Ethiopian Coffee Exports: Development Performance, Challenges and Prospects

Abstract

Coffee has greater importance in the Ethiopian economy. It is the single foreign exchange earner of the country accounting for about 46 percent of its total export revenue for the last two decades. Approximately 1.3 million households are involved in coffee production, and it is estimated that around 15 million of the country’s population are dependent on coffee production and market based income for their livelihoods. This research aims to examine the performance and major determinants of Ethiopian coffee export in the major importing countries in the last decade. The effects of importing countries’ GDP, population situation, real effective exchange rate etc. on the demand for Ethiopian coffee export is analyzed in detail. Challenges and prospects for the country’s coffee export identified and appropriate recommendation has been given. Descriptive statistics, growth function, and log-linear regression were employed for data analysis. With a share of less than 3 per cent of the global market for coffee, Ethiopia relies on a high proportion of its coffee export earnings. Indeed, coffee is the backbone of the Ethiopian economy, contributing about 28 per cent of the total foreign exchange earnings in 2011. In 2010/11, the total volume and value of coffee export was 196,117 ton and 841.65 million American dollars, respectively; and more than 120 Ethiopian Coffee exporters were participated in processing and exporting coffee to 53 destination countries of the world. Over the 1991-2011period (EPRDF governance), the value of coffee export earning of Ethiopia showed a positive growth of 7.5 percent annually 60 percent of this growth was explained by the increase in the volume of coffee exported that grew by 4.5 percent; and 40 percent by increase in coffee prices that rose by 3 percent annually. The growth of Ethiopian coffee exports has a different pattern when we examine it on market basis. For the period 1991-2011, Ethiopian coffee export volume showed a positive growth rate to Japan (6.96%), Saudi Arabia (6.19%) and Belgium (4.34%).The growth rates for Germany, France, and Italy were not iii significant at 10 percent probability. The volume of coffee exported to USA, and Finland showed negative growth rate of 6 percent 10 percent respectively during the analysis period; nevertheless, the total imports of the countries showed no significance changes. With the purpose of identifying factors influencing the export demand for Ethiopian coffee log-linear equation was estimated. The explanatory variable assumed the expected relationships. The coefficients of Ethiopian coffee export prices assumed negative sign for all countries and significant for Saudi Arabia, Japan, and the USA. The coefficients of Brazilian mild prices were significant in case of Japan, Germany, and the USA and assumed a positive sign expected. These suggest that the Brazilian mild Arabica coffee is a direct substitute for the Ethiopia coffee. Coefficients of the income variable were positive as expected, but found to be significant for Saudi Arabia alone. The estimated coefficients of population were significant for Saudi Arabia, Japan and Germany and assumed a positive sign as per expectation. The taste and preference of the USA market showed a negative trend for Ethiopia coffee.