Dynamics in coffee sector eea conference 16 june 2014

ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE

DYNAMICS IN COFFEE PRODUCTION AND MARKETING IN ETHIOPIAErmias Engida, Mekdem Dereje, Tadesse Kuma and Bart

Minten IFPRI ESSP

19th Annual Conference of the African Region Chapter of the Econometric Society and 12th International Conference on

the Ethiopian Economy.July 19, 2014Addis Ababa

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2

1. Introduction

• Coffee very important commodity in the world• Important changes internationally:

1. increasing willingness to pay for coffee, specialty coffee on the rise, increasing demand for quality coffee, increasing market differentiation and segmentation

2. large price changes • Important changes locally (ECX, primary marketing

centers, emergence of cooperatives) • Purpose of study: Understand how production and

marketing is changing upstream locally

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2. Background coffee in Ethiopia

• Coffee major export product from Ethiopia• Ethiopia endowed with very good production

environment • Ethiopia the country of origin of Coffea Arabica; large

diversity of coffees found• 4 different types of production systems: forest (10% of

production), semi-forest (35%), garden (50%), and plantation (5%)

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2. Background coffee in Ethiopia

3. Data

• Focus on the major 12 coffee producing zones. 5 strata based on the 5 coffee varieties of Ethiopia (Sidama, Yirgachefe, Jimma, Nekemte and Harar)

• 16 kebeles from each variety (total of 80 kebeles) randomly selected

• Total of 1600 coffee farmers and 206 processors were randomly sampled with an even distribution among each variety (320 farmers each strata)

• Survey fielded in February 2014

4. Production practices

• Changes in management practices: significant improvements over time

% of farmers At the time of the survey Ten years earlierStumping of trees 3 1Mulching 44 22Pruning 37 16Compost use (% land) 9 2Tilling 77 72Number of weeding 2.07 1.93

4. Production practices

• Modern input use: very low; however, increasing improved seedling adoption

At the time of the survey

Ten years earlier

Improved seedlings (% of land) 30 23Chemical fertilize use (kgs/ha) 4 8Herbicide use (% of farmers) 1 1Pesticide use (% of farmers) 1 2

4. Production practices

• Improvement in access to extension agents as well as in perceived quality of extension advice

At the time of the survey

Ten years earlier

Availability of coffee extension agents …- Very available (%)- A bit available (%)- Not available (%)- Do not know (%)

4636135

12462913

Quality of extension advice on coffee related issues:- Very good (%)- Moderately useful (%)- Not useful (%)- Do not know (%)

48319

12

16332130

4. Production practices

• Despite adoption of improved practices and access to advice, we see few changes in yields (and strong declines in Nekemte and Harar)

Yields in whole dried cherries per hectare

At the time of the survey Ten years earlier

Sidama 8.0 7.2Yirgacheffe 6.9 6.5Jimma 10.8 10.5Nekemte 5.6 11.3Harar 7.0 11.9

4. Production practices

• Less than expected impact on yields: Might be due to issues with diseases and climate change

At the time of the survey

Ten years earlier

For every year,…- One bad year (% farmers)- Two bad years (% farmers)- Other frequency (% farmers)- No difference between years (% of farmers)

3938176

43397

12

Diseases are a problem:- Big problem (% of farmers)- Small problem (% of farmers)- No problem (% of farmers)

354619

264925

5. Harvest and post-harvest practices

• Improvements in harvest and drying methods At the time of

the surveyTen years

earlier

Harvest practicesShare of green cherries in coffee harvest (%)Stripping of cherries (% of farmers): - All- Partly- Selective harvest only

4

51382

11

354026

Post-harvest practicesType of drying (% of farmers):- Traditional bed- On a mat or plastic on ground- On bare ground- Other

771733

298

594

6. Changes in marketing

• Major policy changes at the marketing level:1/ the set-up of primary market centers• As stated in the proclamation, all coffee should be

traded on these primary marketing centers• Markets should be fenced with specific sheds for

different buyers• Only licensed agents of akrabi are allowed to buy coffee

at these marketing centers2/ the set-up of the ECX• All coffee trade by private traders have to go through

ECX

6. Changes in marketing

• Uneven implementation of policy of primary market centers: large differences by regions and coffee type

At the time of the survey

Primary marketing centers as place of sale of sales red cherries (%): - Sidama- Yirgacheffe- Jimma- Nekemte - Harar

80771402

Primary marketing centers as place of sale of sales (%): - Red cherries- Dry cherries

5622

6. Changes in marketing

• Large changes in market outlets and role of regular markets; however, village trader still important

At the time of the survey

Ten years earlier

Place of sales of red cherries (%):- Primary marketing center- Regular market - Village trader- Site of mill- Other

568

20151

32

31391

Place of sales of dried cherries (%):- Primary marketing center- Regular market - Village trader- Site of mill- Other

22442644

2702045

6. Changes in marketing

• Improvements in markets overall: farmers trust weighing traders more; have to walk less far; and have option of red berries sales

At the time of the survey

Ten years earlier

Average distance walked (in minutes) to sell:- Red cherries- Dried cherries

2761

4384

Farmer trust the weighing of the trader (%) 55 43Farmers have option to sell red cherries (%)Share of coffee sold as red cherries

4319

2813

6. Changes in marketing

• Farmers have improved choice for trade and have more options to sell to cooperatives as well

At the time of the survey

Ten years earlier

Farmer has the choice between traders (%):- A lot- A little- No choice

293833

123553

Famer has the option to sell to cooperatives (%):- For those that sell red cherries - For those that sell dried cherries

6116

566

6. Changes in marketing

• Price information has improved; however, few farmers have access to ECX information; price information does not lead to quality premiums

At the time of the survey

Ten years earlier

Price information- Farmer has access to price information from

radio (%) - Farmer has access to price information from

auction/ECX (%)

67

23

47

13

“Better quality coffee gets a premium”:- A lot (% of farmers)- A little (% of farmers)- No premium (% of farmers)

47

89

25

93

6. Changes in marketing

• Some improvements for akrabi/processors, partially due to ECX

At the time of the survey

Ten years earlier

Access to credit (%):- Big problem- Small problem- Not a problem

301555

313336

Incidence where buyer pay/false cheques:- Big problem- Small problem- Not a problem

16

92

481735

Incidence of theft during transportation/trade:- Big problem- Small problem- Not a problem

61579

312545

6. Changes in marketing

• However, akrabi complain about the increased transaction cost in the system

At the time of the survey

“Since the ECX, the transaction costs in the coffee trade have increased significantly” (% of akrabi):- Strongly disagree- Disagree- Not sure- Agree- Strongly agree

920154015

7. Conclusions

• Important changes are happening in the Ethiopian coffee sector

• At the production level, increasing adoption of improved practices, improved good access to extension agents and better harvest and post-harvest practices; however, no major effect on production possibly due to disease problems and climate change

• At the marketing level, important changes in markets due to policy of primary marketing centers and ECX

• Policy of primary market centers is unevenly implemented over regions and by coffee type

7. Conclusions• Overall, farmers have more choice between traders,

have the additional option to sell to cooperatives, have to walk less far for their sales, and sell more washed coffee; however, no perceived quality premium

• Akrabi complain less of theft and problems of payments because of ECX; however, there is an issue of transaction costs in the system

THANK YOU!!!