Fair-trade certification was introduced in Ethiopia in 2002 by Oxfam (Backman, 2009). Certain criteria and standards which are related to the organisational structure, traceability, management and marketing are pre-requisites for attaining fair- trade certification in Ethiopia (FLO-CERT, 2014).
The goal of fair-trade certification is to improve the well-being of small-scale coffee producers by setting a minimum guaranteed price of 1.40USD/lb that can serve as safety net in the case of a price slump in the international market, and by providing a price premium of 0.2USD/lb over the conventional market (FLO, 2014). Rather than being a direct payment to producers, these premiums are intended for the financing of social projects e.g. schools, roads, health centres, water wells, and others by the cooperatives (Jena et al., 2012). Nonetheless, secure market access and minimum guaranteed price offered by certification can be seen as direct benefits to certified farmers, given the volatile nature of coffee price in the international market.
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Organic certification differs from fair-trade in that it emphasises environmental stewardship, while fair-trade emphasises labour and trade standards. The IFOAM (International Federation of Organic Agriculture Movement), formed in 1972, sets standards and criteria for certification of organic products. This organisation accredits different certifying agents on the basis of the internationally agreed upon rules for accreditation so as to enable them to certify producers’ organisation on its behalf (Mekuria et al., 2004).
Organic coffee certification in Ethiopia is determined according to norms and standards set by the National Organic Program of USDA (United States Department of Agriculture). This certification was introduced in Ethiopia by a USDA accredited German company BSC*OKO-GARANTIE GMBH in 1999 (Mekuria et al., 2004). The USDA rules of organic production demands farming without pesticides, inorganic fertilisers and other chemicals for three years, and the use of organic/biological means to control pests and prevent depletion of soil nutrients.
In order to be organically certified, the producer organisation/cooperative should submit an application to the USDA-accredited organisation with a detailed description of the operation to be certified, a history of substances applied to the land during the previous three years, names of the organic products grown, and a written organic system plan describing the practices and substances to be used. The accredited certifying agents review the application and send their inspectors to conduct an on-site inspection of the applicant operation. The certifying agent then reviews the inspector’s report and the application and issues an organic certification if the applicant complies with USDA-NOP organic regulations. Renewal of this certification is expected to be made every year through the submission of an updated application (together with an organic system plan) and renewal fees to the certifying
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agent. Mostly scheduled, yet sometimes unannounced, inspections are made by the certifying agent inspectors to verify whether the practices are performed according to the requirements of the USDA organic regulations. The reports produced from the inspection are used to decide on the renewal of the certification.
Unlike fair-trade coffee, it is difficult to determine the premium that farmers will receive after certification, as this is dependent on the quality and origin of the coffee at a given moment and market (FAO, 2009). The premium for double certification (fair-trade-organic) was estimated to be around 0.05 to 0.2 USD/lb by the officials of the Oromia Coffee Farmers’ Cooperative Union.
The Oromia Coffee Farmers’ Cooperative Union and Kaffa Forest Coffee Cooperative Union export a significant amount of certified coffee from Ethiopia. According to Jena et al. (2012), the total coffee production by Oromia Coffee Farmers’ Cooperative Union was estimated to be 235,000 tons, of which 27,619 tons (which accounted for 10 percent of the total production), were fair-trade coffees from its 28 fair-trade certified member cooperatives. Certified coffee exported by Kaffa Forest Coffee Union in 2012 amounted to 38.1 ton, according to calculations made from the Ethiopian Customs and Revenue Authority database.
The Oromia, Kaffa, Sidama, and Yirgacheffe Coffee Farmers’ Cooperative Unions are the major traders of organic certified coffee in volume in Ethiopia, and the amount supplied is estimated to be 0.1 percent of the nation’s total coffee production, despite the acceptance of 90 percent of the country’s coffee production as de-facto organic (Mekuria et al., 2004). Volumes of supply of certified (fair-trade and organic) and uncertified coffee by cooperatives and wholesalers to the central market from the study zones are presented in tables 2.2 and 2.3.
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Table 2.2: Volume of coffee supply by wholesalers and cooperatives of Jimma zone (in tons)
Source: Jimma zone Bureau of Agriculture and cooperative agency, 2013, Number of wholesalers= 200- 400, Number of certified cooperatives =8, Number of uncertified cooperatives=55, NS=No sale of the specific coffee during that year, N/A= No available data despite probably the sale is there
Year Total Wholesalers→Exporters Certified coop→Oromia Union Uncertified coop→Oromia Union
Dry Processed Wet Processed Dry Processed % Wet Processed % Dry processed % Wet Processed % Dry processed % Wet Processed % 2007/08 22,018 7,915 21,988 99.80 7,171 90.6 NS NS 174 2.20 30 0.10 569 7.20 2008/09 14,158 7,446 14,116 99.70 6,636 89.1 42 0.3 183 2.50 NS NS 627 8.40 2009/10 25,602 12,947 25,342 99.00 11,069 85.5 132 0.5 361 2.80 128 0.50 1,517 11.70 2010/11 21,875 7,408 21,682 99.10 5,928 80.0 73 0.4 208 2.80 110 0.50 1,272 17.20 2011/12 27,895 19,224 27,465 98.40 15,239 79.3 127 0.5 613 3.20 304 1.10 3,371 17.50
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Table 2.3: Volume of coffee supply by wholesalers and cooperatives of Kaffa zone (in tons)
Year Total Wholesalers→Exporters Certified coop→Kaffa union Uncertified coop→Kaffa Union
Dry Processed Wet
Processed Dry Processed % Wet Processed % Dry process ed % Wet Process ed % Dry proces sed % Wet Processed % 2007/08 2,416 266 2,337 97.0 226 100 76 3.00 NS NS 2.48 0.10 NS NS 2008/09 1,515 350 1,393 92.0 350 100 106 7.00 NS NS 17 1 NS NS 2009/10 2,575 420 2,430 94.0 420 100 131 5.00 NS NS 15 0.60 NS NS 2010/11 2,261 409 2,235 99.0 389 95 2,497 1.00 20 5.00 1 - NS NS 2011/12 3,101 1,122 2,912 94.0 1093 98 148 5.00 28 2.50 41 1 NS NS 2013 2,562 609 2243 88.0 574 94 212 8.00 36 6 106 4 NS NS
Source: Kaffa zone Bureau of Agriculture, 2013, Number of wholesalers=65, Number of certified cooperatives =18, Number of uncertified cooperatives=9, NS=No sale of the specific coffee during that year
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Wholesalers in the mainstream independent chain continue to handle the largest proportions of the total supply of both types of coffee from the two zones, compared with the coffee traded through the cooperatives. More than 85 percent of the dry and wet processed coffee in the two zones is supplied through wholesalers. The proportions of dry and wet processed certified coffee supplied to the respective unions from the two zones are small and did not exceed 10 percent for years considered, despite its role in satisfying a niche market demand.
Apart from certified coffees, Ethiopia also supplies trademarked coffee to the international market. These are Sidama, Yirgacheffe and Harar coffee. Sidama and Yirgacheffe are in the Southern region while Harar is in Oromia region. Between 2004 and 2009, these three trademarked coffees constituted 43 percent of the total coffee export with Sidama alone contributing 30 percent to the total (Arslan and Reicher, 2010). After the trademarking, the export price of these trademarked coffees was also found to increase by 10 percent despite the uncertainty regarding the transmission of the increment to the farm-gate price (Arslan and Reicher, 2010).
2.5 Conclusion
The well-being of all actors in the chain, especially the producers, is vital for the sustainability of the coffee sector in Ethiopia. Although some positive progress has been made, the coffee chain suffers from various challenges. The first challenge is the low coffee yield reported by farmers. Average yield of coffee at the smallholder level is rather poor. Given the volatile nature of the international market price and the relative low yields, the income from coffee sales may not be sufficient to cover production costs, and thus smallholder farmers may not improve their standard of living. The low yields are partly attributed to the reliance on old and unproductive coffee varieties in the face of widespread diseases (e.g. coffee berry disease, leaf
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rust). Apart from the production, some of the processing challenges faced at the farm level include the lack of processing facilities, high investment costs for raised drying beds and washing stations, limited technical knowledge, and long distances to the few processing facilities. Further processing activities, including roasting to enhance the value added by the local coffee industry, are also limited. Even if there is a continued effort by research and development to generate improved techniques of coffee production and processing, the outcome is not satisfactory. Although there is better dissemination of improved coffee varieties to a significant proportion of the farming community, improved agronomic practices are still shelved and research output on coffee processing technologies are said to be poor.
The coffee chain also suffers from poor execution of market liberalisation and weak institutional framework in the sector, which in turn results in an imperfect market largely dominated by intermediaries with quasi-monopsonist power. Cooperatives which are expected to protect smallholders from the exploitation of imperfect markets by serving as conduits for supplying essential support services and accessing the best markets for their produce, are not effective in meeting these expectations, due to their limited resources and top-down organisational structure.
Despite the challenges mentioned, the Ethiopian coffee sector has opportunities for a brighter future. That is, the country can sustainably produce and supply fine specialty coffee as it has coffee growing on suitable altitude and fertile soils, with ample rainfall and optimal temperatures, and at relatively low labour costs. The introduction of the ECX has also promoted value addition/quality by introducing various quality standard measurements and regional warehouses that organise quality control at a more local level. Traceability through brand differentiation based on coffee origin is to be mentioned in this regard. Interest and support from both
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government and non-government organisations for transforming agriculture through research and development should drive innovation in the coffee sector in the near future.
In addition, the current increased focus on the role of cooperatives to improve the livelihood of smallholders is very relevant, as they help increase income by increasing bargaining power and reducing transaction costs in input and output markets. Nonetheless, such focus should also be accompanied by the creation of a suitable environment for the free operation of the cooperatives and provision of financial services in the form of loans.
Finally, special attention could be paid to stimulating local consumption. Ethiopians are the largest coffee consumers in Africa and the ‘coffee ceremony’ is deep-rooted in the Ethiopian culture.
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CHAPTER III
1Do coffee cooperatives benefit farmers?
An exploration of heterogeneous impact of
coffee cooperative membership in
Southwest Ethiopia
AbstractSmallholder farmers’ participation in agricultural cooperatives is often promoted as a promising strategy for overcoming market imperfections and as a means of increasing farmers’ productivity and income. In recognition of this potential, Ethiopia has recently shown renewed interest in promoting cooperatives. However, there is lack of empirical evidence of the impact that cooperatives have on farmers’ performances in Ethiopia. Using a matching technique, we evaluated the impact of coffee cooperatives on the performance of their member households in terms of income and coffee production. We used data from coffee farmers in Southwest Ethiopia. The overall results suggest that members of cooperatives are not faring much better than non-members. The treatment effects we measured were not statistically significant from zero. However, the aggregate figures mask differences between cooperatives and individual cooperative members. Average treatment effects on members differ between cooperatives. Generally, those who seem to benefit more from membership include older members, more educated members, and those with larger coffee plantations. Our analysis sheds light on the heterogeneity in the impact that cooperatives can have, i.e. this impact varies among members, a finding that has important policy implications.
Key words: Coffee, Cooperatives, Propensity score matching, Heterogeniety
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