Government tightens control over coffee trade

The government of Ethiopia is tightening its grip on the coffee sector. In a latest development in the saga of the Ethiopia Commodity Exchange (ECX) and what appears to be the government's well orchestrated plan to control the sector, a government official warns, "individuals found dealing coffee out of the [newly established coffee trading] centers will receive a 20 year prison term and up to 50,000 birr fine."


This new development explicitly reveals the government's interests in the exchange from the get go.


The ECX, a trading system meant primarily for grains and pulse, commenced trading operation in May, 2008. In August 2008, the government passed the new coffee law that requires all coffee trade to be conducted at the ECX. The exchange, which claims to be independent and a free marketing system established to help eliminate famine, began trading coffee in December 2008. On March 25, 2009, the government confiscated 17,000 tons of coffee beans from private exporters and revoked the licenses of 88 traders, who altogether commanded the lion's share of the market by exporting more than 80% of the country's coffee. On April 19, 2009 (soon after ECX announced that it had "accepted" the licensing application by the Ethiopian Grain Trade Enterprise (EGTE) as an exporter of coffee,) EGTE signed an agreement with a German company to export 1,200 tons of coffee successfully entering the market for the first time in its history. This state owned enterprise also enjoys a role on ECX's Board of Directors, a body where only 2 of the 11 directors come from the private sector. The general manager of EGTE is one of the 9 ECX Board of Directors that represent the government's interests.


In the past several months, private businesses and coffee growers accused ECX of playing a role of facilitating for an unprecedented government control that amounts to nationalizing the coffee sector.


Dr. Eleni Gebre-Medhin, CEO of ECX, brushes off such criticisms. She says, ECX's role is limited to enhancing the domestic trade system and has nothing to do with the government's actions in relation to the trade. In one of her interviews on the Voice of America's Amharic Service, she said, a free market, in her view, is a market system where people are free to sell their produce whenever, wherever, and to whomever they want at whatever price they please; in that sense, she declared, "the coffee trade in Ethiopia is free."


In today's Ethiopia, however, it is illegal to sell export grade coffee beans in local markets; only inferior quality bean is sold domestically. Meanwhile, export prices for this globally traded commodity are determined at the New York Mercantile Exchange (NYMEX) and are generally less than the average price for the inferior quality beans sold in domestic markets. Coffee traders would profit more if they were allowed to sell some or all of their stocks at existing market prices but that is unthinkable. This deterrent forces local collectors and suppliers (akrabis) to sell sacks of beans outside the normal chain of coffee trade (farmer-collector-washer/supplier-exporter.) The lack of incentive for farmers, among other factors, is also contributing to the deterioration of quality at coffee plots.  Therefore, it is remarkable that Dr. Eleni observes Ethiopia's coffee trade as free and claims that ECX is there to benefit farmers.


And, now that the government has further expanded the coffee trading centers to the remote districts (as noted in the news article by the government affiliated Walta Information Center on September 27, 2009) where it can control the sources and dictate farmers on where to sell their produce giving them practically no choice as to whom to sell it to, it will be curious to know what Dr. Eleni will have to say about ECX's roles as a facilitator of government control of the sector.

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Some 37 coffee trading centers go operational

Walta Information Center

September 27, 2009

Some 37 coffee trading centers established in Jimma zone with a view to controlling illegal coffee trading and alleviating wastage of coffee produce have begun rendering service, zone agriculture and rural development office said.

Office Deputy Head Nezif Abachebsa told WIC the centers are significantly contributing towards improving quality of coffee, preventing illegal coffee trading as well as alleviating wastage.

He said the centers went operational in 14 coffee growing woredas of the zone.

According to Nezif, the zone would take strong measure on coffee trading that takes place out of the centers.

Accordingly, individuals found dealing coffee out of the centers will receive a 20 year prison term and up to 50,000 birr fine, he indicated.

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