Adding Value to Ethiopia's Coffee Sector
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Coffee plays a central role in Ethiopia’s economic structure. An estimated 15 million Ethiopians depend on the coffee sector for their livelihoods, and the country remains the largest producer and exporter of coffee in Africa. Despite the importance of the crop for income generation and economic growth, however, only a small proportion of Ethiopian coffee farmers engage in practices that can result in higher quality beans and garner higher prices on the international market. A new study published in PLOS One examines the use of one such value-add practice – wet processing (washing) – and the potential drivers behind its low adoption.
Wet processing consists of “washing” fresh red coffee cherries using wet-mill machines to remove the skin, pulp, and outer layers. This method, as opposed to dry processing in which cherries are first air-dried and then hulled using dry-mills, and is associated with higher quality coffee beans than traditional dry processing methods. As a result, washed coffee can be sold for much higher prices in international markets, where demand for quality, homogenization, and safety standards are stronger than local markets.
The study finds that these higher prices flow back to Ethiopian coffee processors and producers, as well as to coffee exporters themselves. Thus, a farmers’ decision to sell either fresh red coffee cherries for wet processing or dried cherries for dry processing can impact premiums received along the entire coffee value chain.
Farmers’ access to wet processing has also increased over the past decade, with 42 percent of surveyed farmers saying they could sell red coffee cherries to a wet miller as opposed to 15 percent of farmers 10 years previously. Farmers also have to travel less distance to trade with wet millers; 25 percent of the surveyed communities had access to two or more wet mills.
Despite the benefits of selling to wet millers and the increased accessibility of wet processing, however, the use of wet processing has not increased in Ethiopia as much as might be expected given its potential to transform coffee value chains and increase producer incomes. The sale of washed coffee on international markets remained around 30 percent of Ethiopia’s total coffee exports on average between 2006 and 2013.
Why might coffee farmers be reluctant to engage in a more lucrative practice? The authors identify a couple of factors at play.
The Ethiopian government requires farmers to sell their red cherries through marketing centers rather than directly to wet mills, which raises farmers’ marketing costs and lowers their labor productivity compared to that of dried cherry production and marketing. This reduces incentives for farmers to adopt red cherry production. The authors point out that households with higher opportunity costs of labor – such as those with fewer working-age members – are less likely to engage in wet processing.
The study also found that smaller farmers, who may be more impatient to receive payment, engage in wet processing more often than larger, more patient farmers. This latter group tends to use dried cherries (which are storable for much longer than fresh red cherries) as a savings mechanism.
The study’s findings have several policy implications for Ethiopia’s coffee value chain, as well as for agricultural value chains in other African countries.
- Reducing government restrictions on red cherry sales by removing the middleman (in this case, marketing centers) and allowing farmers to work directly with processors would remove a significant disincentive to red cherry production.
- Investing in new technologies and practices to reduce the labor needed to produce and market high-value crops like red coffee cherries can increase the associated labor productivity and make these crops more appealing to farmers.
- Increasing access to formal banking institutions, and ensuring that the deposit rates and inflation rates of these institutions are appealing, would reduce farmers’ tendency to engage in informal savings mechanisms, such as storing dried coffee cherries.
By prioritizing these actions, policymakers in Ethiopia and beyond can help their agricultural sectors engage in more value-add activities, leading to higher incomes and higher profits along the entire value chain.