Precious Beans as Bargain Buy

5. Aug 2014

By: Sophie Stracke og Andreas Beck (Foto)

The afternoons are coffee time at the Ethiopian Commodity Exchange (ECX) in Addis Ababa, where the trading floor is heavily guarded and only accessible after strict security control. It is here, most of the coffee consumed in Europe is being traded.

Screens flash up prices from the New York Intercontinental Exchange, while a bunch of buyers and sellers have gathered on a platform making their bids and negotiating. Ten minutes are given for every variety of coffee, most deals are sealed by hand clap just after the auctioneer’s “one minute left” call.

Almost all Ethiopian coffee has to be traded here according to a law enacted in 2008, when coffee became a commodity at the ECX, with the intention of giving better market-access to the country’s small scale farmers and an increase of quality and transparency of the trade.
“One of ECX’s great achievements is that we provide real time market information throughout the country,” says Anteneh Degefe communications and media specialist at the ECX, “in that way we ensure smallholder farmers even in remote areas know the daily price of coffee.”

Weak bargaining power

About 350 kilometres to the south-west in Jaboo, Oromia, the experience of Daniel Godebo is quite different: The 57-year-old farmer is one of four million smallholder farmers growing coffee in Ethiopia, he owns and cultivates two hectares of coffee forest in Jaboo, Oromia. The region is said to be the cradle of coffee and stands for 65% of Ethiopian coffee production.

“We do not know the market price, I sold my dried coffee for 0.66 € per kilo this year and then I hear my neighbour got 1,10 € per Kilo for his”.
Despite the efforts made at the ECX to provide farmers like Godebo with price information, poor infrastructure stands in the way in many places and makes them easy victims for mercenary private traders.

Rahel Bekele, Senior Value Chain Advisor at Oxfam GB points out:
“In areas, where there is electricity, the ECX provides price-information, but this is not the case in remote parts of the country”.

Daniel Godebo, who has to sustain a family of ten with the earnings from his coffee, says:
“The prices, we are getting, are by no means compatible with the effort, we are making, we work really hard not to starve from hunger”.

Like most smallholder farmers in the region, he grows some fruit and produces wild-honey to supply the income from coffee, as the yield can vary widely from season to season.

Farmers need fast cash

30 year old Biya Kamal owns 0.5 hectares of coffee land in the nearby village of Somodo and can not confirm that the good intentions at the ECX have an effect in reality either. He sold his coffee for 0.55€ per Kilo last year and tells of private traders collecting the coffee in the region at the lowest possible price, that he doubts has anything to do with the market price.

But even if he could be sure, the time he can wait is very limited, as he has bills and taxes to pay and no reserves.

This urgent need for immediate cash gives coffee producers a weak position in price negotiations with traders, says Mefthe Tadesse, country director at TechnoServe, an organization encouraging coffee farmers to join cooperatives and providing them with loans and direct market access. She confirms that the lack of capital among smallholder farmers allows for private traders to pay far too little for the coffee they collect to have it processed and then sell it to exporters at the ECX:

“The absence of a saving culture in these communities makes them vulnerable to private traders pressing the price, or even illegal traders; the farmers need cash that day and sell instead of waiting for a better offer”.

Biya Kamal heard rumours last week about the price going up, “but few families have coffee at home now, we sold it for low prices because we had expenses to cover”. He wants the government to intervene and has complained to the district officials together with other farmers from the community.
“They said to us: it is a free market place, just sell your goats and wait for a better price!”

But Biya Kamal’s family of five has no goats to sell, two cows and a few chicken are kept in the small backyard of their house, they grow modest amounts of maize and grass to supply the income from their coffee.

Farmers united

There is widespread recognition among local experts about the lack of information and the unregulated activities of middlemen forming an unfavourable mix for the situation of smallholder farmers:

“The longer the value chain, the smaller the advantage for the farmers, breaking this chain is one of the most important things and traders have to be removed from the chain,” says Rahel Bekele.
Oxfam GB has recently finished work on a coffee value chain project targeted at 13.000 farmers and Bekele is sure that “organization in cooperatives is one of the best solutions for smallholders”.

Acting upon the same conviction, Tadesse Meskele, founder and General Manager of the Oromia Coffee Farmers Cooperative Union (OCFCU), has worked with coffee farmers since 1999 to strengthen their position in price-negotiations, enable them to demand adequate prices and cut middlemen and traders out of the value chain by marketing to selected export buyers. According to him, “multinationals have no concerns for growers at all, they buy Ethiopian coffee through ECX at market-price. Through the union we can sell directly to fair trade buyers at prices up to three times above that, giving the farmers a chance for a fairly decent living.” Cooperatives and commercial farms are subject to an exceptional rule and can sell specialty coffee directly, bypass the ECX system and establish business relationships with export buyers.

The Haro cooperative near Jimma, Oromia’s largest city southwest of Addis, is the oldest of the 240 cooperatives the union has established until now.
738 men and 91 women produce both sun-dried and washed coffee here that is being processed and graded at their own three dry mills and two washing stations, transported to the OCFCU’s premises in Gelan and then sold directly to international buyers.
“By cutting out traders and middlemen, we have considerably shortened the value chain and can pay 70% of the net profit to the coffee producers”, Tadesse Meskele explains.

In addition, the union provides cooperatives with capital to upgrade their equipment, as well as quality trainings to live up to the demands of international buyers. The cooperative saves an amount of the returns for years with low yields from the coffee harvest and for community improvement, in Haro those savings have been spent on a local school and a potable water station.

Little concern from big buyers

Rahel Bekele points out that paying a higher price pays off for international coffee buyers in terms of quality and that they should have some concern for the producers.
“It is very easy to take advantage of smallholder farmers, but buying brands should not only care for profit. The contracts they make with coffee growers should be fair and transparent and take the high level of illiteracy among coffee farmers into account. Moreover, engagement in capacity building should be an essential part of their CSR-strategies.”
Tadesse Meskele is working unremittingly to promote collective organization among coffee producers: “Up until now only 20% of farmers are organized in cooperatives, this number has to increase”.

An undertaking with no future

Biya Kamal is sceptical of cooperative organization: “There is no cooperative in my village and I doubt that they are so efficient, from what I hear people are waiting for their money far too long”, says Biya Kamal. He has been to quality-trainings, but does not feel the effort is paying off and will not continue producing export coffee.

Daniel Godebo sees some advantage in not working alone: “Unlike me, who needs cash instantly and throws his coffee after the traders, the unions have real power to negotiate a decent price, nobody has any concern for my price request”.

He is the first of his family to grow coffee on this plot and has no wish for any of his offspring to make it a family tradition: “Thank god I am able to send my children to school, I want them to have a successful life, and there is definitely no good life as a coffee farmer.”