The coffee industry is reeling after the Ethiopian Coffee & Tea Authority (ECTA) abruptly banned the export of grade-five coffee. The Authority is tightening regulations on vertical integration to maintain the country’s reputation in global markets.
The decision, announced on January 13 with little warning, confines coffee trade between suppliers and exporters to grades one through four. Federal authorities claim this move will reverse the slide in quality that has increasingly plagued coffee exports. According to Kassahun Geleta, the Authority's marketing manager, the measure is part of a broader effort to prevent substandard coffee from entering the export market.
“We want to protect our country’s reputation as a leading coffee producer,” Kassahun told Fortune.
Yet, the decision has thrown the industry into disarray as the peak export season looms in the next three months, leaving many suppliers scrambling to respond to the fallout.
For suppliers like Hagos Gebreselassie, the sudden ban has created a financial quagmire. With 14 years of experience in the business, he now finds himself stuck with 210,000Kg of grade-five coffee intended for international markets.
“Bad climate conditions have resulted in low-grade production," said Hagos, who works with 40 farmers in the Bench Sheko Zone of the South-West Ethiopia Regional State. "It’s not our fault the coffee is the way it is.”
Many suppliers, having bought coffee often using bank loans, now face the prospect of financial ruin.
“It feels like they want to push us out of business completely,” he said.
Another supplier, Engidaw Wudu, who also has 14 years in the business, faces similar distress, with 1,200Qtls of grade-five coffee now stranded. Managing 70hcts of land in Bench Sheko, Engidaw criticised the timing of the ban.
“The timing is not right,” he said, arguing that the ban came too late, after farmers had already harvested this year’s crop.
According to Engidaw, the impact of climate change on his land’s fertility to produce high-quality coffee is evident.
The latest export restrictions come when the coffee industry is wrestling with numerous challenges. The bulk of coffee is cultivated in Oromia Regional State, which accounts for 59pc of production, followed by the South-West Regional State at 15pc and Sidama Regional State at seven percent. The industry is a major employer, supporting approximately 5.8 million people nationwide. Despite strong global demand for speciality coffee, most forest coffee remains uncertified and unbranded, and only 15pc of export companies deal in speciality coffee.
Experts blame the structural shortfall for the current crisis, with regulatory loopholes in the vertical integration system, where exporters buy coffee directly from suppliers, allowing lower-quality coffee to flood the market.
Mesfin Hailemariam, market development head at the Authority's branch in the South-West Regional State, acknowledged the multiple factors undermining quality.
“Financial shortages, climate change, and outdated farming practices are all major problems,” Mesfin said.
He observed many farmers reuse deteriorating coffee sacks for up to two years, further degrading the harvest quality.
“Achieving quality has become a difficult milestone,” he said.
The Authority plans to increase coffee production by 100,000tns from the current 760,000tns harvest. Mesfin also recommended greater use of organic inputs such as compost, which he believes could double output per hectare to 15Qtls.
The impact of the ban have been immediate. In the South-West Regional State, 40 trucks carrying over 20,000Kgs of grade-five and under-grade coffee remain stranded at dispatch sites. The Regional State, with over 100,000 farmers managing 552,000hcts of land, is a key production area, especially in Kaffa and Bench Sheko zones, contributing 90pc of the State's coffee output. Last year, the area produced 540,000tns of coffee, though 60pc was graded as five or lower. In the past six months, only 26,000tns of coffee were cleared for export, uncovering the severe impact of declining quality.
“The goal of the decision to improve coffee quality is commendable,” Mesfin said. “But, it was rushed and failed to consider this season’s existing supply.”
Exporters have welcomed the Authority's move, arguing that stricter quality controls could restore buyers' confidence and secure better prices.
According to Desalegn Jena, president of the Ethiopian Coffee Association (ECA), the decision reinstates the core principles of the vertical integration system and enhances the credibility of coffee exports.
“The government should urgently address quality problems to protect Ethiopia’s position in the global coffee trade,” he said.
Desalegn's caution carries extra weight given that key export markets — Germany, Japan, Belgium, and the United States — collectively account for 60pc of coffee exports form Ethiopia. Notably, Germany reduced its coffee imports by 36,000tns last year, while Japan’s purchases dropped by 17,400tns, with buyers blaming rising prices, declining quality, and shipping delays as major issues. Buyers from the three markets — Germany, Japan, and the United States — have lodged formal complaints about quality issues in the past year.
“These are buyers we can’t afford to lose,” Desalegn warned.
The Authority's figures are alarming: 70pc of coffee exports in the past six months were grade-five or lower, resulting in a revenue shortfall estimated at nearly half a billion dollars. The Ethiopian Coffee Association (ECA) plans to generate over two billion dollars in coffee exports this fiscal year, affirming the high stakes involved. The financial implications of the quality crisis are evident.
According to official estimates, Ethiopia could have earned up to 1.4 billion dollars in the past six months had higher-quality coffee been exported. During the same period, coffee exports generated 908 million dollars, which pales compared to the 1.4 billion dollars earned from 300,000tns of coffee exports in the previous fiscal year. According to exporters higher-quality coffee could have commanded premium prices and boosted revenue. International buyers have grown increasingly hesitant, with poor-quality coffee undermining Ethiopia’s longstanding reputation.
Israel Degafa, general manager of Kerchanshe Trading Plc and a board member of the ECA, is among the exporters who supported the the Authority's decision.
“This new rule will benefit exporters,” he said, noting that poor-quality coffee has caused substantial foreign exchange losses.
He stated the price disparity between grade-four and grade-five coffee, which was 1.10 dollar for a kilogram, a difference of 17.2pc.
Another exporter, Abdullah Bagersh, general manager of S. A. Bagersh, echoed similar sentiments. His company incurred a 40pc loss due to rejected low-grade coffee.
“We had to do the suppliers’ work to bring the coffee up to standard,” he told Fortune.
Coffee trade and its ecosystem have shifted dramatically in recent years, particularly with the rise of vertical integration. Traditionally, about 87pc of coffee exports passed through the Ethiopian Commodity Exchange (ECX). However, traders have increasingly turned to direct transactions, with over 60pc of exported coffee originating from the vertical marketing system.
Wondimagegnehu Negera, CEO of the ECX, attributed this trend to the price caps imposed by the Exchange, which he said made it less attractive to producers, exporters, and suppliers. The ECX, which facilitated 13 billion Br worth of commodity trades, including coffee exports, in the past six months, is now working to align its coffee prices with those on the New York Mercantile Exchange (NYMEX).
“We're making price adjustments,” he Fortune. "We want boost traders’ profits and retain their business."
Not everyone in the industry views the regulatory overhaul favourably. Dejene Hirpa, a coffee consultant, warned that Ethiopia’s coffee reputation suffers due to the ongoing quality decline. While he supports the intention behind the new regulations, Dejene criticised the abrupt manner in which they were implemented.
“The decision lacked sufficient consultation with stakeholders and could create further disruptions,” he warned.
Dejene urged authorities to concentrate on improving the quality of production rather than imposing blanket restrictions that primarily affect traders and farmers.
“Investment in farmers has been severely lacking,” he said.
According to Dejene, the distorted market structure means that smallholders, many of whom produce low-grade coffee out of necessity rather than choice, are not benefiting from the reforms. Some farmers, faced with the prospect of dwindling incomes, have even started shifting to more lucrative crops such as khat.
The experience of Mamush Esayas, a coffee farmer in the Gedeo Zone, vividly illustrates the problems small farmers face. Managing a modest three-hectare plot, Mamash produced 54Qtls of coffee this year under increasingly difficult conditions. Essential inputs, such as coffee sacks, have doubled in price to 600 Br, straining his already tight budget. He noted that the prices offered by suppliers are too low to cover production costs.
“My whole family depends on this harvest,” he said.
His plight illustrated a broader issue in the sector where many farmers who once experimented with other crops are now trapped in a cycle of low returns and minimum support. Mamush recalled that he sold his grade-one coffee for 7,000 Br a 17Kg bag, yet exporters were willing to pay nearly double that amount when buying directly from suppliers.
“The government should support farmers to sustain their business,” he pleaded. “I can only meet my daily needs at these prices.”
PUBLISHED ON
Feb 02,2025 [ VOL
25 , NO
1292]
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