So I got asked to write an article by Fresh Cup Magazine (a US coffee publication) on Ethiopian coffee and the ECX. It was in last months edition, so I thought that I would share it with you here now, I hope you enjoy
How Ethiopia is stonewalling specialty buyers by Stephen Leighton
Ethiopia is one of the finest producers of specialty coffee in the world, and it’s the original, natural home of the coffee plant. But while the country is steeped in history, it has lately also become steeped in controversy and red tape.
Coffee continues to be one of Ethiopia’s top exports, but its significance is now at an all-time low. In a contradictory development, coffee exports reached the highest-ever level in monetary terms in 2009 ($528 million), while at the same time falling to the lowest-ever share in Ethiopia’s total exports, at just 26 percent. This shows Ethiopia as the developing nation that it is, weaning itself from the dependency of coffee it has had for most of its recent history. It’s an understandable desire from the country, but the country’s move to better organize itself is having a dangerous repercussion: It’s essentially alienating the very buyers who most appreciate the country’s wondrous selection of beans.
Change for the better?
In recent years, Ethiopia’s government has done many things to try to formalize the way its exports and commodities are handled, and it has done so with items such as wheat, maize and sesame. It was only a matter of time until the country’s coffee industry jumped on board, and regulations came down in 2008.
The Ethiopian Commodity Exchange (the ECX) launched around that time to benefit and modernize the way Ethiopia was trading this valuable asset. The claim was that Ethiopia needed a change from the traditional means of trading to better support the needs of all those involved in the trading and production of coffee.
For Ethiopian coffee, 2008 was a very interesting time for a number of reasons. Firstly, there was the emergence of some very special coffees that were getting an awful lot of attention. The much-loved Idido Misty Valley and Beloya coffees, for example, both rose to prominence that year.
There was also a lot of noise made about intellectual property of coffee regions. It looked like Ethiopia and the ECX were trying to position themselves for a fight—but it turned out they had disappointing motives. Soon enough, the country started putting distance between great coffees and the specialty industry, choosing to work mainly with bigger roasters instead.
The ECX model
Here’s the layman’s version of the ECX process: A single farmer or akrabi (someone who buys coffee from small producers) is only allowed to sell his coffee through the exchange. Navigating around this system is impossible unless you are a formalized cooperative union.
Once the coffee is delivered to the ECX warehouse, the coffee is stripped of its provenance, graded by government workers using the Q System, and given a region and a marking grade. This is where things get a bit tough to follow. Washed coffees are classified Grade 1, Grade 2 or Grade 3. Naturally processed coffees (those dried with the fruit still on) are marked Grade 4 and Grade 5. This classification system gets even more complicated thanks to the fact that you can have a Grade 1 or 2 natural from southern parts of Ethiopia.
The grade relates to the cup’s profile, and because coffees are stripped of their provenance, this can lead to misleading categorizations. For example, if a Sidamo has the floral, lemon-like acidity typically found in a Yirgacheffe, it will be graded a Yirgacheffe. In general, the grade relates to quality—a Grade 1 is meant to be the best, but I have found some stunning coffees classified Grade 3.
The officials at the warehouse are the only people allowed to taste the coffee until it is bought and paid for (more about that in a moment). The details about each coffee are entered into a computer system, and shortly thereafter the coffee is offered on a trading floor that is essentially a smaller version of what you might see on Wall Street. The buyer knows if he’s buying a (supposed) Yirgacheffe or a Djimma, and he knows the grade the coffee’s been assigned by Q Grader government officials. Then he has to agree on a price for this coffee with the seller on the trading floor. Buyers can only enter the trading floor if they prove they have an account with enough money in it to buy the coffee. Once they agree on a deal, the money is transferred by the ECX from the buyer’s account to the seller’s within 48 hours.
Highs and lows
Because the ECX is often criticized, let’s highlight some of its good points. First, farmers get their money quickly. In other coffee-buying situations, unscrupulous exporters have been known to take their time to pay or sometimes don’t pay at all, giving the beginning of the chain a bum deal. Also, poor-quality coffees are sold as poor quality through the ECX, and those lower quality beans are sold for use inside Ethiopia only. That setup means the international market will not be flooded with cheap coffee that could damage the name of Ethiopia.
Finally, because all transactions go through the exchange, it’s impossible for traders to lie on export documentation about quality and prices paid. That means the government receives the proper amount of money from each transaction, which I think is important for a developing nation trying to improve the life of its people.
But the negative aspects of the ECX are severely weighing down the country’s industry. I understand that removing a coffee’s provenance helps it sell at the ECX (by helping to remove some manipulation of prices), but keeping that information secret once it’s purchased seems nonsensical to me. Separating buyers from cupping lots and forcing them to rely on the government’s Q Graders takes away one of the key elements of buying coffee: actually tasting it.
What’s more, the system adds unnecessary red tape, forms, paper and a whole heap of extra work for exporters, producers and the officials themselves. The insistence that specialty coffee is such a small part of the buying market that its needs don’t matter seems very shortsighted and almost petulant of Ethiopia. I think the road they have begun going down is pushing specialty buyers away from Ethiopia’s amazing coffees. In so doing, the country is in danger of becoming reliant on the huge firms that have controlled the New York commodity-trading market for many years—it’s these companies that have typically kept prices just above the cost of coffee production.
The anti-specialty trend has continued with the recent announcement that the country will stop using jute bags in favor of “bladders” inside containers. The bladders are essentially composed of four large bags inside a box, with the coffee blown into the bags in the container. Traditionally, these have only been used in the playground of bigger commodity buyers, and it’s another signal that Ethiopia doesn’t want exporters to sell to the specialty market. Because of their size (40,000 pounds), bladders are only practical when shipping generic mixed lots. The average micro-roaster likely cannot buy that much coffee and certainly can’t store it.
The no-jute policy was announced the week I was in Ethiopia on a buying trip. When one of the exporters told the news to my colleagues and me, we were shocked. The exporter theorized that it was a move by the government to crush the private exporter and give more power to the cooperative unions. There is a general feeling among exporters I spoke to on that trip that the main strategy of the government and ECX is to cut those private players out of the coffee chain. The government ultimately decided to withdraw the rule because of pressure from exporters, but I won’t be surprised if we see officials try to implement it again.
Despite all the difficulties standing in front of small buyers who want great Ehtiopian coffee, there are some ways for you to get around ECX issues such as loss of provenance and still buy effectively. Here are some tricks:
– It’s vital that you work with an importer/exporter who has people on the ground. While the provenance will still be removed, it will often possible for a savvy exporter to find out more about the coffee based on when was entered into the auction. Buyers and sellers know each other, and most local buyers know when certain washing stations delivered their goods to the ECX—it doesn’t take much sleuthing for them to then deduce some key info such as varietal, process and cup profile.
– Cooperative union coffees maintain lots of the provenance but will still be sold as a Grade 2 Yirgacheffe or a Grade 1 Sidamo. Ask whether there is any more information to be had.
– Grade 1 coffees come with more localized information and sub-region names; the government decided more details could be given out about Grade 1 coffees, even though the washing station info is stripped from them. Either way, this extra dose of info has led to an explosion of previously unheralded names like Guji, Shakiso and Borana.
As always, the cup profile remains the most important part of this process, and we can all agree the potential of Ethiopia in the flavor arena is greater than that of anywhere else. I just hope they find the desire to achieve that potential.
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