analysis of value chain and economics of coffee production · zone in north east, with snnp...

International Journal of Agriculture & Agribusiness ISSN: 2391-3991, Volume 6 Issue 2, page 88 – 104

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Zambrut.com. Publication date: December, 2019.

Abasimel, N. A. & Fufa, H. W. 2019. Analysis of Value Chain and Economics of Coffee

Production ............

88

Analysis of Value Chain and

Economics of Coffee Production

Nasir Ababulgu Abasimel1 & Hika Wana Fufa

2

1Nasir Ababulgu Abasimel &

2Hika Wana Fufa

1Department of Agribusiness and Value Chain Management, Wollega University

2Department of Agricultural Economics, Wollega University

P.O. BOX: 395, Wollega University, Ethiopia

1. INTRODUCTION

Coffee, Ethiopia‟s largest export crop is the backbone of the economy (Nicolas 2007). It is

estimated that between 7.5 and 8 million households depend on coffee for a considerable share of their

income, and provides jobs for many more people in coffee-related activities of processing, transporting

or marketing along activities (Samuel & Eva 2008). Ethiopia is famous as the origin of coffee and is the

Abstract: Analyzing coffee value chain and understanding the basic characteristics and

economy of the decision-making unit or actors is very essential in order to design an

appropriate research and development initiative. This study focus on analyzing the

socioeconomic characteristics and means of income generation of sample coffee producing

households and traders, mapping coffee value chain and identifying opportunities and

constraints of coffee value chain in the study area. Primary and secondary source of data

were used and collected using questionnaires and interview methods. About 124 coffee

producers and 8 suppliers/wholesalers are selected randomly and 10 collectors, two primary

cooperatives, two exporters and one cooperative union were selected purposively. The

average coffee farming experience is 15.2 years. The land allocated for coffee production

ranges from 0.125 to 3 hectares. In the area, coffee is a leading cash crop and a major means

of livelihood, and khat, livestock, fruit, vegetable, and off-farm activities like khat trading,

coffee trading, livesock trading and shopping are also other means of income generation.

Mean initial working capital of suppliers and collectors are 65375.00 and 8100.00 Birr

respectively. The primary actors in coffee value chain are input suppliers, producers and

traders (collectors, suppliers, cooperatives, exporters and union). The majority of the sample

producers indicated that coffee related diseases like coffee berry disease (CBD) and coffee

wilt disease (CWD), labor shortage, land shortage, seed shortage, insects, weeds, high rain

fall, drought and pesticide shortage as major constraints of coffee production. The most

important coffee marketing constraints in the study area during the survey year were low price

of coffee, lack of transport, limited access to market information, low quality of the crop,

distance, lack of market, poor linkage with commercial value chain actors, lack of quality

storage facilities and low demand for coffee. Hence, the necessary measures are recommended

to be taken as a remedy for specified problems related to coffee value chain.

Keywords: Value Chain Analysis, Coffee, Mapping, Actors’ Economy, Opportunities and

Constraints.

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largest producer in Africa. In production of Arabica coffee, Ethiopia is the sixth largest producer in the

world. About 15 million people (almost 20 percent of the total population) directly or indirectly depend

on coffee for their living (USDA, 2012).

The coffee subsector of Ethiopia has been and continues to be the foundation for the country‟s

agricultural and economic development. The subsector accounts for over 35% of agricultural foreign

exchange earnings and about 4% of agricultural Gross Domestic Product (Agric. GDP), provides

income to over 15 million people in the country through provision of jobs for farmers, local traders,

processors, transporters, exporters and bankers (FAOSTA, 2011). Currently, Ethiopia exports 170,000

tons and has a domestic consumption is estimated to be about 50% of the total production (Aklilu and

Ludi, 2010). The total land area of about 5,68,740 (3.91% ) hectares are covered by coffee, from which

a total volume of about 4,199,801.56 quintals of coffee are obtained, from 4,723,483 private peasant

holdings in the agricultural year (CSA, 2014/2015).

Jimma zone is one of the coffee growing zones in the Oromia Regional State. Currently, the total

land area of about 97,155 hectares are covered by coffee, from which a total volume of about 803,224

quintals of coffee are obtained, from 444,216 private peasant holdings in the agricultural year (CSA,

2014/2015). The zone covers a total of 21% of the export share of the country and 43% of the export

share of the Oromia Region (JZARDO, 2008). In terms of the top 25 districts, Oromia dominates with

18 of the top 25. More specifically, Jimma zone in Oromia has five of the top 25 producing districts

(IFPRI 2015). Despite the importance of coffee for better income generation, smallholder farmers in

the area continue to face a number of challenges related with marketing. Though coffee is one of the

world‟s most traded goods, as the commodity price has plunged in recent years it is increasingly hard

for coffee farmers to survive on their crops (Tora Bäckman 2009). Limited access to market facilities,

less exposure for market information, infrastructural problem, inadequate support services and problem

in transportation services are some of the problems resulting in low participation of smallholder

farmers in selling their products (Bizualem, 2015).

Therefore, understanding the behavior of coffee value chain in general, analyzing the economy of

coffee value chain actors in particular can be of a great importance in the development of sound

policies with respect to agricultural marketing and prices, imports and exports, and in meeting the

overall rural and national development objectives of the country. Hence, it is imperative to analyze

analyzing the economic characteristics of coffee producers and traders, mapping coffee value chain to

identify: actors, functions of actors along the chain, supporters and enablers of coffee value chain, and

opportunities and constraints of coffee value chain and point out potential factors on which policy

should emphasize in the future.

2. METHODOLOGY

2.1 Description of the study area: Jimma Zone extends between 7013‟- 8

o56‟ North latitude and

35049‟- 38

038‟ East longitude. It is located in the south western part of Oromiya National Regional

State. It is bordered with East Wollega zone in the north, with east shawa zone and southwest Shawa

zone in north east, with SNNP administration in the south east and south part, and with Illubabor zone

in the west and it is found between altitude ranges of 880 to 3340 meters above sea level (PSEPJZ,

2014). There are favorable climatic conditions, variety of local coffee types for quality improvement

and long history of its production in the Zone.

Population: The total population of Jimma administrative zone during the year 2007 was 2,486,155

people of which 1,250,527 (50.3%) were male and 1,235,628 (49.7%) were female. In terms of spatial

residence, 2,212,677 (about 89.1%) of the population are living in the rural areas while the remaining

273,477 (about 10.9%) are living in the urban areas.

Farming system: The zone is potentially rich particularly for farming practices. The agro-climatic

conditions dominated by tropical, subtropical and cool are suitable for production of cereals, pulses,

fruits, vegetables and oil seeds in addition to coffee. It is very ideal for some crops such as enset. The

zone is relatively free from meager and erratic rainfall distribution as compared to other zones of

Oromia that have great impact on rain fed agriculture. Mixed farming is a common practice prevailing

in the zone. As a result, the livelihood of the rural people is dependent on both farming and livestock


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rearing. In addition, the people who have access to lakes and large rivers do practice fishery (PSEPJZ,

2014).

Infrastructures

Transport- According to Jimma zone trade and tourism 2009, the road network of Jimma zone is

moderately linked. Most of districts and their capital town lie on the main roads which run from Addis

Ababa to Jimma, then Mizen-Tepi to the West and Bedele-Nekemte to the North from Jimma town and

to region of SNNP.

Communication: Telephone- All districts of Jimma zone have accessed to telephone services

according to Ethiopian Telecommunication Corporation of south western region office, 2009. Postal

service-Postal service is the other branch of Communication and its service covers all parts of the zone

through one main postal service, in Jimma town, 7 other regular offices in districts and 70 agents since

2008/2009. The expansion of Communication and its effectiveness is very important for governmental,

non-governmental, private, and individuals. Fast flow of information helps to narrow down gaps

timely, between demand and supply of various developmental aspects in the zone.

Seka Chokorsa district extends between 70 20

‟ _ 7

0 45

‟ north latitude and 36

0 33

‟ _ 36

0 53'

east longitude.

It is bordered with Gomma and Mena districts north; Kersa district in northeast; Dedo district in east;

with SNNP district in south; Gera district in west and northwest; and Sombo Shabe district in the south

west. The total surface area of the district is 85,425 hectares and situated in the southern part of Jimma

zone. Seka Chokorsa district has a total population of 212,619 during 2008 of which 107,011(50.3%)

were male and 105,607(49.7%) were female. Most part of the district belongs to subtropical with the

altitude of 1500-2300 m a.s.l (72%) and highland areas with the altitude ranges from 2300-2800 m a.s.l

(21%) and the altitude below 1500 m a.s.l (7%) belongs to lowland. The western parts do have cool

agro-climate with the mean annual temperature ranges of between 15-180c and the vast part of the

district is classified as subtropical with mean annual temperature ranges of between 18-220c. The

annual rainfall varies between 1300 mm and 1700 mm (BFED, 2015). The location map of the study

area is depicted hereunder.

Figure 1: Map of the study area

2.2 Sampling Techniques

A two stage random sampling procedure was employed. Among the eight potential districts, Seka

chokorsa district was selected purposively. Selecting representative sample kebeles is also an important

criteria. Thus, in the first stage, with the consultation of the district agricultural experts and

development agents, out of 34 coffee producing kebeles of the district, 3 coffee producers‟ kebeles

namely Sakala genefo, Ilike tunjo and Gorantu alaga were selected randomly. In the second stage,

based on the number of coffee producer households, 124 sample coffee producer households were

selected from the sample kebeles using simple random sampling technique with probability


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proportional to size (Table 2). In addition, suppliers were selected randomly whereas collectors,

primary cooperatives, exporters and cooperative union were selected purposively.

2.2.1 Sample Size Determination

Since adequate size of sample is needed for the purpose of econometric analysis, sample size was

determined using Yamane (1967) formula. Yamane (1967) developed the following equation to yield a

representative sample for proportions. Hence, the sample size was determined based on the following

formula given by Yamane (1967).

Where, n is sample size, N is the number of households in the district and e is the desired level of

precision. By taking e as 9%, the total number of household was 40123 and therefore, the sample size

was 124 sample households which were selected randomly.

Table 1. Sample size distribution in the sample rural kebeles.

Name of selected kebeles Total number of coffee producer

households Number of sample households

Sakala genefo 1140 58

Ilike tunjo 1022 52

Gorantu alaga 275 14

Total 2437 124

Source: Own computation survey results, 2017

Other value chain actors like collectors, suppliers, cooperatives, exporters and union were also

included. From the lists 16 suppliers, 8 of them were selected randomly. Furthermore, 10 collectors,

two primary cooperatives, two exporters and one cooperative union were selected purposively. Since

there were not the recorded lists of collectors in the area, they were selected purposively and due to

limited number of primary cooperatives in the study area, both of them were selected purposively.

2.3. Types, Sources and Methods of Data Collection

The data, both quantitative and qualitative types, needed for this study were collected from both

primary and secondary sources. The primary data were obtained using informal and formal surveys.

The formal survey was undertaken through formal interviews with randomly selected households,

traders and cooperative union using a pre-tested semi-structured questionnaire for each group. The

questionnaire was used for the data collection from smallholder farmers through trained enumerators.

Qualitative data about business practices and transactions and the patterns and socio-economic

activities of the farmers in the study area were gathered informally through direct observation of the

study area and informal discussions with key informants like DAs, agriculture sector offices,

administrators, and ethnic leaders using checklists.

In addition, secondary data of both qualitative and quantitative nature such as agricultural inputs

supplied and consumed, physical characteristics, population size etc. were gathered from Central

Statistics Agency (CSA), Bureau of Agriculture and Rural Development (BoARD), and other sources

through reviewing and examination of reports as well as records of published and unpublished

documents.

Information on different variables such as data on coffee production, coffee marketed, prices of

coffee supplied, distance to market, distance to all weather roads, age of the household head, extension

service, educational status of the household head, household size, access to market information,

credit facility, and type of sellers and buyers, among others, were collected using the semi-structured

questionnaire.

2.4. Methods of Data Analysis

Descriptive statistics and econometric analysis were used to analyze the data collected from

coffee producers, collectors, suppliers, cooperatives, exporters and cooperative union.


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2.4.1. Descriptive statistics

This method of data analysis refers to the use of percentages, means, standard deviations, t-test,

χ2-test, and value chain maps in the process of examining actors and describing marketing functions,

facilities, services, enablers and supporters, and used in analyzing households and traders‟ economic

characteristics and the overall coffee value chain where necessary including opportunities and

constraints.

3. RESULTS AND DISCUSSION

3.1. Descriptive Results

3.1.1. Demographic characteristics of sample households

Understanding the basic characteristics of the decision-making unit is very essential in order to

design an appropriate research and development initiative. From the surveyed sample small holder

households, variables which are believed to influence the decision making process are analyzed.

Obtained results are presented as follows.

Out of the 124 coffee producing sample households, 91% are male and 9% are female headed.

There is significant difference between male and female households at 1% significance level. The

educational status of the sample producers depicted that 50.8% of them are literate whereas 49.2% are

illiterate. Table 3 reflects the age of sample households exhibited variation ranging from 21 to 82 years

with the mean of 45.67 years. There is also significant difference among the age of the households at 1

percent significance level. In the study area, the average family size of the sample household was 5.11

persons and the difference is significant at 1% significance level (Table 3). This figure is greater than

both national and regional average family size of 4.7 and 4.8 person respectively indicating the need for

intervention through strengthening family planning program in the study area.

Table 2. Demographic characteristics of the sample households

Dummy variables Items Number( 124) Percent (%) Std. Err. χ2-test

Sex Female

Male

11

113

9

91 .026 9.160***

Education status Literate

Illiterate

63

61

50.8

49.2 .045 0.180

Continuous variables Mean Std. Err. Min. Max. t-test

Age 45.76 1.218 21 82 37.570***

Family size 5.11 0.185 2 13 27.679***

Note: *** statistically significant at 1% significant level.

Source: Own computation results, 2017

3.1.2 Socio-economic analysis of the households

From Table 4 below, the average coffee farming experience is 15.2 years and there is significant

difference among the households in coffee farming experience at 1% significant level. This shows that

farmers in the study area have good experience in coffee production.

Land is one of the basic factors of production which affect the amount of coffee supplied to

market. Land holding is the size of land a household is entitled to, is measured in hectare. Smallholder

farmers in the study area use their land for all farming activities mainly for the production of food crops

and cash crops, livestock grazing, house construction and tree plantation. The average total land

holding, cultivated land, grazing land and coffee land size are 1.85, 0.87, 0.35 and 0.79 hectares

respectively. There is significant difference among the households in total land holding, cultivated land,

grazing land and coffee land size at 1% significance level (Table 4). Total land holding of the farmers

ranges from 0.125 to 8 hectares, the cultivated land size ranges from 0.125 to 4 hectares, similarly land

allocated for coffee production ranges from 0.125 to 3 hectares. The pattern indicates that farmers

mainly allocate land for coffee production in the study area.

Table 3. Socio-economic analysis of the sample households.

Variable Mean Std. Err. Min Max t-test


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Total Land holding 1.85 .132 .125 8 14.180***

Cultivated land .87 .071 .125 4 12.226***

Grazing land .35 .026 .125 1 13.423***

Coffee land Size

Coffee farming experience

.79

15.2

.056

.931

.125

4

3 14.087***

60 16.277***

Note: *** statistically significant at 1% significance level.


3.1.3. Production overview and means of livelihoods (income generation)

Sample households depend on different means of livelihood earning strategies where coffee

production was the major sources of income for the majority of the producers in Seka chokorsa

district. Following this, about 53.2% of the households earn their living from coffee production as a

primary source in the study area. Grain production is also considered as the second major means of

livelihood in the district by about 21.8% which is followed by khat production (11.3%). Similarly, khat

production, fruit production, coffee trading, khat trading, livestock production, vegetable production

and livestock trading are other activities supporting the livelihood of farming households in the area

(Appendix 1).

In the area, coffee is a leading cash crop and a major means of livelihood, and khat, livestock,

fruit, vegetable, and off-farm activities like khat trading, coffee trading, livesock trading and shopping

are also other means of income generation. Crop production includes maize, sorghum, wheat, barley,

teff, beans and peas. Major fruits production include avocado, banana, mango, papaya, orange and

lemon. Vegetables like potato, tomato, pepper, onion, garlic, cabbage and many others are means of

livelihood and income generation. Livestock activities such as cattle raising, goat and sheep production,

poultry production and fattening are the important one.

Off/non-farm activities includes coffee trading, khat trading, livestock trading and retail

shopping. It is considered as a crucial factor since it is important for the households‟ economy and it is

also a critical survival strategy for rural farm household. Non/Off -farm income provides farm

households with insurance against the risk in farming. In addition, non/off-farm activities offer

cyclical and seasonal employment, to supplement meager farm incomes. In the study areas, 38%

of farm households generate income from non/off-farm activities that may enable them to support farm

activities and other portfolios that are important to run their living.

3.1.4. Economic Analysis of coffee traders

Appendix Table 2 depicts that the mean age, family size, experience in coffee trading and the

number of employees for coffee suppliers are 41.9, 4.1, 10.3 and 3.1 respectively and 29.2, 2.7, 4.6 and

0.6 for collectors respectively. This shows that suppliers are older, larger in family size and more

experienced than collectors in coffee marketing. Mean initial working capital of suppliers and

collectors are 65375.00 and 8100.00 Birr respectively whereas the mean of their current working

capital are 191250.00 and 32700.00 Birr respectively showing that suppliers are financially stronger

than collectors since they purchase and supply coffee to ECX in large quantity.

The educational level of traders varies from primary to tertiary level. About 50% of coffee

suppliers have attended secondary school and the remaining 25% have attended primary and tertiary

school whereas 70% and 30% of collectors have completed elementary and high school education

respectively. Most of the suppliers (75%) do not have their own vehicle to transport coffee to the

central market (ECX), but they own assets like storage, residence, mobile phone and weighting scale

while 25% of them have assets like storage, residence, mobile, weighting scale, shop, motorcycle and

vehicle which reduces marketing cost for the owners. All collectors owned assets like residence, mobile

phone and weighting scale but do not have storage and vehicle, they either store coffee in their

residence or immediately transport to coffee suppliers incurring transportation cost. Regarding the

packing materials, all suppliers use sisal sacks whereas only 30% of collectors use it. About 50% of

collectors use plastic sacks and 20% of them use both sisal and plastic sacks to pack and transport

coffee to the market. However, this leads to poor quality coffee while proper and advisable storage and

packing materials are important to ensure the quality of coffee.


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3.2. Value Chain Analysis

3.2.1. Coffee value chain map in the study area

According to McCormick and Schmitz (2002), value chain mapping enables to visualize the flow

of the product from conception to end consumer through various actors. It also helps to identify the

different actors, supporters and enablers involved in the coffee value chain, and to understand their

roles and linkages. Consequently, coffee value chain map is constructed for Seka chokorsa district and

depicted in Figure 2.

3.2.2. Actors and their function in coffee value chain

3.2.2.1. Primary actors

The primary actors in coffee value chain are input suppliers, producers and traders (collectors,

suppliers, cooperatives, exporters and union). Each of these actors add value in the process of changing

product title. Some functions or roles are performed by more than one actor, and some actors perform

more than one role.

Input Suppliers: At this stage of the value chain, there are many actors who are involved directly or

indirectly in agricultural input supply in the study area. Currently OoARD, local market, Jimma

research center, NGOs, primary cooperatives and private seedling suppliers/producers are the main

source of input supply. The district office of agriculture was the major source of input supply for coffee

producing farmers in the study area. About 75.8% of the households use coffee seedling from seedling

station established by OoARD of the district at kebele level. Others about 11.3%, 5.6%, 4.8% and 2.4%

of the sample households were using seedling obtained from private seedling producers, Jiimma

research center, NGOs and primary cooperatives respectively as the source of seed/seedling supply.

Almost all households do purchase farm implements (100%) from seka local market. The cooperative

and other concerned body are not supplying farmers with quality farm equipment and packing

materials, they were using poor quality implement and packing materials available at the local market

incurring higher cost/price which constrained the production as well as the quality of coffee.


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Figure 2. Coffee value chain map

Source: Own sketch from survey results, 2017

Input supply for coffee production was minimal for small-scale producers in Seka Chokorsa

district. They often use organic fertilizer like manure and compost prepared at home and low quality

farm implement purchased from local markets. Nevertheless, seedling, labour, manure and farm tools

such as, hoe, pruning scissors, cutting saw, machetes and spade were the main inputs used. Seedling

was supplied mainly by government and seedling producing model farmers. Whereas farm tools are

supplied by traders to local markets.

Coffee producers in the study area use local, improved and both type of coffee seeds. Out of 124

sample households, about 67 (54%) of them were using both local and improved coffee seeds. Whereas

33 (26.6%) and 24 (19.4%) of sample households were using local and improved coffee seeds

respectively (Table 5).

Table 5. Type of coffee seed used by sample households.

Type Number Percent

Local 33 26.6

Improved 24 19.4

Both 67 54

Total 124 100


Coffee growers: Coffee growers are the second major actors who perform most of the value chain

functions right from farm inputs preparation on their farms or procurement of the inputs from other

sources to post harvest handling and marketing. The major value chain functions of coffee growers


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include seed bed preparation, sowing, seedling hole preparation, planting, fertilizing, weeding, pest/

disease control, harvesting and postharvest handling.

The diverse agro-climatic conditions can make growing coffee crops highly cost effective and

competitive, and provide vast opportunities in the study areas. Unfortunately, these opportunities have

not been exploited by the farmers due to the lower price they receive for their coffee in the markets.

About 85.5% of households indicated that they had information about coffee market. For instance, they

hear about price and buyers of coffee from local market, other fellow farmers, the primary coffee

market, DAs and from radio, but don‟t have any idea about price and supply of coffee in the central or

ECX market. About, 14.5% had no any coffee marketing information at all. Most of the households,

(about 75%) carried out all forms of value addition to their coffee by engaging in activities like

harvesting coffee bean one by one, drying coffee bean on bed/wire mesh/cement floor, cleaning,

hulling if necessary and storing in appropriate materials designed for coffee. They supply their coffee

using drought animals (75%), man power (24.2%) and vehicle (0.8%). The accessibility of vehicles in

the study area was very limited due to lack of road connections which requires government attention

towards the expansion of infrastructure in the area.

Table 5. Market information accessibility, value addition and means of transportation used by the

sample households.

Variables Items Number(124) Percent (%)

Access to coffee market information Yes 18 14.5

No 106 85.5

All form of Postharvest value addition Yes 93 75

No 31 25

Means of transportation used

vehicle 1 0.8

Manpower 30 24.2

Back of animals 93 75


Collectors: Collectors are represented by coffee suppliers so that they buy coffee from primary coffee

market, and sell to coffee suppliers serving as their agents. Once the government banned the collectors

from the business to improve producers‟ margins and ensure coffee quality, they are operating coffee

trading being represented as agents of coffee suppliers. However, they have no warehouses of their own

forcing them transfer the product to suppliers immediately. Some collectors do not have sufficient

capital to purchase coffee. Hence, they borrow money from coffee suppliers to operate the business.

Suppliers: Suppliers are the third actors in the coffee value chain, they have license from district trade

and market development office and granted certificate of capability in coffee trade from district

agriculture office. They buy coffee either from producers at primary coffee markets or from collectors

or from their agents. Then they add value through processing such as cleaning and drying supply to

ECX warehouse at Jimma branch for inspection of quality and grading. Finally they pass the product to

export market through their agent in ECX, who possesses a seat in ECX, and who charges about 0.5%

of the revenue for the service rendered.

Primary cooperatives: Primary cooperatives are also the second actors in coffee value chain.

However, they carry out the activities of coffee suppliers. They purchase coffee from members and

non-members to supply to ECX warehouse at Jimma for inspection of quality and grading and then

deliver to Oromia Coffee Farmers Union in Addis Ababa. The union purchases coffee at the current

market price at ECX for different coffee types. In the study area, 50.8% of the sample households are

cooperative members while 49.2% are non-members. However, about 97.6% of the producers reported

that they were not getting any services or benefits from the cooperative because of its late

establishment of the cooperative in the study area. But 2.4% of respondents indicated that they have

been getting some services and benefit. Moreover, cooperatives in the study area have no yet enough

capital. As a result most coffee in the area is purchased by traders. Hence the expansion of fair trade is

very low.


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Exporters: Exporters are traders who buy coffee at ECX trading floor through auction. Exporters

reprocess and export coffee bean. Exporters are not allowed to purchase coffee directly from farmers,

collectors and suppliers. They are only permitted to purchase from ECX through auction floor in Addis

Ababa. Buyers and sellers need to get registered as a member or agent to access the ECX market. After

exporters purchase and process up to the export standard, they sell the product to importers. Coffee that

does not meet export standard are often sold in the domestic market to wholesalers through ECX

auction for rejected coffee. Wholesalers sell the coffee to retailers, and retailers sell to the local

consumers.

Oromia coffee farmers’ cooperative union: Oromia coffee farmer‟s cooperative union was

established to purchase coffee from members and non-members found in the oromia region and take

part in the export business. Since the primary cooperatives in study area are members of the union, they

supply coffee to Oromia coffee farmers‟ cooperative union. The union`s functions include exporting

coffee, provision a warehouse service, promoting coffee processing, ensuring supply of organic coffee,

distribution of farm inputs, provision of transport service, establishing fuel depot, provision of saving

and credit facilities and representing its members.

3.2.2.2. Supporting services and enablers

Such actors are those who provide supportive services including training and extension, information,

financial and research services. According to Martin et al. (2007), access to information or knowledge,

technology and finance determines the state of success of value chain actors. OoARD, Jimma research

center, primary cooperatives, local market, transportation, micro finance, NGOs and private seedling

growers are the main supporting and enabling actors who play a crucial role in the provision of such

services.

Training and extension services: The survey result revealed that 66% of then sample households were

participating in training related to coffee production that was organized in the last five years. The result

shows that most of the trainings were given on seedbed and seedling hole preparation, crop

management, harvesting and postharvest handling (Appendix Table 4).

With regard to extension contact, among the total sample households, 34.7% have contacted extension

services providers. The district OoARD experts and DAs equipped on the subject matter are the major

providers of advisory services and training on coffee production and management practices. Among 43

sample coffee producers who had extension contact 69.8% of them accessed contact with DAs,

whereas the remaining 30.2% of the producers obtained the service from the district OoARD experts.

In addition, the survey revealed that 45.3%, 24.5%, 19.8% and 10.4% of coffee producing households

had market information from local market, radio, other farmers and DAs respectively (Appendix Table

4).

Financial services: In the study area, formal and informal credit types have been identified as potential

sources of funds. Nonetheless, the survey result showed that only 3.2 percent of the sample households

took credit. This indicates that most of the households were not participating in the credit market. This

has probably to do with the religious background of the households that prohibits paying and/or earning

interest.

3.2.3. Value chain governance

The dominant value chain actors play facilitation role. They determine the flow of product and

level of prices. In effect, they govern the value chain and most other chain actors subscribe to the rules

set in the marketing process. The study result indicates that the exporters and suppliers are the key

value chain governors due to the economies of scale. About 74% of the households reported that as

suppliers are governing the chain by influencing upstream and downstream chain actors; and all

suppliers reported that as exporters are the key actors through richness and reach. The districts‟ market

is heavily dependent on exporters for coffee export, and therefore the coffee value chains are highly

influenced by the exporters. Due to the lack of a proper market information system, not allowed to sell

to exporters and minimal bargaining power, farmers are forced to sell their product at the price offered

by traders. Traders in the district usually refer to ECX markets for price fixation. Traders are always

complaining that the farmers are not providing quality product while farmers are blaming the traders


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for offering low price. Producers are price takers and they can hardly negotiate the price as the price of

coffee is set at ECX according to the quality and grade level of coffee. Still worse, also they are not

allowed to store coffee for long time to seek higher prices.

3.5. Constraints and opportunities in the coffee value chain

Value chain analysis has been used to examine constraints and opportunities in the enabling

environment in which the chains operate and they have also been used as a tool with new methods of

linking suppliers and service providers to the value chains of marketers. A number of challenges,

opportunities and entry points for technological, institutional and organizational innovation for further

upgrading the value chain in the study area were identified by the different value chain actors. In this

thesis, the major constraints and opportunities at different levels of coffee value chain are identified and

briefly discussed.

3.5.1. Constraints

Production Constraints: Value chain analysis is essential in understanding markets, the relationship

and participation of different actors, and the critical constraints that limit the growth of coffee

production and consequently the competitiveness of smallholder farmers. These farmers currently

receive only a small fraction of the ultimate value of their output, even if, risk and rewards should be

shared down the chain. In this regard, there are factors that hinder the production of coffee in the study

area. The majority of the sample producers indicated that coffee related diseases like coffee berry

disease (CBD) and coffee wilt disease (CWD), labor shortage, land shortage, seed shortage, insects,

weeds, high rain fall, drought and pesticide shortage as major constraints of coffee production. The

major constraints of coffee production are discussed below.

Table 6. The major constraints of coffee producers.

Production constraints Frequency of sample households Percentages

Diseases 106 85.5

Labor shortage 94 75.8

Land shortage 82 66

Seed shortage 70 56.5

Insects 52 41.9

Weeds 30 24.2

High rain fall 21 16.9

Drought 11 8.9

lack of pesticides 10 8.1


From table 6 the major constraints in the production of coffee are diseases which rank first, shortage of

labor is one of the severe problems which rank second since labor is one of the important factors of

production, the other constraints which rank third was land shortage which limits the production

severely for about 66% of coffee producing farmers. The fourth one which related to the shortage and

unavailability of inputs is seed shortage which constraints farmers to increase production and supply of

coffee. The fifth, sixth and seventh problems in the production of coffee in the study area were insects,

weeds and high rain fall respectively. The other less important problems are long term drought and lack

of pesticides. There were no suppliers of fungicide and other chemicals in the district.

Diseases (CBD and CWD): This the most severe problem facing the farmers in the production of

coffee from which the farmers are suffering in the study area as surveyed from 85.5% of the

respondents. The problem is related to limited access to improved seeds and diseases resistance

varieties. This shows most farmers are using poor quality seeds/seedling, due to unavailability of high

quality at planting time and are expensive. The other reason for this problem is the problem of

management skill arise from inadequate farmer skills and knowledge on production and farm

management that mainly related with poor extension service.


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Shortage of agricultural inputs: The most important physical inputs for coffee production are labor,

land and improved coffee seed/seedling. Research and extension service, information and proper

technological support are non-physical inputs that are equally important for production and supply.

Among the total sample of respondents, 75.8%, 66% and 56.5% replied limited access and supply of

labor, land and seed shortage respectively as their production problem (Table 12). This is caused

mainly due to insufficient seed multiplying and distributing agency, shortage of supply, high input

price, inappropriate delivery mechanisms and unavailability when required.

Pests and lack of pesticides: The problem of pest and pesticide go together which directly related to

agricultural input access problem. Unavailability of pesticide and herbicides mainly create these

problems in addition to the problem of accessing to improved seeds and disease resistance coffee

varieties.

Natural factors: Natural factors such as high rainfall and sometimes shortage of rain and flood are

often beyond the control of farmers and institutions. Despite the availability of suitable air condition in

the area, the production and market supply of coffee by smallholders is low and traditional due

different production, institutional and marketing factors.

Marketing constraints at producers level: The most important coffee marketing constraints in the

study area during the survey year were low price of coffee, lack of transport, limited access to market

information, low quality of the crop, far distance of the market from producers location, lack of market,

poor linkage with commercial value chain actors, lack of quality storage facilities and low demand for

coffee (Table 7).

Table 7. The most important coffee marketing constrains at producers‟ level

Marketing constraints Frequency Percent

Low price of coffee 57 46

Lack of transport 18 14.5

Lack of market information 13 10.5

Low quality of the product 8 6.5

High market distance 8 6.5

Lack of market 8 6.5

Poor linkage with commercial value chain actors 7 5.6

Lack of storage 4 3.2

Low demand 1 0.8

Total 124 100


Traders level Constraints

Collectors and suppliers level constraints: Quality problem due to insufficient product handling was

mentioned by 80% of coffee collectors and more than 87.5% coffee suppliers. This is due to

insufficient product handling specially during harvesting and after the coffee is harvested. Absence of

well ventilated and cemented storage are also constraints that result in poor quality coffee and

ultimately low price. Shortage of supply was one of constraint identified by this study. About 70% of

coffee collectors and 87.5% of coffee suppliers reported coffee supply in the area being inadequate and

limited during some months before its collection because most of the coffee is supplied in few month

after harvesting.

Shortage of capital was also another constraint limiting coffee trading in the area from which 90%

coffee collectors and 25% coffee suppliers are facing. This indicated that coffee collectors are mainly

affected by this problem as they have no license and/or no collateral to obtain credit from financial

institution and lenders. They usually take a larger portion of their money from coffee suppliers for

whom they supply since coffee suppliers are strong financially and not affected much by this problem.

Inability of price setting was significant constraint at traders‟ level as reported by 75% of coffee

suppliers and 30% of coffee collectors. This is due to the power of ECX in setting price which have put

obstacle on traders in setting price of their interest to earn unreasonable profit. There was also poor

support service in the area as obtained from 50% of collectors and 62.5% of coffee suppliers. In the


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district, there was no processing machine for suppliers to process their coffee at lower cost and poor

access to transportation was the other constraint for collectors in transporting coffee to suppliers which

limit the supply. About 40% of collectors had the difficulty of storage whereas only 12.5% of suppliers

lack adequate storage. The other constraint especially for about 50% of suppliers was insufficient

government policy for both exported and rejected coffee. As they have reported, the government is not

facilitating market for rejected coffee rather they are searching for market by themselves and the price

of coffee is low.

Table 8. Constraints at collectors and suppliers level.

Constraints Collectors level Suppliers level

Frequency % Frequency %

Lack of capital 9 90 2 25

Price setting problem 3 30 6 75

Supply shortage 7 70 7 87.5

Storage problem 4 40 1 12.5

Information flow 1 10 1 12.5

Weak government policy 2 20 4 50

Quality problem 8 80 7 87.5

Lack of support service 5 50 5 62.5

lack of demand 1 10 1 12.5


Constraints at export level: Coffee is one of the world‟s important cash crop and widely traded

commodity. Most of the coffee trade is based either on standard contracts where two parties have to

agree on price, quality, quantity, packing, shipment and pay conditions or based on futures market also

known as commodity exchange. Coffee is shipped from Jimma to Addis Ababa then to final port

where it is ready for export. The constraints of export market were shortage of coffee supply leading to

incapacity of exporting the required amount signed on contract by the two parties and the quality

problem was also other constraints the exporters were facing which were eroded during the production,

harvesting, post-harvest handling, storage and marketing phase through adulteration of coffee origins

by traders since exporters are unable to work with producers and processors at the farm level to build

quality.

3.5.2. Opportunities

Production opportunities: Availability of optimum temperature rank first level by the majority of

coffee producing sample households. Beside suitable temperature for the production of coffee in the

study area, its being Ethiopian export commodity and its originity, its effect in generating better

income, its better productivity in the study area, its use as cash income source, increasing price and its

continuous increasing demand in the market were some of the opportunities of coffee. The survey

result shows that 45.2% the majority of the producers explained the suitability of temperature as the

most important opportunities and intend to expand coffee production and supply (Table 15).

The district altitude and soil are suitable and fertile which is suitable for coffee production ranking first

by about 18.5% and 14.5% of the sample households respectively and hence are important

opportunities. The district also naturally endowed by other production potentials though it has some

production and marketing constraints. Some of the potentials to mention are the following. It is very

suitable to produce not only coffee crop but also other market oriented commodities of cereals, fruit

and vegetables, pulses and/or animal production. Of the potential crops, tropical fruits like papaya,

mango, banana, orange and avocado; and cereals like teff, maize, wheat, sorghum, barley and

production are some of the available potentials. On top of this, fertile arable land and abundant water

potential are some to mention.

Creation of enabling policy environment under government suitable agricultural policy designed to

support farmers at the grass-root level especially emphasis given for export commodities is the other

opportunity dimension. The deployment of development agents at each kebele based on their academic


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back ground are also important policy dimensions. Furthermore, the provision or transfer of technology

and establishment of cooperatives are the advantages that facilitate the production and marketing of

coffee in the study area. There are also various organizations such as Jimma University, Jimma

research center and NGOs like Technoserve that provide production inputs and technical services to the

farmers. In addition ample rain fall, low labor costs and availability of demand in the production and

marketing of coffee gave benefits for producers in the area.

Table 9. The major coffee production opportunities in the study area

Opportunities Frequency (124) Percent (100%)

Optimum temperatures 56 45.2

Suitable altitude 23 18.5

Fertile soil 18 14.5

Creation of enabling policy environment 8 6.5

Ample rain fall 7 5.6

Transfer of technology 4 3.2

Low labor costs 4 3.2

Availability of demand 4 3.2


Opportunities in domestic and export market: The major opportunities of coffee trading identified

during survey were the ability of a country to sustainably produce and supply fine specialty coffee, with

potential of producing all coffee types of the various world coffee growing origins., availability of

strong potential to increase supply, increasing demand of organic coffee, the presence of primary coffee

markets and ECX market, and special government policy emphasis on the crop. Other opportunities

mentioned by coffee traders were growing local consumption (Ethiopia is not only the birthplace, an

important producer, and a leading exporter of Arabica coffee, but also a heavy consumer, Ethiopians

are the highest coffee consumers in Africa), accessibility and suitable geographical location of the

district for coffee trading.

4. CONCLUSION AND RECOMMENDATION

In the study area, the average family size of the sample household was 5.11 persons. This figure

is greater than both national and regional average family size of 4.7 and 4.8 people respectively

indicating the need for intervention through strengthening family planning program. Farmers in the

study area have good experience in coffee production with the mean of 15 years. The study indicates

that farmers mainly allocate land for coffee production and coffee is a leading cash crop and a major

means of livelihood, and Grain, khat, livestock, fruit, vegetable, and off-farm activities like khat

trading, coffee trading, livesock trading and shopping are also other means of income generation.

About 38% of farm households generate income from non/off-farm activities that may enable them to

support farm activities and other portfolios that are important to run their living.

The study shows that suppliers are older, larger in family size and more experienced than

collectors in coffee marketing, and they are financially stronger than collectors since they purchase and

supply coffee to ECX in large quantity. Most of the suppliers (75%) do not have their own vehicle to

transport coffee to the central market. Regarding the packing materials, all suppliers use sisal sacks

whereas only 30% of collectors use it and this leads to poor quality coffee while proper and advisable

storage and packing materials are important to ensure the quality of coffee. The primary actors in

coffee value chain are input suppliers, producers and traders (collectors, suppliers, cooperatives,

exporters and union). As the study shows, cooperative and other concerned body are not supplying

farmers with quality farm equipment and packing materials, they are using poor quality implement and

packing materials available at the local market incurring higher cost which constrained the production

as well as the quality of coffee. This requires intervention through supplying good quality implement,

packing materials, improved seed, seedling and farm implements which are essential inputs at the

production stage. The accessibility of transport in the study area was very limited due to lack of road

connections which requires government attention towards the expansion of infrastructure in the area.


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About 74% of the households reported that as suppliers are governing the chain by influencing

upstream and downstream chain actors; and all suppliers reported that as exporters are the key actors

through richness and reach.

The majority of the sample producers indicated that coffee related diseases like coffee berry

disease (CBD) and coffee wilt disease (CWD), labor shortage, land shortage, seed shortage, insects,

weeds, high rain fall, drought and pesticide shortage as major constraints of coffee production. The

most important coffee marketing constraints in the study area during the survey year were low price of

coffee, lack of transport, limited access to market information, low quality of the crop, far distance of

the market from producers location, lack of market, poor linkage with commercial value chain actors,

lack of quality storage facilities and low demand for coffee and constraints of export market were

shortage of coffee supply leading to incapacity of exporting the required amount signed on contract by

the two parties and the quality problem was also other constraints the exporters were facing which were

eroded during the production, harvesting, post-harvest handling, storage and marketing phase through

adulteration of coffee origins by traders since exporters are unable to work with producers and

processors at the farm level to build quality. Therefore, policy needs to emphasize at improving the

dissemination of modern inputs technologies, strengthening farmers cooperatives, encouraging

extension service provisions, expanding the accessibility of market infrastructure, facilitation of market

and information access; and enhancing supportive and enabling service are highly recommended in

order to accelerate the overall value chain development.

5. AKNOWLWDGMENT

We thank Ministry of Education and Wollega University for giving us such opportunity and

facilitating the required resources needed to conduct this research. And we want to say „Thank you‟ to

our family for their invaluable motivation and encouragement during the research undertakings.

6. REFERENCE

Aklilu, A., Ludi, E. 2010. The Effect of Global Coffee Price Changes on Rural Livelihoods and Natural

Resource Management in Ethiopia. A Case Study from Jimma Area. NCCR North-South

Dialogue, no. 26. Swiss peace Bern, Switzerland

Bizualem, A., Degye, G. and Zekarias, S. 2015. Aalysis of marketed surplus of coffee by smallholder

farmers in Jimma zone, Ethiopia. Journal of Biology, Agriculture and Healthcare, Vol.5, No.5,

2015

BFED (Bureau of Finance and Economic Development). 2015. Seka Chokorsa district‟s Bureau of

finance and economic development.

IFPRI (International Food Policy Research Institute). 2015. Woreda-Level Crop Production Rankings

in Ethiopia. Addis Ababa, Ethiopia

Jimma Zone Agricultural and Rural Development Office (JZARDO). 2008.” Annual Report for year

2007/08, Jimma.”

McCormick, D. and H. Schmitz. 2002. Manual for value chain research on home workers in the

Garment Industry, IDS, Brighton.

Nicolas Petit. 2007. “Ethiopia‟s Coffee Sector: A Bitter or Better Future”? Journal of Agrarian

Change, Vol. 7 No. 2. 225–263.

Samuel Gebreselassie and Eva Ludi. 2008. “Agricultural Commercialization in Coffee Growing Areas

of Ethiopia”.

Tora Bäckman, 2009:2. “Fair-trade coffee and development a field study in Ethiopia”. Department of

Economics at the University of Lund Minor Field Study Series, No. 188.

USDA (United Nations Development Agency). 2012. Foreign Agricultural service. Global Agricultural

Network, annual coffee report, Ethiopia. P 2-6

FAOSTAT. 2011. FAO Statistical Year Book. http://faostat.fao.org/site/342/default.aspx

CSA (Central Statistics Agency). 2014/2015. Agricultural sample survey report on area and

production of crops (private peasant holdings, meher season). Volume I. CSA, Addis Ababa,

Ethiopia. 18 pp.

PSEPJZ (Physical and Socio-Economic Profile of Jimma Zoze). 2014. Finance planning department.





























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Yamane, T. 1967. Statistics: An Introductory Analysis, Edition. New York, Harper and Row.

7. APPENDIXES

Appendix Table 1. Major means of income generation by sample households

Means of income generation No Percent (%)

Coffee production 66 53.2

Grain production 27 21.8

Khat production 14 11.3

Fruit production 5 4

Coffee trading 3 2.4

Khat trading 3 2.4

Livestock production 2 1.6

vegetables production 2 1.6

Livestock trading 2 1.6

Total

Income from non/off farming activities

124

Yes(47)

No (77)

(124)

100

38

62

100


Appendix Table 2. Economic Analysis of coffee traders

Continuous

Variables

Suppliers(8) Collectors(10)

Maximum Minimum Mean Maximum Minimum Mean

Age 25 54 41.9 23 36 29.2

Family size 1 7 4.1 1 4 2.7

Experience 5 15 10.3 2 7 4.6

Employees 2 5 3.1 0 2 0.6

Initial capital 20000.00 250000.00 65375.00 1500.00 30000.00 8100.00

Current capital 95000.00 300000.00 191250.00 10000.00 65000.00 32700.00

Categorical Suppliers Collectors

Variables Frequency(8) Percent (100%) Frequency(10) Percent (100%)

Education

Primary

Secondary

Tertiary

2

4

2

25

50

25

7

3

-

70

30

-

Asset owned

With vehicle

Without vehicle

2

6

25

75

-

10

-

100

Packing materials

Sisal sack

Plastic sack

Both type

8

-

-

100

-

-

3

5

2

30

50

20


Appendix table 3. Sources of inputs for coffee production in the study area

Sources Number of households Percentage

OoARD 94 75.8


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Private seedling producers 14 11.3

Jimma research center 7 5.6

NGOs 6 4.8

Cooperative 3 2.4

Total 124 100


Appendix table 4. Access and sources of extension contact and market information by sample

households.

Variables Items Number Percentage

Training Yes 82 66

No 42 40

Total 124 100

Extension contact Yes 43 34.7

No

Total

81

124

65.3

100

Credit access Yes 4 3.2

No

Total

120

124

96.8

100

Cooperative

membership

Yes 63 50.8

No

Total

61

124

49.2

100

Extension service provider and Source of market information

Source of market

information

From the market 48 45.3

Radio 26 24.5

From other farmers 21 19.8

DAs

Total

11

106

10.4

100

Extension service

provider

DAs 30 69.8

District OoARD

Experts

Total

13

43

30.2

100


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