Business Drop in Ethiopia’s global premium coffee market share needs attention: IGC report
January 20, 2024
A new report urges Ethiopia to capitalize on regaining its share in premium coffee markets and maintain a policy focus on value addition as the country’s share of organic coffee trade in the international market slides down.
Titled ‘Climate change and coffee in Ethiopia,’ the research study was one in a series conducted by the International Growth Center (IGC-Ethiopia) and presented to officials at the Ministry of Planning and Development on January 12, 2024.
The study highlights Ethiopia’s inability to focus on value addition in organic washed and specialty coffee in its export trade has a cost, and a growing market shift towards buyers in the Middle East rather than higher premium destinations such as Europe, the US, and Japan.
Seneshaw Tamru is the senior economist behind the research at IGC-Ethiopia. He explains that while organic coffee can fetch premiums of up to 26 percent above market rates, Ethiopia’s market share has declined to four percent.
“We say almost all of the coffee we export is organic, but Ethiopia’s share is declining,” said Seneshaw.
The latest annual report from the United States Department of Agriculture (USDA) Foreign Agricultural Service reveals that while Ethiopia’s coffee production has grown slightly to 496,000 tonnes from 489,000 tonnes the year prior, its contribution to the world market has depreciated from 4.88 percent to 4.73 percent.
The research from IGC-Ethiopia indicates the international market share has dropped even further. It attributes the lower gains to a lack of value addition in the coffee production chain. The study warns that Ethiopia is moving in the wrong direction concerning specialty coffee, and urges the need to work on profitability.
“The share of specialty coffee is not as high as we’d like to see, even grade one,” said Seneshaw. “The market share of grade-two specialty coffee is declining.”
Officials, however, maintain specialty coffee is performing well.
“Three years ago, Ethiopian specialty coffee’s market share was around 30 percent,” said Adugna Debela (PhD), director-general of the Coffee and Tea Authority. “It has since grown to between 50 and 60 percent. Most of the foreign currency gained through coffee export is a result of this. The [total export] volume is similar, but increasing the volume of specialty coffee has helped us gain better prices. We’re moving towards improving quality.”
Gezat Worku, head of the Ethiopian Coffee Exporters Association, observes that knowledge and technological gaps in the Ethiopian coffee industry have made value addition difficult.
“Being able to produce roasted, grinded or value-added coffee in general for the international market is not easy. Our capacity regarding this is like comparing Usain Bolt with someone that only started running today,” he told The Reporter. “For developed countries, the roasted coffee business is a huge industry. The machines they utilize; the process they use to produce these high quality products is vast and directly linked with their technological advancement.”
Gizat foresees improvements on the unique and peculiar qualities of Ethiopian coffee can provide an edge in the fierce realm of international competition.
The research from IGC-Ethiopia also shows there are changes in where Ethiopia’s coffee is being shipped to.
“Coffee exports to Europe, Japan and the US are declining,” Seneshaw said.
The study reveals export destination data over the span of more than 16 years beginning 2006.
The share of coffee exports to other African countries has dropped to five percent from 20 percent, while Europe has seen a fall from 30 percent to 15 percent. The US market has registered fluctuations, seeing a 25 percent peak in 2019 before sliding down to 20 percent.
The Asia market comprising mainly Japan, China, and South Korea holds 15 percent. The only market that is witnessing a growth in share is Australia and New Zealand, which has picked up from 10 percent to close to 25 percent.
“The export destination shift is about preference,” said Adugna. “The Middle East does not demand as much high-end product, but rather commercial products. Whereas Europe, USA and Japan need specialty coffees. But our production of specialty coffee is not enough, and they share what we provide. A large chunk of the coffee is going to the Middle East.”
Gizat disagrees.
“The shift is the result of problems with quality, delivery time, and price,” he said. “Over the last year and a half, exports to Europe, Japan and the US have declined.”
Gizat urges exporters to abide by the price set for Ethiopian Arabica coffee by the continental exchange at the New York ICE market.
“With quality improvement and through time, we can raise the price but now we need to accept the value and operate using that, and not be preoccupied with setting a high price. It will not fetch more just because we say it should,” he said.
Gizat told The Reporter transportation issues are a nationwide problem, with coffee transporters often victimized by extortion on the side of bandits as well as police. The limited availability of rail services to ports of exit is also a factor.
However, Gizat says there could be better coffee export earnings on the horizon for Ethiopia if it can tap into the growing consumption in Middle Eastern and Chinese markets. He observes China’s demand for coffee is skyrocketing by as much as 20 percent a year.
“If handled properly, in 10 years, we could be exporting half of our coffee to this market,” he said.