UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT

COMMODITIES AT A GLANCE Special issue on coffee in East Africa

No. 10 ii COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

© 2018, United Nations

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UNCTAD/DITC/COM/2018/1 ACKNOWLEDGEMENTS AND EXPLANATORY NOTES iii

ACKNOWLEDGEMENTS

The series, Commodities at a Glance, aims to collect, present and disseminate accurate and relevant statistical information linked to international primary commodity markets in a clear, concise and reader-friendly format. 3GHRDCHSHNMNE"NLLNCHSHDR@S@&K@MBDV@ROQDO@QDCAX.KHUHDQ6DFD $BNMNLHB EE@HQR.EjBDQ "NLLNCHSHDR Branch, Division on International Trade and Commodities, UNCTAD, under the overall guidance of Janvier Nkurunziza, Chief of the Commodity Research and Analysis Section of the Branch. The cover of this publication was created by Magali Studer, UNCTAD. Photo credit © Fotolia. For further information about this publication, please contact the Commodities Branch, UNCTAD, Palais des Nations, CH-1211 Geneva 10, Switzerland, tel. +41(22) 917 5766/6286, e-mail: [email protected].

EXPLANATORY NOTES

KKC@S@RNTQBDR@QDHMCHB@SDCTMCDQSGDQDKDU@MSS@AKDR@MCjFTQDR 1DEDQDMBDSNfCNKK@QRt NQTRDNESGD¨RXLANK RHFMHjDR4MHSDC2S@SDRCNKK@QR TMKDRRNSGDQVHRDRODBHjDC Reference to “bags” in this report represents bags of 60-kg net green coffee equivalent. The term “tons” refers to metric tons. Unless otherwise stated, all prices in this report are in nominal terms. iv COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

ABBREVIATIONS

AFCA African Fine Coffees Association

ARFIC Agence de Régulation de la Filière Café

CVC coffee value chain

ECX Ethiopian Commodity Exchange

ICA International Coffee Agreement (1962-1989)

ICO International Coffee Organization

INTERCAFE Association Interprofessionnelle du café du Burundi

NAEB National agricultural Export Development Board

TCB Tanzanian Coffee Board

UCDA Uganda Coffee Development Authority CONTENTS v

CONTENTS

ACKNOWLEDGEMENTS ...... III

EXPLANATORY NOTES ...... III

ABBREVIATIONS ...... IV

CHAPTER I INTRODUCTION ...... 1

CHAPTER II THE GLOBAL SETTING: HISTORY IN THE CUP...... 5

1. Origins ...... 6 2. The global coffee market ...... 8 3. The “next wave” ...... 16

CHAPTER III THE COFFEE VALUE CHAIN: FROM TREE TO CUP ...... 19

1. Organizational structure ...... 20 2. Segmentation of the CVC ...... 24 3. Distribution of income along the CVC ...... 25

CHAPTER IV THE EAST AFRICAN COFFEE MARKET ...... 27

1. Size and market share ...... 28 2. Coffee farming in East Africa ...... 30 3. Market concentration and dynamics ...... 30

CHAPTER V CASE STUDIES: COFFEE SECTOR IN BURUNDI AND ETHIOPIA ...... 33

1. Burundi ...... 34 2. Ethiopia ...... 36

CHAPTER VI CONSTRAINTS AND OPPORTUNITIES IN EAST AFRICA’S COFFEE SECTOR ...... 39

1. Constraints ...... 40 2. Opportunities ...... 40 3. Conclusion ...... 41 REFERENCES ...... 42

ANNEX 1. COFFEE SPECIES AND VARIETIES ...... 44

ANNEX 2. KEY ACTIVITES AND ACTORS ALONG THE CVC...... 45

ANNEX 3. COFFEE PROFILES IN EAST AFRICA ...... 46 vi COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

FIGURES

Figure 1 – Historical distribution of coffee seeds around the world ...... 6

Figure 2 – The Coffee Belt ...... 9

Figure 3 – Green coffee production ...... 10

Figure 4 – Global trade in green coffee ...... 11

Figure 5 – Roast bean market share ...... 12

%HFTQDl"NEEDDOQHBDR  ...... 13

Figure 7 – Evolution of average prices of Arabica vs Robusta prices, 1980–2016 ...... 14

Figure 8 – Volume of trade in futures compared with green coffee imports ...... 15

Figure 9 – Coffee Arabica market versus Fairtrade Foundation minimum price, 1989–2017 ...... 16

Figure 10 – The global coffee value chain: From tree to cup ...... 21

Figure 11 – Market concentration along the global coffee value chain ...... 23

Figure 12 – Levels of concentration in international trade and roasting markets ...... 23

Figure 13 – Producer prices vis-à-vis retail prices of roasted coffee ...... 25

Figure 14 – Ethiopian specialty coffee: Distribution of the value, 2011 ...... 26

Figure 15 – East African green coffee production ...... 28

Figure 16 – Decline of African coffee production ...... 28

Figure 17 – Coffee production and exports of selected East African countries...... 29

Figure 18 – Burundi coffee sector: employment overview...... 34

%HFTQDl!TQTMCHRBNEEDDOQNCTBSHNM  ...... 35

%HFTQDl$SGHNOH@RBNEEDDDWONQSR  ...... 37

%HFTQDl,@HMCDRSHM@SHNMRNE$SGHNOH@MBNEEDD  ...... 37 CONTENTS vii

BOXES

Box 1 – Coffee cherry processing methods ...... 10

Box 2 – The Ethiopia Commodity Exchange ...... 38

TABLES

Table 1 – Introduction of coffee plants to different countries ...... 7

Table 2 – Key statistics on coffee farming in East Africa ...... 30

Table 3 – Leading coffee exporting companies in East Africa ...... 31

Table 4 – Leading international coffee buyers in East Africa ...... 31

CHAPTER I INTRODUCTION 2 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

The coffee industry has been growing sustainably for For many producing countries, coffee is a major export over 500 years (Clarence-Smith et al., 2003). Today, product and a vital source of foreign exchange. It also is coffee is one of the most highly consumed beverages an important contributor to rural employment. All East in the world. African countries are commodity-dependent developing countries. For most of them, coffee production In both producing and consuming countries, coffee is BNMSQHATSDRRHFMHjB@MSKXSNSGDHQDBNMNLHBCDUDKNOLDMS  an important commodity. According to the International For example, coffee accounts for up to one quarter of "NEEDD.QF@MHY@SHNM(". LNQDSG@MŰLHKKHNMODNOKD merchandise export earnings in Ethiopia, and for as in the world rely on activities relating to coffee production much as two thirds in Burundi in some years (UNCTAD, ENQSGDHQKHUDKHGNNCR 3GHRHMBKTCDRŰLHKKHNMRL@KKGNKCDQ 2016). Thus, coffee is a strategic commodity both in farmers and workers living in poor socioeconomic microeconomic and macroeconomic terms. conditions (ICO, 2014). Coffee is also among the most valuable traded commodities. In developing countries, Using East Africa as an example, this report it was the second most exported primary commodity analyses the CVC and highlights the extent to which after oil, in value terms, during most of the 1970s and L@QJDS RSQTBSTQDR @QD NKHFNORNMHRSHB  VHSGŰ LHKKHNMR NE until the 2000s. However, since then, it has lost its smallholder coffee farmers selling their production to a prominence to other agricultural commodities, such as limited number of major local and international buyers. palm oil and soybeans (Talbot, 2004). In 2016, trade As price takers, these smallholders are vulnerable to a in coffee, whether roasted or decaffeinated, was worth global coffee market controlled by a handful of actors ¨ Ű AHKKHNM 1 Global production and consumption of whose interests do not necessarily align with theirs. coffee have been growing steadily over the past 30 3GHRKD@CRSNRHFMHjB@MSHLA@K@MBDRHMSGDCHRSQHATSHNMNE years, and are expected to continue rising, even though value among the various participants of the chain. The the growth rate of global production has been declining. share of the retail price accruing to producing countries The annual average growth rates of production were RGQ@MJ EQNL @M @UDQ@FD NE Ű ODQ BDMS CTQHMF SGD  ŰODQBDMSCTQHMFSGDODQHNCADSVDDM@MC  ODQHNCEQNLSN SN@M@UDQ@FDNEŰODQBDMS  Ű ODQ BDMS ADSVDDM  @MC   @MC  Ű ODQ between 1990 and 2010 (Talbot, 1997; ICO Statistics), cent between 2011 and 2017. On the other hand, the SGNTFGEQNLSN SGHRRG@QDQNRDSNŰODQ annual average growth rates of consumption of coffee cent (ICO Statistics). G@UDADDMHMBQD@RHMF @S ŰODQBDMSADSVDDM@MC The report further discusses the importance of fostering   ŰODQBDMSADSVDDM@MC @MC ŰODQ value addition in source countries and rebalancing the cent since 2011. This increase has been driven largely position of smallholder farmers in the global CVC. It by growing demand in exporting countries and emerging points out that the international coffee pricing system is markets.2 L@HMKXCDSDQLHMDCNMRSNBJDWBG@MFDkNNQRNQAXAHF This report focuses on the coffee industry by exploring integrated players in the wealthiest parts of the world, latest developments and examining the current state far from the small coffee farmers who constitute the of coffee production and trade across East Africa backbone of this industry. VGDQD NUDQ Ű LHKKHNM ODNOKD @QD DHSGDQ BNEEDD FQNVDQR This discussion is carried out in a context where or work in the coffee sector. The aim is to discuss the the demand for coffee is set to increase. Global importance of coffee in various East African economies consumption of coffee rose by more than two thirds and the sustainability of their coffee value chain (CVC). ADSVDDM  @MC   EQNL  Ű LHKKHNM A@FR SN The report highlights the key issues and challenges at  Ű LHKKHNM A@FR  3GD RSQNMFDRS RNTQBDR NE SG@S the production and initial processing stages, and their growth were non-traditional consuming markets3 effects on the well-being of smallholder growers and where consumption more than doubled over this processors. It concludes by shedding some light on ODQHNC  EQNL  Ű LHKKHNM A@FR SN  Ű LHKKHNM A@FR  opportunities for value addition. VHSGETQSGDQRHFMHjB@MSFQNVSGDWODBSDCNUDQSGDMDWS few years (ICO, 2014; ICO Statistics).

1 ITC Trade statistics. Available at: https://www.trademap.org/ Index.aspx (accessed in December 2017). Henceforth, this source is referred to as “ITC Statistics”. 3 Note: Non-traditional coffee consuming markets refer to cof- 2 ICO Trade statistics. Available at http://www.ico.org/trade_ fee-exporting and emerging market economies. Traditional statistics.asp (accessed in December 2017). Henceforth, this coffee consuming markets are mainly the United States of source is referred to as “ICO Statistics”. America, Canada, the European Union and Japan. CHAPTER I - Introduction 3

QUICK FACTS Worldwide and Africa

Over 120 million Coffee farming provides primary people livelihood to about rely on the coffee sector 25 million people 12 million

56 countries In non-traditional markets 25 countries consumption The coffee industry grow coffee has doubled is worth more than in the last 20 years yet to double $100 billion in the next 10 years $1.8 billion source: Based on data from ICO Statistics.

Current global supply does not match the • Fostering the establishment of coffee farmers’ projected demand. This poses challenges but also associations; opportunities for East African and other coffee- • Strengthening producers’ bargaining power; producing countries. Opportunities include the development of high-valued coffee, labelled coffee • Promoting regional bodies such as the African Fine and specialty coffee, as well as roasting close to Coffees Association (AFCA); and 4 origin and promoting single-coffee origin . Some • ,@JHMF jM@MBHMF @U@HK@AKD D F  OQDjM@MBHMF  countries are more advanced than others, which investment and early purchase contracts). should encourage the exchange of experiences not only among East African coffee-producing This report is structured as follows. Section II provides countries, but also between East Africa and other a brief history of coffee, from the remote tropical forests coffee-producing regions, particularly Central and NE$SGHNOH@VGDQDBNEEDDV@RjQRSfCHRBNUDQDCtSNSGD South America, in terms of value-added production current globilized commodity, traded and consumed of coffee and differentiating and marketing all over the world. Section III describes the coffee value strategies. chain (CVC), from tree to cup. Section IV introduces the East African coffee scene. Section V is devoted to For coffee-producing East African countries to capture two country case studies, focusing on the contrasting greater value from coffee production, they will need cases of Burundi and Ethiopia. Finally, the last section to implement an agricultural transformation agenda outlines the challenges and opportunities associated comprising the following elements: with the coffee sector in producing countries, with a • Reinforcing good agricultural practices; focus on East Africa.

4 Coffee grown within a single known geographic origin.

CHAPTER II THE GLOBAL SETTING: HISTORY IN THE CUP 6 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

1. Origins human history, linking peoples, continents and nations beyond social, cultural, religious and political barriers Coffee was “discovered” between the seventh and over a cup. This may be a myth, but many historians, DHFGSG BDMSTQX jFTQD   VGDM *G@KHC SGD KDFDMC@QX archeobotanists, and ecologists agree that coffee $SGHNOH@M FN@SGDQC MNSHBDC GHR kNBJ D@SHMF AQHFGS originated in the southwestern side of the Great Rift red berries and subsequently hopping around Valley (the Kaffa region in the southwestern Ethiopia energetically. He certainly could never have thought he highlands, the Boma Plateau in the Sudan and Mount was witnessing the launch of one of the most popular Marsabit in Kenya) (Anthony et al., 2002; Halevy, beverages that would have a profound impact on 2011).

Figure 1 – Historical distribution of coffee seeds around the world

Arabica From Ethiopia to Yemen (500–1500) From West Asia to the Netherlands (1616), India (1660s) and Indonesia (1690s) From the Netherlands/France to the Caribbean then South America (1720s) From West Asia by the French to Reunion (1715) From Reunion to East Africa and Latin America (late 1800s) From Asia to Europe (early 1700s) and Latin America (1760s)

Robusta From Central Africa to France (1890s) To America (early 1900s) To Asia (1900s)

Source: UNCTAD secretariat; Pendergrast, 2010. CHAPTER II - The global setting: history in the cup 7

Arab monopoly by West Asian producers and Hindu merchant communities. Relatively small quantities – between There is unsubstantiated evidence of consumption,  @MC SNMRVDQDOQNCTBDCHM8DLDM trading and knowledge of coffee before the late in the late eighteenth century (Tuchscherer, 2003), Middle Ages, which makes coffee a young beverage making coffee a luxury good. compared to tea, wine or cocoa, which were known to have been established thousands of years before Colonial commodity BNEEDD 3GDjQRSVQHSSDMRNTQBDRHMCHB@SDSG@S$SGHNOH@M Arabica coffee plants were introduced to Yemen before From the late 1600s to the early 1700s, coffee plants SGD jESDDMSG BDMSTQX VGDM SGDX VDQD jQRS BTKSHU@SDC were introduced for cultivation by traders, missionaries @MCTRDCAX8DLDMR2TjLNM@RSDQHDR3TBGRBGDQDQ  and colonists to Southeast Asia (Ceylon, Sumatra, 2003). Thereafter, from the Yemeni port of Mocha, Java, Celebes), the French Antilles, and then to South @ L@INQ L@QJDSOK@BD ENQ BNEEDD EQNL SGD jESDDMSG and Central America (table 1). By the 1800s and 1900s, to eighteenth century, coffee consumption spread %QDMBGBNEEDDf!NTQANMSXODtSGDjQRSOK@MSRADHMF quickly throughout the Arabian Peninsula, reaching OQNCTBDCHM1DTMHNMV@RHMSQNCTBDCSN$@RS EQHB@ ,@JJ@G "@HQN@MC(RS@MATKHMSGDK@SDjESDDMSGBDMSTQX  and South America. Coffee cultivation and trade were By the seventeenth century, coffee had reached West heavily linked with slavery, forced labour, colonialism Asia, South India, the entire North African coast, the and capitalism, which contributed to its spread across Balkans, Italy and then the rest of Europe. regions. Thereafter, global production and trade Known as the wine of Islam, blessed by the Pope, increased dramatically, as coffee was a highly valued drunk by Emperors, used by monks to keep them product with a ready consumer market in Europe, awake during long prayer sessions, sought by and later, North America. Amsterdam became the students to boost their performance, coffee was soon leading coffee hub for a century. The commodity was to become a familiar item in shops and homes in all dominated by European colonial production systems SGDRD OK@BDR  #TQHMF SGD jQRS SVN BDMSTQHDR @ESDQ HSR in Asia and America that targeted a relatively narrow discovery, coffee as a commodity was dominated and high-priced market.

Table 1 – Introduction of coffee plants to different countries Year To Description of events 500-1500 Yemen Coffee beans from Ethiopia 1660s India Coffee beans from Yemen by Baba Budan 1690s Ceylon (now Sri Lanka) Cultivation started in Ceylon by the Dutch 1699 Indonesia Seedlings imported from Malabar (India) to Java by Muslim traders 1706 The Netherlands Reports of arrival of coffee seeds in Amsterdam 1715 Reunion Seeds from Yemen brought by the French 1727 Brazil Plant from French Guiana transported by Francisco de Melo Palheta and planted in the state of Pará 1730 Jamaica Began to grow coffee 1740 Philippines Plants introduced in Lipa by the Spanish 1750 Indonesia First plants in Celebes 1779 Costa Rica Plants brought from Cuba 1783 Indonesia Imports of seedlings into Sumatra from India by Muslim traders 1784 Venezuela (now Bolivarian Plants imported from Martinique Republic of Venezuela) 1822 Angola Exports of Robusta 1880s Australia First coffee plantation established 1893 Kenya Introduction of bourbon type plants by French missionaries 1898 Tanganyika (now the United First plants brought to Kilimanjaro by Catholic missionaries Republic of Tanzania) 1920s Africa Expansion of Robusta Source: UNCTAD secretariat; Clarence-Smith et al.,2003. 8 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

Rise of coffee-producing nations markets (e.g. the Russian Federation, the Republic of Korea and Algeria). The rise in coffee consumption is also Brought to the Caribbean in the eighteenth century the result of new consumption patterns, with booming (Topik, 2004), the French coffee plants spread CDL@MC ENQ RODBH@KSX BNEEDDR @MC BDQSHjDC BNEEDDR substantially to Central and South America. By the but it is also due to rising urbanization, an increase in mid-eighteenth century, French colonies supplied two disposable income, the proliferation of coffee shops thirds of the world’s coffee, led by Saint-Domingue and the growing trend of a “café culture”. However, the (now Haiti), then the largest coffee exporter in the sustainability of coffee supply is at risk due to very low world. Before the French Revolution and anti-slavery prices for green coffee, currently at their lowest level in insurrection in 1789, about 40,000 tons of coffee were decades. This is pushing many smallholder farmers to produced. It is only in the mid-nineteenth century that RGHESSNNSGDQ LNQDOQNjS@AKD BQNOR Brazil emerged as the largest producer and exporter of inexpensive coffee, shifting production and Almost all global coffee production occurs in the consumption patterns to reach a mass market. World southern hemisphere, between the Tropics of Cancer consumption grew 15-fold in the nineteenth century @MC"@OQHBNQMjFTQD .UDQBNTMSQHDRHM EQHB@  4JDQR  VHSG!Q@YHK@BBNTMSHMFENQ@ANTSŰODQ Central and South America, and Asia, form what is cent of the expansion of world coffee production. known as the Coffee Belt or Coffee Growing Zone. 3GD QDRS NE SGD FQNVSG NQHFHM@SDC BGHDkX EQNL NSGDQ ANTSŰLHKKHNMGDBS@QDRNEK@MC ŰODQBDMSNESGD countries in Latin America (Colombia, Costa Rica, world’s agricultural area) are allocated to growing El Salvador, Guatemala and Venezuela (now the coffee, with more than half of it in South and Central Bolivarian Republic of Venezuela)), while production LDQHB@  Ű LHKKHNM @MC  Ű LHKKHNM  QDRODBSHUDKX  in Asia and Africa plummeted from one third (in the @MCSGDQDRSHM RH@ ŰLHKKHNM@MC EQHB@ŰLHKKHNM  RSNŰODQBDMSNESNS@KVNQKCOQNCTBSHNMVHSGHM (M   Ű ODQ BDMS NE SGD VNQKCR FQDDM BNEEDD half a century. OQNCTBSHNMV@RDWONQSDC !Q@YHK ŰLHKKHNMSNMR@MC 5HDS -@L  Ű LHKKHNM SNMR SNFDSGDQ @BBNTMSDC ENQ In Ethiopia, coffee became a major export-oriented half of the total exports of this commodity. The Latin commodity in the late nineteenth and early twentieth America and Caribbean region dominates the market centuries. Production relied on continued harvesting HMPT@MSHSX@MCU@KTDSDQLR¨ ŰAHKKHNM ENKKNVDCAX of wild forest trees in the country’s southwestern areas RH@¨ ŰAHKKHNM@MC EQHB@¨ ŰAHKKHNM (Sidamo), and on small farms in the northeast (Harar). Today, Ethiopia is the leading coffee producer and On the other hand, consumption is concentrated in consumer in Africa. the northern hemisphere, where the largest share of value is captured through roasting, branding, 2. The global coffee market packaging and retailing. In other words, most of the OQNjSR@BBQTDNTSRHCDSGD"NEEDD!DKS In 2016, the total value of the coffee industry, based 3GD FKNA@K BNEEDD L@QJDS BNMMDBSR @ANTS Ű LHKKHNM on world consumption data and retail prices, was BNEEDD OQNCTBHMF E@LHKHDR SN Ű LHKKHNM C@HKX BNEEDD DRSHL@SDCSNAD@ANTS¨ ŰAHKKHNM 5 The retail value consumers through multiple intermediate actors and of the United States coffee market alone amounted to complex power relationships. From the 1960s to ¨ŰAHKKHNMHM 6 The total value of coffee exports the 1990s, the coffee market was regulated through AXOQNCTBHMFBNTMSQHDRHMQD@BGDC¨ ŰAHKKHNM negotiations that established export quotas and target ENQ@UNKTLDNE ŰLHKKHNMA@FR ŰLHKKHNMSNMRl@ prices. The market was relatively homogeneous and QHRDNEMD@QKXŰODQBDMSHMU@KTD@MCŰODQBDMSHM was not dominated by any particular actor. Today, volume compared to 2001.7 The global coffee market is international traders, roasters and retailers play a forecast to continue growing, driven largely by increasing BDMSQ@KQNKDHMSGD"5"@MCNAS@HM@RHFMHjB@MSKXK@QFD consumption in coffee-producing countries (e.g. India, proportion of the value in that chain. For instance, two Indonesia and Mexico) and in emerging consumer major roasters control about one-quarter of the market, 5 Note: The methodology used to estimate the total value of the VGHKDSGDSNOjUDHMSDQM@SHNM@KSQ@CHMFBNLO@MHDRG@MCKD coffee industry can be found in document: ICO (2014). World NUDQŰODQBDMSNESGDSNS@KBNEEDDSQ@CD 6G@SENKKNVR coffee trade, ICC111-5 Rev.1. is a description of the general aspects of the market 6 National Coffee Association of the United States of America; see: http://www.ncausa.org (accessed on 18.01.2018). for green and roasted beans and a discussion on the 7 Based on data from UNCOMTRADE and ITC Statistics. global governance and coordination driving the CVC. CHAPTER II - The global setting: history in the cup 9

Green coffee market SNŰODQBDMSCTQHMFSGDODQHNC  @MCSNŰODQBDMSADSVDDM@MC 8 In the decades prior to the 1980s, Brazil and Central American countries, as well as Africa dominated green There are different varieties and types of green coffee BNEEDD OQNCTBSHNM jFTQD    (M SGD R  5HDS -@L jFTQD!RDD@KRNANW@MC@MMDW entered the market and quickly became a major producer. 6HSG @M @MMT@K FQNVSG Q@SD NE Ű ODQ BDMS ADSVDDM • Mild Arabicas (produced by the wet method) 1990 and 2000, it overtook Colombia as the world’s include: “Colombian Milds” (Colombia, Kenya, second largest coffee producer. Africa is the region that United Republic of Tanzania) and “Other Milds” experienced the steepest decline in green coffee bean output. Its share of world production fell from an average NE  Ű ODQ BDMS NE VNQKC NTSOTS CTQHMF SGD ODQHNC 8 ICO Statistics.

Figure 2 – The Coffee Belt

8,3

5,5 4,5 3,9 2,7 Million hectare 2,4 2,2 1,9 2,0 1,9 1,2 1,0 Million tons

$ billion Central America South America Africa Asia

Source: UNCTAD secretariat based on data from ICO Statistics; see: https://melacoffee.com/pages/coffee-basics. 10 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

(Burundi, Central America, India, Malawi, Mexico, Each consuming country imports different types Rwanda, Papua New Guinea, Zambia). of green coffee adapted to its market. The major HLONQSDQRHMVDQDSGD4MHSDC2S@SDR ŰLHKKHNM • Hard Arabicas (unwashed coffee produced SNMR  &DQL@MX  Ű LHKKHNM SNMR  (S@KX  Ű LHKKHNM by the dry method) include: “Brazilian Naturals” SNMR )@O@M ŰLHKKHNMSNMR@MC!DKFHTL ŰLHKKHNM (Brazil, Ethiopia, Paraguay) and other unwashed SNMR jFTQD #  3GDRD SNO jUD BNTMSQHDR SNFDSGDQ Arabicas (Ecuador, India). accounted for half of all world coffee imports. Half • Robustas: all origins. of the United States’ coffee imports were composed

Box 1 – Coffee cherry processing methods

Natural or unwashed process (dry processing) In dry processing, coffee beans are dried inside the cherries. Cherries are sorted and placed in the sun to dry. They are raked regularly to ensure they dry evenly. Depending on the weather, they might take up to ENTQVDDJRTMSHKSGDXQD@BGSGDQDPTHQDCLNHRSTQDKDUDK@QNTMCŰODQBDMS 3GDDWSDMCDCCQXHMFOG@RD QDRTKSRHMLNQDBNLONMDMSRADHMF@ARNQADC FHUHMFSGDBNEEDD@LNQDBNLOKDWk@UNTQ Washed process (wet processing) In wet processing, the coffee cherries are sorted and pulped (skin is removed). The sticky beans are placed HMEDQLDMS@SHNMS@MJRENQGNTQR VGDQD@M@STQ@KDMYXLDQDLNUDRSGDLTBHK@FD 3GHREDQLDMS@SHNMHR LNMHSNQDCBKNRDKXSNDMRTQDSGDAD@MRCNMNSS@JDNM@MXTMCDRHQ@AKDk@UNTQR .MBDSGDLTBHK@FDHRNEE  the beans are dried to the required moisture level. Wet processed coffee tends to have brighter, cleaner k@UNTQR VHSG@KHFGSDQANCXSG@MM@STQ@KOQNBDRRDCBNEEDDR Honey process (wet processing variation) The honey process is a variation of the wet processing technique, where the coffee cherries are pulped, and the beans are dried in the sun still with some or all their mucilage. The mucilage is sweet and sticky, which FHUDRSGDRDBNEEDDRSGDHQDWSQDLDKXRVDDSk@UNTQ

Source: https://www.perfectdailygrind.com/category/coffee-processing/ (accessed 18 December 2017).

Figure 3 – Green coffee production

Central America 70 13 60 50 Asia 40 28 30 20 Millions of bags 10 South Africa 0 11 America 48 1960–1989 1990–2009 2010–2016

Colombian Milds Brazilian Naturals Other Milds Robustas Source: UNCTAD secretariat based on data from ICO Statistics; Worldstopexports.com. CHAPTER II - The global setting: history in the cup 11

FigureFigure 4 – GlGlobalobal ttraderade iinn green cocoffeeffee

8 30 1 008.4 6 338.5 1 000 322.1 20

95.0 4 54.3 47.2 Value 43.5

32.5 10 31.8 100 31.5 Volume 28.7 26.4

21.8 2 13.8 9.4 7.0 10 6.1 0 0

1 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Tea Volume (millions of tons) Rice Coal Gold Sugar Maize Cocoa Coffee Wheat Cotton Timber Copper Banana Palm oil Palm Value ($ billion) Crude oil Soya beans Natural gas Natural

China France Kenya Mexico Switzerland Costa Rica United Kingdom Uganda Nicaragua Spain India Canada Guatemala Ethiopia Belgium Peru Japan Honduras Indonesia Italy Colombia Germany Viet Nam Brazil United States

0246 0246

160 160 150 9.5 120 140 80 130 3.4 4.2 3.4 40 120 0

-0.3

Millions of bags Millions of bags -2.7 Millions of bags

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 -3.6 2012/13 2013/14 2014/15 2015/16 2016/17 Production Exporting countries

Consumption 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Importing countries

Source: UNCTAD secretariat based on data from ICO Statistic and UNCOMTRADE. 1RWH$YHUDJHYDOXHRIJOREDOFRPPRGLW\H[SRUWVŸ&DOFXODWLRQIRUFRIIHHLVEDVHGRQDOOFRIIHHZKHWKHURUQRWURDVWHG or decaffeinated. 12 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

of “Other Milds” whereas Japan’s imports were cent of world consumption, followed by the United mainly “Colombia Milds”, and Eastern and Southern 2S@SDR Ű ODQ BDMS @MC )@O@M Ű ODQ BDMS  "NEEDD European countries focused on Robustas and “Hard consumption is steady in these traditional markets Arabicas”. However, since the 1990s there has been a @ANTS Ű ODQ BDMS FQNVSG ODQ XD@Q  VGDQD@R SGD global trend towards lower priced coffee types: “Other biggest potential for growth is in the coffee-exporting Milds”, “Naturals” and Robustas. The proportion of countries and emerging markets, with annual growth Arabica coffee production relative to that of Robusta Q@SDR NE BKNRD SN  @MC Ű ODQ BDMS  QDRODBSHUDKX  has gradually declined, largely due to the expansion Brazil is the major exception: it is the leading coffee of Robusta production in Viet Nam, but also because producer and second largest consuming country in the cultivation of Robusta coffee is not particularly the world. In Africa, Ethiopia is the top producer with a BNMRSQ@HMDC AX DMUHQNMLDMS@K BNMCHSHNMR  3GD jQRS strong coffee consuming culture, placing it at the top major shift away from Arabica to Robusta occurred of the list of coffee consumers in Africa. in 1997 when New York coffee futures prices (Arabica prices) rose to near historic highs, which led to a Market governance major shift among roasters towards cheaper Robusta The coffee market is highly organized. Coordination coffees. Since then, the share of Robusta has occurs mainly downstream in the CVC through taxes increased to one third of the total. and tariffs in consumer markets. Almost all coffee- importing countries have eliminated import duties on Re-exports of green coffee by importing countries green coffee. For processed coffee, import taxes vary HMBQD@RDCRHFMHjB@MSKXADSVDDM@MC EQNL depending on the kinds of economic partnership or @ UNKTLD NE  Ű LHKKHNM A@FR VNQSG ¨ Ű AHKKHNM SN bilateral trade agreements with producing countries. ¨ŰAHKKHNMENQ@UNKTLDNE ŰLHKKHNMA@FR 9 Indeed, For example, Cameroon, Côte d’Ivoire, Kenya, Papua QD DWONQSRMNV@BBNTMSENQ@RHFMHjB@MSŰODQBDMS New Guinea, the United Republic of Tanzania and of total export value. Europe dominates the market Uganda have privileged partnership agreements with for re-exports of green coffee, accounting for three the European Union which exempt them from import quarters of global re-exports. Germany has the largest duties for green and processed coffee (ECF, 2011). RG@QDAXUNKTLDŰODQBDMS ENKKNVDCAX!DKFHTL Where applied, tariffs are entry barriers for producing ŰODQBDMS (S@KXŰODQBDMS@MCSGD4MHSDC2S@SDR countries interested in developing export-oriented ŰODQBDMS 10 roasting capacities. Roast coffee market The adoption by roasters of the Supplier Managed (M @ANTSŰODQBDMSNEDWONQSDCFQDDMBNEEDD Inventory (SMI) system in the late 1990s allowed them beans were roasted, blended and retailed as whole to outsource stock management to trading houses, AD@MR NQ FQNTMC BNEEDD jFTQD   .E SGD DWONQSDC VGHBG LHMHLHYDC SGDHQ BNRSR V@QDGNTRHMF  jM@MBD FQDDMBNEEDDAD@MR ŰODQBDMSVDQDTRDCENQHMRS@MS or soluble coffee. The roasting and packaging market Figure 5 – Roast bean market share (per cent) – either as whole roast beans or ground roast is characterized by many small manufacturers located in highly customized local markets. The instant and soluble roast coffee market is capital-intensive and is Instant dominated by a few major companies such as Nestlé 14 and Jacobs Douwe Egberts. Lately, new consumption O@SSDQMR G@UD DLDQFDC  VHSG RODBH@KSX @MC BDQSHjDC coffees gaining in importance; they now account for ŰODQBDMSNESGDL@QJDSRG@QD The European Union constitutes the largest consumer’s Roast & L@QJDSNEQN@RSBNEEDD @BBNTMSHMFENQ@KLNRSŰODQ ground 86 9 ITC Statistics. Re-exports comprise all coffee, whether or not roasted or decaffeinated, and coffee substitutes containing coffee in any proportion. 10 ITC Statistics. Source: Based on data from ITC trade statistics. CHAPTER II - The global setting: history in the cup 13

and insurance), closely managed supply and demand, houses located in industrialized countries. This caused and particularly, accessed various origins and types hardship in many producing countries. As a result, of coffee. This reinforced the position of international EQHB@ROQNCTBSHNMOKTLLDSDCAXŰODQBDMS @RL@MX trading houses, enabling them to strengthen their small-scale coffee farmers moved to safer crops. upstream networks. Ever since, little has been done upstream in the value S SGD HMSDQM@SHNM@K KDUDK  BNEEDD HR NMD NE SGD jQRS chain, although several coffee-producing countries commodities for which trading at the global level attempted to restore some control over production and was controlled. In 1962, most coffee producing and DWONQSkNVR ENQDW@LOKDSGQNTFGSGDDRS@AKHRGLDMSNE HLONQSHMFBNTMSQHDRRHFMDCSGDjQRS(MSDQM@SHNM@K"NEEDD the Association of Coffee Producing Countries (ACPC), Agreement (ICA), which aimed to manage demand between 1993 and 2002. However, coordination and supply, spread industry knowledge, and improve among producing countries has weakened, as many the economic conditions of small-scale coffee farmers. of them pursue divergent policies guided by domestic The system was successful in maintaining producer rather than their common economic interests. price stability until the end of the 1980s (Akiyama and Coffee prices Vangaris, 1990). However, the increasing volume of coffee on the market and the gradual shift towards Evolution – Green coffee prices remain low, and most cheaper imports undermined this global coordination forecasts show no signs of improvement in the short and mechanism. medium terms. Causes include an oversupply of coffee on the world market sustained by the global movement The break-up of the ICA in 1989 changed the dynamics, of coffee market deregulation since the 1990s. at both global and domestic levels. The global market recorded a dramatic fall in the international coffee price During the ICA period, particularly in the 1980s AX Ű ODQ BDMS  3GHR BNMSQHATSDC SN @M HLA@K@MBD HM jFTQDŰ BNEEDDOQHBDRVDQDQDK@SHUDKXGHFG@MCRS@AKD the distribution of value along the value chain at the through the application of export quotas which expense of the coffee-producing countries. A major matched supply to demand, limited competition, and consequence was a shift, leading to the dominance helped stabilize the market. However, quotas also of large coffee buyers, and trading and manufacturing reduced total export earnings for most small exporting

)LJXUHt&RIIHHSULFHVŸ

4.0

3.5

3.0

2.5

2.0

1.5 Dollars per pound

1.0

0.5

0.0 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Source: UNCTAD secretariat based on data from Macrotrends; see: http://www.macrotrends.net Note: Prices shown are for Coffee C Futures Contract in $ per pound, which is the world benchmark for Arabica coffee. 14 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

BNTMSQHDR  VGHKD SGD K@QFD OQNCTBDQR ADMDjSDC EQNL have exacerbated the downward price spiral, which in them. Price peaks often occurred following weather turn has exerted pressure on the weak economies of shocks, especially in Brazil. After the ICA was many coffee-producing countries. abandoned, prices plummeted, particularly during SGD@MCODQHNCRVHSGOQHBDR Arabica vs Robusta – The price differentials breaking the one dollar per pound barrier. This was between Arabica and Robusta widened between followed by a strong recovery over the period from @MC VHSG Q@AHB@OQHBDRE@KKHMFAXŰODQ 2004 to 2011, peaking in 2011, after the vast move BDMS@MC1NATRS@OQHBDRAXŰODQBDMSCTQHMFSGHR NEjM@MBH@KRODBTK@SHNMHMSN@FQHBTKSTQ@KBNLLNCHSHDR ODQHNCjFTQD 3GD@UDQ@FDCHEEDQDMSH@KHMBQD@RDC EQNL¨ ŰBDMSRODQONTMCHMSN¨ ŰBDMSR Since the 1990s, world production has increased ODQONTMCHM @MC¨ ŰBDMSRODQONTMCHM sharply following the entry of new players like Viet Nam, but also because of the progress made by more 2016. The price of Robusta green beans tends established producers through better agricultural to be half that of Arabica green beans, or even practices, market liberalization and privatization, as less. As already noted earlier, this is essentially VDKK@RRTOOKXBG@HMDEjBHDMBX 'NVDUDQ SGDRDE@BSNQR because Robusta’s high plant yield and low labour eventually contributed to a continuation of general requirement in farming makes it easier and cheaper price downward trends by the end of the 1990s and to produce. Moreover, Robusta is produced in more recently after 2011. a more environment-friendly way than Arabica The imbalance in the distribution of bargaining power, due to its sturdy nature, which should contribute where coffee producers are the weakest participants to boosting its popularity among the increasing in the value chain, has contributed to keeping number of ecologically minded consumers, and producer prices consistently low. In addition, rising ultimately reducing the gap between Arabica and production costs (inputs, infrastructure and labour) Robusta prices.

Figure 7 – Evolution of average prices of Arabica vs Robusta prices, 1980–2016

2.0

1.5

1.0 Dollars per pound

0.5

0.0 Arabica Robusta

1980 1990 2000 2010 2016

Source: UNCTAD secretariat based on data from ICO Statistics, Intercontinental Exchange (ICE), and London International Financial Futures and Options Exchange (LIFFE). CHAPTER II - The global setting: history in the cup 15

Figure 8 – Volume of trade in futures Volatility – Price volatility is a major concern for compared with green coffee imports all stakeholders along the coffee value chain, and particularly for those in the most vulnerable Annual turnover, 1980 - 2016 producing countries who rely heavily on coffee Millions of tons revenues and do not have access to appropriate 4.1 risk management mechanisms. Hence, movements 1980 20.7 in coffee prices have dramatic effects on export 4.5 earnings, tax revenues and foreign exchange, as 1985 16.2 VDKK@RNMŰLHKKHNMRNERL@KKGNKCDQE@QLDQRHMBNLDR 4.7 1985–1989 23.1 Price volatility occurs primarily because of changes 5.3 in the global demand for and supply of coffee. As 1990–1994 42.8 demand for coffee has been relatively stable over 5.6 1995–1999 time, any change affecting supply (weather shocks 44.2 or an unexpected surplus of coffee production) 6.1 2000 results in prices rising or falling on the international 41.1 market. An all-time high price was reached in April 6.2 2001 45.1  ¨Ű BDMSR ODQ ONTMC CTQHMF NMD NE SGD 6.3 most coffee damaging frosts in Brazil. Price peaks 2002 55.7 were also recorded in 1986, 1994, 1997,1999 and 6.5 2014 following climate-related damage to coffee 2003 66.2 crops in Brazil. In contrast, prices were at a historic 7 low in 2001 owing to massive production of coffee, 2004 86.6 and thus an excessive supply on the market. Since 7 the end of the ICA, the global coffee market has been 2005 84.1 BG@Q@BSDQHYDC AX CQ@L@SHB OQHBD kTBST@SHNMR 1TRRDKK 7.3 2006 et al., 2012), partly because of variations in the yields 92.8 of large coffee-producing countries (Brazil, Colombia 7.6 2007 and Viet Nam) and changing demand for different 106.8 coffee products. 7.8 2008 114.5 Coffee price volatility is also caused by intense 7.6 2009 @BSHUHSX NM jM@MBH@K L@QJDSR  O@QSHBTK@QKX SGD BNEEDD 97.6 futures market which is used for risk management 7.9 11 2010 (hedging) as well as for speculation. During the 121.8 ODQHNC SGDUNKTLDNESQ@CDHMETSTQDRV@R 6.3 2011 10 to 20 times that of physical green coffee imports 95.5 jFTQD 2ODBTK@SNQRCDBHRHNMRSNATX@MCRDKKB@M 6.5 2012 110 B@TRD RHFMHjB@MS LNUDLDMSR HM SGD L@QJDSR  3GD 6.5 considerable speculation in the coffee market, and in 2013 128.2 BNLLNCHSXL@QJDSRHMFDMDQ@K@RRGNVMHMjFTQD  QDMCDQRHSCHEjBTKSSNRS@AHKHYDBNEEDDOQHBDR 2014 6.6 126.3 Fair trade price – The discussion above illustrates 2015 6.7 144.9 how smallholder coffee farmers and their communities in developing countries are price takers and vulnerable 7.1 2016 174.2 to the vagaries of international coffee markets. This situation has led to the fair-trade social movement, 0 50 100 150 which seeks to improve the price paid to farmers

Futures World imports 11 Note: Hedging is a trading operation that enables manage- ment of the risks posed by unforeseen price movements. Source: UNCTAD secretariat based on data from ITC (2012), There are many strategies for hedging, most of which call for ICE, and LIFFE. the use of coffee futures or options (ITC, 2012). 16 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

by connecting them directly to niche markets developing countries; nevertheless, the communities NQF@MHB RODBH@KSX@MCBDQSHjDCBNEEDDL@QJDSR 3GHR that produce fair trade coffee are better positioned movement encourages the adoption of early purchase SN ADMDjS EQNL SGD FQNVSG HM CDL@MC ENQ K@ADKKDC agreements whereby coffee producers and roasters products. Moreover, they could potentially take engage in a more stable contractual relationship that advantage of the emergence of alternative business helps to stabilize producers’ incomes. models such as Direct Trade, as more roasters and coffee producers are dealing with each other more The fair-trade coffee price is a minimum price paid directly without the intervention of the traditional SNSGDOQNCTBDQRjFTQDVGHBG@HLRSNBNUDQSGDHQ intermediaries. costs of production by making sure it respects the basic human rights and provides sustainable living conditions for their families and communities. The 3. The “next wave” coffee must comply with standards outlined by a Many experts agree that there is a new way of labelling system. The labelled coffee is often of high consumption of coffee. In the 1960s, coffee became quality and organic and can fetch a higher price. widely available on store shelves which pushed Consumers are willing to pay more because they are consumption to grow fast. Thereafter, coffee shop LHMCETKNESGDQDRTKSHMFRNBHNDBNMNLHBADMDjSRENQSGD chains appeared in the landscape (e.g. Starbucks producers. NODMDCHSRjQRSRSNQDHM2D@SSKDHM 3GHRAQNTFGS the second coffee wave, which prompted the need to However, there are opponents of the fair-trade improve quality and taste, along with coffee branding movement who do not criticize it for its humanitarian as a luxury product rather than a necessity. Coffee objectives but for its perceived weaknesses in the long RGNONVMDQRMDDCDCOQNjS@AKDATRHMDRRDR KD@CHMFSN run. For example, it does not address the issue of DEjBHDMSRTOOKXBG@HMR@MCFQD@SDQSQ@BD@AHKHSXNESGDHQ oversupply that leads to lower market prices. Besides, products. NMKX@RL@KKOQNONQSHNMNEPT@KHjDCOQNCTBDQRB@MRDKK through such channels. This movement will not solve The third coffee wave today represents a shift all the problems facing smallholder coffee producers in towards rising demand for specialty coffees and a

Figure 9 – Coffee Arabica market versus Fairtrade Foundation minimum price, 1989–2017

360

320 Fairtrade price = Fairtrade Minimum Price & Premium 280

240

200

160 Fairtrade Minimum Price

120

80 New York Prices 40

0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: Fairtrade Foundation (2017). CHAPTER II - The global setting: history in the cup 17

growing concern among consumers to know where This global trend is expected to affect all producing their coffee is coming from, who produces it, how it countries, especially East African coffee producers, as is processed and packed, and what are its social, some of the best specialty coffees are produced in economic and environmental impacts along the SGHRO@QSNESGDVNQKC 3NADMDjSEQNLSGHRFKNA@KSQDMC supply chain. Consumers are willing to pay higher and the options available to smallholder farmers and prices for quality and sustainability, and importers cooperatives, the latter should consider embracing and roasters are increasingly integrating sustainability BDQSHjB@SHNM RBGDLDR RTBG @R 4SY "DQSHjDC  ,@W into their business models. Consequently, they are Havelaar, Starbucks’ C.A.F.E. Practices, Rainforest L@JHMFRHFMHjB@MSHMUDRSLDMSRHMSGDHQRTOOKXBG@HMR Alliance, Common Code for the Coffee Community and establishing stronger relationships with coffee (4C) and others. producers at origin.

CHAPTER III THE COFFEE VALUE CHAIN: FROM TREE TO CUP 20 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

The coffee industry is built upon a complex network processors; and (4) exporters. Altogether, these of economic relationships and factors that involve @LNTMSSNNUDQŰLHKKHNMODNOKDKNB@SDCHMNUDQ various stakeholders engaged in growing, picking, coffee-producing countries around the world. processing, trading, storing, roasting, brewing and Inputs – Cultivating coffee demands land, labour selling the cup of coffee that people enjoy in their daily and several inputs (seedlings, fertilizers, irrigation and 12 KHUDRjFTQD machinery in large plantations). The varieties and the (SS@JDRSGQDDSNjUDXD@QRENQSGDBNEEDDRDDCSNFQNV end-markets determine the type and quality of inputs and bear fruit, and about six months from coffee and nursing which the coffee will require. Arabica bean to cup. The coffee bean reaches the cup only production tends to use more inputs than Robusta. %NQ BNEEDD BDQSHjDC @R NQF@MHB  OQNCTBDQR LTRS TRD after transformation at different stages, travelling RODBHjBHMOTSR %@QLDQRRNTQBDSGDRDHMOTSRCHQDBSKX  great distances, clearing a plethora of regulatory and NESDM VHSG jM@MBH@K @RRHRS@MBD EQNL FNUDQMLDMS lengthy bureaucratic processes, and often traded agencies, non-governmental organizations (NGOs) RDUDQ@KSHLDR@KNMFSGDV@XADENQDQD@BGHMFHSRjM@K or trading companies. Some surveys in East Africa destination. It is said that coffee can change hands as indicate that the use of fertilizers and pesticides L@MX@RSHLDRADENQDQD@BGHMFSGDjM@KBNMRTLDQ involves an annual average expenditure of about $600 (Milford, 2004). per hectare (ICO, 2015). Actors along the global coffee value chain (CVC) are Growing  "NEEDD FQNVR ADSVDDM SGD 3QNOHBR NE scattered around the globe. They are organized into Cancer and Capricorn, requiring temperatures between four major activities that are driving factors in the 13°C and 26°C. It also requires shade during its growth coffee economy, as follows: phase, sun when it starts to produce fruits, and regular • Growing practices and primary processing from rain. Ideally, Arabica coffee grows between 1,000 and cherry to green coffee beans 2,000 meters altitude, while 200 to 300 meters altitude HR RTHS@AKD ENQ 1NATRS@  )TRS KHJD NSGDQ jMD BQNOR  • Sourcing, marketing and trading of green coffee BNEEDDG@RRODBHjBk@UNTQR@MCBG@Q@BSDQHRSHBRSG@S@QD beans associated with its origin (typical soil, climate, altitude • Roasting whole, ground or instant coffee beans and treatment). High-quality coffee, greater volumes • Retailing coffee beans for in-home or out-of-home and capturing value depend on a combination of markets cultivation practices and better control of environmental factors. Above all, growing coffee requires patience This section maps the general development of the @MCCHKHFDMBD @RFQNVDQRMDDCSNV@HSXD@QR@ESDQ CVC by analysing each component outlined above their initial investment before coffee plants mature and @MC SGD CHEEDQDMS E@BSNQR HMkTDMBHMF @MC BNMSQNKKHMF become productive. the coffee industry at the global and micro levels. The analysis also presents the distribution of revenue along Harvesting – Coffee cherries are typically harvested the CVC. This enables a further understanding of the once a year, usually over a two- to three-month period. underlying challenges along the value chain. A few countries, including Colombia and Kenya, have @ L@HM @MC @ RDBNMC@QX BQNO fkX BQNOt  5@QHNTR harvesting methods are used (Dicum and Luttinger, 1. Organizational structure 2006). Growing and primary processing • Hand-picking: This is the most commonly used The production process encompasses: (1) planting process, where the cherries are handpicked only coffee seeds and growing them into coffee trees; (2) when they become ripe. Because of irregular harvesting the coffee cherry fruits when they ripen and maturation, the process is repeated as many times turn red; and (3) processing and packing green coffee as required until all the cherries are harvested. The beans ready for export. more selective the picking (meaning labour- and time-intensive), the higher will be the quality of the These operations are made by four key actors: (1a) green beans. smallholder farms; (1b) cooperatives; (1c) large-scale plantations/farms and estates; (2) intermediaries, • Strip-picking: This process involves removing, referred to as collectors or internal traders; (3) by hand or machine, all the cherries from the branches, whether or not ripe, including those 12 See annex 2 C@L@FDC @R VDKK @R SGD kNVDQR  3GHR LDSGNC HR CHAPTER III - The coffee value chain: From tree to tup 21

Figure 10 – The global coffee value chain: From tree to cup GROWING & INTERNATIONAL ROASTING RETAILING PROCESSING TRADING

Government Retail NGOs Growing Traders RETAILERS Wholesalers Handpicking Supermarkets (most countries) Leading Food Services Inputs or Mechanical ROASTERS Coffee chains (Seeds, land, Harvesting Specialty fertilizers, (Brazil, Hawaii...) Coffee shops machinery...) Internet- shopping

Roasting ” Roast Grinding Instant/ Blending Soluble Local Traders/ Brewing Coffee 25 Collectors Packaging million Roast Coffee ” Dry or wet Ground producers & Coffee workers processing International TRADERS In- Out-of-

PRODUCTION home home

PRODUCERS IndependentIndepende 500 Smallholders ROASTERSROASTER million Medium-size coffee farms drinkers Cooperatives daily Estates/Large plantations CONSUMPTION

Dry Milling Shipping

Domestic roasting and manufacturing Storage

Alternative unusual uses for Exporters, marketing boards, Importers, brokers, coffee: Bioenergy, Beauty auctions, brokers, facilitators warehousing products, Cleaning agents

PRODUCING COUNTRIES/ CONSUMING COUNTRIES/ DEVELOPING COUNTRIES DEVELOPED COUNTRIES PROCESS FROM TREE TO CUP INTERNATIONAL TRADE DIRECT TRADE INTERNATIONAL LOGISTICS CHANNELS

Source: UNCTAD secretariat. Photo credit: thecoffeeofficina.com 22 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

cost- and time-effective but produces a poor Primary processing (dry or wet) – There are two grade of coffee. It is commonly used in Brazil and basic processing methods. Dry processing (natural Ethiopia (unwashed Arabica) as well as in several or unwashed pro- Robusta-producing countries. cess) and wet pro- Processing involves: cessing (washed • ,DBG@MHB@K G@QUDRSHMF  UHAQ@SNQ HR jWDC SN SGD Cleaning the cherries trunk of the tree and shakes the ripe cherries process). In some from intruding elements loose. Another option is rotating brushes attached regions, some (stones, sticks, and dirt) to the side of a tractor. These processes damage quantities of cher- SGDSQDDRAXQHOOHMFNEE@KKSGDBGDQQHDR kNVDQR@MC ries are processed Removing the cherry leaves at the same time. Despite huge yields, they at home by farmers pulps offer poor results because they yield a mixture of straight off the tree. Removing ripe and unripe beans. The method is common in However, process- the mucilaginous layer producing countries with large farms, particularly ing is generally per- surrounding the beans in Brazil and Hawaii. formed at a coffee- Drying the beans • Comb to brush the trees: This method uses a washing station (i.e. comb to remove only the ripe cherries from the a local cooperative, trees. It is time-consuming, but the quality and private plant, or estate). Each region and country yields are higher. processes according to its own regulations and tra- ditions, which gives the coffee beans their unique Immediately after harvesting, the coffee must be characteristics. processed. Secondary processing (milling) – Coffee is Collecting – Collectors operate between farmers brought to the dry mill facility and runs through a and primary processing plants or exporters. They are hulling machine using friction to remove the last mostly based in an area near the coffee growers and go layer of dried cherry from village to village collecting the cherries. They buy or parchment skin a substantial amount of the crop in cash or by credit. Milling involves: from the beans. (MRNLDQDFHNMR LNQDSG@MŰODQBDMSNESGDBQNOHR Removing the bought through collectors. Generally, the collectors know Great care is need- ed in this process, parchment and silver the farmers well and have long-standing relationships skin from the beans with them. They play a crucial role in bulking coffee and since the heat gen- organising the transfer to processors.13 erated from friction Grading beans by size can have a nega- and weight tive impact on qual- Sorting beans by quality ity. The beans then go through several Packing beans in jute grading, calibrat- bags or Probags ing and sorting ma- chines that separate them according to the different export qualities. In L@MXBNTMSQHDR jM@KRNQSHMFHRODQENQLDCAXG@MC  often by teams of women. This activity is sometimes associated with child labour as many children work alongside their parents and siblings. If stored in the right conditions, green coffee (or parchment cof- EDDB@MBNMRDQUDHSRk@UNTQENQ@OOQNWHL@SHUDKXNMD year.

13 The role of coffee collectors is sometimes called into question. Some consider that they take advantage of vulnerable small- holder coffee growers, paying them lower than what the mar- ket would offer. Other concerns include mixing high-quality coffee beans with the poor ones and the lack of appropriate coffee traceability. CHAPTER III - The coffee value chain: From tree to tup 23

Figure 11 – Market concentration along the global coffee value chain

25 million coffee producers and 30 RETAILERS workers 2 MAJOR ROASTERS (25 per cent BIG 5 of market) 500 million TRADERS coffee (40 per cent consumers daily of market)

Source: UNCTAD secretariat.

Figuregu e 12 – Levels e e s oof coconcentration ce a o in international e a o a trade ade aand d roasting oas g markets a e s (pe(per cecent) )

Neumann 16 Philip Morris 25 Others Others Volcafe 31 44 13

Cargill 6 Tchibo 6 Nestlé Aron Ecom 24 Mitsubishi 6 P&G 3 5 Louis Dreyfus Man 7 Sara Lee 3 4 7

Neumann JDE 12 13 Ecom Nestlé 9 11 Others Olam JM Smucker Others 5 51 7 61 Elite-Strauss EDF Man-Volcafe 6 Tchibo 3 Louis Dreyfus 3 Lavazza Coex Noble 6 Starbuck 2 6XFDƂQD 2 2 3 4

Source: Ponte (2002), ITC and updates from company websites. 24 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

International trading stores in the 1990s, the company expanded to 10,241 stores across the world in 2005, 16,858 in ESDQOQNBDRRHMF NUDQŰODQBDMSNEFQDDMBNEEDD 2010 and 27,339 in 2017.14 production is internationally traded. This function is conducted by a variety of private agents: dealers, brokers, specialized traders/exporters, and importers, large importing roasters and retailers of 2. Segmentation of the CVC consuming countries. They are the link between As described in the previous section, coffee passes producers and consumers. Their function is to buy through four major entities in the global coffee EQNLOQNCTBDQRVGDMSGDK@SSDQMDDCSNRDKK jM@MBD market. From farmers to international traders, to the stocks as required, process as needed, deliver roasters and retailers, coffee is differentiated and to customers according to their requirements, and allocated different prices along the process: the manage the risks involved along the value chain farm-gate price paid to the producer, the world (Gibbon, 2014). price linked to the post-farm green coffee, and the One major characteristic of international coffee trading QDS@HKOQHBDO@HCAXSGDjM@KBNMRTLDQ  HR HSR BNMBDMSQ@SHNM HM SGD G@MCR NE @ EDV HMkTDMSH@K With Brazil, Colombia and Viet Nam being the main @BSNQRjFTQD world producers of coffee, any shock to coffee Roasting production in these countries affects both the global supply and the global price of green coffee. The green coffee bean is transformed through a high For instance, as noted earlier, weather and climate temperature process into an aromatic brown bean change have been the major factors impacting which will be ground and brewed for drinking. After Brazil’s production, which in turn affects the global roasting, the beans are immediately cooled either by coffee market. @HQNQV@SDQ 1N@RSDQRCDUDKNOCHEEDQDMSQN@RSOQNjKDR by skillfully mixing coffees from different origins. The actors involved in coffee production are Since each consuming market has its own taste fragmented, consisting mainly of many small-scale OQDEDQDMBDR  QN@RSDQR BQD@SD CHEEDQDMS k@UNTQR @MC OQNCTBDQRVGNBNMRSHSTSDNUDQŰODQBDMSNESNS@K aromas to respond to market demand. Roasting is coffee producers. Consequently, green coffee generally performed in importing countries because suppliers are price-takers and are prone to the freshly roasted beans must reach the consumer as negative effects of price volatility on international quickly as possible. Under good storage conditions, markets. QN@RSBNEEDDVHKKBNMRDQUDHSRk@UNTQENQRHWLNMSGRSN The other segments of the CVC are more one year. concentrated, and the actors controlling these 3GDQN@RSHMFRDFLDMSHRGHFGKXBNMBDMSQ@SDCjFTQDŰ  segments tend to take advantage of their market with many roasters controlling the marketing and power in their interactions with suppliers, thereby distribution of their products. perpetuating a system that has been in place since Retailing the 1990s. At that time, two companies controlled nearly one third of world coffee trade, and half of 3GDQD@QDCHEEDQDMSJHMCRNEQDS@HKDQRRTODQL@QJDSR  the world market for roasted and instant coffees restaurants, bars and coffee shops – which was dominated by two major manufacturers connect roasters with coffee consumers. Of these, jFTQD   $UDM SGNTFG MDV @BSNQR G@UD DMSDQDC RTODQL@QJDS BG@HMR @BBNTMS ENQ Ű ODQ BDMS the coffee trading and roasting businesses, these of coffee consumption. They source the coffee market segments remain relatively concentrated. from the large roasters as well as from small niche (M SGDjUDK@QFDRSHMSDQM@SHNM@KBNEEDDSQ@CHMF roasters. Many retailers also roast and market BNLO@MHDRBNMSQNKKDCNUDQŰODQBDMSNESGDSNS@K their own coffee brands. A coffee shop culture (bars exclusively serving coffee, with free Internet trade in coffee, while in the roaster market the two access) has been expanding worldwide, making major operators handled about one quarter of the the segment highly competitive, particularly on the world market. FNTQLDS  RODBH@KSX @MC BDQSHjDC BNEEDD L@QJDSR  14 See https://www.statista.com/statistics/266465/number-of- Starbucks epitomizes this phenomenon: from 425 starbucks-stores-worldwide (accessed 23 January 2018). CHAPTER III - The coffee value chain: From tree to tup 25

At the macroeconomic level, coffee exports contribute RODBH@KSX@MCBDQSHjDCBNEEDDRlSG@SO@XOQDLHTLRSN RHFMHjB@MSKXSNENQDHFMDWBG@MFDD@QMHMFR@MCSNS@W coffee growers. Improving the organization of coffee revenues. Although the economic importance of producers through, for example, the strengthening coffee in many coffee-exporting countries has been of coffee producer cooperatives, would enable them decreasing, in 2015, the average share of coffee SN ADSSDQ @BBDRR OQNjS@AKD L@QJDSR  HMBQD@RD SGDHQ export earnings in total export earnings exceeded bargaining power and afford them a higher share of Ű ODQ BDMS HM $SGHNOH@  'NMCTQ@R  1V@MC@ @MC the value along the coffee value chain. 4F@MC@  @MC V@R DUDM GHFGDQ SG@M Ű ODQ BDMS HM Burundi (ICO, 2015; ICO Statistics). (S HR CHEjBTKS SN NAS@HM OQDBHRD C@S@ NM SGD RG@QDR 3. Distribution of income along of value captured by each stage in the coffee the CVC value chain. However, the gap between producer and retail prices has increased over time, and an The total value generated along the coffee commodity increasing share of the price paid by consumers is chain is equal to the total amount of money spent being captured by the largest actors, particularly AX BNMRTLDQR SN OTQBG@RD BNEEDD OQNCTBSR ENQ jM@K multinational companies. In the 1970s it was consumption. This total is divided into four parts: estimated that the share accruing to coffee- • Income accruing to coffee producers; OQNCTBHMFBNTMSQHDRV@R@ANTSŰODQBDMSNESGD SNS@KU@KTDNESGDjM@KOQNCTBS VGHKDBNEEDD HLONQSHMF • Incomes of processors, traders and exporters, as BNTMSQHDRQDS@HMDC@ANTSŰODQBDMS !DSVDDMSGD well as revenues and taxes earned in producing 1990s and 2000s, the producers’ share diminished countries; SN @M @UDQ@FD NE Ű ODQ BDMS  +@SDRS DRSHL@SDR RGNV@MHMBQD@RDNESGHRRG@QDSNŰODQBDMSENQSGD • Incomes of coffee manufacturers, wholesalers and ODQHNCjFTQD retailers, as well as taxes in consuming countries; and High price volatility, as discussed earlier, has resulted in large variations in producer prices, which • A residual category, including shipping costs, have often fallen below the cost of production, thus OQNjSR NE RGHOODQR @MC jM@MBHDQR  @MC RONHK@FD destabilizing the production system. This situation that occurs during the shipping and roasting of the has led to the emergence of niche markets – coffee.

FigureFigure 13 – Producer prices vis-vis-à-visà-vis retail prices of roasted coffecoffeee

700

600

500

400

300

200

Dollar cents per pound 100

0 2011 2012 2013 2017 2014 2015 2010 2016 1991 1997 1995 1992 1993 1998 1999 1994 1990 1996 2001 2007 2002 2005 2003 2008 2009 2004 2000 2006

Price paid to growers Retail price of roasted cofee ICO composite price

Source: UNCTAD secretariat based on data collected from ICO Statistics. 26 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

The fact that producing countries receive a relatively As explained previously, the global CVC is buyer- small share of the total value created in the CVC poses driven. The chain is driven by downstream actors a threat to the sustainability of coffee production. who determine the standards to be used by the other @BSNQR 3GDQDS@HKRDFLDMSB@OSTQDRŰODQBDMSNESGD Figure 14 shows an example of a distribution of value retail value. It controls the marketing, branding and along the chain from the sale of Ethiopia’s specialty RDSSHMF NE RS@MC@QCR  @MC HMkTDMBDR SGD V@X OQNjSR coffees: Sidamo, Yirgacheffe and Harar. The share are distributed along the chain. @KKNB@SDCSNSGDBNEEDDFQNVDQR@LNTMSDCSN ŰODQ The distribution of revenue along the value chain is BDMSNESGDQDS@HKOQHBDHM .MKX@QNTMCŰODQBDMS a key issue that needs to be addressed, since it has of the global value remained in the producing country, a direct impact on income levels in coffee-producing whereas consuming countries captured the greater rural areas, and on their welfare and development RG@QDNE@ANTSŰODQBDMS prospects.

Figure 14 – Ethiopian specialty coffee: Distribution of the value, 2011 (per cent)

Source: Based on data from ECF (2011) CHAPTER IV THE EAST AFRICAN COFFEE MARKET 28 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

1. Size and market share ICA and deregulation of the coffee sector in many African countries, which has negatively affected their Over the last decade, total African coffee exports growers. kTBST@SDC @S QNTFGKX @QNTMC ¨Ű AHKKHNM HM @MMT@K Coffee is an important commodity in Africa. The revenues. The volume of green coffee exported in continent has the highest number of coffee- V@R ŰLHKKHNMA@FR NQŰODQBDMSNEVNQKC producing countries in the world, and the largest FQDDM BNEEDD DWONQSR jFTQD   RKHFGSKX GHFGDQ SG@M population involved in growing and processing the volume produced by Colombia, the third largest coffee. They are mostly smallholder farmers who are coffee producer. There has been a general downward highly dependent on revenues from this commodity. SQDMC HM OQNCTBSHNM RHMBD SGD R jFTQD  @S @ 3GDK@SDRSDRSHL@SDRRTFFDRSSG@SŰLHKKHNMHMCHUHCT@K time when other regions have been increasing their farmers and workers derive their livelihoods from the output. The main reasons include the collapse of the African coffee economy.

Figure 15 – East African green coffee production (per cent)

East Africa 9 Rest of Africa 2 Asia 29

Central South America America 48 13

Source: Base on data from ICO Statistics

FigureFigure 1166 – DDeclineecline ooff AfAfricanrican cocoffeeffee proproductionduction

24.9 % 14 % 11.9 %

Africa: 19.4 World: 77.9 Africa: 16 World: 114.2 Africa: 16.9 World: 141.7 million bags million bags million bags million bags million bags million bags

Source: Based on data from ICO Statistics CHAPTER IV - The East African Coffee Market 29

The East African subregion largely dominates coffee Figure 17 – Coffee production and exports of OQNCTBSHNMHM EQHB@ @BBNTMSHMFENQNUDQŰODQBDMSNE selected East African countries the continent’s total production. Ethiopia, Uganda, the United Republic of Tanzania and Kenya are the largest producers. Ethiopia and Uganda alone account for ŰODQBDMSNESNS@K EQHB@MBNEEDDDWONQSR @MCQ@MJ 25 000 eighth and eleventh, respectively, among world coffee 20 000 producers. These two countries are also the only 15 000 producers that avoided the global downward trend in coffee production in Africa. 10 000

$@QMHMFR EQNL BNEEDD DWONQSR QDOQDRDMS @ RHFMHjB@MS bags of Millions 5 000 share of the revenues of many East African countries. 0 Although the importance of coffee in their economies 2017 2014 2015 2016 1970s has been diminishing over time, the average share of 2010s 1980s 1990s 2000s BNEEDD HM SNS@K LDQBG@MCHRD DWONQSR DWBDDCR Ű ODQ Africa Ethiopia Uganda cent for countries such as Burundi and Ethiopia jFTQDŰ     LNQD CDS@HKDC @M@KXRHR NE SGD C@S@ HR provided in the case studies section.) Therefore, improving the coffee sector in these countries could have a considerable positive impact on their economic development. It could improve the Kenya socioeconomic conditions of very vulnerable small United Rep. of Tanzania farmers whose income are highly dependent on Uganda coffee. Rwanda East Africa is endowed with ample land and other natural conditions (soil, altitude, rainfall) conducive to Ethiopia coffee growing. Indeed, East African countries produce Burundi a range of distinctive Arabica and Robusta coffees, 020406080 and have gained a reputation for the quality of their coffee, including many specialty coffees. For example, 2016 2010 2000 Ethiopia is renowned for its unique Yirgacheffe, Sidamo @MC '@Q@Q Q@AHB@ U@QHDSHDR  *DMX@R jMD Q@AHB@ beans, grown at high altitudes near Mount Kenya, are highly demanded. And the quality of Burundi’s renowned Kayanza coffees is regularly acknowledged 11 309 through the large number of international awards they have attracted. Also, the Kilimanjaro coffees (coffee grown in Kilimanjaro and the southern highlands of the United Republic of Tanzania) are uniquely positioned in the Japanese market (Hoebink et al., 2014). 3 725 2 350 Although domestic consumption in the region has 700 618 590 550 Thousands of bags Thousands of 360 317 240 been rising, it remains negligible, except for Ethiopia where there is a well-established tradition of coffee

CQHMJHMF  (MCDDC  LNQD SG@M Ű ODQ BDMS NE HSR Egypt Sudan Algeria Uganda Ethiopia production is consumed locally. Total consumption Morocco Total Africa South Africa South Madagascar HM EQHB@QD@BGDC ŰLHKKHNMA@FRHM SGDL@HM d'Ivoire Côte consumption markets being Ethiopia, northern African countries, South Africa and the Sudan. Source: ICO Statistics, Worldstopexports.com 30 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

2. Coffee farming in East Cost of production Africa Coffee farming is a labour-intensive activity accounting ENQŰODQBDMSNESGDSNS@KBNRSNEOQNCTBSHNM(".  Area devoted to coffee growing 2015). Due to changing rural demographics, Coffee is grown mainly on small plots of land, varying smallholder farmers must hire labour to support their farming needs that were traditionally handled from half a hectare to 10 hectares per farm (ICO, by the family. In addition, fertilizers and pesticides, 2015). Large plantations and coffee estates constitute VGDM TRDC  @QD RHFMHjB@MS CDSDQLHM@MSR NE SGD BNRS a small proportion of farms (table 2). Estate farms of production. However, the true cost of production are non-existent in countries such as Burundi, but in is hard to assess, as the various inputs are poorly *DMX@SGDX@BBNTMSENQŰODQBDMSNESGDBNTMSQXR recorded and measured. According to ICO (2015), the total coffee production, whereas in the United average cost of production for Burundian smallholder Republic of Tanzania, the estate sector represents farmers who practice good agricultural techniques is KDRRSG@MŰODQBDMSNESNS@KOQNCTBSHNM 2HMBDLNRS between $0.50 and $0.57 per tree. coffee plantations were established more than 40 years ago, their productivity today is very low. This 3. Market concentration and HRBNLONTMCDCAXSGDE@BSSG@SNUDQŰODQBDMSNE dynamics faming is handled by poor smallholder growers with KHLHSDC@BBDRRSNJMNV GNV jM@MBH@KQDRNTQBDR@MC The evolution of coffee markets in East Africa has taken other inputs. place in the context of international deregulation in the 1990s and further liberalization of domestic coffee An ageing population is another characteristic of markets during the 1990s and 2000s. The consolidation coffee farming in Africa. The sector suffers from of the international trade and roasting segments migration from rural areas, especially that of young strategically boosted the power of multinational and educated people. Those leaving do not seem to companies in the producing countries. ODQBDHUDSGDADMDjSRNEDMF@FHMFHMBNEEDDOQNCTBSHNM Even though each East African country has its as they observe how the generations before them who NVM RODBHjB BNEEDD DWONQSDQR RDD S@AKD   @ EDV have relied on coffee farming have been struggling to multinational companies play an important role meet their basic needs. in sourcing coffee from several countries in this

Table 2 – Key statistics on coffee farming in East Africa

Total number of Average yield Area under coffee Average farm size Coffee exports coffee farmers of coffee farms cultivation per house-hold (thousands of and workers (kg/ha) (‘000 of hectares) (hectare) bags) 2016 (million) 2016

Burundi 60 0.80 258 258

Ethiopia 509 2.75 7 100 837

Kenya: Small scale 96 1-2 0.70 454 234 farms

Kenya: Estates 64 15-50 0.004 329 308

Rwanda 42 0.75 220 314

United Republic of 275 0.5 0.45 782 170 Tanzania

Uganda 282 0.2 1.77 4 900 1 042

Source: UNCTAD secretariat based on data from ICO Statistics, ITC Statistics, National agricultural Export Development Board (NAEB), Tanzanian Coffee Research Institute (TaCRI), Tanzanian Coffee Board (TCB), Uganda Bureau of Statistics (UBoS), Uganda Coffee Development Authority (UCDA), Agence de Régulation de la Filière Café (ARFIC), AFCA. Note: The table uses the most recent available data. CHAPTER IV - The East African Coffee Market 31

subregion (see table 4). For example, Olam and producer price volatility, given that these companies 2TB@jM@ @QD @BSHUD HM LNRS BNTMSQHDR KHRSDC HM L@X@CITRSSGDHQRSQ@SDFHDRSNjSSGDHQNVMHMSDQDRSR  S@AKDŰ 3GDHMSDQM@SHNM@KHY@SHNMNEBNEEDDRNTQBHMF which may not necessarily coincide with those of through the strong involvement of international producers or the governments in the countries companies in coffee buying may also contribute to where they operate.

Table 3 – Leading coffee exporting companies in East Africa

Country Companies

Burundi Bucafe (6XFDƂQD), Olam, Sogestals, Consortium des coopératives de Café (COCOCA), Louis Dreyfus, Ecom

Ethiopia Horra Trading, Oromia Coffee Farmers Cooperative Societies Union Ltd, Aleta Land Coffee, Mullege Coffee Exporters

Kenya Rashid Moledina & Co (Msa) Ltd, KCCE, Dormans, Ibero (K) Ltd (1HXPDQQ), Kenyacof Ltd (6XFDƂQD)

Rwanda Rwacof (6XFDƂQD), Coffee Business Center Ltd, COOPAC, ENAS CAFFEX, Misozi Coffee, Rwanda Trading Company, Dormans,

Uganda Ugacof (U) Ltd (6XFDƂQD), Kyagalanyi Coffee Ltd (Volcafe), Olam (U) Ltd, Ideal Commodities, Ibero (U) Ltd, Export Trading Company, Kawacom (U) Ltd (Ecom), Besmark Coffe Co. Ltd

United Tanzania Instant Coffee Co. Ltd, Burka Estates Ltd, Ibero Coffee (T) Ltd (1HXPDQQ), Tailor Winch(T) Ltd (Volcafe), Dorman (T) Ltd, Republic of Cotacof Ltd 6XFDƂQD),Tembo Coffee Company Tanzania Source: UNCTAD secretariat based on data from ITC Statistics, AFCA, UCDA, ARFIC, TCB, NAEB. Note: The companies that are wholly-owned, majority-owned, partially-owned, or equity investment, by foreign international compa- QLHVDUHIROORZHGE\WKHLQGLFDWLRQRIWKHVHRZQHUVpQDPHVLQLWDOLFVDQGEUDFNHWVXQOHVVLWLVFOHDUO\UHƅHFWHGLQWKHLUFRUSRUDWHQDPH

Table 4 – Leading international coffee buyers in East Africa World market share Headquarters Presence (per cent)

Neumann Kaffee Gruppe Germany Burundi, Kenya, United Republic of Tanzania, Uganda 11

Ecom Agro Industrial Switzerland Kenya, Uganda, Burundi, Ethiopia 10

Singapore/United Burundi, United Republic of Tanzania, Uganda, Rwanda, Olam 7 Kingdom Kenya, Ethiopia

Switzerland/United Volcafe (ED&F Man) Kenya, United Republic of Tanzania, Uganda, Ethiopia 6 Kingdom

Louis Dreyfus Switzerland/France Burundi, Uganda, Kenya, United Republic of Tanzania 6

Noble United States 4

Burundi, Ethiopia, Kenya, Rwanda, United Republic of 6XFDŰQD Switzerland 3 Tanzania, Uganda Source: UNCTAD secretariat based on data from ITC Statistics, AFCA, UCDA, ARFIC, TCB, NAEB.

CHAPTER V CASE STUDIES: COFFEE SECTOR IN BURUNDI AND ETHIOPIA 34 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

1. Burundi of structural adjustment policies advocated by the World Bank and the International Monetary Fund Background (adopted by Burundi since 1986). However, there were Burundi is a small landlocked country with a land area MN RHFMHjB@MS QDRTKSR ADB@TRD NE U@QHNTR BNMRSQ@HMSR of 27,834 square kilometres. Coffee is strategic to its (ageing trees, limited access to inputs, inadequate economy, accounting for more than two thirds of its provision of extension services, weak infrastructure and total export revenues. It employs between 600,000 particularly prolonged political instability). @MC ŰLHKKHNMQTQ@KODNOKDCTQHMFSGDBQNORD@RNMR In 2009, the privatization of several primary jFTQD @MCNUDQ@KKHSOQNUHCDRCHQDBS@MCHMCHQDBS processing units (coffee washing stations and subsistence income to about one third of the country’s drying mills) and the liberalization of the coffee 15 population. sector opened the processing and export of green Introduced in the country in the 1920s, coffee from coffee segments to both domestic and foreign Burundi is among the highest quality coffees in the direct investments. To date, the process is still world. The coffee sector underwent several reforms, incomplete, with several coffee washing stations the turning point being at the beginning of the 1980s remaining State-owned. Despite these measures, with the strategic development of the coffee wet mills production has been declining over time, mainly industry that enabled the country to export higher CTD SN NTSC@SDC OQNCTBSHNM SDBGMHPTDR  HMDEjBHDMS quality coffee. Thereafter, exports increased, peaking in support to producers, and price volatility. Burundi’s 1994 (at 39,840 tons). In the early 1990s, new reforms smallholder coffee growers and their workers are were introduced when the Government engaged the most poorly paid among East African countries. in the privatization, deregulation, restructuring and Sometimes, their revenues are so small that they are liberalization of its coffee sector following implementation below the cost of production. This has led several coffee growers to uproot their coffee trees, engage in intercropping, or simply shift to other activities. 15 Note: According to the Institut de Statistiques et d’Etudes Economiques du Burundi (ISTEEBU), in 2016 Burundi had However, with liberalization, Burundi’s coffee  ŰLHKKHNMGNTRDGNKCRNEVGHBG SN FQDV operators have gradually oriented their activities coffee. Given that the average family size was 4.7 people per GNTRDGNKC HSHRDRSHL@SDCSG@SŰODQBDMSNESGDONOTK@- towards the production and trading of specialty tion is directly or indirectly involved in the coffee sector. coffees.

Figure 18 – Burundi coffee sector: employment overview

1.6 million

1 500 1 600 2 000

Other Milling Washing Growing stations

Source: UNCTAD secretariat; Bamber et al., 2014; and Association Interprofessionnelle du café du Burundi (INTERCAFE). CHAPTER V - Case Studies: Coffee Sector in Burundi and Ethiopia 35

Importance of coffee jFTQD VHSGRNLDGHFGOQNCTBSHNMXD@QRENKKNVDC by low production years (e.g. 29,940 tons in 2006 up Coffee is Burundi’s main export product, contributing, from 6,180 tons in 2005). Since 2001, coffee exports @KNMF VHSG SD@  Ű ODQ BDMS NE HSR ENQDHFM DWBG@MFD G@UDCDBKHMDCAX ŰODQBDMSODQXD@Q NM@UDQ@FD earnings (Deloitte, 2016). Coffee exports (in value terms) account for one third to more than two thirds Constraints and opportunities of total exports of the country, depending on the year. Burundi has proved that it can produce good coffees (M BNEEDDQDOQDRDMSDC@RLTBG@RŰODQBDMS appreciated by consumers. However, the country’s NE SNS@K LDQBG@MCHRD DWONQSR  Ű ODQ BDMS HM   GHFGKX kTBST@SHMF OQNCTBSHNM  O@QSKX CTD SN SGD KNV @MCŰODQBDMSHM (MSG@SRG@QDCQNOODC price paid to producers, does not encourage the SNŰODQBDMS@R@QDRTKSNEOQHBDCDUDKNOLDMSR@MC sustainable production of high quality coffee. Other DWONQSCHUDQRHjB@SHNMHMBKTCHMF@FQD@SDQRG@QDNEFNKC obstacles to the development of Burundi’s coffee in Burundi’s total merchandise exports, which reached sector include the following: ŰODQBDMSHM2HLNDR@MC'HC@KFN  • Poor soil management and the inadequate supply Coffee is grown almost exclusively on very small-size of organic fertilizers to growers, which affects E@QLR  NM @UDQ@FD   GDBS@QDR ODQ E@QLHMF E@LHKX productivity. – and is mixed with other food crops, which makes HSCHEjBTKSSNDRSHL@SDGNVL@MXE@QLDQR@MCSNVG@S • Lack of appropriate support to coffee producers extent they rely on coffee for their income. Most of and processors in terms of agricultural technical these smallholdings have only a few scattered trees JMNVKDCFD @MC DWSDMRHNM RDQUHBDR RODBHjB SN  ADSVDDM  @MC  TMHSR  VGHBG BNMRSHSTSD @M coffee production and post-harvest processing @UDQ@FDNEKDRRSG@MŰODQBDMSNESGDE@QL to enhance productivity, quality and supply chain DEjBHDMBX Burundi coffee production is volatile mainly because of weather cycles, ageing trees (often more than 40 • #HEjBTKSX @BBDRRHMF @BBTQ@SD L@QJDS HMENQL@SHNM  years old), soil degradation, absence of adequate which leads, among other things, to high price farming practices, and, to some extent, political speculation at the farmgate. The privatization instability in the country. Over the last decade, there and liberalization of the coffee sector increased has been a general downward trend in production producers’ exposure to shocks from the

)LJXUHt%XUXQGLpVFRIIHHSURGXFWLRQŸ

75.2 80 70.0 66.1 70 60 51.6 46.4

45.2 50 39.6 38.2 39.4 38.4 36.7 34.3 40 29.2 29.0

25.3 30 21.1 17.3 20 40.0 39.8 37.2 29.9 29.5 29.2 29.2

27.2 10 26.2 26.0 24.7 24.4 24.1 23.6 21.2 21.1 20.3 12.2 14.9 16.4 15.5 15.0 15.0 9.8 6.7 8.6 6.2 8.0 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Production (1 000 tons) Exports Value ($ million)

Source: Based on data from ICO Statistics, UNCOMTRADE, INTERCAFE. 36 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

international market without providing proper risk exports in 2016.17 However, this share has declined management support. over time due to an increase in other exports, including FNKC BTSkNVDQR SDWSHKDR@MCKD@SGDQOQNCTBSR "NEEDD • /NNQ@BBDRRSNjM@MBDCTD @LNMFNSGDQR SNSGD also plays a vital role as a source of income for about removal of the State guarantee in 2009. one fourth of the country’s population who rely on • Weak infrastructure (e.g. electricity and coffee production, processing and export activities. transportation), which negatively affects the DEjBHDMBXNESGDRTOOKXBG@HM SGDQDAXHMBQD@RHMF Production system supply costs. Ethiopia grows a wide range of Arabica coffees most The way forward of which are trademarked varieties, with the rights owned and protected by the Government of Ethiopia. Burundi’s coffee is soft, and therefore deteriorates quite The main growing regions are Harar, Limmu, Sidamo- rapidly. According to many experts, Burundian coffee Yirgacheffe, Djimmah, Bebeka-Tepi, and Gimbi- can be of very high quality when processing is carried Lekempti. out properly. In this regard, traceability is essential to The coffee is cultivated in four different ways: (i) forest provide information on quality, varieties, environmental coffee,18 which grows under the shade of natural conditions, cultivation practices, processing systems, ENQDRSSQDDR NESDMVHSGMNCDjMDCNVMDQ@MCQDPTHQHMF storage and transport conditions, all of which LHMNQL@HMSDM@MBDHS@BBNTMSRENQ@ANTSŰODQBDMS contribute to determining how much a consumer is of the country’s total coffee production; (ii) semi-forest ready to pay for an exquisite coffee. coffee, which is grown in forest conditions with little The availability of suitable inputs, rehabilitation of L@HMSDM@MBDAXE@QLDQRQDOQDRDMSHMFŰODQBDMSNE plantations, and better management of soil will total production); (iii) garden coffee which is grown by increase the quality and productivity of coffee in E@QLDQRHMSGDHQK@MCQDOQDRDMSHMFŰODQBDMSNESNS@K Burundi. Achieving these objectives will require production); and (iv) plantation coffee grown on large combined efforts by the Government of Burundi and BNLLDQBH@K E@QLR QDOQDRDMSHMF Ű ODQ BDMS NE SNS@K all the other stakeholders. production). Stimulating and strengthening the bargaining power of ,NRSNESGDBNEEDDŰODQBDMSHROQNCTBDCAXRL@KK smallholder farmers through cooperative organizations scale farmers and cooperatives on less than one should be encouraged. This could help make the GDBS@QD NE K@MC ODQ E@QL  @MC SGD QDL@HMHMF Ű ODQ supply chain more effective, improve the quality of cent is produced by some medium-sized producers the coffee and increase its output. Private investment, and large-scale plantations. including through public-private partnerships, should be encouraged to modernize the sector and make it Dynamics of the sector more competitive. In this regard, Burundi should invest Over the past decade, the Ethiopian coffee sector has in market intelligence that helps stakeholders to better performed well both in terms of quantities exported understand the factors associated with the growing @MCQDUDMTDRFDMDQ@SDCjFTQD 3GD@UDQ@FDU@KTD demand in importing niche markets and build on the NEBNEEDDDWONQSRFQDVSGQDDENKCADSVDDM country’s reputation as a prized source of specialty @MC O@QSKX@RRNBH@SDCVHSGDUDQ HMBQD@RHMF coffees. prices for this commodity, but also with the quantities DWONQSDC VGHBGFQDVAXŰODQBDMS 2. Ethiopia Ethiopian coffee is exported to about 50 countries A major producer and consumer around the world. The European Union is the most HLONQS@MS CDRSHM@SHNM jFTQD   S BNTMSQX KDUDK  Ethiopia has a long history of coffee production and Germany is the destination for about one third of consumption, which has made the country the largest Ethiopia’s total coffee exports, followed by Saudi producer and consumer of coffee in Africa, and the Q@AH@VGHBG@BBNTMSRENQŰODQBDMS tenth largest coffee exporter worldwide.16 Coffee is Ethiopia’s main export commodity, accounting 17 UNCOMTRADE ENQ ŰODQBDMSNESGDBNTMSQXRSNS@KLDQBG@MCHRD 18 Note: Ethiopia is the only country that produces forest coffee. $HFGS@QD@R@QDHCDMSHjDC@RRTBG SGQDDNEVGHBG@QDQDFHR- 16 ITC Statistics tered by UNESCO as ecological biosphere reserves. CHAPTER V - Case Studies: Coffee Sector in Burundi and Ethiopia 37

Figure 20 – Ethiopia’s coffee exports, Constraints and opportunities Ÿ  Constraints

250 1 000 • The main issue for the Ethiopian coffee sector remains the low and inconsistent quality of the 200 800 coffee. Major reasons for this are the prevalence of pests and diseases, climatic variability, inadequate 150 600 @FQHBTKSTQ@KOQ@BSHBDR HMRTEjBHDMSSQ@HMHMFNEBNEEDD

100 400 Value producers, and weaknesses in the organization Volume and management of the value chain. 50 200 • Since the introduction of the Ethiopian Commodities 0 0 Exchange (ECX), exporters (except commercial private farms, State farms and cooperatives) can 2001 2003 2005 2007 2009 2011 2013 2015 no longer sell directly to international buyers; they Volume (1 000 tons) Value ($ million) must sell their coffee through the ECX (box 2). To some extent, this rigidity favours large stakeholders to the detriment of smallholder producers who Source: UNCTAD secretariat based on data from ICO Statistics and UNCOMTRADE. lose the opportunities associated with direct sales to consumers, for example. • The weakness of the coffee cooperative movement. Figure 21 – Main destinations of Ethiopian • The lack of investment in production, processing FRIIHHŸ and marketing capacities. Opportunities 4 000 • Increasing the volume for specialty coffee. Ethiopia 3 000 has a natural abundance of coffee varieties, thus DM@AKHMF HS SN ADMDjS EQNL L@QJDS @MC OQNCTBS 2 000 differentiation. Some studies suggest that two 1 000 thirds of Ethiopian coffee could qualify as specialty. • $SGHNOH@G@R@RHFMHjB@MSBNLO@Q@SHUD@CU@MS@FD Thousands of bags 0 in the production of organic coffee, with over 2011 2012 2013 2014 2015 2016 ŰODQBDMSADHMFCDE@BSNNQF@MHB

European Union Saudi Arabia • Ethiopia’s strong image as the country of origin of Japan North America coffee presents a favourable opportunity to gain Sudan Other access to new markets.

Source: UNCTAD secretariat based on data from ICO Statistics • There is a well-established domestic coffee and UNCOMTRADE. consumption culture. 38 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

Box 2 – The Ethiopia Commodity Exchange

The Ethiopia Commodities Exchange (ECX) is a good example of a functioning multi-commodity exchange in Africa. The ECX was launched in 2008 as a public-private partnership that provides @M DEjBHDMS @MC QDKH@AKD SQ@CHMF OK@SENQL SN @RRTQD @KK RS@JDGNKCDQR SGD RDBTQHSX SGDX MDDC SN RDSSKD transactions. It provides trust and transparency through market data dissemination, and through clearly CDjMDCQTKDRNESQ@CHMF V@QDGNTRHMF O@XLDMSR CDKHUDQX@MCCHROTSDRDSSKDLDMS .UDQ@KLNRS@CDB@CD NENODQ@SHNM SGD$"7G@RSQ@CDCMD@QKXŰLHKKHNMSNMRNEBNLLNCHSHDR@MCKHMJDCLNQDSG@M ŰLHKKHNM farmers to markets. With the inception of the ECX, the Government of Ethiopia suspended the traditional coffee auction system and made it mandatory for all coffee trading to be conducted through the exchange. Coffee E@QLDQR@QDQDPTHQDCSNRDKKSGDHQBNEEDD@SCDRHFM@SDCOQHL@QXL@QJDSRVGDQDNMKXBDQSHjDCATXDQRB@M make purchases. Similarly, coffee processors must receive approval to use designated warehouses, where their product is graded for either export or sale on the domestic market. The volume and value NEBNEEDDSQ@MR@BSHNMR@BBNTMSRENQ@M@UDQ@FDNEŰODQBDMS@MCŰODQBDMS QDRODBSHUDKX NESNS@K commodities traded at the exchange, making coffee an important commodity for the platform. The ECX is viewed as having been successful in modernizing the country’s economy and linking smallholder farmers to markets. However, there has been very little systemic analysis to determine whether the ECX is in fact the driving factor of improvements in Ethiopia’s agricultural markets.

Coffee and sesame volume traded at ECX

700 000 1 000 600 000 800 500 000 400 000 600

Tons 300 000 400 $ million 200 000 200 100 000 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016

Coffee Sesame Coffee trade value

Source: Ethiopia Commodity Exchange, http://www.ecx.com.et (accessed January 2018); Gabre- Madhin, 2012. CHAPTER VI CONSTRAINTS AND OPPORTUNITIES IN EAST AFRICA’S COFFEE SECTOR 40 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

1. Constraints threaten coffee supply in the medium to long term. At the same time, some coffee production practices Based on the analysis in this report, some challenges may contribute to environmental degradation facing East African countries’ coffee sector are through inappropriate use of water and chemical highlighted below: inputs, as well as other unsustainable practices. Quality and productivity As consumers are increasingly concerned with reducing their carbon footprint, some practices will The share of Africa’s supply to global coffee production need to change. In this regard, producers who can has declined dramatically over the past 50 years. In most adopt sustainable production practices will reap African countries, coffee yields are low, and the quality the benefits associated with so-called sustainable of coffee is inconsistent and declining. Its deteriorating coffees. quality results from progressively disappearing high quality cultivars in favour of poor yielding seedlings, but also from a lack of adequate mechanisms of 2. Opportunities resilience vis-à-vis droughts, insects and other pests Maximizing the value and volume of and diseases. Coffee farmers are severely limited raw coffee by poor capacity and awareness of modern farming techniques, harvesting and post-harvesting practices. East Africa’s suitable ecosystem – varieties of Additional constraints are ageing trees, degraded soils coffee, volcanic soil and geographical location and negative impacts of climate change. near the Equator – offers the subregion’s coffee producers opportunities to increase the value Costs of production and volume of their output. This can be achieved Producing coffee entails having land, coffee seedlings, through, among others, building national capacities farm labour and inputs, processing and storage including appropriate infrastructure, proper training, infrastructure, as well as other supporting infrastructure improvement of coffee plant varieties, ensuring (e.g. transport, energy and telecommunications). protection against pests, diseases and contamination These elements are limited in most of the countries during storage, producing a consistent quality of analysed, thus adversely affecting the revenues of coffee without defects, promoting the use of good farmers and producing countries. and better agronomic practices, research and development of new technologies, and expanding Low and volatile prices production capacity. The lack of knowledge and technical capacity to Enhancing strategic governance and predict the behavior of the coffee market is a key coordination in coffee supply source of vulnerability of coffee producers. They make decisions based on information available at the One way to ensure sustainability of the CVC SHLD ATSTMENQDRDDMkTBST@SHNMRHMSGDL@QJDSB@TRD is through a better international and regional serious harm to producers. coordination mechanism. This is crucial for countries producing high quality coffees, particularly with Access to markets and services respect to pricing issues. Increasing these countries’ The limited access to information on consumer negotiating power could raise the revenues they demands and preferences diminishes the capacity of derive from coffee. coffee producers to take full advantage of opportunities associated with their crop. This environment of Stimulating domestic consumption asymmetric information between producers and Developing domestic consumption would make consumers penalizes producers who are unable to producers more aware of consumer demands make informed decisions regarding investment, risk in terms of quality, so that they could adjust management and technology adoption. different parameters along the production process. Moreover, the expansion of the domestic market Environmental effects would be an alternative to the unpredictable export Negative impacts of climate change (i.e. extreme market and would give a boost to a local roasting weather conditions, resilient pests and diseases) industry. CHAPTER VI - Constraints and Opportunities in East Africa’s Coffee Sector 41

+DUQHVVLQJWKHEHQHƄWVIURPQLFKH 3. Conclusion markets This report highlights the role of each of the main Exploiting high value niche markets such as those actors of the CVC, with a focus on smallholder ENQ RODBH@KSX BNEEDDR  BDQSHjDC E@HQ SQ@CD @MC NQF@MHB farmers. It also shows that the CVC is controlled coffees, terroir coffees, single origin or origin branded by a limited number of actors in consumer markets, coffees offers opportunities for East African countries which raises the issue of sustainability of supply, and other countries that produce small quantities of FHUDM SGD KHLHSDC ADMDjSR @BBQTHMF SN OQNCTBDQR  high-quality coffees. These are initiatives that can help Indeed, green coffee buyers (exporters, traders, bring a diversity of buyers to the region and encourage roasters and retailers) continue to adopt business direct trade which would ensure higher and more strategies that enable them to capture most of the stable revenues to smallholder farmers. value, while some producers sink into poverty. The study highlights the shift in power from producers Promoting a sustainable coffee to consumers that followed deregulation and economy liberalization of the coffee sector in the 1990s. Indeed, The growing number of initiatives for coffee the phasing out of the ICA explains to a large extent the BDQSHjB@SHNMRG@RSGDONSDMSH@KSNHLOQNUDSGDONRHSHNM subsequent fall in producer prices. Large adjustments of smallholder farmers in the global CVC. These are needed to ensure supply sustainability, particularly new forms of organization encourage stakeholders in a context of a predicted increase in demand over the to engage in long-term relationships and direct next few decades. East African countries should be transactions. They also foster good agricultural and in the vanguard of these changes, given the region’s processing practices. The consequent improvement untapped potential to produce specialty coffees and HMPT@KHSX@MCBG@HMDEjBHDMBXHMSTQMDMRTQDR@E@HQDQ the importance of the coffee sector for the households income for the farmers. and governments of these countries. 42 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

REFERENCES

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ICO (2014). World coffee trade (1963 – 2013): A review of the markets, challenges and opportunities facing the sector. ICC-111-5 Rev. 1, London. Available at: http://www.ico.org/documents/cy2013-14/icc-111-5-r1e- world-coffee-outlook.pdf (accessed 9 January 2018). ICO (2015). Sustainability of the coffee sector in Africa. ICC-114-5, London. Available at: http://www.ico.org/ documents/cy2014-15/icc-114-5e-overview-coffee-sector-africa.pdf (accessed 9 January 2018). ITC (2012). The Coffee Exporter’s Guide – 3rd ed. International Trade Centre, Geneva. Milford A (2004). Coffee, co-operatives and competition: The impact of Fair Trade. Chr. CMI Reports, R2004:6. Michelsen Institute, Bergen. Pendergrast M. (2010). Uncommon Grounds: The History of Coffee and How it Transformed Our World – Revised edition. Basic Books, NY. Retrieved from https://www.amazon.com (accessed 18 December 2017). Ponte S (2002). The ‘Latte Revolution?? Regulation, Markets and consumption in the Global Coffee Chain. World Development, 30(7):1099-1122. Russell B, Mohan S and Banerjee A (2012). Coffee Market Liberalisation and the Implications for Producers in Brazil, Guatemala and India. Oxford University Press on behalf of the World Bank. © World Bank. https:// openknowledge.worldbank.org/handle/10986/19082 License: CC BY-NC-ND 3.0 IGO. Simoes AJG, Hidalgo CA (2011). The Economic Complexity Observatory: An analytical tool for understanding the dynamics of economic development. Paper presented at the Workshop at the Twenty-Fifth AAAI Conference NM QSHjBH@K (MSDKKHFDMBD  1DSQHDUDC EQNL GSSOR@SK@R LDCH@ LHS DCTDMOQNjKDGR @BBDRRDC Ű#DBDLADQ Talbot JM (1997). Where does your coffee dollar go?: The division of income and surplus along the coffee commodity chain. Studies in Comparative International Development  Talbot JM (2004). Grounds for Agreement: The Political Economy of the Coffee Commodity Chain. Rowman and +HSSKDjDKC 4MHSDC2S@SDRNE LDQHB@ Topik S (2004). The world coffee market in the eighteenth and nineteenth centuries, from colonial to national regimes. Working Paper No. 04/04. Department of History, University of California, Irvine. Tuchscherer M (2003). Coffee in the Red Sea area from the sixteenth to the nineteenth century. In: Clarence- Smith W and Topik S, eds. 7KH *OREDO &RIIHH (FRQRP\ LQ $IULFD $VLD DQG /DWLQ $PHULFD t. "@LAQHCFD4MHUDQRHSX/QDRR "@LAQHCFD Ukers WH (2012). All about Coffee: A History of Coffee from the Classic Tribute to the World’s Most Beloved Beverage.Simon and Schuster, MA. Retrieved from https://books.google.ch (accessed 20 November 2017). UNCTAD (2016). State of commodity dependence. UNCTAD/SUC/2017/2. New York and Geneva. 44 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

Annex 1. Coffee species and varieties

Coffee species and varieties

Coffee belongs to the family Rubiaceae in the genus Coffea. The latter contains over 100 coffee species, but only three are used to produce the beverage: Coffea Arabica (Arabica coffee), Coffea Canephora or Coffea Robusta (Robusta coffee), and Coffea Liberica (Liberica coffee 3GDjQRSSVN@QDVHCDKX produced and commercialized, representing respectively three quarters and one quarter of the world’s coffee production and exports. Ethiopia is considered to be home to the most genetically diverse strains of Coffea Arabica. This has led botanists and scientists to agree that Ethiopia is the centre of origin and CHUDQRHjB@SHNMNESGD Q@AHB@OK@MS$MFDKRDS@K VGHKDCoffea Canephora is found in central west Africa and Coffea Liberica in west Africa. 6HKC Q@AHB@EQNL$SGHNOH@ VGHBGV@RBTKSHU@SDCHM8DLDMEQNLSGDjESDDMSGBDMSTQX HRSGDLNRSBNLLNM coffee species grown worldwide for consumption. It is considered superior in quality with a more subtle @MC@QNL@SHBk@UNTQ@MCKDRRB@EEDHMDBNMSDMS .MSGDNSGDQG@MC 1NATRS@BNMS@HMR@KLNRSCNTAKDSGD KDUDKNEB@EEDHMDBNLO@QDCSN Q@AHB@ FHUHMF@LNQDAHSSDQ S@RSHMF@MCKDRR@QNL@SHBk@UNTQ 1NATRS@ is, however, more resilient to diseases and can be cultivated in low altitudes and warm climates, and it also tends to give higher yields. Today, Robusta is grown mainly in Asia (Viet Nam, Indonesia, India and Malaysia), Africa (Uganda, Côte d’Ivoire, the United Republic of Tanzania, Cameroon, the Democratic Republic of the Congo), and Brazil; whereas Arabica is produced for the most part in Latin America (Brazil, Colombia, Honduras, Peru, Guatemala, Mexico and Costa Rica) and in Africa (Burundi, Ethiopia, Kenya, Rwanda, Uganda, and the United Republic of Tanzania); and small crops of Liberica coffee (about 1 per cent of world coffee production) are found in Asia (Malaysia, Philippines and Indonesia). Many cultivars have been derived from these species, and developed to increase productivity, strengthen natural resistance and improve the quality of the end product.

SL 34 SL 14 SL 28

Orange Catuai Scott Labs Selections

Catuai Batian

Yellow Catuai K7 Ruiru 11 Colombia Icatu Castillo Caturra Jackson French Mission Catimor Pop 3303/21 Ateng Bourbon Pointu "Laurina" Pacas Bourbon Chocola Sarchimor Lempira

Mbirizi IH90 Bourbon

Tekisic Villa Sarchi Mundo Novo Yellow Bourbon Maracaturra Orange Bourbon Sigarar Utang Marabourbon Timor Pacamara Pache San Bernando Wolisho Kudhume Gesha Dega San Ramon Maragojipe Chickumalgur USDA7672 Ethiopian Types Java Typica JARC Selections Harrar Jamaican Blue Mountain Onan Ganjang Wush-Wush C. canephora Kona Pluma Hidalgo

Kent Moka Bergendal Arusha Sudan Rume C. arabica Important Other Types El Salvador Kenya Types HR61 / HR62 S795 C. liberica Rubiaceae S288

Source: https://counterculturecoffee.com/ learn/resource-center/coffee-varieties; Bertrand (2002). ANNEXES 45

Annex 2. Key activites and actors along the CVC

ACTIVITIES ACTORS z Inputs /TAKHB OQHU@SD CNMNQR -&.R BDQSHjDQR DSB

z Producing Small farmers: QDOQDRDMSLNQDSG@MŰODQBDMSNEFKNA@KBNEEDDRTOOKXRDKE DLOKNXDC  grow coffee on less than 5 hectares often together with other food crops, rely on family members to help during harvest, deliver to collection points or coffee washing stations, sell to intermediaries (collectors) or processors (wet mills). Cooperatives: smallholder farmers get together to form cooperatives to have a stronger A@QF@HMHMF ONVDQ  @BGHDUD DBNMNLHDR NE RB@KD AX @FFQDF@SHMF OQNCTBSHNM  @MC ADMDjS LNQDEQNLSDBGMHB@K@RRHRS@MBD@MCjM@MBHMF "NNODQ@SHUDRNESDM@KRNRDQUD@ROQNBDRRNQR @MCDWONQSDQR "DQSHjDCBNEEDDRNTQBDQRTRT@KKXATXEQNLBNNODQ@SHUDR Estates/plantations: Medium- to large-scale, own facilities, employ workers. Collecting Collectors (intermediaries – domestic traders): Small farmers sell their produce to intermediaries called collectors, who in turn sell the coffee to wet mill operators or exporters. Collectors gather coffee cherries by either driving around in pickup trucks or setting up collection centres. They buy from small producers at a relatively low price, often lower than the minimum price set by the regulator. z Processing Wet mills (primary processing): receive (weigh and buy) coffee cherries then depulp, z ferment, grade, and dry the beans. If not handled on-site, the graded coffee bean is sent to the dry mill for further processing Dry mills (secondary processing): receive or buy coffee parchment beans from farmers NQ VDS LHKKR  #QX LHKKR QTM SGD jM@K RS@FD VGDQD O@QBGLDMS HR QDLNUDC  @MC AD@MR @QD sorted and graded by size/weight and checked for quality. Green coffee is then sold to local buyers or exporters Exporting Exporters: receive or buy green coffee beans from millers, farmers and cooperatives. They arrange for sale and shipment of the green coffee to importers or roasters. They are either independent agents in the supply chain or own wet and dry mill facilities. They can also be a local company or part of a multinational corporation. An exporter provides two-way value- added services for both buyer and supplier such as controlling coffee quality, sampling of BNEEDD OQNUHCHMFOQD BQNOjM@MBHMF@MCOQDO@QHMFCNBTLDMS@SHNMENQDWONQS Roasters rarely source beans directly from producers but rather through exporters. z Importing Importers: buy green coffee from exporters, farmers and cooperatives, and sometimes from other importers Roasting Roasters: buy green coffee from Importers. They can be importers themselves, buy at z origin and organize logistics to their location. z Retailing Supermarket chains:OK@X@K@QFDQNKD @BBNTMSHMFENQŰODQBDMSNESGDNUDQ@KKBNEEDD consumption. Food service industry:QDRS@TQ@MSR A@QR NEjBDR UDMCHMFL@BGHMDR@BBNTMSENQŰODQ cent of consumption. Specialty coffee bars: a fast-growing segment (e.g. Starbucks has 425 stores in 1990 and now 27,339 stores worldwide in 2017). z Consumers ŰLHKKHNMBNEEDDCQHMJDQRODQC@X

z Seed z Cherry z Parchment z Green z Roasted 46 COMMODITIES AT A GLANCE - Special issue on coffee in East Africa

$QQH[&RIIHHSURƄOHVLQ(DVW$IULFD

United Burundi Ethiopia Kenya Rwanda Uganda Rep. of Tanzania)

Coffee Growing Kayanza, Ngozi, Harar, Limu, Meru, Kiambu, Butare, Nyanza, Mid-A: Kiliman- Bugisu, Victoria areas Kirundo-Muyinga, Jimma, Irgacheffe, Kirinyaga, Ruiru Ngoma, Lake Kivu jaro, Arusha, basin, Western Mumirwa, Kirimiro Sidamo Manyara, Tanga, Uganda, West Nile Mbeya; Hard-A: Tarime R: Bukoba, Kagera,

Type of coffee A/R A A A/R A/R/O A/R/O

Process Method Wet, Dry, Natural, Wet, Dry Wet Wet, Dry Wet, Dry

Trade System Direct Sale Direct Sale Auction, Direct Direct Sale Auction, Direct Direct Sale Sale Sale

Port of Export DAR, MBA DJI MBA MBA, DAR DAR MBA, DAR

Export to European Union, European Union, European Union, European Union, European Union, European Union Japan, United Japan, Saudi United States United States, Japan, United States, Australia Arabia Switzerland 6WDWHV$VLD$IULFDb

Coffee harvest seasons for each country

Jan. A A/R

Feb. A A/R

Mar. AAR

Apr. AAARR

May AAARR

June AAARR

July A/R R

Aug. A/R A/R

Sep. A/R R

Oct. A A A/R A/R

Nov. A A A/R A/R

Dec. A A A/R A/R ■ Main crop ■ Secondary crop ■ Fly crop 47

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