Published on International Journal of Agriculture & Agribusiness
Publication Date: December, 2019
Nasir Ababulgu Abasimel & Hika Wana Fufa
Department of Agribusiness and Value Chain Management, Wollega University
Department of Agricultural Economics, Wollega University
P.O. BOX: 395, Wollega University, Ethiopia
Journal Full Text PDF: Analysis of Value Chain and Economics of Coffee Production.
Analyzing coffee value chain and understanding the basic characteristics and economy of the decision-making unit or actors is very essential in order to design an appropriate research and development initiative. This study focus on analyzing the socioeconomic characteristics and means of income generation of sample coffee producing households and traders, mapping coffee value chain and identifying opportunities and constraints of coffee value chain in the study area. Primary and secondary source of data were used and collected using questionnaires and interview methods. About 124 coffee producers and 8 suppliers/wholesalers are selected randomly and 10 collectors, two primary cooperatives, two exporters and one cooperative union were selected purposively. The average coffee farming experience is 15.2 years. The land allocated for coffee production ranges from 0.125 to 3 hectares. In the area, coffee is a leading cash crop and a major means of livelihood, and khat, livestock, fruit, vegetable, and off-farm activities like khat trading, coffee trading, livesock trading and shopping are also other means of income generation. Mean initial working capital of suppliers and collectors are 65375.00 and 8100.00 Birr respectively. The primary actors in coffee value chain are input suppliers, producers and traders (collectors, suppliers, cooperatives, exporters and union). The majority of the sample producers indicated that coffee related diseases like coffee berry disease (CBD) and coffee wilt disease (CWD), labor shortage, land shortage, seed shortage, insects, weeds, high rain fall, drought and pesticide shortage as major constraints of coffee production. The most important coffee marketing constraints in the study area during the survey year were low price of coffee, lack of transport, limited access to market information, low quality of the crop, distance, lack of market, poor linkage with commercial value chain actors, lack of quality storage facilities and low demand for coffee. Hence, the necessary measures are recommended to be taken as a remedy for specified problems related to coffee value chain.
Keywords: Value Chain Analysis, Coffee, Mapping, Actors’ Economy, Opportunities and Constraints.
Coffee, Ethiopia’s largest export crop is the backbone of the economy (Nicolas 2007). It is estimated that between 7.5 and 8 million households depend on coffee for a considerable share of their income, and provides jobs for many more people in coffee-related activities of processing, transporting or marketing along activities (Samuel & Eva 2008). Ethiopia is famous as the origin of coffee and is the largest producer in Africa. In production of Arabica coffee, Ethiopia is the sixth largest producer in the world. About 15 million people (almost 20 percent of the total population) directly or indirectly depend on coffee for their living (USDA, 2012).
The coffee subsector of Ethiopia has been and continues to be the foundation for the country’s agricultural and economic development. The subsector accounts for over 35% of agricultural foreign exchange earnings and about 4% of agricultural Gross Domestic Product (Agric. GDP), provides income to over 15 million people in the country through provision of jobs for farmers, local traders, processors, transporters, exporters and bankers (FAOSTA, 2011). Currently, Ethiopia exports 170,000 tons and has a domestic consumption is estimated to be about 50% of the total production (Aklilu and Ludi, 2010). The total land area of about 5,68,740 (3.91% ) hectares are covered by coffee, from which a total volume of about 4,199,801.56 quintals of coffee are obtained, from 4,723,483 private peasant holdings in the agricultural year (CSA, 2014/2015).
Jimma zone is one of the coffee growing zones in the Oromia Regional State. Currently, the total land area of about 97,155 hectares are covered by coffee, from which a total volume of about 803,224 quintals of coffee are obtained, from 444,216 private peasant holdings in the agricultural year (CSA, 2014/2015). The zone covers a total of 21% of the export share of the country and 43% of the export share of the Oromia Region (JZARDO, 2008). In terms of the top 25 districts, Oromia dominates with 18 of the top 25. More specifically, Jimma zone in Oromia has five of the top 25 producing districts (IFPRI 2015). Despite the importance of coffee for better income generation, smallholder farmers in the area continue to face a number of challenges related with marketing. Though coffee is one of the world’s most traded goods, as the commodity price has plunged in recent years it is increasingly hard for coffee farmers to survive on their crops (Tora Bäckman 2009). Limited access to market facilities, less exposure for market information, infrastructural problem, inadequate support services and problem in transportation services are some of the problems resulting in low participation of smallholder farmers in selling their products (Bizualem, 2015).
Therefore, understanding the behavior of coffee value chain in general, analyzing the economy of coffee value chain actors in particular can be of a great importance in the development of sound policies with respect to agricultural marketing and prices, imports and exports, and in meeting the overall rural and national development objectives of the country. Hence, it is imperative to analyze analyzing the economic characteristics of coffee producers and traders, mapping coffee value chain to identify: actors, functions of actors along the chain, supporters and enablers of coffee value chain, and opportunities and constraints of coffee value chain and point out potential factors on which policy should emphasize in the future.
2.1 Description of the study area: Jimma Zone extends between 7013’- 8o56’ North latitude and 35049’- 38038’ East longitude. It is located in the south western part of Oromiya National Regional State. It is bordered with East Wollega zone in the north, with east shawa zone and southwest Shawa zone in north east, with SNNP administration in the south east and south part, and with Illubabor zone in the west and it is found between altitude ranges of 880 to 3340 meters above sea level (PSEPJZ, 2014). There are favorable climatic conditions, variety of local coffee types for quality improvement and long history of its production in the Zone.
Population: The total population of Jimma administrative zone during the year 2007 was 2,486,155 people of which 1,250,527 (50.3%) were male and 1,235,628 (49.7%) were female. In terms of spatial residence, 2,212,677 (about 89.1%) of the population are living in the rural areas while the remaining 273,477 (about 10.9%) are living in the urban areas.
Farming system: The zone is potentially rich particularly for farming practices. The agro-climatic conditions dominated by tropical, subtropical and cool are suitable for production of cereals, pulses, fruits, vegetables and oil seeds in addition to coffee. It is very ideal for some crops such as enset. The zone is relatively free from meager and erratic rainfall distribution as compared to other zones of Oromia that have great impact on rain fed agriculture. Mixed farming is a common practice prevailing in the zone. As a result, the livelihood of the rural people is dependent on both farming and livestock rearing. In addition, the people who have access to lakes and large rivers do practice fishery (PSEPJZ, 2014).
Transport- According to Jimma zone trade and tourism 2009, the road network of Jimma zone is moderately linked. Most of districts and their capital town lie on the main roads which run from Addis Ababa to Jimma, then Mizen-Tepi to the West and Bedele-Nekemte to the North from Jimma town and to region of SNNP.
Communication: Telephone- All districts of Jimma zone have accessed to telephone services according to Ethiopian Telecommunication Corporation of south western region office, 2009. Postal service-Postal service is the other branch of Communication and its service covers all parts of the zone through one main postal service, in Jimma town, 7 other regular offices in districts and 70 agents since 2008/2009. The expansion of Communication and its effectiveness is very important for governmental, non-governmental, private, and individuals. Fast flow of information helps to narrow down gaps timely, between demand and supply of various developmental aspects in the zone.
Seka Chokorsa district extends between 70 20’ _ 70 45’ north latitude and 360 33’ _ 360 53′ east longitude. It is bordered with Gomma and Mena districts north; Kersa district in northeast; Dedo district in east; with SNNP district in south; Gera district in west and northwest; and Sombo Shabe district in the south west. The total surface area of the district is 85,425 hectares and situated in the southern part of Jimma zone. Seka Chokorsa district has a total population of 212,619 during 2008 of which 107,011(50.3%) were male and 105,607(49.7%) were female. Most part of the district belongs to subtropical with the altitude of 1500-2300 m a.s.l (72%) and highland areas with the altitude ranges from 2300-2800 m a.s.l (21%) and the altitude below 1500 m a.s.l (7%) belongs to lowland. The western parts do have cool agro-climate with the mean annual temperature ranges of between 15-180c and the vast part of the district is classified as subtropical with mean annual temperature ranges of between 18-220c. The annual rainfall varies between 1300 mm and 1700 mm (BFED, 2015). The location map of the study area is depicted hereunder.
Figure 1: Map of the study area
2.2 Sampling Techniques
A two stage random sampling procedure was employed. Among the eight potential districts, Seka chokorsa district was selected purposively. Selecting representative sample kebeles is also an important criteria. Thus, in the first stage, with the consultation of the district agricultural experts and development agents, out of 34 coffee producing kebeles of the district, 3 coffee producers’ kebeles namely Sakala genefo, Ilike tunjo and Gorantu alaga were selected randomly. In the second stage, based on the number of coffee producer households, 124 sample coffee producer households were selected from the sample kebeles using simple random sampling technique with probability proportional to size (Table 2). In addition, suppliers were selected randomly whereas collectors, primary cooperatives, exporters and cooperative union were selected purposively.
2.2.1 Sample Size Determination
Since adequate size of sample is needed for the purpose of econometric analysis, sample size was determined using Yamane (1967) formula. Yamane (1967) developed the following equation to yield a representative sample for proportions. Hence, the sample size was determined based on the following formula given by Yamane (1967).
Where, n is sample size, N is the number of households in the district and e is the desired level of precision. By taking e as 9%, the total number of household was 40123 and therefore, the sample size was 124 sample households which were selected randomly.
Table 1. Sample size distribution in the sample rural kebeles.
Name of selected kebeles Total number of coffee producer households Number of sample households
Sakala genefo 1140 58
Ilike tunjo 1022 52
Gorantu alaga 275 14
Total 2437 124
Source: Own computation survey results, 2017
Other value chain actors like collectors, suppliers, cooperatives, exporters and union were also included. From the lists 16 suppliers, 8 of them were selected randomly. Furthermore, 10 collectors, two primary cooperatives, two exporters and one cooperative union were selected purposively. Since there were not the recorded lists of collectors in the area, they were selected purposively and due to limited number of primary cooperatives in the study area, both of them were selected purposively.
2.3. Types, Sources and Methods of Data Collection
The data, both quantitative and qualitative types, needed for this study were collected from both primary and secondary sources. The primary data were obtained using informal and formal surveys. The formal survey was undertaken through formal interviews with randomly selected households, traders and cooperative union using a pre-tested semi-structured questionnaire for each group. The questionnaire was used for the data collection from smallholder farmers through trained enumerators. Qualitative data about business practices and transactions and the patterns and socio-economic activities of the farmers in the study area were gathered informally through direct observation of the study area and informal discussions with key informants like DAs, agriculture sector offices, administrators, and ethnic leaders using checklists.
In addition, secondary data of both qualitative and quantitative nature such as agricultural inputs supplied and consumed, physical characteristics, population size etc. were gathered from Central Statistics Agency (CSA), Bureau of Agriculture and Rural Development (BoARD), and other sources through reviewing and examination of reports as well as records of published and unpublished documents.
Information on different variables such as data on coffee production, coffee marketed, prices of coffee supplied, distance to market, distance to all weather roads, age of the household head, extension service, educational status of the household head, household size, access to market information, credit facility, and type of sellers and buyers, among others, were collected using the semi-structured questionnaire.
2.4. Methods of Data Analysis
Descriptive statistics and econometric analysis were used to analyze the data collected from coffee producers, collectors, suppliers, cooperatives, exporters and cooperative union.
2.4.1. Descriptive statistics
This method of data analysis refers to the use of percentages, means, standard deviations, t-test, χ2-test, and value chain maps in the process of examining actors and describing marketing functions, facilities, services, enablers and supporters, and used in analyzing households and traders’ economic characteristics and the overall coffee value chain where necessary including opportunities and constraints.
3. RESULTS AND DISCUSSION
3.1. Descriptive Results
3.1.1. Demographic characteristics of sample households
Understanding the basic characteristics of the decision-making unit is very essential in order to design an appropriate research and development initiative. From the surveyed sample small holder households, variables which are believed to influence the decision making process are analyzed. Obtained results are presented as follows.
Out of the 124 coffee producing sample households, 91% are male and 9% are female headed. There is significant difference between male and female households at 1% significance level. The educational status of the sample producers depicted that 50.8% of them are literate whereas 49.2% are illiterate. Table 3 reflects the age of sample households exhibited variation ranging from 21 to 82 years with the mean of 45.67 years. There is also significant difference among the age of the households at 1 percent significance level. In the study area, the average family size of the sample household was 5.11 persons and the difference is significant at 1% significance level (Table 3). This figure is greater than both national and regional average family size of 4.7 and 4.8 person respectively indicating the need for intervention through strengthening family planning program in the study area.
Table 2. Demographic characteristics of the sample households
Dummy variables Items Number( 124) Percent (%) Std. Err. χ2-test
91 .026 9.160***
Education status Literate
49.2 .045 0.180
Continuous variables Mean Std. Err. Min. Max. t-test
Age 45.76 1.218 21 82 37.570***
Family size 5.11 0.185 2 13 27.679***
Note: *** statistically significant at 1% significant level.
Source: Own computation results, 2017
3.1.2 Socio-economic analysis of the households
From Table 4 below, the average coffee farming experience is 15.2 years and there is significant difference among the households in coffee farming experience at 1% significant level. This shows that farmers in the study area have good experience in coffee production.
Land is one of the basic factors of production which affect the amount of coffee supplied to market. Land holding is the size of land a household is entitled to, is measured in hectare. Smallholder farmers in the study area use their land for all farming activities mainly for the production of food crops and cash crops, livestock grazing, house construction and tree plantation. The average total land holding, cultivated land, grazing land and coffee land size are 1.85, 0.87, 0.35 and 0.79 hectares respectively. There is significant difference among the households in total land holding, cultivated land, grazing land and coffee land size at 1% significance level (Table 4). Total land holding of the farmers ranges from 0.125 to 8 hectares, the cultivated land size ranges from 0.125 to 4 hectares, similarly land allocated for coffee production ranges from 0.125 to 3 hectares. The pattern indicates that farmers mainly allocate land for coffee production in the study area.
Table 3. Socio-economic analysis of the sample households.
Variable Mean Std. Err. Min Max t-test
Total Land holding 1.85 .132 .125 8 14.180***
Cultivated land .87 .071 .125 4 12.226***
Grazing land .35 .026 .125 1 13.423***
Coffee land Size
Coffee farming experience .79
4 3 14.087***
Note: *** statistically significant at 1% significance level.
Source: Own computation results, 2017
3.1.3. Production overview and means of livelihoods (income generation)
Sample households depend on different means of livelihood earning strategies where coffee production was the major sources of income for the majority of the producers in Seka chokorsa district. Following this, about 53.2% of the households earn their living from coffee production as a primary source in the study area. Grain production is also considered as the second major means of livelihood in the district by about 21.8% which is followed by khat production (11.3%). Similarly, khat production, fruit production, coffee trading, khat trading, livestock production, vegetable production and livestock trading are other activities supporting the livelihood of farming households in the area (Appendix 1).
In the area, coffee is a leading cash crop and a major means of livelihood, and khat, livestock, fruit, vegetable, and off-farm activities like khat trading, coffee trading, livesock trading and shopping are also other means of income generation. Crop production includes maize, sorghum, wheat, barley, teff, beans and peas. Major fruits production include avocado, banana, mango, papaya, orange and lemon. Vegetables like potato, tomato, pepper, onion, garlic, cabbage and many others are means of livelihood and income generation. Livestock activities such as cattle raising, goat and sheep production, poultry production and fattening are the important one.
Off/non-farm activities includes coffee trading, khat trading, livestock trading and retail shopping. It is considered as a crucial factor since it is important for the households’ economy and it is also a critical survival strategy for rural farm household. Non/Off -farm income provides farm households with insurance against the risk in farming. In addition, non/off-farm activities offer cyclical and seasonal employment, to supplement meager farm incomes. In the study areas, 38% of farm households generate income from non/off-farm activities that may enable them to support farm activities and other portfolios that are important to run their living.
3.1.4. Economic Analysis of coffee traders
Appendix Table 2 depicts that the mean age, family size, experience in coffee trading and the number of employees for coffee suppliers are 41.9, 4.1, 10.3 and 3.1 respectively and 29.2, 2.7, 4.6 and 0.6 for collectors respectively. This shows that suppliers are older, larger in family size and more experienced than collectors in coffee marketing. Mean initial working capital of suppliers and collectors are 65375.00 and 8100.00 Birr respectively whereas the mean of their current working capital are 191250.00 and 32700.00 Birr respectively showing that suppliers are financially stronger than collectors since they purchase and supply coffee to ECX in large quantity.
The educational level of traders varies from primary to tertiary level. About 50% of coffee suppliers have attended secondary school and the remaining 25% have attended primary and tertiary school whereas 70% and 30% of collectors have completed elementary and high school education respectively. Most of the suppliers (75%) do not have their own vehicle to transport coffee to the central market (ECX), but they own assets like storage, residence, mobile phone and weighting scale while 25% of them have assets like storage, residence, mobile, weighting scale, shop, motorcycle and vehicle which reduces marketing cost for the owners. All collectors owned assets like residence, mobile phone and weighting scale but do not have storage and vehicle, they either store coffee in their residence or immediately transport to coffee suppliers incurring transportation cost. Regarding the packing materials, all suppliers use sisal sacks whereas only 30% of collectors use it. About 50% of collectors use plastic sacks and 20% of them use both sisal and plastic sacks to pack and transport coffee to the market. However, this leads to poor quality coffee while proper and advisable storage and packing materials are important to ensure the quality of coffee.
3.2. Value Chain Analysis
3.2.1. Coffee value chain map in the study area
According to McCormick and Schmitz (2002), value chain mapping enables to visualize the flow of the product from conception to end consumer through various actors. It also helps to identify the different actors, supporters and enablers involved in the coffee value chain, and to understand their roles and linkages. Consequently, coffee value chain map is constructed for Seka chokorsa district and depicted in Figure 2.
3.2.2. Actors and their function in coffee value chain
18.104.22.168. Primary actors
The primary actors in coffee value chain are input suppliers, producers and traders (collectors, suppliers, cooperatives, exporters and union). Each of these actors add value in the process of changing product title. Some functions or roles are performed by more than one actor, and some actors perform more than one role.
Input Suppliers: At this stage of the value chain, there are many actors who are involved directly or indirectly in agricultural input supply in the study area. Currently OoARD, local market, Jimma research center, NGOs, primary cooperatives and private seedling suppliers/producers are the main source of input supply. The district office of agriculture was the major source of input supply for coffee producing farmers in the study area. About 75.8% of the households use coffee seedling from seedling station established by OoARD of the district at kebele level. Others about 11.3%, 5.6%, 4.8% and 2.4% of the sample households were using seedling obtained from private seedling producers, Jiimma research center, NGOs and primary cooperatives respectively as the source of seed/seedling supply. Almost all households do purchase farm implements (100%) from seka local market. The cooperative and other concerned body are not supplying farmers with quality farm equipment and packing materials, they were using poor quality implement and packing materials available at the local market incurring higher cost/price which constrained the production as well as the quality of coffee.
Figure 2. Coffee value chain map
Source: Own sketch from survey results, 2017
Input supply for coffee production was minimal for small-scale producers in Seka Chokorsa district. They often use organic fertilizer like manure and compost prepared at home and low quality farm implement purchased from local markets. Nevertheless, seedling, labour, manure and farm tools such as, hoe, pruning scissors, cutting saw, machetes and spade were the main inputs used. Seedling was supplied mainly by government and seedling producing model farmers. Whereas farm tools are supplied by traders to local markets.
Coffee producers in the study area use local, improved and both type of coffee seeds. Out of 124 sample households, about 67 (54%) of them were using both local and improved coffee seeds. Whereas 33 (26.6%) and 24 (19.4%) of sample households were using local and improved coffee seeds respectively (Table 5).
Table 5. Type of coffee seed used by sample households.
Type Number Percent
Local 33 26.6
Improved 24 19.4
Both 67 54
Total 124 100
Source: Own computation results, 2017
Coffee growers: Coffee growers are the second major actors who perform most of the value chain functions right from farm inputs preparation on their farms or procurement of the inputs from other sources to post harvest handling and marketing. The major value chain functions of coffee growers include seed bed preparation, sowing, seedling hole preparation, planting, fertilizing, weeding, pest/ disease control, harvesting and postharvest handling.
The diverse agro-climatic conditions can make growing coffee crops highly cost effective and competitive, and provide vast opportunities in the study areas. Unfortunately, these opportunities have not been exploited by the farmers due to the lower price they receive for their coffee in the markets. About 85.5% of households indicated that they had information about coffee market. For instance, they hear about price and buyers of coffee from local market, other fellow farmers, the primary coffee market, DAs and from radio, but don’t have any idea about price and supply of coffee in the central or ECX market. About, 14.5% had no any coffee marketing information at all. Most of the households, (about 75%) carried out all forms of value addition to their coffee by engaging in activities like harvesting coffee bean one by one, drying coffee bean on bed/wire mesh/cement floor, cleaning, hulling if necessary and storing in appropriate materials designed for coffee. They supply their coffee using drought animals (75%), man power (24.2%) and vehicle (0.8%). The accessibility of vehicles in the study area was very limited due to lack of road connections which requires government attention towards the expansion of infrastructure in the area.
Table 5. Market information accessibility, value addition and means of transportation used by the sample households.
Variables Items Number(124) Percent (%)
Access to coffee market information Yes 18 14.5
No 106 85.5
All form of Postharvest value addition Yes 93 75
No 31 25
Means of transportation used vehicle 1 0.8
Manpower 30 24.2
Back of animals 93 75
Source: Own computation results, 2017
Collectors: Collectors are represented by coffee suppliers so that they buy coffee from primary coffee market, and sell to coffee suppliers serving as their agents. Once the government banned the collectors from the business to improve producers’ margins and ensure coffee quality, they are operating coffee trading being represented as agents of coffee suppliers. However, they have no warehouses of their own forcing them transfer the product to suppliers immediately. Some collectors do not have sufficient capital to purchase coffee. Hence, they borrow money from coffee suppliers to operate the business.
Suppliers: Suppliers are the third actors in the coffee value chain, they have license from district trade and market development office and granted certificate of capability in coffee trade from district agriculture office. They buy coffee either from producers at primary coffee markets or from collectors or from their agents. Then they add value through processing such as cleaning and drying supply to ECX warehouse at Jimma branch for inspection of quality and grading. Finally they pass the product to export market through their agent in ECX, who possesses a seat in ECX, and who charges about 0.5% of the revenue for the service rendered.
Primary cooperatives: Primary cooperatives are also the second actors in coffee value chain. However, they carry out the activities of coffee suppliers. They purchase coffee from members and non-members to supply to ECX warehouse at Jimma for inspection of quality and grading and then deliver to Oromia Coffee Farmers Union in Addis Ababa. The union purchases coffee at the current market price at ECX for different coffee types. In the study area, 50.8% of the sample households are cooperative members while 49.2% are non-members. However, about 97.6% of the producers reported that they were not getting any services or benefits from the cooperative because of its late establishment of the cooperative in the study area. But 2.4% of respondents indicated that they have been getting some services and benefit. Moreover, cooperatives in the study area have no yet enough capital. As a result most coffee in the area is purchased by traders. Hence the expansion of fair trade is very low.
Exporters: Exporters are traders who buy coffee at ECX trading floor through auction. Exporters reprocess and export coffee bean. Exporters are not allowed to purchase coffee directly from farmers, collectors and suppliers. They are only permitted to purchase from ECX through auction floor in Addis Ababa. Buyers and sellers need to get registered as a member or agent to access the ECX market. After exporters purchase and process up to the export standard, they sell the product to importers. Coffee that does not meet export standard are often sold in the domestic market to wholesalers through ECX auction for rejected coffee. Wholesalers sell the coffee to retailers, and retailers sell to the local consumers.
Oromia coffee farmers’ cooperative union: Oromia coffee farmer’s cooperative union was established to purchase coffee from members and non-members found in the oromia region and take part in the export business. Since the primary cooperatives in study area are members of the union, they supply coffee to Oromia coffee farmers’ cooperative union. The union`s functions include exporting coffee, provision a warehouse service, promoting coffee processing, ensuring supply of organic coffee, distribution of farm inputs, provision of transport service, establishing fuel depot, provision of saving and credit facilities and representing its members.
22.214.171.124. Supporting services and enablers
Such actors are those who provide supportive services including training and extension, information, financial and research services. According to Martin et al. (2007), access to information or knowledge, technology and finance determines the state of success of value chain actors. OoARD, Jimma research center, primary cooperatives, local market, transportation, micro finance, NGOs and private seedling growers are the main supporting and enabling actors who play a crucial role in the provision of such services.
Training and extension services: The survey result revealed that 66% of then sample households were participating in training related to coffee production that was organized in the last five years. The result shows that most of the trainings were given on seedbed and seedling hole preparation, crop management, harvesting and post- harvest handling (Appendix Table 4).
With regard to extension contact, among the total sample households, 34.7% have contacted extension services providers. The district OoARD experts and DAs equipped on the subject matter are the major providers of advisory services and training on coffee production and management practices. Among 43 sample coffee producers who had extension contact 69.8% of them accessed contact with DAs, whereas the remaining 30.2% of the producers obtained the service from the district OoARD experts. In addition, the survey revealed that 45.3%, 24.5%, 19.8% and 10.4% of coffee producing households had market information from local market, radio, other farmers and DAs respectively (Appendix Table 4).
Financial services: In the study area, formal and informal credit types have been identified as potential sources of funds. Nonetheless, the survey result showed that only 3.2 percent of the sample households took credit. This indicates that most of the households were not participating in the credit market. This has probably to do with the religious background of the households that prohibits paying and/or earning interest.
3.2.3. Value chain governance
The dominant value chain actors play facilitation role. They determine the flow of product and level of prices. In effect, they govern the value chain and most other chain actors subscribe to the rules set in the marketing process. The study result indicates that the exporters and suppliers are the key value chain governors due to the economies of scale. About 74% of the households reported that as suppliers are governing the chain by influencing upstream and downstream chain actors; and all suppliers reported that as exporters are the key actors through richness and reach. The districts’ market is heavily dependent on exporters for coffee export, and therefore the coffee value chains are highly influenced by the exporters. Due to the lack of a proper market information system, not allowed to sell to exporters and minimal bargaining power, farmers are forced to sell their product at the price offered by traders. Traders in the district usually refer to ECX markets for price fixation. Traders are always complaining that the farmers are not providing quality product while farmers are blaming the traders for offering low price. Producers are price takers and they can hardly negotiate the price as the price of coffee is set at ECX according to the quality and grade level of coffee. Still worse, also they are not allowed to store coffee for long time to seek higher prices.
3.5. Constraints and opportunities in the coffee value chain
Value chain analysis has been used to examine constraints and opportunities in the enabling environment in which the chains operate and they have also been used as a tool with new methods of linking suppliers and service providers to the value chains of marketers. A number of challenges, opportunities and entry points for technological, institutional and organizational innovation for further upgrading the value chain in the study area were identified by the different value chain actors. In this thesis, the major constraints and opportunities at different levels of coffee value chain are identified and briefly discussed.
Production Constraints: Value chain analysis is essential in understanding markets, the relationship and participation of different actors, and the critical constraints that limit the growth of coffee production and consequently the competitiveness of smallholder farmers. These farmers currently receive only a small fraction of the ultimate value of their output, even if, risk and rewards should be shared down the chain. In this regard, there are factors that hinder the production of coffee in the study area. The majority of the sample producers indicated that coffee related diseases like coffee berry disease (CBD) and coffee wilt disease (CWD), labor shortage, land shortage, seed shortage, insects, weeds, high rain fall, drought and pesticide shortage as major constraints of coffee production. The major constraints of coffee production are discussed below.
Table 6. The major constraints of coffee producers.
Production constraints Frequency of sample households Percentages
Diseases 106 85.5
Labor shortage 94 75.8
Land shortage 82 66
Seed shortage 70 56.5
Insects 52 41.9
Weeds 30 24.2
High rain fall 21 16.9
Drought 11 8.9
lack of pesticides 10 8.1
Source: Own computation results, 2017
From table 6 the major constraints in the production of coffee are diseases which rank first, shortage of labor is one of the severe problems which rank second since labor is one of the important factors of production, the other constraints which rank third was land shortage which limits the production severely for about 66% of coffee producing farmers. The fourth one which related to the shortage and unavailability of inputs is seed shortage which constraints farmers to increase production and supply of coffee. The fifth, sixth and seventh problems in the production of coffee in the study area were insects, weeds and high rain fall respectively. The other less important problems are long term drought and lack of pesticides. There were no suppliers of fungicide and other chemicals in the district.
Diseases (CBD and CWD): This the most severe problem facing the farmers in the production of coffee from which the farmers are suffering in the study area as surveyed from 85.5% of the respondents. The problem is related to limited access to improved seeds and diseases resistance varieties. This shows most farmers are using poor quality seeds/seedling, due to unavailability of high quality at planting time and are expensive. The other reason for this problem is the problem of management skill arise from inadequate farmer skills and knowledge on production and farm management that mainly related with poor extension service.
Shortage of agricultural inputs: The most important physical inputs for coffee production are labor, land and improved coffee seed/seedling. Research and extension service, information and proper technological support are non-physical inputs that are equally important for production and supply. Among the total sample of respondents, 75.8%, 66% and 56.5% replied limited access and supply of labor, land and seed shortage respectively as their production problem (Table 12). This is caused mainly due to insufficient seed multiplying and distributing agency, shortage of supply, high input price, inappropriate delivery mechanisms and unavailability when required.
Pests and lack of pesticides: The problem of pest and pesticide go together which directly related to agricultural input access problem. Unavailability of pesticide and herbicides mainly create these problems in addition to the problem of accessing to improved seeds and disease resistance coffee varieties.
Natural factors: Natural factors such as high rainfall and sometimes shortage of rain and flood are often beyond the control of farmers and institutions. Despite the availability of suitable air condition in the area, the production and market supply of coffee by smallholders is low and traditional due different production, institutional and marketing factors.
Marketing constraints at producers level: The most important coffee marketing constraints in the study area during the survey year were low price of coffee, lack of transport, limited access to market information, low quality of the crop, far distance of the market from producers location, lack of market, poor linkage with commercial value chain actors, lack of quality storage facilities and low demand for coffee (Table 7).
Table 7. The most important coffee marketing constrains at producers’ level
Marketing constraints Frequency Percent
Low price of coffee 57 46
Lack of transport 18 14.5
Lack of market information 13 10.5
Low quality of the product 8 6.5
High market distance 8 6.5
Lack of market 8 6.5
Poor linkage with commercial value chain actors 7 5.6
Lack of storage 4 3.2
Low demand 1 0.8
Total 124 100
Source: Own computation results, 2017
Traders level Constraints
Collectors and suppliers level constraints: Quality problem due to insufficient product handling was mentioned by 80% of coffee collectors and more than 87.5% coffee suppliers. This is due to insufficient product handling specially during harvesting and after the coffee is harvested. Absence of well ventilated and cemented storage are also constraints that result in poor quality coffee and ultimately low price. Shortage of supply was one of constraint identified by this study. About 70% of coffee collectors and 87.5% of coffee suppliers reported coffee supply in the area being inadequate and limited during some months before its collection because most of the coffee is supplied in few month after harvesting.
Shortage of capital was also another constraint limiting coffee trading in the area from which 90% coffee collectors and 25% coffee suppliers are facing. This indicated that coffee collectors are mainly affected by this problem as they have no license and/or no collateral to obtain credit from financial institution and lenders. They usually take a larger portion of their money from coffee suppliers for whom they supply since coffee suppliers are strong financially and not affected much by this problem. Inability of price setting was significant constraint at traders’ level as reported by 75% of coffee suppliers and 30% of coffee collectors. This is due to the power of ECX in setting price which have put obstacle on traders in setting price of their interest to earn unreasonable profit. There was also poor support service in the area as obtained from 50% of collectors and 62.5% of coffee suppliers. In the district, there was no processing machine for suppliers to process their coffee at lower cost and poor access to transportation was the other constraint for collectors in transporting coffee to suppliers which limit the supply. About 40% of collectors had the difficulty of storage whereas only 12.5% of suppliers lack adequate storage. The other constraint especially for about 50% of suppliers was insufficient government policy for both exported and rejected coffee. As they have reported, the government is not facilitating market for rejected coffee rather they are searching for market by themselves and the price of coffee is low.
Table 8. Constraints at collectors and suppliers level.
Constraints Collectors level Suppliers level
Frequency % Frequency %
Lack of capital 9 90 2 25
Price setting problem 3 30 6 75
Supply shortage 7 70 7 87.5
Storage problem 4 40 1 12.5
Information flow 1 10 1 12.5
Weak government policy 2 20 4 50
Quality problem 8 80 7 87.5
Lack of support service 5 50 5 62.5
lack of demand 1 10 1 12.5
Source: Own computation results, 2017
Constraints at export level: Coffee is one of the world’s important cash crop and widely traded commodity. Most of the coffee trade is based either on standard contracts where two parties have to agree on price, quality, quantity, packing, shipment and pay conditions or based on futures market also known as commodity exchange. Coffee is shipped from Jimma to Addis Ababa then to final port where it is ready for export. The constraints of export market were shortage of coffee supply leading to incapacity of exporting the required amount signed on contract by the two parties and the quality problem was also other constraints the exporters were facing which were eroded during the production, harvesting, post-harvest handling, storage and marketing phase through adulteration of coffee origins by traders since exporters are unable to work with producers and processors at the farm level to build quality.
Production opportunities: Availability of optimum temperature rank first level by the majority of coffee producing sample households. Beside suitable temperature for the production of coffee in the study area, its being Ethiopian export commodity and its originity, its effect in generating better income, its better productivity in the study area, its use as cash income source, increasing price and its continuous increasing demand in the market were some of the opportunities of coffee. The survey result shows that 45.2% the majority of the producers explained the suitability of temperature as the most important opportunities and intend to expand coffee production and supply (Table 15).
The district altitude and soil are suitable and fertile which is suitable for coffee production ranking first by about 18.5% and 14.5% of the sample households respectively and hence are important opportunities. The district also naturally endowed by other production potentials though it has some production and marketing constraints. Some of the potentials to mention are the following. It is very suitable to produce not only coffee crop but also other market oriented commodities of cereals, fruit and vegetables, pulses and/or animal production. Of the potential crops, tropical fruits like papaya, mango, banana, orange and avocado; and cereals like teff, maize, wheat, sorghum, barley and production are some of the available potentials. On top of this, fertile arable land and abundant water potential are some to mention.
Creation of enabling policy environment under government suitable agricultural policy designed to support farmers at the grass-root level especially emphasis given for export commodities is the other opportunity dimension. The deployment of development agents at each kebele based on their academic back ground are also important policy dimensions. Furthermore, the provision or transfer of technology and establishment of cooperatives are the advantages that facilitate the production and marketing of coffee in the study area. There are also various organizations such as Jimma University, Jimma research center and NGOs like Technoserve that provide production inputs and technical services to the farmers. In addition ample rain fall, low labor costs and availability of demand in the production and marketing of coffee gave benefits for producers in the area.
Table 9. The major coffee production opportunities in the study area
Opportunities Frequency (124) Percent (100%)
Optimum temperatures 56 45.2
Suitable altitude 23 18.5
Fertile soil 18 14.5
Creation of enabling policy environment 8 6.5
Ample rain fall 7 5.6
Transfer of technology 4 3.2
Low labor costs 4 3.2
Availability of demand 4 3.2
Source: Own computation results, 2017
Opportunities in domestic and export market: The major opportunities of coffee trading identified during survey were the ability of a country to sustainably produce and supply fine specialty coffee, with potential of producing all coffee types of the various world coffee growing origins., availability of strong potential to increase supply, increasing demand of organic coffee, the presence of primary coffee markets and ECX market, and special government policy emphasis on the crop. Other opportunities mentioned by coffee traders were growing local consumption (Ethiopia is not only the birthplace, an important producer, and a leading exporter of Arabica coffee, but also a heavy consumer, Ethiopians are the highest coffee consumers in Africa), accessibility and suitable geographical location of the district for coffee trading.
4. CONCLUSION AND RECOMMENDATION
In the study area, the average family size of the sample household was 5.11 persons. This figure is greater than both national and regional average family size of 4.7 and 4.8 people respectively indicating the need for intervention through strengthening family planning program. Farmers in the study area have good experience in coffee production with the mean of 15 years. The study indicates that farmers mainly allocate land for coffee production and coffee is a leading cash crop and a major means of livelihood, and Grain, khat, livestock, fruit, vegetable, and off-farm activities like khat trading, coffee trading, livesock trading and shopping are also other means of income generation. About 38% of farm households generate income from non/off-farm activities that may enable them to support farm activities and other portfolios that are important to run their living.
The study shows that suppliers are older, larger in family size and more experienced than collectors in coffee marketing, and they are financially stronger than collectors since they purchase and supply coffee to ECX in large quantity. Most of the suppliers (75%) do not have their own vehicle to transport coffee to the central market. Regarding the packing materials, all suppliers use sisal sacks whereas only 30% of collectors use it and this leads to poor quality coffee while proper and advisable storage and packing materials are important to ensure the quality of coffee. The primary actors in coffee value chain are input suppliers, producers and traders (collectors, suppliers, cooperatives, exporters and union). As the study shows, cooperative and other concerned body are not supplying farmers with quality farm equipment and packing materials, they are using poor quality implement and packing materials available at the local market incurring higher cost which constrained the production as well as the quality of coffee. This requires intervention through supplying good quality implement, packing materials, improved seed, seedling and farm implements which are essential inputs at the production stage. The accessibility of transport in the study area was very limited due to lack of road connections which requires government attention towards the expansion of infrastructure in the area. About 74% of the households reported that as suppliers are governing the chain by influencing upstream and downstream chain actors; and all suppliers reported that as exporters are the key actors through richness and reach.
The majority of the sample producers indicated that coffee related diseases like coffee berry disease (CBD) and coffee wilt disease (CWD), labor shortage, land shortage, seed shortage, insects, weeds, high rain fall, drought and pesticide shortage as major constraints of coffee production. The most important coffee marketing constraints in the study area during the survey year were low price of coffee, lack of transport, limited access to market information, low quality of the crop, far distance of the market from producers location, lack of market, poor linkage with commercial value chain actors, lack of quality storage facilities and low demand for coffee and constraints of export market were shortage of coffee supply leading to incapacity of exporting the required amount signed on contract by the two parties and the quality problem was also other constraints the exporters were facing which were eroded during the production, harvesting, post-harvest handling, storage and marketing phase through adulteration of coffee origins by traders since exporters are unable to work with producers and processors at the farm level to build quality. Therefore, policy needs to emphasize at improving the dissemination of modern inputs technologies, strengthening farmers cooperatives, encouraging extension service provisions, expanding the accessibility of market infrastructure, facilitation of market and information access; and enhancing supportive and enabling service are highly recommended in order to accelerate the overall value chain development.
We thank Ministry of Education and Wollega University for giving us such opportunity and facilitating the required resources needed to conduct this research. And we want to say ‘Thank you’ to our family for their invaluable motivation and encouragement during the research undertakings.
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