How does coffee trading take place in East African countries?

– PROTECT THE ORIGIN] –

East Africa is considered the origin of coffee and is home to the world’s leading exporters of premium coffee. Besides, some countries here have a tradition of coffee production dating back dozens of centuries. With a long history of development, East Africa possesses a rich and diverse picture of coffee trade models. So what is coffee trading in East African countries? Explore with 43 Factory Coffee Roaster!

Coffee delivery model in East African countries

The coffee trade in East African countries is relatively complicated. Although we mainly use the indirect coffee trading model (through many intermediaries), each coffee-producing country has its own approaches and trading methods.

Ethiopia

Ethiopia has two coffee trading methods: the Ethiopian Commodity Exchange (ECX) and the vertically integrated system.

Among them, ECX was established in 2008 to facilitate the trade of many different types of goods, including coffee. This system has often been controversial and problematic, but it has remained effective and popular in the commercial coffee trade in Ethiopia for several decades. The platform will bring together governments, market actors, and ECX members in one region. At this place, related parties can buy, sell, and transact with the support of floor prices, price transparency, and quick electronic payments. This not only helps farmers limit the risk of default but also ensures a stable supply for buyers. In addition, ECX also provides coffee storage and transportation services, significantly reducing the financial burden for producers.

The vertically integrated system is the country’s approach to direct trade. This method was legalized by ECX in 2017 after strict requests from specialty coffee exporters. With a vertically integrated system, manufacturers are allowed to process products themselves as well as oversee quality control and grading. They are also empowered to negotiate prices in advance to ensure product quality and earn a decent income. However, transactions through the vertically integrated system do not yet have the timely settlement functionality enabled by ECX. Farmers need to wait a while to receive the money.

Burundi

Before 1990, Burundi’s coffee exports were completely controlled by the state. By 1991, the country’s coffee trading system switched to auctions. In particular, the floor price in the auction is still set by the government. It was not until 2008 that Burundian producers and exporters gained more control over coffee transactions thanks to the growth of direct trade. However, this new model in Burundi is not widely applied due to poor infrastructure and transportation obstacles that make it difficult for stakeholders to connect and conduct transactions. Therefore, today, Burundi coffee buyers can choose between two main trading enjoyments: buying through government-supported auctions or trading directly.

The coffee trade system of East African countries is mostly indirect

Kenya

Kenya uses two coffee trading systems: the auction system and the “Second Window”. The auction system is often controversial because of its impact on farmers’ livelihoods, but it still accounts for more than 94% of total domestic coffee sales. Coffee traders in Kenya say that, if operated and managed well, this system can ensure that farmers receive the highest prices.

The “Second Window” trading method is considered Kenya’s direct trading system. It was established in 2006 due to the long struggle of farmers and cooperatives. Although direct trade coffee has been in use for the past 15 years, these transactions have not been properly utilized due to the lack of expertise of the parties involved and high initial costs.

Tanzania

Like most countries in East Africa, coffee trading in Tanzania is mainly indirect trade. Specifically, traders in all cities will bid in a common system. This system is set up with many different auction centers to create convenience for buyers and sellers to transact.

Uganda

Uganda is a country with liberalized trade. Here, all actors in the supply chain can buy and sell coffee in all forms and quantities. Individual growers, cooperatives, or farm and estate growers are free to sell their products to anyone at negotiated prices. Regarding exports, anyone with an export license can export coffee in Uganda. Buyers can buy through “private treaties” with no restrictions on transaction volume.

Rwanda

Coffee trading methods in Rwanda are quite diverse including auctions, electronic trading platforms and direct trade. Transaction and auction processes in this country often have many participants from trading, processing and transportation, causing product prices to rise. This causes farmers to have to pay higher fees while earning low income.

Some Rwandan coffee producers have started trading coffee on Alibaba’s Tmall platform. This platform opens up opportunities for manufacturers to access the Chinese e-commerce brand’s huge buyer network. In addition, many Rwandan manufacturers and cooperatives also apply direct trade to improve transparency and traceability of products.

Direct coffee trading methods in East African countries are not very common

Why are coffee transactions in East African countries mostly indirect?

Despite the presence of direct trade, indirect trade still predominates in East African countries. This is due to several factors unique to farm size, poor infrastructure, climate, and political instability in these countries.

The agricultural structure in East African countries is mostly small-scale farmers and cooperatives. Most small-scale farmers do not have direct access to the global market. Furthermore, economic infrastructure and transportation systems in the region are often limited, making direct trade difficult for coffee farmers and exporters. Another factor is the emergence of traders and intermediary companies that act as brokers in the transaction process. They have the potential and superiority over farmers, making the indirect trade model more popular and complex. This means that farmers often have to endure unstable prices and some risks related to depending on intermediaries in the coffee buying and selling process.

Limited economic infrastructure and transportation systems in East African countries make direct trade difficult

Transactions through commercial products are easy to buy and sell, but the problems afterward are quite complicated because they go through many stages and intermediaries. Control in this process is also mostly held by contractors, traders or the government, which can cause many disadvantages for people, making the industry less sustainable. As a result, many markets in East African countries have made efforts to adopt direct trade coffee. With this model, the transaction process can shorten the distance between roasters and growers, while giving both more agency and control in the process. However, up to now, direct trade has not been popular in these countries due to the lack of infrastructure and expertise in this transaction. For direct trading methods to become more popular and bring benefits to manufacturers in East Africa, long-term investment and support from agencies, organizations, and traders throughout the industry is needed.

XLIII Coffee is a brand that is striving to transform towards sustainability in the coffee industry. Coffee lots here are imported officially through direct trade. XLIII Coffee’s staff always finds ways to connect directly with manufacturers and negotiate prices and quantities based on fairness, taking common, long-term value as the goal. Visit XLIII Coffee stores to experience specialty coffees!

Information source from perfectdailygrind

Related articles:

– Experiment on the detection threshold of acid in coffee

– Con Dao safety – Is traveling to Con Dao safe?

– How to identify old or damaged coffee beans, and how to handle them?