Simulating economy-wide effects of changes in Ethiopia’s coffee value chains

1. ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
Simulating economy-wide effects of
changes in Ethiopia’s coffee value chains
Ermias Engida
EDRI-ESSP
Ethiopia’s coffee value chain: Evidence towards improved
investments and policies
Addis Ababa
September 15, 2015
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2. 2
Outline
1. Background
2. Data and Methodology
3. Simulations
4. Results
5. Conclusions

3. 3
• 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.
• Important changes in the marketing of cherries
 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
1. Background

4. 4
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
• Recursive dynamic CGE model

5. 5
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% reduction in transaction cost on
coffee.

6. 6
4. Results
• No significant difference from the BASE
• Effects are stronger in the 2nd specification
 A bit of appreciation of real exchange 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

7. 7
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

8. 8
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

9. 9
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 leading to reduced transactions costs are
found to be important in promoting the coffee export.
• Relaxing 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.