Small Batch on the road

How We Buy In Ethiopia

1 With the release of Guji Sidamo, our second Ethiopian coffee of the year this seems a good time to reflect on my trip to Ethiopia last year and the two varying ways that we buy coffee in Ethiopia. The way we source coffee has evolved significantly over the last eight years and as our volumes increase, our sourcing and buying procedures are becoming more specific to each origin we work in. Central America, our primary buying region, is relatively straightforward; our importers help us find and finance the coffee, a local exporter receives the coffee from the producers and prepares it for export, it is trucked to a relatively close Atlantic port and then shipped to the UK, landing a few months after harvest. In truth it is rarely this straightforward, there are always issues unique to each coffee, but the basic chain of events is pretty simple. The supply chain in Africa tends to be a little more complicated, and especially so in Ethiopia. I travelled there last November with one of our importers, Falcon Coffees, to learn more about how exactly we purchase coffee from Ethiopia and why the model there is so different to other origins. After landing in Addis Ababa fresh from an overnight flight the first place we visited in the city was the Ethiopian Commodities Exchange or ECX. The ECX is where all commodities in Ethiopia are traded and is where the vast majority of Ethiopian coffee is bought and sold. The Exchange is set up as a traditional trading floor; digital signs display the lots being traded and coming up, clocks show the time in various cities and the current market prices tick by. Each session begins with a bell and men in green jackets enter the floor and sell warehouse receipts relating to certain lots of coffees to men in khaki jackets representing Addis based exporters. The sellers offer a price and offer up their hands for a high five and, when a buyer agrees, he completes the high five and the deal. 2 So what exactly are they selling? Whose coffee is represented by those warehouse receipts? To answer these questions we need to take a brief look back at the supply chain that brings coffee to the ECX floor. Most coffee in Ethiopia (and indeed Africa as a whole) is grown by smallholder farmers. These are typically family farms with a few hectares of land under coffee but no processing facilities of their own. Because they do not produce enough volume to have their own wet mills, smallholders either become members of a co-operative or Farmers Union or sell their harvested cherries to private washing stations in their area. We will look at the co-operative model in a moment but it is these cherries that are sold to the private washing stations that find their way to the ECX. These private mills process cherries by either the washed or natural method and deliver them to the ECX warehouse in their region where they are graded by quality and designated by processing and region (For example,‘Sidamo Grade 1 Washed’ ‘Djimma Grade 4 Commercial Unwashed’ etc.). The coffees are graded based on the quality of the green coffee and cup profile, with specialty grade coffees receiving a second more detailed sensory assessment. You can view the full list of regions, grades and criteria on the ECX website here. It is purely by region and grade that coffees are bought and sold on the ECX floor. We visited the exchange with Mike Mammo owner of Addis Exporter, a specialty exporter who handles Falcon’s ECX coffees. Mike explained that as buyers they are legally not allowed to know the exact provenance of the coffees they are buying and they are not able to taste or physically examine the coffees either, they are simply buying, for example, a 30 bag lot of ‘Yirgacheffe A 1 Washed Specialty’. This bears repeating, the buyer cannot see the coffee, taste the coffee or know where it comes from. They are simply buying a graded commodity at that day’s market price. This makes sense in the environment of a commodity exchange like the ECX but goes against everything we normally work towards in our sourcing models. Created in April 2008 the ECX was Africa’s first commodity exchange, designed with the goal of developing “an efficient, modern trading system” to protect the rights of “buyers, sellers, intermediaries and the general public”. The fundamental tenets of this were to bring producers and buyers together, provide an independent grading system and ensure financial propriety, essentially making sure farmers got paid in good time (the ECX is now a ‘T+1’ exchange, the only one in Africa, which means all payments are made one day after the trade). [caption id="attachment_1957" align="aligncenter" width="600"]Cherry Delivery at Bokasso Cherry Delivery at Bokasso[/caption] Prior to 2008 coffees were sold in an auction system whereby the private washing stations could sell specific lots from their mills (and even from individual producers) with full traceability and provenance information to the highest bidder. From the perspective of a specialty buyer this seems a more desirable system and indeed the ECX has removed the opportunity for traceability and the development of relationships between producers and roasters. However the supporters of the ECX state that under this old system there was often no path to market for producers, no guarantee on quality and grading for buyers and no rules on payment. A commoditised market like the ECX may not be our ideal sourcing system but it provides a steady stream of quality coffee out of the country and a guaranteed and protected path to market for producers. Some positives have arisen as well. All ECX licensed exporters (ie the buyers) must be Ethiopian nationals ensuring profits stay within the country, there is little risk to the end user (roasters) buying through the exchange as the quality of green coffee and cup profile are strictly regulated and finally the standardising and transparency of prices means the smallholder farmers know what their coffee is selling for and what their cherries are currently worth even in the most rural areas. [caption id="attachment_1959" align="aligncenter" width="600"]Downtown Yirgacheffe Downtown Yirgacheffe[/caption] After leaving Addis we headed south to the famous coffee region of Sidamo and its iconic town Yirgacheffe where we visited several coffee co-operatives including Fero, Belle Kare, Idido and Bokasso all with efficient, modern wet mills, healthy looking cherries and high quality washed and natural coffees. The Co-operatives and Farmers Unions provide a much more familiar path to market for us but have their own problems with volume and availability. Co-operatives work quite similarly to the private washing stations that supply the ECX with two key exceptions. Firstly, the smallholder farmers who deliver cherries are members of the co-operative and as well as being paid for the cherry they deliver they receive a second payment at the end of the harvest in the form of a profit dividend based on the total amount of cherry they delivered that year. Secondly, instead of being sold through the ECX co-operative coffees are sold through one of six regional Farmers Unions that are funded by the co-operatives. The Unions sell the coffee directly to exporters and are allowed to operate outside of the ECX. [caption id="attachment_1960" align="aligncenter" width="500"]A farmers receipt from Fero Farmers Co-operative. These are issued daily after the farmers cherry delivery has been weighed, the co-op and the member both keep copies. A farmers receipt from Fero Farmers Co-operative. These are issued daily after the farmers cherry delivery has been weighed, the co-op and the member both keep copies.[/caption] We loved the Co-ops we visited and were gladly shown detailed financial and payroll records, prices paid, social programmes, dividends and training for the members. This is the kind of open sourcing model we like but nearly all of the coffee we saw was already sold. The out-put of an individual co-op is small and in a competitive specialty market, with lots of roasters and importers seeking these high quality, traceable Ethiopian coffee availability is a real issue. Once bought, receiving co-op coffees in a workable time frame has been a challenge in the past. The exporting can be less efficient than through the ECX and at peak harvest time can often become log jammed especially as one single union, the Oromia Coffee Farmers Union, handles over 50% of all co-operative coffees and so comes under a huge strain every harvest season. [caption id="attachment_1961" align="aligncenter" width="600"]The head members of Belekara co-operative in Yirgacheffe The head members of Belekara co-operative in Yirgacheffe[/caption] The two coffees we have featured so far this year, Nano Challa and Guji Sidamo, are great examples of these two buying models and are both exceptional coffees. The Guji was purchased through the ECX, all we know about it is that it comes from somewhere in the Guji region of Sidamo, is Specialty Grade Q1, fully washed and delivered to the ECX warehouse in Hawassa. I cupped this coffee alongside about 10 other very similar lots and picked this one based purely on the cup profile. It’s delicious. Nano Challa on the other hand we know a lot about. It is a co-operative of around 400 farmer members created in 2010 with the help of Technoserve- a NGO that have done a lot of work in African coffee communities- and is based near the town of Agaro in western Ethiopia close to Djimma and on the edge of the ancient Gera forest. I also picked this coffee out of a lot of samples on the cupping table as it is delicious. The difference of course is that we can hopefully buy again from Nano Challa next year, maybe go visit them and start to build a relationship that could become mutually beneficial for many years. We have no idea whereabouts in Guji the 50 bags we bought this year came from and while we could buy another 50 bags of Q1 Guji Sidamo next year they will not be from the same producers and will not taste the same. [caption id="attachment_1962" align="aligncenter" width="600"]Idido Co-operative, YirgacheffeIdido Co-operative, Yirgacheffe[/caption] This is getting pretty long ,so to recap: The ECX offers guaranteed quality, good availability and the quickest shipping of coffees out of this land-locked East African country. On the downside we have zero traceability and cannot build direct and on-going relationships with producers. The co-operatives are more similar to our existing sourcing models, providing full traceability and high quality coffees from producers that we can potentially work with year after year after year. This is certainly the model we would like to pursue in the future but due to the relative lack of availability this will inevitably take time to pursue and develop. Despite its flaws the ECX has been a power for some advancement in Ethiopian coffee, it has improved the path to market for many producers (especially those that are producing coffee below the specialty level,) and offers us a base on which to evolve our Ethiopian sourcing model. This is by no means an exhaustive and conclusive assessment of the Ethiopian coffee industry. I have spent one week in the country and we buy a comparatively tiny amount of Ethiopian coffee. I just wanted to share in depth some of the complications that go into making Ethiopia such a unique sourcing market and try to explain why we buy as we do currently and what we hope to do in the future. Al