Ethiopia, the home of coffee, has its eyes on a greater share of the global coffee industry. From industry liberalization to greater efforts in international marketing, the Ethiopian coffee is on a new growth pedestal.
Ethiopia is the largest producer of coffee in Africa and has reputation of producing some of the world’s finest coffees.
This comes as no surprise as the country is regarded as the natural home of coffee. It is in her highlands that the beans were first discovered in the 16th century. The word “coffee” comes from the name Kaffa – one of the many parts of Ethiopia where coffee is grown.
Despite being the birthplace of coffee, Ethiopia’s contribution in the international coffee market is less than 10%. This has been largely due to the sector largely remaining as a state monopoly for a long time and lack of a bold marketing strategy to take the rich Ethiopian coffee to the tables of global consumers.
Times are however changing, with some degree of liberalization allowing greater participation by the private sector. This, combined with great strides in marketing the crop abroad, promises a new impetus for growth. Ethiopia’s coffee however must overcome challenges of climate change, volatile coffee prices, and most recently instability in some of the major coffee growing zones in the country, even as it works to claim its rightful place in the world coffee market.
Coffee production in numbers
Coffee production in Ethiopia has grown steadily over the past three years and, with suitable growing conditions, is forecasted to reach to 7.62 million bags (457,200 MT) in 2021/22, according to recent projections by the Foreign Agricultural Service of the United States Department of Agriculture.
With 50-55% of Ethiopia’s production consumed domestically, and the rest exported to various destinations globally, the country is unique in Africa, where the rest of the major producers in East Africa like Kenya and Uganda rely on export markets for their coffee, with little quantities consumed locally.
According to the Ethiopian Coffee and Tea Authority, Ethiopia’s coffee exports netted US$854.21m in 2020, with the US, Japan, Germany, Belgium, and Saudi Arabia being among the top importers. Germany used to be the largest buyer of Ethiopian coffee, but this year Saudi Arabia overtook the European nation, importing 21,000 tonnes of coffee during the first 6 months of the current fiscal, close to double the 12,000 tonnes that Germany imported during the same period. During this period, a total of 91,000 tonnes were exported, earning the country about US$304 million, equivalent to a third of the country’s income from exports.
Putting labor to the picture, coffee in Ethiopia is grown by more than four million smallholder farmers and makes up 5% of the country’s GDP. It also employs more than 15 million people in coffee production and marketing, making coffee the most important agricultural commodity for the East African nation.
Expanding share of global coffee market
Ethiopia is no longer comfortable with being the top producer of Arabica coffee in Africa.
Gezahegn Mamo, CEO of Wild Coffee Ethiopia, said that as Ethiopia being the birthplace of coffee, the country should get what it deserves: a bigger share of the global coffee market. He states that while most Ethiopians think Ethiopian coffee is well known in the the world, the reality on his experience is that most people across the world think that Brazil was the birthplace of coffee. “Therefore”, he suggests “In addition to promoting it is the origin of coffee beans, Ethiopia should increase its quality and quantity of the exported coffee items to be more competent and predominant.”
The government seems to have heard Mamo’s call and recently through the Ethiopian Coffee and Tea Authority (ECTA) revealed a new initiative to uplift the current close to 600,000 tonnes of annual coffee production to 1.8 million tonnes within the coming five years period.
Several strategies have been deployed by the ECTA to spur growth of Ethiopia’s most import agricultural crop. One of the initiatives is liberalization of the coffee sector, allowing coffee farmers to directly sell their products to buyers without having to deliver them to the Ethiopian Commodity Exchange (ECX). Ethiopia hopes that this initiative, known as vertical integration, will enable farmers earn more from their produce and thus be enticed to produce even more coffee. According to a report by the Addis Fortune, vertical integration was vital in raising Ethiopia’s income from coffee to a record US$907 million in 2020.
Another strategy to improve production has been through the annual Cup of Excellence (COE), where farmers showcase their coffee, and the winners get a chance to sell their coffee at an international auction. The aim of the competition is to encourage farmers to grow better quality coffees with an assurance that they will be equally rewarded for their efforts. The top-scoring coffee in the 2020 COE competition sold at US$185.10 per pound, or US$407 per kilogram.
The Alliance for Coffee Excellence (ACE) says this is the highest price ever recorded for an Ethiopian coffee. “It’s a powerful lesson and beyond what we could have had imagined. We sell our coffee for less than a dollar at times and it’s been discouraging for growers. Now we see there is a market we can tap into if we can guarantee the quality,” says Ato Bogale Woledehana, General Manager of Rumudamo Coffee – a local coffee exporter that participated in the COE.
One of the greatest impediments to growth of the coffee industry in Ethiopia is lack of access to financing. According to the IFC, Ethiopian banks are often unwilling to lend to coffee farmers because they lack collateral. Without funding, farmers cannot acquire the necessary inputs to improve their production levels.
To support continued growth, IFC has extended a risk-sharing facility worth up to US$10 million to Nib International Bank. The Ethiopian bank will now be empowered to advance loans to local cooperatives, helping them increase the volume of coffee they process from about 460 to 4,000 metric tonnes, generating about US$17 million in export revenues and creating 2,000 jobs.
Production is however one part of the equation. Marketing is the other. On this front, the Ethiopian government has been doubling down on its efforts to market the Ethiopian coffee brand abroad and to seek additional markets for its crop.
According to Adugna Debela, Director General of the Ethiopian Coffee and Tea Authority, the East African nation is seeking to increase trade with Asian countries, such as China and South Korea, where coffee consumption continues to grow. In June 2021, Ethiopia launched an initiative to attract Chinese investors into the country.
The investors are to join hands with local coffee roasters to add value to their products and increase direct coffee exports to China. Significant progress has been made on this front, with Ethiopia more than doubling the amount of coffee it exports to the second largest economy in the world in just under one year. For the month of July 2021, Ethiopia exported 31,145 tonnes of coffee to China, a figure is close to triple the 11,889 tons that were exported to the Asian country during the same period in 2020.
The Authority also plans to participate in international coffee exhibitions to market Ethiopian specialty coffees. With the vertical integration policy already in place, the authority has also been encouraging Ethiopian coffee exporters and other stakeholders to also partake in these exhibitions to develop new trade ties that will further grow Ethiopia’s share of the international coffee market.
Leveraging the power of e-commerce, Ethiopian government has entered a strategic partnership with Chinese based e-commerce giant Alibaba to promote Ethiopian products on its platform. Wild Coffee Ethiopia also recently secured a partnership with US retail giant Walmart, allowing the home-grown company to sell its coffee on Walmart’s online platform. These avenues promise to bring Ethiopian coffee to consumers who previously had no idea such kind of coffee even existed.
Adding sustainability to coffee production
As Ethiopia doubles down on efforts to increase productivity, sustainability has also become a key focus for many stakeholders.
TechnoServe, an international non-profit organization has been at the for front of the sustainable coffee agenda for a while now and has created a model that promises to improve coffee yields while protecting Ethiopian forests from deforestation.
According to a World Bank report, almost 80% of Ethiopia’s 1 million hectares of coffee trees are underproductive because the trees are not trimmed often enough. Lower productivity creates an incentive for farmers to clear more land which is a threat to forests. To counter this, TechnoServe has been running an innovative ‘Coffee Farm College’ across the country to show farmers how to boost yields using various sustainable farming techniques, including the seemingly counter-productive practice of stumping.
Stumping involves pruning older and less productive trees down to just a stump. This stimulates the growth of new sprouts that develop into new branches within a few months. It’s a proven technique that results in a 2- to 3-fold increase in yields and a potential tripling of income within three years.
The World Bank has also joined the sustainable coffee production initiative, launching its BioCarbon Fund Initiative for Sustainable Forest Landscapes (ISFL) in the Oromia region. The initiative includes funding to support coffee stumping training and income compensation for farmers who adopt stamping practices. This is expected to bolster initiatives already implemented by TechnoServe which are aimed at improving coffee farm productivity.
In April, ECTA announced that it is working in collaboration with foreign NGOs to replace old coffee varieties with improved ones. This would further improve productivity, boosting Ethiopia’s total coffee production.
Ethiopia has also recently launched a state-of-the-art coffee training center to deliver modular and practice-based training that aims to enhance the sustainability and value chain of the country’s coffee sector. Located on the premises of ECTA in Addis Ababa, the center comprises of coffee laboratories, including green coffee evaluation, sensorial lab, industrial processing lab and brewing lab, cafes, classrooms as well as rooms for coffee shop, conference and other services.
Training programs on the fundamentals of coffee; processing, drying and storage; trade and maintenance of equipment, will be provided at the center, all with the aim of improving the sustainability and inclusiveness of Ethiopia’s coffee value chain.
Harnessing current gains key to future
Ethiopian coffee under the current administration has made great strides, particularly in claiming its birth right as the original home of the most drank beverage in the world.
To get to 1.8 million tonnes in annual coffee production target, coffee stakeholders in Ethiopia need to work together to ensure gains achieved by the policy changes made thus far are not lost. Activities like the Cup of Excellence competition need to continue being part of Ethiopia’s coffee industry as they give farmers more incentive to produce great quality coffee.
Works at the ECTA coffee labs aimed at improving coffee varieties also needs to continue to ensure that the country has the best crop possible that can withstand the changing climate while at the same time guaranteeing high quality coffee.
Ethiopia’s great efforts at marketing its coffee abroad is happening at a time when specialty coffee is increasing in popularity. Global specialty coffee market, which was valued at a revenue of US$35.86 billion in 2018 is expected to grow at a CAGR of 13.3% to reach a market value of US$83.5 billion by the year 2025, according to Adroit Market Research.
Ethiopia already has three of its regions of Sidamo, Harrar and Limu trademarked as specialty coffee regions, giving it a head start in this premium segment of coffee business. The only thing stakeholders in the country’s coffee sector must do is to continue focusing on quality, quantity, and marketing, particularly in Europe, which accounts for 40% of the total specialty coffee market, and as a critical emerging market, Asia and the Middle East. Ethiopia being the natural home of coffee, it will only be a matter of time before it regains its status as the purveyor of authentic, high quality, single sourced coffee.