The article posted below is taken from
an essay that was published in the International Food Policy Research Institute
(IFPRI) publication titled "A Market
for Abdu: Creating a Commodity
Exchange in Ethiopia" on March 23, 2012.
The author, Dr. Eleni Gabre-Madhin, CEO of Ethiopia Commodity Exchange
(ECX), recounts the challenges that ECX faced when coffee was first introduced
on the exchange and how Dr. Eleni "overcame" the terrifying situation.
Although this story is not new to the
coffee community or anyone else who followed this blog at the time, the
frankness with which the article was written may come as a surprise to some since it stands in stark contrast with ECX's past assertions. As a background, here is a brief reminder of how contentious this very
topic was back in 2009.
In this
commentary that I published on August 2, 2009, I wrote:
"As it has now become apparent, ECX was not ready to
accommodate trading operations of a complex global commodity when it embarked
on coffee export. This partly explains why ECX has had to run into problems as
soon as it started its coffee trade." Read
more...
ECX's interesting
response came in the form of this
article which was exclusively published on nazret.com on October 29, 2009:
"A self-appointed coffee tsar in Seattle speaks, rather
patronizingly, on behalf of the poor coffee farmer in Ethiopia. In the
comfortable latte-infused cafés in which he may post his blogs, things may seem
rather different than the reality half a world away in the homeland, where
millions of our country men and women fight daily to live a life of dignity...
"Here are some of the Seattle myths that are not helping
Tadele rise to the better life he deserves. First, there is an impression that
coffee trading in ECX was a hastily conceived, ill-prepared affair by people
who knew nothing about the complexity of the coffee market. Fair enough, I
cannot expect the coffee tsar to know that as far back as 1992, I was a
commodity trading expert in the United Nations in Geneva, in charge of
designing a training program on international coffee, sugar, and other
commodity markets which I then delivered to many, many exporters from various
developing countries, including coffee exporters. Nor could he know that in
2001, while a researcher for the International Food Policy Research Institute
in Washington, I led a project for the World Bank on coffee price risk
management, covering Uganda, Tanzania, and Ethiopia, or that in 2002, under a
Dutch-funded project, I conducted an extensive household survey, interviewing
hundreds of coffee producers in Ethiopia. Nor would he know that in 2003, I
conducted a major study titled “Getting Markets Right in Ethiopia: An Analysis
of Coffee and Grain Marketing” financed by IFAD (Rome), for which I led a team
of 8 top-notch consultants, including Ethiopis Tafara, now director of
international affairs at the U.S. Securities and Exchanges Commission, and a
well-known and highly respected coffee expert, John Schluter (uncle and
business partner of Philip Schluter, mentioned in a recent blog posting by the
Seattle coffee tsar), as well as the then secretary general of the Ethiopian
exporters association. The coffee chapter of the 2003 study, based on extensive
consultations in Ethiopia with coffee exporters and suppliers, specifically
recommended that coffee be traded through a commodity exchange where improved
competition and forward contracting would be beneficial to the industry. That
2003 study was the basis for the decision adopted by the government of Ethiopia
to implement a commodity exchange in late 2005. In 2006, I led a national Task
Force to conceive the initial design of the exchange. The 2006 Task Force
report identified coffee as one of the commodities that should be included in
the new exchange, but also stated the need to address an emerging market trend
of specialty coffee which would require special attention. So, while nothing is
ever fully known in its entire complexity, we are where we are because of more
than a decade of careful thinking about how this market works, from Tadele at
the beginning of the chain to the latte at the retail end of the value chain.
"The coffee tsar may not have known all this, but, then again, he could have asked." Read more...
"The coffee tsar may not have known all this, but, then again, he could have asked." Read more...
I responded in this
rebuttal which was published on November 4, 2009:
"The credentials of ECX's officers has never been a
point of contention throughout the discussions as there is no reason to believe
that Ethiopia is short of able experts in the coffee sector. Doing so would
amount to disrespecting the people who preserved the sector through three
consecutive regimes. This, however, does not exempt the poor handling of the
media frenzy that followed the interruption of the Specialty coffee trade
because neither the government nor ECX displayed wisdom or competence in
dealing with the situation. That being said, there are ample evidences to show
that ECX was not prepared to trade coffee and that the project plans that led
up to the realization of ECX never anticipated a coffee exchange at this early
stage. ECX was established as a domestic exchange for grain, not for coffee
trade. The first evidence for this is found nowhere but in the Policy Working
Paper prepared by Eleni Z. Gabre-Madhin and Ian Goggin, Chief Executive, Africa
Commodity Exchange (Malawi) and former President, Zimbabwe Agricultural
Commodity Exchange. The document dated November 2005 and titled "Does
Ethiopia Need a Commodity Exchange?: An Integrated Approach to Market
Development" does not mention the coffee crop anywhere in the 24 pages -
not even once.
"Also, ECX's lack of experience and resources were central factors that have contributed to the coffee trade problem. The then eight-month old ECX had hardly established its own institutional capabilities, much less gaining the experience in trading agricultural commodities, when it was surprised by the government with the unexpected task of trading the global crop. Although Dr. Eleni now denies it, ECX's understandable frustrations are documented in the PBS/Market Maker film that featured Dr. Eleni." Read more...
"Also, ECX's lack of experience and resources were central factors that have contributed to the coffee trade problem. The then eight-month old ECX had hardly established its own institutional capabilities, much less gaining the experience in trading agricultural commodities, when it was surprised by the government with the unexpected task of trading the global crop. Although Dr. Eleni now denies it, ECX's understandable frustrations are documented in the PBS/Market Maker film that featured Dr. Eleni." Read more...
With that in mind, enjoy the IFPRI article. (I
will discuss some of the inaccuracies noted in this and other sections of the IFPRI
essay sometime in the future.)
-----
What’s
in a Bean?
By Eleni Gabre-Madhin, International Food Policy
Research Institute
They say that ignorance is bliss.
There was some truth to that in our approach to introducing coffee on the
exchange. Had we known the complexity of the coffee plant, grown indigenously
in Ethiopia for the past 3,000 years, with hundreds of varieties and flavor
profiles, had we predicted the strong emotions aroused among specialty coffee
roasters and consumers all over the world, had we estimated the power behind
the political economy of coffee in our country, we would likely have given
ourselves four years rather than four months to prepare to launch coffee
trading in the ECX. But we had not.
As we had done in our project phase,
we blinded ourselves to all that could go wrong and got on with the business of
virtually rebuilding every operation in preparation for coffee trading in
December 2008. We met repeatedly with representatives of the coffee industry to
establish standards and classifications by origin for the country’s many unique
coffees, we increased our warehouse capacity fourfold, we hired staff, we added
partner banks, we added and trained a new class of 400 limited members, and we
amended our rules and revamped our data systems and software.
But this careful and intense
preparation did not ready us for the onslaught of resistance by the powerful
coffee exporters. They were happy to continue in the old auction, where getting
past the auctioneer’s rules, writing blank checks to small rural suppliers,
underinvoicing export contracts, and colluding on bid prices had been the norm.
Nor had we anticipated the controversy that would arise among international
buyers of Ethiopia’s high-quality, niche market, or “specialty” coffee, who
denounced the exchange as the end of history for Ethiopian coffee.
Throughout 2009 we went through a
painful and painstaking process of consulting with hundreds of industry buyers
from Germany, Japan, Saudi Arabia, Switzerland, the United States, and
elsewhere. We conducted “road shows” around the countryside addressing thousands
of coffee farmers, coffee suppliers, and coffee exporters, as well as regional
and district-level government officials, all bewildered by the implications of
the new system that enforced standards, required compliance with rules about
competition and orderly trading, and brought transparency where there had been
none.
One of the lowest points in my career came
while I was speaking at an international coffee event in Atlanta in April 2009.
I was confronted by a hostile crowd of a couple hundred coffee buyers and roasters
who were angry at the changes brought by ECX and who would not even let me
finish what I had to say. On the long flight home, I could not sleep, deeply worried
about the negative interaction. I decided to do something radical. I wrote an
open letter to all buyers of Ethiopian coffee to explain to them, with as much respect
and patience as I could muster, why a coffee-producing country like ours would
choose to create a transparent and fair system to benefit our farmers, who deserved
better than the grinding poverty in which they lived. I wrote that we were joint
stewards of our precious coffee—they as consumers and we as producers—linked
through the global value chain.
I committed to listen to their
concerns and asked for their partnership. I sent the letter as soon as I
landed, and in a matter of days it had spread across cyberspace, posted on
websites, coffee blogs, and email lists around the world. In the following months,
slowly, the tide began to turn. We engaged in dialogue with the Specialty Coffee
Association of America (SCAA), and, after intense technical consultations, in
October 2009 we invited all buyers to a specialty coffee event in Ethiopia to introduce
our new specialty coffee-trading system, later acknowledged by the SCAA as “the
most sophisticated specialty coffee quality discovery system for arrival
coffees in the world.”
What did we learn from the coffee experience?
That flexibility, humility, and willingness to learn and to respond quickly and
effectively had saved us from a serious threat; that transparency bites on both
sides of the Atlantic; that vested interests cannot be ignored; that one cannot
overinvest in public relations; and that people, relationships, and trust were
far more important than the modern electronic systems and processes we had
created.
As we moved to introduce sesame seed and
white pea beans into the exchange in 2010, we approached the people side of the
equation more cautiously and perhaps more systematically.
---
Ed's Note: Coffee in Retrospect is a reprint column prepared by Coffee Monitor and Poor Farmer blog to provide context for the current global coffee trade by republishing news articles from the past. In this column, we intend to reprint archived prints by converting images into electronic file formats with careful conformity to originals and, whenever applicable and possible, we provide links to the sources of the information. Meanwhile, responsibility for the contents lies solely with the authors and the views expressed in the articles do not necessarily reflect our opinions.
Ed's Note: Coffee in Retrospect is a reprint column prepared by Coffee Monitor and Poor Farmer blog to provide context for the current global coffee trade by republishing news articles from the past. In this column, we intend to reprint archived prints by converting images into electronic file formats with careful conformity to originals and, whenever applicable and possible, we provide links to the sources of the information. Meanwhile, responsibility for the contents lies solely with the authors and the views expressed in the articles do not necessarily reflect our opinions.
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