VZCZCXRO6721
RR RUEHROV
DE RUEHDS #2006/01 1780622
ZNR UUUUU ZZH
R 270622Z JUN 07
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 6774
INFO RUCNIAD/IGAD COLLECTIVE
RUEAUSA/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHNSC/NSC WASHDC
RHMFISS/CJTF HOA
RUEAIIA/CIA WASHINGTON DC
RUEKDIA/DIA WASHINGTON DC
RHMFIUU/HQ USCENTCOM MACDILL AFB FL
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0034

UNCLAS SECTION 01 OF 04 ADDIS ABABA 002006 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR AF AND AF/E 
STATE PASS TO USTR: W.JACKSON 
LONDON, PARIS, ROME FOR AFRICA WATCHER 
CJTF-HOA AND USCENTCOM FOR POLAD 
 
E.O. 12958: N/A 
TAGS: EAGR ECON BEXP SOCI ET
SUBJECT: ETHIOPIAN COFFEE FARMERS TRAPPED IN A CYCLE OF 
POVERTY 
 
 
ADDIS ABAB 00002006  001.2 OF 004 
 
 
¶1. SUMMARY.  Ethiopia is often referred to as the birthplace 
of coffee, and Ethiopians are proud to say that coffee is 
named after the Kaffa region (currently Oromiya Region), 
where it was first discovered over 1,000 years ago.  Today, 
Ethiopia produces 300,000 tons of coffee per year.  Further, 
approximately 15 million (or about 20 percent) of Ethiopians 
are involved in the coffee industry, from farming to 
transportation to marketing.  It is estimated that 500,000 
hectares of land are occupied by coffee farmers.  Coffee is 
still the leading foreign exchange export item, constituting 
about 35 percent of the country's value of merchandise 
exports.  In 2006, Ethiopia exported 165,000 tons of coffee, 
the largest in the export history of Ethiopia.  However, the 
USD 365 million obtained from the sale of the coffee could 
have been greater: the price per ton ranged from USD 2,100 to 
3,300, depending on the quality of the coffee.  Today, 95 
percent of Ethiopian coffee is produced by small, private 
farmers, and the remaining five percent is grown by 
cooperatives or government-owned farms.  As a result, the 
majority of Ethiopian coffee farmers own only small plots of 
land and cannot afford basic necessities such as food and 
clothing for their children.  Coffee growers in Ethiopia face 
a variety of challenges, from lack of technology to distance 
from the market.  Initiatives to improve the welfare of 
coffee farmers are moving forward.  However, with issues vast 
and solutions limited, farmers will continue to live in 
poverty for the foreseeable future.  END SUMMARY. 
 
--------------------------------------------- --- 
TRADITIONAL FARMER-TO-MARKET CHAIN OF PRODUCTION 
--------------------------------------------- --- 
 
¶2. Traditionally, coffee farmers sell their coffee to small 
traders or collectors (sebsabies) who travel from farm to 
farm and usually, in turn, sell the product to suppliers 
(akrabis).  The supplier then sells the coffee at the daily 
coffee auction in Addis Ababa and Dire Dawa to exporters, who 
sell the coffee to the international markets.  The auction is 
the pinnacle of the coffee trade in Ethiopia, as all coffee 
is sold through the auction, with the exception of coffee 
from the cooperative unions, government-owned farms, and 
private farms.  These exceptions sell directly to the 
international market.  With regard to the auction, the 
"blocked account payment system" was developed by coffee 
exporter Abdullah Bagersh of S.A. Bagersh PLC to ensure that 
buyers bidding at the auction have funds to pay the sellers. 
 
¶3. There are several downsides to the traditional 
farmer-collector-supplier-auction-exporter- international 
market system, including the fact that the collectors and 
suppliers act as middle men, taking their share of the 
profit, therefore decreasing the profit of the farmer. 
Second, the collector can act as a destructive component of 
the process, collecting small volumes of coffee from each 
farmer and mixing the various yields.  Thus, if one farmer 
produces high quality coffee, it is often mixed with coffee 
of lower quality, lowering the profit the high quality coffee 
farmer receives and lessening the incentive to produce a high 
quality product. 
 
------------------------------------------ 
COFFEE COOPERATIVES AND COOPERATIVE UNIONS 
------------------------------------------ 
 
¶4. Following the 2001 crash of coffee prices to 39 cents per 
pound, the Ethiopian government started the primary 
cooperatives and cooperative unions as an alternative to 
collectors.  There are six major coffee cooperative unions in 
Ethiopia: the Oromia Coffee Farmers Cooperative Union (with 
101 primary cooperatives) is the oldest and most well 
organized.  Other cooperative unions include Sidama (46 
primary cooperatives), Yirgacheffe (22 primary cooperatives), 
Kaffa (26 primary cooperatives), Benchmaggi (about 20 primary 
cooperatives) and Tepi (six primary cooperatives).  The 
benefit of primary cooperatives and unions is that the coffee 
farmer can sell the coffee directly to the primary coffee 
cooperative at the current market price.  The primary 
 
ADDIS ABAB 00002006  002.2 OF 004 
 
 
cooperatives are registered and process the coffee they 
purchase from farmers before selling the processed coffee, 
usually to coffee cooperative unions but also at the auction, 
if the primary cooperative opts to work without the 
cooperative union network.  The cooperative unions then work 
directly with buyers in the international market to export 
their coffee, bypassing the coffee auctions in Dire Dawa and 
Addis Ababa. 
 
¶5. Typically, the cooperative union retains 30 percent of 
revenue from coffee, the primary cooperative keeps 30 
percent, and 40 percent is returned to the grower in the form 
of a dividend.  The Oromia Coffee Farmers Cooperative Union 
has had great success; however, the Sidama Union has faced 
major difficulties, with a loss of 21 million Ethiopian birr 
(approximately USD 2.3 million) in 2006 and its leadership in 
jail on charges of embezzlement.  Ethiopians in the coffee 
industry believe that this incident occurred because of an 
uncontrolled system and lack of regulatory structure. 
 
------------------------- 
ETHIOPIAN GOVERNMENT ROLE 
------------------------- 
 
¶6.  In the last 15 years, the number of exporters has 
increased exponentially to no less than 100 exporters today. 
Following the end of the Communist Derg regime in 1991, 
individuals could obtain export licenses more easily.  The 
regulatory body of the coffee and tea industry, the Coffee 
and Tea Authority (CTA) was disbanded in 2001.  The body that 
regulates the industry is now a department under the Ministry 
of Agriculture.  The department handles regulatory issues and 
policies, provides training, and attempts to improve quality 
to increase private investment and foreign exchange. 
 
¶7. One way that the government exerts control over the coffee 
industry is by controlling dates of harvest.  For instance, 
the harvest for washed coffee begins in September/October. 
When the government declares the season "open," washing 
stations can begin buying coffee cherries and bringing to 
cherries to auction.  By imposing these regulations, the 
government attempts to control quality by avoiding trade of 
an unripe cherry.  This process continues for three to four 
months, until the government declares the washed coffee trade 
"closed."  After one to two weeks, the government reopens 
trade for dried cherries, which continues for the rest of the 
year.  Ethiopian farmers produce about 75 percent natural 
(sundried) coffee and about 25 percent wet processed (washed) 
coffee. 
 
--------- 
STARBUCKS 
--------- 
 
¶8. Seattle-based coffee company Starbucks and Ethiopian 
coffee growers were involved in a dispute over trade names 
and trademark issues related to three Ethiopian coffee names: 
 Harar, Sidamo, and Yirgacheffe.  Starbucks had opposed 
Ethiopia's efforts to trademark the names, seeking instead to 
help Ethiopian officials establish a system for geographic 
certification of beans from those areas.  International NGOs, 
such as Oxfam International, asserted that Starbucks' actions 
kept 15 million Ethiopians (who derive their means of 
livelihood from the coffee sub-sector) from reaping another 
USD 100 million annually.  In late June 2007, the GOE and 
Starbucks jointly announced a licensing, distribution, and 
marketing agreement that recognizes the importance of 
integrity of Ethiopia's specialty coffee names but that also 
allows Starbucks to market coffee using those names. 
 
¶9. Several prominent individuals in the Ethiopian coffee 
industry, including Abdullah Bagersh of S.A. Bagersh PLC and 
Mr. Yanni Georgalis of Moplaco Trading Co. Ltd., commented 
that Ethiopia could not blame Starbucks or its own government 
for the poverty that prevails among Ethiopian coffee farmers. 
 Bagersh noted that companies like Starbucks sell a "quality 
of life," rather than a cup of coffee.  Further, the coffee 
 
ADDIS ABAB 00002006  003.2 OF 004 
 
 
beverages sold at Starbucks is a different product than the 
beans sold via cooperatives or exporters to Starbucks. 
 
-------------------------------- 
CHALLENGES FACING COFFEE FARMERS 
-------------------------------- 
 
¶10. COMMENT AND ANALYSIS.  Several factors affect the 
profitability of Ethiopia's small-scale coffee farmers: 
 
-- INFLATION:  In 1973, coffee cost 37 cents per pound, and 
coffee farmers were rich.  Now, in 2007, coffee sells at 
about 89 cents per pound, only about three times the price 34 
years ago, whereas other products are selling for 20 times 
the price they sold for in 1973.  Coffee has clearly not kept 
up with inflation over the years, contributing to the poverty 
of coffee farmers.  The market is currently monopolized by 
five trading houses and seven roasters worldwide. 
 
-- SMALL PLOTS OF LAND: The majority of farmers in Ethiopia 
have less then one hectare of land to grow crops.  These are 
some of the smallest farms in the world.  In addition, 95 
percent of farmers have less than 10 hectares of land.  In 
the densely populated areas of Sidama and Yirgacheffe, most 
farmers have one hectare of land or less.  As long as the 
Ethiopian government maintains ownership and control of land, 
farmers will continue to struggle to support themselves with 
small plots of land.  The coffee industry in Ethiopia is a 
small but expanding industry, with 85 percent of coffee grown 
organically and 15 percent produced using a small amount of 
fertilizer. 
 
-- MIDDLE MEN:  Some believe that collectors, washing 
stations, suppliers, exporters, cooperatives and unions act 
as middle men.  Because coffee farmers are spread over a 
large geographical area, middle men will continue to exist, 
as it is a farmer's only means of getting the product to 
market.  For this reason, the farmers living furthest afield 
will sell their coffee for the lowest prices.  Others argue 
that the aforementioned services are a necessity, given the 
long distances and lack of connections between the grower and 
coffee markets. 
 
-- CONNECTION TO MARKET:  Farmers are generally located in 
remote areas, are poverty-stricken, and cannot bring their 
coffee crop to market directly.  Coffee farmers must 
therefore rely on middle men (such as collectors, suppliers, 
and cooperatives) to connect the farmer to the marketplace. 
Further, in order to sell coffee to the international market, 
the grower must obtain certifications accrediting his crop. 
 
-- COOPERATIVES AND COOPERATIVE UNIONS:  Primary cooperatives 
and cooperative unions do not have adequate cash reserves and 
often run out of money to buy coffee offered from farmers at 
the peak of the harvest season.  Since 2003, no price 
controls have existed.  Therefore, the unions can sell coffee 
to buyers at any price, and no checks and balances exist to 
ensure that the union is selling at the best price possible 
for the benefit of the farmer.  Also, the cooperative unions 
can drive the coffee prices down at the auction, if they are 
selling to the international market at a low price.  Private 
exporters believe that to have a truly free market, the 
cooperative unions must compete in the auctions. 
 
-- LACK OF TECHNOLOGY AND KNOWLEDGE ABOUT COFFEE FARMING BEST 
PRACTICES:  In Ethiopia, the yield of coffee per hectare is 
the lowest in the world.  Because farms are small, the 
farmers do not know how to manage their input.  The do not 
weed, fertilize, or pick their crops at appropriate times. 
If weeded one to two times per month, both quality and 
quantity of coffee produced is increased.  On average, one 
hectare of land yields one ton of coffee.  However, small 
farmers in Ethiopia only produce about a half ton of coffee 
per hectare. 
 
------------------------------------------- 
MEANS OF IMPROVING FARMERS' QUALITY OF LIFE 
 
ADDIS ABAB 00002006  004.2 OF 004 
 
 
------------------------------------------- 
 
¶11. Means of improving coffee farmers' quality of life 
include: 
 
-- COOPERATIVES AND COOPERATIVE UNIONS:  Becoming a part of 
cooperative unions could help individual coffee farmers 
improve their lives.  Cooperative unions not only pay growers 
the market price, but also provide the grower with a dividend 
following the sale of the coffee to the international market. 
 In addition, the cooperatives and cooperative unions often 
invest in the farming communities, building schools or 
improving infrastructure.  Problems still exist in that the 
cooperatives and cooperative unions need better organization, 
training, and checks and balances to ensure that upper 
management of cooperatives act in the best interest of the 
growers. 
 
-- NGOS/TRAINING/EQUIPMENT:  NGOS, to include USAID working 
with FINTRAC, continue to work with farmers by providing 
training to improve quality and ultimately to increase the 
farmer's yield.  NGO assistance clearly aids the farmers; 
however, some in the coffee industry argue that growers would 
benefit more from the provision of equipment, such as washing 
tables, to improve their yield. 
 
-- FINANCIAL SERVICES:  Rural coffee farmers often have 
between 8-10 children whom they have to school and feed. 
With the coffee crop providing little revenue, the farmers 
turn to collectors who offer loans, usually with 100 percent 
interest over one year.  Farmers cannot repay the loan with 
this high interest rate, and the collector seizes the farm. 
Thus, provision of financial services (such as opening rural 
banks or microfinance institutions that would offer loans at 
fair rates), or providing other forms of credit for rural 
populations, would improve the quality of life of farmers. 
 
-- PRODUCTION DECREASE:  Some believe that the situation with 
impoverished coffee farmers in Ethiopia is irreversible.  One 
of the leading coffee exporters, Mr. Yanni Georgalis of 
Moplaco Trading Co. Ltd., believes in the value of supply and 
demand, advocating that farmers decrease their production of 
coffee to increase demand and thus, prices. 
 
¶12. CONCLUSION.  The coffee growers of Ethiopia continue to 
face multiple challenges and struggle to feed their families. 
 Circumstances have improved with the assistance of NGOs; 
however, this aid only touches a small amount of the 15 
million Ethiopians involved in the coffee industry. 
Improving rural infrastructure, provision of rural financial 
services such as microfinance mechanisms, and empowering 
farmers by training them in best practices (agricultural or 
commercial), would undoubtedly improve their livelihoods. 
There is currently no single entity, to include Starbucks, 
that is capable of significantly improving the lives of 
coffee farmers.  As noted above, relieving the Ethiopian 
coffee farmers of their plight would require significant 
changes to current methods of production and marketing, 
including land reform and improving market access.  END 
COMMENT AND ANALYSIS. 
YAMAMOTO