Specialty Market Growth, Ethiopia’s Coffee Challenge
The gourmet and specialty coffee sector is growing rapidly in many countries, notably in the U.S.A. where the industry has enjoyed a 12% annual growth rate. This trend is predicted to continue, with some commentators forecasting that specialty coffee will, over the long term, account for as much as 40% of U.S. coffee consumption. Ethiopian coffees are also appreciated and performing well in the Japanese market. In all coffee consuming countries there is at least a handful of products available on the shelves that especially feature Ethiopia’s fine coffees.
Ethiopia grows and exports some of the finest coffees in the world and is well positioned to directly benefit from this growth in demand for differentiated, specialty coffees. Ethiopia’s most famous coffees are Harar, Sidamo and Yirgacheffe. These distinctive coffees command good, and sometimes very high, retail prices in world markets. In the U.S. market in 2004, for example, Harar was sold at retail for up to $24 per lb; in 2005, Sidamo retailed for up to $26 per lb.
These retail prices directly reflect the value placed on the reputations for high quality and unique flavour that are the result of the hard work of generations of Ethiopian coffee farmers. A reputation is not a concrete thing, but an attribute, that is, intellectual property. Future generations of Ethiopians have a vital stake in this intangible, but valuable intellectual property.
Despite coffee consumers’ appreciation, expressed in the growing demand and strong retail prices, the export return to Ethiopia for these coffees is disproportionately low. Harar earned only $1.20 per lb and Sidamo $1.60 per lb. These export prices, represent only 5% and 6% of retail price respectively.
Some Ethiopian fine coffees have achieved far higher export prices when traded in specialty coffee auctions, reaching close to or over $10 per lb. However, more generally, the export price for most of Ethiopia’s fine coffees falls in the range of $1.10-$1.30 per lb, a premium of only 10-30 cents over the recent New York exchange based price for Arabica coffees. The New York quoted price is set in an open market based on international standard grades, or ‘commodity’ coffee. In conclusion, Ethiopia’s finest coffees are mostly treated as commodities whose price cannot be negotiated without reference to the New York Board of Trade (NYBOT) price and the standard ‘C’ Contract used to buy and sell green coffee beans around the world.
The implications for Ethiopian coffee producers of being unable to de-link from the New York ‘C’ Contract and receiving such low export prices for these fine coffees are grave. Farmers operate in ignorance of the true value of their coffee crop. Investment by farmers and others in the sector is lagging. Some of the world-renowned Harar crop is even being replaced by narcotic production which is perceived as more remunerative. This represents a possibly irrevocable loss of a unique asset.