Haramaya University

COLLEGE AGRICULTURAL AND ENVROMENTAL SCIENCE

DEPARTMENT OF AGRICULTURAL ECONOMICS

Analysis of Coffee Market Chain: The Case of Limmu Kossa District in Jimma Zone,
Oromia Regional State, Ethiopia

Prepared by; Ozil Nasir…………………………………… ID NO; 2259/13

Advisor Name; Wario Ketelo (MSc)

In Partial Fulfillment of The Requirement for The Degree of Bachelor of Science in Agricultural
Economics

January, 2024 Haramaya, Ethiopia

Contents
ACRONYMS AND ABBREVIATIONS..............................................................................................................................4
Acknowledgements.................................................................................................................................................................5
ABSTRACT............................................................................................................................................................................ 6
INTRODUCTION..................................................................................................................................................................7
1.2 Statement of problem...................................................................................................................................................9
1.3 Objectives of the Study..............................................................................................................................................10
1.3.1 General Objective.................................................................................................................................................10
1.3.2. Specific Objective................................................................................................................................................10
1.4. Research Questions...................................................................................................................................................10
1.5. Significance of the Study..........................................................................................................................................10
1.6. Scope and Limitation................................................................................................................................................10
LITRATURE REVIEW......................................................................................................................................................11
2. Basic Concept and Definition..........................................................................................................................................11
2.1 Actors of Coffee Market Chain and their Functions in Ethiopia..........................................................................11
2.2 The Approaches to Study Agricultural Marketing.................................................................................................13
2.2.1 Functional Approach.............................................................................................................................................13
2.2.2 Institutional /System Approach.............................................................................................................................14
2.2.3 Commodity/Individual Approach.........................................................................................................................14
2.3 Perspectives of coffee in Ethiopia..............................................................................................................................14
2.4 The Ethiopian Coffee Marketing Chain..................................................................................................................15
2.5 Ethiopia commodity exchange..................................................................................................................................15
2.6 Review of Empirical Literature................................................................................................................................15
RESEARCH METHODOLOGY.......................................................................................................................................18
3. Description of the Study Area.....................................................................................................................................18
3.2 Data Sources and Type..............................................................................................................................................19
3.2 Sample procedure and Sampling size.......................................................................................................................19
3.2 Sample procedure and Sampling size.......................................................................................................................20
3.3 Method of Data Collection........................................................................................................................................21
3.4 Methods of Data Analysis..........................................................................................................................................21
3.4.1 Econometric model specification..........................................................................................................................21
3.4.2 The Empirical Model.............................................................................................................................................22
3.5 Definitions of variable................................................................................................................................................22
3.5.1 Dependent variable:...............................................................................................................................................22
3.5.2 Explanatory variables............................................................................................................................................22
4. RESULTS AND DISCUSSION.......................................................................................................................................27
4.1 Coffee producers and traders socio-economic and demographic characteristics................................................27
4.2 Input and coffee production......................................................................................................................................27
 4.3. Access to service........................................................................................................................................................29
4.3 Actors involved in Coffee Market and Marketing Channels................................................................................29
4.4 Market Channels........................................................................................................................................................30
4.5 Marketing Costs.........................................................................................................................................................31
4.6 Marketing Margin......................................................................................................................................................31
4.7 Marketing Profit.........................................................................................................................................................32
4.8 Determinants of quantity of coffee sold...................................................................................................................33
5. CONCLUSIONS AND RECOMMENDATIONS........................................................................................................35
5.1. Conclusions...............................................................................................................................................................35
5.2. Recommendations.....................................................................................................................................................35
REFENCE.............................................................................................................................................................................37
ACRONYMS AND ABBREVIATIONS

CSA………………………………….Central Statistical Agency

ETB……………………………………… Ethiopian Birr
ECX………………………………………. Ethiopian Commodity Exchange
DAs ……………………………………………… Development agencies
Qts ……………………………………………………. Quintals
Ha …………………………………………………. Hectares
TGMM ……………………………………………. Total Gross Marketing Margin
ILO ……………………………………………… International Labor Organization
NBE …………………………………………………. National Bank of Ethiopia

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 Acknowledgements
First of all, I would like to thank the almighty Allah for his mercy, care, strength, and guidance during the entire
period of the study. Then I would like to extend special thanks to my advisors, Wario Ketelo (MSc) for his
unreserved advice, guidance, and constructive criticism during my entire study and research period.
Thirdly, I would like to acknowledge the entire staff of the Department of Agricultural Economics and
Agribusiness Management, Haramaya University, for their sincere and honest support

5
 ABSTRACT

Coffee is the major income generating cash crop for smallholder farmers in Limmu Kossa District. However
there were no information on market actors, determinants of coffee market supply, market margin and outlet
choice. Therefore, objectives of the study were to identify factors affecting market supply of coffee by
smallholder farmers and determinants of coffee producer market outlet choice. The primary data were collected
through personal interviews from a total of 98 respondents (65 producers, 13 traders, 8 processors and 12
consumers) using structured and semi-structured questionnaires. Focus group discussion was formed and
interviewed prior to household survey to generate qualitative data. Both descriptive and econometric model
were used to analyze. The study revealed that the main coffee market chain actors were producers, cooperatives,
wholesalers, agent middlemen, rural collectors, processors, retailers and consumers. Barriers to entry (capital
and license), price agreement by traders, cheat on weight and higher margins for traders implied that coffee
market in Limmu Kossa district was inefficient. The result of two stage least squares showed that amount of
coffee produced, sex of the household heads, educational level, family size, land allocated to coffee production
and access to market information had positively and significantly influenced amount of coffee supplied to the
market.

6
INTRODUCTION
1.1 Background
Agriculture is the backbone of Ethiopia’s economy and it is predominantly rain-fed with limited irrigation
coverage and thus highly exposed to climate change and variability (Berger et al., 2017). Share of agriculture
fell to 34.9 percent in 2017/18 from 36.3 percent during the same period (NBE, 2018). Despite its declining
contribution to GDP over the years, agriculture remains the leading sector in terms of contribution to the
country’s overall economy. It is a major source of food for domestic consumption, of raw materials for the
domestic manufacturing industries and of primary commodities for export. Moreover, the sector contributes
73% of employment, and supplies 70% of the raw-material requirements of local industries (Admit et al., 2016).

Coffee is one of the most known cash crops which is a major source of income for millions of smallholder
farmers worldwide and is a significant source of export earnings to many nations. In Africa, coffee is mainly
produced in Ethiopia, Uganda, Côte d'Ivoire, Kenya, Tanzania, Cameroon, Democratic Republic Congo,
Rwanda, Guinea, and Burundi. Ethiopia is the top coffee producer in Africa (ICO, 2018). In these countries,
coffee is the major commodity that supports the majority of rural households.
Smallholder and family farming agriculture remain to be the key and leading sector in overall economic
development of many developing countries in the world (Quan, 2011). According to (Geremew, 2014), in
addition to producing staple crops for domestic markets; smallholder farmers produce large shares of traditional
exports in these countries. This shows how the economy of many developing countries still reliant on
smallholder-based agriculture.

Ethiopia is the birth of Coffee arabica. It is grown by over 4 million smallholder farmers and employs 15
million people or roughly 15% of the country’s population at different points along the value chain (Francom,
2018). 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%), oilseeds (4.9%), leather and leather products (27.7%), fruits and
vegetables (16%), meat and meat products (10.1%), flower (8.1%), electricity (23.8%) and other exports
(35.1%). The share of coffee in total merchandize export earnings was increased from 27.5% in 2016/17 to
7
31.8% in 2017/18 (NBE, 2018). The area share of coffee under all crops in the country was increased from
4.94% in 2016/17 meher season to 5.09% in 2017/18 meher season (CSA, 2018). Coffee plays a vital role in
both cultural and social life of Ethiopian community. Among coffee producing countries in the world, Ethiopia
is the first in consumption of coffee (Melkamu, 2015; Alemayehu, 2014).

Oromia is one of the largest regions in Ethiopia that shares largest area coverage of the country. It is known for
high production of coffee and, 489799.36 ha of land were allocated and 3101927.33 quintals was produced with
average yield of 6.33 quintals/ha in 2017/18 meher season (CSA, 2018). From top 25 coffee producing districts
in Ethiopia, Oromia dominates with 18 coffee producing districts and the remaining top coffee producing
districts are located in SNNP. Jimma zone is one of the Oromia region’s zone which has potential of coffee
production. In 2016/17 meher season, 6606.55 ha of land were allocated for coffee production (CSA, 2017).
Limmu kossa district is found on the 2end from top 18 coffee producing districts in Oromia (James et al., 2015).

Agricultural marketing is a process that starts with a decision to produce saleable farm products and it includes
pre and post-harvest operations, assembling, grading, storage, transportation and distribution of agricultural
products and other allied activities that support moving products from producer to end consumer (Sulaiman,
2017). The role of marketing in reducing poverty and achieving food security in rural areas has been getting
increasing attention from development scholars and institutions. Strong links to markets for poor rural
producers are essential in increasing agricultural production, generating economic growth and reducing hunger
and poverty. Improving market links creates a virtuous circle by boosting productivity, increasing incomes and
improving food security (Nedumaran et al., 2015). Better access by small producers to market means that they
can reliably sell more products at higher prices. This, in turn, encourages farmers to invest in their own
businesses, increase quantity produced, improve quality and diversify their produce (Hussein and suttie, 2016).

In the absence of well-functioning markets, agricultural production can experience several drawbacks.
To improve coffee production and productivity in the area, development of well performing marketing system
which satisfies consumer demands with the minimum margin between producers and consumer prices is
important. But, no attempt has been made to study performance of coffee marketing and determinants of market
outlet choice of coffee producers and supply in the study area. The finding of the study can assist in developing
improved market development strategies to benefit all stakeholders who are participating in coffee market in the
Limmu kossa district.

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1.2 Statement of problem

Ethiopia remains the largest producer of coffee in Africa and is the fifth largest coffee producer in the world
next to Brazil, Vietnam, Colombia and Indonesia, contributing to about 4.2% of the total world coffee
production (ICO, 2018). Coffee is one of the leading traded commodities on the global market in both volume
and value (Zewdu, 2016). For the last several years its relative predominance in the export sector is decreasing
because of increased contribution of other agricultural products like horticulture and floriculture. Consequently,
only a little over 27% percent of the total exports earnings is contributed by coffee during the year of 2018/19
(USDA, 2020). The trend for the last several years shows that the share of coffee in foreign exchange earnings
will further decline. Coffee also contributes for sizeable amount of government tax revenue. It seems that
Ethiopia will, to some certain extent, continue to rely on this item for its export earnings in the coming future.
The government of Ethiopia has recently embarked upon exploring new knowledge from outside the country in
order to accelerate its market-oriented agricultural development. These areas of new knowledge include
technologies, biotechnological tools and products, institutional innovations and arrangements for extension,
output marketing, input supply and rural finance (ILRI, 2005). It has developed long term and strategic
framework to improve the quality of farm product and traded commodities, reduce marketing costs and increase
competition in the marketing sector (Tesfaye, 2016).

But, till today agricultural commodity market is not stable. This is because, there is no well-integrated
commodity marketing policy that addresses all the processes that involve transport, grading, storage and
information facilities for the producer as well as for consumer, and well-equipped institutional establishment
which can provide all marketing services to all market actors (Tesfaye, 2016). Limited credit supply, price
instability, and market and price information not accessible to producers and local traders are also among major
constraints of agricultural marketing in Ethiopia (Mohammed, 2004).

Various studies on performance of coffee marketing (Bizualem, 2014; Getachew, 2011; and Zekarias et al.,
2012) and on coffee producers market outlet choices (Samuel et al., 2017; Engida, 2017; Mekonin, 2017; and
Solomon et al., 2016) were conducted in different parts of the country. However, past studies conducted on
different regions of Ethiopia, did not address the performance, supply and market outlet choice decision of
coffee producers in the study area. Therefore, to improve coffee production, knowing of existing and efficient
marketing channel and margin distribution of marketing actors is important. Hence, the study aimed to analyze
performance, determinants of supply and market outlet choice decision of coffee producers in the study area.

9
 1.3 Objectives of the Study
1.3.1 General Objective
The general objectives of this study are to Analysis of Coffee Market Chain of Limmu Kossa district.
1.3.2. Specific Objective
1. To describe important marketing channels and actors involved for domestic coffee.

2. To assess the marketing cost and margin of main actors in the market chain.

3. To identify factors affecting coffee market supply by smallholder farmers level.

1.4. Research Questions

1. What is the market channel and actors in the domestic coffee market chain in study area ?

2. What are the marketing costs and margins of all actors in the coffee market chain ?

3. What are the factors that affect the market supply of coffee at smallholder farmer level ?

1.5. Significance of the Study

The study provides information on the determinants of coffee supply to the market, the determinants of market
outlet choice decisions, marketing margin, benefit share of actors, and The information is expected to have
valuable input that helps market participants to understand supply potential and performance of coffee
marketing and come up with important recommendations that helps in delivering required efforts to enhance the
production and marketing of coffee to bring about economic development in the area. The information
generated in this study can help a number of organizations including: national and international research
institutions, development organizations, traders, producers, policy makers, extension service providers,
government and non-governmental organizations.

1.6. Scope and Limitation

This study was undertaken in Limmu Kossa District, Jimma Zone, and was limited to only Coffee marketing.
The study emphasized different market chain actors and their roles, the performance of the Coffee market, and
the identification of factors affecting market participation and the level of participation of farmers in the
marketing of Coffee in the study area. The coverage of the study was limited to the Limmu kossa district only
in terms of location. Methodologically, this study used cross sectional data gathered from sample households
during 2023/2024. Despite these limitations, the results of the study would provide an important basis for
relevant interventions for the study area and other areas with similar socio-economic conditions.

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LITRATURE REVIEW
2. Basic Concept and Definition

Marketing: The marketing concept rests on four pillars: target market, customer needs, integrated marketing and
profitability. The selling concept takes an inside-out perspective. It starts with the factory, focuses on existing
products, and calls for heavy selling and promotion to produce profitable sales. The marketing concept takes
outside perspectives. It starts with a well-defined market, focuses on the customer’s needs, coordinates activities
and produces profits by satisfying customers. The shortest definition of marketing is meeting needs profitably
(Kotler, 2003; Syafril and Hadziq, 2021).

Marketing system: Palmatie et al., (2019) define the marketing system in terms of what is known as a marketing
channel. In broad terms, a marketing system may be defined as the totality of product channels, market
participants and business activities involved in the physical and economic transfer of goods and services from
producers to consumers. A marketing system is a collection of channels, intermediaries, and business activities
that facilitate the physical distribution and economic exchange of goods (Kozlenkova et al., 2015).
Market chain: It is the sequence of decision-making and execution processes and material, information and
money flows that aim to meet final customer requirements and take place within and between different stages
along a continuum, from production to final consumption. The Producer and its suppliers are only one part of
the market chain; other participants include transporters, warehouse, retailers, and customers themselves, based
on logistical flows. Market chains encompass a wider range of activities, such as the creation of new products,
marketing, operations, distribution, finance and customer support (support (FAO, 2007; Sharma, 2019).

2.1 Actors of Coffee Market Chain and their Functions in Ethiopia

The supply of coffee for Ethiopia is characterized by a long-chain with several intermediaries (Boansi and
Crentsil, 2013). According to Alemayehu (2014), Teshale (2017) and Belay (2017), participants (actors)
involved in the coffee value chain are coffee producers, collectors, primary cooperatives, processors,
cooperative union, wholesalers, exporters, retailers, consumers and supporters.
Coffee Producers: At the beginning of the coffee marketing chain are the producer farmers, who plant and
manage coffee trees and sell the dried coffee cherries to wholesalers or collectors at farm gate or nearby market.
They are responsible for growing and harvesting coffee, thereby determining the amount and quality of coffee
produced (Getachew, 2011). The sector segmented as small-scale coffee farmers and coffee farmers’ service
cooperatives (90%), medium-sized producers (5%), and large scale commercial private enterprises (5%)
produce for local and global market depending on the graded standard of coffee quality inspection body
11
(Teshale, 2017).

12
Collectors: The main actors in the coffee market chain who receive coffee from the producers (Zekarias et al.,
2012). Buy coffee from smallholder farmers at their locality and supply to processors and have a crucial role in
the coffee assembly and transfer the 8 collected coffees to the processers (Teshale, 2017). According to Jema
(2014), assemblers perform marketing functions such as colleting the produce from farm households (buying),
drying (partially), transporting to processors and selling to processors.

Primary Cooperatives: Smallholder farmers in developing countries are often encouraged to get organized
into cooperatives mainly to overcome production and marketing constraints that usually hinder the
improvement of their livelihoods (Dagne et al., 2017). Primary or village cooperatives purchase members’
coffee, sell it in bulk to a processor or exporter (Alemayehu, 2014). Members' collect coffee together as well as
purchase other coffee in the village town as a group and supply to a cooperative union (Teshale, 2017).

Processors: Both dry and wet processing is carried out at processing station by processors. It includes hulling
and pulping of coffee and sorting, grading packing and weighing is carried out here. In large scale producers
and cooperatives all processing work is accomplished by the producers by their own processing plants (Teshale,
2017).

Cooperative Union: Cooperative unions purchase, process, and export coffee on behalf of their member
cooperatives (Alemayehu, 2014). Their main functions are to assist in developing producer/buyer linkages (by
facilitating organic and fair-trade certification for example), to export members’ coffee directly, provide
warehouse and transport services, promote high-quality coffee production, and provide saving and credit
services as well as training and education programs for members (Nicolas, 2007). Cooperative unions with
sufficient capital export directly without necessarily getting their produce to the auction markets (Boansi and
Crentsil, 2013).
Wholesalers: They directly collect coffee from the producers by their agent (commission men) and then
transfer this product to the exporter in Addis and Ethiopian commodity exchange (ECX) market (Zekarias et al.,
2012). Licensed wholesalers operate mainly in the domestic market that is, trading non-export quality coffee by
g coffee from the ECX (Girma, 2011). Suppliers acquire red coffee cherries from collectors or producers
(before 1999, they could not buy coffee directly from producers), they then have to process their coffee before
bringing it to auction. They are not allowed to export on their own account. Some have storage facilities as well
as their own hullers or pulperies (Nicolas, 2007).

Exporters: Exporters are clearly the most powerful of the private intermediaries as they hold the contacts with
13
international buyers. They are centralized in Addis Ababa and own their processing plants where coffee is
transformed into export quality green beans (Girma, 2011). At the auction markets, exporters purchase coffee,
process it to export standard and then export it to destinations abroad. Some of the processed product are
however sold to local wholesalers and retailers and then to consumers from there (Boansi and Crentsil, 2013).
Involved in the international transaction marketing operations buying the coffee from wholesalers at ECX and
export the finished clean and standardized coffee bean (Teshale, 2017).

Retailers: The retailers purchase coffee from the large-scale producers, exporters and cooperative for the
international market and the rejected and lower graded coffee supplied to the domestic market (Boansi and
Crentsil, 2013).

Consumers: Ultimate users of coffee that can be international or domestic users (Gemoraw, 2011).
Service providers at each market chain; The service provider in coffee value chain actors in the country are
like Ethiopian commodity exchange main and its branch, input supplying government organizations, Woreda
level administration bodies, development agents, transporters, commercial bank of Ethiopia, saving and credit
association, and other non-governmental organizations (Alemayehu, 2104). The Ethiopian Commodity
Exchange (ECX) was established in April 2008 with the objective of improving market efficiency by better
linking smallholder farmers to markets, encouraging reliable trading relationships and increasing market
information. In December 2008 it became mandatory to trade all coffee through the ECX (Hernandez et al.,
2015). However, according to FAO (2014), the introduction of ECX in 2008 has not changed the market
structure. It appears that ECX has failed to bring about more balanced domestic prices. First, the ECX has
reduced the number of middle men but this has increased the market power of the coffee suppliers and probably
allowed them to inflate prices by creating shortages. Indeed, although ECX is now the main wholesale structure
for coffee in the country, the coffee still has to go through local wholesalers before reaching regional ECX
level. Second, inefficient and non-transparent grading contributes to excessive losses at wholesale-exporter
level, and raises their costs significantly.

2.2 The Approaches to Study Agricultural Marketing

2.2.1 Functional Approach

It takes all the basic marketing activities that have to be performed in the agricultural commodities and at the
marketing of inputs in to agricultural production. The functional approach studies the different activities done in
varying the farm product into the product desired by the consumers. These activities are called functions
(Knickel et al,. 2009). Physical distribution (functions) and economic activity (buying and selling) are two

14
dimensions of marketing carried out by institutions or people. An analysis of these two dimensions of
agricultural marketing is intimately linked to the institutions created by law or by corporate standards or simply
by established procedure, that have emerged because of the social and economic relation between the
participants in the marketing process (intermediaries, consumers, and producers) (Ishfaq et al., 2016).
Moreover, this approach helps to compare cost and benefits of different functions. The widely accepted
functions are exchange (buying and selling), physical (processing, storage, and transportation) and facilitating
(standardization, financing, risk bearing, and market information). Most of these functions are performed in the
marketing of nearly all commodities (Gichangi, 2010).

2.2.2 Institutional /System Approach

This approach concerned with the number and kind of business firms that perform the marketing task. That
means, it covers all market participants (producers, assemblers, transporters, wholesalers, retailers and
consumers). It includes market stabilization agencies boards of foreign trade, supermarket chains, wholesaler or
retailer networks, a town’s central market, or agreements between producers and millers. The efficiency of
marketing institutes depends on the involvement of the relevant people (Kerin and Hartley, 2017).
2.2.3 Commodity/Individual Approach
In this approach, a specific commodity or groups of commodities are taken and the functions and institutions
involved in the marketing process are analyzed. This approach focuses on what is being done to the product
after its transfer from its original production place to the consumer (Kohl and Uhl, 1985). It helps to nail the
specific marketing problems of each commodity as well as improvement measures. The approach follows the
commodity along the path between producer and consumer and is concerned with describing what is done and
how the commodity could be handled more efficiently. It is extremely useful to the person who is interested in
only one product since it does allow in depth analyses (Jema, 2014). In a commodity subsystem approach, the
institutional analysis is based on the identification of the major marketing channels. This approach includes the
analysis of marketing costs and margins. Therefore, in this study commodity approach was used to evaluate
Coffee market chain.

2.3 Perspectives of coffee in Ethiopia

Ethiopia is the birthplace of coffee and it discovered earlier. In the tenth century, Ethiopian nomadic mountain
peoples were may have been the first to recognize the coffee it has stimulating effect, although they ate the red
cherries directly and did not drink it as a beverage initially. Then the mystic Sufi pilgrims of Islam spread coffee
throughout the Middle East. From the Middle East these Ethiopian coffee beans spread to Europe and then
throughout their colonial empire including Indonesia and the Americas. More than 1,000 years ago, coffee was
a goatherd in Ethiopia southwestern highlands plucked a few red berries from some young green trees growing
15
there in the forest and tasted them to check it haves the flavor and make feel-good effect to the consumers at
that time. In addition, as David Beatty discovers in words and pictures, the Ethiopian province where they first
blossom Kaffa gave its name to coffee. The story of coffee was beginnings in Ethiopia, and the country is
original home of the coffee plant, coffee Arabica, which still grows wild in the forest of the highlands of
Ethiopia. While nobody is sure, exactly how coffee originally discovered as a beverage plant, it believed that its
cultivation and use began as early as the 9th century in Ethiopia. Some authors claim that it was cultivated in
the Yemen earlier, around AD 575. While, it originated in Ethiopia, from where it traveled to the Yemen about
600 years ago, and from Arabia began its journey around the world (Selamta, 2014).

2.4 The Ethiopian Coffee Marketing Chain

According to Gustaf (2011) there are generally two paths in the Ethiopian Coffee Marketing chain; one through
Ethiopia Commodity Exchange (ECX); and other a direct export path through cooperative unions. Fair Trade
certified coffee is only sold through the cooperative unions and it is directly exported to different countries in
the world.
2.5 Ethiopia commodity exchange
Coffee marketing in Ethiopia has undergone several transformations over the decades. Recent initiatives to
increase value and benefit the coffee sector include fair trade certification by cooperatives, organic and specialty
coffee promotion, and the trade-marking and licensing initiatives that has successfully established international
branding of three of Ethiopia‘s major coffee types: Sidama, Yirgachefe and Harar. In July 2008, a new law
(Proclamation 702/2008) and the supporting regulation issued by the Council of Ministers replaced the existing
coffee quality control and marketing legislation governing the sector for the past nearly four decades. The law
stipulates that all coffee supply, with the exception of grower direct exports, are to be traded in the newly
established Ethiopia Commodity Exchange (USAID, 2010).
ECX is setting up local marketplaces near farmers to make the market more efficient. ECX has warehouses to
guarantee the availability of coffee. Wholesalers take \their coffee to the warehouses and receive a receipt. ECX
also grades the coffee and ensures its quality. At the auction, buyers and sellers only know the grade and kind of
coffee, not who produced it. ECX also ensures that buyers have sufficient funds available for trades at the
auction. There were several previous examples of buyers’ not paying, coffee not being delivered from sellers,
and farmers suffering from forged checks. ECX has been implemented to eliminate these problems and to create
a safe and secure market place to benefit for everyone. Farmers are now better informed about prices at the
ECX through mobile phones and radio and are no longer cheated (ECX, 2011).
2.6 Review of Empirical Literature
Different scholars have studied on factors influencing market supply on different crops. Engida (2017) studied
factors influencing the volume of coffee supply in southern Ethiopia using multiple linear regression models.
16
The model indicated that, quantity of coffee produced, educational level of household head, cooperative
membership and ownership of means of transport were found to be significant variables influencing volume of
coffee sold positively. Distance to the nearest local market was also significant with a negative sign.

Mohammed (2012) identified the major factors that affect the supply of coffee in Nensebo district of Oromiya
region using 2SLS regression econometric model. The results of his econometric analysis shows that output,
access to market information, family size and distance to market as the main factors affecting coffee supply to
the market. Family size and market distance affect the quantity supply negatively.

Ali et al. (2017) studied factors affecting milk market supply and level of supply in Dessie District, Ethiopia by
Heckman two stage estimation models. The results of the model indicated that level of participation of
households in milk market supply were affected significantly by age of the household, educational level,
number of milking cows owned, and technical training, family size and access to market information positively,
and distance from market/urban centers and sex of the household negatively.

Sultan (2016) analyzed the determinants of wheat supply to the market in Sinana District by using two-stage
least square regression model. The model indicated that size of landholding, livestock ownership, family size
and quantity of wheat produced influences amount of wheat supplied to market significantly.

Similarly, Samuel et al. (2017) studied share of coffee market outlets among smallholder farmers in western
Ethiopia by employing multinomial logistic regression model. Consumers, brokers, cooperatives, urban, and
rural traders were found to be the main coffee market outlets in the area. They further noticed that sex was
positive and significant which implies that male farmers prefer cooperatives to sell their coffee as compared to
female farmers. According to the study, the logic behind this could be male farmers have more resource for
transportation and time to sell their coffee product to markets even when the markets are far away from their
residence.

Mekonin (2017) on his study of determinants of market outlet choice of coffee producing farmers in west
wollege zone, Ethiopia, used multinomial logistic regression model and the result of the model showed that the
choice of end consumer outlet is positively and significantly affected by access to transportation facilities,
access to price information and access to credit compared to private trader outlet, whereas the quantity of coffee
sold and access to extension services negatively affected the main choice of end consumer outlet. Similarly, the
choice of cooperative outlet is positively and significantly affected by distance to the market, access to
transportation facilities, access to price information and access to training compared to private trader outlet on
17
the other hand,

Oliyad et al. (2017) identified factors affecting market outlet choices of groundnut producers in Digga District
of Oromia State, Ethiopia by using multivariate probity model. The result of the model identified that variables
like educational level, distance to the nearest market, access to extension service, size of land allocated for
groundnut, quantity of groundnut produced, transport facilities, buyers’ trust and access to off/nonfarm income
affected the choice of appropriate market outlets of producers.

Efa and Tura (2018) also employed multivariate probity model to analyze determinants of tomato smallholder
farmers’ market outlet choices in West Shewa, Ethiopia. The result of the study revealed that distance to nearest
markets, access to credit, family size, age of household head, education status, farming experience and volume
of tomato produced significantly influence choices of tomato market channels. Retailer market outlet choices
were negatively affected by age of household head, education status and distance to the nearest market where as
access to credit affected positively at different levels of significance. However, wholesaler market outlet choices
were negatively affected by access to credit, family size and amount of tomato produced at different level of
probability.

18
RESEARCH METHODOLOGY
3. Description of the Study Area
The study area Limmu kossa woreda is found in Jimma zone of Oromia regional state and it’s located in
northwest direction 75km far from Jimma town and 410 km distance from Addis Ababa. The woreda is one of
the most coffee producing woreda in Jimma zone. The woreda is geographically located between 70 50’ to 80
36’ North and 360 44’ to 370 29’ East (ORG, 2003). The total surface area of the district is 1355 km2. Agro-
climatic condition of the district comprises of highland (25%), midland (65%) and lowland (10%) with annual
rain fall varying between 1200 to 2000 mm and altitude ranging between 1450 to 1950 meters above sea level
while annual temperature is 10oC to 25oc (MOARD, 2018).
The district has 44 rural kebeles and from this 20 kebeles are coffee producers. Limmu Kossa is bordered on the
south by kersa on the southwest by manna, on the west by Gomma, on the northwest by Didessa River which
separates it from the Buno Bedele zone, on the north by limmu sekka. Limmu Genet is the administrative town
for Limmu kossa wordea (Jimma zone Agricultural and Rural development Office 2008). Based on the figures
published by the central statistical agency in 2005, this woreda has an estimated total population of 254,911, of
whom128770 are men and 126,141 are women; 19,932 or 7.82% of its population are urban dwellers (CSA
2005) but according to agricultural survey result done by Central Statistical Agency Jimma branch 2019, the
current population is estimated to be 387,694. The average land holding size per house hold is 2.39 hectare out
of which 24.6% is covered with annual crops.

19
3.2 Data Sources and Type
Both primary and secondary data sources are used to collect information required to address the objective of
this study. The main sources of the data are primary and secondary data. Primary sources are farmers, local
group discussions, and while Secondary sources are; Limmu Kossa district agricultural and development office,
and Jimma zone agricultural office; Oromia regions agricultural office, ECX regarding coffee production and
marketing and document Relevant to secondary data also obtained from internet in participating coffee market
chains.

3.2 Sample procedure and Sampling size

The target populations for study are coffee producer households in Limmu Kossa district. A mix of non-
probability and random sampling techniques are used for this study. A Multi-stage random sampling procedure
is use for the selection of representative sample households. Limmu Kossa district has 38 Kebeles among which
29 Kebeles are coffee larger producer than other Kebeles. In the first stage, three Coffee producing Kebeles of
the district, Ambuyye Walensu and Harawa Getira, are select from 29 coffee producing kebeles through
purposively based on their coffee production and marketing potential. In the seconds stage, from the sampling
frame (coffee producing households), using the population list of Coffee farmers from each sample Kebeles,
and the intended sample size is determine using probability proportional to population size. The sample size is
determine using a formula given by Yamane (1967). It is use to determine the required sample size at a 95%
confidence level with degree of variability of 5% and level of precision equal to 10% are used to determine the
required sample size to represent the population. This adequate error of precision is taken by considering
sample size and time.

20
3.2 Sample procedure and Sampling size
The target populations for study are coffee producer households in Limmu Kossa district. A mix of non-
probability and random sampling techniques are used for this study. A Multi-stage random sampling procedure
is use for the selection of representative sample households. Limmu Kossa district has 38 Kebeles among which
29 Kebeles are coffee larger producer than other Kebeles. In the first stage, three Coffee producing Kebeles of
the district, Ambuyye Walensu and Harawa Getira, are select from 29 coffee producing kebeles through
purposively based on their coffee production and marketing potential. In the seconds stage, from the sampling
frame (coffee producing households), using the population list of Coffee farmers from each sample Kebeles,
and the intended sample size is determine using probability proportional to population size. The sample size is
determine using a formula given by Yamane (1967). It is use to determine the required sample size at a 95%
confidence level with degree of variability of 5% and level of precision equal to 10% are used to determine the
required sample size to represent the population. This adequate error of precision is taken by considering
sample size and time.

The formula is given by:

Where;
n = sample size required
N = population size or total number of households with in the district
e = the level of precision which is assumed to be 10 % in this study
Therefore, according to the above formula the sample size to this study is;
6583
n= = 98
1+6583 ( 0.12)

Table 1. Distribution of the sample farmers

No. Name of sample Kebele Total number of household heads Number of sample households

1. Ambuyye 2463 37
2. Harawa Getira 2088 31
3. Walensu 2032 30

Total 6583 98

21
3.3 Method of Data Collection
The data is collected from all actors along the market chains using semi-structured questionnaire in which the
questions asked was decide in advance. The list of questions made up of open ended and close ended. Separate
questionnaires are preparing for households and traders. The data are collected by interviewing, households,
and traders by using the interview guide. The questionnaires are pre-tested and corresponding adjustments are
made. The core reasons for pre-testing the pre-field questionnaire is to decide whether to exclude or modify.
3.4 Methods of Data Analysis
3.4.1 Econometric model specification
The model consists of a dependent variable also called the left-hand-side variable; independent variable(s) also
called explanatory or right-hand-side variable(s) and an error terms (stochastic disturbance term) that stand for
unobservable random variables not explicitly included in the model.
To address the determinants of volume of coffee marketed, a multiple regression model was used in the study.
This model is selected for its simplicity and practical applicability (Greene, 2000).Hence, Ordinary Least
Squares (OLS) method was used to estimate the parameters as it is appropriate when the dependent variable is
continuous. The model used for the analysis was specified as:
𝑄𝑗=𝛽𝑜+𝛽1𝑗𝑋1𝑗+𝛽2𝑗𝑋2𝑗+𝛽3𝑗𝑋3𝑗+𝛽4𝑗𝑋4𝑗+…𝛽𝑛𝑗𝑋𝑛𝑗+𝜀𝑗…………… (5)

Where,
Qj=Marketed surplus of coffee
βi=a vector of estimated coefficient of the explanatory variables
Xj = a vector of explanatory variables
εj=disturbance term
X1=Market information access
X2=Education level of household
X 3= Access to credit
X4=Farming experience of the household
X5=Perception of household toward farm-gate Price
X6= Distance to nearest market of coffee product
X7= Extension service
X8=Size of land holding of coffee
X9=livestock size
X10= Size of household
X11= Variety of coffee

22
X12=Age of household head
X13=Sex of household
X14=Lagged price of coffee
X15=Non-farm income
εj=Disturbance term

3.4.2 The Empirical Model

The empirical model of sales (marketed) quantity of coffee to be estimated may be specified as: Sold
(Marketed) quantity of coffee:-
(Yi)=β(DISTMKT+AGHH+EDUHH+EXPHH+COFLAS+SIZHH+LIVESTOCK+LAGPRC
E+SEXHH+COFVAR+FAIRPRICE+EXTSERV+ACCSCRD+NONFARM+ACCSSMKRIN
FO)+εj ………………………………………….(6)

3.5 Definitions of variable

3.5.1 Dependent variable:

Sales quantity of coffee in quintal (Qj), is the quantity (volume) of coffee supplied to market
by the sample farmers during harvest season, expressed in quintals.
3.5.2 Explanatory variables
Access to market information (X1ACCSMTINFO): It is a dummy variable that takes a value of 1 if a
household head had access to market information and 0 otherwise. Wendmagegn (2014) found that access to
market information had significantly and positively influenced coffee market supply. According to Nasir (2016)
access to coffee market information affected the choice of collector outlet negatively and significantly. Hence, it
was expected that access to information influences the quantity coffee sold positively.

Education status of the Household Head (X2 EDUHH): It is a continuous variable that refers to the number
of years of formal schooling the household head attended. Educated household heads are expected to have
better skill, better access to information and make better use of their available resources. Educational level of
the household head wa found to have positive and significant relation with the quantity of coffee supplied to the
market (Engida, 2017). The more educated the farmers are the more likely to participate in retail channels,
perhaps on account of higher education levels helping farmers to adjust to new market requirements and making
the farmers more likely to adopt innovative production practices (Efa and Tura, 2018). Mengistu (2014) also
reported education level provides positive predictive power whether or not the household choose cooperative as
market outlet. Therefore, it is expected to affect quantity of coffee sold positively.
23
Access to credit (X3ACCSCRDT); is a dummy variable, which assumes a value of 1 if the farmer has credit
access and zero otherwise. Getting credit is one way of improving farmers’ ability to make use of opportunities
and improve their production (Legesse, 1992) Therefore, it is expecting that access to credit will have positive
influence on volume of sale.
Experience of the household in farming(X4 EXPRHH)
This is a continuous variable which refers to the number of years the farmer was engaged in Coffee production.
The studies by Alemnew (2010) showed that as farmer’s experience in groundnut production increases the
probability of participation in the market and amount supplied to the market. This implies that as farmers got
more experience in groundnut production, the probability of increasing production and hence participation in
the market and supply would be higher. Moreover, farmers with longer farm experience would have a
cumulative knowledge of the entire farming environment. Therefore, it is expected to positively influence
Coffee market participation decision and level of participation.
Perception of household toward farm-gate price (X5FAIRPRICE)
It is farm gate price of coffee and this is dummy variable, if a farmer think the price is fair it has value of 1
otherwise zero and was expected that if farmer think the price is fair, he/she can supply to the market; if not
decide to sell other time after hording it.Thus Perception of household toward farm-gate price directly and
positively related to the supply of coffee. The study by Goetz (1992) on household marketing behavior in Sub-
Saharan Africa found a significant positive relationship between grain price and the probability of quantities
sold.

Distance to nearest market of coffee product (X6DISTMKT)

It is a continuous variable measured in kilometers from the household residence to the nearest market center.
The closer to the market the lesser would be the transportation cost and time spent and the more would be
market supply. As stated in Segage et al., (2018), if the household is found near the market, they get market
information easily. Therefore, distance to the nearest market is expected to influence market participation and
level of participation negatively.

Extension service (X7EXTSERV);

This is a dummy variable that was measured by number of days the household head contacted development
agents per month during the survey year. According to Urgessa (2011), the higher access to extension service,
the more likely that farmer adopts new technology and innovation, which increases productivity there-by
market supply. Farmers who frequently contact DAs might have better access to information and could adopt
better technology that would increase their market supply of Coffees. Thus, extension contact is expected to
have positive effect on market participation and the quantity supplied to the market through its stimulation of
24
production and productivity.

Size of land holding of coffee (X8COFLASZ); is the total landholding, which is continuous variable. If the
producer has large land size he/she will allocate more land to his coffee production. Thus, increase in size of
land will be expected to have direct influence on marketed surplus. Branson and Norvell (1983) and DNIVA
(2005) found expanding the area under crop result in increased the marketable supply of the crop.

Livestock size (X9LIVESOCK); it is continuous variable measured by Tropical livestock unit (TLU)
household’s number of livestock determine financial trusts between the household and informal financial
service providers and local value chain actors. Based on this number of livestock’s household expected
positively affect choose of coffee market chain.
Family size in adult equivalent X10SIZHH): It is a continuous variable measured in adult equivalent.
Availability of active labor force in a household is assumed to affect household’s decision in choosing a given
market outlets in coffee market chain. Nasir (2016) found family size had positively and significantly affects
amount of sundry coffee supply. On the other hand, Sultan (2016) justified high family member results in high
34 proportion of wheat consumption and low market supply, respectively. Takele et al. (2017) reported family
size is positively correlated with the choice of wholesaler outlet and justified that households with the larger
family size have plenty of labor force to deliver mango to final market. Hence, it is expected that family size
influence the quantity of coffee sold either positively.

Variety of coffee (X11COFVAR); is Dummy variable having value of 1 if farmer used improved coffee variety
which could resist bad environmental conditions (natural or manmade) called Java variety, and 0, otherwise if
the farmers used local coffee variety. The high yielding variety not only productive but also can resist
difficulties. Thus, farmers with Java variety are more productive and efficient than others.

Age of household head (X12AGHH); It is continues variable measured in years. Young and old farmers have
no equal access to financial service providers. As result of social capital and networking, old farmers can easy
income from informal sources (idre, iqub or others) compared with young farmers/household head/.Hence age
is expected to have positive or negative effect on market chain.

Sex of the household head (X13SEXHH): It is a dummy variable taking a value of 1 if the household head is
male and 0 otherwise. Male headed households have relatively better advantage to attend agricultural training,
to produce more output and to supply more amount of coffee to the market than female headed households. Sex
of the household head (being male) had influenced 25
market supply of coffee positively and significantly
(Wendmagegn, 2014). Male farmers have more resource for transportation and time to sell their coffee product
to markets even when the markets are far away from their residence. (Samuel et al., 2017). Therefore, sex of the
household head (being male) is expected to affect quantity of coffee sold positively.

Lagged price of coffee (X14LAGPRC);is refers to market of coffee price of before a year and is a continuous
variable, which measured in Ethiopian birr per quintal. Literature argued that the product price has direct
relation with marketable supply hence it was expected affect household marketable supply coffee positively in
such way that the price of 2017canstimulate farmers to produce coffee and then supply more for 2017 Ayelech,
(2011) showed that price had and highly significant effect on the volume of avocado and mango supplied to
market. Therefore, it is expected that prevailing market price positively affect marketed surplus of coffee.

Income From non-farm activities (X15NOFRM-INC); It is a continuous variable measured in monetary

value (ETB) and shows the amount of income obtained from non/off-farm activities undertaken by the
household heads. According to Hasen (2016), the coefficient of off farm income for volume of wheat marketed
is negative and statistically significant, and justified that households who had off-farm generate their income
from off-farm rather than selling wheat product. The availability of off/non-farm income has negative and
significant relation with the likelihood of choosing private trader outlet and positive and significant relation
with the likelihood of choosing consumer market outlet of coffee producers (Engida 2017). Hence, it is
expected that non/off-farm income influence the quantity coffee sold negatively.

26
Table2.Summary of independent variables used in the multiple linear regression models;

Variable Description Type of variable Unit/ value Expected sign

Dependent
variable

QTYSLD Marketed surplus amount Continues Quintal

Independent
variable

DIS-MRKT Distance to market Continues Hours -ve

SXHH Sex of household Dummy Male/female +ve
AGHH Age of household Continues Years +/-ve
EDCTLV Educational level Continues schooling +ve
FRM-EXP Farming expri household Continues Years +ve

CFFLND Allocated coffee land Continues Hectares +/-ve

CFFVRT Coffee variety Dummy Local/improve +ve

SZHH Size of household Continues numbers +ve
ACSS-MRK Access to market Dummy Yes/no +ve
TLU Tropical livestock Continues TLU +ve
NON-FRNC Non-farm income Continues Birr -ve
LAG-PRC Selling price Continues Birr +ve
FAR-PRC Faire price Dummy Yes/no +ve
EXSRV Extension service Dummy Yes/no +ve
ACSSCRT Access to credit Dummy Yes/no +ve

27
 4. RESULTS AND DISCUSSION
4.1 Coffee producers and traders socio-economic and demographic characteristics

In this sub-section, demographic and socio-economic characteristics such as sex, age, marital
status, family size, educational level, farming experience and access to institutional services were
discussed.
From total household interviewed, 13% were female headed households and 87% were male
headed households. Almost all (94.5%) of the respondents were married, followed by single,
divorced and widowed which accounted for 3%, 1% and 1.5%, respectively (Table 3). Education
is instrumental to attain developmental goals through application of science, technology and
innovations (Tirussew et al., 2018). In line with these facts, educational status of coffee
producers in the study area was assessed and it was found that the maximum years of education
attended were 12 grades with the mean of 5.15 and standard deviation 3.72. According to CSA
(2017), nearly half of women (48%) and 28% of men age 15 up to 49 in Ethiopia have no
education. Illiteracy rate for male and female households in the study area was 15.45% and
58.06%, respectively. This implies that illiteracy rate of coffee producers was below national
average for male households in one hand and it was above national average for female household
heads on the other hand. Table 3 also revealed that majority of the farmers in the study area were
educated which can be an opportunity to increase coffee production. The test statistics indicated
that there is statistically significant mean difference in supply of coffee between males and
female headed households and between literate and illiterate household heads.

Table3.Descriptive Statistics of Continuous variables

Variables N Minimum Maximum Mean St.
Deviation
DISTMKT(hour) 98 7 35 21.65 7.05
AGEHH(year) 98 30 87 49.35 11.83
EDUHH(number) 98 1 4 1.89 0.837
EXPHH(year) 98 10 26 19.06 4.20
COFLASZ(hectare) 98 0.5 7 3.75 1.38
SIZEHH(number) 98 2 9 5.59 2.28
LIVESTOCK(TLU) 98 1.65 18.21 7.24 3.34
LAGPRC(ETB/kg) 98 10 13 10.50 0.595

28
 Source: Survey(2024)

4.2 Input and coffee production

Farm Input Utilization
Improved seed, chemical application and compost are some of the most important inputs
that determine productivity and production of coffee in the study area. As indicated in
table 5 majority of coffee producers used improved seed. However using in chemical
application there is difference between three study kebeles. The result shows that a small
proportion of sample households were not used chemical in three kebeles (29% in
Ambuyye 10% walensu and 22 % in Harawa Gatira ) while the majority applied chemical
in both kebele 90% and 73 % respectively in three kebeles. On the other hand producers
applied compost to increase their production and productivity. The result shows that
almost all farmers applied in three kebeles 10% from Ambuyye , 78% walensu and 92%
from Harawa Gatira . However, table 5 suggests that more of kebele 1 farmers (92%)
applied chemical than kebele 2 farmers (73%) and there was statistically significant
difference at less than 5% significance level on chemical used. But they have no
statistically significant difference in applying compost between two kebeles.
Table5.Farm inputs used for coffee production in 2023/2024
Inputs Kebeles1 2 2-Value
Ambuyye Harawa Gatira
N % N %
Compost yes 74 94 59 92 0.861NS
No 5 6 6 8
Chemical yes 73 92 47 73 0.033**
No 6 8 18 27
(**)Refers to significant at less than 5% significance level and NS refers
non-significance. Source: Survey result (2023/2024)

29
Allocated land for coffee production, quantity produced and quantity sold
Production of coffee is high and it is important cash crop in the study area. The average coffee
Cultivated land in Ambuyye producers (3.75Ha) was approximately equal with Harawa Gatira
producers (3.75 Ha) and they have no statistically significant difference (t=0.85NS). The average
quantity production of coffee per sample household was 12.21Qt. However, Ambuyye who
produce 11.72Qt per household. The study suggests that there is no statistically significant
difference (t=0.56NS) between the two kebeles in average quantity of production. The average
quantity of coffee sold per household was 9.827Qt. However, Amuyye farmers sold 10.024Qt
which was relatively greater than that of Harawa Gatira farmers who sold 9.55Qt per household
but their mean difference is not statistically significant (t=0.635NS) The t- test statistics indicated
that there is no mean difference concerning area allocated to coffee production, amount of coffee
produced and sold between the two kebeles.
Table 6 also indicates that the average production per hectare, average quantity sold and average
land size allocated.
.
Variables N=37 N=30 N=31 N=98 t-value
Ambuyye Walensu Haraw total
a
Gatira
Coffee area allocated (ha) 3.06(1.391) 3.0(1.253) 3.05(1.3 0.852NS
90)
Average quantity
produced(Qt) 12.56(4.4487) 11.7(4.434) 12.20(4. 0.852NS
446)
Average quantity sold 10.024(4.849) 9.55(4.424) 9.826(4. 0.852NS
(Qt) 666)
NS-Refers not significant at any significance level, parenthesis indicates standard deviation
Source: Survey result (2023/24).

30
4.3. Access to service
Mode of transportation
It is known that coffee is the most important cash crop in the study area. Therefore, during
harvesting season almost all farmers transport their product from farm to market by different
means of transportation. The survey result in table 8 indicated that out of 98 respondents 38
respondent (38.78%) used animal cart while 52 respondents (52.2%), 8 respondent (8.1633%)
used pack animal and back load respectively.
Table7.Modes of transportation
Mode of transportation Frequency Percent
1.Head/backload 8 8.1633
2.Animal cart 38 38.78
3.Pack animal 52 52.2
Total 98 100
Source: Survey result (2023/24)

4.3 Actors involved in Coffee Market and Marketing Channels

The major coffee market chain actors in the study area were producers, primary agricultural
cooperatives, agent middle-men (commission-men), rural assemblers, wholesalers and
processors. There were also supportive institutions such as District Agricultural and Natural
Resource Office and, Coffee and Tea Development and Marketing Authority.
Producers: Producers are smallholder farmers who produce and supply coffee to the market.
Their functions start from seedbed preparation, growing seed on seedbed, field preparation (hole
preparation, cultivation), transplanting, cultivation (digging), weeding, pruning, fertilizer
applications, harvesting, post-harvest handling and marketing their produce. Coffee red cherries
were harvested starting from October to January, and dried on clean land and plastic sheet. The
form of coffee sold were dry cherries without removing its husk.

Cooperatives: Cooperatives purchase coffee from members and non-members. They hull
sundry coffee, sort, pack and supply to auction market at Addis Ababa. According to the result
from discussion with cooperatives committee members, the great challenges in purchasing coffee
were lack of budget and human resource. More burdens were left on committee only and
members had low participation.

31
Agent/Commissionmen: They are traders who have no license and used the license of
wholesalers to purchase coffee from farmers. They purchase dry coffee cherries by their own
money, collect together, transport to district market and resale to wholesalers by a fee of five birr
per kilogram on average.

Rural assemblers: These are illegal traders and are females who purchase coffee from farmers
by local unit called “Tasa” which is equal to 0.25 kg by 27 ETB and resale to wholesalers and
agent middle-men by 31 ETB on average. They purchase both red cherries and dry cherries and
further dry at their own residence. Wholesalers added extra 50 cents over market price for rural
collectors. Because, collectors bring large amount of sundry coffee cherries for wholesalers.

Wholesalers: Are licensed traders who purchase dry coffee cherries from farmers, agent middle-men and
unlicensed rural collectors at both village and district market in large amount, and transport to Addis
Ababa market. They remove coffee husk (hull), further dry, sort, pack and transport to Addis Ababa for a
bid at ECX market. Consumers: It is possible to look consumers of coffee in the district in two types. The
first are those who buy either clean been or dry cherries from market and prepare at their home and drink.
The second are those who buy prepared coffee from clay spot (boilers) and drink. The former purchases
coffee clean bean from farmers at 115 birr per kg on average and from shop at 127 birr per kg on average
and drink at their home. The later buy a cup of coffee by 10 birr and drink. Consumers can also be
foreigners and who import and drink coffee from the district. Supportive institutions: District Agricultural
and Natural Resource, and Coffee and Tea Development and Marketing Authority are supportive
institutions of coffee in the study area. They are responsible for distribution of seed, training provision on
pre and postharvest management, controlling for illegal traders and market price

4.4 Market Channels

Identifying coffee market channel is important to know the alternative routes it follows from the
point of origin to final destination. From the survey result, the amount of dry coffee cherries
supplied to the market by the sampled households was 2245.8 quintals and eight channels were
identified. The major receivers of coffee from farmers were wholesalers (57.93%), Agent
middle-men (23.92%) and Cooperatives (15.19%)
Channel I: Producers-Local consumers

32
Channel II: Producers-Commission Men-Wholesalers- (Auction market) ECX – Exporters
Channel III: Producers-Cooperatives- (Auction market) ECX- Exporters
Channel IV: Producers-Retailers- Local Consumers
Channel V: Producers-Wholesalers- (Auction market) ECX-Exporters
Channel VI: Producers-Rural collector-wholesalers- (Auction market) ECX-Exporters
Channel VII: Producers-Coffee Boilers-Local consumers
Channel VIII: Producers-Retailers-Coffee Boilers-Local consumers

4.5 Marketing Costs

4.6 Marketing Margin

Marketing margin was estimated by deducting purchase price from selling price and dividing the
difference by the end price along the channels. Table 15 showed marketing margin of different
coffee marketing actors in the study area. Farmers received highest gross profit if they directly
supplied to retailers and processors in channels IV, VII and VIII. But, only small amount of
coffee can be supplied through these channels. Next to retailers, farmers earned profit of 17.53
birr per kg if coffee is sold directly to cooperatives. Agent middlemen earned gross profit of 1.29
birr per kg. According to survey result, one agent middlemen had purchased 95 quintals of
sundry coffee on average. This implied that, agent middlemen had earned 12255 ETB per year
on average. Wholesalers earned highest profit in channel V (buying directly from farmers). The
result from sampled wholesalers indicated that, one trader had purchased 374.57 quintals.
Accordingly, wholesaler had earned 161814.24 ETB on average in the last year. Retailers and
rural collector obtained gross profit of 14.5 and 6.85 ETB per kg of sundry coffee, respectively.
But, since they purchase small quality, their total profit is low. The others are processors who
prepared coffee and sell at 5 ETB per cup. A 1 kg of dry coffee bean is 70 cups if prepared. The
price of one piece of cup was 5 ETB and accordingly, they sell for 350 ETB from one kg of dry
coffee bean. Total gross marketing margin (TGMM) is highest in channels VII and VIII where

33
producers directly sell to retailers and processors. The reason was that processors added value
over coffee bean by roasting, thinning and cooking. Retailers also added value by storing. They
purchase a kg of dry cherries by 40 ETB from farmers and resale at 60 ETB for urban
consumers. Producers’ gross marketing margin is highest in channel III where coffee sold
directly to cooperatives followed by channel V where they directly sell to wholesalers.

Table 15: Market margin of dry coffee cherries for different coffee marketing actors along
marketing channels in the study area
Coffee market channels
Actors I II III IV V VI VII VIII
Production cost 21.90 21.90 21.90 21.90 21.90 21.90 21.90 21.90
Marketing cost 1.20 0.57 0.57 1.15 0.98 0.00 1.15 1.15
Far Selling price 45.63 37.50 40.00 44.00 39.00 30.00 44.00 44.00
Gross profit 22.53 15.03 17.53 20.95 16.12 8.10 20.95 20.95
GMMp% 100 79.78 83.33 73.33 82.98 63.83 12.57 12.57
Purchase price 37.50
Marketing cost 0.71
Am Selling price 39.50
Market profit 1.29
GMMam% 4.26
Purchase price 39.50 39.00 39.50
Marketing cost 3.68 3.68 3.79
Wh Selling price 47.00 47.00 47.00
Gross profit 3.82 4.32 3.71
GMMwh% 15.96 17.02 15.96
Purchase price 40.00
Marketing cost 2.15
Cop Selling price 48.00
Gross profit 5.85
GMMco% 16.67
Purchase price 44.00 44.00
Marketing cost 1.50 1.50
Ret Selling price 60.00 60.00
Gross profit 14.50 14.50
GMMret% 26.67 4.57

34
 Purchase price 30.00
Marketing cost 2.65
Ras Selling price 39.50
Gross profit 6.85
GMMra% 20.21
Purchase price 44.00 60.00
Marketing cost 111.92 106.08
Boil Selling price 350.00 350.00
Gross profit 194.08 183.92
GMMboi% 87.43 82.86
TGMM% 0.00 20.22 16.67 26.67 17.02 36.17 87.43 87.43
Note: GMMp, GMMam, GMMwh, GMMco, GMMret, GMMra and GMMboi are
gross marketing margin for producers, agent middle-men, wholesalers,
cooperatives, retailers, rural assemblers and coffee boilers, respectively.
Far, Am, Wh, Cop, Ret, Ras, and Boil stands for Farmers, Agent middle-men,
Wholesalers, Cooperatives, Retailers, Rural collectors and Coffee boilers,
respectively. Source: Own survey, 2024

4.7 Marketing Profit

Marketing profit is the difference in selling and purchasing price including other transaction
costs by each market participants and market channels. It is gained by transferring a product in
different channels using marketing intermediaries. As shown in the table 20, the marketing profit
gained by union in the eighth channel is attractive while the lowest market profit in the first
channel by local collector is not good looking as discussed above in the marketing margin part.
Exporter, cooperative and processer receive better marketing profit in the seventh, fifth and third
channel by having (123.24birr per quintal, 75.22/quintal and 72. 21birr per quintal) in selling
coffee directly to processor to cooperative and exporters to consumers respectively. Primary
cooperative on the other hand in channel IV got better profits (1135per quintal) than local
collector. Union got best and exciting profit in the eighth channel as compared to other channels
since they purchase marketable quality coffee from producer farmers directly by themselves. In
general the coffee market channel in the study area was interesting for traders.

Table16. Coffee marketing profit gained by marketing agents in various marketing

channels

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 Marketing MARKETINGCHANNELS
actors
I II III IV V VI VII VII
Local Purchase price 1150
collector Market cost 19
Selling price 1200
Market profit 31
Primary Purchase price 1150
cooperative Market cost 14.02
Selling price 1200
Market profit 35.98
Processor Purchase price 1200
Market cost 34.8
Selling price 8925
Market profit 6574.2
Cooperative Purchase price 1200
e Market cost 6369.8
Selling price 8925
Market profit 1355.2
Union Purchase price 8925
Market cost 5176.5
Selling price 21600
Market profit 7598.7
Exporter Purchase price 8925
Market cost 6995.3
Selling price 21600
Market profit 5679.7
Source: Own computation(2024)

4.8 Determinants of quantity of coffee sold

In this section the results of the econometric analysis on the determinants of the quantity of
coffee sold is presented. Various variables are hypothesized to influence the quantity of coffee
sold in the market supplied by sampled farmers.

Table21.OLS estimates of factors affecting quantity of coffee sold

Variables Coefficients Standard error T-ratio P-value
DISTMKT -0.0897 -0.0252 -3.56 0.001***

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 SEXHH 0.0794 0.2250 0.35 0.725
AGEHH 0.0032 0.0820 -0.30 0.762
EDUHH 0.2313 0.1395 1.72 0.089*
EXPHH 0.0164 0.0230 0.69 0.492
COLANDSZ 0.4747 0.1370 3.46 0.001***
CFFVAR 0.1292 0.3556 3.18 0.002***
SZHH 0.0309 0.0727 0.43 0.672
ACCMKT 0.2857 0.1890 1.51 0.133
TLU 0.7128 0.0520 13.71 0.000***
NON-FARM 0.0745 0.2116 0.35 0.725
LAGPRC 0.0367 0.1647 0.22 0.825
FAIRPRC 0.5299 0.2813 1.88 0.062**
EXTSERVCE 0.4999 0.3241 1.54 0.26
ACCCRDT 0.9827 0.3545 2.77 0.06**
CONSTANT 0.7086 0.2665 0.75 0.452
Note: dependent variable-quantity of coffee sold, Number observations=98,F(15,128)
=172.33, (Probability > F value = 0.000) R-square=0.9528 and Adjusted R-square=0.9473
(***, ** and* represent significance level at less than 1, 5 and 10% respectively). Source:
Survey result (2024)

Education status of household head (EDUHH): As indicated in the table 18 this variable
affects the quantity of coffee sold in market positively and significantly at less than 10 %
significance level. The result of regression model confirmed that a one grade increase in
household education status causes a 0.2313Qt increase in amount of quantity to be sold, keeping
another variable constant. This is because of if the producers are more educated they are more
aware about their production and way of post-harvest handling and this in turn helps them to
increase the quantity of coffee sold in market.

Coffee land size (COFLASZ): It is in shown in the table 18 that coffee land size of the
household affected quantity of coffee sold in market positively and significantly at less than 1 %
significance level. The result of econometric result confirmed that 0.5ha increase in coffee land

37
size increases quantity of coffee sold by 0.4747Qt, cetirus paribus.

Coffee variety: This variable affects quantity of coffee sold positively and significantly at less
than 1% significance level. The econometric result depicted that using improved coffee variety
increases quantity of coffee sold to market by 0.1292Qt, cetirus paribus.

Number of livestock owned (LIVESTOCK): This variable was expected to have negative
relationship with quantity of coffee sold. The result in table 22 shows that livestock holding is
positively and significantly related with the quantity of coffee sold at less than 1% significance
level. The result indicates that keeping other variables constant, a unit increase in livestock
increases the volume of coffee sold by 0.7128Qt. Tura et al. (2016) and Rehima (2006) had
found the different result on determinants of intensity of marketed surplus of coffee and Pepper
respectively increase in the number of livestock had negative relation to marketable supply.

Fair price (FAIRPRICE): As indicated in table 22 this variable affected quantity of coffee sold
positively and significantly at less than 5 % significance level. The model result depicted that
fairness of the market price increases the quantity of coffee sold by 0.5299 Qt, cetirus paribus.

Access to credit (ACCSCRDT): This variable affected quantity of coffee sold positively and
significantly at less than 5% significance level. As indicated in table 22 the finding shows that an
increase in extension service increases the quantity of coffee sold by 0.9827Qt.

Distance to the nearest market (DISTMKT): This variable affects the quantity of coffee sold
negatively and significantly at less than 1% significance level. The result of regression model
confirmed that a one hour increase in distance to the nearest market causes a 0.0897Qt decreases
in amount of quantity to be sold, keeping other variable constant. That is the closer the residence
of the household to the market center that reduces cost of transportation so the more would be
volume of coffee supplied to the market. However, the result from the current study shows that
the longer the distance from nearest market to the commodity, the smaller the amount supplied.

38
5. CONCLUSIONS AND RECOMMENDATIONS
5.1. Conclusions
Coffee is the major cash crop produced and sources of income in Limmu Kossa district. To
improve coffee production and productivity in the area, development of well-performing
marketing system which satisfies consumer demands with the minimum margin between
producers and consumer prices is important.

The study aimed to analyze factors affecting market supply of coffee by smallholder farmers and identify
determinants of coffee producers market outlet choice in the study area. . To address the objectives of the
study, both quantitative and qualitative data were used. The data were generated from both primary and
secondary sources.

5.2. Recommendations
Based on the findings of the study, it is crucial to forward important recommendations to formulate policy
and make appropriate interventions at important points of the market chain.

The result indicated that drought, diseases, lack of improved coffee verities, lack of extension
and technical support, no scientific research was done on appropriate shade, insect and lack of
post-harvest materials were among the major constraints of coffee production. Therefore,
strengthening coffee research to improve farm productivity, reducing risk, improving shade tree
practices by using improved recommended shade tree species, Practice stumping old coffee tree
for recycling its life or re-plant and using of improved coffee variety are found to be important
for the study area.
Farmers who use improved variety produce more than those who do not use them and
they sold more quantity coffee to market. This implies the need to introduce strong
extension service on use of improved crop variety and other inputs. District government

39
 (office of agriculture) is responsible to perform this intervention.
Farmers who are near to market are more able to move their product from farm to market
while the others who are far from the market are not. Therefore district government
(district office of road and transportation) should have to bridge infrastructural gab
specifically rural road project to make rural road easy for means of transportation.

As the model result depicted education has significant effect on the quantity of coffee
sold. It indicated that more educated farmers are able to sell more quantity of coffee than
the illiterate. Therefore in order to increase their education level district government and
nongovernmental organization should have to provide repeated training for less education
farmers.
Farmers who have large coffee land size were better producers of coffee and able to sell higher
quantity of coffee than the farmers who have small land size. This implies that district
government (office of agriculture) have to strengthen extension service to increase the
productivity of farmers with small land size via intensive production since increasing land size is
not possible.
In addition to the above, getting fair price and access to credit has positive effects on the
quantity of coffee sold. This implies that government has to strengthen extension and
have to create market for farmers to initiate them.
Market cost is negatively and significantly affected volume of coffee marketed farmers
transport their product long distance and thus incurred pay high transportation cost. Thus
needs to market access nearer to farmers, infrastructure and appropriate transportation
facilitate Therefore policy makers should focus on development of market and
infrastructure, so as to facilitate market participation and integration of faraway residence
small holder producers.
Finally for this particular study, the coffee market actors; processor, union and exporters were
known to incur high cost as well as high market margin and marketing profit. This implies that
the one adds value and able to provide at international market is more profitable that the one is
not able to do so. Therefore government should have to support the other actors by creating
awareness regarding to the benefits of adding value for quantity of coffee sold and willing
researcher had better to study the whole coffee value chain consisting value chain dimensions
and coffee export market.
40
41
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