The document summarizes the structure, performance, and challenges of coffee trading through the Ethiopia Commodity Exchange (ECX). Key points: - Coffee accounts for the majority (65%+) of ECX's traded volume and value, with annual coffee trade averaging 171,000-244,000 metric tons worth $380-800 million. - Coffee trading is characterized by a competitive market structure with many sellers and buyers and low concentration ratios (<30%). - Higher quality washed and specialty coffees command price premiums, while challenges include weak international price correlation, traceability issues, and harmonizing buyer/seller interests. - Overall the ECX model enhances transparency but faces growth challenges requiring policy

1. ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
Structure, Performance, and Challenges of
Coffee Trading through the Ethiopia
Commodity Exchange (ECX)
Mehari H. Abay Endris Negus Bart Minten
ESSP/EDRI ECX Authority ESSP/IFPRI
Ethiopia’s coffee value chain: Evidence towards improved investments and policies
Addis Ababa Hilton
September 15, 2015
Addis Ababa
1

2. 1. Background to ECX
• The ECX model designed to assure that few intermediary
members will serve many clients
• Members buy seats that entitle them to permanently
trade using ECX; non-members can trade by paying a
commission to intermediary trader to a max. of 2% of the
transaction value
• ECX had 349 active members with a permanent seat that
could directly trade in ECX for close to 13,000 clients
(March 2014)
• The ECX does not trade for itself but provides the
facilities/ground rules to trade for standardized
commodity-based contracts

3. 3
1. Background to ECX
• Before ECX, trading between suppliers and buyers
conducted at two auction centers (Addis Ababa and
Dire Dawa); mutual trust was the basis for trading
among trading parties
• Conceptual idea of ECX dates back to November
2002
• Establishment of ECX by the end of 2005
• Effective start ECX on April 24, 2008
• The introduction of coffee in ECX changed, among
others, the mechanism of grading/trading of coffee

4. 1. Background to ECX
• Since its start, ECX facilitated trade in six
commodities: coffee, sesame, haricot bean, maize,
wheat and green mung bean
• An average of 414,000 Mt of commodities
estimated at a value of about Birr 15 billion
transacted annually
• Not all types of commodities equal contributions:
Coffee and sesame are the two most important
commodities contributing for 89% and 97% of total
trade in terms of volume and value, respectively

5. 1. Background to ECX
• Coffee alone accounts for 49% and 67% of total traded
volume and value, respectively
• ECX contributes about 85% of the total coffee export of
the country
• Other channels include direct exports from commercial
farms and farmers associations and their unions.

6. 6
2. Objective, data and methodology
• The study aims to understand the structure,
performance, and challenges of the exchange in coffee
trading.
• Use ECX’s daily coffee transaction data from April 2009
to December 2014.
• To examine the structure and performance of the
exchange, we implement both descriptive and
econometric analysis.

7. 3. Structure of coffee trading through ECX
3.1. Characteristics of transactions and traders
Descriptive statistics Unit Mean
Standard
Deviation
Transaction
Volume Metric tons 7.3 4.8
Price US cents/lb 138 47
Value USD 22,300 16,100
Sellers
Number of sellers per year 3,515 521
Sales volume by single seller per year Metric tons 65 129
Sales value by single seller per year USD 195,500 367,300
Buyers
Number of buyers per year 454 78
Purchase volume by single buyer per year Metric tons 532 1,497
Purchase value by single buyer per year USD 1,565,200 4,661,900

8. Coffee origin % of transactions
Harar 9
Wollega/Lekemte 12
Sidama 22
Yiregachefe 6
Jimma 38
Other 13
Washed/unwashed coffee
Washed 26
Unwashed 74
Coffee grades
Export specialty 3
Export commercial 77
Local 20

9. 3.2 Concentration of coffee traders in ECX
Figure 1: Concentration ratio of sellers (CR4 & CR8)
 The concentration
ratio or market share
of the biggest 4 sellers
(CR4 ) below 10% over
the study period.
 The CR8 also below
15% over this period.

10. Figure 2: Concentration ratio of buyers (CR4 & CR8)
 Market share of the biggest
4 and 8 coffee buyers was
below 30% and 40%,
respectively. Coffee trading
on ECX not dominated by a
small number of large
businesses
 Coffee trading in ECX is
seemingly characterized by
competitive market
structure (because of large
number of sellers/buyers).

11. 4. Performance of Coffee Trading through ECX
4.1 Volume and value of coffee trade
Figure 3: Trends of volume and value of coffee, 2009-2014
171.95
380.60
267.70
686.23
177.16
761.90
249.96
841.35
211.84
556.98
244.23
799.59
0
200400600800
1,000
2009 2010 2011 2012 2013 2014
B. volume and value
Volume in thousend metric tons Value in million USD
 Value of coffee traded
increased from 381
million USD in 2009
to 800 in 2014
 Volume of coffee
traded increased
from 171,990 Mt in
2009 to 244,230 Mt
in 2014

12. 4.2 Quality premiums for coffee on ECX
• Export specialty coffee 7% and 59% premium value
over export commercial coffee and local coffee,
respectively
• Washed coffee 16 % premium over unwashed;
magnitude of premium for washing decreased from
32 % in 2009 to 10% in 2013 and 2014
• Jimma coffee is the lowest priced coffee; prices of
Harar and Yirgachefe are 48 % and 18 % higher than
that of Jimma

13. 5. Challenges
• As a result of its engagement in the sector, ECX
challenged by a number of compounding factors
• Major challenge is to harmonizing the conflicting
interests of buyers and sellers
• Infrastructure related problems and misconduct of some
employees/traders all constrain the effectiveness and
efficiency of the operation and the price discovery
mechanisms
• Weak correlation between international and ECX coffee
prices, especially when international prices fall
dramatically

14. 5. Challenges
Issue of Traceability
• ECX has about 428 grades out of which 365 constitute an
export grade
• Within the export grade, 110 grades are specialty grades,
representing 55 origins of coffee production area
• Despite this, there is a growing pressure from external
buyers for further de-commoditization of the coffee and
further traceability requirements

15. 5. Challenges
Growth/Sustainability Issues
• ECX has a motto of “becoming a global commodity
market by choice.”
• In the absence of equal level playing field, the chance of
success of attracting trade based on “choice” could be
challenged for a number reasons.

16. 6. Conclusion
• The exchange provided trading for more than 170,000
metric tons of coffee each year over the period 2009 to
2014
• Coffee is the single commodity that accounts for over
65% of ECX revenue
• The current model of ECX enhances transparency in the
trading system
• Coffee trading in ECX characterized by competitive
structure with relatively low concentration of sellers and
buyers in the exchange
• But number of issues need to be addressed by policy
makers

17. 6. Conclusion
Two major issues:
• Addressing the issues of traceability on the one hand and
ensuring the existence of transparent, fair and efficient
price discovery mechanisms and zero contract default, on
the other hand
• Addressing the underlying causes of price disparity
between domestic prices of coffee and the international
price of export grade coffee

18. 6. Conclusion
• Provide innovative value adding services to its users to
make the exchange “a global commodity market by
choice”
• Make necessary preparations to implement futures
trading (might involve working with universities to fill the
current knowledge and human resource gap)
• Seek ways to attract international warehouse operators
• Further build the confidence of traders and stakeholders
in the system
• Revise the membership criteria of intermediary members
in a way that will impose strict professionalism and risk
bearing capacity

19. Thank You!