1) The document analyzes changes in coffee production and marketing practices among smallholder farmers in Ethiopia over the past decade. It finds improvements in management practices like pruning and mulching but limited adoption of modern inputs. 2) While harvest and post-harvest methods like selective picking and improved drying have improved, yields have remained steady or declined in some areas due to issues like disease and climate change. 3) Marketing and access to markets has improved with primary marketing centers, though village traders remain important. Processing has increased with more wet mills, though the share of washed coffee in exports has not risen significantly.

1. ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
Smallholders and upstream
transformation in global value chains:
The case of coffee producers in
Ethiopia
Bart Minten, Mekdim Dereje, Ermias Engida, and Tadesse Kuma
Ethiopian Development Research Institute
May 29th, 2015
1

2. 2
Outline
1. Introduction
2. Background coffee sector
3. Data
4. Changes in production practices
5. Changes in harvest and post-harvest practices
6. Changes in marketing
7. Changes in processing
8. Improved practices and prices
9. Drivers and constraints to change
10. Conclusions

3. 3
1. Introduction
• Coffee very important commodity in the world
• Important changes internationally:
1. increasing willingness to pay for coffee,
specialty coffee on the rise, increasing demand
for quality coffee, increasing market
differentiation and segmentation
2. large price changes
• Important changes locally (ECX, primary marketing
centers, emergence of cooperatives)
• Purpose of study: Understand how production and
and marketing is changing upstream locally

4. 4
2. Background coffee in Ethiopia
• Coffee major export product from Ethiopia
• Ethiopia endowed with very good production
environment
• Ethiopia the country of origin of Coffea Arabica; large
diversity of coffees found
• Different types of production systems: forest (10% of
production), semi-forest (35%), garden (50%), and
plantation (5%)

5. 5
2. Background coffee in Ethiopia

6. 6
2. Background coffee in Ethiopia
• Coffee in international context: yields rather low and
share of producer in export price also low
0
500
1000
1500
kgsofgreenbeans/ha
0 20 40 60 80 100
Brazil
Columbia
Uganda
Kenya
Ethiopia
Share producer in export price (%)

7. 7
2. Background coffee in Ethiopia
• Coffee exports over the last decade
0
200
400
600
800
1,000
0
50
100
150
200
250 2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
MillionUSD(nominal)
1000tons
Exports (1000 tons)
Value exports (million USD)

8. 8
2. Background coffee in Ethiopia
• Coffee production and area over the last decade
0
1
2
3
4
5
0
100
200
300
400
500
600 2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
milliontons
1000hectares
Area (1000 hectares)
Production (million tons)

9. 9
2. Background coffee in Ethiopia
• Policy changes: 1/ Ethiopian Commodity Exchange
(ECX): From the beginning of 2009 onwards, all coffee
trade through the ECX; decentralization of
quality/grading/warehousing to regions; 2/ Primary
marketing (transaction) centers: All coffee should be
traded on these centers (only licensed agents, fenced
markets, sheds for different buyers)

10. 3. Data
• Focus on the major 12 coffee producing zones. 5
strata based on the 5 coffee varieties of Ethiopia, i.e.
Sidama (Sidama/Borena), Yirgachefe (Guji/Gideo),
Jimma (Jimma/IluAbaBora/Bench Maji/Sheka),
Nekemte (West/Qeleme Wollega) and Harar
(West/East Hararge)
• 16 kebeles from each variety (total of 80 kebeles)
randomly selected
• Total of 1600 coffee farmers and 206 processors
were randomly sampled with an even distribution
among each variety (320 farmers each strata)
• Survey fielded in February 2014

11. 3. Data
% of farmers Sidama Yirga-
chef.
Jimma Nekemte Harar Total
Number interviewed 320 320 318 320 320 1,598
Total income (Birr/year) 26,118 32,221 25,796 16,445 24,004 25,577
Total agricultural income
(Birr/year) 21,971 24,855 19,237 13,447 19,879 20,540
Total coffee income
(Birr/year) 12,893 12,137 9,517 6,538 7,099 9,637
Off-farm income
(Birr/year) 4,147 7,366 6,560 2,998 4,125 5,037
Total land owned in
hectares 1.70 1.99 2.25 1.68 0.95 1.79
Coffee area owned in
hectares 0.98 1.09 1.08 0.86 0.33 0.92
Cultivated coffee area in
hectares 1.01 1.10 1.08 0.88 0.33 0.93

12. 4. Changes in production practices
• Changes in management practices: significant
improvements over time
% of farmers At the time of the survey Ten years earlier
Stumping of trees 3 1
Mulching 44 21
Pruning 37 16
Compost use (% land) 9 2
Tilling (% of farmers) 77 72
Number of weedings 2.07 1.93

13. 4. Changes in production practices
• Modern input use: very low; however, increasing
improved seedling adoption
At the time of the
survey
Ten years earlier
Improved seedlings (% of area) 30 23
Chemical fertilizer use (% of farmers) 2 1
Herbicide use (% of farmers) 1 1
Pesticide use (% of farmers) 0.5 2

14. 4. Changes in production practices
• Despite adoption of improved practices, we see few
changes in yields (and strong declines in Nekemte
and Harar)
Yields in whole dried
cherries per hectare
At the time of the survey Ten years earlier
Sidama 8.2 7.2
Yirgacheffe 6.9 6.6
Jimma 10.7 10.5
Nekemte 5.7 11.1
Harar 6.9 11.9

15. 4. Changes in production practices
• Less than expected impact on yields: Might be due to
issues with diseases and climate change
At the time of
the survey
Ten years
earlier
For every good year,…
- One bad year (% farmers)
- Two bad years (% farmers)
- Other frequency (% farmers)
- No difference between years (% of farmers)
39
39
17
5
43
39
7
11
Diseases are a problem:
- Big problem (% of farmers)
- Small problem (% of farmers)
- No problem (% of farmers)
35
45
20
26
49
25

16. 4. Changes in production practices
• Run a regression of factors that are associated with
the adoption of improved practices (compost,
pruning, mulching, weeding, tilling, improved
varieties)
• Extension visits positively related to adoption of
improved practices (all positive coefficients; 3 out of
six significant)
• Distance of plot to residence all negatively related
• Forest and semi-forest negatively related
• Richer households more likely to adopt
• Titling of plot ambiguous effect on adoption decision

17. 4. Changes in production practices
• What explains higher productivity (use production
function approach; Cobb-Douglas fixed and random
effect model)?
1. Characteristics of trees: a/ Density of trees; too
dense lead to lower productivity; b/ Increase share
improved trees from 0 to 100%; doubling of yields
2. Improved practices: all practices linked with higher
productivity but especially weeding and compost
use significant
3. Shocks: especially disease shocks important and
large and significant negative effects

18. 5. Changes harvest and post-harvest practices
• Improvements in harvest and drying methods
At the time of
the survey
Ten years
earlier
Harvest practices
Share of green cherries in coffee harvest (%)
Stripping of cherries (% of farmers):
- All
- Partly
- Selective harvest only
4
4
12
84
12
34
40
26
Post-harvest practices
Type of drying (% of farmers):
- Traditional bed
- On a mat or plastic on ground
- On bare ground
- Other
78
17
2
3
26
8
62
4

19. 5. Changes harvest and post-harvest practices
• Improvements in harvest and drying methods,
leading to better quality coffee (share of grade 4
(better quality) coffee increased over time: 24% in
2006/07 – 31% in 2012/13)
0
20
40
60
80
100
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
%
Improved
harvesting
Improved drying

20. 6. Changes in marketing
• Uneven implementation of policy of primary market
centers: large differences by regions and coffee type
At the time of
the survey
Primary marketing centers as place of sale of
sales red cherries (%):
- Sidama
- Yirgacheffe
- Jimma
- Nekemte
- Harar
80
78
14
0
0
Primary marketing centers as place of sale of
sales (%):
- Red cherries
- Dry cherries
56
21

21. 6. Changes in marketing
• Large changes in market outlets and role of regular
markets; however, village trader still important
At the time of
the survey
Ten years
earlier
Place of sales of red cherries (%):
- Primary marketing center
- Regular market
- Village trader
- Site of mill
- Other
56
8
20
14
2
3
26
31
39
1
Place of sales of dried cherries (%):
- Primary marketing center
- Regular market
- Village trader
- Site of mill
- Other
21
44
26
4
4
2
70
19
4
5

22. 6. Changes in marketing
• Improvements in markets overall: farmers trust
weighing traders more; have to walk less far; and
have option of red berries sales
At the time of
the survey
Ten years
earlier
Average distance walked (in minutes) to sell:
- Red cherries
- Dried cherries
27
60
42
84
Farmer trust the weighing of the trader (%) 55 43

23. 6. Changes in marketing
• Farmers have improved choice for trade and have
more options to sell to cooperatives as well
At the time of
the survey
Ten years
earlier
Farmer has the choice between traders (%):
- A lot
- A little
- No choice
69
26
5
27
50
23
Famer has the option to sell to cooperatives (%):
- For those that sell red cherries
- For those that sell dried cherries
61
16
57
7
Share of cooperatives in total sales 11 7

24. 6. Changes in marketing
• Price information has improved; however, few
farmers have access to ECX information; price
information does not lead to quality premiums
At the time of
the survey
Ten years
earlier
Price information
- Farmer has access to price information from
radio (%)
- Farmer has access to price information from
auction/ECX (%)
67
20
47
11
“Better quality coffee gets a premium”:
- A lot (% of farmers)
- A little (% of farmers)
- No premium (% of farmers)
4
7
89
2
5
93

25. 7. Changes in processing
• Washed coffee leads to higher export prices;
increasing investments in wet mills over time
Number of wet mills in Sidama zone
0
50
100
150
200
250
300
350
1972
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
cooperative Private
PLC

27. 7. Changes in processing
• Households have more options to sell to wet mills
Share of households with option to sell to wet mills
0
10
20
30
40
50
60
70
80
90
100
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
%ofhouseholds
Yirgacheffe Jimma Nekempt Sidama

28. 7. Changes in processing
• Possibility to sell to wet mills and actual sales
• No increase in the share of washed coffee in total
exports: share has stayed around one-third
At the time of
the survey
Ten years
earlier
Farmers has the option to sell red cherries to
wet mill
43 28
Share of coffee sold as red cherries 19 13

29. 8. Improved practices and prices
• Determinants of adoption of improved post-harvest
practices (Selective harvesting; improved drying; share
red cherries): 1/ Extension visits; 2/ Remoteness of the
household; 3/ Distances to wet mills.
• Impact on prices (pooled regressions):
- No impact of quantities sold on price
- Red cherries: if mostly green, price is 10% lower
- 7% lower price if dried on bare ground
- Farmers with choice between traders 11% higher price
- Lower prices for red cherries sold at the roadside; higher
prices for those sold at place of akrabi or cooperative; no
significant difference in price between PMC and farmgate

30. 9. Drivers and constraints to change
Driver 1: Extension: Improvement in access to
extension agents as well as in perceived quality of
extension advice
At the time of
the survey
Ten years
earlier
Availability of coffee extension agents …
- Very available (%)
- A bit available (%)
- Not available (%)
- Do not know (%)
47
36
12
5
11
46
29
13
Quality of extension advice on coffee related issues:
- Very good (%)
- Moderately useful (%)
- Not useful (%)
- Do not know (%)
48
31
9
11
14
32
22
31

31. 9. Drivers and constraints to change
Driver 2. Market reform. Perceptions on primary
marketing centers (PMC) by farmers (100% = all
farmers)
“Since the start of the PMCs, … Agree Disagree Depends Do
not
know
… there is more competition among traders” 82 12 2 4
… there is more price transparency” 67 27 2 4
… I have to walk less far” 69 28 1 3
… I strip less as I have to walk less far to sell my
cherries”
60 36 2 3

32. 9. Drivers and constraints to change
Driver 2. Market reform. However, some processors not
happy
“Since the start of the PMCs, … Yes No Do not
know
… the quality of procured red cherries has declined” 34 64 2
If yes, this is due to ….
… The agents I use are not very capable in assessing the quality
of coffee”
51
… The quality of cherries deteriorates during storage at the
market”
60
… The quality of cherries deteriorates during transport to/from
market”
69
… The time between procurement and processing is too long” 62
… Because of increased competition between akrabis, I am
obliged to buy lower quality”
87

33. 9. Drivers and constraints to change
Driver 3. Large price improvements over time
0
50
100
150
200
250
300
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
UScentsperlb.
year
producer
export
NY/London price

34. 9. Drivers and constraints to change
Driver 3. Price changes. Because of high prices, farmers
consume less coffee themselves.
“When prices of coffee go up … Agree Disagree Depends Do
not
know
… I consume less coffee” 46 52 1 1
… I use coffee husks more to prepare coffee
drinks”
35 63 1 0
… I use coffee leaves more” 15 85 1 0

35. 9. Drivers and constraints to change
Constraint 1. Access to improved seedlings. Despite
efforts, access to improved seedlings an issue.
Agree Disagree Depends Do
not
know
“Improved coffee varieties have higher yields
than traditional varieties”
86 11 2 1
“ I do not trust the improved seedlings sold by
the BoA”
24 73 1 2
“It is hard to find reliable improved coffee
seedlings”
47 51 1 1

36. 9. Drivers and constraints to change
Constraint 2. Constraints to uptake of improved
techniques such as washing.
Agree Disagree Depends Do not
know
“I make more money when I sell coffee as
dried cherries”
67 31 1 0
“I prefer selling coffee in dried form (instead of
red) as I can spread out my income that way (it
is a way of saving)”
76 19 5 1

37. 9. Drivers and constraints to change
Constraints: 3. Weather and diseases.
Early Late Normal
“This season, the rains were […] compared to
normal” 18 60 21
Less than More
than
Normal
“The beans for this season were affected by
pests or diseases […] compared to normal” 13 28 59
% yes
Type of disease that plot suffered from:
- Coffee Berry Disease (“cholera”)
- Coffee Wilt Disease (“AIDS”)
- Other
- None
33%
12%
2%
54%

38. 10. Conclusions
• Important changes are happening in the Ethiopian
coffee sector
• At the production level, increasing adoption of
improved practices for production inputs, improved
good access to extension agents and better harvest
and post-harvest practices; however, no major effect
on production possibly due to disease problems and
climate change

39. 10. Conclusions
• At the marketing level, important changes in
markets; Policy of primary market centers is
unevenly implemented over regions and by coffee
type
• Overall, farmers have more choice between traders,
have the additional option to sell to cooperatives,
have to walk less far for their sales, and sell more
washed coffee; however, no perceived quality
premium

40. 10. Conclusions
• Policy implications for further changes upstream:
1. Further improve extension system; still work to be done
2. Stimulate higher adoption of improved tree varieties
(good for yields; reduce disease vulnerability; adjust to
climate and weather changes)
3. A more conducive and liberalized market. Well-intended
market reform can sometimes lead to negative impacts
4. Stimulate other institutions, such as savings institutions,
as they impact coffee sector as well
5. Improved information, monitoring and evaluation of the
sector needed: will lead to better policy
design/investments