Coffee Value Chains on the Move
International coffee markets are changing quickly due to market liberalization, increasingly stringent quality and safety standards, and the development of specialty coffee markets. Coffee production takes place primarily in developing countries, and such changes could have significant impacts on smallholder coffee producers. In Africa south of the Sahara, Ethiopia represents the largest coffee market actor, and the country’s coffee sector has seen improved productivity and increased prices in recent years. However, according to a recent study  from IFPRI, the Ethiopian Development Research Institute (EDRI), and Bonn University, a wide range of challenges have slowed this transformation for smallholder farmers, who make up 95 percent of coffee producers in the country.
To explore the complex issues at play, the study asks three questions: 1) What are the changes in coffee production practices and how have these practices influenced coffee productivity? 2) How do harvest, post-harvest, marketing, and processing activities influence quality and prices? 3) What role do presumed drivers of and constraints to change and transformation at the level of the coffee producer play in the transformation process?
The authors used a large-scale survey of coffee producers and processors, the first of its kind. They surveyed 1,600 coffee producers in the 12 highest producing zones in the country in 2014. In addition, 15 processors in each of the 12 zones were also surveyed. The study also utilized a database of coffee export transactions for the period of 2006-2013, maintained by the Ministry of Trade.
The study finds that there has been a significant increase in the adoption of improved coffee production, harvest, and processing practices by Ethiopian coffee farmers and processors. These practices include compost use, mulching, pruning, weeding, selective harvesting, and the use of wet mills. The use of these improved technologies and practices is associated with higher productivity and better prices for producers.
The authors argue that these changes have been driven mostly by improved access to agricultural extension services, local policy reform, and incentives from the international market. Ten years prior to the survey, 11 percent of farmers stated that extension agents were easily accessible, compared to 46 percent of farmers at the time of the study survey. Similarly, the quality of extension services appears to have improved over the past decade, with 48 percent of farmers rating the quality of extension advice as very good in 2014 compared to 14 percent ten years prior.
The set-up of primary marketing centers has also led to important changes in the local coffee marketing system. According to the authors, these centers have helped improve competition and price transparency and reduce transaction costs for farmers. However, some processors feel that primary marketing centers have actually reduced the quality of coffee available, in part due to the increased time spent in storage and the increased competition among farmers.
Global coffee prices spiked in 2011, reaching almost five times their 2001 levels. According to the study, producer prices in Ethiopia have followed global trends in recent years, and these high prices have encouraged farmers to invest in coffee production and to adopt improved production techniques.
However, the results also show that, while increasing, the adoption of improved technologies remains low. In addition, coffee productivity and the share of farmers’ income compared to final export prices still remain low compared to international standards. These challenges stem from a number of factors.
Many smallholder farmers still do not have access to or cannot afford improved coffee seedlings, even when provided through the Bureau of Agriculture. In addition, many farmers still may not view new coffee production and processing techniques as profitable. Weather shocks and disease also pose a challenge for transformation of smallholder coffee production, and these challenges may only increase in the face of climate change.
Another important constraint to the development of Ethiopia’s coffee sector is a lack of (or perceived lack of) rewards for higher-quality produce. Despite the creation of the Ethiopian Commodity Exchange (ECX) in 2008, which aimed to create transparent standards for coffee quality and price, 90 percent of surveyed farmers stated that there was no price premium provided for better quality coffee. In addition, many farmers (82 percent) still do not have access to price information from the ECX, limiting the impact of the exchange on farmers.
There also remains a lack of traceability along the Ethiopian coffee value chain. Commercial private buyers, state farms, and agricultural cooperatives are allowed to sell coffee directly to international buyers; however, other buyers and exporters are required to sell their coffee through the ECX, which has anonymity requirements. This lack of traceability appears to impact the premiums that buyers selling through the ECX receive; the paper finds that the gap between the premiums that cooperatives received and those that private traders received grew after the introduction of the ECX, from 9 percent to 18 percent.
The authors suggest several ways to overcome all of these constraints and continue to improve Ethiopia’s coffee value chain. Since many farmers find it difficult to afford improved seedling varieties and other new technologies, better access to savings institutions or alternative savings options could lead to higher adoption of improved practices. The authors also suggest that improving transparency and increasing access to vertical integration mechanisms along the entire value chain could help increase rewards for higher quality coffee, which in turn would stimulate investment and help transform smallholder production.
By: Jenn Campus
 Minten, Bart, Mekdim Dereje, Ermias Engida, and Tadesse Kuma. 2017. ”Coffee Value Chains on the Move: Evidence in Ethiopia.” Food Policy . Article in press. Available at http://www.sciencedirect.com/science/article/pii/S0306919217306152 .