Download 2. description of the study area

Haramaya University
College of Agriculture
Department of Agricultural Economics
By: Abdurahman Hassen
School of Graduate Studies
Department of Agricultural Economics
Submitted to: Fekadu Gelaw (Assistant Prof.)
Coordinator of AgShare Project
July, 2011
TABLE OF CONTENTS
1. INTRODUCTION
3
1.1. Background
3
1.2.Objectives and Methodology
3
2. DESCRIPTION OF THE STUDY AREA
4
2.1. Geographical Conditions
4
2.2. Population, Livelihood and Cash Crops
5
2.3. Coffee Production and Location in Hararghe
5
3. COFFEE MARKETING SYSTEMS
7
3.1.Overview
7
3.2. Market Structure
8
3.3. Coffee Marketing Functions in the Study Area
9
3.4. Marketing Chains: Market Flows, Participants and their Functions
3.4.1.Market participants
3.4.2. Market flow
3.4.3. Role of market participants in coffee marketing
11
11
11
14
4. CONCLUSIONS AND RECOMMENDATIONS
21
5. REFERENCES
24
1
Acknowledgements
I want to express my gratitude to the farmers, Akerabies, and Exporters for their frank and open
contribution; to the Woreda offices of different sectors for their helpful collaboration, as well as, for
their effort to provide relevant documentation and to all other persons who shared their knowledge for
the success of producing this report in one way or another.
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1. INTRODUCTION
1.1. Background
Hararghe, in this study refers to East and West Hararghe zones of Oromia Regional State of Ethiopia.
The area is known for its cash crop production mainly chat and coffee. The coffee from this area is
mainly destined to export markets through Dire Dawa. The Hararghe coffee is transported from
production areas by Akerabies to Dire Dawa warehouse of ECX branch and exported through Djibouti,
mainly to Arab countries and Japan and now a day to some extent to Western Europe and USA.
All the marketing systems will evolve within the constraints and conditions placed upon them by the
production sector and by the nature of the goods being marketed. The type of product, the number, size
and density of producers, the infrastructure and the policy and institutional environments all determine
the type of marketing system and the effectiveness with which it operates. Analyses of marketing
systems usually include quantification of the flows and of the value added, costs and profit margins at
each stage in the system.
In order to make an effective intervention in a marketing system, it is necessary to define the types of
marketing channels, their linkages and functions and agents. The linkage between rural and urban areas
is normally provided by a network of market intermediaries, along the chain. The different marketing
functions performed by marketing agents, their marketing behavior and number affect the performance
of the market. This study aims at analyzing the roles that marketing agents play in the marketing of
coffee in eastern Ethiopia.
1.2.Objectives and Methodology
The general objective of this case study is to assess the roles and functions that the marketing agents
play in the marketing of coffee in East and West Hararghe Zones of Oromia region. The specific aims
of the study are to:
3

Identify market participants, the existing marketing channels and the different
marketing functions performed by each participants along the chain,

Assess the trends of the role of agents and their functions in coffee marketing.
This report is based on the information gathered during a field survey, as well as from review of
relevant documents. The field survey was conducted in three districts, namely; Deder, Bedeno and
Mesela, from east and west Hararghe zones.
Discussions were held with groups of farmers on the production and marketing of coffee, as well as
with market participants and government bodies on coffee marketing, their functions and their roles in
the marketing of coffee based on a detailed checklist.
Discussions were also held at Woreda level with Woreda Bureau of Agriculture, and development
agents. Furthermore, ECX, and Quality Control Sub-office in Dire Dawa, exporters, whole sellers,
processors and roasters in coffee market have been visited.
2. DESCRIPTION OF THE STUDY AREA
2.1. Geographical Conditions
The Hararghe area is situated in the eastern part of Ethiopia, 200 to 400 kms east of the capital city
Addis Ababa. The agro climatic range includes lowland (Kolla 30-40%), midland (Weynadega 3545%) and highland areas (Dega 15-20%), with lowest elevations at around 1,000 masl, culminating at
3,405 m, at the top of Gara Muleta mountain.
There are two rainy seasons, the small Belg and the main Meher. Belg production is limited within the
Dega zone and part of the wetter Weynadega, but Belg rains are widely used for land preparation and
seeding of long cycle Meher crops (sorghum and maize). Annual rainfall averages range from below
700 mm for the lower Kolla to nearly 1,200 mm for the higher elevations of Weynadega and Dega
zones. The variability of rainfall from year to year and its often uneven distribution during the growing
seasons give place to a wide range of climatic hazards which farmers have to deal with.
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The main staple food includes sorghum and maize, as well as sweet potato, which is extensively
cultivated during bad years to improve food security. Other food crops include barley, wheat, teff and
pulses. Cash crops like chat (a popular, mild narcotic) and coffee have a long standing tradition
complemented by Irish potatoes, onions/shallots and some other.
2.2. Population, Livelihood and Cash Crops
The overwhelming majority of the people are rural, with only 6% of urban population for the two
zones. This figure might be due to the fact that, as the two major towns, Dire Dawa and Harar, enclosed
within the two Hararghe zones, are not part of the administrative structure.
The urban population is mainly active in the service sector, as members of public services and
administration, or in trade and hostelry, with a small manufacturing component. The vast majority of
rural population is living from agriculture, with some pastoralists and/or agro pastoralists in the
lowland areas.
Main cash crops are chat and coffee as perennials and Irish potatoes, onions/shallots and other
vegetables as annuals. They are grown within their respective agro climatic zones, with a concentration
on irrigable plots for vegetables and chat. Chat as a very perishable commodity, its cultivation is
therefore concentrated along the main road and also areas with good link roads. Coffee as a nonperishable commodity is grown within its agro climatic zone nearly all over Hararghe, with a net
concentration in remote areas with bad or no road access.
2.3. Coffee Production and Location in Hararghe
All cultivated coffee species originate from Africa, the most appreciated for its quality, coffee Arabica,
from Ethiopia. The plant has meanwhile been propagated to other African countries and to overseas.
Collection of wild coffee followed by the cultivation of coffee plants has a long tradition in Ethiopia
and coffee had been exported to outside world mainly to Arabic countries. Ethiopia is also the only
African country with a long-standing coffee drinking tradition, well embedded in the everyday life.
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The Hararghe coffee, coffee Arabica is a shrub with a height not extending 5 m., is generally grown at
altitudes ranging from around 1,700m to 2,000 masl, the lower limit being determined by the average
amount of rainfall (1,000 mm) and distribution and the higher by the ambient temperature.
Table 1. Coffee producing areas/Woreda
S/N Zone
District
Methods of cultivation
1
Deder
rain fed, irrigated, pure stand
2
Meta
rain fed ,pure stand
3
Gursum
rain fed ,irrigated
4
Grawa
rain fed, pure stand
5
Bedeno
rain fed, pure stand
6
Melka Balo
rain fed, pure stand
Anchar
rain fed, pure stand
8
Chiro
rain fed, pure stand
9
Doba
rain fed, pure stand
10
Tulo
rain fed, pure stand
11
Mesela
rain fed, pure stand
12
Kuni
rain fed, pure stand
13
Habro
rain fed, pure stand
14
Boke
rain fed, pure stand
15
Darolebu
rain fed, pure stand
7
East Hararghe
West Hararghe
Source: Annual report of Dire Dawa Coffee Quality Control and Liquor
From Table 1, in Hararghe, coffee is generally grown in pure stands, with intercropping only during the
young stage. It is grown mostly under rain fed conditions, sometimes improved by water conservation
measures and even harvesting devices for run-off water in more arid areas. In some locations for
instance; like Deder and Gursum to mention; irrigation is used, especially after the main rainy season
until harvest time. Coffee seedlings are mostly bought from nurseries handled by the Ministry of
Agriculture (MoA), with some farmers producing their own seedlings.
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Manure is applied every year according to availability, whereas chemical fertilizers are used
intermittently, whenever financially possible. Some coffee farmers hire casual labor, generally during
peak seasons of pre-harvest and during the harvest time.
Coffee is harvested between October and January. The average yield per hectare amounts to 400-500
kg of clean beans, with big variations between years, according to climatic conditions, degree of
infestation and fertilizer application, ranging from below 400 kg up to 700 kg/ha and more. Coffee
producers of East Hararghe of Bedeno and Mesela generally process their coffee on the farm to sell
clean coffee beans, whereas the coffee produced in the central and southern part of West Hararghe;
Kuni, Habro, Boke, Darolebu is sold as dried cherries, the hulling being done by the Akerabies or / and
Cooperatives.
Main problems with coffee production mentioned by the farmers were: high incidence of CBD, high
price for imported agricultural inputs like chemical fertilizers and phytosanitary products, lack of
different equipments and materials for collecting, maintaining the quality of their product as per the
quality standard requirement setted, and price fluctuations on the coffee market and in general the
rising costs of living associated with the rising costs of production and cultivation.
3. COFFEE MARKETING SYSTEMS
3.1. Overview
A marketing system is comprised of a number of elements: the particular products (e.g. red cherry
coffee only, or hulled and un hulled or roasted) and their characteristics being transferred from
producer to consumer; the characteristics of participants (e.g. the producer, the trader, the consumer);
the functions or roles that each participant performs in the market; and the locations, stages, time and
physical infrastructures involved as well.
In this section the survey results are discussed as follows. Marketing chains, which shows the coffee
market flows and participant will be dealt, using different techniques like diagrams and simple flow
chart. Within this section the existing market levels and their features as well as, the roles of these
market participants will be addressed separately. The second section addresses the general marketing
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functions that exist in the study area as well as the elements and the features of these coffee marketing
functions. Following this, the roles played by the different market actors in coffee marketing based on
these marketing functions are addressed. Lastly, the conclusion and recommendation based on the
results obtained from the study are presented.
3.2. Market Structure
In the study area, coffee is channeled through the following types of market via different market
intermediaries.
1. Rural primary markets: In rural markets, trade is characterized by direct sales of small quantities
of produce by producers to village traders, collectors and rarely agents of Cooperatives and by sales by
retailers to rural and urban consumers, Akerabies and Cooperative/Union respectively. Rural markets
form part of a trade network and are normally arranged on a periodic basis on specific weekdays, and
are commonly organized at a central place in a village or beside the village’s access road. In some
instances, provincial towns like Chiro and district level markets also serve this function by Akerabies,
besides providing an assembly function i.e. assembling produce in larger quantities for onward sale to
ECX.
A better local market environment can make a sizeable difference in terms of improving farmers’
income. Good access to technical assistance, inputs, credit, transportation, and marketing information
are critical for ensuring that small farmers get the best possible price for their products. They are also
necessary conditions for improving yields, quality of production and processing capacities at the farm
level. Taxation at the local level and regulations that prevent competition between intermediaries along
the supply chain; such as trade or Subsidies licenses for instance discourage the creation of strong small
producers’ and collectors associations.
2. Assembly markets: This is done by Akerabies or cooperatives. Larger rural markets are found
where greater quantities of produce are traded, either by the producers themselves or by traders. These
assembly markets often combined with local rural markets, performed by Akerabies and
Cooperatives/Unions are normally situated on main highways, and other local transport nodes mainly
stationed at district towns. Produce is predominantly bought by Akerabies. In rare cases during
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weekdays collectors or collection agents on their own or on behalf of urban wholesalers purchase
coffee.
3. The Ethiopia Commodity Exchange (ECX): These markets supplied from purchasing or assembly
centers in the rural and urban areas directly by Akerabies. Transactions are predominantly handled via
warehouse operation by Akerabies on the supply side and exporters or domestic whole sellers directly
by them or via their agents or representatives from the demand side.
4. Retail markets: These are markets directly serving rural and urban consumers and are found in semi
urban areas, such as Woreda town. Although primarily retailing, they may have some semi-wholesale
functions, particularly if they allow farmers to trade. In that case, they are often called farmers’
markets, since there are farmers which have capital and perform some retail business in their locality
besides their main activity of farming. They will provide basic materials for the local community. In so
doing they will buy from farmers and store in large quantity.
3.3. Coffee Marketing Functions in the Study Area
Marketing is sometimes thought of as simply the process of buying and selling. For a marketing system
to be operative and effective, its tasks are much more extensive than this simple description. In this
regard, the particular features of these marketing functions and the way they are created and
coordinated in the market by the different participants is dealt with.
Here we focus on the general marketing functions which is emanated by and from market participants
over space, form and time.
Hence, the survey result revealed three general types of marketing
functions in the marketing of coffee in eastern Ethiopia: Exchange functions, physical functions and
facilitating functions.
I. Exchange functions: These consist of among others; buying, selling and pricing functions which are
the most important elements. Exchange functions are what are commonly thought of as marketing.
They involve finding a buyer or a seller, negotiating price and transferring ownership; sometimes may
not be physical transfer. These functions take place at the “market” where the physical meeting point
for buyers and sellers at the point of production or via some other means of communication. At this
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point, formal or informal property rights are important to ensure the reliable transfer of ownership and
to guarantee legality. Since due to high value nature of the product, coffee is sensitive to cheat, and also
for smuggling for this the coffee on sale was not stolen and will not be reclaimed. In addition, some
traders do some illicit mal practices for different reasons by mixing different coffee which have
different grade, quality and standards, in this they should have to do further to secure their business
legality.
II. Physical functions: This includes; assembling, transport and handling, storage, processing and
packaging, and grading and standardization. Physical functions enable the actual flow of commodities
through space and time from producer to consumer and their transformation to a form desirable.
Assembling or concentrating the product and storage allows the commodity at convenient points allows
its economical transport i.e. getting enough stock of coffee together to transport cheaply to supply.
Processing transforms the commodity into the products desired by the consumers. Grading and
standardization allow the exporters to be more confident of the characteristics of the good being
purchased. Moreover, this serves as mechanism for the farmers to get high price, at the present quality
of coffee have nine grades according to which different farmers may not get the same price for their
product.
III. Facilitating functions: This consists of financing and risk-bearing, market information, demand
and supply creation, and mostly market research. Among all this, financing and risk-bearing are two
important facilitating functions. The owner of goods; whether it is Sebsabi or Akerabi or else, at any
marketing stage must sacrifice the opportunity to use the working capital needed to buy those goods
elsewhere. Or the owner must borrow that capital. In either case, capital was provided by the Akerabies
to subsidize or to Akerabies by some lending source. Further, there is an implicit cost in the risk of
losing all or part of that capital through theft, losing quality, lower grade or changing market
conditions. Without the willingness to provide the capital and to bear these costs, no stage of the
market chain could function. Other facilitating functions enable producers to respond to consumer
needs and thus provide goods in the locations, quantity and form desired.
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3.4. Marketing Chains: Market Flows, Participants and their Functions
3.4.1. Market participants
The major actors in the eastern part of Ethiopian coffee market, Hararghe are exporters, domestic
wholesalers, brokers/agents, Akerabies (Assemblers), collectors (Sebsabies) and primary cooperatives
and their unions, from demand side and small-scale farmers in the supply side. Market actors are
defined by the roles they play, by the nature of their financing activities and their responsibility to
ownership whether to a private purchaser of the marketing service or self-responsibility as in the case
of independent private enterprises in case of Akerabies or State enterprises in case of Cooperatives or
Unions. Actors in the market can choose between specializing in one activity or integrating a number
of activities into one enterprise in a vertical or horizontal manner. Thus, the roles of actors are often
difficult to separate. The roles of vertically integrated actors are likely to overlap with those of more
specialized agents in the market.
3.4.2. Market flow
Construction of coffee marketing chains in the study area helps to understand and organize the links
between production and consumption. Some typical marketing chains for above mentioned product are
shown in the following tabulation:
1. Farmer S,P,T → rural consumer/Urban Consumers
2. Farmers S,P,T → rural retailer S, T→ Urban Consumer
3. Farmer S,P,T → rural retailer S, T→ Sebsabies/Collectors S,T → Akerabies S,P,T → ECX S,T
→Exporters S,P,T → Foreign Consumers
4. Farmer S,P,T → Collectors S,T → Akerabies S,P, T→ ECX S,T →Exporters S,T → Foreign
Consumers/ → Domestic wholesaler S,T → Urban Retailers T→ urban consumer respectively
5. Farmer S,T → Akerabies/Unions or Cooperatives P,S,T→ECX S,T →Roasters S,P,T → Retailers
T→ urban consumer
6. Farmer S,T → Akerabies P,S,T → Unions T→ECX S,T→ Exporters S,T → Foreign Consumers
Where:
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T = transfer operation, such as transportation or exchange of ownership;
P = processing activity; and
S = storage function.
Using formal or informal market surveys, estimating volumes and percentages of commodity
transformations at each link in the chain provides an overview of the marketing system’s structure.
Even though such analysis is beyond the scope of this survey, we can pose the following arguments.

How much of total production do farmers sell, and how much is sold directly to rural or urban
consumers (marketing chain 1)?

How much is sold to collectors in a nearby marketplace (chain 2)?

How much is sold to foreign consumers through exporters or to domestic consumers through
domestic whole sellers wholesalers who travel to producing areas to buy supplies for urban markets
(chain 3)?

How much is sold to coffee roasters who then process and roast and distribute to urban consumers
through retailers outlets (chain 4)?

How much is sold to Akerabies or Unions i.e. processors or assemblers, who then sell either to
ECX or to ECX Via Unions in the region then for shipment to ECX (chain 5)?
As it has been mentioned above, even though such analysis are beyond the scope of the case study,
since, role of participants is one aspect of marketing structure. For this, mainly, the role of participants
and flow analysis will address some of the arguments stated above.
Marketing chain diagrams thus specify market linkages that connect one price series to another to
determine the margin, for instance, whether rural coffee prices are influenced by Sebsabies, Akerabies,
cooperative or whether expectations of high pre harvest prices work back to influence the harvest price.
Even though, it is beyond the scope of the survey, knowing, when and where the coffee is sold, its
transportation and storage destinations, and who is the ultimate consumer via which channels permit
the researcher to specify the likely causal direction of market connections, can helpful in basic planning
for new investment in marketing, by identifying both the channels where volume is highest and other
channels which could be further developed.
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Akerabies
ECX
Farmers
Domestic
Consumers
Sebsabies
Unions/Coo
peratives
Domestic
whole
sellers & or
Roasters
Domesti
c
Retailer
s
Figure 1. Marketing chains and channels
All of the goods in a particular market are unlikely to pass through the same set of agents. Usually
goods pass through a variety of market channels as a result of varying degrees of vertical integration
existing in the same market. Figure 1 illustrates a marketing system showing multiple marketing
channels. At times, some intermediaries are by passed, while in others, coffee pass through a large
number of hands.
There were different marketing channels for washed and unwashed coffee (not explained in the above
Figure 1). Farmers could sell both hulled and unhulled coffee, but it was more common to sell it hulled.
Farmers, having picked and sun dried and hand hulled coffee, will sell it to cooperatives at village, or
to Sebsabies at nearby village markets (Bedeno). Farmers producing the fresh cherry or red cherry sold
to Akerabies or cooperative washing stations (Mesela). Even though the law prohibits, private traders
were in operation to trade washed coffee.
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3.4.3. Role of market participants in coffee marketing
1. Coffee producers
This category of participants constitutes small-scale coffee farmers. Even though the law sanctioned on
the form of coffee producers should sold and to whom and other related issues, the survey result shows
that coffee reaches the market from the farm in three principal ways:

By means of direct sales to collectors, cooperatives/unions and urban retailers/shoppers,

Direct sales to Akerabies or Cooperatives/Unions, and

Direct sales to retailers.
Farmers sell small quantities of coffee to rural assemblers known as Sebsabi who assemble coffee from
a large number of farmers and transport it to the Woreda market to the Akerabies using horse-driven
carts. The role of farmer-collectors is widely prevalent.
Farmers transport coffee to the nearest local/Woreda market themselves, either carrying sacks
themselves or using donkeys over relatively short distances and they sell directly to Akerabies or to
cooperative if they are the members of the cooperative, as observed in Bedeno or the union. Finally,
farmers also sell coffee directly to retailers in local market towns, who own shop and other similar
retailing business activities, or to rural retailers whose functions resemble that of urban retailers.
Farmers usually sell 80% to over 90% of their production, whereas the remaining is kept for home
consumption. Even though the current market price is rewarding, however, as the coffee price is
generally lowest after harvest, farmers will store their production awaiting a better price, whenever they
can afford it.
Regarding the marketing functions, farmers perform the following marketing functions which includes:

Harvesting and assembling,

Sorting and grading,

Processing,

Packaging,

Storing,
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
Transportation,

Setting price and

Selling and buying.
2. Coffee collectors/Sebsabies
Even though they are prohibited, currently most of them have got new license as Akerabies, or as
agents of Akerabies via Akerabies license, but doing Sebsabies activity in their locality. The survey
reveals that Sebsabi often carry out the following functions: Setting price, weighting and grading coffee
through observation and smelling, which is an initial task of assembling goods from dispersed farms or
local rural markets. These buyers may be farmers, shopkeepers, itinerant traders or some co-operative
or government-buying agency.
Even though Sebsabies are prohibited by the new legislative, the survey result shows that, farmers sell
their coffee directly to coffee Sebsabies, cooperatives, and in some cases but rarely bypassing the
Sebsabies to Akerabies. The coffee is either brought by the farmer to primary market center in case
when they are selling directly to Akerabies, or collected by Sebsabies and cooperative/union
representatives in the locality, who then assemble and transport to primary market center. Regarding
the nature of the product they are selling, the survey result shows that both clean bean and hulled
coffee are supplied by the farmers. After harvest the coffee cherries get sun dried and then hulled,
either by hand or with a huller. Coffee producers of East Hararghe and Mesela are selling the clean
beans, whereas those of Kuni, Habro, Boke and Darolebu sell the dried cherries, the hulling being done
by the Akerabies and Cooperatives.
As shown in Figure1, Formal cooperative agents compete with the primary licensed private collectors
(Sebsabies) and non-licensed private collectors to gather large volume of coffee from farmers at village
level or sometimes in small local market which is organized once in a week. These groups sell it to
larger locally registered private suppliers (Akerabies), or to the union or cooperative.
In general, Sebsabies have the following roles in the coffee market:

Providing market information to clients,

Arranging the handling and logistics of coffee delivery,
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
Weighting, grading and classifying coffee,

Determining its market price and,

Searching for potential sellers or clients.
3. Coffee Akerabies
Akerabies role is to transfer goods from producers or collectors to ECX or from other wholesalers
acting as Akerabies in that locality. Akerabies sometimes sell coffee to unions/Cooperatives in their
locality. Thus, their role may overlap with that of Sebsabies, in that they may deal directly with
producers. They often finance the movement of goods themselves and consequently bear the cost of
marketing risks via Sebsabies. Hence, there are Sebsabies who operate on behalf of Akerabies,
especially due the new regulation of coffee market which override their role. Due to this, they will take
some margin. For unhulled coffee, the Akerabies would either use their own huller or use the services
of private hullers. After hulling, the Akerabies could sell to exporters at ECX auction. Private exporters
and domestic wholesalers were restricted to purchase coffee only through ECX operation. To operate
profitably, Akerabies must be especially well-informed about current market prices and conditions that
Sebsabies offer for the farmers. In general, there exist two forms of coffee Akerabies/suppliers in the
study area;
I. Independent private enterprises/Akerabies: They operate with capital owned directly by the
operators and their partners, or in some cases by shareholders. Although not always large in scale of
operation, these make up the greatest number of Akerabies. Great variety exists in their level and
degree of sophistication.
II. Co-operatives/unions: Cooperative export directly to through the ECX warehouse at head quarter,
Addis Ababa and capture margins that would otherwise be captured by exporters. They can reduce
marketing costs. For example, a village coffee marketing co-operative could co-ordinate the production
schedules of small farmers, so that sufficient coffee would reach market age at the same time, allowing
truck transport to markets and lowering per unit transport costs. Co-operatives can also be used to
counteract imperfect competition among buyers, by creating greater bargaining power among
producers. Typically they are used to distribute credit or subsidized inputs. In order to be successful in
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the long run, a co-operative must be able to carry out marketing functions with lower cost or effort than
available alternatives.
The roles of cooperatives includes:

Providing market information to clients,

Arranging the handling and logistics of coffee delivery,

Weighting, grading and classifying coffee,

Determining its market price, or pricing,

Provide credit and subsidized inputs and other materials to their client ( Mesela Union), and

Processing and packaging.
6. Coffee exporters
Export coffee which is the primary foreign exchange earner to Ethiopia constitutes over 60% of the
total produce. Coffee export is conducted mainly by private exporters licensed for coffee export
business. Coffee export is one of the most rigorously regulated areas of trade in the country. Coffee
exporter is required to buy coffee only from the ECX, process it to meet the country’s export coffee
quality standards, and export and sell coffee by-product left over from the export coffee in same.
The roles of exporters include:

Providing market information to clients,

Arranging the handling and logistics of coffee delivery,

Determining its market price,

Searching foreign buyers, and

Processing, packaging and labeling.
7. Domestic consumption coffee wholesalers
Domestic consumption coffee is any coffee that does not meet export standard and coffee by-product,
coffee leftover from coffee processed for export and constitutes about 40% of the total coffee
production in the country. The person who trades domestic consumption coffee is domestic
consumption coffee wholesaler.
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These wholesalers purchase rejected coffee only from ECX, to sell for domestic consumption. They are
also prohibited from purchasing, transporting and selling of export quality coffee; storing coffee
outside a warehouse registered by the region’s bureau of trade and industry; selling domestic
consumption coffee outside markets designated to them as well as in the coffee producing localities
unless permitted by concerned organ.
The assignment of the wholesalers into specific markets and the prohibition from storing outside the
registered warehouse are triggered by the need to control their activities and coffee smuggling. In view
of that, a wholesaler can sell his coffee only in the region/area where the wholesaler is licensed. But the
law is silent as to whether a wholesaler can obtain license in different regions/areas so that he runs
similar businesses in two or more areas at the same time.
Their roles include:

Providing market information to clients,

Arranging the handling and logistics of coffee delivery,

Determining its market price, and

Distributing coffee to retailers.
8. Coffee roasters
Coffee roasters are residing in Dire Dawa, who engages in roasting or grinding and selling of coffee. In
the eastern part of the country, coffee processing is often carried out on a large scale by independently
private enterprises, located at Dire Dawa town, which also operate as exporters. Even though their
obligation differs according to the market for which they supply, they do so only for domestic
consumption. The obligations of roasters who supply for domestic market include purchasing coffee
from the ECX or domestic consumption coffee wholesalers and refraining from using export standard
coffee. In contrast, those roasters who engage in exporting roasted coffee are required to purchase
coffee only from the ECX. They also go through the quality control procedures of the concerned body.
Their roles include:

Purchasing from ECX or domestic whole sellers and then processes, transform the coffee either
partially or completely into the form to be consumed,
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
They may also sell their processing services to smaller traders,

Arranging the handling and logistics of coffee delivery, and

Determining its market price.
9. Warehouse operators
Here, Dire Dawa warehouse, the only sole operator in the eastern part of the country, plays significant
role in coffee trade through warehouse delivery. The importance of coffee warehouse has now
increased more than ever. This is due to the fact that the whole coffee trade is now shifted to the ECX
market system and trading in the ECX system is effected through transferring a warehouse receipt
rather than the commodities themselves.
A warehouse receipt is a “written acknowledgment drawn in accordance with the Warehouse Receipt
System Proclamation and issued by a warehouseman (a person who, professionally and for gain is
engaged in the business of storing of goods for others, purporting receipt of goods belonging to
another) for storage and includes electronic warehouse receipts.”
Warehouse receipt in the ECX perspective is electronic receipt, which in fact can be changed into paper
form, which is issued only by the Exchange Central Depository which represents the legal title to the
coffee deposited in the ECX warehouse or ECX designated third party operated warehouse. Basically,
coffee is required to be stored in a warehouse based on the contract concluded between the owner and
the warehouse operator.
Their roles include:

Providing market information to clients,

Arranging the handling of coffee delivery,

Facilitate warehouse receipt.
10. Commission agents/Wekil
May sometimes operate on behalf of exporters for a percentage of the price paid. Although they act in
the same way as exporters, the risk remains with the owner of the goods. Brokers offering an intimate
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knowledge of the market act to bring buyers and sellers together. Thus, they contribute in several ways
to the exchange functions by facilitating buying and selling, and reinforcing the informal system which
enforces contracts. Their roles include:

Providing market information to clients,

Arranging the handling of voucher and warehouse receipt,

Acting as buyers and sellers.
11. Domestic coffee retailers
Present the good to the consumer in the manner, location and form desired. At Woreda level, they may
also carry out some marketing activities. To mention: they will buy coffee directly from the farmers in
small quantities during market days, even while they are doing their regular work of shopping;
especially women’s are the main seller. Then they will collect and store until they get price to supply
for Akerabies in large quantities.
In general they are the main coffee sellers for urban consumers together with other items. Currently
coffee retailing price is around 75-85 Birr per Kg. This is the price that consumers are paying.
Their roles include:

Providing materials to clients,

Arranging the handling and logistics of coffee delivery, and

Storing.
12. The regulatory institutions of the coffee trade
The coffee industry is one of the highly regulated sectors in Ethiopia. There is very deep government
involvement in almost every aspect of the industry including its production, processing, grading,
quality inspection, storage, transportation and marketing of coffee. In these, many institutions with
differing roles are involved. These include Woreda coffee quality and transaction inspectors, coffee
liquoring and inspection centers and ECX.
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They are autonomous in making operational decisions. The objectives of establishing such public
intermediaries are: to raise the bargaining power of coffee producers to set up needed market and
processing facilities; to raise the scale of operation and thus to capture economies of scale; and to
stabilize market supply and prices. They often fail to achieve these objectives because of in appropriate
individual mal practices, poor management and lack of knowledge.
Their major roles include:

Providing market information to clients,

Arranging the handling and logistics of coffee delivery,

Grading and standardization and classifying coffee,

Price formation,

Demand and supply creation,

Market research,

Training and awareness creation, and

Law enforcement.
4. CONCLUSIONS AND RECOMMENDATIONS
Based on the results of the study the following conclusions and recommendations are drawn.

While farmers acknowledge the increment of the producer price for coffee, they compare it with the
actual production and living costs which have equally risen.

Lack of credit facilities is another serious problem raised by all market participants.

Following liberalization of the coffee sector in most parts of Hararghe, most of the green coffee is
bought from farmers by private traders mainly Sebsabies who sell to Akerabies, the remaining part
being bought by cooperatives.

Small farmers, are rarely able to by-pass these intermediaries as they do not have basic processing
and transportation facilities.
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
In addition, small producers do not have good access to central price information in many Woreda
and PAs which enables local traders, especially Sebsabies/collectors to take a bigger margin by
offering them a very low price. For instance in Mesela and Bedeno where Sebsabies role is widely
prevalent.

Small farmers rarely have a choice regarding the timing of sales or the identity of the buyer.
Moreover, farmers cannot chose the timing of their sale as they lack access to credit or warehousing
facilities, and often have to sell their harvest in advance to cover immediate expenses. But small
farmers cannot afford to store or transport their coffee to another place, which drastically limits
their ability to take advantage of market opportunities.

In general, small farmers are likely to get a rough deal because they have little power over private
intermediaries, cooperatives and governments, especially in a context of overall coffee over supply
during particular season. How much farmers receive for their coffee mainly depends on the role of
local traders and to some extent by Akerabies, marketing costs and processing capacities at farm
level.

There were different marketing channels for washed and unwashed coffee. Farmers producing
washed coffee had to deliver the red cherry to washing stations within 24 hours of harvest (Mesela),
to maintain an acceptable level of quality. Once processed, the resulting parchment was sold to the
ECX branches at Dire Dawa or taken directly to the ECX head quarter of the central deposit via
Akerabies and Unions or Cooperatives.

Owing to the new market legislative on coffee market framework, the new law puts some
requirement on the condition: the level, type of market, the nature of participants along with their
role, the requirements to engage in coffee market; in particular how and for whom coffee producers
should have to sell their product and the nature of their output etc. are some to explain. However,
even though the law prohibits private traders were in operation to trade washed coffee. Farmers,
having picked and sun dried coffee, could sell it to cooperatives, which then sell to the ECX
(Bedeno), to Sebsabies or the Akerabies at nearby village markets. Farmers could sell both hulled
and unhulled coffee, but it was more common to sell it hulled. This is due to the fact that, the
reason other than, the cultural and sociological practices and preferences for the by-product they
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have, and also for home consumption during labor mobilization, they will provide as “Hojja” with
chat for the labor. The other principal reason behind is that, dried per carp recuperated after hulling
is also sold, it is used to make a coffee-like beverage.

The existing coffee legislations prescribe some basic obligations that have to do with coffee trade
with respect to these participants the most important of which addresses the issues with respect to
coffee producers, Akerabies, domestic wholesalers, roasters and warehouse operators; however, the
law doesn’t explicitly and implicitly explain the case of Sebsabies. Hence, even though in the short
run they are in operation it will be difficult to predict the long term impacts and their fate unless the
concerned body gives solutions to them.

In addition to this, the assignment of the wholesalers into specific markets and the prohibition from
storing outside the registered warehouse are triggered by the need to control their activities and
coffee smuggling. In view of that, a wholesaler can sell his coffee only in the region/area where the
wholesaler is licensed. However, there are court cases which depicts the prevalence and
intensification of coffee smuggling and mixing of different origin thereby rejection of coffee by
quality control and inspection at Dire Dawa; for instance Mesela case.

The law is silent as to whether an exporter or a wholesaler can obtain two or more kinds of license
so that he runs different activities in coffee and related businesses (Exporter case at Dire Dawa), or
wholesalers obtain different license in different regions/areas so that he runs similar businesses in
two or more areas at the same time. This is becoming a problem, around Mesela, where there is
mixing of different quality of coffee, and observed most of the time, according to some informants.

Akerabies have to pay a tax at district level, which reportedly amounts to 5,000 Birr per truck load
of 120 quintals. Together with the prevailing high transportation cost and trade licenses for instance
as Sebsabi case that prevent competition between intermediaries along the supply chain will
discourage the creation of strong coffee collectors associations and Akerabies association.
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Starbucks Publicity on Export Prices of Ethiopian Coffee No. 1606, Kiel Institute for the World
Economy, Germany.
Dawit Alemu and G. Meijerink, 2010. The Ethiopian Commodity Exchange (ECX): An Overview.
ECX (Ethiopian Commodity Exchange), 2010. ECX Direct Specialty Trade (DST): Ethiopian
Commodity Exchange, Addis Ababa.
ECX (Ethiopia Commodity Exchange), 2009. Revised Rules of the Ethiopia commodity Exchange.
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Complementing institutions, Wageningen International Development Cooperation.
MOARD (Ministry of Agriculture and Rural Development), 2008. Coffee Production, Quality Control
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Oxfam: International Commodity Research – Coffee , ‘Spilling the Beans’, Fair Trade Foundation, UK
(www.fairtrade.org.uk).
Paulos Desaleng, 2004. Growth, Direction And Structure of Ethiopian Coffee Exports. MSc. Thesis,
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Susan N., 2008.The role of international commodity exchanges in the formation and transmission of
prices and price risk along international coffee chains Working Paper No 2008/12, Swiss national
center of Competence in research.
Takamasa A., John B., Donald F. Larson, and Panos V., 2003. Commodity Market Reform in Africa:
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