Black Gold

 

 

BLACK GOLD

by Joakim Larsen

September 2014

 

 

International Coffee Trade and it's Effect on Ethiopian Coffee Farmers.

 

 

Every day more than two billion cups of coffee are consumed globally. Ethiopia is among the World’s largest coffee producers. But rather than being dependent on trade, millions of Ethiopians, including many coffee farmers, depend on humanitarian aid.

 

 

A High Value Commodity

 

“Coffee is the world's second most valuable traded commodity, following only petrolium. There are approximately 25 million farmers and coffee workers in over 50 countries involved in producing coffee. Around the globe, the annual consumption of coffee has expanded to 12 billion pounds.” (source: globalexchange.org)

 

Freshly picked coffee from Wondo Genet, SOuthern Nations Region

 

Ethiopia - Producer of the World’s Best Coffee

 

Ethiopia’s Kaffa region is the birthplace of coffee. Ethiopian coffee is known for its prime quality and is reckoned among the best in the World; especially four regions are preferred; Harar, Sidamo, Kaffa and Wollega.

 

There are nine regions in Ethiopia, each split up into numerous zones. Most of the Ethiopian coffee is produced in Oromio Region and Southern Nations Nationalities & Peoples Region (the grey and the light purple zones) in central and Southern Ethiopia.

 

Ethiopia is Africa’s largest coffee producer; more than 15 million people depend on coffee, a commodity which provides Ethiopia with 67% of it’s export revenue, (source: BBC) placing Ethiopia among the 20 leading coffee exporting countries. In 2013 Ethiopia stood for 6,2% of the World’s entire coffee export.

 

 

Decrease in the African coffee production

 

Since 1990, global retail sales from coffee have increased considerably. According to the International Coffee Organization, ICO, however, the production of coffee in African countries has generally decreased over the last 50 years from 25% to only 14%.

 

And whereas the population of the African continent makes out 15% of the entire World population (source: World Population Statistics) the growth of World trade is only anticipated to increase from as little as 2.2% in 2013 to merely 4.7% in 2014 (source: wto.org, 2014 Press Releases).

Originally a regulation of the market with assured prices in the European Union was beneficial to many African countries, and growth rates improved. And the supply of coffee on the World market used to be regulated by the International Coffee Agreement - until it’s collapse in 1989. (Source: BBC) Consequently, the subsequent decline in African coffee production setting back the continent, may be attributed to this, but also to regional conflicts and low yields in aging coffee trees, as well as the 1990’s economic liberalization programmes (read more from FAO).

 

Still “the most dynamic growth in African coffee production was observed in Ethiopia, which recorded an average annual growth rate of 2.6% during the last 50 years, increasing to 3.6% since 1990. The country’s production trend is generally upward despite some downward interruptions, reaching 6.4 million bags [one bag = 60 kg] in 2012/13. Ethiopia is also unique in Africa by having a strong domestic coffee consumption culture, which frequently accounts for over half of the production.” (source: International Coffee Organisation, ICO.org)

 

 

Multinational dominance in the global market

 

Coffee is the most preferred drink and the second most actively traded commodity in the World market. Surpassed only by petrolium, the volume is enormous: in 2006 the coffee traded amounted to around 140 billion US$.

 

 

Today the World coffee market is dominated by four multinationals: Kraft, Proctor & Gamble, Nestlé and Sara Lee. As opposed to the small coffee farmer these international conglomerates have unsurmountable bargaining power. And traded in the centralised market places in London and the New York “C” market, the established prices for coffee are highly volatile, entirely excluding the coffee farmer and in turn providing the strong players even better opportunities for improved revenue.

 

 

The Coffee Supply Chain

 

Today all Ethiopian coffee for export is sold through an established system; regional co-operatives buy the coffee directly from the farmers and sell it to the union, that then sells it to the international buyers. The surplus is supposedly given to the co-operatives, that in turn pays the farmers.

 

International traders buy the green coffee in Addis Ababa, export it and sell it to roasters in the consuming countries. The roasters then sell the coffee to retailers and cafés. So the coffee often goes through six links before reaching the consumer.

 

Ethiopian bunna - the traditional coffee ceremony. Here the coffee is prepared meticulously from green beens. It is roasted, mortared, cooked and served black with sugar and accompanied by sweetened pop corn. Downtown Addis Ababa.

 

Today the coffee co-operatives are trying to limit the number of links by selling the coffee directly to the roasters abroad. This would ensure a more direct trade at a less volatile price with fewer middlemen and supposedly result in a higher profit for the farmers.

 

For the local market there are established minimum prices, that will secure the farmers a minimum earning. The minimum price may vary from region to region. In Jimma it is set to 50 birr (approx. 2,5 US $) per kilo.

 

Trapped Farmers

 

But the Ethiopian coffee farmers have little or no knowledge about the international trade and less so access to the international market. And while the coffee prices continue to vary greatly, farmers in the Worlds best coffee districts still get little pay for their products.

 

Ethiopia is unique among the African countries for having a big domestic market for coffee. Here in Sike, Shone in Southern Ethiopia, the farmers grow coffee for their own consumption. And inviting friends in for coffee is an important social event. It is usually prepared and served by the oldest daughter with great respect for the guests. Here the coffee is served black and with salt, followed by bread and roasted peas (kolo).

 

In many villages and remote rural areas the local economy is based purely on coffee farming. “Coffee producers, like most agricultural workers around the world, are kept in a cycle of poverty and debt by the current global economy designed to exploit cheap labor and keep consumer prices low. An estimated 11 million hectares of the world's farmland are dedicated to coffee cultivation. The largest producer and exporter is Brazil, followed by Colombia, Vietnam, Indonesia, and Mexico.” (Source: ICO.org)

 

 

The owner of this house in Gurage grows is own coffee.

Here coffee is served with salt and sometimes with butter as is customary for the area.

 

 

An increase in global supply naturally results in a decrease in coffee prices, a trend that leaves the farmers vulnerable, often trapped in poverty, unable to pay for basic things like clean water, nutricious food, clothes and education for their children. And as long as the real revenue lies down-stream in the supply chain, in the consumer countries, far away from the farmers, they will be affected negatively.

 

Furthermore some Western countries choose to subsidize agricultural production. But in poor countries like Ethiopie there is no money for subsidization of farmers. Subsidization in some countries only results in unfair World trade and does diminish the ability of poor countries to compete in the World market. This too has an negative effect on the coffee farmers.

 

 

Fairtrade

 

Typically, a coffee farmer producing for Fairtrade will be cultivating less than 3 hectares of coffee land and harvest 500 - 1500 kilos of unroasted coffee a year. This makes Fair Trade potentially representative for 75% of the World’s coffee farmers.

 

Many coffee farmers, however, receive prices for their harvest that are less than the costs of production, making them relying principally on their own families' labor. And this is the main contributor to the cycle of poverty and debt among the Ethiopian coffee farmers.

 

Coffee farmers are also often forced to sell to middlemen who pay them half the market price, generally between 0.60 - 1 US $ per kilo, typically giving family farmers a cash income of 500 - 1000 US $ a year for their coffee (source: globalexchange.org).

 

With the improvement in World coffee prices in recent years, the value earned by producers has increased in most exporting countries. Driven by consumer preferences, products coming from third World countries are often still traded at very low price at the international market. And as is the case with coffee, the real value is added down-stream in the supply chain - allowing the importers, the roasters and the distributors a large financial gain.

 

And when roasted, beautifully packed, marked “gourmet” coffee and accompanied by a romantic story about handpicked coffee from the beautiful Ethiopian highlands... the price in the consumer market can be further increased.

 

Price example: 1 kilo of Ethiopian Sidama coffee costs:

 

0,5 US $ (12 ETB) directly from the farmer in the rural area

7 US $ (150 ETB) in a small shop in Addis

25 US $ (550 ETB) in a Danish discount supermarket

 

The farmers may be poor measured by Western standards - but there is always time and room for guests. And Ethiopian hospitality should be reckoned among those things that make the people of this country unique. Here the coffee is served in the traditional way, and typical for the area around Shone in Southern Ethiopia, with salt and butter. That takes a little getting used to.

 

Outrageous exploitation and unfair trade, bordering slavery, some will call it. Others will refer to import tax and distribution costs, VAT and salary expences in the consumer countries. Either way, coffee - the most consumed drink in the world, representing enormous value in the international markets - has become the source of poverty for many farmers. And consumers can help by buying Fair Trade products. This applies to coffee as well as bananas and other products produced in third World countries.

 

Ethiopian Sidama Fairtrade coffee in a Danish discount supermarket.

Price per kilo 556 birr (US$ 28) per kilo.

 

 

World Trade Talks & Talks & Talks…

 

 

Trade should always supercede aid. And no country is interested in being dependent on aid forever. So the World Trade Organisation (WTO) must help by setting fair rules for trade, that can benefit all, especially including the farmers in the poor countries.

 

This setting of fair rules for trade is supposed to be taking place at the WTO trade talks. But whereas many of the poor countries come with small delegations of 10 people or less, the European Union shows up with more than 600 delegates. So the EU can participate and exercise its influence in many of the small bilateral meetings between two or three countries where the trade negotiations are being held - mostly behind closed doors. But with few delegates, how then can the poor countries ever hope to be heard?

 

And when the EU and United States furthermore subsidise their farmers, how then can the poor countries compete?

 

Like the picture to the right: Everywhere you see cans and sacks used to distribute humanitarian aid - produced abroad, far away by subsidised farmers... Here the market place in Jinka in Southern Ethiopia.

 

The current situation with a distorted balance doesn't allow third world countries like Ethiopia to compete on equal terms in the World market. And more than ever, this results in numerous African countries being completely dependent on foreign aid. In Ethiopia much of this aid comes from US: aid in the form of food produced in a country that subsidises it’s farmers...

 

So millions and millions of people in countries like Ethiopia cannot survive on their own. They should be dependent on trade - but instead they depend on aid.

 

Rumours have it, that Ethiopia may soon enter the World Trade Organisation. If so it shall be interesting to follow the effect on three areas in particular, that may well be an expression of the present problem in the Ethiopian economy; the overflow of low quality goods from China, including goods that traditionally were and still could be produced in Ethiopia, the international trade of coffee (as a benchmark for the trade of other goods) and the dependency of humanitarian aid.

 

 

* * *

 

 

We purchase a coffee that is special - a lot that is unique and that does not belong to the commodity market in New York. New York is commodity but we do not produce commodity coffee.

 

We buy coffee from different producers around the World. And much of what we use is highland coffee from Yirga Cheffe in Ethiopia - maybe the best region for Ethiopian coffee. And we use Arabica coffee in our blend, not Robusta coffee. For in general the aroma in Robusta is inferior to that of the Arabica and it has more caffeine.

 

If the coffee is perfect you have an intensity and a complexity of aroma that is wonderful. You have many different aromas: you have chocolate, you have flowers, you have fruits, you have honey, you have toast - you have all kinds of complex aromas.

 

- Dr. Ernesto Illy, Honorary Chairman, Illy Cafe

 

 

It is said that coffee is gold. And on the radio they are always talking about coffee, coffee, coffee… We listen to it but we gain nothing. It is the private traders who get fat. They block others from coming in.

 

Our problem is when the coffee ripens and is ready for sale, a man comes and says to us: “I will take your coffee and pay you 0,75 birr (0,08 US $) for a kilo. There is no negotiation, one person decides to buy our coffee at 0,75 birr. We have no up-to-date price information, and one person controls the market.

 

When our coffee is ready, please take it at the right market price.

 

- Coffee farmers in Yirga Cheffe, Sidama Region, Ethiopia.

 

Black gold roasting

 

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