ETHIOPIAN COFFEE QUALITY IMPROVEMENT PROJECT2011 AID FOR TRADE GLOBAL REVIEW: CASE STORY

Date of submission: 31January2011

Region: AfricaCountry: EthiopiaType: Coffeesectorproject(establishmentofqualitylaboratories)Authors: DominicStanculescu,coffeeconsultantinITC,withMortenScholer, SeniorAdviserinITCandSurendraKotecha,seniorcoffeeconsultantinITCPhotography: GlennaGordon(cover,p.9),ITC(p.3)Contact details: MortenScholer,SeniorMarketDevelopmentAdviser

InternationalTradeCentre,www.intracen.org,GenevaPhone:+41227300378E-mail:scholer@intracen.org

EXECUTIVE SUMMARY

Akeyopportunityinincreasingcoffeeexportsliesinimprovingquality.ThiswastheimpetusbehindtheEthiopianCoffeeQualityImprovementProjectwhichinvolvedsettingupsevenquality-checkinglaboratoriesinruralareastoaddresstheneedsofsmallholderfarmersinEthiopia.

Qualityisadeterminingfactorinthepriceofcoffeebeans.Infact,inEthiopiathequalityofabatchofcoffeebeans(referredtoasa“lot”bythepeopleinthebusiness)establisheswhetheritcanbeexportedormustbesoldlocally.Moreover,qualitydefineswhetherthelotwillbeboughtatastandardcommoditypriceormayacquirea“specialty”pricewhichismuchhigher.Thefactorsthatdeterminequalityarenumerous,yetinacoffeebean’sentirejourneyfromthefieldtothefinaldrinking-cup,qualityisforemostmade(orlost!)atthefarmlevel–notablyduring the initialpost-harvest treatmentof thecoffeecherriesby the farmers.Considering this fact, it isalsoimportanttonotethatoveronemillionsmall-scalecoffeefarminghouseholdsproduceabout90%ofEthiopia’scoffee.Inotherwords,thesenumerousfarmersscatteredovertheEthiopianhighlandsessentiallydeterminethequality–andhencetheworth–ofthecountry’snumberonesourceofexportrevenues.Untiltoday,however,theEthiopiancoffeefarmershadvirtuallynoinformationregardingthequalityofthebeanstheyproduced,normuchinformationonwhat“good”qualitycoffeeisandhowtoobtainit.Aseparateproblemisthatthosewhohavereceivedinformationoftenlacktheresourcesforqualityimprovement.

Theprojectaimedtotacklethis“informationgap”thatwaspenalizingfarmersandstallingqualityimprovement.Theseven-yearprojectwasimplementedbytheMinistryofAgricultureandRuralDevelopmentofEthiopia,withtheassistanceoftheInternationalTradeCentre(ITC).

The case story describes factors that allowed the project to successfullymeet its objective of establishingsevencoffeequality-testinglaboratoriesinruralEthiopia--notablythestrongnationalpoliticalbackingandthecomplementarysupportfromotherdonors--aswellaslessonslearned.

Twomainlessonsemergedwhichcanbeappliedingeneraltoallsuchprojects.

Firstly, internationalbuyersareakey resource in thedesignofAid forTradeprojects.Buyersoftenhavelong-termexperienceinasector,theabilitytocomparenationalsectorsacrosscountriesandstrongworkingrelationshipswithnationalproducersandgovernmentinstitutions.

Secondly,theassistanceagenciesmusttakeintoaccountthenationalpartners’abilitiestoimplementprojectsandmanagefinancialresources.Suchcapacitiesareofteninherentlyweakindevelopingcountries,andaidintheformofgrantstoministriesisparticularlysubjecttorisks.Theexperienceofthisprojectalsoservestohighlightanumberofcommondifficulties,includingpartnerorganizations’restructuringaswellasunanticipatedpersonnelandinstitutionalchanges.expectedimpacts.

COFFEE IN THE WORLD

Coffee is produced inmore than 60 countries; three of them account formore than half of theworld’sproduction:Brazil,VietnamandColumbia.

Theworldannualcoffeeproductionisaround7milliontons,ofwhichBrazilproducesone-third. TheshareofAfricaintheworldproductionisabout12%,afallfrom30%inthe1970s. Around60%ofworldproductionisArabicaand40%thecheaperandeasiertogrowRobusta.

COFFEE IN ETHIOPIA

Ethiopia isthelargestcoffeeproducer inAfrica:Around400,000tonsperannum–allofitArabica.

EthiopiaandBrazilaretheonlycoffeeproducingcountries that consume a significant portion oftheir production; around50%of theproductionforEthiopia.

Annual coffee export from Ethiopia is around200,000tonsvaluedataroundUS$500million.

CoffeeisEthiopia’snumberonesourceofforeignexchange.

Ethiopiaisoneofthefewcountrieswherecoffeesaleisnotliberalized(i.e.buyersmustpurchasethrough the commodity exchange – only co-operativesand large scalegrowersareexemptbuttheircoffeequalitiesarestillcheckedbyECXlaboratories).ThemarketsofTanzaniaandKenyaarealsonotfullyliberalized.

CoffeeproductionismainlyinWestandSouthEthiopia,around90%basedonsmallholders. Anestimated1.2millionsmallholderfarmersareengagedincoffeeproduction. ThequalityofArabicafromEthiopiaisgenerallygood.Someregions(e.g.Sidamo,YirgacheffeandHaraar)receiveveryhighprices.

COFFEE AT ITC

ITCcurrentlyalso implementsAidforTradeprojects inthecoffeesector inCameroon(2008-12),Uganda(2010-13),andtheEconomicCommunityofCentralAfricanStates(ECCAS)(2010-13).

ITCissupportingWomencoffeeassociations(IWCA-chapters)insixcountriesinEastAfrica(2009-2012). In2005ITClaunchedtheextensiveCoffeeGuidewebsite:www.thecoffeeguide.org.BasedonITC’s2002CoffeeGuide,thesiteincludesaninteractiveQ&Aservice–allofitinEnglish,FrenchandSpanish.

RecentITCreportsonthecoffeesectorinclude:ClimateChangeandtheCoffeeIndustry(February2010),TheCoffeeSectorinChina(August2010)andMicrofinanceinEastAfrica–SchemesforWomenintheCoffeeSector(February2011)–allavailableonline.

ISSUES ADDRESSED

CoffeeisEthiopia’snumberonesourceofexportrevenue.Butwithmostfarmershavinglittleornoaccesstoqualityimprovementinformationorresources,theopportunitiesforincreasingexportrevenuewerelimited.

Until2009themajorityofthecoffeeproducedinEthiopia(withexceptionofthecoffeefromtheHararregion)wastestedforqualityinthemainnationalcoffee“cupping”laboratoryinAddisAbaba–severaldaysdriveawayfromsomeofthemajorcoffeeproducingareas.Notonlywasthisfacilityoftenbackloggedduringthepeakharvestseasoncreatingweeklongdelays,buttheresultsoftheanalyseshardlyeverreachedtheproducersinthefield.Withoutinformationonthestrengthsandflawsoftheircoffee,thefarmerscouldalsonotimprovetheirproduct.Theprojectaimedtotacklethis“information gap”thatwaspenalizingfarmersandstallingqualityamelioration.

Increasingqualityawarenessbecameall themorecrucialwhen theprojectstarted in2004because theEUCommissionwasdefiningstandardregulationsforsolubleandroastedcoffeeonthemaximumpermissiblelevelsofOTAOchratoxin,atoxinproducedbyfungiincoffeethatisnotproperlydriedorstoredafterharvest.Thenaturalor“unwashed”coffeemainlyproducedinEthiopia’shighlandsisespeciallysusceptibletothesefungi.Thus,inordertopreparethenationalcoffeesectortomeetEUregulationsitwascriticaltodevelopqualitycontrolandadvisoryservicesgearedtowardsthosewhoperformtheinitialdryingandstoringofcoffeebeans:thefarmers.

OBJECTIVE PURSUED

Theoverallobjectivewastocontributeto improvement of the quality of coffee produced in Ethiopiathroughqualityawarenessonthelocallevel.ThiswouldbedonebyestablishmentoflaboratoriesintheWesternandSouthernpartofEthiopiaprovidingqualitycontrolservicesandtrainingtofarmersandtraders.Theprogramaimedat(i)empoweringproducerswithknowledgeovertheirproductaswellas(ii)securingtheearningsofnationalbusinessesinvolvedintrading,processingandexportingcoffeebyincreasingtheproportionofcoffeereachingexportquality.Supplementaryobjectivesoftheprogramwere(iii)toincreasethepercentageofcoffeewithpotentialforsaleasahighergradeorspecialtycoffeebydiscouragingthemixingofdifferentcoffeesandfacilitatingtraceability,and(iv)tospeeduptheexportprocessbyreducingthecongestionatthemainquality-testinglaboratoryinAddisAbaba.Attimesmorethan400truckswaitedfordaysduringpeakseason.

PROJECT DESIGN AND IMPLEMENTATION

InasimpleroundoftelephonecallsfromITCin2003,ahandfulofcoffeeimportersindependentlysuggestedlocalcoffeequality-testingfacilitiesasapriorityforthesector.Atthesametime,EthiopianPrimeMinister’sMaster Plan for Coffee Development and Marketing(October2003)calledforlocalqualityassessmentservicesthroughthecreationofdecentralizedlaboratories.

Thedesignoftheprojectwasfurtherdevelopedinearly2004throughdiscussionsamongITC,theCoffeeandTeaAuthority(CTA)andtheCuppingandLiquoringUnit(CLU)oftheMinistryofAgricultureandRuralDevelopment(MoARD).Thepartnersdecidedtobuildandequipsevencoffee“cupping”laboratoriesthroughoutthemajorcoffee producing regions, and to train 21 persons in the techniques of coffee quality analysis, also called“cupping.”Theactivitieswerecomplementarytothoseofpastandongoingprojects,includingthemuchlargerCoffee Improvement ProgrammefinancedbytheEUandanteriorprojectsfinancedbytheSwissGovernment.

MoARDwaswaslargelyresponsiblefortheimplementation.ITCprovidedassistancefromGenevaandfacilitatedimplementation through missions and short-term consultancies. The State Secretariat for Economic Affairs(SECO)of theSwissGovernmentpledgeduptoUS$900,000for ITCfor theproject implementation.Almost

US$300,000wasspentonforeignequipmentpurchasedbyITCwithmostofthebalanceusedfortraining,localequipmentandinstallationsinthelaboratorybuildings.

Majorprojectactivitiesincludedthesiteselection,constructionofthelaboratories,internationalprocurementoflaboratoryequipment,andtheselectionandtrainingoflaboratorystaff.

PROBLEMS ENCOUNTERED

Anumberof unforeseendifficulties caused theproject’s implementation to last seven years rather than theoriginallyplanned-forthreeyears.Moreover,majorinstitutionalchangesaffectedtheexpectedprojectimpacts.Someofthemainissueswere:

Belatedprojectapproval:FundingfromSECOwasmadeavailableattheendof2002butonlyinlate2003did Ethiopia andSwitzerland formally appoint ITC as implementing agency. The actual projectwas notimplementeduntilthefirsthalfof2005,dueinparttotherelevantMinistry’sreorganizationanditsbelatednessinapprovingtheproject.ThesedelayswereprobablyduetotheCoffee&TeaAuthoritybeingabolishedandthecoffeesub-sectorcomingunderthewingsofthenewlyformedTea,Coffee&SpicesDepartmentwithintheMinistryofAgriculture&RuralDevelopment(MoARD).

Anextendedsite-selectionprocess:Duetotheprotractednegotiationsandpoliticalconsiderationsinvolved,ittookalmosttwoyearstoselecttheregionsandchoosetheactualsites,andtheneventuallysecuretheleaseofthelandforeachofthesevenlaboratories.Italsorequiredextratimeandsourcingofadditionalfunds.Thisisbecausein2006MoARDdecidedto:1)increasethenumberoflaboratoriesfromseventoeight;2)increasethesizeofthelaboratoriesand3)increasethenumberofstafftobetrainedascuppersfrom21to49.

Increasesinbuildingcosts:Whenthelaboratoryconstructioncontractswerefinallyreadytobeawardedin2007,thepricesofbuildingmaterialshadincreasedsignificantlyaboveinitiallybudgetedcostsduetohighdemands,notablyforimportedcement.Fortunately,theMinistrywasabletosecureUS$1.1millionfromtheInternationalFundforAgriculturalDevelopment(IFAD)tocoverthesupplementaryconstructioncosts.

Changeswithinthepartnerorganization:Theprojectwasalsoaffectedbyreassignmentsofresponsibilitiesbetweenandwithinministries.Theinitialprojectpartner,theCoffeeandTeaAuthority(CTA),wasdissolvedin2004.MoARDabsorbedmuchoftheCTA(includingtheCLU)andthustheMinistrybecamethenewprojectpartner.NewfocalpointswereappointedseveraltimesinbothMoARDandCLU.

Limitedmanagementcapacities forgrants:Duringthe implementationof theproject, itbecameapparentthatMoARDwasshortofstaffwhocouldadequatelymanageandreportonexternalfinancialresources.Thiscauseddelaysindecisionmakingandtherebydisbursementsandimplementation.

Institutional changes in the national coffeemarketing system: The start-up of the laboratories’ operationcoincidedwithmajorchangesintheprocessofcoffeegradingandtradingatthenationallevel.InOctober2008,theParliamentvotedtorequirethatnearlyallofEthiopia’scoffeewastobechannelledthroughthenewlycreatedEthiopianCommodityExchange(ECX),whichpreviouslyonlydealtingrains.HencethelaboratoriesweretransferredfromtheCLUtobecomepartoftheintegratedwarehouse,handling,gradingandmarketingsystemoftheECXin2009. The laboratoriesnowclassifyandgradecoffeefor theExchange.Whilethelaboratorieshavegainedincreasedsignificanceinthenationalcoffeesectorthroughtheirintegrationintothenewmarketingsystem,itdelayedtheirlaunch.Theirnewrolehasshiftedprioritiesandsomewhatdelayedtheirabilitytoservetheoriginalintendedpurpose:toprovideinformationservicesoncoffeequalitytofarmers.Thecommodityexchange’sintroductionofnewclassificationshasalsodampenedthequalitycomparativeadvantageforsomeofEthiopia’sbestcoffees–anissuethatisbeingaddressedbyinternationalbuyersandexporters.

FACTORS FOR SUCCESS

TheprojectalsohadnumerousfactorsinitsfavourincludingsupportforthecoffeeindustryfromtheEthiopianPrimeMinister’sofficeandcollaborationfromotherinternationalagencies.

STRONGNATIONALPOLITICALBACKING:Theproject’scoreelement–laboratorieswithtrainedstaff–wasforeseeninthePrimeMinister’sMasterPlanfortheCoffeeSectorfrom2003.Withthemandatecomingfromthehighestlevelofthegovernment,thelocalpartners(MoARDandCLU)werebetterhabilitatedtoimplementtheproject,includingtheratherpoliticallydifficultsiteselectionprocess.

COMPLEMENTARY SUPPORT FROM DONORS: Other organizations joined the initiative and providedcomplementarysupport:IFADcoveredunforeseencostsofconstructionofthelaboratoriesandincreaseoftheirnumberandsize.TheUS-basedCoffeeQualityInstitute(CQI)providedprofessionalaccreditationtrainingtothestaffandcontinuestotrain“cuppers”inEthiopia.Finally,theEmbassyofSwitzerlandcontributedfundsfor(i)adhocassistancefromanEthiopia-basedSwissconsultantduringtwoyears,and(ii)thedesignandprintingof10,000copiesofamanualusedbylaboratorystafftoadvisefarmersonoptimalpost-harvestingtechniques.

RESULTS ACHIEVED

Thesocialandeconomicdevelopmentimpactsoftheprojectaredifficult(maybeimpossible)toascertain.Thatisbecauseofthelargenumberoffactorsthatinfluencethese,inparticularthefluctuationsininternationalpricesofcoffeeandimportedgoodsonwhichfarmersdepend.It isalsoduetothefactthatimpactsbasedontheempowermentofasocialgroupoftenmaterializeyearsaftertheendofaproject.

Nonetheless,itispossibletolisttheproject’smajoroutputsandtomakereasonableassertionsregardingtheproject’soutcomesandimpacts.Theseachievementsincludethefollowing:

A NETWORK OF DECENTRALIZED COFFEE QUALITY ASSESSMENT LABORATORIES: The essentialoutputoftheprojectisanetworkofsevencompletedqualityassessmentlaboratoriesinWestern,Southwesternand Southern Ethiopia. Two of the new laboratories were operational already in late 2009. The remaininglaboratoriesbecameoperationalduring2010althoughsomeofthemareawaitingthecompletionofwarehousingandweigh-stationfacilities(requirementsfortheirnewfunctionsintheECXgradingandmarketingsystemandnotpartoftheoriginalproject).

INCREASED LOCAL CAPACITY FOR QUALITY ASSESSMENT:Atotalof49staffmembersweretrainedintheassessmentofcoffeequalitythroughthe“cupping”technique;42ofthesereceivedinternationalprofessionalaccreditation(Q-graderstatus)bytheCQIin2009.These“cuppers”arecompetenttoadvisefarmersinimprovingqualitythroughamelioratedpost-harvestprocessingofthecoffeecherries.Althoughtheprojectdidnothaveanexplicitstrategytoencouragethetrainingofwomen(andveryfewwomenappliedfortraining),twowomenweretrainedascuppers,14asroasters(onemonthtraining)and28assamplers/sorters(15daystraining).

SUSTAINABLE RURAL INCOMES:Thefeethatcoffeebuyerspayfortheserviceofcoffeegrading(afixedcostpervolume)assuresasourceofincometopaythesalariesofsome15staffperlaboratoryandthemaintenanceofthebuildings.Infact,thelaboratories’integrationintotheCommodityExchangesystemassuresthelong-termsustainabilityofthefacilities.

MITIGATED INCREASES IN QUALITY AWARENESS AT A LOCAL LEVEL:Thelaboratories’newfunctioningradingcoffeefortheExchangehasdelayedtheiravailabilitytoprovideinformationservicesoncoffeequalitytofarmers.Largeproducersandtradersbenefitdirectlyfromthelaboratories’services,buttheempowermentofthesmallproducersthroughqualityawarenesshasnotyetmaterializedasplanned.However,thelocationofthelaboratoriesintheprovinceshasdemystifiedtheprocessofqualityassessmenttothousandsofsmallholdercoffeefarmerswho,forthefirsttime,areabletoaccessalaboratory.

MITIGATED IMPROVEMENT OF COFFEE QUALITY:Informationonqualityhasnotyetreachedthemajorityof farmers due to the change in the function of the laboratories (described above), therefore, the project’soutcomeonadvancingcoffeequalityimprovementsisalsolessthanexpected.Itisassumed,however,thatthelaboratorieswillcontributetoimprovedcoffeequalityasintendedoncetheremaininglaboratoriesopenandtherelativelynewECXgradingandmarketingsystemisimprovedovertime.Itappearsthatthequalitiesofthelowergradesofsundriednaturalcoffeeswillimprovethroughthenewsystem.Onesurprisingand‘accidental’positiveoutcomeonqualitythathasoccurredisthatsomecoffeeshavebeendifferentiated.Someofthem,forexampleLekempti,havebeenfoundtobeexceptionalinquality.MuchofthesehighqualitycoffeesusedtobemixedintothegenericsundriedDjimmasandwerepreviouslysoldwithoutapremium.

IMPROVED EFFICIENCY IN MARKETING: AsanintegralpartofthenewECXsystem,thelaboratorieshavecontributedtotheimprovedefficiencyofcoffeegradingandcontrolledmarketingforthemajorityofcoffee.Thesystemstillneedstoadaptfurthertosatisfyinternationalbuyers’demandforhighgradeandspecialcoffees.ThedecentralizedgradinghasrelievedcongestionatthecentrallaboratoriesinAddisAbabaandtherebyhascutcostsandtimefortraders.

LESSONS LEARNED

The overriding lesson learned from the Ethiopia Coffee Quality Improvement Project is the importance of involving buyers in the project design. Faced with the need to develop a project proposal quickly,ITCquestionedanumberof largecoffeebuyerson theirperceivedpriority for thecoffeesector inEthiopia.Unanimouslytheyarguedthattheirmainconcernwas“improvedqualityawarenessatfarmlevel”.TheCoffeeandTeaAuthority,theMinistryofAgricultureandotherstakeholdersbroughtupthesameissue.

Certainly,participatorystakeholdermeetingsareessentialtodevelopconsensusandownershipfortheproject,andalsotoguaranteethataprojectisnotcapturedbyspecialinterests.However,inmanycasesinternationalbuyerscanprovidefairlyaccurateindicationsofwhereinterventionsaremostrelevantandcosteffective.Thebuyers’inputsarevaluablegiventheirlong-termexperienceinthesector,theirabilitytocomparenationalsectorsacrosscountries,andtheirstrongrelationshipswithnationalproducersandgovernmentinstitutions.

Possiblyduetothisproject,thereisincreasingconsiderationforcoffeequalitytestingandcontrolatornearerthegrowingareasinothercountries.Thisisalsoleadingtothedesignoflargetrunkswithbasicmobileequipmentpowered for roasting,grindingandheatingwater fromavehicle, to increase farmerawarenessofconsumerrequirements.

Anotherimportantlessontocomefromtheprojectisthatdevelopment assistance needs to be adapted to the partners’ capacities in project implementation and financial management.Nationalministriesandpartnerinstitutionsindevelopingcountriesareoftencharacterizedbysuchdifficultiesasover-stretchedcapacities,slowprocurementsystems,modestfinancialaccountingsystems,unduepoliticalinfluence,frequentreassignmentsofkeypersons,andmore.Insuchcontexts,grantstoministriesinparticulararesubjecttosignificantrisks.Dependingonthepartners’capacities,agenciesanddonorsmay,therefore,needtoplayagreaterroleintheimplementationandfinancialmanagementofaproject.Atthesametime,itisalsocriticaltoprovidecontinuousandproximateassistancetothenationalinstitutionstostrengthenprojectmanagementcapacities.Inthecaseofthisproject,along-termITCprojectrepresentativeinAddisAbabatosupportMoARDinovercomingcertainblockagesandinstrengtheningitsfinancialmanagementcapacities,wouldlikelyhaveallowedforafasterimplementation.

CONCLUSION

Despite the difficulties and obstacles faced by the Ethiopia Coffee Quality Improvement Project (problemscertainlynotuniqueinEthiopiatothisinitiative!),theprojectislikelytohavesizeableimpactsontrade,growthandpovertyreductioninthelong-termnotleastbecauseitfocusedonaveryimportanteconomicsector(coffee)andalargetargetgroup(smallholderfarmers).

Moreover,basedonthelessonslearnedfromthiscase,thefollowingrecommendationscanbemadetosimilarAidforTradeinitiatives:

CONSULT INTERNATIONAL BUYERS FOR PROJECT DESIGN:Buyersoftenhavelong-termexperienceinasector,theabilitytocomparenationalsectorsacrosscountries,andstrongworkingrelationshipswithnationalproducersandgovernmentinstitutions.Inthepastdecadethetradeofcoffeehasbecomeevenmorebuyer-driventhanbefore.Bysimplyaskingthebuyers“What could we do in this sector in this country which would make you willing to pay more or buy larger quantities”onegetsaverygoodindicationofwhatneedstobedonetodevelopexportsinagivencountry.Thebuyerisking!

THOROUGHLY ASSESS NATIONAL PARTNERS’ CAPACITIES IN PROJECT IMPLEMENTATION AND FINANCIAL MANAGEMENT, AND ADAPT DEVELOPMENT ASSISTANCE ACCORDINGLY:Thecapacitiesofnationalpublicinstitutionstoimplementprojectsandmanagefinancialresourcesareofteninherentlyweakindevelopingcountries;theformofthedevelopmentassistancemustbeadaptedtotheseinordertobeeffective.Inthecaseofgrantstoministries,strongcapacitiesinprojectimplementationandfinancialmanagementareapreconditiontoensurethat theexpectedimpactsonthetarget-groupsarerealized.Furthermore,continuousandproximateassistance to thenational institutions tostrengthenprojectmanagementcapacitiesareoftennecessary.

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