Radar | Aug 03,2019
Coffee traders can now send all grades of coffee beans to the global market, in contrast to the previous law that allowed them only to export the top four grades of coffee, according to a new directive issued by the Ethiopian Coffee & Tea Authority. Farmers and exporters can also directly ship the beans without going through the trading floors of the Ethiopian Commodity Exchange (ECX).
The new scheme allows fifth grade and under grade (UG) coffee beans, which up until now have only been supplied to the local market, to be exported. Coffee quality experts at respective regional offices of the Authority will determine the grade of the coffee. The Authority at its head office issues permits to the exporters every year, while regional offices are delegated to grant export permit to farmers who have at least two hectares of farmland. The Authority sets standard prices on a weekly basis.
The change is aimed at boosting export volume and foreign currency earnings, according to Hairu Nuru, market information & regulatory director at the Authority, which plans for the commodity to bring in 1.7 billion dollars from the export of 312,000tn of coffee this year. In the past fiscal year, the exported 271,000tn of coffee generated 854 million dollars, over one-fourth of the total export earnings of the country.
"There is a demand even for the lowest Ethiopian coffee grades in the international market," said Hairu. "We've been receiving repeated calls from exporters."
In a country that has 418 licensed exporters, 5.5 million household growers, and is known to be the origin of coffee, the commodity had not been benefiting the economy as much as expected due to quality problems.
The coffee bean that reaches the central market at the ECX has been mixed and loses its quality and traceability, according to Hairu.
"Letting all of the export of coffee pass through the ECX has also inflicted negative impacts on the sector in terms of the quality and price of export coffee," he said. "The price of Ethiopian coffee on the international market was declining since the coffee changed from a specialty into a commodity at the ECX."
Netsanet Tesfaye, corporate communications manager at the ECX, disputed this, saying that they do inspections to make sure the coffee is traceable and that no coffee is mixed at the warehouses.
"The specialty of coffee might be lost when the coffee has passed out of the ECX," he said.
The new system is also aimed at driving intermediaries out of the value chain by shortening it, according to Hairu, who said that the farmers had not been benefiting much from their product. He stated that the farmers got only 40pc of the total revenues generated from the coffee sector, and the remainder was going to intermediaries.
So far, 41 farmers have registered and secured licenses to send their coffee directly to the international market.
Intermediaries such as coffee collectors, suppliers, the EXC, wholesalers, and exporters were involved in transactions, making the value chain very long, according to Hairu.
"This hurts the farmers," said Hairu, "and led coffee exports to decline."
Gizat Worku, general manager at the Ethiopian Coffee Exporters Association, appreciated the move, saying that there will be slightly more coffee supply for export. But he alerted the Authority to work on the quality of the coffee.
"Most of the exporters send their coffee to the international market based on the preferences of their customers," he said, "and there will likely not be much interest from exporters in presenting lower grades of coffee."
The export of high-quality coffee was hit hard by the pandemic, since most of the big global cafes and coffee shops were closed due to lockdowns, according to Gizat.
He also cited delayed delivery time, lack of traceability, the lower level of research and development in the sector, and poor federal-regional coordination as additional bottlenecks the sector faces.
Eden Abebe, a coffee export consultant at O-Link International Business Agent & Consultancy, argues that there will be more exporters and that the coffee export volume of the country will grow. She explained that since the Authority has allowed all grades for export, small and medium exporters with limited financial capabilities will be able to engage in coffee export.
Eden remarked that there is a high demand for lower-grade coffee in the international market as buyers mix and create their own brands by cleaning the coffee and adding value.
She urged the Authority to enforce strict inspection on the quality and grade of export coffee as exporters might mix the lower grade coffee in with the higher grades for increased payouts.
"The authorities should make sure that the quality of their coffee is as per the certificate and should inspect the purity and taste," she said. "They should focus on cleaning coffee to raise its quality."
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