Coffee destined for export will be traded based on weekly prices determined by the Ethiopian Coffee & Tea Authority. Effective last week, the authorities say the new rule aims to provide a "level-playing field" for exporters transacting through the Ethiopian Commodities Exchange (ECX) and those sourcing the beans through vertical integration.

The directors of the Exchange (ECX) decided last week, hoping to improve the prices farmers receive for the coffee beans.

Yinager Dessie (PhD), governor of the National Bank of Ethiopia (NBE), serves as ECX chairperson, overseeing an 11-member board. Six members are appointed by the Ministry of Trade & Regional Integration, while five are representatives of the private sector.

The Authority sends a price list to the ECX each week to align coffee prices sourced through vertical integration and traded at the Exchange, according to Shafi Umer, deputy director-general of the Coffee & Tea Authority. Established in 2008, the Authority is a federal agency responsible for promoting the coffee, tea and spice industries.

A team of experts at the Authority convene daily to compare local prices with international rates and use a weighted average method to set the minimum threshold for exports. The New York Arabica coffee price indicator computed by the International Coffee Organisation (ICO) serves as a reference.

“It's a good thing ECX decided to use the price list as a reference,” said Shafi.

The ECX has come a long way since its launch in 2008 under the stewardship of Eleni Gebremedhin (PhD). It started operations with sesame as the primary commodity traded on its floor. Coffee was integrated into the system the following year. Since then, it has grown its portfolio to include 15 commodities and accrued 347 members.

It is a spot exchange, where participants settle prices upfront. However, it uses a price flooring scheme, a globally common practice used to limit the value of coffee from dropping past a certain point.

The Exchange trades around 25 different coffee varieties spot contracts, including popular brands such as Sidama, Yirgacheffe, Jimma and Harar. Close to 3.5 million small-scale farmers sell their commodities through the Exchange, a little over half the six million engaged in growing coffee on 650,000hct of land.

Ethiopia, the fifth-largest coffee producer and exporter globally, shipped 271,000tn of coffee abroad last year, generating 854 million dollars. Sixty percent of the total export volume was transacted through the ECX. However, the volume of coffee traded at the ECX has been declining since the introduction of a vertical integration modality by the Authority in 2017. The scheme allows exporters to source the beans directly from farmers and suppliers.