe this is a challenge we already have started facing. That is why we need research on developing frost, drought and pest resistant verities. Moreover, supplementary irrigation is also something to look at. We are using varieties released in the eighties. We have different diseases and a different climate now.

Capital: Will the rising domestic demand reduce export availability for the rest of the world?
Jemal: I do not think so because our production is also growing. We even have room to triple our output with the proper cultural practice of coffee farming. We as a nation do not use proper fertilizer and more than 70 % of our coffee trees need to be rejuvenated. We need a national campaign on this.

Capital: With a simple bird’s eye view we can observe that Ethiopian coffee farmlands are owned by small scale farmers but some argue that commercial farming should also expand to produce more. What do you think about this subject?
Jemal: I think there is a clear possibility of increasing our output from both small holders and commercialized farms as we have millions of hectares suitable for coffee. In the short term by adapting the proper agricultural practice of coffee farming we can at least triple our farmer’s productivity. By developing commercial farms which takes 4-5 years, we can also increase our national production.

Capital: One of the concerns raised by critical analysts of liberalization is the possibility that the coffee market is dominated by a few large scale actors which result in non-competitive behavior at the expense of producers. What do you think about this?
Jemal: That is totally untrue. We are by far a country which has the longest value chain and more traders than the volume justifies, compared to any other exporting countries.

Capital: Brazil which exports more than 40 million bags sends less than 30 traders while we have up to 100 traders to export less than three million.
Jemal: Nowadays every importer has a coffee export license and exports coffee at a loss. Contrary to that, the producer is affected negatively for having too many players on the value chain.

Capital: Coffee traders say that competition from buyers has led to purchasing crops that are not ready to be marketed, what should be done to tackle this?
Jemal: On the farm level un-ripened coffee that is harvested does impact the quality so only ripe coffee should be supplied. But I do not share that concern as the buyers who operate the mills and inspect and buy the coffee. In the wholesale market, coffee is traded only after attaining its desired moisture level and cup.

Capital: Economists argue that liberalization of the commodity trade and processing has often led to deteriorating export crop quality in several countries and, in some cases, to price discounting on the international market and loss of reputation for a ‘national’ crop. What is your comment on this issue?
Jemal: On the contrary, when commodities are liberalized, quality become the price determining factor.