Changes to the Ethiopian Commodities Exchange

The introduction of the Ethiopia Commodities Exchange (ECX) in 2008 was a disaster for the Specialty Coffee Industry. The system of sale obscured any information relating to the coffee beyond its region. Basically, it wiped out traceability. Recent changes however, have dramatically improved the situation. 

---

What is the ECX?

The ECX is a private company made up of both private parties and the Ethiopian government. Upon its inception in 2008, all coffee in Ethiopia had to be sold through the ECX. Initially, it enforced a system where smallholders sold their cherries to a ‘collector’, who in turn sold to suppliers/washing stations. Collectors had to obtain licenses in order to buy from their specific areas (e.g. Kochere). They were only allowed to buy from their specific areas.

Once processed by a washing station, coffee was delivered to the auction in Addis and was cupped and graded by the Coffee Liquoring Unity (CLU). Auctions happened every day and exporters had the opportunity to see, but not cup the samples, and knowing only the coffee’s region, made their purchasing decisions.

In a newer version of the auction, which was implemented soon after the first, collectors were eliminated, and centralized marketplaces were implemented. Rather than suppliers buying from collectors or specific smallholders, they bought from centralized markets and cherry prices are based on ‘market price’.
 

CHANGES TO THE ECX IN 2018

The ECX has grown quite expansively over the years. Of the 600,000+ metric tons of product sold through the exchange, coffee makes up only 3,000 metric tons. Still, 6.5 million pounds is no small number, and it requires a large amount of infrastructure.

The inception of the ECX was a step backwards for the specialty coffee industry. In the process of being sold on the ECX, coffee lost all traceability. Not only did coffee origins become anonymous beyond a region, information about the cup profile was also often unavailable until after a coffee was purchased.

Fortunately, the ECX is improving, and for this harvest we have seen huge steps taken to keep the coffee, and its vital information, together.  

The ECX now relies on an electronic auction system for access to data related to a particular product and all related transactions. Not only will this ensure that information stays with the product being sold, it allows a massive expansion of amounts and types of criteria that can be traded along with the product. For coffee, full traceability means reliable data pertaining to where the coffee was grown, down to the Woreda (district) or washing station. It also means better physical or sensorial data such as cup score, moisture content, and water activity of the coffee. Additionally, the ECX has revised its grading system for both washed and sundried coffees to improve the accuracy, reliability and consistency of scores.

Our long-time partner in the region, Heleanna Georgalis of Moplaco, was initially skeptical about the promised changes. She has been in Ethiopia long enough to know promises and action are not always the same thing. However on our latest trip to Ethiopia Heleanna was optimistic, and said the changes have been successful thus far. For the first time in many years, she is encouraged by the direction the ECX is headed.

Want more updates like this?

Stay up to date with this and other changes to the Specialty Coffee Industry by subscribing to our newsletter. 

Ethiopia: Coming Back to Cooperative Coffee

Our Previous Relationships with Cooperatives via TechnoServe

During the initial phase of Technoserve’s (TNS) work with cooperatives in Ethiopia, Kaffa in Oslo imported green coffee directly (pre-CCS) and roasted a few lots from some of the TNS supported washing stations, including Yukro, Hawa Yember and Hunda Oli.

I first got involved with some of the TNS coops during the 2009/10 season. Groups of roasters from around the word were invited, particularly from USA and Scandinavia, as they were seen as discerning buyers in viable markets. TNS was presenting their work at SCAA, SCAE and at roasting community events. These presentations weren’t really within TNS’ self-proclaimed mandate nor model, rather it was done to train and empower local representatives to learn how to market themselves.

KAFFA bought some lots but service was slow, samples hard to get, lots were sold out before one had time to provide feedback, and even if one visited to cup and buy on-site, the unions seemed to favor the ‘bigger’ roasters. When ‘dealing’ with the coops, one quickly learned that they didn’t truly have control over their products. It felt like one had to scramble to get ahold of something rather than being able to pick and choose properly, the way we’d do it in, let’s say, Kenya. Commitments were certainly not honored. It was all quite discouraging.

When I re-visited at the end of the harvest in 2012, the cooperatives were not just under-funded; they’d had little to no money just before the beginning of the harvest to pay for cherries. When I additionally learned that the harvest had been very low, I initially thought the low volume had to do with little yield per tree/farm. In reality, the low volume was due to farmers not being able to afford to deliver cherries to places that couldn't pay them up-front. This in turn meant low volumes at the washing station. Coop washing stations could only purchase as much coffee cherries as their credit line allowed them to. The irony of the TNS coops’ credit drought was that Oromia Union, their partner-in-crime, didn’t lend their coops the resources needed to buy cherries and hence, thrive. Even though customers were lined up to buy, complete dysfunction ruled at the most basic levels.

The quality management of the cherries was also poor and this related to the above economic problems. When you’re struggling to pay in the first place, you end up scrambling to get what few cherries you can afford. This is not the time to be scrutinizing the cherries’ maturity and uniformity.

Just as discouraging was the administrative and fiscal dysfunction. I wanted us to stay away as long as the Oromia Union stayed involved.

Now, five years later, the time feels right on many levels. And I’d like to take this opportunity to reflect on our previous experiences, as well as provide some background info that will hopefully be helpful to you. Full disclosure: I am “collecting” this information from memory, so bear with the fact that some of it is anecdotal.

Former TechnoServe staff, Aansha Yassin

TechnoServe’s Coffee Initiative

TechnoServe (TNS) is an NGO that was founded in 1968 and has been funded by the likes of the Bill & Melinda Gates Foundation. TNS works with development initiativesin many countries including within Africa and mostly with agro-businesses — coffee amongst others — utilizing local natural resources and human potential to create economic advantages. What I like about the Gates Foundation approach is the clearly expressed belief that making good business (product and management) is both the means and the goal. In other words, participating communities utilize what they already have – local resources and the development of community members’ own knowledge and skills – to create better economic opportunities.

In Ethiopia, the Coffee Initiative was started in 2008 with investment from the Gates Foundation. This allowed TNS to do coffee work on a large scale and in new places like Ethiopia and this particular project had a five-year mandate. One of the beautiful ideas and high ambitions of the program was to empower local people to learn about the specialty coffee field by crafting great coffee: managing it as a business; doing lot separation; assessing quality through cupping; communicating monetary value through quality; and finally, marketing and offering it to a discerning marketplace.

TNS intelligently set out to focus their efforts in the western regions of Ethiopia. This part of the country has always had a rich history in producing coffee. As far as we know, this was the birthplace of coffee. Still at the time that TNS came in, coffee from the west didn’t have fame, nor was it fetching the high prices coffees in the south were getting (such as e.g. washed Sidamo and Yirgacheffe).

The western lowlands are home to Bebeka Estate, which up until recently was the largest government owned estate farm. This estate is now owned by Mr. Al Amodi, who is also the current owner of the Horizon Dry Mill. Also located in this region, are areas such as Djimmah, which was synonymous with low grades of naturals.

Although many areas in the west do have the altitude for producing high quality coffee, the infrastructure wasn’t in place to produce and supply good coffee, whether because of the lack of equipment to produce it (very few wet mills), or getting products to the marketplace (poor roads). Thus, TNS’ strategy was to change the perception of West Ethiopian coffee by both efficiently producing washed coffeefor a specialty coffee market, and by making this coffee logistically accessibleto the market. Though roads were built and upgraded independently of TNS initiatives, these kinds of efforts went hand-in-hand.

The TechnoServe Way

TNS proposed that the coops install eco-pulpers at all the washing station projects they got involved with. This was a controversial prospect at the time, given the strong tradition up until then of the Ethiopian wet process being about fermenting with mucilage before washing. As we know, eco-pulpers have benefits, including saving water and requiring a lower up-front investment than the traditional wet process set-up with its many large fermentation tanks and washing channels.

Part of the TNS agenda was to help build equitable business projects, even helping with the financing, implementation of transparent bookkeeping, and overall good management by:

• Facilitating the process of applying for and getting loans to buildthe technical infrastructure: buying eco-pulpers, building washing stations and drying beds;

• Facilitating the process of applying for credit from banks so the coop could buy cherries. When a farmer arrives with coffee cherries, on any given day, the coop is expected to pay for the delivery on the spot. Thus, a lot of cash is required even before the start-up of the harvest season. Not to mention all the cash required to carry out the season;
• Helping to create a marketing plan (on behalf of the union): market outreach, market access, quality control and sample distribution
• Operational management, planning, and fiscal control.

Some of the most successful TNS coops managed to pay back the investment of equipment and infrastructure in less than 2 years, which is considered a great success by any business standard.

The ECX

TechnoServe During the time of the Revamping ECX

Little did TNS know that their program would be in stark contrast to ECX’s coming implementation of anonymity in the auction process. The new ECX structure was coincidentally put in place very soon after the TNS cooperatives were inaugurated and ready to hit the market with their attractively traceable coffees. The Coffee Initiative's original intention in Ethiopia was never to work with the Unions. In the first year, 2009, it tried to create a model where coops could work directly with private exporters. However, the Unions/government brought this process to a grinding stop. Eventually, all the coffees had to be taken over and exported by the Unions, and the contracts renegotiated. This was a major blow to the program because no one, including TNS, trusted that the Unions would be efficient, transparent, etc.

Specialty coffee buyers were flocking to TNS’ washing station projects. Although the coffee quality was not top-notch in the very beginning, the model at least provided a transparent trade model and TNS was pushing to make sure the farmers and their communities were rewarded with premium prices above the Fair Trade/Organic models.

When a washing station is owned by a cooperative, the contributing farmers collectively own the coop, but they must nominate a union to handle their milling and marketing for which the coop is charged a service fee. It usually makes sense to get these services from a union that is involved in the region, and hopefully it is also offering competitive terms. Even if the milling fee is regulated by law, unions have a reputation for taking advantage of the coops by charging the maximum fee possible and/or screening and processing lots to their own benefit (e.g. ‘mixing up’ lots, blending and even stealing).

The coop-union relationship is generally one where the union arguably has the ‘upper hand’. Since the union ends up with the parchment coffee in their possession, and being that they become the party that markets the coffee, they are the ones to send samples out to potential buyers.

In other words, even if a union is intended to be an intermediary part in the transparent relationship between a producer and a buyer, the unionis the primary contact and by default becomes the ‘owner’ of the relationship.

All this said, that dynamic briefly changed as soon as the TNS coops and washing stations earned their own fame, consequently bypassing the unions in building relationships directly with their end buyers (roasters).

TNS coops were obliged to deliver to various unions, as made geographic sense. Unfortunately, this only lasted for the first year of operation under TNS supervision. Once the Oromia Unionand its powerful and charismatic leader saw the success and prestige associated with trading directly with affluent coffee buyers around the world, it didn’t take long before all the TNS coops were forced to mill and market their coffee through the Oromia Union.

Oromia Union’s experiencewith lot separation, handling of the respective samples, and the necessary marketing efforts were generally not well developed initially. To overcome this, TNS opened regional offices with cupping facilities, training local staff and offering opportunities for buyers to access coffee without having to depend on the union. These efforts were meant only to be an temporary solution, while Oromia Union was supposed to equip itself with skilled staff, adequate systems and protocols, and building marketing strategies.

In my opinion this became and remained the weakest link with the TNS-developed supply chain. When TNS ended their project term, Oromia was still struggling to get things right.

Limmu is primarily where our coop coffees this year will come from

Returning to Cooperative Coffee

I am very pleased to announce that CCS is going into this season with a more diverse approach to sourcing and buying in Ethiopia. In addition to offering stellar ECX coffees; and micro-lots from private estates; CCS will introduce cooperative coffees to the menu. It is promising indeed thus we are looking forward to presenting a carefully curated list of lots from thoughtfully selected coops in the Limu/Djimmah region of the west!

The reasons for this optimism are these necessary turn of events: 1) Other Unions, for all the above-mentioned reasons, have emerged to service the coops; and 2) Quality, compliance, and commitment seem to hold a higher priority than in the earlier years of my experiences with the cooperatives and the Oromia Union.

We cannot wait offer you to taste the 'fruits' coming from all these emergent changes. Enjoy!

Robert

—founder of KAFFA and Collaborative Coffee Source (CCS)

Corrections: 1) the previous version incorrectly stated that TechnoServe was founded by the Bill & Melinda Gates Foundation and has been corrected to reflect the fact that the NGO was founded in 1968 and that the Gates Foundation is  one (albeit a large one) source of funding for TNS.

2) it was never TNS' original intent to work with Unions, as was implied in the earlier version. The post has been corrected to reflect the fact that TNS' aim was to work directly with cooperatives, independently of the Unions/government from the beginning.

Cupping back in 2012

Direct Trade and the Ethiopian Commodities Exchange: What’s the Problem?

98% of the coffee exported out of Ethiopia goes through the Ethiopian Commodities Exchange (ECX), so to say it’s important is a massive understatement. But it’s also a struggle to understand, makes transparency seem as out of reach as world peace, and causes a lot of misrepresentation about what Ethiopian coffee is and how the export process works. In fact, it’s almost incomprehensible as to why the ECX is so, well, incomprehensible. Anyone who imports Ethiopian coffee can attest to the resulting challenges, frustrations, and constant changes they experience when buying from this coveted origin.

So two stakeholders in the Ethiopian coffee trade have sat down for a Q&A on what the ECX is, why it makes it difficult to buy directly from source, and how the process may improve in the future. Read on to to discover what this confusing system is all about.

Coffee being processed in Gedeb, Ethiopia

The Q&A Participants

Heleanna Georgalis of Moplaco P.L.C. is an exporter of Ethiopian coffee. Her family has been working in the coffee trade in Ethiopia for three generations, and Moplaco was established by her father, Yanni, in 1971.

Melanie Leeson is a coffee buyer/importer for the Collaborative Coffee Source, whose founders have been establishing close partnerships with coffee producers and exporters since 2005 through their sister company, Kaffa Roastery, in Oslo, Norway. Since 2012, CCS has independently continued to strengthen these early partnerships and is continuously and thoughtfully adding new partnerships – producers, exporters, and roasters alike – to its supplier roster and customer base, which together span over five continents.

The ECX: A Q&A

Melanie Leeson: Heleanna, explain to me the different ways someone can buy coffee from Ethiopia. Is it possible to have direct trade Ethiopian coffee?

Heleanna Georgalis: Well, yes. You can buy in three ways:

1. Directly from Unions which form an umbrella on top of a number of cooperatives. Coffees bought this way can come in bulk (e.g. a Sidamo Gr-2) with no specificity behind it, or can come “directly” from the specific cooperatives you have chosen to buy from. This coffee can be fully traceable and recognisable.

2. Directly from a commercial farm that has a minimum of 35 hectares of land. These farms are also recognisable. They offer traceable coffee from their own land, along with coffee most likely collected from the farmers around them.

3. From an exporter who can ONLY buy their coffee from the auction. These coffees are not traceable and are only given general names from wider geographic areas. For example, a Sidamo A would include areas such as Bensa, Guji, and Harorensa.

Wild coffee trees in Kaffa forest

Melanie Leeson: Are there any downsides to buying from cooperatives via unions? Why doesn’t everyone who wants traceable coffee just buy from the unions?

Heleanna Georgalis: Although I’m not a buyer myself, I believe people may, in many cases, prefer to buy from an exporter, as they’ve already built a relationship of trust over time.

Buying from a cooperative and union, although they may offer the advantages of traceability and the access to see where and how the coffee has been produced, requires an enormous investment of time. This may form an impediment. And even once a relationship has been established with the cooperative, timely communication and reliability with the union-exporter may become hurdles. In addition, the farmers of the cooperative may not be the full beneficiaries of all these efforts.

However, this option still remains the best option for establishing a desired “direct trade”, as it allows you to deal as close to the origin as possible.

Processing Ethiopian Yirgacheffe

Melanie Leeson: Buyers see a lot of names of Ethiopian coffees in the market. Can you explain how all these names come about, given the fact that 98% of the total produced volume in Ethiopia is still bought from the ECX?

Heleanna Georgalis: There are about four different types of names an exporter, whether a union, farm, or private exporter, can use:

1. A general wider area, such as Sidamo.

2. A specific area, such as Guji, that can be accessed through the ECX because it’s graded as an 80+ coffee. In this case, “Guji coffee” becomes traceable to the wider Guji area. So this kind of traceability is possible for some localities traded through the ECX, but certainly not for all.

3. A specific location, such as Haricha. However, this is only possible if the exporter is a cooperative/union from the area that can directly trade the coffee as “Haricha”. Or if they’re a commercial farm that’s established in that area.

4. A brand that’s a registered name an exporter has given to their coffee.

Ethiopian Yirgacheffe

Melanie Leeson: Is it possible for an exporter to buy coffee from cooperatives and farms and then market these coffees using their names and locations?

Heleanna Georgalis: “Absolutely not” would be the definite and short answer to this. So when an exporter claims that a coffee comes from Haricha in Yirgachefe, you have to wonder how they know, given the lack of traceability inherent in the auction.

Equally, when an exporter says that their coffee comes directly from one particular washing station, you have to wonder – again – how they could possibly know this, since the coffees from a wider area are just blended together and then given a grade and a classification.

Where is your coffee really from?

Melanie Leeson: What was the rationale behind the creation of the ECX? Why the move to remove traceability in the coffee buying process?

Heleanna Georgalis: Let’s say “a lack of adequate information and understanding of the workings of coffee”.

ECX was formed out of the belief that Ethiopia would be able to eliminate or reduce poverty if commodities could have a platform to be traded on, rather than an informal system of supply mainly controlled by or benefiting the “middleman”.

However, coffee already had an established system and platform of trade that had existed since the 1970s. It was well designed to represent and trade coffee in a traceable and sustainable way. Like every system it had its drawbacks, but these were easy to correct.

The move to remove traceability emerged from a belief that if the exporter and the supplier of coffee could identify each other, then collusions could form that would distort the market and make it difficult and unfair for all the players to participate. So the most valuable information of the coffee was removed, but the collusions and special relationships that plagued the previous system have gone underground but have not been hindered.

Moplaco’s Yirgacheffe warehouse

Melanie Leeson: I read earlier this year that ECX was rolling out a geotagging system this season. Each bag now comes with a scannable code that will provide the buyer with its precise geographic information. Is this program operational? How is it working out?

Heleanna Georgalis: This system, although cumbersome to implement, and cumbersome for the logistics of any exporter’s warehouse, gave me the hope that the information we need would be restored to us. It would enable us to sell high quality coffee traceably.

At the moment, the system has not yet been fully established. Although efforts have been made to deliver tagged coffee bags to us, they cannot actually be read or traced. I sincerely hope that, as of next year, we will have a clearer view on how the system will actually operate.

Coffee picking in Gesha Village, Ethiopia

Melanie Leeson : What do you think about buyers’ demands for traceability?

Heleanna Georgalis: Reasonable, I would say. How can a product be “special” if it is bulked and blended with other products? How can you understand and appreciate the specificities of each coffee and location unless this information is available?

However, like many demands, this can also become a hurdle to both exporters and buyers in sourcing the best coffees they can. If Ethiopia exports 98% of all its coffees through the auction, it would be unreasonable to believe that this amount would not be sufficient to cover their need for a great coffee.

At the end of the day, traceability does not guarantee quality, although I would say that quality needs to be traceable up to a certain point. I do find some of the demands unreasonable, but then who am I to judge what people have to do to sell their coffee?

Cupping coffees picked and processed at Gesha Village, Ethiopia

Melanie Leeson: One final follow-up question on the geotagging system. As I understand it, the exporter buying a coffee from the auction cannot see or taste the coffee before it is purchased; it’s purchased simply based on the grade the ECX cuppers have given it.

Let’s say the geotagging system is perfectly operational – still, what’s the point of being able to trace the coffee if you have no way of buying it again? If you’re purchasing coffees from the auction with only the wide geographic region and grade as your basis for purchase, then what is traceability for? Other than simply to know where the coffee comes from.

Heleanna Georgalis: This is a very valid point for a person who needs consistency over time. In fact, it represents the exact point that our established new system needs to work on. However, an importer should also remember that, given the current state of infrastructure in Ethiopia, a good Guji Gr-1 wouldn’t taste fundamentally different from another good Guji Gr-1, to give an example.

In Ethiopia, processing is where fundamental changes can happen in the quality of the coffee, but it hasn’t evolved much yet. So both traceability and the ability to re-buy coffee year-to-year is something that isn’t really possible in Ethiopia yet – but the ability to re-buy wouldn’t make much of a difference anyway until processing is revolutionized.

Ethiopia Guji beans

Melanie Leeson: So, so, so many more questions… We could write a book about how coffee works in Ethiopia. Thank you for shedding some light on these points. I look forward to learning more and seeing how the link between traceability and quality develops over time here.

Original article on Perfect Daily Grind

Ethiopian Coffee: The Timeline

I want to explain a process that you all have questions about and is super important to your offerings: the timeline of getting Ethiopian coffee from the tree to your roastery.

The prevailing expectation is that since harvest begins in October and ends from December-January, cupping/selections happen in February and March is shipment month. This schedule is based on buyers' experience of the former auction system. It does not reflect the way the current auction system works for mixed containers.

In the old system, coffee was sent to a centralized warehouse and then purchased in Addis. This meant that a coffee purchased in the morning was delivered to the buyer's facility the same day.

When the new ECX system was implemented, the decision was made to place warehouses in 7 locations across the country that make up the geographic regions that coffees are now sold as (e.g. Yirgacheffe, Sidama, Limmu, etc.). So now, when a lot is purchased, it has to travel from the countryside to Addis after the regulated inspections are made and paperwork is in order. This process takes, on average, 10 days.

By the time the coffee arrives in Addis, it has not yet been evaluated by the buyer. In fact, one can only make a quality claim while the coffee is still at its original warehouse. Basically the process makes it impossible to make quality claims because: 1. you have to pay a non-refundable fee of $150 to have your coffee inspected, 2. you have to have a staff member be there to do the inspection, 3. you have to pay your driver's expenses while any claim is made and the resulting appeal is followed up. And of course, the coffee isn't going anywhere and can't be offered to any customers while this process is unfolding.

Let's assume a lot has been purchased on February 1 (e.g. Kochere gr. 1) and it proceeds to Addis without incident:

February 1: Kochere gr. 1 is purchased (it's a full container lot, so 300 bags) February 8: Inspections and paperwork are completed February 10: Kochere arrives at warehouse in Addis February 11: Kochere is first cupped and evaluated by the buyer February 12: sample is sent out to a potential client (e.g. CCS) February 17: sample arrives at CCS' lab for evaluation February 18: sample is roasted February 20: sample is cupped and let's assume, approved February 21: lot goes into the queue for mechanical and hand sorting at the exporter's facility February 28: it's ready for export March 1: earliest possible departure date from exporter to CLU for final inspection before export March 4: container is approved for export by CLU March 5: departure from Addis to Djibouti March 10: container arrives to Djibouti port March 15: container departs from port April 15: container arrives at Antwerp/New Jersey port April 22: container is stripped at Pacorini/Continental warehouse April 24: earliest possible loading to you the roaster

The above timeline is based on the following assumptions: 1. absolutely every step occurs without incident 2. only one lot is within the container

In reality, we purchase containers that are made up of at least 2 different lots (usually it's more like ±5) so that we're able to offer a good variety to our roasters. So each of these lots have to go through the above process and then approved by us for purchase. Getting 5 lots coming from different warehouses with the exact cup characteristics that we like and then getting them machine and hand sorted for export makes March export, well, pretty challenging, to put things lightly. And all the above also assumes that the export facility is functioning at top efficiency and capacity.

Last week the electricity went out on Wednesday at Moplaco and wasn't functioning again until Friday afternoon. Not only was production halted, but a staff member had to take the time to follow up vigilantly with the utilities company to ensure that someone was actually addressing this situation. Heleanna estimates that an entire container's production was halted due to these three days of the electricity cut.

Over the weekend, I had the pleasure of celebrating Ethiopian Easter with Heleanna, her friends and family. One of the people I met on Sunday works for an Italian development agency and another works as an IT consultant for the World Bank. Both of them work with a variety of commodities and have years of experience working not only in Ethiopia but around the world on development projects.

I explained some of the challenges that I've noticed about the export process for coffee and asked for their perspective as to why it's so labyrinthine and challenging. They had some common answers: - small business doesn't matter to policymakers, so there is very little will to make the export process more efficient and transparent, even while government officials totally acknowledge the challenges that exporters face. This is also taking into account that coffee export makes up 31% of export revenues for the country - the current auction system is a mess and failure but there are so many parties with vested interests and so many people employed by the current system that a dissembling of the structure is simply not going to happen. The question now is how and whether the structure will be improved - there's no cultural value for transparency and accountability in bureaucratic processes

It's not all dismal. The Ethiopia of today is completely different from the Ethiopia of five years ago. Addis is a vibrant and developing city with a metro line, a fantastic food scene, commercial centres and hotels cropping up everywhere, and a thriving arts and music scene. As the World Bank consultant put it: Ethiopia is where Central America was 10 years ago. As I mentioned in an earlier newsletter, receiving coffee from our Central American partners is much more smooth and efficient than it is getting coffee from East Africa. This consultant believes that Ethiopian policies and business culture are heading in a similar positive direction.

- Melanie

How is Pricing Determined Anyway?

We all know and agree that coffee prices are too low and this is certainly the case in Ethiopia where the average farmer (owning an average of 0.1 ha, or 200 trees) earns USD $260 per year from coffee. Even in Yirgacheffe, where coffee prices are about three times higher, the income is too little to properly support a family’s needs on.

Yet we also notice that prices for Ethiopian coffee are increasing year-to-year and not just for the top qualities. So what are these increases based on?

In the case of Q1 coffees, the price increases (in my opinion) are fair. When we compare the price we’re paying for Kochere gr. 1, taking into account its cup quality in comparison to what we’re paying for for top qualities elsewhere, the price is similar. But we’re not just seeing increased prices for Q1s, we’re seeing exponentially increasing prices for the lower qualities too. Last week Yirgacheffe AQ1 was sold at ETB 2000 per 70KG of parchment while A3 fetched 1950 ETB. What is this A3 pricing based on?

In comparison to most of the other countries we’re working, this is the reality about most Ethiopian coffee:

• Much of it is not traceable and what is claimed to be traceable is often questionably so (even at top quality levels). In contrast, in Central and South America, farm-direct relationships are the norm for specialty coffee.
• There is very little investment in evidence-based agricultural practice. Say what you want about the FNC; their investments in research and continuous developments in best agricultural practices are indisputable.
• Processing and quality control is mostly at a lower standard.

Last week I talked about the importance of intercultural understanding in coffee buying. Within the course of the past week, I had the chance to meet with professionals from other industries here: a tourism operator, grocery store owner, embassy representative, an architect, and a woman who runs a workshop and sells the textiles it produces. Some of these women are Ethiopian and others come from abroad. The common concern everyone expressed is that business in Ethiopia is becoming harder and harder. In the past 3-5 years, conditions have noticeably deteriorated. In the case of the grocery store owner, she is dealing with customs that doesn’t understand the products (e.g. camembert cheese which they think is spoiled, rather than knowing that its smell is supposed to be the way it is) she’s importing and whose ‘solution’ is to burn the food it refuses to clear. Burning food: in a country where people are without food!

For next week’s newsletter, I’m working on finding out what has become of ECX’s geo-tagging system, which it implemented at the beginning of the season.

- Melanie

Ethiopia Modernizing

A brief update on the current Ethiopia harvest (2015/16)

The Harvest So Far

• Our partners report that coffee has arrived late to the wet mills due to late rains or in some areas, no rain at all. The current lack of rain is expected to be one of the worst droughts in Ethiopia. Some believe it will be even worse than the one that affected the country back in the 1980s.
• With the rains coming late, cherry maturity has been delayed, meaning that in most areas picking began just three weeks ago.
• Coffee cherry quality seems to be good overall so far.

Prices

• The prices being offered for coffee cherries in most of Ethiopia have started at an average level but has slowly been climbing in most areas, especially in the Yirgachefe region, which has been the case for the last several years.
• Coffee has arrived to the auction with high prices that have managed to sell. We are not sure if the market can pay the fair price given the Cost of Coffee here Locally. But the usual Exporters that use the FX to Import, as the ones pulling the market lower.

Changes at the ECX

• Electronic tagging (geotagging) is supposed to be rolling out this season so that every bag sold through the auction will come with a barcode that will provide traceability up to the washing station it came from.

The hope for this new system is to create a more accessible system for purchasing. For the last 8 years

only unions and coops

 have been able to provide traceability to the international buyers, severely inhibiting transparency for many buyers of Ethiopian coffee.

• Coffee, as a commodity, has officially left the jurisdiction of the Ministry of Trade and is now headed by a new Coffee & Tea Authority under the umbrella of the Ministry of Agriculture. This means that coffee will have ONE authority which is significant, as over the last 8 years several conflicting institutions  oversaw the coffee sector, which created many delays in the process of exporting and more. Let's hope that this more unified/simplified body will lead to easier export processes!

• The ECX is also planning an online purchasing system. Aside from the inevitable delays from implementing such a system, this is a very positive change for exporters. Previously, it was very difficult to stop private agreements between sellers and exporters. Now, hopefully, the best quality will be equally available to all buyers.

While all of these changes are positive they will certainly present their own challenges and frustrations. Luckily the general trend is moving in positive directions. Even if the above is implemented in fits and starts.

The CCS approach to doing Ethiopia

It being the birthplace of coffee, combined with notoriously changing the perceptions of coffee drinkers about what coffee can taste like, Ethiopian coffees court especially high expectations and attention year after year. Perhaps more than any other origin, coffee roasters look to Ethiopia to provide both stand-alone knockouts, as well as that little something to round out an espresso blend. Time and time again, the “Queen of Coffee Origins” delivers, despite a frankly labyrinthine and constantly evolving coffee auction and export system. Year after year, coffee buyers eagerly make their way through Addis Ababa and into the countryside, in search of the next fabled cup.

Ethiopian coffee is still made up of many wild growing coffee plants – most of them have not yet been classified, so the genetic diversity is innumerable and is still very much being studied and explored. While varieties do change from region to region within Ethiopia, you will often see “landraces” or “heirloom” listed as the varieties, even though this does not denote a homogenous genetic pool covering all of Ethiopia.

Being wild, these varieties have evolved naturally and so are well adapted to their surroundings. All this means that chemical inputs (fertilizers), pesticides, herbicides and fungicides are rarely needed/in use in Ethiopia; the majority of coffee produced is organic in the truest sense of the word.

Our washed coffees are carefully selected, rigorously sorted (by both machine and hand) and curated together with Heleanna Georgalis of Moplaco Trading Co. Heleanna and her team purchase coffees from the Ethiopia Commodities Exchange (ECX) and once the coffees arrive at their facility in Addis, they are meticulously sorted so that the full potential of each lot is clearly distinguishable. The current iteration of the ECX is structured in such a way that transparency (i.e. knowing the specific people involved with harvesting, and the place the coffee was grown and processed) is not available. Licensed exporters like Heleanna purchase coffees based on three criteria: broad geographic areas (e.g. Yirgacheffe, Sidamo), quality grade as determined by the ECX (e.g. Q1, Q2), and the lot’s date of submission to the auction. Bidders are not allowed to see or taste the coffee prior to bidding. These realities are why the work of Heleanna’s processing and export team is so fundamental to the quality of the coffee our roasters receive; it’s why we consider Moplaco to be a “producer”.

Moplaco's natural coffees are produced at its commercial farm, which also works together with neighbouring smallholders. The region these coffees are grown is near Gedeb at about 1880 meters above sea level, with red soil. It is on the borders of Yirgacheffe and Guji, which are separated by about 10km of distance. The number of farmers that supply the cherries is around 200, but this number can change depending on the price. Farmers are paid twice: once when the cherries are initially delivered to the washing station and secondly through a percentage dedicated to community projects, such as schools. For example, a school in Yirgacheffe was built from this percentage in the past and is now being financed by current proceeds. Another school near the farm is also being supported in this way.

The natural coffee process starts just as washed coffees do: red, ripe cherries are collected and then sorted within four hours after they have been picked from the trees. These cherries are spread on raised African beds, where exposure to air helps dry the beans. The fact that the seeds do not touch the the ground and other foreign materials eliminates, as a first step, the risk of contamination, and subsequent defects that end up contributing to "earthy", and “soily” tastes.

In the second phase of processing, full red beans are carefully selected and any broken, green, immature beans are eliminated from the beds. This drying and selection process goes continuously from 12 to 15 days.

As the cherry dries onto the seed, a fermentation process takes place, which allows sugars to dry onto the seeds, leading to the development of a more complex, fuller bodied coffee, wherein more aromatic compounds can develop through the roasting process.

Coffee stays in parchment for as long as possible. Ideally between 4-6 months, so that the many acetic acids that develop inside the parchment during the drying, once settled down, will not taste like vinegar. If coffee is hulled after 4-6 months, it will have more pronounced tastes, both in sweetness and flavour. 4-6 months is an ideal period to have the coffee’s acids and sugars settle, in order to develop a more sweet and aromatic profile.

The fact that the coffee is from Yirgacheffe adds to its prestige, as the coffee is genetically supreme. What a careful sundried process does is maintain this supreme character and allow it to develop properly.

Important Terms & People within Ethiopian Coffee Production and Export

Garden coffee: coffee grown and harvested on smallholder property.

Semi-forest coffee: coffee that grows under a forest canopy. The land below the canopy belongs to a farmer who produces coffee in addition to other crops.

Forest coffee: coffee grown in forests protected by the Ethiopian government. People are given permission to harvest cherries. No people-induced cultivation is allowed.

Plantation coffee: coffee grown on privately owned commercial farms.

Smallholder: coffee farmers owning smaller plots of land.

Collector: a person that bought coffee cherries and in turn sold to suppliers (i.e. washing stations). In the current version of the ECX, there are no longer collectors.

Supplier: washing stations that are owned by a private person, or a cooperative. They deliver processed coffee to the ECX.

Exporter: can be a private person/company, a commercial farm, a union (usually supplied by cooperatives), or a government plantation. Commercial farms can only export their own production.
 

The ECX system: previous & new

The ECX auction system was established in 2008 and is a private company made up of private parties and the Ethiopian government. It was set up, ostensibly, to protect the rights of all parties involved, from sellers, to buyers, to intermediaries.

During its early iteration, smallholders sold their cherries to a collector, who bought cherries from throughout their area and in turn sold to suppliers/washing stations. Collectors had to obtain licenses in order to buy from their specific areas (e.g. Kochere), to which they had to strictly adhere.

Once processed by a washing station, coffee was delivered to the auction in Addis and were cupped and graded by the Coffee Liquoring Unity (CLU). Auctions occurred daily and exporters had the opportunity to see the samples, which together with the coffee’s region, is what they based their purchasing decisions on. In this early system, the name of the region (e.g. Yirgacheffe) as well as its specific locality (e.g. Kochere) and sub-locality (e.g Chelelektu) were transparent. Also available was the name of the supplier/washing station. Notably, exporters did not have the opportunity to cup these samples; only look at the sample and see its lot info. This is in contrast with other auction systems, such as Kenya’s (for example), where exporters routinely cup coffees they’re interested in.

Once the auction ended, the trucks containing the lots were sent to the exporter’s warehouse within the same day. This allowed for good quality control—trucks delivering coffee that did not match the sample could be sent back—and it allowed for price discovery via the knowledge about specific geographic origin and the exporter’s knowledge of demand for the various regions. One downside and perhaps a subsequent reason that the ECX was changed is that certain suppliers and exporters would enter into prior agreements so that the supplier could end up withdrawing from a sale if the highest bidder was not the same person it entered into a pre-arrangement with.

In the newer version of the auction, which was implemented quite soon after the first version of the ECX, collectors were eliminated and centralized marketplaces were implemented. So now, rather than suppliers buying from collectors or specific smallholders, they buy from centralized markets: cherry prices are based on the “market price”. One big effect of this change is that suppliers can no longer negotiate prices based on whose cherries they like better: they have to buy lots based on what’s available at the market.

Once the coffee (in parchment for washed; hulled for natural) arrives at the specific auction allocated for that particular region (e.g. Dilla auction for Yirgacheffe region), it is cupped and graded by the ECX lab within the facility, each truck that contains specific lots from specific washing stations is given a number so that its identifying information is only known by the Ministry of Agriculture, and exporters purchase based on the region and ECX grade. For washed Yirgacheffe coffees, there is an additional identifier: type A are coffees that have the “Yirgacheffe flavour” and type B are coffees that do not have the “Yirgacheffe flavour”. Washed and natural coffees have slightly different classifications.

Heleanna Georgalis of Moplaco 

About Moplaco 

Yanni Georgalis established Moplaco in 1972 and was a third generation coffee exporter. Yanni was highly respected not only within Ethiopia but was well known and beloved by buyers of Ethiopian coffee around the world. He rightfully maintained a reputation for not only selling the highest quality coffee, but also for his integrity in all aspects of the business. Heleanna, Yanni’s daughter, then comes from a long and established lineage of highly respected Ethiopian coffee exporters.

Heleanna is a courageous woman and has done an admirable job of continuing the legacy of her father’s at Moplaco while also carving out her own version of it in the years since her father’s passing. Under her leadership, Moplaco is constantly evolving to produce ever-increasing quality coffee in spite of the complexity and challenges continually present within Ethiopia’s coffee production and auction systems. Born in East Harar Heleanna, as a young girl, was forced to flea her home in the face of civil war and so grew up and was educated in and around Europe, where she eventually established a successful career in finance. She neither imagined nor planned to find herself back in Ethiopia and working in the footsteps of her father within the world of specialty coffee.

After the sudden passing of her father in 2008, Heleanna was faced with a difficult crossroads: continue the legacy her father had meticulously built with almost no knowledge about the coffee business, or continue on the path she had created for herself within the world of finance. We are very glad and lucky she chose coffee. True to her personality and way of approaching new challenges, Heleanna completely immersed herself in learning about roasting, cupping, agronomy (including the latest research and practices in natural processing) and the niche markets of specialty coffee all around the world. Though she admits that these challenges were extremely daunting at times—and sometimes continues to be—Heleanna continues to trailblaze her way through specialty coffee and is consistently updating herself on the latest trends and experiments in agricultural and processing techniques, travelling around the world to meet with and discuss these developments with the best and brightest producers and coffee researchers.

Moplaco Brands

With all the experience and knowledge he had amassed on the multitude of distinct cup profiles found in Ethiopian coffees—as influenced by species, geographic location, processing practices—Yanni developed a line of Moplaco green coffee brands that are based on some of the most distinct, well-known and loved cup profiles coming from Ethiopia. Given the ECX’s built-in lack of traceability, these brands are especially relevant today and we’re proud to present them now in 2015.

Matahara: Is a coffee from the West of Ethiopia. It has a flavour profile that is spicy, very sweet, full body and has a medium pointed acidity. Matahara means “new brain” in the language of Oromifa, and it was chosen to indicate the new idea Yanni had at the time he created it.

Abysinian Mocca: Many people identify Ethiopian coffee as coffee with the “mocca” flavour. This can mean different things to different people, but for Moplaco, the mocca profile has a dark chocolate flavour, is very clean with full body, and a good acidity.

Abysinia is the ancient name of Ethiopia. To Moplaco, this coffee represents the epitome of Ethiopian coffee.

Illily: This coffee comes from the Lower West lands of Ethiopia, under deep forests and wild nature. The coffee’s cultivation goes from the lower lands around 1600 meters above sea level, to the highlands at 1800 metres. “Illily” means flowery in the Oromifa language, which is well represented in the cup. This coffee also has a notable citric characteristic that is well balanced with its floral attributes.

-Melanie