Newsroom > Blog

Browse more

Back to the Source: Coffee

By Emily Ziethen | Sun Oct 30 2016
Kaffa, Ethiopia, from which the term “coffee” is derived, is the birthplace of coffee, according to many experts including The National Coffee Association. To this day, the Kaffa region in the southwestern part of Ethiopia remains one of the strongest coffee-producing regions in the country.
The legend goes that Kaldi, an Ethiopian goat herder, first discovered coffee after he noticed his goats became energetic upon eating cherries from a certain tree. Kaldi shared this knowledge with the monks of a local monastery, who made a drink with the berries and enjoyed its invigorating properties. Soon, the findings of coffee spread from Ethiopia to the Arabian Peninsula and then on to Europe. The earliest credible evidence of either coffee drinking or knowledge of the coffee tree appears in the middle of the 15th century, in the Sufi monasteries of Yemen.(1) By the 16th century, coffee had reached the rest of the Middle East, Persia, Turkey and Northern Africa before spreading to Europe, Indonesia, and finally to the Americas.
As it has been since the 16th century, Ethiopia remains one of the largest producers of Arabica coffee beans in the world. RENEW and the Impact Angel Network (IAN) are proud to be a part of this important tradition through our investment in METAD Agricultural Development PLC (METAD), an Ethiopian specialty coffee company founded in 2012 by Aman Adinew. With a vision for crop-to-cup coffee, METAD aims to not only strengthen Ethiopia’s coffee reputation amongst sophisticated consumers in the international market, but also help local farmers improve the quality and value of their harvested crop. In pursuit of this vision, METAD seeks to become the leading specialty coffee brand by offering global and domestic consumers with the highest quality, 100% Ethiopian Arabica coffee.
METAD’s coffee cultivation, harvesting and primary processing occurs at farm sites 75 kilometers beyond Yirgacheffe, deep in the heart of some of Ethiopia’s best coffee country. METAD’s 200-hectare Hambela and Gedeb farm and processing sites include washing stations, a dry mill, a huller, beds for sun drying, and warehouses for storage to handle all of the pre- and post-harvesting coffee activities.
As a whole, coffee's production process and value chain are very complex, much like viticulture. The two main species of coffee grown for coffee production today are Arabica and Robusta, with Arabica coffee being indigenous to the mountains of the southwestern highlands of Ethiopia.
The Ethiopian coffee value chain starts with farms, like METAD, that grow and harvest red cherries - the coffee fruit and seed (see photo below). Farms either sell the harvested cherries to independent processors or process the crop themselves. A processor has two options: 1) select the highest quality red cherries and dry them on raised drying beds (what is called sun-dried, unwashed or natural coffee) and hull them on location, or 2) remove the pulp from the coffee cherries by using a wet mill and dry the coffee seeds, covered in their parchment. These two types of processing techniques, also known as primary processing, are crucial to the ultimate quality and character of the coffee.
In Ethiopia, the processor then sells the dried coffee seeds (or beans) to exporters on the Ethiopia Commodity Exchange (ECX) platform. The exporter cleans, polishes, and bags the coffee beans for export shipping. Finally, an importer, broker or roaster imports the coffee beans into the consuming country, after which they will be roasted and be made ready for consumption.
Coffee can be broadly defined as specialty or commercial grade. Specialty coffee, a term first coined back in 1978 by Erna Knutsen of Knutsen Coffee Ltd., in the simplest definition refers to special geographic microclimates that produce beans with unique flavor profiles.(2) There is a fundamental understanding that specialty coffee beans will always be well prepared, freshly roasted, and properly brewed; one that the Specialty Coffee Association of American (SCAA) has standardized and enforced. The SCAA is considered to be the world’s coffee authority and the largest coffee trade association, with nearly 5,000 members located in more than 40 countries who represent every segment of the specialty coffee industry.
The SCAA defines specialty coffee in its green stage as “coffee that is free of primary defects, has no “quakers” (under-ripe or under-developed attributes), is properly sized and dried, presents in the cup free of faults and taints and has distinctive attributes.”(3) In general terms, “specialty coffee is coffee from a known geographic origin that commands a premium price above commercial grade coffee due to its high quality and particular attributes that it possesses.”(4) In the case of METAD, the company produces Yirgacheffe specialty coffee, the quality of which METAD continually ensures at its coffee lab, the first and only private, state-of-the-art coffee quality control facility on the African continent that is certified by the SCAA. Specialty coffee from this region is considered to be, by some, the highest quality in the world - an opinion that has been gaining popularity over the past several years.
Demand for coffee is poised to hit a record in 2017, as people around the world and in developed markets are increasing their java consumption. Global coffee consumption is expected to grow by 1.2% over the upcoming year, leading to higher prices for coffee beans. “The price for Arabica coffee futures was up 20% in June 2016, marking the biggest monthly gain since February 2014.”(5) Citigroup even estimates that Arabica coffee prices could reach $1.50 per pound by the second half of 2017. To meet this increasing demand for high-quality coffee, international roasters are seeking out traceable and single-source producers in smaller sub-regions of the world. Similar to wine, consumers are willing to buy coffee at a premium if it’s from specific regions, is certified fair trade or organic, is naturally sun-dried, etc. According to a survey conducted by the National Coffee Association, the retail value of the U.S. coffee market alone is estimated to be $48 billion dollars with specialty comprising approximately 55% value share.(6) It is these overall trends that suggest sustained momentum for specialty coffee growth.
It’s no wonder that with Ethiopia being the epicenter of Arabica coffee, and it ranking among some of the fastest-growing economies in the world, the country is quickly becoming a target for foreign investors seeking attractive returns in the coffee value-chain, as well as domestic and export market opportunities. In fact, coffee is one of Ethiopia’s largest export commodities, with over 55% of the coffee produced in the country sent outside its borders.(7)
According to a USAID analysis of the Ethiopian coffee value-chain, coffee generates “70 percent of Ethiopia‘s foreign exchange earnings and provides livelihoods for 15 million Ethiopian smallholder farmers.” The industry employs several hundred thousand workers in processing coffee cherries across hundreds of washing stations and hulling mills around the country.
In Ethiopia, government institutions are responsible for the state coffee plantations with approximately 8,000 permanent employees and an estimated 50,000 seasonal jobs.(8) Coffee generates a considerable number of employment opportunities on farms, in the processing plants and in the transport sector. In Ethiopia, coffee constitutes a very important source of seasonal employment for many poor people and most agro-processing employees are women. Altogether, METAD employs 38 permanent staff and several-hundred seasonal staff, 70% or more of which are women. Additionally, they have purchased from, partnered with and/or supported more than 3,500 out growers to provide best practices on growing, harvesting and selling coffee. METAD also creates further social impact in the community surrounding the farm sites by sponsoring a school with over 600 children, constructing new community facilities (such as a school and community center) and working with development partners to build and install new wells.
Smallholder farmers, those whose plots are less than five hectares (ha), account for 95% of the country’s coffee output.(9) In fact, “average plot sizes do not exceed two ha,” wherein coffee yields remain stubbornly low compared to that of Colombia (1/3 their yield) and that of Costa Rica (1/4 their yield).(10) The country’s remaining 5% of output is produced by plantations, which average more than 50 ha in planted area, and which have been privatized by the government in recent years.”(11) However, because of the predominance of smallholders, the average yield per hectare for all cultivated land is no more than 700 to 800 kg.(12)
According to the USDA Foreign Agricultural Service’s 2014 Ethiopia Coffee Annual Report, the major reasons for the low coffee production are:
  1. Ethiopian coffee farm management system and agronomic practices are traditional and fail to inject new technologies into the country’s coffee production system. In addition, extension services provided to smallholder farmers are inadequate.
  2. Inadequate use of improved seeds as the supply is limited to areas located near coffee research centers and universities in the country.”
  3. Historically, there has been a lack of a designated government institution to provide technical support for coffee production. At one time, there was a specialized government agency supporting the production and marketing of coffee. However, it was “dissolved many years ago, leaving the sector with little institutional and technical support from the government.
The Government of Ethiopia, though, has recently noted this problem and plans to restructure the coffee development sector by making it a priority value-chain under its Growth & Transformation Plan II - increasing yields from 700 kg/ha to more than 1,100 kg/ha.(12)
Ethiopia truly has the potential to increase coffee production and productivity as it has all the necessary “ingredients” including suitable elevation, temperature, soil fertility and sufficient rainfall in coffee growing regions of the country. With the right financial support and guidance, the country could become the number one coffee producer in the world. And METAD, with its clear vision and passionate entrepreneur, is uniquely positioned to become a market leader in Ethiopia’s specialty coffee industry.
Renew Capital is an Africa-focused impact investment firm that backs innovative companies with high-growth potential. Renew Capital manages investments made on behalf of the Renew Capital Angels, a global network of angel investors, foundations and family offices who seek financial returns and sustainable social impact. For the latest on investing in Africa, subscribe and follow us at our social links below.

Related Posts