Coffee: Ethiopia’s export king and major source of foreign currency
5 March 2018

“Coffeedollars” could be used to describe the revenues now being generated in Ethiopia by coffee, similar to what “petrodollars” meant  for OPEC countries in the 1970s. Indeed, coffee is the main product that enables Addis Ababa to support its trade balance and a major source of foreign currency for the country, with green roasted coffee beans being the country’s most exported product. Agriculture accounts for 75% of Ethiopia’s total exports, which amounted to USD 1.35 bn in the 2017/18 semester, and coffee – which has always been the leading product in terms of exportation – continues to play a key role, accounting for a quarter of the country’s export revenues.

In the first five months of the current financial year revenues generated by the exportation of nearly 92,000 tonnes of coffee beans have amounted to over USD 334 m, with export volumes increasing on last year by approx. 17,000 tonnes. Ethiopia’s three largest export markets for coffee are Germany, Saudi Arabia and the United States. Last year was particularly positive, with total earnings reaching the highest level in two decades at USD 882.4 m.

Historical records indicate that when coffee was introduced to Yemen from Ethiopia in the fourteenth century, it was referred to as “qahweh” (kaffa), the Arabic name for the region in Ethiopia where the plants were first discovered. According to Jeff Koehler, in his book “Where the Wild Coffee Grows: The Untold Story of Coffee from the Cloud Forests of Ethiopia to Your Cup”, Ethiopia boasts 99.8% of the genetic diversity of Arabic coffee, which is renowned for being the highest quality.

This agricultural commodity provides a living for approx. 15 million people ( 16% of the country’s population) and still has much untapped potential. The main challenges are  productivity and profitability. Indeed,  90% of Ethiopian coffee is produced by small producers, but although some farmers manage to reach production volumes of 20–22% per hectare, the average national level is only 7.8%, less than half that of other major coffee producing countries. Local producers only receive 10% of the revenue generated by their products, and Ethiopia loses 40% of its coffee export revenues due to the involvement of so many players and intermediaries in the production process.

Another challenge is traceability. Although both exporters and importers are well aware of the high quality of Ethiopian coffee, they are often unable to find information regarding production and marketing processes, including where the coffee is produced and by whom. Whenever quality issues arise, it is thus not always possible to track down who is responsible.

But things are gradually changing. Last year, the government introduced a reform to achieve its goal of generating export-led growth of USD 13 bn by the end of the “Growth and Transformation Plan II”, which will come to a close in the financial year 2019/20. The reform includes the introduction of coffee traceability and a new marketing system designed to reduce transaction costs. The reform has also created more opportunities for coffee farmers by enabling them to sell and export coffee directly. The reform should also facilitate the implementation of the coffee export plan, under which the export target is 270,388 tonnes, equating to USD 1.15 bn in revenue – to thus increase the added value that remains in the country.

Farmers currently have four options to sell their coffee: to consumers directly, to processors, to suppliers; and on the Ethiopia Commodity Exchange (ECX). Currently, over 90% of exported coffee is marketed at wholesale level on the stock market, which was created in 2008 to ensure the development of a modern trading system. The ECX has also opened regional shopping centres in Hawassa, Nekemete and Humera and is building additional centres in Jimma, Adama and Gonder to strengthen relations with the country’s farming hubs. This will potentially give a larger number of farmers access to trading. The ECX currently manages transactions with a total value of over ETB 27 bn annually. The company that manages the exchange is considering introducing several risk mitigation strategies and is planning to introduce futures trading services and to launch initiatives to encourage banks and insurance companies to offer innovative products so that farmers can obtain insurance.

There have also been several commercial developments, such as the first ever Ethiopia Coffee Week Expo, a trade fair designed to attract international coffee buyers, which was held in Addis Ababa between 15 and 21 February this year.