For a period of time the Ethiopian coffee value chain operated in a way that all but erased traceability. By law, all green coffee was traded through the Ethiopian Commodity Exchange (ECX). Producers and washing stations had to sell their coffee to the ECX which would classify this coffee with a cup score and location (e.g. Sidama or Yirgacheffe), and then sell it to licensed exporters through a bidding process based on its quality and regional classification. This model was created to boost efficiency and market access to smallholders. However, it made traceability and therefore price transparency near impossible. It was cumbersome to find out which lot belonged to which producer or washing station. Furthermore, producers were incapable of creating direct relationships with international buyers.
Fortunately legislation has changed and it is now possible for producers and washing stations to export their coffees directly without the need to go through the ECX. This makes traceability in Ethiopia much easier than it used to be, but it requires diligence. Coffees must still be graded by the ECX, requiring additional transport and storage. Keeping track of the coffees, and prices paid for each lot requires a great deal of work and attention.
What you need to know about the value chain
There are many steps involved to transform coffee cherries to green coffee, bagged and ready to export. Each of these steps is essential meaning none of these steps can be skipped. To simplify the value chain, those steps are:
- Cultivating and picking the coffee;
- De-pulping (before or after processing), processing using washed, honey, natural or special processes, and drying to transform cherry to parchment;
- Cupping and grading the coffee to ascertain its quality and price;
- Finding a buyer for the coffee;
- Dry milling to transform parchment to green coffee;
- Bagging the coffee;
- Paying taxes, preparing export documents, transporting the coffee to the port.
In Ethiopia farmers most commonly cultivate and pick the cherries which they sell to a local washing station. This washing station, which may be owned privately or by a cooperative, will process and dry the coffee, transforming it from cherry to parchment. This parchment might be sold to an exporter, or directly to the Ethiopian Coffee Exchange. Both players can then sell it to an international buyer.
In the 2018/19 harvest season, farmers sold their cherries to washing stations for an average of 15 birr per kilo, which was approximately $0.53 USD based on the exchange rate of that time. During the 2019/2020 harvest, cherries were sold at an average rate of 25 birr per kilo which is around $0.80 USD based on this season’s exchange rate.
As you can see, there was a significant increase in cherry prices this year. The reason for this is due to climate. Cherries usually ripen in October, but in October 2019 the cherries were still unripe. The rainy season lasted about six to eight weeks longer than usual, delaying the cherry ripening. Exporters began to worry there wouldn’t be enough volume available and started purchasing with desperation which created higher demand and thus higher cherry prices.
Cherry prices 2018/2019 and 2019/2020
|Region||Estimated average cherry price for the season 2018/19, Birr/kg||Estimated average cherry price for the season 2019/20, Birr/kg|
This data is based on reports and information from our export partners in Ethiopia. Prices were updated on September 28 based on more accurate reporting from our export partners.
We did not purchase coffees from Limu in 2020, so we have not reported any prices.
West Arsi is exported under the ECX region of Sidama. The estimated average cherry price for West Arsi in 2019/2020 was 14 Birr/kg.
After obtaining cherries from farmers, washing stations process cherries into parchment. Parchment will then be stored and eventually transported to the regional ECX office/warehouse to go through a mandatory grading procedure and receive a certificate. Once the parchment is graded, it heads to a dry mill which is usually located in Addis Ababa.
For a period of time the ECX was the only link between farmers and washing stations on one side, and exporters and international buyers on the other. While it is possible today for an exporter to purchase parchment directly from a farmer or washing station, the most common way coffee is bought and sold is through the ECX. The ECX trades parchment via auctions and frequently publishes auction prices online. Since the ECX is the only place where trading price information is available, the value of parchment traded outside the ECX is determined based on the ECX price.
Prior to adopting the metric system in 1863, Ethiopia had its own measurement system and some are and are still in use. One of these measurement units is a ‘Feresula’ which is a weight measurement unit used mostly for agricultural output like grain and coffee.
1 Feresula = 17 kg.
ECX parchment is traded by the Feresula, so prices listed are per 17 kg.
Just like cherry prices, parchment prices have increased this year. For example, the average parchment price of Yirgacheffe for 2018/19 was about 1,277 birr per 17kg (Feresula). For the 2019/20 harvest season, Yirgacheffe parchment traded on average of about 1,780 birr per 17kg (Feresula).
ECX Parchment prices 2018/2019 and 2019/2020
|Region||Estimated average parchment price, Birr / 17kg 2018/19||Estimated average parchment price, USD / 17kg 2018/19||Estimated average parchment price Birr / 17kg 2019/20||Estimated average parchment price, USD / 17kg 2019/20|
Data reported by ECX
Green coffee prices (FOB)
Exporters source parchment in three ways; from their own washing stations, other washing stations or from the ECX. Once the parchment is graded and certified by the regional ECX office, it heads to Addis Ababa to be dry milled. Exporters may own or lease dry mills.
|Region||FOB price paid to exporters by Nordic Approach 2018/2019 USD/kg||FOB price paid to exporters by Nordic Approach 2019/2020 USD/kg|
We did not purchase coffees from Limu in 2020.
The representative model
The other way farmers sell their cherries is through a representative. Farmers who have an export license usually partner with a representative to sell their coffee directly to international buyers. The representative is usually a person from their community who has close ties with the producers. The representative performs an essential role. They collect samples for approval, ensure the farmer delivers the coffee to the regional ECX office to be registered and transported to the warehouse of choice in Addis, organise the milling in Addis, and help the farmers create the extensive documentation required to export coffee.
In this model, farmers do not deliver to washing stations, they process the cherries themselves, usually using the natural method. Farmers hire people to process their cherries, and they also pay for transport, storage and milling until the cherries are transformed into exportable green coffee. Representatives choose a dry mill and oversee the dry milling together with the Tropiq Ethiopia team. The representative earns a margin for his/her work in this model. This is as close as you can get to buying directly from a farmer in Ethiopia.
How we maintain transparency and quality
Each harvest we conduct farm and washing station visits and obtain information on prices and productivity, as well as the progress of harvesting and processing cherries. At the washing stations we observe and consult on processing methods, meet farmers that deliver to the stations, check the progress of social responsibility and community empowerment projects undertaken by the washing stations, and create relationships with washing stations managers and staff. This way we continue tracing the coffee in parchment as we did in cherries.
Our team frequently visits dry mills to conduct quality control and create relationships with dry mill managers and staff. We inspect the milled green coffee and have it dry milled again if it’s not up to our standards. Furthermore, we take samples and test them in our lab to ensure consistency with the type sample we received from the washing station. Once the milling is done to our satisfaction, we oversee bagging and loading of green coffee to make sure the same cherry, parchment and green coffee is in the order loaded for shipment. In simple terms, we work to ensure that our customers get what they ordered. For more information on dry milling and operations involved, take a look at our blog on dry milling here.