Changes and future prospects in the Ethiopian coffee value chain: Economy wide effects

1. ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
Changes and future prospects in the
Ethiopian coffee value chain: Economy
wide effects
Ermias Engida
IFPRI ESSP
Ethiopian Economics Association
13th International Conference on the Ethiopian Economy
July 23-25, 2015
Addis Ababa
1

2. 2
Outline
1. Background
2. Data and Methodology
3. Simulations
4. Results
5. Conclusions

3. 3
1. Background
1. Coffee in Ethiopia
• Coffee production
 Origin of Arabica coffee
 High potential
 more than half a million hectare and 4.2 million
quintals production in 2014/15
• Coffee marketing and export
 Accounted for 22% of Ethiopia’s commodity exports in
2013/14
 3% of global coffee trade
 Coffee exports grew at 16% over the last decade

4. 4
1. Coffee in Ethiopia
• VSS in coffee in Ethiopia
 Organic and Fairtrade
 About 1/3 of the primary coffee cooperatives
 5% of coffee export by 2015
 7% of the coffee export price and an increased income for
coffee farmers of 20 USD per year.
1. Background

5. 5
1. Background
2. Important changes
• Marketing of cherries
 Travel time to sell cherries
 Choice between traders
 Price information
• Quality premium through VSS
 The study intends to look into macro and
micro impacts of
1. VSS expansion
2. Marketing reform
3. Any possible policy change on market segmentation

6. 6
2. Data and Methodology
• The 2009/10 Ethiopian SAM
 113 activities with 77 agricultural
 64 commodities, 16 factors and 13 institutions including 12
households.
 Some modifications
• Coffee value chain survey data
 1600 HHs
 Around 209 processors (cooperatives, private wet mills
and hullers)
• Recursive dynamic CGE model

7. 7
3. Simulations
The simulations ran under two specifications based on
substitutability between export and domestic markets
• BASE – Replicates economic performance during 2010/11 to
2014/15 + 7% export premium on 5% of coffee exported
• “COFFEE_CERT” – BASE + 7% export premium on 13% of
coffee exported
• “COFFEE_MKT” – BASE + 10% annual reduction in transaction
cost on coffee.

8. 8
4. Results
• No significant difference from the BASE
• Effects are stronger in the 2nd specification
 Market reforms can have a bit higher effect on export and private
consumption
 A bit of appreciation of real ex-rate
 The magnitude of appreciation is higher in the 2nd specification
BASE COFFEE_CERT COFFEE_MKT BASE COFFEE_CERT COFFEE_MKT
PRVCON 7.31 7.32 7.32 7.43 7.43 7.44
EXPORTS 15.35 15.32 15.36 15.51 15.48 15.52
REXR 1.11 1.09 1.10 1.40 1.38 1.39
RGDP 9.23 9.23 9.23 9.36 9.35 9.36
Specification1 Specification2

9. 9
4. Results
• If more coffee can fetch premium from certification, coffee export grows
faster with lower growth in domestic supply.
• Market reforms also show a little bit faster growth in coffee export
• In specification 2 more coffee is being exported and less is supplied to the
domestic market
BASE COFFEE_CERT COFFEE_MKT BASE COFFEE_CERT COFFEE_MKT
ccoff_wc 0.60 1.17 0.98 0.86 1.42 1.23
ccoff_sdc 0.60 1.17 0.98 0.86 1.42 1.23
ccoff_wc 8.83 9.05 8.86 3.05 3.48 3.09
ccoff_sdc 8.83 9.05 8.86 3.05 3.48 3.09
Specification2Specification1
Export
price
Domestic
price
BASE COFFEE_CERT COFFEE_MKT BASE COFFEE_CERT COFFEE_MKT
ccoff_wc -1.42 -1.21 -1.34 -4.88 -4.44 -4.76
ccoff_sdc -1.42 -1.21 -1.34 -4.88 -4.44 -4.76
ccoff_wc 4.87 4.82 4.87 6.39 6.27 6.38
ccoff_sdc 4.87 4.82 4.87 6.39 6.27 6.38
Specification1 Specification2
Domestic
demand
Qunatity
export

10. 10
4. Results
• Coffee HHs got better income in all the new simulations
compared to the BASE
 Market reforms have better effect
 Land is the only factor with stronger effect in the new simulations
than the BASE
• Coffee HHs’ consumption grows as the BASE but if market
reforms happen it will grow a bit faster in the 2nd specification
BASE COFFEE_CERT COFFEE_MKT BASE COFFEE_CERT COFFEE_MKT
hh-coff 9.06 9.11 9.13 8.78 8.84 8.85
Flab 8.99 8.99 8.99 9.16 9.15 9.17
Fcap 8.07 8.06 8.05 8.33 8.31 8.32
Fland 10.28 10.34 10.36 9.94 10.01 10.02
Flive 10.27 10.26 10.28 10.59 10.58 10.6
Specification 1 Specification 2

11. 11
5. Conclusion
• VSS certification has positive impact on the coffee sector in
general and coffee HHs in particular. However it has little
effect on the welfare of the average coffee farmer.
 Quality premiums are small and
 Production levels in these settings are low
• Market reforms are also found to be important in promoting
the coffee export.
• Easing of processors’ obligation not to sell export standard
coffee to the domestic market turn out to make the coffee
sector more dynamic and effects of the new simulations
stronger.