Problems and Prospects of Coffee Production and Marketing in Ethiopia

PROBLEMS AND PROSPECTS OF COFFEE
PRODUCTION AND MARKETING IN ETHIOPIA
SENIOR ESSAY SUBMITTED TO THE DEPARTMENT OF ECONOMICS IN

PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR AWARD OF
BACHELOR ARTS DEGREE (BA) IN ECONOMICS
By: Deginet Adane
Advisor: Tarekegn Wubie
SAMARA UNIVERSITY
FACULTY OF BUSINESS AND ECONOMICS
DEPARTMENT OF ECONOMICS
May 2010
Samara, Ethiopia
I
PROBLEMS AND PROSPECTS OF COFFEE PRODUCTION AND
MARKETINGIN ETHIOPIA
ACKNOWLEDGEMENT
First and at most, my special thanks to the almighty God Jesus Christ, did for me every
thing for the most excellent and enabled me to complete this piece of work in success.
Secondly, I wish to extend my deepest gratitude to my advisor Ato Tarekegn Wubie for
his price less advisory shore up and guidance in accomplishing the entire charge of this
paper.
Thirdly, my deep heart feel thanks goes to my father Ato Adane Arficho and my
mother w/o Almaz Kebede with all my family for their every time help and honorable
support.
In addition, I would like to thanks my instructor Geremaw who helped me by providing
different materials and my friend Belay Ababu who support me by writing the paper
and all my friends who were with me and still with me.
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TABLE OF CONTENTS
CHAPTER ONE
Page
1. Introduction-------------------------------------------------------------------------------------1
1.1. Back ground of the study-------------------------------------------------------------1
1.2. Statement of the problem------------------------------------------------------------2
1.2.1. Research question---------------------------------------------------------------------3
1.3. Objective of the study ---------------------------------------------------------------3
1.3.1. General objectives--------------------------------------------------------------------3
1.3.2. Specific objectives-------------------------------------------------------------------3
1.4. Hypothesis of the study-------------------------------------------------------------4
1.5. Significance of the study------------------------------------------------------------4
1.6. Scope and limitation of the study--------------------------------------------------4
1.6.1. Limitation of the study--------------------------------------------------------------4
1.6.2. Scope of the study-------------------------------------------------------------------4
1.7. Methodology of the study----------------------------------------------------------4
1.7.1. Data source and type----------------------------------------------------------------4
1.7.2. Data analysis-------------------------------------------------------------------------5
CHAPTER TWO
2. Literature review-----------------------------------------------------------------------------6
2.1. Theoretical review------------------------------------------------------------------6
2.2. Empirical review-------------------------------------------------------------------9
CHAPTER THEREE
3. Data analysis and discussion--------------------------------------------------------------15
3.1. The level of coffee production in Ethiopia-------------------------------------15
3.2. The role of coffee in the Ethiopian economy----------------------------------19
3.2.1. Foreign exchange contribution--------------------------------------------------20
3.2.2. Contribution to public revenue--------------------------------------------------21
3.3. Major problems in coffee production and
marketing and future prospects-------------------------------------------------22
3.3.1. Decline in coffee price----------------------------------------------------------22
3.3.2. Poor infrastructure---------------------------------------------------------------24
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3.4. The effect of liberalization measures on

coffee production and marketing---------------------------------------------24
3.4.1. Devaluation of national currency effect-------------------------------------25
3.4.2. Liberalization of domestic and export trade effect---------------------------25
3.4.3. Tax reforms effect----------------------------------------------------------------26
3.4.4. Growth in foreign exchange earning-------------------------------------------26
3.4.5. Growth in production-------------------------------------------------------------27
CHAPTER FOUR
4. Conclusion and recommendation--------------------------------------------------------28
4.1. Conclusion-------------------------------------------------------------------------28
4.2. Recommendation-----------------------------------------------------------------29
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LIST OF TABLES
Table 1: coffee arrivals at the terminal market from 1978/79-1990/91-----------------16
Table 2: coffee arrival at the terminal market from 1991/92-2007/08------------------17
Table 3: coffee production, area harvested, and yield in the country (1961-98 G.C)-18
Table 4: compares the extent of foreign exchange earning from coffee and other
export items and their contribution to the country’s total exchange earnings----------20
Table 5: the contribution of coffee tax and other export taxes for total government
revenue from 1991/92-2007/08---------------------------------------------------------------21
Table 6: share of total exchange earnings in total foreign exchange earnings-----------23
Table 7: Coffee trade license issuance and renewal------------------------------------------25
Table 8: share of coffee exchange earnings from coffee in total foreign exchange------26
Table 9: coffee arrivals to the terminal market------------------------------------------------27
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LIST OF ACRONOMY
CBD---coffee berry disease
FAO---food and agricultural organization
GDP---gross domestic product
Ha-----hectare
Hg-----hectogram
ICO---international coffee organization
MT---metric tone
Org—organization
Sep.—September
SHB---strictly hard bean
VICOFA—Vietnam coffee and cocoa association
Vol. ------volume
WTO-----world trade organization
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CHAPTER ONE
1. INTRODUCTION
1.1 Background of the study
Ethiopia is predominately an agricultural country among the product produced
by the country and marketed both domestically and internationally. Ethiopia is known
for its coffee in the world community. Coffee Arabia, which is originated in Ethiopia,
has been growth in Ethiopia for long periods than any coffee has growth in other
countries. Ethiopian coffee can compute with the best coffee produced in other
countries of the world.
All Ethiopian coffee is of the higher quality Arabian species and is usually referred to
by the area it comes from such as Harar, kaffa, Ghimbi, Gore, Mattu, etc. it is identified
by its long berry, good flavor, Medium acidity and rich body. It is blue, green in color
and is available in wash and unwashed coffee in Ethiopia grow in slightly acidic soil
PH 4.5-5.5 and with annual rain fall of 60-90 inches and is growth on high land areas
ranging between 4000-7000 feet above sea level. One can select from the following
kind Ethiopian coffee to suit one’s preference Jimma hand picked, Ghimbi hand picked,
Harar long berry hand picked Ethiopian washed Macca are examples of the more
expensive types while Jimma hand picked is the chipper type.
Due to the variety’s inherent quality, however, all have unique high land flavor
and excellent arma. Macca coffee is its synonymous name. These characteristics of the
fine coffee give the Ethiopian coffee potentially high value in the most discriminating
market in the world. According to Oxfam international it is not a surprise, and then the
coffee is the most important commercial crop in the national economy of Ethiopia,
contributing more than 65% of the foreign exchange earning. Thus, beside an important
export commodity coffee plays a vital role in the socio economic life of the country.
The Ethiopian economy not only depends on a few export items but also relies
heavily on a few markets. Recent researcher works on coffee production and export
show that occasional disaster as such as flood and droughts impede coffee production.
The poor performance of coffee sub sector, apart from the effects of drought and war,
was related to the over valuation of the domestic currency and state controlled
marketing arrangement, which resulted in low producer price. In some areas, example
Hararghe and Sidamo (a stimulant crop) replaced coffee production as the farmer
fetched substantially higher price than coffee. The financial return from maize
production were higher than coffee in many cases. (World book, 1987)
The decline in coffee price both in the world and domestic markets had
repercussions on other sector of the country. Although the fall in market value of coffee
is not a national catastrophe, the fluctuation of price affects heavily the farmers and
merchant firms engaged in coffee trade and transport.
1
According to coffee and tea authority about 25% of Ethiopian population earns
its living directly or indirectly from coffee. Even from the point of rural employment,
one can be safely estimated that above 15% of the agricultural population is engaged in
varies aspect of coffee industry. Such as grower, picker, brokers, truck owners, cleaners
and graders as will as exporters all are affected by changes in the volume of coffee
coming to the market.
1.2 STATEMENTS OF THE PROBLEM

Like that of the other developing countries, Ethiopia’s export depends heavily
on few agricultural products like coffee, hides, skins oil seeds and pulses, which
together form approximately 85% of the total export in terms of value.
According to the World Bank report of 2000, out of these coffee accounts is
60% of the foreign exchange. Heavy dependency on coffee export would continue in
the future till the economy succeeds in diversifying its export structure.
Despite the importance of the coffee industry, the methods of production,
harvesting and marketing the products are generally at a low level. Given the following
international price of coffee, those certainly threaten the foreign exchange generating
potential of the coffee plantation industry. In addition to these coffee plantation is
traditional agriculture, so is it contributes to the existing poor quality of products.
Forest coffee is the major source of the national production and the farmers provide a
minimum effort of tree maintenance. More over, proper care is not exercising in
harvesting, drying, transporting and processing, which cause further deterioration in the
quality of coffee.
There are many factors to the low level of coffee productivity. First, shortage of
capital is the main obstacle public and private investors in the sub sector. Secondly,
significant domestic consumption (traditional attitude of attitude of the society) also
contributes to the low level of coffee productivity. Unfortunately about 35% of the total
production is consumed with in the producing areas. Thirdly, lack of skilled man power
also contributes to the low productivity of the products is very low. The coffee industry
can not succeed if it is a abandoned to the haphazard management of an untrained
peasantry or to the low-paid laborers. Fourthly, in adequacy of infrastructure facilities
also adversely affects the productivity of the coffee sub sector. Inadequacy in transport,
processing, storage, quality control, lack of credit facilities affect the quantity and
quality of coffee as well as the capacity to export. Fifthly, poor state of farm technology
is another importance factor that made the performance of coffee below expectations.
The technology of Ethiopian agriculture is predominantly traditionally. Agricultural
sector tools coffee cultivation are simple and rudimentary. The use of modern inputs
such as chemical fertilizers, improved seeds and modern farms implements has been
“SMALL DEEDS DONE ARE BETTER THAN GREATER DEEDS PLANNED.” Page 2
very limited. Sixthly, illegal export also contributes export also contribute to the low
performance of coffee sub sector. A good part of the commodity finds its may to the
neighboring countries illegal. This reduced the coffee arrivals at the terminal market.
Seventhly, coffee disease and national disasters contributes to the reduction in the
productivity of the product. Coffee berry disease (CBD), which has been damaging the
Ethiopian coffee since 1971 and occasional disaster affect coffee production. Planting
disease resistant varieties is started, but the varieties have not reached to all coffee
producer areas. Lastly, there is the existent of research gap on coffee production and
marketing in Ethiopia.
However, an attempt has been made so far to show the impact of the economic
liberalization measures on investment in the technology of production and marketing as
will as the resulting improvement in the income of the population at various stages.
There fore, it is very interesting and important to conduct a study on this hot issue of
the coffee sub sector.
1.2.1 RESEARCH QUSTION

The study addressed the following question specifically
1) What is the level and trend of coffee production in Ethiopia?
2) Is there any role that coffee plays in the economy of the country?
3) Is there any problem that hinders or affects the production and marketing of
coffee in Ethiopia?
4) What is the impact of economic liberalization measures on the performance of
coffee sub sector?
5) What should be done to enhance coffee production and make coffee marketing
favorable?
1.3 OBJECTIVE OF THE STUDY
1.3.1 General objective
The main objective of the study is to understand the problems and prospects of coffee
production and marketing in the country.
1.3.2 Specific objectives
Also, the study has the following specific objectives;-
 To analyze the level and trend of coffee production in Ethiopia.
 To assess the role of coffee in the economy.
 To identify and examine the major problems in the production and marketing of
coffee.
 To review the impact of the economic liberalization majors on the performance

of coffee sub sector.
 To sagest policy recommendation
1.4 HYPOTHESIS OF THE STUDY

1) The contribution of coffee in the economy of Ethiopia is very high.
2) Coffee comprises the largest share of export in the country.
3) Ethiopian’s coffee share in the world market is very large and increases year to
year.
4) The liberalization of the domestic an export trade is important to growth of
coffee production.
1.5 SIGNIFICANCE OF THE STUDY

The necessity of concentration on the subject coffee production export arose from
the fact that it accounts for large proportion of its export earning and has a high
domestic effort on employment, government revenue and economic growth of the
country. The results of the study are expected to lead to a better understanding of the
problems and prospects of coffee production and marketing in the country. Moreover,
the study may serve as a base for further study in the area.
1.6 SCOPE AND LIMITATION OF THE STUDY

1.6.1 LIMITATION OF THE STUDY
As any research paper, in this paper there is many limitations has faced, those
are time consternate, capital consternate, constraints of useful materials like paper,
unavailability of computers to write and print the paper. Also, the scarcity of data
collecting materials or shortage of enough referece is the main constraints of the paper.
1.6.2 SCOPE OF THE STUDY
The study mainly concern or focuses on the data of coffee production, coffee
export and its contribution to the economy. Now days the areas and participants in
production, processing and marketing of the coffee product have increased. There for
detailed study we have to assess all these areas and participants.
1.7 METHODOLGY OF THE STUDY
1.7.1 Data source and type
In order to verify and diversify the objective of the study the data source will be
Secondary data. This will involves compressive survey of the literature on the issue of
coffee production, harvesting, processing, marketing and Significance support for the
economy in the right of the experience of some coffee supplying Countries to the world
market. The second task involves review documents, collected data, and reports,
published and unpublished materials.
1.7.2 Data analysis
The researcher mainly depends on qualitative and descriptive methods in which the
emphasis is on a better understanding of ideas, practices, structures and the contexts
with in which these exist through a consideration documents and literature.
CHAPTER TWO
2. LITERATURE REVIEW
2.1 THEORITICAL REVIEW
Coffee growing and drinking spread around the world, starting in the horn of
Africa in Ethiopia, where the coffee tree probably originated in the province of Kaffa,
the succulent outer cherry flesh was eaten by slaves taken from present day Sudan in to
Yemen and Arabia, through the great part of its day, Mocha, how synonymous with
coffee. Coffee was certainly being cultivated in Yemen by the 15th centaur. The Dutch
obtained some live coffee trees grown in green houses. In Asia, the Dutch were also
growing coffee at Malabar in India, and in 1699 took some to present day Indonesia,
which is now the fourth largest exporter of coffee in the world. (Mayne, Abera, etal
2002)
In Europe, Venetian traders first introduced coffee in 1615, opening the coffee
house in 1683, with the most famous, coffee Florien in piazza san Marco, opening in
1720. It is still open for business today. The largest insurance market in the word,
Lloyd’s of London, began life as a coffee house started in 1688 by Edward Lloyd.
(Ibid)
In America, the first reference to coffee being consumed in North America is
from 1668 and, soon after, coffee houses were established in New York, Philadelphia,
Boston and other towns. The Boston tea party of 1773 and actual planned in a coffee
house, the green Dragon. (Ibid)
It was the Dutch again who first started the spread of the coffee plant in the
central and South America was on track towards their coffee destiny. (Ibid)
Coffee is a major importance in the world economy and is one of the most
valuable primary products in world trades. Its cultivation, processing, transportation
and marketing provide employment for millions of people world wide; this new found
coffee culture has spread to the rest of the world. (Mayne, Abera. Et.2001)
Coffee belongs to the botanicals family Rubiaceae, which has some 500 genera
and over 6000 species. There are at least 25 major species of coffee, all indigenous to
tropical Africa and certain islands in the India Ocean, notably Madagascar all species of
coffee are woody, but they range from small shrubs to large trees over 10 meters tall;
the leaves can be yellowish, dark green, bronze or tinged with purpose. (California and
Wilson 1985)
The two most important economic species of coffee are coffee Arabian (Arabian
coffee), which accounts for over 70 % of world production and coffee Canephor
(Robusta coffee). Two other species growth on a smaller sale is coffee Liberia (Liberia
coffee) and coffee Deulerri (Excelsa coffee)
Coffee is a tropical plant that grows between the latitude of 250s but requires
very specific environmental conditions for commercial cultivation. Temperature, rain
fall, sun light, wind and soil are all important but requirements very according to the
verities growth. (Ibid)
Ideal average temperature range between 15-24% 0c for Arabian coffee and 24-
30% 0c Robusta at altitudes up to around 2000 m. in general, coffee heed an annual rain
fall of 1500 to 3000 mm, with Arabica needing less than other species. The pattern of
rainy and dry periods is important for growth, budding and following. (Ibid)
Where as Robusta coffee can be grow between sea level and about 800 meters,
Arabic dose best at higher altitudes but less than 2000 meters because of first damage
Arabica can be grown at lower levels further from the equator, until limited by frost.
All coffee needs good drainage, but can be grown soil of different depth, PH and
mineral content, given suitable applications of fertilizer. (Ibid)
2.1.2. COFFEE PRODUCTION AND PROCESSING
The various physical characteristics of coffee such as weight, volume, size,
shape, color, solubility, moisture content and texture in its different forms, play an
important part in the way it is treated and in the design of equipment to process it.
Coffee cherries are harvested when the red color indicates that the appropriate maturity
has been reached, (Ibid)
Ripe fruit can be plucked by hand or picked with small rakes or with poles. The
first two systems are used where low cost labor is available and are more selective. The
pole system is quicker, but less careful and needs further berry cleaning. Most coffee,
how ever, is picked involves the pickers making several passes a loge a coffee the
coffee trees at interval of about 10 days to ensure the only the fully rips beans are taken.
Strip picking means the entire crop is picked in just one pass. Selecting picking is more
expensive but produce the best result and used for Arabica beans. On the average coffee
farm pickers may gather between 50 and 100 kilos of coffee cherries per day of this
total weight only 20% is coffee bean. (Ibid)
Coffee processing must begin immediately after the fruit is harvesting to
prevent the pulp from fermenting and deteriorating. Coffee bean can be prepared for
roasting in one of two ways- the dry method or the wet method removes the pulp from
the bean with in 12- 24 hours of harvesting instead of allowing the cherries of air dry.
(Ibid)
The dry method is the oldest, simplest and cheapest producing natural coffees
and adoptee mostly in Brazil and western Africa. The harvested cherries are soled and
cleaned to separate the unripe, over spend damaged cherries and to remove dirt, soil,
twigs and leaves. This is done by hand winnowing, using a large sieve. unmated
cherries or other materials not winnowed away are picked out from the top of the sieve.
The ripe cherries can also be separated by flotation in washing channels close to the
drying areas. (Ibid)
The darting operation is the most important stages of the process, since it affects
the final quality of the green coffee. Coffee that has been over dried will become brittle
and product too many broken beans during hulling (bracken beans are considered to be
detecting beans). Coffee has not been dried sufficiently will be too most and prone to
rapid determination caused by fungi and bacteria. (Ibid)
The wet method produces so called washed or mild coffees and is adopted in
Central America, Mexico, Colombia, Kenya, Tanzania, and parts of Asia. This involves
more capital outlay, more water and more care than dry method but it dose help to
reserves the intrinsic qualities of the bean, 117 a green coffee, which is homogenous
with few defective beans. The coffee produced by this method is regarded as being
better quality thus commanding higher price. (Ibid)
World coffee production is projected to grow by 0.5% annually from 1998-
2000to 2010, compared to 1.9 %of the previous decade. Global out put is expected
reach 7.0 tones (117) by 2010 compared to 6.7 million tones (111 million bags) in
1998-2000. (WWW.foa.org)
In Africa, coffee production is expected to increase by 1.5 percent annually
from the period 2010 mostly reflecting increasing in yield rather than an expansion in
area. Out put is anticipated to increase from 961,000 (16 million bags) in 1998- 2000 to
1.1 million tones (19 million bags) by the year 2010. Production in Ethiopia, the
largest Arabica coffee production country in Africa, is expected expand by 1.6 percent
annually to reach 207,000 tones (3 million bags) by 2010. Kenya, the Africa producer
of Colombian mills, is projected to expand out put by 1.1 % of annually during the
projection period to arrive at 88,000 tones (1.5 million bags). (Ibid)
2.1.2. COFFEE MARKETING

The world coffee market, after experiencing a period of strong price from 1994
through 1999 that spurred expansion in production, has entered a period of extremely
week price near 50 cent a pound in mined 2001. The lowest since the early 1970s the
low price reflects a surge in production, led by expansion in Brail and Vietnam that out
paced demand growth. (Ibid)
With coffee demand growing but highly price in elastic, the prospect of several
years of week price is a major concern for producer in Latin America, Africa and Asia.
Importer shares the concern, fearing price significant volumes of higher quality coffee
that consumers are demanding. (Ibid)
The principal coffee markets are the New York and London commodity
exchanges, which trade Arabica and Robusta respectively. Naturally the price of coffee
varies in relation to supply and demand. It is influenced not only by atmospheric factors
(freezing temperature, for example) and changes in the political order. Between five
and six million tones of un roasted of green coffee are produced each year. More than
one third of the world coffee is shipped to the USA, followed by Germany. The top
export grand of been is SHB (strictly hard been) or strictly high grown, which means
that the coffee beans are produced at a minimum attitude of 4000 feet above sea level.
(Ibid)
In 2010, a global coffee net export is projected to reach 5.5 million tones (92
million bags). Latin America and the Caribbean with an export of 2.9 million (48
million bags) is expected to continue to be the leading exporting regions, although there
will be decline in the net exports of 0.5% annually. For example, loge term prospect for
Brazilian, production is expected to be approximately 45 million bags with export
hitting 28 million bags and accounting for a largest percentage of global coffee trade.
(Ibid)
By contrast, in Africa there will be a net export increase at a rate of 1.6 percent
annually, reaching 1.0 million tones (17 million bags) and accounting for an 18 percent
share of global exports. In Asia, export availabilities are expected to grow to 1.5 million
tones (24 million bags) in 2010, accounting for 27 percent of world coffee export.
Export availabilities from Oceania are estimated to increase by 7.3 percent, reaching
150,000 tones (2.5 million bags) about 3 percent of global availabilities. (Ibid)
2.2 EMPERICAL LITERATURES

Coffee is very political crop. It is the most important or legal treaded
commodity after oil in the world and is the primary export of mainly developing
countries, Accenting for as much as one third of export earnings is several Latina
America and African countries. It is also significant source of employment, with more
than 125 millions people. Most of them small farmers dependent on income from the
world coffee crop. (Word bank 2000)
Dependency is practically high in some African countries. In Burundi the level
hoods of roughly one quarter of the population are in some way dependent on coffee
sale. In Ethiopia, coffee accounts for over 50 percents of export revenues while in
Uganda the figure is 43 percent. The share of dependency on coffee in Rwanda and
Honduras is almost 31 percent and 24 percent respectively. (Ibid)
Only the types of coffee are currently of real economic importance. Coffee
Arabica referred to in tread as Arabusate and accounting for 60-70 percent of world
production while coffee canephor or coffee Robusta called Robusta in tread and making
up 30-40 percents of world production. (UNCTAD /WTO, 2002)
More than two third of current world coffee production is exported from Latin
America and the Caribbean, with much of the rest coming from Asia and African
producers such as Cameron, Coted’Ivoire, Indonesia, Papua New Guinea and Ethiopia.
(Ibid)
At present Robusta coffee accounts for more than 90% of total the coffee area in
Vietnam with more than 80% of the area and production being Owen by private
farmers. There are approximately 500,000 household’s involved in this coffee land
owner’s ship with areas ranging from 0.5 to 3 ha. (Doan Trieu, 1999)
Although spectaculars achievements have made in terms of yield, total
production and export value, the Vietnam coffee industries is facing many negative
efforts, which are causing great concern for it sustainability, the environment, producer
and government. The collect highly intensive cultivation practical and quasi-mono
cropping of vast coffee areas crated mange potential risks (IBID)
Coffee bean quality affects the status of every step in the production system
from planting to obtaining the final products for exports. The vital challenges for
Vietnam is to produce high quality coffee to ensure the competitiveness and the
sustainability of the Vietnam coffee industry. This latter issue is raised frequently and
consistently by coffee authority both with in and out side Vietnam. In recent years
negative effect on coffee quality have been caused by very fast development; a system
of high intensive cultivation measures; making use of availably favorable natural and
labor potentials in most of regional to obtain extremely high yields and huge
production; lack of proportional processing facilities, transport ; and incentives based
purchasing operation (IBID)
It should be noted here that the trend in recent years of the rainy season
extending into the harvest period has made efforts for coffee quality improvement more
difficult. More than 80% of coffee volume produced by small growers with insufficient
drying facilities and multi form processing has been the main factor leading to non
uniform quality and deterioration. Most of the industrial processing and plants operated
by large coffee companies with strictly controlled harvesting curing and grading have
gilded high coffee bean quality regarding less of whether wet or dry processing is used.
Such coffee and its reliability have gained the favor of buyers, which is justified by
higher prices and favorably trading contracts. There is a limited capacity use locally
made, small development/dehiscing and drying machines, which cause a high rate of
broken beans and off flavors. Other defects such as black beans, moldy beans excess
moisture beans have been found in high numbers at sun based drying places with bad
whether conditions. Although careful sorting at later stages can remove a large
proportion of defectives beans, growers suffer considerably from reduced value and
low prices at from gate resulting in a low ‘freight on board price’. (IBID)
With the current low coffee prices competitive advantage from a cheaper selling
prices because of low labor costs and high coffee yields, is of no advantages unless
high and stable coffee quality is maintained. Coffee authorities are deeply conscious of
these problems and the quality situation must be addressed in near future. (IBID)
While robust coffee development has been an out standing achievement that of
Arabica is still at an early stage with the current total area of around 22,000 hectares of
young plantation and annual production below 10,000mt.
Also the Arabian planting program is amid at solving the socio economic problem in
Northern and North central coast mountain provinces, while linking with program to
grow 5 million hectares of forest through out the country to protect the environment
and conserve natural resource. (Ibid)
Although the Arabica coffee expansion program is much encourage and
strongly supported by the government, a number of challenges in the implementing
process need further attention and consideration to be over come. Even though
temperature and rain fall distribution in the northern region is favorable for Arabica
growth, high yield, good testy and Aroma frost occurs at times on the North West
aspects and will kill newly established trees and suviourly damage order ones. Options
are to replace coffee with other crops or re-establish the shade cover before inducing
coffee. Further more in fertile soil in steeper slopes need proper practice to prevent soil
erosion, increase organic mater and maintain the soil fertility. Complicated
topographical distribution also a factor in planning, production cost calculation,
growing and organization network weeded with in coffee sector in each maintenance
areas. Also proper cultural practice must be adopted to insure success. The infra
structure and availability of inputs in remote mountain areas are still for from standards
required for the production of personal industrial crops and especially for coffee. An
inclusion of coffee in to the cropping system needs huge capital investment, proper
technology and training for needy and little educated minority farmers. Capital resource
have been mobilized especially for the Arabica coffee program, as will as other large
development programs for maintain areas, but the credit access for farmers and the
institutional infra structure needs further improvement. It is evident that in Northern
mountainous with less leaf rust problem some traditional high quality Arabica
cultivator should be reassessed along with and new will-known cultivator introduction.
It take time create a new variety or adopt an exotic variety, so diversification of Arabica
cultivation is an urgent issue for the future. It is also evident that the weakness of
Arabica quality can be attributed to the lack of proper processing methods and
facilitates. (Ibid)
Beyond doubt, the development of coffee production in Vietnam has been
successful. The success is attributing to in generated factors relating to favorable
growing conditions, suitable and incentive development policies, effective institutional
infrastructure capable and active human resource, intensive farming practices and
market opportunities. However, for more sustainable coffee industry development and
wining market favors there are many challenges still ahead. The Vietnam national
coffee incorporation and Vietnam coffee and cocoa association (VICOFA) has already
been launched to provide along term strategy for improving quality ways of reducing
production cost diversification of crop and coffee products theme selves; promotion of
technology transfer through extension service; and renovation of the domestic trading
and the credit system. Technically, special focus must be placed on average and small
scale farms with minimum investment and environmental problems, and the
establishment of sustainable agro-system, based mainly on making use of organic
resource from share trees, cover crop, green manners, plant residues, animal waste,
coffee husk and pulp, bio-organic fertilizers various other organic sub laments. (Ibid)
Costa Rica is known as known for its high quality Arabic coffee and natural
enjoys positive quality differentials on top of the New York “C” further price.
Historically, coffee in Costa Rica has been very important, both interims of GDP and
the wider development of the country. Was the sole export between 1840 and 1890 and
founded every thing from school to roads since the Costa Rican declaration of
independence in 1848. In the 1848s and first half of the 1990s, coffee accumulated for
an average of 20% of exports and five percent of GDP. (The World Bank September
2006)
Since the early 1980s, Costa Rica has among the highest yield in the world due
to the use of a “technological package” including dwarf trees and intensive use
agrochemicals. It also, however has the highest cost of production in central America,
Ohling in part to its highly technical source of productivity and partly to high cost of
labor in socially protective Costa Rica. The capital intensive primary processing mills
that further contributes to the consistency in quality of Costa Rican coffee. (Ibid)
In addition to the technological and financial factors that may potentially limit
competition in the market or coffee cherries, the geography and infrastructure of the
country also play role. Some 44 % of the national coffee growing areas are in the
handle of small holder. Farmers 92% of producer that has farms under five hectors in
size whilst the two percent that has farms of more than 20 hectares account for 35% of
the coffee growing area. The large farms are at most all located in an around the central
valley, leaving the more remote region of the country’s coffee growing to small
holders. This is potentially problematic due to the limited access to transportation
available to these regions.
To day Brazil is responsible for about a third of all coffee production, making it
by for the heavy champion of the coffee producing world. Much of the specialty from is
known by the name of the port through which it is shipped, Santos. Bourbon Santos and
Brazil cerrado are widely used as a base for quality espresso blends Brazilian coffee.
Colombia typically produces about one tenth, or more of the world’s coffee. Colombia
how ranks third after Vietnam and Brazil in production of coffee beans. Colombia
coffee is processed using the wet method. Notable beans; modeling, supreme, Bogotá.
(www.coffeeterms.com)
Coffee come to Mexico from Antilles at the end of the 18th century, but was not
exporting in greater quantitative until the 1870s. To day approximately 100,000 small
farms generate most Mexican coffee, and most of the beans come from the south.
Mexico is the largest source of U.S coffee imports. Notable beans; Alturas, liquidambar
Ms, pnma coixtepec (IBID)
The national home of the Arabica tree and the setting for most of coffee origins
legends. Ethiopia is Africa’s top Arabica exporter and leads the continent in domestic
consumption. A bout 12 million Ethiopian make their living from coffee, whose name
is said to be a derivation of kaffa the name of an Ethiopian province. Notable beans of
Harar, Sidamo, and Yirgacheffee.(IBID)
Cost Rica has excellent coffee growing condition and certainly produces some
of the best coffees in the world. High grown coffee from the mountains of Costa Rica is
typical bright, crisp and cleans with good body and a fruity acidity. Notable coffee
growing regional include Tarrazu Tresrios, Heredia and Alajuela (Ibid)
Some of the world’s finest specialty coffee is produced in the central high lands
of Guatemala. The most fames regional marketing the most names for Guatemala
coffee sore: Antigue, Loban, Huetenango, High quality Guatemala coffees are produced
using the wet-process method and typically have spay or chocolate acidity medium
body. Guatemala coffee is often marketing by grade, with the highest grade being
strictly hard beans (SHB), which indicates coffee growing at 4500 feet or above. These
designations reflect the fact that coffee beans grown at higher elevations tend to be
denser and harder that coffee beans grown at lower elevations. (Ibid)
While a relatively small contributor to the world coffee market, Rwanda coffee
is big business for its nearly 500,000 coffee grower family. Rwanda a producer some
excellent coffees with qualities commonly found in other east African nations such as,
Kenya and Zimbabwe. Coffee in Rwanda is generally processed by the wet methods.
(Ibid)
Coffee originated in Ethiopia and was cultivated and prospected commercially
in neighboring Yemen over a thousand years ago. Arabian Mocha, grown in the
Northern Mountains of Yemen, is one of the oldest and the most traditional coffees in
the world. It is also me of the finest. Yemen mocha has been cultivated and processed
in the same way for centuries, growing on mountain terraces and dried by the sun. No
chemicals are use in Yemen coffee production, and it is not doubt organic. Two famous
market names for this coffee are Mattari and Sanani. (Ibid)
CHAPTER THREE
3. DATA ANALYSIS AND DISCUSSION
3.1 THE LEVEL OF COFFEE PRODUCTION IN ETHIOPIA
Ethiopia is the largest producer of Arabica coffee in Africa and is widely thought to be
its original home. The coffee of Ethiopia is usually identified with the place of its origin
in the country such as Sidamo, Kaffa, Wollega, Illubabor and Hrarghe.The soil in the
area is slightly acidic with PH between 4.5 and 5.5.Rain fall is heavy some where
between 1500 to 2500 millimeter (60 to 90 inches).(Kassahun Bantie (PHD) (Revised
2001))
We can see the over view of the coffee sector in three distinct periods (i.e. during
imperial government, military government (Derg) and the current government).During
the imperial government the marketing structure of coffee was market based.
Government intervention was limited to some regulation and quality control. The
military government also aimed to take over coffee markets at all level s. The
socialization of production was stated with producer cooperatives being setup, even
though more than 90% of coffee production continued to come from private small
holders. Some commercial farms used to exist, but they were nationalized in the mid
1970s. During Derg regime, the coffee farms that were about 10000 hectares in size
were nationalized and organized as coffee state farms. This means private traders were
condoned and they could not freely sell coffee in domestic markets .After the fall of
Derg regime, coffee marketing has been liberalized .Due to liberalization and
investment incentives under taken by the current government, some private investors
have shown interest to invest in coffee production. But the share of investors in the total
production of the sector is insignificant. The only reliable data that can be used a proxy
for annual production level is the coffee arrivals at the terminal market (Addis Ababa
and Dire Dawa). This does not include some percent of consumption at the farm and
some volume of coffee in the illegal market.
The supply tread of coffee produced to action centers from 1978/79_2007/08 are shown
two separate tables in order to compare the performance of two regimes (i.e. the current
and Derg regime).
Table 1: coffee arrival at the terminal market from 1978/79_2007/08(until the fall of
Derg)
Year Coffee arrivals for Growth rate (%)

inspection
(metric tone)
1978/79 102692 _
1979/80 96429 (6.5)
1980/81 89006 (8.3)
1981/82 91766 3.0
1982/83 112140 18.2
1983/84 96988 (15.6)
1984/85 64349 (51)
1985/86 87435 4
1986/87 88765 1.5
1987/88 82095 (8.1)
1988/89 115502 29
1989/90 88407 (3.4)
1990/91 76258 (16)
Average 91679 (4.6)
Source: National bank of Ethiopia, quarterly bulletin, vol. 23, number 2, 2007/08
From the above table the annual growth rate of coffee in the country is 4.6%. During
the period, the supply of coffee to the world market has revealed a significant
fluctuation. The reasons were that most commercialized farm lands were nationalized
and under the command economy private investment to this sector were discouraged.
Drought was also another serious problem on the supply of coffee. For example, the
drought of 1984/85 in the whole country has influenced the total annual growth rate
(negative 51%).
Table2: coffee arrival at the terminal market from 1991/92_2007/08(from the fall of
Derg up to 2007/08)
Year Coffee arrival for Growth rate ( % )

inspection
(metric tone)
1991/92 60257 _
1992/93 95656 37
1993/94 123046 22.3
1994/95 96884 (27)
1995/96 150339 35.6
1996/97 158628 5.2
1997/98 153651 (3.2)
1998/99 147520 14.2
1999/00 171242 13.9
2000/01 128597 (33.1)

2001/02 180537 28.7
2002/03 197033 84
2003/04 199009 1.0
2004/05 226971 12.3
2005/06 202657 (11.9)
2006/07 236712 14.4
2007/08 229935 (2.9)
Average 162274 5.9
Source: National bank of Ethiopia, quarterly bulletin, vol 23 number 2, 2007/08
From this table, we found that the average growth rate during the period is 5.6%. From
1989/90_1991/92 coffee growing years, the supply of coffee has showed a declining
trend .This was because of various civil wars against the central government. But from
1992/93 on wards the supply of coffee to the terminal has showed a positive trend. This
attributed to higher prices for the product and increase in the participation of private
investors in the coffee production due to investment incentives under taken by the
current government. More over, the current government attempt to replace traditional
agricultural practices of the country by introducing modern in puts also holds a
significant place in the increasing the productivity . The two most commonly used in
puts to increase the productivity are fertilizer and improved seed.
Table 3: coffee production, area harvested, and yield in the country (from 1961-1998
G.C).
Period Coffee green Area Production Yield (hg/ha)

year harvested (Ha) (metric tones)
1961 406000 127400 3138
1962 591000 132700 2245
Imperial government
1963 597000 139100 2330

1964 603000 170400 2826
1965 606000 140000 2310
1966 606000 140000 2310
1967 608000 155000 2549
1968 611500 160000 2617
1969 615000 165000 2683

1970 618500 170000 2749
1971 622000 182200 2929
1972 580000 163500 2819
1973 580000 180080 3105
Average 588000 155798.46 2662.3
1974 500000 153400 3068
1975 500000 171000 3420
1976 500000 178600 3572
1977 500000 191400 3828
1978 500000 190000 3800
1979 475000 188000 3958
1980 450000 187200 4160
1981 450000 202000 4489
1982 450000 202000 4489
1983 372177 157824 4241
1984 321048 145306 4526
1985 320000 155200 4850
1986 320000 186000 5812
1987 320000 186000 5812
1988 320000 190000 5938
Derg period
1989 320000 200000 6250

1990 290000 204000 7034
Average 387542.65 181642.94 4661.6
1991 290000 210000 7241
1992 295000 216000 7322
1993 295000 180000 6102
Current government
1994 295000 207000 7017

1995 295000 229980 7796
1996 295000 229980 7796
1997 295000 228000 7729
1998 295000 204000 6915
Average 194373 213120 7239.75
Source: FAO, STAT, 1998
From the above table, we can understand that the imperial period the area harvested is
very large which is averagely 588000 and increasing, the production is also increasing
by low level and the average production is 155798.46, but the yield from coffee is
fluctuated year to year. This fluctuation almost implies decreasing in yield. On the other
hand, at the period of Derg from 1974-1990, the area harvested is decreasing by 3-5
years, the production is increased from 1974-1982 but from 1983-1990 there is
fluctuation in production level, but the fluctuation implies increasing. And the yield is
increasing compared to the imperial period. And at the current government from 1991-
1998 the area harvested is almost constant and low compared to the two regimes.
Production level fluctuates and the yield or earning per hectare almost increasing and
the average yield is high which is 7239.75 hg/ha.
3.2. THE ROLE OF COFFEE IN THE ETHIOPIAN ECONOMY
Coffee is the most important agricultural commodity in the world. According to
international trade center report of 2002, for many countries coffee export is not only a
vital contribution for foreign exchange earning but also account for a significant
proportion of tax income and GDP.
The agricultural based Ethiopian economy is highly dependent on coffee Arabica. Thus,
as well as being an important export, coffee plays a vital role in both cultural and socio-
economic life of the country. Let’s look in to the major contribution of coffee to the
Ethiopian economy starting with the foreign exchange contribution.
3.2.1. Foreign exchange contribution
As predominantly an agricultural country, Ethiopia’s foreign exchange revenue
currently comes mainly from the export of coffee, hides and skins, oilseeds and
livestock. But it is not surprise then, that coffee is the most important commercial crop
in the national economy of Ethiopia, because it contributing to more than 60% of
foreign exchange earning. No other product or service in Ethiopia has earned as much.
Table 4: compares the extent of foreign exchange earning from coffee and other export
items and their contribution to the country total foreign exchange earnings
year Total Coffee Oilseed Chat Share of Share of Share of

export export export export coffee oil seed chat in
earning earning earning earning in total in total total
(000$) (000$) (000$) (000$) (%) (%) (%)
1987/88 773642 439281 22015 21323 56.8 2.8 2.7
1988/89 902753 626448 11029 7906 69.4 1.2 0.8
1989/90 736806 405103 8387 21024 55.0 1.1 2.8
1990/91 542485 268451 3633 20422 49.5 0.6 3.7

1991/92 279026 168324 383 5073 60.3 0.1 1.8
1992/93 800814 536982 1189 65727 67 0.1 8.2
1993/94 1238729 718019 44187 107952 58 3.5 8.7
1994/95 2732046 1799034 50130 172339 65.8 1.8 6.3
1995/96 2539056 1729008 41938 174444 67.9 1.6 6.8
1996/97 3485625 2307494 74239 199533 66.2 2.1 5.7
1997/98 4141582 2889531 314660 2712355 69.8 7.6 6.5
1998/99 3637260 2112713 271462 444988 58.1 7.4 12.2
1999/00 3957802 2133646 255329 618772 53.9 6.4 15.6
2000/01 3679832 1453254 269599 510506 39.5 7.3 13.8
2001/02 3465311 1346589 278739 418674 38.9 8 12
2002/03 4142356 1418324 395565 497866 34.2 9.5 12
2003/04 5176644 1926679 712738 758878 37.2 13.7 14.6
2004/05 7331258 2901327 1082215 866803 39.6 14.7 11.8
2005/06 8685376 3076494 1835270 773235 35.4 21.1 9.0
2006/07 10475615 3741745 1654707 816802 35.8 15.8 7.8
2007/08 13631495 4897344 2037090 1000785 35.9 15 7.3
Source: national bank of Ethiopia, quarterly bulletin, vol 23 no 2, 2007/08
From the above table, we will drive the following points:

 Because of civil war, total export earning from 1989-1991 has declined. For
example, export earning has declined from 736806 in 1989/90 to 542485 in
1990/91. During this period also, the share of coffee and oilseeds in total
earnings has declined. For instance, the share of coffee has declined from 55%
in 1989/90 to 49.5% in 1990/91.
 Foreign exchange earning from coffee export in 1997/98 increased over that of
the presiding year due to favorable prices in the world market. Its contribution
during that year to total foreign exchange earning was 69.8% being greater than
the preceding year by about 3.6%.
 The share of coffee in total earning from 1997/98-2002/03 has showed a
tendency of decline. This could be because of the decline of average
international coffee price. On the contrary, the share of coffee in total earning in
recent years was showing a tendency of rise. This is attributed to higher for the
country’s export items such as coffee and oilseeds and thus they are expected to
about export earning.
3.2.2. Contribution to public revenue (government revenue)
It is already indicated that coffee is the most important agricultural product which
yields the highest share of export earning and which contribute to government revenue.
As shown under table 5 below, the government collects three types of tax on coffee
export known as coffee duties, coffee sur tax and coffee excise.
Table 5: the contribution of coffee taxes and other export items taxes for total
government revenue from 1991/92 to 2007/08
year Total Export Coffee Coffee Coffee Total Custom % share %

revenue tax duties sur excise tax on duties of coffee share
(000$) total (000$) tax(000$) tax coffee (000$) tax from of
(000$) (000$) (000$) total other
revenue items
1991/92 2280 - 2.2 1.4 1.9 5.5 - - -
1992/93 3191.3 - 6.3 2.7 3.1 5.8 - - -
1993/94 3938.9 46.6 13.0 17.5 7.3 37.8 8.8 1.0 0.2
1994/95 5912.9 201.4 11.5 171.4 7.2 190.1 11.3 3.2 0.19
1995/96 6966.2 119.5 14.2 74.8 9.7 98.7 20.8 1.4 0.29
1996/97 7877.5 138.5 17.9 72.3 9.0 99.2 19.3 1.3 0.49
1997/98 8400.2 181.2 21.0 110.2 5.3 136.5 44.8 1.6 0.53
1998/99 9453.2 155.3 - - - - 155.3 - 1.67
1999/00 10147.9 148.2 148.2 - - 148.2 0.0 1.4 -
2000/01 10177.0 930 93.0 - - 93.0 0.0 0.9 -
2001/02 10410.0 28.0 28.0 - - 28.0 0.0 0.2 -
2002/03 11150.0 1.0 1.0 - - 1.0 0.0 0.008 -
2003/04 13917.0 0.0 - - - - 0.0 - -
2004/05 15476.0 0.0 - - - - 0.0 - -
2005/06 19530.0 0.0 - - - - 0.0 - -
2006/07 21797.0 0.0 - - - - 0.0 - -
Source: national bank of Ethiopia, quarterly bulletin, vol 23 no 2, 2007/08
From the above table, the amount of government revenue from coffee export tax has
showed an increasing trend from 1991/92 to 2001/02. Except in 1994/95, which
represents about 3.2% of coffee tax from the total government revenue, its share has
been very low in the rest of the years. The amount of government revenue for tax on
other export items has also showed an increasing trend from 1994/95 to1998/99.
However, the amounts of government revenue from on other items like hides and skin,
oilseeds, etc. for example, the percentage share of coffee tax from total government
revenue was 3.2% in 1994/95 as compared to 0.19%, the percentage share of tax on
other export items from total government revenue.
3.3. MAJOR PROBLEMS IN COFFEE PRODUCTION AND MARKETING AND

FUTURE PROSPECTS
Less developed countries usually rely on one or two primary products for export. Like
many coffee producing less developed countries, Ethiopia depend on these crop for
foreign exchange earnings, government revenue, etc. however, dependency on single
commodity (such as coffee) has a negative impact on the economy of the country.
The country gets in doubt and fear by the problems connected with coffee crop. The
level of production, the amount of exportable coffee and the value earned fluctuate and
this hampers the development of the country. Among various factors the following
constraint hindered the further gain from the coffee sub sector.
3.3.1. Decline in coffee price
Ethiopia’s share in the world coffee trade is very small. The country has no control over
the world coffee price and the coffee price is determined exogenously in world coffee
market and Ethiopia is thus price taker. In other word, the price of coffee in domestic
market is influenced by international market situation. If the price of coffee in
international market increases or decreases, then the price of coffee the domestic
market also increase or decrease.
Table 6: share of total exchange earnings from total coffee export in total foreign
exchange earnings
year Total export Coffee export Share of in total

earnings (000$) earnings (000$) earnings (%)
1987/88 773642 439181 56.8
1988/89 902753 626448 69.4
1989/90 736806 405103 55.0
1990/91 542485 268451 49.5
1991/92 279026 168324 60.3
1992/93 800814 536982 67.0
1993/94 1238729 718019 58.0

1994/95 2732046 1799034 65.8
1995/96 2539056 1724008 67.9
1996/97 3485625 2307494 66.2
1997/98 4141582 2889531 69.8
1998/99 3637260 21127713 58.1
1999/00 3957802 2133646 53.9
2000/01 3679832 1453254 39.5
2001/02 3465311 1346519 38.9
2002/03 4142356 1418324 34.2
2003/04 5176644 1926679 37.2
2004/05 7331259 2901327 39.6
2005/06 8685376 3076494 35.4
2006/07 10457615 3741745 35.8
2007/08 13631459 4897344 35.9
Source: national bank of Ethiopia, quarterly bulletin, vol23 no2, 2007/08
From the above table, coffee export earning has showed fluctuations from year to year.
This fluctuation arises due to changes in average international price in the world
market. For example, foreign earning from coffee export in 1997/98 increased over that
of preceding year due to favorable prices in the world market. How ever the share of
coffee in total earnings from 1997/98-2002/03 has showed a tendency of decline. This
could be because of the decline of average international coffee price. According to the
international coffee organization (ICO) price indicator coffee price fall from 1997/98
coffee year the price of coffee in international market was 115.22 us cent per pound.
But this fall to 88.53 us cent per pound in 1998/99, in three consecutive by 2.86, 47.85,
and 45.48 us cent per pound respectively. (ICO, 2002) As the result of fall in the price
of coffee, the selling price is not able to cover the production cost. In this condition
coffee producing countries suffered by this accident.
3.3.2. Poor infrastructure
The availability of adequate and efficient transportation system facilitates the constant
supply of coffee to market counters. Hence we can say transportation is one of the vital
elements in the marketing of the product. However lack of investment in rural transport
creates very real hard ship for farmers, especially for small holder farmers who do not
have enough bags of coffee to take unprocessed cherries to the local market. For
instance road network is the lowest by the standard of sub Saharan Africa i.e.29k per
1000sq km (0.48kmper 1000person). Even the processing mills are not locally available
and hence small holder’s cherries become moldy.
Storage of coffee over the period of time is another service which is required in the
marketing of the product. If the condition for storage are inadequate and are not
properly held it may result in disappearance of valuable properties such as flavor aroma
and taste of coffee. In many coffee growing regions of Ethiopia farmers have no access
to storages. This results in low competition in the world market and low price for the
product since it losses much of the quality.
Information about coffee on the national or international market is difficult to obtain.
There are many farmers suffering from lack of information about current prices and
new harvesting techniques so that earning from the product is lowered because of
reduction in quality and price of the product.
3.4 THE EFFECT OF LIBERALIZATION MEASURES ON COFFEE

PRODUCTION AND MARKETING
During the seventeen years of centralized economic management coffee production
suffered from lack of appropriate incentives and misguiding economic policies that
were adopted by the regime. During the period, coffee price were too low to provide a
typical small holder farmer with an adequate cash income and in particular were too
low in relation to the price of the cereals.
After the fall of the regime, several economic liberalization measures have been
introduced to change the structure of the economy and being about rapid economic
growth and development. These reforms are characterized by the reversion of a strict
economic control system to a free market economy. These policy measures may have
effects on production and marketing of coffee directly or indirectly. Some of these are
highlighted below
3.4.1 Devaluation of the national currency effect

In order to sustain a fixed exchange rate, a country must have sufficient foreign
reserves, often dollars and be wiling to spend them to purchase all offers of its currency
at the established exchange rate.
When a country is unable or unwilling to do so, them it must to devaluate its currency
to a level that it is able and willing to support with its foreign exchange reserves.
A key effect of devaluation is that it makes the domestic currency cheaper relative to
other currencies. There are two implications of devaluation. First devaluation makes the
country’s export (such as coffee hides and skins) relatively less expensive for
foreigners. Second, the devaluation makes foreign products relatively more expensive
for domestic consumers and there by discourage imports. This may help to increase the
countries export and decrease imports and may therefore help to reduce the current
deficit.
3.4.2 Liberalization of domestic and export trade effect
Liberalization of domestic and export trade encourage privet investors to invest on
coffee production and marketing. Thus domestic suppliers and exporters encourage
their participation in foreign trade.
The following table shows the coffee trade license issuance and renewal
Table 7: coffee trade license issuance and renewal
No Descript of licenses Fees for issuance and

renewal
1 Coffee export license 200
2 Coffee supply license 150
3 Coffee cleaning license 150
4 Coffee collecting license 150
5 Coffee trade auxiliaries 150
license
6 Coffee washing license 150
Source: Negarit gazeta, Addis Ababa, 18august 1993
Table 7 shows the proclamation no 70/1993 of coffee trade license issuance and
renewal fees. The liberalization of foreign and domestic trade gives support to increase
the participation of privet coffee traders in the world market because the fees for license
issuance and renewal are small and every body can ease entry in to coffee trade.
3.4.3 Tax reforms effect
During the imperial government, taxes levied on coffee and other domestic products
were high. This high level of tax on coffee and other domestic products hindered privet
investors not to compute with the out side market. Thus to ensure the equitability of the
tax and to protect revenue against fluctuations, government has adopted different tax
rates. (See table 5). From this table, we can identify different tax rates for coffee. The
current government has also adopted different reforms in order to promote exports.
3.4.4 Growth in foreign exchange earnings
From table 4, let us take five consecutive coffee production years after and before 1992
(i.e. after and before liberalization period) and we can see the extent of growth of
foreign exchange earnings from coffee export before and after economic liberalization.
Table 8: Share of foreign exchange earnings from coffee export in total foreign
exchange
Period Year Total export Coffee export Share of

earnings(000$) earning(000$) coffee in
total earning
(%)
1987/88 773642 439181 56.8
1988/89 902753 626448 69.4
1989/90 736806 405103 55.0
BEFORE 1990/91 542485 268451 49.5
LIBERALIZATION 1991/92 279026 168324 60.3
Average 646942 381501 58.9
1992/93 800814 536982 67.0
1993/94 1238729 718019 18.0
AFTER 1994/95 2732046 1799034 65.8
LIBERALIZATION 1995/96 2539056 1724008 67.9
1996/97 3485625 2307494 66.2
Average 2159254 1417107 65.6
Source: Derived from table 4
From the above table, the average coffee export earning was 382 million before
liberalization. And this account about 58.9% share in total export earnings. In the post
liberalization period, average coffee export reached to 1.4 billion and accounts 65.6 %
share in total export earning. This clearly shows that liberalization measures help to
increase exchange earnings.
3.4.5 Growth in production
In order to digest this concept, let us take five consecutive coffee production years both
before and after economic liberalization and then we will see the trend of annual
growth rate in the production of coffee.
Table 9: coffee arrivals to the terminal market
Period Year Coffee arrivals Growth rate

(metric tones) (%)
1987/88 82095 -
1988/89 115502 29
Before liberalization 1989/90 88407 (30.4)
1990/91 76258 (16)

1991/92 60257 (26.6)
Average 84504 (8.8)
1992/93 95656 -
1993/94 123046 22.3
After liberalization 1994/95 96884 (27)
1995/96 150339 35.6
1996/97 158628 5.2
Average 124911 7.2
Source: Derived from table 1 and 2
From the above table, we can deduce the following: before liberalization the average
annual growth rate of coffee was negative 8.8%. But after the economic liberalization,
the average annual growth rate is positions for the growth in production of coffee.
CHAPTER FOUR
4. CONCLUSION AND RECOMMNDATION
4.1 CONCLUSION
This study is conducted to understand the problems and prospects of coffee production
and marketing in Ethiopia. Since Ethiopia is predominantly agricultural country. And
the average annual level of production of coffee which is arrived at the terminal market
at the period of Derg (1978/79-1990/91) is 91679 MT and the average growth rate is
negative 4.6% which have a negative trend and in the period from the fall of Derg up to
2007/08, the average annual production level of coffee arrived at the terminal market is
162274MT and the average growth rate is positive 5.6%, which have positive trend.
Coffee plays a major role in the economy of the country, which contributes more than
60% of foreign exchange earnings. Thus, as well as being an important export items
coffee plays an important in the socio-economic life of the country. Although it is an
important item to the country it is constrained by many factors which hinder the further
gain from it. Firstly, declining coffee price is one of the factors which affects coffee
sub-sector. It affects the coffee sub sector by reducing the annual production because
the small holders of the coffee farms has shifted from the production of coffee to other
items which their price is greater than the price of coffee in the commodity market.
Secondly, the shortage of efficient transportation system is also another problem in
marketing of coffee. Thirdly, fact of is also another problem. It ranges from lack of
information on current price, new harvesting techniques which yield higher out put.
This result in reduction in the quantity of the product and this in turn will lead to
reduction in the price of coffee. Lastly, of finance and credit is also the major factor
which affects the production and marketing of the product.
An economic liberalization measure brings rapid economic growth and development by
introducing measures that change the structure of the economy. This includes
devaluation of national currency, tax reforms and liberalization of domestic and export
trade. The devaluation of national currency helps to increase the country’s export and
decrease imports and there by reduces the countries current account deficit.
On the other hand, liberalization of domestic and export trade and tax reforms gives
support to increase participation of private coffee traders in the world coffee market
because the fees for license issuance and renewal, and tax levied on coffee are low.
Hence, a liberalization measure brings growth in coffee production and foreign
exchange earnings. For instance, the average foreign exchange earning is $382 million
before liberalization (from 1987/88-1991/92) and the average share of coffee from total
export is 58.9%. And $1.4 billion after liberalization which comprises 65.6% share
averagely.
4.2. RECOMMENDATION
Since coffee plays a vital role in the national economy of the country, it is therefore
necessary to take the appropriate measures to bring about the quantitative in the
production of coffee in the country. Therefore, the necessary suggestions for
improvements of the coffee sub sector are:
The coffee industry can no longer succeed unless it depends on the export guidance at
every stage of production. Therefore, export guidance at every stage of production is
necessary conversely, lower input and less technical knew how on harvesting, drying
and processing of the product will cause further deterioration in the quality of coffee.
This in turn will result in low price attached to the product and this also affects the
livelihood of farmer and traders who engage on the production and marketing of it.
To come out from the effects of coffee price fluctuations, farmers must start to grow
other diversified crops, in order to sustain their life. To day, in many developing
countries, farmers who are engaged in the production of coffee have many challenges.
To come out from these challenges, coffee producers must insert coffee with diversified
crops (such as chat), vegetables, and fruit trees.
Support the coffee producers by supplying inputs such as new harvesting techniques,
fertilizers, improved disease resistant seeds, etc, which yield more out put to the
producers of the coffee. This input leads to both increase in quality and quantity of the
coffee. High quality of coffee brings improvement in the livelihood of the producers. It
is because of high price attached to the product (coffee). The supply of coffee to the
market centers is very limited as a result of weak infrastructure (such as roads), means
of transport in the marketing of coffee and supply of coffee to the market centers. Thus
supply of these facilities leads to uniform supply of coffee to the market.
There are also other measures which help to enhance the productivity and supply of
coffee. This includes access to finance and credit, tax reformat, devaluation of national
currency, etc. all the above mentioned measures are useful to the improvement of
coffee industry interims of base quantity and quality.
REFERENCES
-Clifford M.N. and Wilson K.C. 1985 coffee, botany, biochemistry and production of
beans and beverages.
-Coffee, cocoa and tea: K.C. Wilson.
-Kassahun Bantie (PHD), Jima University, college of agriculture, department of plant
science and horticulture (1995) (revised 2001)
-Doan Trieu Nhan 1999, “Vietnam coffee industry”: prospects, issues and challenges.
-International trade centers: WTO (2002) coffee an exporters guide Geneva.
-Mayne Abera, et.al (2002). The coffee crisis in Kaffa province of Ethiopia.
-“Minster of agriculture and economic development, crop development department.”
No. 10, June 2007.
-National Bank of Ethiopia, quarterly bulletin, vol. 23, no. 2, 2007/08.
-The World Bank 2002
-The World Bank sep. 2006
-Links to use full coffee sites:
WWW.fao.org
WWW.coffeeterms.com

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PROBLEMS AND PROSPECTS OF COFFEE

PRODUCTION AND MARKETING IN ETHIOPIA

SENIOR ESSAY SUBMITTED TO THE DEPARTMENT OF ECONOMICS IN

By: Deginet Adane

Advisor: Tarekegn Wubie

3.4. The effect of liberalization measures on

1.2 STATEMENTS OF THE PROBLEM

1.2.1 RESEARCH QUSTION

 To review the impact of the economic liberalization majors on the performance

1.4 HYPOTHESIS OF THE STUDY

1.5 SIGNIFICANCE OF THE STUDY

1.6 SCOPE AND LIMITATION OF THE STUDY

2.1.2. COFFEE MARKETING

2.2 EMPERICAL LITERATURES

Year Coffee arrivals for Growth rate (%)

Year Coffee arrival for Growth rate ( % )

2000/01 128597 (33.1)

Period Coffee green Area Production Yield (hg/ha)

1963 597000 139100 2330

1969 615000 165000 2683

1989 320000 200000 6250

1994 295000 207000 7017

year Total Coffee Oilseed Chat Share of Share of Share of

1990/91 542485 268451 3633 20422 49.5 0.6 3.7

From the above table, we will drive the following points:

year Total Export Coffee Coffee Coffee Total Custom % share %

3.3. MAJOR PROBLEMS IN COFFEE PRODUCTION AND MARKETING AND

year Total export Coffee export Share of in total

1993/94 1238729 718019 58.0

3.4 THE EFFECT OF LIBERALIZATION MEASURES ON COFFEE

3.4.1 Devaluation of the national currency effect

No Descript of licenses Fees for issuance and

Period Year Total export Coffee export Share of

Table 9: coffee arrivals to the terminal market

Period Year Coffee arrivals Growth rate

1990/91 76258 (16)

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