SEMINAR PAPER ON REVIEW FACTOR AFFECTING COFFEE MARKETING AND ITS

PRODUCTION PRICE IN ETHIOPIA

BY:
[Link]: ADVISOR:

TABLE CONTENT
CONTENTS PAGE NO
TABLE CONTENT……………………………………………………………………………………………………….…2
List of Abbreviation…………………………………………………………………………………………………....3
List of Tables………………………………………………………………………………………………………….…...4
ACKNOWLEDGEMENT………………………………………………………………………………………………….5
ABSTRACT…………………………………………………………………………………………………………………...6
1. INTRODUCTION………………………………………………………………………………………………………..7
1.1 Background of seminar…………………………………………………………………………………………7
1.2 Objective of the seminar………………………………………………………………………………………8
 1.2.1 General objective………………………………………………………………………………………….8
1.2.2 Specific objective………………………………………………………………………………………….8
1.3 Significance of the seminar…………………………………………………………………………………..8
2. LITRATURE REVIEW………………………………………………………………………………………………....9
2.1 Theoretical Review……………………………………………………………………………………………….9

2.1.1 Marketing Concepts………………………………………………………………………9

2.1.2 Middle channel members……………………………………………………………………………….9
2.1.3 Coffee marketing………………………………………………………………………………………….…9
2.1.4 Coffee production………………………………………………………………………………………....10
2.2 Empirical Review…………………………………………………………………………………………………..10
2.2.1 Coffee production and production systems in Ethiopia………………………………...10
2.2.2 Coffee Production Potential of Ethiopia………………………………………………………..11
2.2.3 Coffee Production Opportunity in Ethiopia……………………………………………………12
2.2.4 Production constraints of coffee in Ethiopia………………………………………………….13
2.3 Coffee marketing in Ethiopia………………………………………………………………………………...14
2.3.1 Structure of the coffee markets……………………………………………………………………….14
2.3.2 Domestic prices of coffee………………………………………………………………………………...14
2.3.3 Spatial price Relationships………………………………………………………………………………..14
2.4 Review of Grain marketing studies in Ethiopia…………………………………………………….….15
2.5 Coffee export…………………………………………………………………………………………………….…..15
2.5.1 Trends in world volume of coffee Exports and its price…………………………………..16
2.6 Problem Encountered in coffee market………………………………………………………………...17
2.6.1 Domestic market…………………………………………………………………………………………..…17
2.6.2 Problem in Ethiopian coffee Export market………………………………………………….....17
3. CONCLUSION AND RECOMMENDATION…………………………………………………………………..18
4. REFERENCES………………………………………………………………………………………………………….…18

List of ABBREVIATIONS
AMA American Marketing Association
CSA Central Agency
GDP Gross Domestic Productions
FAO Food and Agricultural organization

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ICO International coffee organization
IFAM International federation of organic Agricultural Movement
ITC International Trade centre
ECEA Ethiopian commodity Exchange Authority
ECX Ethiopian commodity exchange
NCBE National coffee Broad of Ethiopia
SCFCU Sidama coffee farmer cooperative union
USDA United state Department of Agriculture
RELMA Regional Land management unit
USAID United states Agency for International Development
MT Metric Tone
CPDE coffee plantation development enterprises
ECEE Ethiopia coffee export Enterprise

List of Tables
Table Page
Table 1: Ethiopia coffee production estimation with respect area……………………………………….10
Figure 1: Top ten Ethiopian coffee importing countries by their percentage share……………….16
Figure 2: Largest exporter of coffee as percentage of world exports……………………………………..16

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ACKNOWLEDGMENT
First of all, I would like to give the priority and thanks to GOD that helps me to do and finish this
seminar paper. Secondly I would like to extend my thanks and appreciation to my advisor Mesfin
Melese for his support and assistance to me in all steps of my works without any payment and with
full of openness. Then I would like extend my appreciation to all my friends.

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 Abstract
Coffee is Ethiopia’s number one source of export revenue. It is vital to the cultural and socio-economic
life of Ethiopians, and contributes 25% - 30% of the country's foreign exchange, half of GDP, 90% of
exports, and 85% of total employments in the country and part of the culture. But with most farmers
having little or no access to quality improvement, non certified coffee agent, lack of coffee branding,
coffee price fluctuation, transportation access and inflexible distribution channel or information or
resources gap, because of this the opportunities for increasing coffee marketing were limited. The main
objective of this seminar paper is to review the production and marketing issue of coffee in Ethiopia.
Specific objectives firstly to review coffee production, potential, challenges and opportunities in Ethiopia
secondly to review problems encountered in coffee market in Ethiopia. According to the review, lack of
competitiveness, lack of infrastructure, in adequate access to services, low value addition, in adequate
technology transfer and research, competition of chat and rainfall variability are among major
constraints of coffee production in Ethiopia. Price volatility, Poor accesses to market, little market
promotion and incentive mechanism, and low price, Unfavorable coffee international price usually

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better local prices than international prices, Lack of sufficient, well equipped and spatially distributed
coffee export processing and handling facilities throughout the marketing channel, Lack of adequate
international standard quality supply, , Lack of export marketing skills and market promotion
schemes(Insufficient promotional supports); inadequate trained manpower in international marketing
intelligence and Lack of understanding of international market demand resulted in concentration on
quantity rather than quality, Inconsistency in coffee quality were reported to be the major factors
affecting of coffee marketing in Ethiopia. Enhancing infrastructural and institutional facilities such as
market information, road, warehouse and transportation. Improving of coffee production technologies
through development and extension of improved coffee variety, and other agronomic practices.
Government should provide special extension services for growers to improve their skill and knowledge
on coffee production aspect and improve livelihoods of households in the study area.
Some recommendation on this review to concerned body.
KEY Words, factor, market, production, export, supply

Chapter one
1. INTRODUCTION
Coffee is one of the most widely consumed beverages in the world and one of the most traded
commodities globally. The coffee market is a growing industry with a projected market volume of USD
540.80 billion in 2025. The global coffee market stood at a value of around USD 126.38 billion in 2022
and is expected to grow at a CAGR of 6.7% in the forecast period of 2023-2028. The largest coffee
producing countries are Brazil, Vietnam, and Colombia, while the European Union and the United States
of America are the largest consuming and importing markets globally. The coffee market is characterized
by recurrent supply-demand imbalances and asymmetric income distribution among actors in the value
chain, which can threaten the livelihood of millions of smallholder producers
Sub-Saharan Africa is a significant coffee producing region, accounting for 12% of global coffee
production. Ethiopia and Uganda are the largest coffee producers in the region, accounting for 62% of

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sub-Saharan Africa's coffee output. The coffee sector in Ethiopia is expanding, and the country is the
largest coffee producer in Africa and the fifth-largest coffee producer globally.

1.1. Background of seminar

Coffee is one of the most important traded commodities in the world. The sector’s trade structure and
performance have large development and poverty implications, given the high concentration of
production by smallholders in poor developing countries. Coffee’s global value chains are quickly
transforming because of shifts in demands and an increasing emphasis on product differentiation in
importing countries (Benoit Daviron and Stefano Ponte, 2005)
Coffee production and Marketing is important to the Ethiopian economy with about 15 million people
directly or indirectly deriving their livelihoods from coffee. Coffee is also a major Ethiopian export
commodity generating about 25% of Ethiopia’s total export earnings. Ethiopia is the largest producer of
coffee in Sub-Saharan Africa and is the fifth largest coffee producer in the world next to Brazil, Vietnam,
Colombia, and Indonesia, contributing about 7 to 10% of total world coffee production. Ethiopia is the
birthplace of Arabica coffee and produces mostly Arabica coffee. Coffee has economical, environmental,
as well as social significance to the country (Abu and Teddy, 2013).
Ethiopian is an important source of coffee genetic resources for the world coffee industry. As the matter
of fact, Ethiopia is the only center of origin and diversity of Arabica coffee (Anthony et. al, 2001). It is
cultivated in most parts of the tropics, accounting for 80% of world coffee market and 70% of production
(Tadesse Kuma, 2006)
The largest volume of coffee is grown in the two large regions of Ethiopia this are; the Southern
Nations, Nationalities and Peoples Region (SNNPR) and Oromoia (in the central part of the country).
Only five percent of coffee production is growing on modern plantations, which owned by private
investors, or by the government, Smallholder farmers grow the rest, and about half of that production is
in gardens. In both cases (modern plantations as well as smallholder production), coffee is generally
grown under shade (Abu and Teddy, 2013)
The structure and organization of central coffee markets themselves for the organic coffee sector,
quality control through inspection and certification is compulsory. In Ethiopia, on set of certified organic
farming arises from a market deficit of the conventional coffee farming, but there is little information
documented about such important segment of coffee production and the country’s economy.
The supply of Ethiopian coffee (both wet-processed and sun-dried) to local and international market
faces some basic quality problems. This quality problem makes the Ethiopian coffee unable to
adequately compete in the international coffee market and earn reasonable price .As well as being the
only auction centers available in the country, however, it has been many times criticized that coffee
marketing to be highly centralized and located far apart from the major producing areas (Kotschi &
Adelhelm, 1984)
The inspection, grading and auction sale of coffee is located vary from the supply centers at only two
central places. The central market is entirely auction based which have several drawbacks. Some of
these are warehousing problems, improper sampling and quality inspection, problems associated with
brokers and suppliers, poor processing, high transportation cost, inadequate coffee market financing
and unfair distribution of marketing margins. Even if there is high demand for Ethiopian coffee in the
international market, most of the suppliers do not want to sell their coffee for export at the auction. In

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addition to, its lack of capacity to regulate the coffee market, there are several problems that hamper it
from realizing efficient modern marketing system in Ethiopia.
So that this seminar paper reviews the condition of coffee production, coffee supply and marketing
problems in Ethiopia and put things to be needed to minimize this problem(Kotschi& Adelhelm, 1984 )

1.2. Objectives of the seminar

1.2.1. General objective
The general objective of this seminar paper is to review the production, and marketing issue of coffee in
Ethiopia.

1.2.2. Specific objectives

•To review coffee production, potential, challenges and opportunities in Ethiopia
•To review problems encountered in coffee market in Ethiopia

1.3 Significance of the seminar

The main purpose of this seminar paper was reviewing the status of coffee production, potential and
marketing issue in the country in different ways. First this paper generate basic information on the
production of coffee, supply and marketing issues in Ethiopia, secondly it provide the problems
encountered coffee supply and coffee marketing in Ethiopia to solve coffee production, supply and
marketing problems. Finally the seminar would have been used as source of information to many
research organizations who want to conduct further study in the country.

Chapter two
2. Review factor affecting coffee marketing and its product price in Ethiopia
2 .1 Theoretical Review
2.1.1 Marketing Concepts
Marketing is a social and managerial process by which individuals and organizations obtain what they
need and want through creating and exchanging value with others. In a narrower business context,
marketing involves building profitable, value-laden exchange relationships with customers. Hence,
marketing is the process by which companies create value for customers and build strong customer
relationships in order to capture value from customers in return (Armstrong and Kotler, 2015).
Marketing as a process by which individuals and groups obtain what they need and want by creating
and exchanging products and value with others. It is the process of building profitable customer
relationships by creating value for customers and capturing value in return (Kotler et al., 1999).
Crawford (1997) defined marketing as the integrative force that matches production to customer needs
and satisfaction. Marketing is not an activity to which an organization turns its attention at the end of

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the production phase of operations. Rather marketing needs to be directing production in accordance
with clear signals from the marketplace as what is needed by customers.

2.1.2 Middle channel members

According to ( Palmatier et al. 2015) the term intermediary refers to any channel member other than
the manufacturer or the end user. We differentiate three general types: wholesale, retail and
specialized. Wholesalers include merchant wholesalers or distributors, manufacturers’ representative,
agents and brokers. A wholesaler sells to other channel intermediaries such as retailers or to business
end users, but not to individual consumer end users. Unlike purely wholesale intermediaries, retailers
sell directly to individual consumer end users. Specialized intermediaries enter the channel to perform
specific functions. They are not heavily involved in the core business represented by the products being
sold. For example, insurance and financing companies involved in financing, information technology firm
may participate in ordering or payment functions and marketing research firms generate marketing
intelligence that can support the performance of many functions.

2.1.3 Coffee marketing

As (Alemseged & Getaneh, 2012/13) coffee season stated that the marketable coffee supply is
forecasted by the Ministry of Trade to reach 343,352 metric ton, of which 288,000 metric ton is planned
for the export market generating over 1.2 billion US dollars. Of the total marketable supply, 211,000
metric ton will come from Oromia Regional State, 122,678metric ton from Southern Nations and
Nationalities Peoples Region, 9,297 metric ton from Gambela Region and 377 metric ton from
Benshanigul and Gumuz Region. (Workafes and Kassu, 2000) sited (Anwar, 2010),
The coffee types that are distinguished for such unique characteristics include Sidamo, Yirgachefe,
Hararge, Gimbi and Limu types. However, coffee produced in some parts of Ethiopia, especially from
Harrar, and Yirgachefe, is always sold at a premium price both at domestic and international coffee
markets because of its distinctive fine quality (Chifra et al., 1998; ITC, 2002) and appropriate processing
approach as cited (Anwar,2010).

2.1.4 Coffee production

Coffee is produced in more than 50 developing countries providing income for approximately 25 million
smallholder producers and employing an estimated 100million people .World coffee production in
2006/2007 is forecasted 7416000metric tons and world coffee export is forecasted at 5568000 metric
tons. In 2005/2006, 52 percent of world production was accounted by the three main coffee producers
(Brazil, Colombia and Vietnam), Brazil currently supplying about a third of total production (ICO 2006).
The top five consumers of coffee are (in order) the USA, Brazil, Germany, Japan and France, while the
Nordic countries have the world’s highest coffee consumption per capita. World consumption in 2006 is
estimated at around 117 million bags. About 65 per cent of the world supply of coffee is Arabica, while
Robusta currently makes up around 35 percent, compared to 25 percent 20 years ago (Scholer 2004).
Ethiopia is probably the oldest exporter of coffee in the world (ITC 2002). In 2005 it was the sixth largest
coffee producer after Brazil, Colombia, Vietnam, Indonesia and India, and the seventh largest exporter
worldwide. It is the largest coffee producer and exporters in Africa. Exports in 2010 were 174285metric
tons, a share of 2.82 percent of world trade in coffee beans.

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2.2 Empirical Review
2.2.1. Coffee production and production systems in Ethiopia
The main coffee producing areas in Ethiopia are west and south west, southern, eastern, and central
regions (Melkamu, 2015).
Table 1: Ethiopia coffee production estimation with respect area
2017/18 2018/19 2019/20 2020/21 2021/22
Production(000 tons) 423.6 423.6 448.5 456 457.2
Area (1000 ha) 532 532 538 540 541
Productivity (ton/ha) 0.8 0.8 0.83 0.84 0.85
Source: annual report MY2017/18-2021/22
On the basis of management level, vegetation, structural complexity, and agronomic practices, coffee
production systems in Ethiopia can be categorized into four; namely: forest coffee (FC), semi-managed
forest coffee (SFC), garden coffee (GC) and plantation (Tadesse, 2015; Tesfu, 2012).
I. Forest Coffee: The forest coffee system uses wild stands of coffee, which exists naturally within
the forest, and the farmer undertakes minimal management and intervention (Moat et al.,
2017). The local communities living in and around the forest simply pick the wild coffee berries
from naturally growing coffee plants and there is no management to improve coffee
productivity. The floristic composition, diversity and structure is close to the natural situation,
with little human intervention. The only management practice in the forest system is access
clearing to allow movement in the forest during harvesting time (Tadesse, 2015).

According to Labouisse et al. (2008) it includes simple coffee gathering and forest production
where coffee trees are simply protected and tended for convenient picking. This system is found
in southeastern and southwestern parts of the country (mainly in areas like Bale, Bench-Maji,
Illubabor, Kafa, Jimma, Shaka, and West Wollega) (Boansi and Crentsil, 2013). These areas are
the centers of origin of Coffea Arabica. This system accounts for about 10% of the total coffee
production of the country (Melkamu, 2015).
II. Semi-Forest Coffee: Semi-forest coffee is more intensive, with increased farming interventions
(e.g. thinning of trees, understory clearance and weed cutting, and planting of coffee seedlings)
(Moat et al., 2017). Farmers acquires forest land for coffee farms, and then thin and select the
forest trees to ensure both adequate sunlight and proper shade for the coffee trees (Melkamu,
2015). It is a type of coffee production system where instantly the forest coffee system is
converted to semi-managed forest coffee system through reduction of plant composition,
diversity and density. This is the dominant production system in southwester Ethiopia (mainly
Bench-Maji, Illubabor, Jimma, Kafa, Shaka, and Wollega) and in the Bale Mountains of
southeastern Ethiopia (Tadesse, 2015). This system accounts for about 35% of the total coffee
production of the country (Tesfu, 2012).
III. Garden Coffee: is a further step in the cultivation process. Seedlings are taken from forest
coffee plantations and transplanted closer to farmers’ dwellings. In this system, coffee is grown
in smallholdings under a few shade trees usually combined with other crops and fruit trees
(Tesfu, 2012). It accounts for approximately 50% of national production and is located near
residences of growers. It is planted at low densities and is mostly fertilized with organic
materials (Boansi and Crentsil, 2013). Geographically, this coffee production system is mainly
found in the southern and eastern and some in southwestern parts of the country; and

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 specifically in Gedeo, Guji, Hararghe, Jimma, Sidama, Wollega and some other places (Tadesse,
2015).
IV. Plantation Coffee: Plantation coffee is grown on plantations owned by the state and on some
well managed smallholders coffee farms. In this system, recommended agronomic practices like
improved seedlings, spacing, proper mulching, manuring, weeding, shade regulation and
pruning are practiced (Melkamu, 2015). This sector includes a few large private and state farms
mainly located in the south-west, as well as many smallholder plantations spread all over the
coffee growing areas. It accounts for about 10% of national production (Labouisse et al., 2008).

2.2.2. Coffee Production Potential of Ethiopia

Studies indicate that thanks to the country’s favorable ecological factors such as suitable altitude, ample
rainfall and optimum temperatures, appropriate planting materials, and fertile soil. Ethiopian coffee is
known for its unique characteristics, aroma and flavor. This shows that there is very high coffee
production and export potential in Ethiopia and earn premium prices. The country has also become of
particular interest to the world for its inherent quality and coffee production potential due to its Arabica
coffee (as its origin) (Fernie L. M. (1966)).Coffee grows in Ethiopia in several places at various altitudes
ranging from 550 -2750 meters above sea level. More than any other country, Ethiopia has a broad
genetic diversity among its coffee varieties. It is the centre of origin and source of genetic diversity of the
Arabica coffee plant for the world. Nine different bean varieties are cultivated in the four growing areas
of Ethiopia, all with distinctive tastes, sizes, shapes and colors (IFOAM, 1998;Demeter, 1986).
All the coffee-growing regions have fertile, favorable, loamy soils. For this reason, aroma and flavor are
among the unique characteristics found in Ethiopian coffee. The variability of coffee Arabica character is
very wide in Ethiopia. This made possible coffee planting materials, which are disease-resistant, high-
yielding and top quality. Many agree that, this is a gift of nature to Ethiopia in particular, and to the
world in general which require special care and proper utilization. Shade, which combines with these
ecological factors, is another factor that plays an important role in coffee production potential of the
country (Bayetta B. (2001)).Another promising potential of Ethiopian coffee is its diversity of variety and
quality. Ethiopia has the most diversified coffee types (Luxner’s report (2001)).

The major five of these are:-

1. Harer: is famous for two things: its history as a major holy city in Islam and its naturally
processed coffee. As early as the 16th century, Harare was famous for its coffee, and by
the1800s it had become a major trade centre for coffee and other goods. Like in other areas of
Ethiopia, many residents of the Harare region practice the Ethiopian coffee ceremony and are
entrenched in Ethiopian coffee culture.

2. Wollega (Nekemt): Wellega is the highland area in the South-western part of Ethiopia with
more rainfall than in the dry Northern and Eastern areas of Ethiopia. In the province Wellega
live the Oromo’s, the largest tribe of Ethiopia. The majority of the Oromo people are farmers.
Income is mainly gained from agriculture, cattle and coffee. Originally, Nekempti is a sun-dried
natural bean produced in western Ethiopia. The coffee is known for its large bean size, and the
flavour can have a pronounced perfume-like after taste. Coffee processing styles in Wellega
have traditionally been sun-dried natural. In the near future we can expect that the offerings of
washed processing styles will be expanded through the washed coffee processing stations built.

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 Nekempti and Wellega coffee export designations include: Kelem Wollega, East Wollega and
Gimbi.

3. Limu: Limu coffee grows in the southwest of Ethiopia between 3,600 and 6,200 feet. Limu
coffee (all washed) generally has a milder acidity than Sidama and Yirgacheffe; the flavours
generally characterized by a balanced and clean cups.

4. Sidamo: Sidama Coffee Farmers’ Cooperative Union (SCFCU) was founded in 2001 to represent
coffee producing cooperatives located throughout the Sidama Zone of southern Ethiopia.
Originally, the Union consisted of 47 cooperatives societies which represented over 70,000
farmers.
5. Yirgacheffe: The best unwashed coffees from Yirgacheffe often retain a high degree of acidity,
with softer fruit flavours and sometimes berry characteristics. Coffee production is important to
the Ethiopian economy with about 15 million people directly or indirectly deriving their
livelihoods from coffee. Coffee is also a major Ethiopian export commodity generating about
25% of Ethiopia’s total export earnings. Ethiopia is the largest producer of coffee in Sub-Saharan
Africa and is the fifth largest coffee producer in the world next to Brazil, Vietnam, Colombia,
and Indonesia, contributing about 7 to 10% of total world coffee production. Ethiopia is the
birthplace of Arabica coffee and produces mostly Arabica coffee. Coffee has economic,
environmental as well as social significance to the country.

2.2.3 Coffee Production Opportunity in Ethiopia

I. The Ethiopian coffee sector has bright prospects: the country has suitable attitude, ample
rainfall, optimum temperature, appropriate planting materials, low labor cost and fertile soil.
The country can sustainably produce and supply fine specialty coffee, with potential of
producing all coffee type of the various world coffee growing origins.
II. Grounds for optimism: strong potential to increase supply capacity/yields (transfer of
technology) promote value addition differentiation through brand awareness ([Link],
Sidamo etc.)
III. Create an enabling policy environment: support agricultural research and development
improve access price risk management tools sustainable development promotes a strong
institutional framework to better coordinate policy.
Macroeconomic policy exchange rate of Ethiopian birr to US$ monthly averages Ethiopian
birr/US dollar.
IV. Stimulate local consumption: Ethiopia is not only the birth place, an important producer, and a
leading exporter of Arabica coffee, but also heavy consumer. Ethiopians are the highest coffee
consumer in Africa. Coffee is strongly ingrained in Ethiopian culture (coffee ceremony) Jose D,
(2012)

2.2.4. Production constraints of coffee in Ethiopia

Coffee production in Ethiopia is constrained by lack of competitiveness, lack of infrastructure, in
adequate access to services, low value addition, and in adequate technology transfer and research (Jose,
2012). In recent days, chat, a plant chewed by humans for its stimulating effect, is competing for farm
land with coffee. Some small holder coffee farmers resorted to producing chat instead of coffee as they
are increasingly attracted by the high prices and greater yield they get from cultivation of chat. A
significant number of farmers particularly in the eastern part of the country have switched from coffee
production to chat production. Chat is drought, diseases and pest resistant plant which can be harvested

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three to four times a year and generates better income for farmers than other cash crops including
coffee (Tolera and Gebremedin, 2015).
Moat et al. (2017) reported that the other challenge of coffee production in Ethiopia is the variability of
weather pattern such as rainfall variability on the onset of the wet season, extension of dry season and
more extreme (drier and hotter).
According to Tadesse (2003) deforestation and change in land use are threatening coffee forest gene
pools in Ethiopia. This has been aggravated with the recent coffee price crisis on the world market as a
result of market liberalization. Farmers are shifting their coffee farm or forest to other monoculture crop
production.
Tesfu (2012) also added deforestation and land degradation, diseases, predominant traditional
production, failure of using appropriate coffee technologies, inadequate services (credit, inputs,
equipments), and lack of sustainability and competitiveness in the coffee sector are challenging coffee
production and quality improvement in Ethiopia.
Ethiopian farm management systems, the agronomic practices are traditional. Moreover, extension
services provided to smallholder farmers are inadequate. Government organization does not have a
specialized institution that provides extension support for coffee production. (Alemseged, 2013).
According to Jose D. (2012) the challenges that faced coffee production in Ethiopia are :
Structural challenges: lack of competitiveness (low yields & productivity); poor access to market & long
supply chain; lack of infrastructure; inadequate access to service (particularly financial service, risk
management etc.); low value addition and inadequate technology transfer & research (coffee genome,
conservation, biodiversities.
Policy environment challenge: low level of public investment in agriculture; disengagement of the state
in production & marketing activities; liberalisttio1n/agricultural reforms historically poorly executed;
weak institutional framework.
Sustainability challenge: adaptation and mitigation to climate change (and other adverse weather
events) conservation of biodiversity to social sustainability.

2.3 Coffee marketing in Ethiopia

Ethiopia is the oldest exporter of coffee as a commodity .Coffee classification; grading, licensing and
certification were begun after the establishment of the National Coffee Board of Ethiopia (NCBE) in
1957. The aims of NCBE were to regulate coffee marketing in the country and improve the quality of
Ethiopian coffee for export supply.
In 1960, Ethiopia became a member of the inter-African Coffee Organization, and the International
Coffee Organization and allocated a 2.5% share of the global market. The NCBE had established an
organized central coffee market in Addis Ababa and Dire Dawa with its own operational rules,
regulations, and modalities in which the supply chain consists of producers (smallholders/ cooperatives/
commercial farms), intermediary traders (small and large product collectors/ cooperatives), suppliers
(those who deliver coffee to auction centers) and exporters and processors (Gebremeskel, D.T.S Jayne et
al 1998.

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 Coffee is sold to local collectors (Sebsabis), local traders (Akrabis) or cooperatives that aggregate and
sell to the central auctions in Addis Ababa and Dire Dawa. The decision regarding who to sell coffee to is
determined by price, ease of delivery or collection, transportation costs and honesty of the buyers.
Purchasers that offer relatively high prices are preferred to those that offer low prices. Similarly, buyers
that pay in advance are preferred to those that pay on delivery (Teketay & Tegineh, 1991).

2.3.1 Structure of the coffee markets

The present domestic coffee marketing structure of Ethiopia comprises individual farmers and former
state coffee farm (now organized under coffee plantation development enterprises CPDE) on the
production side and by service cooperatives, primarily coffee collector and wholesale coffee suppliers,
the coffee purchase and sale enterprise (now called the Ethiopia coffee export Enterprise- ECEE) and the
huller operator on the processing and marketing side to the most recent world market price for
Ethiopian coffee (Mulugeta, 2008).

2.3.2 Domestic Prices of Coffee

Wholesale prices, in the year 2005-2010 coffee analysis; correspond to two sets of prices, both related
to Jemma coffee. The first set of prices, from 2005 to 2007, corresponds to Independent traders’ prices
in Addis-Ababa. These important traders bought coffee from semi-wholesalers based in producing areas
or directly from producers through collectors. They would then sell the coffee to exporters. The second
set of prices, from 2008 to 2012, corresponds to the auction market price, also in Addis-Ababa. Since
2008, the government has implemented the ECX system, which has absorbed the biggest share of coffee
trade in Ethiopia.

2.3.3 Spatial Price Relationships

Spatial price relationships generally refer to the factors that cause prices in one area to change in
relation to those in another. This variable may be shifts in demand or supply or changes in the pattern of
trade or transfer costs. It is, however, postulated that under competitive market structure, spatial price
relationships are largely determined by transfer costs consisting of transportation, handling, fixed costs,
and unmeasured transaction costs (e.g., the costs of time spent in identifying and negotiating
transactions, risks associated with opportunistic behavior of trading partners, contract monitoring,
enforcement, etc.). The principle is that under competitive market conditions and in the absence of any
trade barrier, the price differential that could prevail between trading areas is equal to transfer costs
(Mulugeta,2008).
The basis for this assumption is that, if regional price differences substantially exceed transfer costs,
buyers would be motivated to buy and transport grain from low price areas to those with high price and
this will eventually cause price in the supplying areas to increase and those in the importing areas to
decrease to a level at which price differences no more exceed transfer costs (mulugeta 2008). However,
the comparison of costs and actual margins is difficult because of the unmeasured and perhaps
“transaction cost” portion of marketing costs.

2.4. Review of Grain Marketing Studies in Ethiopia

To review the marketing margins of farmers and traders in Chilalo, Ada, and Addis Ababa. Their review
revealed that the returns to trade were lower than other businesses due to the risks of transporting
grain over space and storing it over time. inter market grain flow is coordinated mainly by the brokers in

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Addis Ababa, who specialize by route and coordinate grain buying, selling, transporting, and pricing
activities. Grain flow between regional markets without reaching the central market is a new
phenomenon of grain marketing in Ethiopia. The integration of market and price variations was also
reviewed by (Mulat etal,2006).
Brokers facilitate long-distance trade by enabling traders to minimize the risk of commitment failure in a
market with little public information, non-standardized grain, no official inspection, and limited legal
enforcement. Despite the efforts made by the government to reform the sector, grain marketing
systems in Ethiopia are characterized by a lack of modernization, a limited number of large interregional
traders with adequate storage and working capital, high handling costs, an inadequate market
information system, weak bargaining power, and an underdeveloped processing industrial sector
(Tadele etal , 200).

2.5 Coffee Export

Ethiopia produces and exports one of the best highland coffees in the world (Samuel and Eva, 2008).
Total earnings from goods export grew by 3% in 2018 over the same quarter of last year on account of
the rise in export earnings from Coffee (19.1%), Earnings from coffee picked up 19.1% in 2018 as
compared to last year same quarter and reached USD 215.6 million on account of a 16.5% rise in export
volume and 2.2% increase in international price. As a result, the share of coffee in total merchandise
export earnings increased to 31.8% from 27.5% a year earlier (NBE, 2018). Countries such as Germany,
France, Italy, Belgium, Sweden, Norway, Finland, Denmark, UK, Switzerland, USA, Japan, Saudi Arabia,
Canada, Taiwan, South Korea, Australia and South Africa are traditional buyers of Ethiopian coffee
(Melkamu, 2015). Agricultural exports share of total exports was declined from 86% in 2013/14 to 84%
in 2016/17. However, coffee exports share of total exports was increased from 30% in 2013/14 to 33%
in 2016/[Link] information shows that demand of coffee increases though time to time in international
and domestically, but our coffee as much as not competent in the market due to above listed constrain.

Figure 1: Top ten Ethiopian coffee importing countries by their percentage share Source:
from Francom, 2018 report.

2.5.1 Trends in World Volume of Coffee Exports and its Price

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Coffee export or trade from Ethiopia with the Middle East started five hundred years earlier. Evidences
show that world consumption of coffee is increasing in the past. World projections of coffee
consumptions confirm this fact, too (Harris (1844)).Currently Ethiopia has become first in Africa and fifth
in the world next to Brazil, Viet Nam, Colombia, and Indonesia. Almost all countries use coffee for
domestic consumption or processing it into export product addition to raw exports. In this case gain
Brazil took the lion share or the first place, which is total world domestic use. That is Brazil exports also
the lion share of processed coffee (Harris (1844).

Figure 2: Largest exporter of coffee as percentage of world exports, 2007-2011 countries Cited Fair trade
and Coffee May 2012.

2.6 Problems Encountered in Coffee Market

Despite positive image of the country as birthplace of coffee, a strong local coffee culture, genetic
diversity and easy branding opportunities, diverse agro-ecology and climatic conditions, unique distinct
characters of coffee quality, a favorable national agriculture ecosystem for coffee development, the
country, however, so far failed to fully capitalize its potential. The effect of price volatility has been a
direct factor in increasing rural poverty in rural communities; up to 85% of coffee farmers have cited
coffee price volatility as a leading risk factor for their farms. Episodic pricing pressures on smallholders
lead some to shift away from traditional forest coffee production systems towards more immediately
profitable zero-shade systems that can yield higher returns in the short term. However, this is having a
profound impact on the degradation of coffee landscapes on longer time scales and farmers' ability to
maintain natural assets and stable socio-economic conditions (UNDP, 2012). Similarly, Berhanu (2017)
and Alemayehu (2014) reported that coffee producers are exposed to large fluctuation in market price.
Poor accesses to market, little market promotion and incentive mechanism, and low price shares and
benefit (farmers) are also another coffee marketing problem in Ethiopia (Jose, 2012; Tesfu, 2012).

2.6.1 Domestic Market

Currently, there are only two auction centers in Ethiopia: one in Addis Ababa and another in Dire Adwa.
In the history of agricultural commodity market in Ethiopia, this Coffee Auction Centre was the only
standard commodity market available. The sellers and their coffee-loaded trucks come to the auction

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centers, where samples are taken and visual inspections of the coffee are made before the auction takes
place. After the highest bidder acquires a “lot,” the truck is driven to the warehouse, where the coffee is
unloaded, weighted and paid for against the price agreed at the auction. According to the regulations,
export is prohibited unless the coffee grade and cleanliness standards sets are met up on testing by the
centre ([Link] et al 1998).Being the only auction centers available in the country, however, it has
been many times criticized that coffee marketing to be highly centralized and located far apart from the
major producing areas. The structure and organization of central coffee markets themselves also are not
without problem. The central market is entirely auction based which have several drawbacks i.e, its lack
of capacity to regulate the coffee market, (Gebremeskel, D.T.S Jayne et al 1998)

2.6.2. Problems in Ethiopian Coffee Export Market

The level of development of the economy, resource endowments, policies and development strategies
pursued are some of the determining factors of the export structure of a country. Regarding coffee,
even if there is high demand for Ethiopian coffee in the international market, most of the suppliers do
not want to sell their coffee for export at the auction for reasons (Gebremeskel, D.T.S Jayne etal1998).
Generally, Ethiopia coffee export is constrained by the following major problems:
 Unfavorable coffee international price usually better local prices than international prices.
Relatively high transaction cost: high freight rates, high port charges, inefficient operation.
 Lack of sufficient, well equipped and spatially distributed coffee export processing and
handling facilities throughout the marketing channel.
 Lack of adequate international standard quality supply: Centralized coffee quality inspection
and grading system. Export sales were regulated through a national auction in which mixed
coffees from different locations concentrated into a single lot and prohibited cupping prior to
sales.
 Market power of international buyers due to monopoly tendency on the buyer side against
sellers or supplying countries, Lack of export marketing skills and market promotion
schemes(Insufficient promotional supports); inadequate trained manpower in international
marketing intelligence and Lack of understanding of international market demand resulted in
concentration on quantity rather than quality, Inconsistency in coffee quality.
The Main empirical literature:-coffee production potential, coffee production opportunity, factor
affecting coffee production, coffee marketing in Ethiopia in domestically and cross-bounder, and
problems encountered in coffee market.

3. CONCLUSION AND RECOMMENDAYION

This review provides an overview on coffee production and marketing constraints, marketing actors and
margin distribution in Ethiopia. According to the review, lack of competitiveness, lack of infrastructure,
in adequate access to services, low value addition, Price volatility, little market promotion and incentive
mechanism, and low price, spatially distributed coffee export processing and handling facilities
throughout the marketing channel, Lack of adequate international standard quality supply, inadequate
trained manpower in international marketing intelligence and Lack of understanding of international
market demand resulted in concentration on quantity rather than quality, Inconsistency in coffee quality
this all are main factors affecting of coffee marketing in Ethiopia.
Depending on the review made the following recommendation for concerned body.

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  To increase coffee production the government should Increase producers (farmers) share of
final retail price through enhancing of competition among traders in the market by licensing
more traders and inspecting their activities.
 Enhancing infrastructural and institutional facilities such as market information, road,
warehouse and transportation.
 Improving of coffee production technologies through development and extension of improved
coffee quality, standard and grades.
 Government should provide special extension services for growers to improve their skill and
knowledge on coffee production aspect and improve livelihoods of households in the study area.

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