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After the Harvest in Ethiopia

The full story. Originally posted on July 30, 2014.

Resa Cooperative in Wenango District of Ethiopia - in the Off-Season. This farm truck sits in front of the storage barn / dry mill for the 2,700 farmer-strong, Yirgecheffee Coffee Farmers Cooperative Union Member.

As one of the more competitive coffee origins in the world, most purchasing in Ethiopia is done before the first cherries are picked. Buyers line up contracts with their exporters, who in turn, are waiting for the bell to ring on the ECX floor in Jan, to secure volume and fulfill their contracts for the buying season. This is how most business is done.

If importers aren’t working through an exporter who buys off the ECX, they’re purchasing through a Union. Of over 300 unions registered in Ethiopia, only 7 are active. Similarly, buyers are getting in line come October, for first-ships in January.

But…if you go to Ethiopia in May, it’s quite a different place. Coffee trees have already flowered, noded and have developed green beans. Washing stations are dormant, less a security guard who is sleeping in a self-constructed steel-roofed shanty.

Many times, the security guard is a farmer as well, and happy to show you around. The dry mills are still humming, although maybe not the click they were in January….and surprisingly, there’s still coffee available.

There’s a common misconception about purchasing coffee in Ethiopia

….that all coffee must come from the ECX. There’s a more complete picture to paint.

Although still an oversimplification, coffees will either come from an Exporter that purchases from the ECX, the Coop Unions, or from a private landowner (usually a wealthy Ethiopian, who has a farm and washing station and is has set up an out-growers scheme to purchase cherry from his surrounding smallholders).

This means that there’s a small universe of farms/farmers that you can work with on a year-over-year basis for quality improvement. If you’re looking for traceability, here are your options.

Private Exporters: Today and before the nationalization of the coffee sector (the advent of the Ethiopian Commodity Exchange in 2008) there were many private exporters. They had established an infrastructure of collection centers, and washing stations across the coffee-growing regions of the country. A part of that infrastructure was made up of collectors (essentially middle-men that would purchase dried cherry from farmers). New regulations made it illegal to both buy from AND sell to the ECX. So many exporters that had been doing exactly that, suddenly found themselves in a pickle. What do they do with the washing station they built? How do they still export the coffee that they are collecting and processing? For most, the answer was to establish separate companies. The collection centers and washing stations would collect cherry, send the to ECX for grading and auction. To continue the export side of the business, they established a different PLC (private limited company) where they purchase from the ECX, mill (any special prep), and float to the port of export. [there’s a well-defined process for the export of quality coffee in Ethiopia published by the Ministry of Trade].

ECX commodity prices published on an electronic ticker in Bonga, Keffa Zone

The result is that these private exporters have to “work the system” to try to purchase coffee processed at their own mills. For example, let’s say you own a washing station. You know when you’re submitting your washing station’s coffee to the ECX for grading, you also know the size of the lot your selling at auction. If you have a unique regional designation, and a high quality designation from the ECX (Q1 Grade=80+, Q2 Grade=85+), you might have a “hunch” that the Yirg Wenago Q2, lot of 420 bags is the same Yirg Wenango Q2, lot of 420 bags that you submitted to the ECX 15 days before. So, you arrange to purchase this lot from the auction. Ipso facto, you’ve managed (despite the fact that lots are anonymized), to purchase your own washing station’s coffee.

While possible, this practice still lives in the gray area of legality. This method can fail if (1) the lot from your washing station is not very unique – it’s hard to find in an anonymized system or (2) if there are heavy volumes going into the ECX, there may be multiple lots graded to the designation that you submitted, available at the same time on the auction. It’s a FIFO (first-in, first-out system). If you’re buying a “traceable” lot through a private exporter, chances are, it’s not necessarily from where you think it may be from.

Women hand sorting coffee for a private exporter in Addis Ababa.
Statue outside the Oromia Coffee Farmers Cooperative Union, south of Addis Ababa

Cooperative Unions: While governed by the same subset of rules, coop unions come in a couple flavors – mainly dictated by the person/persons running the union. Can you get traceable coffee? Yes. Will it be at ECX prices? No sir. Do the unions work to help coops improve quality? Some yes, some definitively no. Do they play nice with the NGOs, like ACDI VOCA or Technoserve? Ha! Can you work with the same coop year-over-year? Maybe…some unions allow “exclusives” and some don’t.

Our feeling is that folks use the Unions because they do provide real value. Getting purchasing down to the coop level is a good thing. Also, the ECX does not deal with certified coffees, so if you need FTO, RFA, etc., it’s coming from the Unions (or private farms). That said, these coops are well picked-over. Buyers line up to grab to the good lots, and the Unions seem to understand that they can charge significant premiums for the service of keeping lots separate at the coop level. Basically the relationship that the importer develops with the Union is going to dictate access to lots year-over-year, exclusivity (if any is offered), and the pricing that you’re able to negotiate. You may not find the most unique coffee, but you’ll get a traceable coffee and you’ll get your certs.

Private Farms: The ECX brought all coffees to the auction in 2008, and from there began loosening restrictions and providing exceptions for sellers to bypass the auction. First came the unions, then came individual landowners & outgrowers schemes. Presumably, this happened because of the combined pressures of overflowing ECX warehouses (bottlenecking exports) and pressures from the market to allow for traceable purchasing.

Forest canopy over private farms in Bonga.

Now, any landowner can get an export license, and work directly with a purchaser. The catch is that exporting coffee requires about 50-100K of cash per container that the company (or landowner) needs to float while the coffee is purchased in cherry, processed, graded by ECX, negotiated with a private buyer, milled to specification, trucked through Addis to Djibouti. This process could mean that your cash is tied up for 20-100 days. It goes without saying that the average Ethiopian smallholder does not have 100K laying around to purchase coffee….or to set up a wet mill, and deliver coffee through the entire process of export to Djibouti.

Because of this, private farms, directly exporting are not the norm. When you do find them, often it’s the result of an exporter purchasing a farm, or a wealthy Ethiopian looking to capitalize on a high-quality growing region by setting up shop and purchasing coffees from his farm, as well as neighboring farms. That said, they can operate to the benefit of the surrounding community if done correctly, and they can allow buyers to work much more intimately than would otherwise be possible through the unions or the exchange.

Waterfall on the way to Alaga Sekela Cooperative - A Tecnoserve client community in Jimma Zone.

The in-between: As coffee is the backbone of the Ethiopian economy, clearly there are efforts to stimulate coffee exports, build farmer capacity, improve coffee quality, and increase coffee prices. A variety of Government and non-government organizations step in to fill these roles. Notably, Technoserve leads the charge in improving cooperative quality. However their work is focused in western Ethiopia, and tensions between Technoserve and the Oromia Coop Unions makes the purchasing process a bit more cumbersome than necessary.

Private, exporter-owned farm in Bita Woreda, Keffa Zone.

The general pattern of TNS work in Ethiopia is to set up a cooperative with a washing station, financed through a banking relationship that TNS brings to the table. The coop pays-down the washing station through coffee sales over the continuing years. Additionally, TNS negotiates a commission-based service agreement with the Coop Union. This means that farmers can work with TNS and their private buyer to set prices. It also means that all sales but for a 10% commission to the Union, goes back to the farmer (significantly more than the 70% guaranteed by the Union). This arrangement was a hard-fought victory for Technoserve some years back. When we floated the same fee-based commission structure to the Coop Unions, the proposal was flatly rejected. It seems that the success of the Unions (who have a monopoly on certified and traceable coffees), has created a pretty significant imbalance of power between the union and the actual coop. We’ve also found other organizations providing farmer support, but not on the scale of TNS.

Overall, we left feeling is a little bit skeptical about the ability of exporters to properly provide any regional designations outside of a coffee’s basic ECX grade. Is that Yirgecheffe really from the Kochere district? Hard to say. That in mind, it’s clear that if you cup enough ECX lots, you’ll find some stellar coffees. The importance of having a solid network of Exporters buying from the ECX, is that it is you’re only way of discovering quality lots, year-over-year. In other words, to have consistent access to great coffees in Ethiopia, you have to start from scratch each year and have someone on the floor, purchasing Q2 lots, cupping them, and setting them aside if they’re exceptional coffees.

We like what the unions are making possible, but purchasing from them really requires playing the game every year… flying into Addis and performing the cupping round-robin, as the harvests begin. There’s not necessarily and exclusivity on these lots, so as a buyer, you’ll be prioritized based on your purchasing volume, price offer, and relationship with the union. The early-bird will get the worm – so the strategy with most buyers is to purchase the plane ticket and fly out in October or November.

We ended up being the most excited to find either private farms or individual farmers that are looking to take the next steps and establish themselves as an exporter.

From our perspective, working with a farmer to directly export is a time-consuming and risky endeavor that will require many visits, constant communication, and continual coaching. We’ll need to build a network of in-country resources for the farmer to draw on for financing, legal/procedural work, and of course coffee quality/washing station construction.

Walking the Doyo Cooperative.
A rainy walk to Yirg Alem cherry collection center with lots of company. Rains come almost every evening.

That said – the payoff for the community could be extremely high. Empowering a local family to have ownership through the whole process could mean better quality coffee for us, and dollars and jobs that stay in the community for them. As we pursue these projects, we’ll be sure to keep you posted!