The coffee sector in Ethiopia is poised for significant change over the medium term. Nearly 9 years after the establishment of the Ethiopia Commodity Exchange (ECX) disrupted an overwhelming majority of direct trade relationships, the government is in the process of writing regulations that will allow sellers and buyers to once again partner on building traceable supply chains.
These changes have been in the pipeline for quite a few months, and started with a working group of Ethiopian exporters and the agents of several other companies working in the coffee sector. On March 23rd, they presented the Prime Minister with a list of roughly a dozen key points designed to improve the efficiency of the internal and external processes for trading Ethiopian coffee. The PM agreed with the overall vision and goals of the working group’s proposals, and he tasked the new Director General of the Ethiopian Coffee and Tea Development and Marketing Authority (ECTDMA) with developing tangible proposals.
At the end of last week, a meeting was held to announce the key areas where new regulations will be established. They include:
- Working to remove the sabsabis (private, farm gate buyers) from the coffee purchasing chain and requiring the 907 hulling stations and 1249 wet mills to purchase cherry and sundried qualities directly.
- Allowing coffee purchased from the ECX to be sold directly from the truck without having to wait for unloading.
- Within ECX warehouses, establishing a system whereby lots are separated and preserved by supplier.
- Reverting to the previous internal grading system of assigning each lot a grade from 1–9. Last year, the system was changed to assign only 6 grades to coffees, which created serious problems in the quality segmentation and differentiation process.
- Setting a minimum farm gate price paid to producers
- Establishing a daily trading range of +/- 5% versus the previous day ’s close on the ECX to reduce volatility and to ensure exporters are not overly affected by abnormal trading events.
- Suspending coffee exporters who consistently sell at below-market prices in order to obtain foreign currency for importing purposes
- Building a stronger legal framework for outgrowers clustered around larger coffee estates.
- Allowing wet mills and natural coffee producers to sign agreements allowing both sides to vertically integrate and directly export coffees.
This final point is perhaps the most important change being proposed. If successfully enacted, we believe it will unleash a wave of investment in primary processing all the way down to the smallholder level. Buyers will be able to invest in repeatable, reliable supply chains and collaborate with farmers and suppliers to improve quality and ensure a fair share of proceeds is received by all.
As the old saying goes, “the devil is in the details”, and there are most certainly many details yet to be worked out, alongside many rumours of other changes to take place. Our team in Addis will be closely monitoring developments on the ground and communicating changes as they emerge.
We are always available to help you understand the impact these changes may have on your Ethiopian sourcing, and welcome all questions.