DEPARTEMENT OF BUSINESS ADMINISTRATION

BUSINESS RESEARCH METHODOLOGY (MBA 621)

ASSIGNMENT 1

Attempted By: Belay Fekadu (MBAO/1866/14B)

Submitted to: Berihun Muchie (Dr)

January 3, 2023

Addis Ababa, Ethiopia

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ASSESSMENT OF OPPORTUNITIES AND CHALLENGES OF COFFEE EXPORT: THE
CASE OF ETHIOPIAN TRADING BUSINESS CORPORATION

BY BELAY FEKADU
ID.NO: MBAO/1866/14B
ADVISOR: BERIHUN MUCHIE (PH.D)

JANUARY, 2024
ADDIS ABABA, ETHIOPIA

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 DECLARATION
I, the under signed, declare that this proposal is my original work, prepared under the guidance of
BERIHUN MUCHIE (PhD). All sources of material used while working on this proposal have
been duly acknowledged. I further confirm that the proposal has not been submitted either in part or
in full to any other higher learning institution for the purpose of earning any type of degree.

_____________________
Belay Fekadu

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ASSESSMENT OF OPPORTUNITIES AND CHALLENGES OF COFFEE EXPORT: THE
CASE OF ETHIOPIAN TRADING BUSINESS CORPORATION

BY: BELAY FEKADU

ID.NO: MBAO/1866/14B

APPROVED BY BOARD OF EXAMINERS

_________________________ ________________________
Dean of School Business Signature

_________________________ ________________________
Advisor Signature

_________________________ ________________________
External Advisor Signature

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 TABLE OF CONTENTS
CHAPTER ONE ............................................................................................................. 9
INTRODUCTION ........................................................................................................... 9
1. Background of the study .............................................................................. 9
2. Statement of the Problem ........................................................................... 11
3. Research questions ..................................................................................... 11
4. Objective of the study ................................................................................ 12
4.1. General objective ...................................................................................................................... 12
4.2. Specific objective ...................................................................................................................... 12
5. Significance of the study............................................................................ 12
6. Scope of the study ...................................................................................... 12
7. Definition of key terms of the study .......................................................... 13
8. Organization of the study ........................................................................... 13
CHAPTER TWO........................................................................................................... 14
REVIEW OF RELATED LITERATURE .................................................................... 14
Introduction ......................................................................................................... 14
Theoretical Review ............................................................................................. 14
The Key Actors and Institutions of Coffee Marketing chain In Ethiopia. ........................................ 14
Export and Trade Theories.................................................................................................................. 15
Ethiopian Coffee Market: Challenges ................................................................................................ 17
Ethiopian Coffee Market: Opportunities ............................................................................................ 17
The Contribution of Coffee to Ethiopia Economy .............................................................................. 18
National coffee market structure in Ethiopia ..................................................................................... 19
Policy Review Regarding to Coffee and Coffee Export ...................................................................... 20
Review of Empirical Studies............................................................................... 22
Empirical Evidence on Challenges of Coffee Exporting ................................................................... 22
Empirical Evidence on Opportunities to Coffee Exporting ............................................................... 22
Summary of Literature Review and Research Gap ............................................ 23
CHAPTER THREE ....................................................................................................... 24
RESEARCH METHODOLOGY .................................................................................. 24
Research Design and Approach .......................................................................... 24
Data Source and Collection Method ................................................................... 24
Survey ................................................................................................................................................... 24
Key Informant Interview (KII) ............................................................................................................ 25
Document Review ................................................................................................................................ 25

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 Method of Data Analysis .................................................................................... 25
Instrument Reliability and Validity ..................................................................................................... 26
Ethical Consideration .......................................................................................................................... 27
REFERENCES .............................................................................................................. 28

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 LIST OF FIGURES
Figure 2. 1 Theoretical Framework ------------------------------------------------------------------ 15

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 ABBREVIATIONS
ADC Austrian Development Cooperation
CBD Coffee Berry Disease
CCC Corporation Characteristics related Challenges
COSA Committee on Sustainability Assessment
ECPSE Ethiopian Coffee Purchase and Sales Enterprise
ECMC Ethiopian Coffee Marketing Corporation
ECX Ethiopia Commodity Exchange
EGPPC Economic Policy, Government Policy and Political related Challenges
EMC Export Marketing related Challenges
ERCA Ethiopian Revenue and Custom Authority
FAO Food and Agriculture Organization
ICO International coffee organization
MOTI Ministry of Trade and Industry
OCE Opportunities available for Coffee Exporting
PCE Performance of Coffee Exporting
USD United States Dollar

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 CHAPTER ONE
INTRODUCTION
1. Background of the study
Exporting is the selling of products made in one‘s own country, for use or resale in another country
(MBURU, 2011). According to Wortzel and Wortzel (1997 nations around the globe adopt export
trade as an internationalization strategy, that is motivated by three fundamentals namely market-
seeking growth to gain greater returns on resources already developed; to gain access to resources
and factors of production not available at home; and to create efficiency by linking previously
separate operations so as to lower total costs (MBURU, 2011). For instance to gain greater returns on
resource (green coffee bean) already developed nations of east and southern African countries have
focused on exporting green coffee bean. According to Salami, Kamara, and Brixiova (2010) green
coffee bean is one of the major cash crops in East and Southern African countries mainly produced
for export purposes. This crop constitutes a significant share of total export value in countries such as
Ethiopia, Burundi, and Uganda, making the sector vital to their economy (Mutandwa, Kanuma,
Mugenzi, & Govere, 2013).
According to FAO (2016) world Bank (2015) in countries such as Ethiopia, Uganda, and Burundi,
the share of coffee exports relative to total export earnings exceeded 10% in 2013 (Nsabimana &
Wondmagegn , 2019). Ethiopian coffee has got a significant place in the global value chain due to its
exceptional quality. From the very beginning, Ethiopian coffee is characterized by fine acidity and
rich body with spicy, winy, sweet taste. Ethiopian coffee is the first choice for roasting and blending
(Ethiopian Coffee and Tea Authority, 2014). Even with a share of less than 3 per cent of the global
market for coffee, Ethiopia relies on a high proportion of its coffee export earnings. Indeed, coffee is
the backbone of the Ethiopian economy, contributing about 28 per cent of the total foreign exchange
earnings in 2011. In 2010/11, the total volume and value of coffee export was 196,117 ton and
841.65 million American dollars, respectively; and more than 120 Ethiopian coffee exporters were
participated in processing and exporting coffee to 53destination countries of the world (Mechal ,
2013). Especially, for the last two decades coffee is the single foreign exchange earner of the country
accounts about 46 percent of its total export revenue(Abiy , 2016). Despite the rigorous price of
coffee shocks has been disturbing its value chain, Ethiopian coffee remains an elemental component
of the Ethiopian economy and export (Zekarias & Degye, 2019). Generally, Ethiopia foreign
earnings from coffee export challenged by high dependency on traditional primary product (green
bean coffee even without roasting) and recurrent world market price fluctuations and instability

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(Zekarias & Degye , 2019). However, the country couldn‘t continue in this way.
According to Ponte (2002) at the global market, the emergence of competitiveness could favor
exporters such as Brazil, Vietnam, and Colombia in deciding the world market price due to lower
production cost in the respective countries. This adversely affects the export performance of coffee
exporting countries in East Africa including Ethiopia (Nsabimana & Wondmagegn , 2019). On the
other it is necessary to enhance the quality and reliability of the green coffee bean exports to meet
certain environmental and social standards (International Trade Center, 2012).In today‘s specialty
market all three types of coffee need to be represented to exemplary; high quality coffees either as
stand-alone or as a named blend component &mainstream quality in many of the ready-to drink and
flavored drinks that are sold alongside filter coffee and espresso (Sette, 2012).
So, to become in comply with international standard and competitive in the coffee sector the nation
established the Ethiopian Trading Businesses Corporation, Public Enterprise on December 22, 2015
by the Council of Ministers pursuant to Article 5 of the Definition of Powers and Duties of the
Executive Organ of the Federal Democratic Republic of Ethiopia Proclamation No. 916/2015 and
Article 47/1 of the Public Enterprises‘ Proclamation No. 25/1992 (Ethiopian Trading Businesses
Corporation, 2015).
Specifically under this corporation there is a business unit called by Grain & Coffee Trading
Business Unit in reference to the coffee sector. Tyeps of Coffee Beans export by the Business Unit
are 1) Sidama type; 2) Yirgacheffe type; 3) Lekempti type; 4) Harar type and 5) Limmu type
(Ethiopian Trading Businesses Corporation, 2015). In addition Coffee suppliers of the Business Unit
encompass Ethiopian Commodity Exchange, Cooperatives and Unions.
The main purposes of Ethiopian Trading Businesses Corporation are 1) to stabilize market prices to
producer in order to encourage them to increase their production; 2) to stabilize consumers goods
price to protect consumers from unfair price and 3) to export different farm produces mainly coffee
to the world market to generate foreign currency to the country. Ethiopian Trading Business
Corporation deploys 50 modern stores which have a capacity of accumulating 820 tons of coffee at a
time.
In addition it deploys modern coffee processing machines having a capacity of processing 90 metric
tons of coffee per day; a bulk machine which has a capacity of packing 300 to 350 kg of Coffee, in a
container, and modern coffee laboratory and heavy trucks to transport well processed coffee to ports
for shipment on due time (Ethiopian Trading Businesses Corporation, 2015). It is obvious research
based intervention is necessary in making difference in the coffee sector. So, this study was aimed to
assess the challenges and opportunities of coffee exporting in reference to Ethiopian Trading
Businesses Corporation.
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 2. Statement of the Problem
Coffee, the most important export commodity of the country, in the last decades though its share
shows declining smoothly and continuously from 70% of its share in 1997/98 to 26.4% in 2009/10.
Moreover, according to ERCA (2010) coffee was a significant source of government tax revenues.
According to MoTI (2008) approximately, about 1.5 million households are involved in coffee
production; and it is estimated that 15 million people (i.e., about one out of every five people in the
country) are dependent on coffee for their livelihood (Mechal , 2013). In this regard Lukanima and
Swaray (2014) recalled us the predominance of small-scale farmers as one of the key features of the
coffee plantation in Ethiopia (Nsabimana & Wondmagegn , 2019).
In addition foreign trade of coffee (export ) is challenged by high dependency on traditional primary
agricultural commodities and recurrent world market price fluctuations and instability (Zekarias &
Degye , 2019). In this regard literatures are not silent. According to FAO (2014) the major challenge
is market inefficiency that resulted from overvalued exchange rate, high level of impurities and
weight losses & high transport and marketing costs (Zekarias & Degye , 2019). In addition the
concentration on few trading partners makes the country vulnerable to the economic conditions
(demand) of its trading partners (Debel , 2002).
As far as the opportunities available for coffee export, Taye & Wondifraw (2011) disclosed the
following issues such as presence of model/innovative coffee farmers, local private investors,
cooperative unions and state coffee farms; increasing demand for high quality coffees and
encouraging global coffee markets; favorable policy environments and adoption of modern
marketing system (ECX); availability of coffee research centers and quality laboratories in major
coffee growing areas; emergence of few community- based coffee seeds/seedlings systems as
business (small-scale farmers, private investors and state farms) & availability of very diverse
Arabica coffee germplasm collections, released coffee varieties and branded Ethiopian coffees.
Nowadays there is also further research need to government owned enterprises of coffee exporting
companies. For instance, since 2018 after alternative Ethiopian Commodity Exchange was placed in
challenges became more intensified on government owned enterprises of coffee exporting companies
(Ethiopia Coffee and Tea Authority, 2020). There was a significant decline in the proportion of
suppliers to supply coffee to government owned enterprises. This study was aimed to assess the
challenges and opportunities of coffee exporting in reference to Ethiopian Trading Businesses
Corporation.

3. Research questions
 What is the current status of coffee export in the case of Ethiopian Trading Business

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 Corporation?

 What are the major challenges facing coffee export in the case of Ethiopian Trading Business
Corporation?

 What are the opportunities available for coffee exporting in the case of Ethiopian Trading
Business Corporation?

4. Objective of the study

4.1. General objective
The main objective of the study was to assess the challenges and opportunities of coffee exporting in
reference to Ethiopian Trading Business Corporation

4.2.Specific objective

 To assess the current status of coffee export in the case of Ethiopian Trading Business
Corporation

 To investigate challenges of coffee exporting in the case of Ethiopian Trading Business

Corporation

 To assess the opportunities available for coffee exporting in the case of Ethiopian Trading
Business Corporation

5. Significance of the study

It is believed that this research paper will contribute to the body of existing knowledge and as well
make up for the paucity of scholarly paper in coffee sector on coffee exporting challenges and
opportunities. The quest for research based intervention was high on the priority list for the coffee
sector to be effective in exporting. So this study is important to bridge this gap for instance Ethiopian
Trading Business Corporation will be well informed about challenges and opportunities of coffee
exporting.
In addition the finding of this study will have the potential to provide important insight for the
government and policy makers with regards to making policies and taking the appropriate measures
towards designing strategies for improving coffee exporting. Lastly the study will serve as an
empirical source to the researcher in the future.

6. Scope of the study

Coffee exporting is a broad concept, which consists of numerous interactions but the scope of this
study is restricted to the particular topical and spatial areas. Topical approach of the study is limited
to uncover challenges and opportunities. The spatial aspect of the study is limited to Ethiopian

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Trading Businesses Corporation in Addis Ababa.

7. Definition of key terms of the study

Marketing: it is a social and managerial process by which individuals and organizations obtain what
they need and want through creating and exchanging value with others (Jima, 2020).
Exporting: it is the selling of products made in one‘s own country, for use or resale in another
country.
Opportunity: it refers to nation‘s bright prospects, grounds for optimism and creating enabling
environment (Sette, 2012).
Actors: they are people who are directly involving in coffee marketing such as producers, coffee
collectors, traders (suppliers), primary cooperatives and unions, exporters, importers, domestic
wholesalers and retailers and consumers and service providers (Berhanu , 2016).

8. Organization of the study

This thesis is organized in to five chapters. Chapter one is dedicated for introduction. Under this
chapter, background of the study, statement of the problem, objective of the study, scope of the
study, limitation of the study are discussed. Chapter two deals with review of related literature.
This chapter embarks on theoretical, empirical reviews and policy review carry &t the end it presents
conceptual framework of the study. Under theoretical review the study reviewed issue such as the
key actors and institutions of coffee marketing chain In Ethiopia; Ethiopian coffee: challenges;
Ethiopian coffee: opportunities; coffee sector for Ethiopia economy; national coffee market structure
in Ethiopia and theories.
In addition under empirical reviews section, prior empirical studies in relation to the challenges and
opportunities of coffee export sector were discussed. Chapter three deals with research methodology
including research approach and design, sample size and sampling techniques, research subjects
(respondents), data collection instruments and method of data analyses. Chapter four discusses
research results and discussion of the major research findings. The last chapter presents summary,
conclusion and suggest recommendation based on research findings

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 CHAPTER TWO
REVIEW OF RELATED LITERATURE
Introduction
This chapter embarks on theoretical, empirical reviews and policy review as well as present the
conceptual framework of the study. Under theoretical review section the study reviewed issues such
on as the key actors and institutions of coffee marketing chain In Ethiopia; Ethiopian coffee:
challenges; Ethiopian coffee: opportunities; coffee sector for Ethiopia economy; national coffee
market structure in Ethiopia and theories. In addition under empirical reviews section prior studies
on challenges and opportunities of coffee exporting were discussed. Based on the discussion,
research gaps were clearly identified.

Theoretical Review
The Key Actors and Institutions of Coffee Marketing chain In Ethiopia.
In coffee marketing chain there are coffee collectors, traders (suppliers), primary cooperatives and
unions, exporters, importers, domestic wholesalers and retailers and consumers and service providers
at each value chain (Abiy , 2016).Coffee collectors are the most important participants in coffee
value chain and they directly bought the coffee with its pulp (Jenfel coffee) and/or without pulp and
sold it to suppliers or private traders for further processing activities and preparation for marketing.
Traders (suppliers) in coffee value chain of Ethiopia are those who buy coffee from collectors (both
legal and illegal collectors) and sell it to either to exporters in Addis Ababa auction market or
international importers (Abiy , 2016).
Primary cooperatives and unions produce and harvest the coffee and some of them even perform
some processing activities like washing pulping, sorting and finally sell it to their respective unions.
The unions process the coffee or further processing. Finally further processed were packed,
transported to their warehouse and make ready for export market. Exporters found in Addis Ababa
central market who received coffee from private producers, private traders and cooperative unions to
sell it to the international market.
According to MOT (2012) importers are first German coffee importer, Japan, the Netherlands, and
America. These foreign importers after adding some value to the coffee they received, they directly
sell to wholesalers and then to supermarkets (Abiy, 2016).
Farmers who reside in distant villages far from pulpery or any cooperative organization mostly
sundry the beans themselves, remove the husks, and transport them to the primary market centers.
Collectors of forest and semi-forest coffee also take their sundried beans to the primary market

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centers. In the primary market centers, the sun-dried beans are sold to the licensed collectors
(Sebsabys), who in turn are required to sell the sundried beans to the wholesalers (Akrabies) or the
Ethiopian Coffee Purchase and Sales Enterprise (ECPSE) wing of the former Ethiopian Coffee
Marketing Corporation (ECMC) (David & Christian, 2013). Sebsabys are permitted to buy from
farmers but can only sell to Akrabies or the ESPE, and cannot take coffee directly to the auction
because Akrabies, Sebsabys and exporters have separate and different licenses. Akrabies are
permitted to buy coffee from Sebsabys (but not from farmers) and deliver it to the processing centers
and to the auction thereafter, but not export it. Exporters are only permitted to buy coffee from the
auction and not from Sebsabys or farmers (ICO/CFC, 2000).
However, most coffee produced is still channeled by private traders. Small-scale coffee producers
have undeveloped low input output agricultural and coffee harvesting practices, low incomes, weak
organizations and little bargaining power; they sell their coffee to private traders and/or to their
primary farmers‘ cooperatives (Mechal , 2013).
Several Ethiopia Coffee Growers, Producers and Exporters Association (ECGPEA) members have
recently started implementing out-grower schemes through which they provide technical assistance
to small scale farmers in the vicinity of their plantations, and serve as an outlet for their production.
However, it was not possible to verify the conditions under which such schemes take place, or the
degree to which the emergence of contract farming in the coffee sector alongside a continued policy
to promote the growth of commercial plantations could transform the structure of the coffee chain in
the coming years.

Export and Trade Theories

In this study the following theories i.e. Adam Smith‘ theory, theory of the firm, trade theory on
coffee (homogeneous goods), different alternative trade theory & the concepts of marketing strategy,
market entry strategy and channels of distributions strategy are reviewed to better coffee exporting
by getting insight in to the nature of challenges and opportunities. The promotion of exports is a
matter of national importance.
The national interest is reflected in arrangements made by governments with a view to assisting the
exporter and in statutory regulations (Schmitthoff, 1969). According to Schmitthoff (1969)
governments exercise some control over certain aspects of exporting, mainly by means of export
licenses, exchange controls and customs regulations (MBURU, 2011).
According to Goldstein and Khan (1985) trade theory on coffee (homogeneous goods), final
consumption or intermediate input, the structure of the market, and sometimes on the availability of
data (ADC, 2015). Different alternative trade theory is used for potentially capture the key features

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of the coffee trade (Kifle , 2017). From the very beginning Adam Smith‘theory traces back to the last
half of the 18th century.
It says that engagement of nations in the international trade depends upon a nation‘s specialization in
the production of goods in which they have comparative advantages for improvement of the welfare
of the society as a whole (Mechal , 2013). According to Onafowora and Owoye (1998) and Arndt
(1999) subsequently, many economists advocated the contribution of international trade for the
welfare of nations (as the engine of growth) in the overall process of economic development.
(MBURU, 2011).
Regarding to the theory of the firm deals with the supply of goods and services by profit-
maximizing firms. The theory of the consumer and the theory of the firm are important because they
help us understand the foundations of demand and supply. Subsequent readings will focus on the
theory of the consumer and the theory of the firm (Eastin & Arbogast, 2011). Goods markets are
markets for the output of production.
From an economics perspective, firms, which ultimately are owned by individuals either singly or in
some corporate form, are organizations that buy the services of those factors.
Firms then transform those services into intermediate or final goods and services. (Intermediate
goods and services are those purchased for use as inputs to produce other goods and services,
whereas final goods and services are in the final form purchased by households)
These two types of interaction between the household sector and the firm sector—those related to
goods and those related to services—take place in factor markets and goods markets, respectively.
According to Adis (2010) and Mavrogiannis et al(2008) coffee exporting as the international
business has applied to various dimensions to indicate to which marketing strategy such as export
marketing strategy, export strategy which mostly known by marketing mix strategy.
In addition Kotler and Keller, (2006), determined any an advantage and disadvantage of global
marketing strategy such as:

1. Advantage; Economics of scale in production and distribution, power and scope, consistency in
brand image, lower marketing costs, ability to leverage good ideas quickly and uniformity of
marketing practices (Da Silva & Da Costa, 2015).

2. Disadvantage are including differences in customer response to marketing mix elements,

differences in the legal environment, difference in consumer needs and wants, differences in
administration procedures, differences in government law and rules and differences in brand and
product development and the competitive environment.
According to those theories, most export countries of goods and services wish to have an absolute

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advantage and vice versa by importer countries of goods and services also has an absolute advantage.
At the real international business most the developed and developing countries don‘t need to think
what importantly absolute advantage is because it may just a theory then it come comparative
advantage ever.
Regarding to channels of distributions strategy as mention by Macneil, (1980) indicates that in the
international markets the pure transactions are rare in business exchanges. Almost firms’
management need channel transactions that have relational element to be used to coordinate the
channel activities between businessmen (Da Silva & Da Costa, 2015).

Ethiopian Coffee Market: Challenges

Ethiopian coffee challenges can be seen from structural, policy and sustainability sides. From
structural side the following challenges are cited i.e. lack of competitiveness (low yields &
productivity); poor access to market & long supply chain; lack of infrastructure; inadequate access to
services (particularly financial` services, risk management etc.); low value addition; and
International coffee organization& inadequate technology transfer & research (coffee genome,
conservation, biodiversity etc.) (Sette, 2012).
Policy side challenges are the followings i.e. low levels of public investment in agriculture;
disengagement of the state in production & marketing activities; liberalization/agricultural reforms
historically poorly executed and weak institutional framework in many countries. Sustainability side
challenges encompass adaptation and mitigation to climate change (and other adverse weather
events); conservation of biodiversity; social sustainability: empower women and attract youth&
competition for land (Demeke, 2018).
Specifically the challenges are manifested at production, processing and marketing. For instance,
high incidence of Coffee Berry Disease (CBD) is challenging the sector. An estimated 50–60 per
cent of production is potentially at risk. On the other hand the sector is still challenged in shortage of
improved cultivars adapted to different localities. The sector is also challenged in poor harvest and
post-harvest practices for assuring coffee quality. Still the sector is with weak linkages between
research, extension services and producers (Petit, 2007).
Moreover, since premiums are a function of market demand; entering such markets is also a
significant challenge for most producers.

Ethiopian Coffee Market: Opportunities

Ethiopian coffee opportunities can be seen from nation‘s bright prospects, grounds for optimism and
creating enabling environment. The following opportunities are nation‘s bright prospect (Sette,
2012). For instance the country has suitable altitude, ample rainfall, optimum temperatures,

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appropriate planting materials, low labor costs and fertile soil. In addition the nation can sustainably
produce and International Coffee Organization supply fine specialty coffee, with potential of
producing all coffee types of the various world coffee growing origins.
Grounds for optimism side opportunities are strong potential to increase supply capacity/yields
(transfer of technology); promote value addition; differentiation through brand awareness (e.g.
Yirgacheffe, Sidamo etc.) & importance of traceability (Sette, 2012). The following opportunities
can be seen from creating an enabling policy environment aspect. These are support agricultural
research and development; improving access to price risk management tools; sustainable
development and promote a strong institutional framework to better coordinate policy &
macroeconomic policy.
Further, Scanagri argues that given its wealth of genetic resources and large areas with exceptionally
good growing conditions, Ethiopia has the opportunity to produce large amounts of differentiated
high-quality green coffee‘. For example, in specialty/gourmet segments of the international coffee
market, Ethiopia occupies a unique place with an impressive selection of distinctive coffee profiles.
And there is considerable potential to increase the proportion of specialty coffee exports (used in
premium blends or sold as single origins) if quality and consistency are guaranteed (Petit , 2007).
Ethiopia has a natural advantage in markets for organic coffee as more than 90 per cent of production
is de facto organic (Mekuria et al. 2004). Furthermore, it is the only country that produces natural
forest Arabica coffee, providing scope for the sale of shade-grown coffees, for example, through the
Rainforest Alliance certification.

The Contribution of Coffee to Ethiopia Economy

Ethiopia is, currently one of the largest coffee producing countries in Africa; and one among the ten
top coffee producers in the world after Brazil, Vietnam, Colombia and Indonesia (Mechal , 2013).
According to International coffee organization (ICO) (2012), in 2011/12, Ethiopia was the fifth
largest coffee producing after Brazil, Vietnam Indonesia and Colombia, with total production of
498,780 tones; and the seventh largest coffee exporter in the world. Coffee is the major source of
foreign exchange for the Ethiopian economy and its governments. Coffee is the single most
important foreign exchange earner for Ethiopia, accounting for 19 percent of total goods exports in
2013.
The crop plays an important role in the country‘s economy even today. It is heavily exported and it is
estimated that 25% of the population depend directly or indirectly on coffee for their livelihood
(Tamiru, 2016). Coffee has remained the main export of the country; however, other agricultural
products are currently being introduced on the international market. Despite secular decline in the

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international coffee price, coffee still remains the country‘s dominant export commodity.
According to USDA data for 2010/11 although the share of coffee in total exports has declined over
the last decades due to the ongoing structural transformation of the economy, it is estimated that up
to 1.2 million small holder farmers are engaged in coffee and according to Ministry of Trade (2012)
and Petit (2007) in total 15 million people rely on income generated by coffee production and trade
(ADC, 2015). Actually, in rural areas, smallholders are often geographically dispersed; roads and
communications are poor, and the volume of business is insufficient to encourage private service
provision. In other words, there are high probabilities of market failure.
According to Love (2001) the small scale farmers are the known small-scale peasant producers
located in parts of the south, southwest and east of the country (Abiy , 2016). The coffee sector has
been crucially important in Ethiopia‘s economy – still today despite important transformation
processes underway (ADC, 2015). Green coffee accounted historically for the majority of Ethiopian
exports.
Although the share reduced from more than 60 percent in the 1980s and 1990s to around 30 percent
in recent years, coffee is still the number one export good, in addition to domestic consumption
accounting for more than 50 percent of total production. Both real and nominal prices for coffee
green were highly volatile (fluctuating) over the entire period, depicting an increasing trend however
from the year 1992 (except for the years 1996,1997,1998,2002 and 2003 where some declines were
observed) (David & Christian, 2013).
The lowest nominal producer price of coffee per ton (1040 Birr) was observed in the year 1969, with
the highest (12,467 Birr) recorded in the year 2005. The nominal prices for growers were relatively
higher in the post-reform period ranging between 1,670 Birr for the year 1992 and 12,467 Birr for
2005, compared to the perform range of 1040Birr for the year 1969 and 4224 Birr for 1989.

National coffee market structure in Ethiopia

According to Akiyama (2001) with the end of the Derg regime in 1991 and in the aftermath of the
ICA collapse, comprehensive economic reforms, backed by the World Bank and other donors were
started in Ethiopia – among those, the liberalization of the coffee sector (Ethiopian Coffee and Tea
Authority, 2014). The sector was opened up for private actors and the public corporation was split-up
and lost its superior role in trade. According to Minten et al (2014) only state-owned plantations
accounting for around percent of production were maintained and privatized in 2012 and 2014.
Today, the coffee marketing system in Ethiopia remains strictly regulated with the government
focusing specifically on the generation of foreign exchange income through furthering exports4 and
exclusive involvement of local actors in the national coffee chain. With the Ethiopian Commodity

19
Exchange (ECX) an important institution was established in 2008 that is the center of the coffee
marketing system (Kifle , 2017). According to Gabre-Madhin/Goggin (2005) and Gabre-Madhin
(2012) the ECX initially introduced for trade coffee, replacing the coffee auction. It has several
features to facilitate trade, reduce transaction costs and enhance price transparency: a central trading
floor in Addis Ababa, a clearing system to settle sales contracts, regional warehouses including
quality control, and a transparent price information system.

Figure 2. 1 Theoretical Framework

PRODUCTIVE COFFEE EXPORT

CURRENT STATUS OF THE CHALLENGES OF OPPORTUNITIES OF

COFFEE EXPORT COFFEE EXPORT COFFEE EXPORT

Source: Own Synthesis from Literature Review on Goldstein and Khan

(1985), (Eastin & Arbogast (2011) and Adam Smith (2018)

Policy Review Regarding to Coffee and Coffee Export

In response to a series of policy reforms in the early 1990s it changed the balance of incentives
toward export crops. This paves the way for the Vietnam to enter in to coffee market. These reforms
facilitated land ownership and liberalized input and output markets. Following the reforms, for
example, fertilizer prices were declined by almost 50 percent (Baffes, 2005).
Other reforms (known as DoiMoi) encouraged internal migration to the Central Highlands because
of easy access to new land (eventually to be used for coffee production). However, some help came
from the Soviet Union and Eastern European countries in the form of technical assistance during the
early 1980s (Samia , 2000).
Because neither Vietnam nor these countries were ICO members, and hence not bound by any quota
obligations, they could expand coffee production and trade without any restriction (Baffes, 2005)..
The expansion was also aided by the desire of the Soviet Union and Eastern European countries to
have access to coffee without paying hard currency.

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On the other Extensive mechanization of coffee harvesting, along with the development of high-
yielding varieties, has reduced costs of production, while shifting production to the north, away from
the frost-prone areas of the south, has reduced the likelihood of weather-related supply disruptions.
While Latin America and Asia have increased their shares in global coffee output, Africa‘s share has
declined from 33 percent in 1970 to 18 percent in 2000. Africa‘s coffee output has never surpassed
its peak in 1972.
Specifically in case of Ethiopia one worth noting is the shift toward instant coffee among the major
consuming countries over the post thirty years, and which has affected both the level of per capita
consumption as watt as the market potential of coffee producers.
Non-instant, or percolated coffee, relies largely on Arabica coffee beans, while Robusta beans are
more important to instant coffee products. Because Ethiopia has traditionally been a producer of
Arabica coffee, such shifts in world coffee market demand take on added significance (Samia ,
2000).
In addition constitutions, for example, do not specify the rules and procedures for arriving at
coordinated policies within a federal structure. Interest rates and exchange rates, both form part of
the macroeconomic policy-making prerogatives of the federal Government in Ethiopia. Yet regional
and federal government serve to shape the parameters within which enterprises make decisions with
regard to investment and innovation on coffee marketing, which has a bearing on convergence or
divergence in regional development (United Nation, 2002).

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 Review of Empirical Studies
Empirical Evidence on Challenges of Coffee Exporting
Lukanima and Swaray (2014) recalled us the predominance of small-scale farmers as one of the key
features of the coffee plantation in Ethiopia (Nsabimana & Wondmagegn , 2019). In addition coffee
export is challenged by, high dependency on traditional primary agricultural commodities and
recurrent world market price fluctuations and instability (Zekarias & Degye, 2019). In this regard
literatures are not silent.
Mechal (2013) conducted the study on Ethiopian Coffee Exports: Development Performance,
Challenges and Prospects. Using Descriptive statistics (average, ratio, and percentage) the findings
of the analyses suggested that small holder farmers lack investment resources for improving
production especially the introduction of environmentally‐friendly production methods. Regulatory
constraints, such as strict lending policies and government mandated collateral requirements are
challenging smallholder farmers to secure investment resources for improving production.
According to FAO (2014) also the major challenges coffee trade included market inefficiencies and
policy distortions that resulted from overvalued exchange rate, high level of impurities and weight
losses, excessive margins from traders over producers and high transport and marketing costs
(Zekarias & Degye , 2019). In addition there is geographical concentration of exports that makes the
country vulnerable to the economic conditions (demand) of its trading partners.
Germany, Japan, United States, Djibouti and Italy are the five major trading partners of the country,
which altogether absorb about 73.3 percent of the country's export. This concentration on few trading
partners resulted in demand constraint for the nation's primary exports and could be as the challenge
(Debel , 2002).

Empirical Evidence on Opportunities to Coffee Exporting

Regarding to opportunities of coffee exporting Taye & Wondifraw (2011) disclosed the following
issues such as presence of model/innovative coffee farmers, local private investors, cooperative
unions and state coffee farms; increasing demand for high quality coffees and encouraging global
coffee markets; favorable policy environments and adoption of modern marketing system (ECX);
availability of coffee research centers and quality laboratories in major coffee growing areas;
emergence of few community - based coffee seeds/seedlings systems as business (small-scale
farmers, private investors and state farms) & availability of very diverse Arabica coffee germplasm
collections, released coffee varieties and branded Ethiopian coffees.

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 Summary of Literature Review and Research Gap
Even though there are so many researches involving challenges and opportunities of coffee
exporting; but nothing in specific to Ethiopian Trading Business Corporation. On the other in case of
south and east Africa so far done research undertakings are focused on the production side
challenges such as climate variability, supply chain constraints, and modern technology adaption
issues (Nsabimana & Wondmagegn , 2019). So, this study was aimed to assess the challenges and
opportunities of coffee exporting in reference to Ethiopian Trading Business Corporation.

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 CHAPTER THREE
RESEARCH METHODOLOGY
Research Design and Approach
Research design is a framework that serves as a plan to study the research problem. The role of a
research design is to manage the collection of relevant data with minimal consumption of effort, time
and money considering the research objectives (Kothari, 2004). This study applied descriptive
research design to describe the current status, challenges facing and opportunities available for coffee
export in Ethiopian Trading Business Corporation.
This study was conducted from July, 2020 to December, 2020 in Ethiopian Trading Business
Corporation. Quantitative approach was used in the study design in order to produce a
comprehensive analysis of the study. Quantitative data were gathered through structured
questionnaire. As far as research approach is concerned, this study applied a mixed approach (a
combination of qualitative and quantitative approaches). Using these two approaches the study can
entertain more options to assess the challenges of coffee exporting and opportunities available to
coffee exporting on empirical and participatory methods.
Population, sample and sample size of the study
The target population for this study consisted of employees of Ethiopian Trading Business
Corporation. The total population was 100. Since the target population was small in number, the data
collection cost for these respondents was very low, and make more reliable on the data; and hence
the researcher chose census method for data collection than using sampling technique.

Data Source and Collection Method

According to Wimmer and Dominick (2011), method is a specific data collection process in
accordance with the assumption of the selected methodology. Primary data are those which are
collected a fresh and for the first time and thus happen to be original in character (Kothari, 2004).
For this study primary data sources were employees in Grain and Coffee Trading Business Unit.
Quantitative and qualitative data collection method was employed in order to obtain detail and
reliable data for analysis. Thus this study applied mainly the following information gathering tool,
i.e. questionnaire survey, key informant interview (KII) and document review.

Survey
Survey is a quantitative research strategy that involves the structured collection of data from a
predetermined sample‖. It involves three methods from which this study chose only one method
which was questionnaire. ―Questionnaire is a pre-formulated written set of questions to which

24
respondents record their answers‖. It is a self-explanatory, read and answered by respondents by
themselves. Questionnaire is further divided in to three type‘s form which again the study chose only
one type which was Self-administered questionnaires.
Those type of questionnaires in which interviewee answer the question by him/her‖. Thus this
study employed survey using self-administered structure questionnaires. The survey has six general
parts. Part one includes general biography of survey respondents. Part two consists of questionnaires
about corporation characteristics related challenges. Part three embraces questionnaires about export
marketing related challenges. Part four incorporates questionnaires about economic policy,
government policy and political related challenges. Part five consists of opportunity in coffee
exporting. Lastly, part six embraces questionnaires about the performance of coffee exporting. The
survey was done on 100 staffs in Grain and Coffee Trading Business Unit. The researcher was
unlikely to have preconceived notions or prejudices about the believers.
Empirically to measure corporation characteristics, export marketing, economic policy, government
policy and political related challenges & opportunity in coffee exporting the study outlined in the
measurement section a five point likert scale scale. Within the scale, participants were asked to put
their degree of agreement between one and five onto their attitudes/beliefs /think/know/feel about
measure corporation characteristics, export marketing, economic policy, government policy and
political related challenges & opportunity in coffee exporting. The scales were adopted from Demeke
(2018).

Key Informant Interview (KII)

Key Informant Interview was carried out to triangulate the information gathered through
questionnaires. KII was convened with employees at senior management level. They were seven
participants with top level managers of the corporation such as Operation Deputy Chief Executive
Officer, Service Deputy Chief Executive Officer, Foreign Coffee Marketing Directorate Director,
Business Development Directorate Director, Finance Directorate Director, Technic and Logistics
Directorate Director & Coffee Processing Center Head respectively.

Document Review
To organize the current status of coffee export in Ethiopian Trading Business Corporation; the
researcher reviewed annual progress reports.

Method of Data Analysis

Descriptive statistics was used to summarize data, collected from the respondents. Quantitative data
gathered through structured questionnaire were analyzed through descriptive statistics (frequency,
percentage, standard deviation, mean and median analysis).Moreover; qualitative data gathered

25
through interview and from secondary sources were analyzed. To identify the importance of
corporation characteristics, export marketing, economic policy, government policy and political
related challenges as per coffee exporting performance over the past five years chi-square test was
carried on.

Instrument Reliability and Validity

For ensuring the consistency of the research findings and the accuracy with which a method
measures what it is intended to measure; the study has tested the reliability and validity of the
measurement scales. In this study validity is enhanced because they are confirmed by more than one
instrument measuring the same thing i.e. survey, KIIs, and document review.
This study reduced the researcher effects by ensuring that the research (interviewer) himself was
belong to the same cultural group of the interviewees in Grain and Coffee Trading Business Unit. On
the other hand, Fraenken and Wallen (2003) reported that reliability indicates the consistency of the
scores obtained between different respondents or within the responses of the same subjects ‘overtime
(Reimann , Filzmoser , Garrett , & Dutter, 2018).
So, reliability of the items to the variables was measured by using Crobanch‘s alpha method by the
help of SPSS version 24. The consistency of each item with the scale as a whole to CCC
(Corporation Characteristics related Challenges), EMC (Export Marketing related Challenges) and
OCE (Opportunity in Coffee Exporting) was presented in table 3.1 with Crobanch‘s alpha .875, .711,
.915 and .701 respectively. In the case of OCE (Opportunity in Coffee Exporting) two items with
poor loading i.e. (1) the existing situation of large inefficiency range of Ethiopian Trading Business
Corporation & (2) the higher willingness and demand of main actors for partnership in coffee
exporting in the study scale are not representing the construct the study was trying to measure and
they were removed.
Table 3. 1 Reliability test

Reliability Statistics to CCC (Corporation Characteristics related Challenges)

Cronbach's Alpha N of Items
0.875 9
Reliability Statistics to EMC (Export Marketing related Challenges)
Cronbach's Alpha N of Items
0.711 9
Reliability Statistics to EGPPC1 (Economic Policy, Government Policy and
Political related Challenges)
Cronbach's Alpha N of Items
0.915 9

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 Reliability Statistics to OCE(Opportunity available for coffee exporting)
Cronbach's Alpha N of Items
0.701 5

Ethical Consideration
A letter written from the university was taken to the respective bodies to undertake a pre survey and
to assure that the study is meant to be used for academic purpose. Confidentiality and anonymity of
the respondents was ensured throughout the execution of the study for participants were not expected
to disclose their personal information.
The purpose and the benefit of the study and the voluntary nature of participation were discussed
with each study participants, and informed verbal consent was obtained. The right of the respondents
to refuse to answer for few or all questions was respected.

27
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