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Building profits from black gold: the success of the Oromia Coffee Farmers’ Cooperative Union

October 13, 2015

The successful journey of the Oromia Coffee Farmers’ Cooperative Union (OCFCU) will feature at the conference ‘Agribusiness investments in partnership with farmers' organisations in ACP countries’, to be held as part of EXPO Milan on 14–15 October 2015. The union, which has spearheaded the sustainable development of smallholder coffee farming in Ethiopia since 1999, is an example of best practice that can inform and inspire farmers, marketers, development workers and investment bodies throughout the African, Caribbean and Pacific (ACP) regions.

Coffee is the heart and soul of the Ethiopian economy. Around one-fifth of the country’s population is dependent on coffee production and related activities such as processing, transporting and trading. The main cultivators of coffee in Ethiopia are 3.8 million smallholder farmers. These farmers produce on average 80% of annually exported coffee – a commodity known for its reviving and economic properties as the ‘black gold’. 

But while coffee is amongst the most important cash crops in Ethiopia, exports from the country account for only 3–5% of coffee trading internationally. This means that Ethiopia has practically no influence over international prices, commonly determined at exchange markets in London and New York. In addition, profits have tended to be higher for ‘middle men’ – intermediary traders – than for smallholder farmers who have been lumbered with low farm-gate prices.

Setting a new agenda

What producers have needed is a reliable market that offers a good, steady price for coffee beans. The Oromia Coffee Farmers’ Cooperative Union, founded in 1999, has provided just that. Operating in the Oromia Regional State, which accounts for around two-thirds of Ethiopia’s coffee-growing land, the union was set up by 34 primary coffee cooperatives. Initially, it had a membership of 22,503 smallholder households growing coffee on around 46,000 hectares of land. Incredibly, by 2013/14, both the union’s membership and its land area had increased ten-fold or more.  

OCFCU’s most notable breakthrough was to provide access to reliable coffee prices via the Fairtrade and organic markets. Unlike private exporters, coffee unions are allowed by the Ethiopian Government to sell directly to international buyers. This has led to a new business model for smallholder coffee farmers. 

Developing a successful business model

The economic freedom bestowed upon Ethiopia’s cooperative unions meant that OCFCU has been able to forge direct links between coffee producers and speciality coffee markets in the West. The way the supply chain works is this:  

Firstly, primary cooperatives purchase coffee beans from member farmers. Behind this, OCFCU acts as a guarantor, enabling primary cooperatives to borrow money from banks for the purpose of purchasing coffee beans. Alternatively, OCFCU provides loans direct to these cooperatives.  

Secondly, primary cooperatives process the coffee beans, take them to the Ethiopian Commodity Exchange for grading and certification and then deliver them to OCFCU. Thirdly, OCFCU performs further processing, and categorises and blends the beans for export purposes. OCFCU then provides samples to importers, strikes trade deals and transports the coffee beans direct to Djibouti for export.  

Through this business model, OCFCU has increased the value of its exports (in Birr) by an average of 13% each year. This relates to sales of both certified and ‘traceable conventional’ coffee to 20 import countries.

Strengthening farming communities

The Oromia Coffee Farmers’ Cooperative Union has done more than just improve trade relationships. It has also ensured that some of the Fairtrade premium is returned to farming communities for services such as schools, libraries and healthcare facilities, and infrastructure such as roads and bridges. A total of more than 200,000 farming families have directly benefitted from these investments.  

OCFCU has also invested in coffee production, providing facilities that support the value chain – coffee hullers and grading machines for example – and training courses in sustainable crop techniques, financial management and opportunities for diversification. And it has provided training to women farmers in how to become successful entrepreneurs.  

More recently, OCFCU has embarked on a ‘carbon-neutral coffee project’ in which coffee-roasting companies are expected to reduce their energy use, and to compensate any remaining emissions with carbon credits generated by Fairtrade coffee farmers. Another role of the Union has been to give smallholder farmers a voice on international platforms such as price negotiation forums, international conferences and business symposia. 

Conference focus

Cognizant of the useful lessons that OCFCU can offer to other farmer-managed groups in ACP countries, CTA is supporting the documentation of its business model and its progress to-date. At the conference, a presentation will be made on OCFCU’s achievements in bringing home the benefits of the coffee trade to farmers in Ethiopia.

Specifically, OCFCU, along with three other community-based trade initiatives, will consider how to ‘facilitate trade and market access for agricultural products through improved organisation of actors’. The event will be a prime opportunity to learn how the success achieved in Ethiopia can be replicated elsewhere in the African, Caribbean and Pacific regions.

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