Hamasho Village, Sidama Bensa

Buyer power: Weakening due to liberalization and fragmentation.

With an increasing number of exporters  and the rising cherry price, many existing exporters see their profits in jeopardy. The reality in rural Ethiopia is that your competition can act very unpleasantly if you start a price ‘war’ to secure more cherries. Hence, one of the strategies is to pay your farmers well and keep them dedicated to their role, while keeping the competition at bay. A method used is to organize a second payment once competitive emotions have settled, and the coffee season is over. Such inter-exporter price agreements can also be seen as actually damaging to the farmers independent position, as they rely on the exporter’s responsibility to share their profits with farmers.

Supplier power: Strengthening due to producer confidence,  options, and regulation. 

In Ethiopia, many coffees are produced by washing stations that buy cherries from smallholder farmers. In 2021, the cherry price in Ethiopia in general and in Sidama specifically, have again risen with about 50%, even with a low C-market price during the season. One of the reasons for this is the local competitiveness on the cherry market. Policy changes and liberalization of the coffee market meant the number of exporters competing for cherries rose significantly. Moreover, since 2020, the Ethiopian Central Bank has installed minimum prices, preventing exporters from striking low value high volume deals with large buyers. This was effectively elevating the value to the Ethiopian crop, often to the benefit of the producers. 

As a result, in 2020 the first Ethiopian Cup of Excellence has involved a multitude of producers nation-wide. An excellent development to promote traceability in the global specialty chain. Success in the competition can inspire development and enable their producing power, against buyers. This situation creates a ripple effect nationally, which improves a farmer’s competitiveness. Although cherry prices of the previous decade were as low as 10 ETB/kg, in 2020 they average around 20-24 ETB, across the country, and in 2021 year peak above 30ETB/kg. 

What will happen next?

Ethiopia has many underexplored coffee regions, where coffee can still bring more development, For example, Limu and Guji. We identify a lot of movement and local investments to increase coffee production and processing, and new initiatives are taking place, partly due to lower relative cherry prices. One must remember, however, that these areas also face higher investment and transaction cost for processors and exporters. We are witnessing a shift of the frontier. Areas like Sidama consolidate their position in the global specialty coffee market to the benefit of the producers. Areas like Limu and Guji still have grown to their full potential for producers and exporters alike.

We will keep exploring the price element of our business with our Ethiopian export partners, and will provide as much insight as we can into the realities of Ethiopian coffee business.