Ethiopia coffee export has been directly traded between producers reaching international buyers through exporters before the establishment of the Ethiopia Commodity Exchange (ECX) in 2008.
The establishment paved the way for producers to directly deliver (horizontal) to the ECX nearby warehouse and later take the competitive exchange floor selling price of ECX. The ECX floor has benefited producers in terms of a competitive price, and bridge over the decade, escalating unprofessional price speculation and artificial scarcity, widening gaps between domestic and international markets.
However, in early 2021, Ethiopian Coffee and Tea Authority (ECTA) introduced vertical integration, a scheme that connected exporters directly to suppliers or farmers rather than a platform facilitated by ECX, as an alternative to trade export for coffee. This decision sharply shrunk the coffee product supplied to the electronic trading platform, (ECX) specifically from Oromia region.
The exporter shall take or need to have a seat in the ECX to offer a price and take export standard coffee already found in the warehouse. Owning an ECX seat gives you the privilege to buy commodities directly from the ECX, and also buy for those who do not have such privileges. Seat owners charge one percent of the transaction when they buy on behalf of other suppliers and exporters who do not have a seat. For illustration purposes, if an exporter with no ECX seats buys commodities worth two million birr, the exporter has to pay 2 million birr to the seat owner who buys the product representing the exporter. The commission soars as the transaction volume grows.
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In fact, most exporters prefer to buy commodities under the direct marketing scheme when the price of the commodities is lower outside ECX, and switch back to ECX whenever the price outside ECX is inflated. Due to this, over 90 percent of the coffee exported in 2020/21 was bought under the new direct marketing model, outside ECX.
Particularly in the past budget year, a significant volume of coffee was exported through vertical integration, a scheme that connected exporters directly to suppliers or farmers rather than a platform facilitated by ECX.
Currently, coffee which comes from Sidama and West South region and from Gedio of SNNP Region are traded for export in ECX- in horizontal integration while those coffee beans from Oromia region traded for export in vertical integration- producers directly through ECTA. This week’s Oromia region official position to exploit the vertical trading scheme than the electronic platform had been going around all over the electronic and social media. However, it must be noted that the availability of two schemes will provide competitive price and export trading options for coffee producers to earn a far better price and a huge increment of export earnings for the country.