Price Transparency in Ethiopia

Price Transparency in Ethiopia - There are many steps involved to transform coffee cherries to green coffee.

Alexander Hansen
May 11, 2022
Ethiopia

Price Transparency in Ethiopia

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 coffee 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:

  1. Cultivating and picking the coffee;
  2. De-pulping (before or after processing), processing using washed, honey, natural or special processes, and drying to transform cherry to parchment;
  3. Cupping and grading the coffee to ascertain its quality and price;
  4. Finding a buyer for the coffee;
  5. Dry milling to transform parchment to green coffee;
  6. Bagging the coffee;
  7. 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.

Coffee cherry prices 

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.  During the 2020/2021 harvest, cherries were sold at an average rate of 55 birr per kilo which is around $1.06 USD based on this season’s exchange rate. 

As you can see, there was a significant increase in cherry prices this year. Most of that is due to the increasing NY C market price as a result of a global coffee shortage and the currency devaluation, but climate also played its role. The rainy season normally ends inOctober but is followed by numerous heavy showers throughout the season to enable cherries to fully ripen. But, most regions experienced a lack of rain when coffee trees needed it the most in November/December 2021. The rumours of a country wide coffee shortage, combined with global and national events sent the cherry prices through the roof, giving every farmer an incentive to negotiate harder and only deliver at top premium prices. More on this here.


Parchment coffee prices

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.

The Feresula

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). 


Green coffee prices (FOB)

Exporters source parchment in four ways; from their own washing stations, other washing stations, direct from farmers 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. More on the exporter's estimated cost of goods here.


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 due to the language barrier. 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

Alex's past roles have covered many responsibilities including supply chain, quality, sales, buying and management.