January 7, 2009
Wolasso L Kumo
With the population of over 80 million, Ethiopia is the second largest country in Africa following Nigeria with the total population of 140 million. However, with per capita income of less than US $200, Ethiopia is one of the least developed countries in the sub Saharan Africa. Agriculture is the main stay of the economy. Over 80% of the total population is employed in agriculture while the sector contributes about 50% of the Gross Domestic Product and over 80% of foreign exchange earnings.
Furthermore, agriculture is expected to provide food for the population and raw material and capital for the industrialization of the economy. The country´s development strategy is based on Agriculture Development Led Industrialization (ADLI) and is heavily dependent on the transformation of this sector. However, Ethiopia´s tradition bound agriculture failed not only to feed the growing population but also serve as an engine of industrialization and economic development. The sector faces various challenges. Among others, these include natural endowment, archaic technology and limited resources.
Since recently, the Ethiopian government tried to address one of these challenges by creating a national agricultural commodity exchange system. In line with the trend in many other African countries, Ethiopia has recently set up a national commodity exchange known as Ethiopian Commodity Exchange (ECX). A commodities exchange is a system where various commodities and derivates, and contracts based on them are traded. The contracts include spot prices, forwards, futures and options on futures. Commodities exchange play vital role in marketing agricultural outputs and improving the return for the primary producers.
The rest of the paper is organized as follows: section 2 describes the Ethiopian Commodity Exchange (ECX) while section 3 deals with the coffee exchange and the renaming of the Sidama coffee.
The Ethiopian Commodity Exchange (ECX)
The Ethiopian Commodity Exchange is established to trade in three major groups of agricultural commodities: Coffee, Grains and Pulses. It began its first live exchange of maize and white pea beans on April 24, 2008. Initially, ECX contracts involve spot trading or immediate delivery of physical commodities. However, ECX plans to introduce trading in futures contract in the near future. During the first phase of the operation, 25 agricultural commodities (mainly grain and pulse) were offered for the spot commodity contract.
Coffee, the country´s main foreign exchange earner, is also now being traded on the Ethiopia Commodity Exchange.
The objective of the ECX is to revitalize the country´s ailing agriculture sector. The Home page of the ECX web site states:
“The Ethiopia Commodity Exchange (ECX) is a new initiative for Ethiopia and the first of its kind in Africa. The vision of ECX is to revolutionize Ethiopia´s tradition bound agriculture through creating a new marketplace that serves all market actors, from farmers to traders to processors to exporters to consumers. The ECX is a unique partnership of market actors, the Members of the Exchange, and its main promoter, the Government of Ethiopia. ECX represents the future of Ethiopia, bringing integrity, security, and efficiency to the market. ECX creates opportunities for unparalleled growth in the commodity sector and linked industries, such as transport and logistics, banking and financial services, and others”.
While commodity exchanges are run by the private sector in some countries, in Ethiopia the system is managed by the government. Ethiopia does not have operational securities market or stock exchange. The establishment of the Commodity Exchange is expected to create conducive environment for the establishment of much needed system of securities exchange. Although long overdue, such steps of embracing the free market system are vital for the revival and the development of the country´s economy.
The Coffee Exchange and the Renaming of the Sidama Coffee
Coffee is the second most widely traded commodity in the world next to petroleum where more than 80 countries cultivate coffee, which is exported as the raw, roasted or soluble product to more than 165 countries worldwide. It is the most important agricultural commodity in the world, and is worth up to $14 billion annually.
Ethiopia is the birth place of Coffee. Coffee is believed to have been discovered by a Kaffa goatherd, in the Kaffa province, western Ethiopia, a thousand years ago. At present, Ethiopia is Africa´s largest producer of Coffee. It produces over 200,000 tons of coffee per annum. The projected annual output for 2008/09 is over 225,000 tons and half of this is expected to be exported earning the country over US$ 525 million, nearly two-thirds of its export income (Heinlein, 2008).
That is less than 2% of coffee supplied in the international market indicating that Ethiopia does not have any influence on the determination of the international coffee prices.
In Ethiopia Coffee was traditionally traded by an auction system. However, since recently coffee trading was incorporated into the ECX and all trading in this commodity must go through this bourse. The ECX provides an up-to-date automated exchange system including an automatic link to the New York coffee price per pound which is updated every five minutes.
Heinlein (2008) stated further that even though Sidama, Harar and Yigacheffe brands of Ethiopian coffee are considered to be among the world´s finest, millions of Ethiopia´s coffee growers hope that the new exchange will prevent the previous inconsistencies in quality and delivery that hurt the country´s reputation in international coffee trade.
The Renaming of the Sidama Coffee
Coffee is one of the most important cash crops in the Sidama region and other parts of the country. In the year 2005, Sidama and Gedeo regions alone produced over 63,562 tons of coffee (Central Statistical Agency Ethiopia, 2005) in Goodo (2007). This is about 1/3 of the total coffee output for the country during the year.
Over 60% coffee produced in Sidama region is washed coffee and ready for export. There are over 89 coffee washing stations in Sidama alone. Thus, about 40% of washed coffee destined to the export market comes directly from the Sidama region (Goodo, 2007).
However, the Sidama coffee has been traded globally under a wrong label, “Sidamo” coffee. The “Sidamo” misnomer was assigned to the Sidama coffee when the coffee classification and grading systems were developed in Ethiopia in 1952 and 1955. The National Coffee Board of Ethiopia, established in 1957, used the “Sidamo” misnomer as the “true” name of the Sidama coffee. Thus, for more than half a century, the Sidama coffee has been traded globally under a wrong label, “Sidamo” coffee. The food chain multinationals such as Starbucks are the major retailers of this brand (Goodo, 2007).
The misnomer “Sidamo” coffee derives from a misnomer that referred to the Sidama people and other Kushitic and non-Kushitic peoples of the South after the 1891 annexation of their lands to the present day Northern Ethiopia (Goodo, 2007).
Since the early 1990s the Sidama people have repeatedly demanded that the misnomer “Sidamo” be eradicated once and for all. While the misnomer was officially eradicated in 1993, it continued to be used in the domestic and international coffee trade.
However, due to a concerted domestic and international campaign by the Sidama nationals at home and in Diaspora since the early 2007, the Ethiopian government finally scraped the misnomer “Sidamo” coffee from the recently established Ethiopia Commodity Exchange (ECX) system.
In the new ECX system, the Sidama coffee is traded under three labels/grades: Sidama A, Sidama B and Sidama C indicating the various districts of coffee origin.
The Sidama communities at home and in Diaspora view this move by the Ethiopian government as encouraging and positive and as a step towards full recognition of the rights of peoples and the principles of Fair Trade.
The Sidama people hope that the food chain multinationals, other importers and users of the Sidama coffee will follow suit and scrap the derogatory and degrading misnomer “Sidamo” coffee and replace it with the rightful and dignified name of the commodity.
