Shantawene Village, Sidama Bensa

Buyer power: Weakening due to liberalization and fragmentation.

As the number of exporters increase, and the price of coffee cherry is on the rise. 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 cherry. That way, one of the strategies to pay your farmers well and keep them dedicated in their role to in production, while keeping the competition at bay. A method that is used, is to organize a second payment for when competitive emotions have settled, and the coffee season is over. The other way to look at this, is that such inter-exporter price agreements are actually damaging to the farmers independent position, as they rely on the responsibility of the exporter to share their profits with the farmers.

Supplier power: Strengthening due to producer confidence and 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 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 to strike low value high volume deals with large buyers, and effectively elevating the value to the Ethiopia 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 producer power, against buyers. This situation creates a ripple effect nationally, which improve a farmer’s competitiveness. Although cherry prices 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 price. One must remember, however, that these area’s 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 grow 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.