ANALYSIS OF COFFEE CERTIFICATION SCHEME IN

ETHIOPIA: EVIDENCE FROM OROMIA COFFEE

FARMERS COOPERATIVE UNION

By: Abebe Jotte, Master`s thesis, School of Economics

Addis Ababa University

September 23, 2010

IFPRI, Conference Room 4A
Washington DC, USA
Background
Coffee: historical product for Ethiopia
 Coffee named after Kafa Region
Today Coffee is Very Important Economic Activity:
55% of export revenue
25% of GNP,
Today: Coffee farmers are living in destitution
Why?
Background Cont…
Coffee Farmers do not enjoy a good share of the benefits
of coffee trade:
world market price is extremely volatile
 frequently experiencing steep price drop,
very low farm gate price-
Farm gate prices are very low at around 6% of the
final retail price (LYIP, 2008)
Background Cont …
 Coffee farmers in Ethiopia are receiving lower prices for
their coffee.
These farmers are increasingly switching to the
cultivation of other tradable crops like chat
The government is pursuing trade-marking and
licensing as a solution: Ethiopian coffee as a brand
name.

Example: the government signed an agreement with

Starbucks in 2005.
Background Cont…
The Initiative has been hyped as a big step forward to this
effect following a court case with Starbucks and an Oxfam
publicity campaign
The hope is that trade marking will set up the Ethiopian
coffee as brand names which enable farmers ask for fair
trade and higher prices for their specialty coffee.
The livelihood of farmers could be improved by helping
farmers to get incentives via trade marking, licensing, and
through coffee certification schemes fitting to the context of
- Ethiopian ecological, institutional, political
and socio-economic situation.
Certification
Certification is defined as an independent quality assessment
of a product or production process by a third party
(Wiersum, 2007).

Certification is thought to provide many benefits: price

premiums, market access, environmental sustainability,
organizational development, infrastructural development,
among others.

Certification is a popular tool in meeting growing worldwide

demand for socially-and environmentally-friendly products.
Certification Cont…..
Certification is not well developed in Ethiopia. The first
certification of forest coffee began in 2002.

Concerned organizations are working to promote both

organic and fair trade certification . Forest Stewardship
Council, Rainforest Alliance, Utz Certified/Utz Kapeh,
Fair Trade, and Organic Standard have opened branch
offices in Addis Ababa.

Certification schemes have different stakeholders,

agendas, ecological and socio-economic concerns, and
geographical foci (Stellmacher, 2008)
Research Questions
What impact are certification schemes having in
Ethiopia? Do they increase productivity? How do
farmers perceive such programs? What benefits do they
provide to farmers?

Rigorous studies on these issues in the Ethiopian

context are scant. Volkmann (2008) suggests that
certification schemes are not considering the prevailing
socio-economic situation in Ethiopia.
Data, Study area and Methodology Issues
 Study area located in southern Oromia region; Bulle
Hora (Hagere Mariam) district, which is 292 miles
south of Addis Ababa

 The major economic activity in this district is

agriculture. Coffee is the main cash crop; coffee trees
cover 30% of the total area.

 Other agricultural sectors include maize, sorghum,

teff, barley and bee keeping.
Cont…
Study sites identified in 4 kebeles (sub-districts) known for
their coffee production: Kilenso Mokonisa, Kalaltu Sawa,
Sorilie Wachu, and Saraji.

Farmers in these kebeles established the Kilenso

Mokkonisa Coffee Farmers’ Cooperative (KMCFC), in 1976.
KMCFC comprises 1,612 coffee farmers.

KMCFC is a founding members of Oromia Coffee Farmers’

Cooperative Union (OCFCU), established in 1999. OCFCU
is a union of 146 cooperatives.

KMCFC/OCFCU has organic and fair trade certification.

Cont….
KMCFC buys coffee from member and non-member farmers;
sells it on the international market via OCFCU.

Coffee purchased from members and non-members is sold

separately to importers; the cooperative does not receive a
premium for conventional coffee.

The additional price acquired from certification is distributed

to farmers as a dividend (70%).

Dividends are also used to expand social infrastructure like

roads, electricity, schools, and health centers (30%).
Econometric Model-IV estimation
method
Estimate the effects of certification on farmer’s productivity by controlling for a
number of variables in an instrumental variables/two-stage least squares model
method.

Yi= βo + CXi + CFLXi + X5Xi + educXi + experCFXi +

X9Xi + X10Xi + X11BXi + X12Xi + µi

Y=red cherry coffee output per hectare (kg) in 2008;

C= certification dummy variable is 1 if certified, 0 if conventional;

CFL= total area of coffee farm land in hectares;

X5=dummy variable for color of the soil of the coffee farm; 1 if the color
of the soil is red and 0 otherwise;
Cont…
educ=educational level of the coffee farm household head

experCF= years of experience on coffee farming;

X9= dummy variable for use of fertilizer/pesticide; 1 if the farmer is using

and 0 otherwise;

X10=number of working age people in the household;

X11B=dummy variable for type of labor employed; 1 if employing both

family and hired labor and 0 if either;

X12=dummy variable for employing forest, soil, water and environmental

management; 1 if yes and 0 otherwise.
Cont…
We assumed C to be endogenous

These variables may not affect coffee productivity

directly except through their effect on C and hence can
be considered instruments.

In this case cov (C, µ) ≠ 0 as C is endogenous and hence

the estimators of the above model become inconsistent.
Cont….
 Instrumental variables regression provides a solution to
the endogeneity problem. We included the ff equation in to
the above model.

Ci (xk) =δo+δ1X1,..., θiIVi+ŋi , θ≠0

E (ŋi) =0 and ŋi is uncorrelated with Xi and Ivi
Where the following hold, µi ~ N (0,σ), ŋi ~ N (0 ,σ),Corr (µi, ŋi)
=ρ
When ρ=0 standard OLS regression provides unbiased
estimates, when ρ ≠0 the OLS estimates are biased.
Cont…..
IVi should be correlated with Ci (the correlation between IVi and Ci
should be significant)

IVi should be uncorrelated with µi. IVi should not have its own
independent influence on Y but via C.

Where we have two instrumental variables:

IV1=dummy variable for farmers’ awareness on
certification, which is 1 if the farmer has
awareness on certification and 0 otherwise;

IV2= farmers’ perception of benefits of selling

organic/fair trade certified coffee, which is 1 if
farmer perceives benefits and 0 otherwise.
Results and Discussion
96.7% of the respondents are household heads.

Respondents produced coffee for 17.43 yrs on average.

77.36% produce organic and fair trade certified coffee.

22.64 % produce conventional coffee.

Cont…
Household heads among certified farmers are significantly older on
average (50.87 years) than those from conventional coffee producers
(37.64 years).

Average education among certified farmers is significantly lower

than among conventional producers.

Average family size is 10 people. Average family size is 8 among

conventional 11 among certified farmers.

29% of certified producers are using child labor, which is against fair
trade certification criteria.
Cont…
13% of respondents cultivated 0.5 hectares.

79% held from 1 to 1.5 hectares of coffee farm while the rest
(about 10%) held 2 to 5 hectares.

24% of respondents among certified coffee producers are

using inorganic fertilizer and pesticide while receiving
benefits from organic and fair trade certification.

20.83% of conventional coffee producers are using inorganic

fertilizer and pesticides.
Cont……..
 50.61% of certified coffee growers sell their coffee only
to the cooperative (KMCFC).
3.05% sell to private traders.
 46% sell to both private traders and KMCFC.

25% of the conventional coffee growers sell to private

traders.
12.5% sell to KMCFC,
and 62.5% sell to both.
Cont………….KMCFC buying faire trade/Organic
certified coffee from its members
Benefits to Farmers Producing Organic
and Fair Trade Certified Coffee
The average red cherry coffee production per
hectare is significantly different between
producer types: 2052.416 kg among certified
coffee producers; 827.493 kg among
conventional coffee producers.
These are unconditional means. The role of
being certified in influencing the conditional
mean of productivity is analyzed using IV in the
section of econometric analysis.
Cont...
Among the certified coffee growers:

• 96.95% obtained second payment;

• 85.37% obtained training on certification, forest and soil
management, marketing, consumer demand, etc;
• 82.93% voiced their problems through KMCFC;
• 70.12% obtained access to credit facilities;
• 84.76% obtained access to coffee processors and learned how to
preserve the ecology;
• 88.42% were encouraged to diversify crops;
• 97.56% obtained greater skills in production and attained food
security
Cont…..Organic/faire trade certified coffee growers
Cont…
On the contrary, almost 100% of the conventional coffee
growers are missing all these benefits.

However, 97.92 % of conventional coffee growers

reported that they could not afford the high entrance
fee for membership in the cooperative.

2.08% reported that they did not want to be associated

with the cooperative.
Cont………..Conventional Coffee Growers
Understanding of Coffee Growers about Organic
and Fair Trade Coffee Certification
Among certified coffee farmers, 81.71 % produced organic
coffee; they are using organic fertilizer.

47.92% of conventional coffee growers are producing organic

coffee.

96% of certified and 35.5% of the conventional coffee growers

reported that they will lose their second payment from not
being a member to KMCFC.

19% of certified farmers do not know whether their

cooperative is certified.
Cont…
13% of certified growers do not know the price differential
between certified and conventional coffee; the same is
true for 60.42% of conventional farmers.

Awareness of organic and fair trade coffee certification:

92.07 % of certified growers are aware, while only about
52.08% of conventional growers are aware.

91.46% of certified growers believe certification favors

farmers producing specialty coffee, helps in getting better
income, and gives special privileges for their product;
52.08% of conventional coffee producers share these
views.
From the above descriptive analysis we can
see that:-
• The cooperative has to put its effort in educating coffee farmers
about the existence of alternative markets.

• The majority of certified farmers are producing eco-friendly

coffee, employing forest management, shades over coffee trees,
soil conservation, water protection, and management of by-
products.

• The majority of conventional coffee growers also practice eco-

friendly management. These farmers have indigenous eco-
friendly farming techniques in addition to the technical
assistance received by certified farmers from their cooperative.
Econometric Analysis
While conducting IV regression there is no indication of the
presence of - multicollinearity, heteroskedasticity , and
exogeneity of the instruments and endogeneity of the variable
that is instrumented for (i.e. certification status) were tested.

For example the mean of variance-inflation- factor (VIF) is

1.45 and for each variable it is less than 2 and this result
stipulates absence of multicollinearity .

The reported results are also robust to arbitrary

heteroskedasticity.
Cont…
From the first-stage regression, we can observe that
certification is significantly correlated with the two
excluded instruments.

From the first stage regression, we note that education

level and experience are negatively correlated with
certification. When these two attributes increase,
farmers become less likely to be certified.
Cont…
There is a significant difference in per hectare productivity
between certified coffee and conventional coffee growers.

Certified coffee farmers of KMCFC produce 1459.1 kg more

per hectare than the conventional coffee growers, ceteris
paribus.

This weight includes the haul and moisture in the red

cherry coffee -- 5 kg to 8 kg of the red cherry coffee equals
1 kg of the hauled coffee sold in supermarkets.
Cont…
Part of the difference in productivity may be explained
by the training given only to the certified coffee growers
in:
 certification,
 forest and soil management,
 marketing skills,
 consumer demand on specialty coffee,
 other technical assistance on agricultural activities
Cont……
We might infer that certification has a positive impact on farmers’
productivity and it should be encouraged. However, some farmers
are “free riders” who get the benefits of certification without
meeting its requirements.

The coefficient on X9 (use of fertilizer and pesticides), which is

significant at 5% level, suggests that those farmers who are using
fertilizer/pesticides produce 804.7504 kg more per hectare than
those who are not.

The vested interest groups in certification have to monitor farmers

and enforce the criteria to decrease the number of farmers who are
producing inorganic coffee when they are “organic” certified.
Cont…..
Coffee farm land and per hectare productivity are inversely correlated:
productivity per hectare decreases by 1,096 kgs with a one hectare
increase in size of land holdings. The result is significant at the 1% level.

Possible reasons for higher productivity of smaller farmers may be

(Christopher, 1993):
1. differential factor prices,
2. differential land use intensities (cropping and inputs),
3. class-based differences among farms of different sizes, or some
combination of these factors.

However, we should also note that unobserved individual heterogeneity

matters in addition to the effects of fair trade/organic certification
ideals.
Cont….
75% of respondents have coffee farm land with red soil.
It has no impact on per hectare productivity.

Productivity per hectare is significantly and positively

correlated with the educational level of the household
head. One additional grade level in education results in
an increase of coffee productivity per hectare by 94.25
kg, and this is significant at 5% level.

We also find that as experience of the coffee farmer

increases by one year, coffee farmer`s productivity per
hectare increases by 63.24 kg.
Cont…..
Number of working age people is positively correlated with
productivity, but it is not significant. The same is true for the type
of labor employed on the coffee farm.

Use of forest, soil, water and other environmental protection

techniques is significantly and positively correlated with
productivity at the 5% level.

Farmers employing eco-friendly techniques are producing 783 kg

more than those not using these techniques.

There is a need to coordinate efforts in formulating programs that

improve farmers’ awareness on conserving forest, soil, and water.
Conclusion and Policy Implications
Certification has the potential to improve productivity and
conservation of the environment.

1. Policy makers need to build and encourage certification schemes

that fit Ethiopia’s ecological, institutional and socio-economic
situation.

2. Certifying agents have to continue inspecting and providing

training to farm households at each level of the growing and
production process.

3. There is a need for efficient monitoring and enforcement of

certification criteria
Than

Thank You

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