Abdullah Bagersh is the managing director of SA Bagersh, one of the prominent coffee exporters here. As one of the vivacious industry player, Abdullah Bagersh sits on boards of various organizations including the Ethiopian Commodity Exchange (ECX), which has been a contributory institution in altering earnings of smallholder farmers in the country. He currently chairs the board of African Fine Coffees Association (AFCA) since 2014 and he also acts as Ethiopia Chapter Chairman. During his tenure as vice chairman (2011 to 2013) he was instrumental in organizing the 9th African Fine Coffees Conference and Exhibition in Addis that saw huge business networks forged between local suppliers and international buyers. Currently, Ethiopia is geared to organize the 16th session of AFCA Conference and Exhibition from February 15 to 17, 2016 at the Millennium Hall where some 2000 participants are expected to participate in. Abdullah and his subordinates are working round the clock to host guests that include big trading houses and roasters. Birhanu Fikade of The Reporter sat down with Abdullah Bagerish to talk about the challenges and prospects of African fine coffees in the global market. Excerpts:
The Reporter: Why should people focus on fine coffees of Africa? Why is it a matter for the association?
Abdullah Bagersh: It is relevant for Africa; it’s all about Arabica Coffee. In the world there are two main varieties of coffee: Arabica and Robusta. And the origin of Arabica Coffee is obviously Ethiopia. Arabica Coffee is considered as the better tasting coffee and falls under the categories of premium specialty depending on many factors. In principle, that’s the relevance. Ethiopia and the East African region produce very good quality coffees. Hence, the idea behind the former East African Fine Coffees Association (EAFCA) and its successor the African Fine Coffees Association (AFCA) was to bring these countries together for common purposes. We want to let the world know more about the fine coffees coming from the East African region.
We know that Africa, in most cases, is best positioned as originator of fine coffees. But to what extent do fine coffees benefit African farmers, businesses like yourself, or to exporting countries in general?
If we say let’s form an association and let’s work together to improve something, we need to be clear about what we are doing. Therefore, our major aim in this regard is to improve markets. If we can do that, it means we are improving prices. Again improving markets and prices has prerequisites of improving quality. In Ethiopia, luckily, we are blessed with original and indigenous coffee varieties and qualities. But that’s not enough. We have to work in the right way. That is we have to process and pick coffees in a very right way to have better qualities. When quality is assured the next job is to market the coffee in the right way. It doesn’t matter if you have something fantastic things unless you don’t know how to benefit more out of it. If the world doesn’t know about it, then it will be lost in the value chain. Therefore, our main aim is to nurture and support the farmers and the exporting countries within the region and then help coffees that are marketed in the right way. This is what AFCA is doing as a main task. When we do the job right, each of the players in the coffee industry will have better position in the markets.
As an exporter, I have to do my job. Producers have a job to do. As a country we need to regulate properly and put the right standards and laws in place. The association has to create common grounds and synergize member countries in terms of marketing, better prices and better qualities. Marketing helps to expand and reach out to additional markets. In the end, yes we all are working to secure better incomes. But if we don’t get that right, then better prices may not reach our main benefactor, the farmer. If the exports are well and prices are right, the benefits out of that should reach the farmers. That is the system we are working under.
Prices of coffees are very dynamic and we see coffee is volatile in most cases. That is reflected in a way as we are huge consumers of coffee here. Prices are better than that of the international markets. That dilemma has been there for a while. So is exporting coffee really beneficial for farmers rather than selling it locally? There is a paradox here and what can you say about that?
You are absolutely right. The Ethiopian coffee industry and the markets along with the prices are certainly in paradox. Why? That’s because we are the biggest producer in Africa and the biggest consumer of coffee in Africa. Other countries are battling to increase consumption of coffee locally. For instance, in Brazil they have worked for 15 years to increase local consumption so that the farmers will have dual incomes. If global markets are good and pay good prices, they are sure to be supported by that. When local prices are well, that in turn supports them not to face severe drops in prices. It’s a very important element for the proper flow and marketing of coffee. In Ethiopia we have coffee culture. The local market is so strong that consumption is high. If the government fails to enforce exports, the bigger produce would have been diverted to local markets. In my view, it’s a decision a country needs to make. Which one is more important? Is it the hard currency we generate from coffee export or the income generated from local sales? This is the dilemma and has been there for a while. There is no direct solution to that except doing things in the right way. That is to say increase the production and the farmer will become more efficient and that in turn guarantees better income. No matter where the coffee is destined to, which could either be for local markets or the global, more coffee production will definitely increase the income of the farmers.
But there are other aspects as well. Increasing production and marketing not only helps to have better prices, it also helps farmers reduce unit costs of production. The reality, however, is that we have smallholder farmers producing in small quantity. Mostly, they have less than two hectares of land. The question is how to change the livelihood of such farmers confined with small scale production. This is one of the challenges that we are facing. Hence, we have to help the farmer to double his production if not triple or quadruple. If we can help in the marketing aspect then the price is sure to be better as the quality remains good. We have to resolve the dilemma. But we are fortunate that we have better performing local market and we are like other countries not pressed by the challenges of local market absence.
You said we need to double, triple or quadruple the production of coffee within limited farmlands. But let me ask you this. If those farmers are working round the clock to do that while the international market reacts in a different direction, the end of that story will be a crisis. Higher supply unsupported by the demand side will result in a price fall. Eventually, farmers get disappointed and we have seen farmers shift cultivations to other cash crops like khat instead of coffee.
Like any other product we say let’s increase production of coffee to improve livelihoods. When we increase production we might have over supply. It’s natural that prices will drop denying the benefits we intend to gain. That is why marketing comes into play. The marketing of coffee for Ethiopia is to create connections with the final consumer with traceability of farmers and to create the romantic story and promote the natural taste. However, we need to support that nature with a high level of processing. We need to have a very good post-harvest handling to secure best prices. Doing that will help us not to be stacked in trying to sell volumes of coffee in the commodity markets. We will have more volumes of coffee in the specialty markets.
This is the direction that we have to take. We tell the farmer to produce more and he does. But we can’t leave him in the flat if he does it inappropriately. We have to support him fine tune his production to guarantee quality during the handling and processing stages. When we have better quality, we maintain higher prices at the edge of international market. More quality production means securing more market shares. We will win the hearts and minds of the consumer who care to pay higher for quality.
How does AFCA play its role in such circumstances when its 11 member countries do not face similar situations as Ethiopia does?
The role is very significant because every country has its own challenges. Every country has its own regulations for coffee. Every country has its own problems in the coffee supply chain and there are challenges that affect coffee marketing. It is already recognized that Ethiopia has one of the matured coffee markets because of our deep connections with the coffee culture and history. The export business is highly regulated. We have a country that has very strong domestic market. Then AFCA comes in to bridge the gap and share such experiences with others.
The primary role of AFCA is to bring together countries in a forum to have common ground and share experiences. We have realized that we have become more fortunate to see what is going on around us via AFCA. I never had the chance to visit our neighboring countries producing coffee until AFCA brought us together to interact and engage with each other. When we solve problems in a certain way then we will enable our brothers from Kenya, Burundi or Uganda and share how we did that. It’s a forum that helps to exchange ideas. The other benefit is that AFCA helps us handle and deal with consuming countries as a single block rather than a single country. Whenever there are issues or regulations put in place that limits our benefits or to change misconceptions, its better we fight that as a block. We do major marketing as a block without undermining each country’s interest. These are some of the major roles AFCA has been playing.
For the past 14 years what exactly did AFCA achieve? Can you mention one or two major achievements?
Most of the AFCA members have gotten to know each other very well now. That, I would say, is one of the major achievements. Most of the members and participants of AFCA have visited and have seen countries and their coffee industries performance within AFCA. The other value AFCA has brought to light is that we have specially tailored training programs. AFCA has been able to organize marketing trips to consumer countries. We have been to Japan and other countries. The most valuable achievement is that we have set up a regular annual conference that brings together international buyers to come. Many buyers schedule to come every February to partake in our conference.
You said that AFCA—as a block—bargains with or challenges international buyers. But how are the traders or roasters dealing with members of AFCA? Let’s say they prefer to deal and negotiate terms with Ethiopia alone as opposed to dealing with 11 countries? Hence, how are they receiving AFCA as a block?
Well, I think like any international business you divide and conquer. Of course, that will be the preferred way of doing business. But there are the enlightened ones in the buying and consuming industry that realize having a unified block arrangement makes it easy for them to access market. It makes it easy for them to talk to as many African suppliers as possible. In any case, it is both a challenge and an opportunity. We need to talk to one another in the block to reduce prices based on market situations and make our produce more accessible to buyers. But the majority of industry players see the block as an opportunity. Buyers do not need to visit each member country while AFCA presides to converge countries and buyers altogether. The concern is right but it is an advantage for the majority of the industry players.
Coffee production in Africa is somehow low when compared to other countries in major producers like Latin America or Asia. But marred with low productivity, we see exporters facing very strict and tough requirements. Traceability, coffee quality, coffee handling, shipment and the like are there in the commodity markets. But how are these requirements and conditions affecting exporters? What is AFCA doing towards that?
In fact the points you have mentioned are exactly the domains that AFCA values a lot. Instead of each country trying to decipher the new laws in Denmark, Japan or Korea or elsewhere, AFCA does that job on behalf of all its members and then extends trainings or guidelines on how to handle such issues in different markets. What you said is correct that Africa has fallen back in the production that it offers to the world. On the contrary, the Latin and Central Americans are steadily increasing their level of production. African production on the other end is stagnating and at some point decreasing from time to time. From the data we have obtained, we know that in the coming 10 to 15 years, there will be a shortage of coffee in the world market. Hence, as AFCA, we are saying that let’s be ready to rip that advantage.
African countries better need to start to increase production and improve their production techniques. The consumption of coffee in the world market is increasing with the increasing trends of population. Consumption also is increasing as more people become aware of the health benefits coffee brings. The world is consuming coffee with a two-and-a-half percent growth per year. It is estimated that in the coming 10 to 15 years some 40 to 50 percent of a supply side gap is likely to happen. Hence, if Africa is not yet prepared, we will most likely lose that market opportunities.
Out of the 2.25 billion cups each day people drink across the globe, what is the market share of Africa?
I am afraid I do not have the exact figures but the production or supply of coffee from Africa is around 12 percent. At peak seasons the figures reach up to some 14 percent. However, this figure was more than 20 percent twenty or thirty years back. There is undeniable potential to increase the market shares.
Most of the time we see the government falling short of meeting targets set for export volume and value. They say they will have a certain amount of export of coffee but at the end of the year it doesn’t happen as planned.
I think this is because we are reaching to the limit of what we can do with what we have. That is why it is always a struggle. The local production very well supports the farmer. When the world prices drop, more coffee is diverted to the local markets and vice versa. The challenge is that our production is not growing that fast to meet demands. Yes, production is still growing but not that fast. We say yes we can double or triple production. It’s easy to say that but very difficult to deliver at the end.
The average production in Ethiopia is about 500kg per hectare. But the average production in Brazil more than 2,000 per hectare. Therefore, to reach at this level of production, it requires bold commitments. But we know it can be done. If we can double production of coffee, automatically we can become number four in the world. And like I said it can be done but with bold commitments. If other AFCA members can follow suit, you can imagine how well it will place the continent in the world of coffee market.
You sound very optimist. From the news we follow, we have come to understand that farmers and suppliers from the Southern Regional State have been requesting the government to extend the maturities of debt. They have been highly indebted. On one side, we talk about increasing production, but on the other, we have farmers who are unable to sustain their daily lives.
Let me give a background on the Ethiopian supply chain. We have farmers who sell coffee to collectors and suppliers and then finally to exporters. The exporters have to compete between themselves to export. The challenges of each part of the chain are very different. The particular incident you have mentioned is related to the suppliers association from the south being unable to service their debts. Why is this happening? It is because they compete very hard to buy coffee from the farmers. However, that doesn’t consider the fact. The fact of the matter is that it is great for the farmer when there is loss incurred by suppliers it means that there is maximum income for the farmer. The same challenge affects the exporters. They have daunting volatility markets. The benefits of suppliers is the loss of the exporters or the other way around. In this way, it’s difficult to say the farmers are not benefiting when the suppliers or the exporters are losing money locally due to competition. But we want to see a win-win situation in the long-run. The farmer is maximizing on the costs of suppliers. There needs to be a healthy environment for competition. This again has to do with production.
Do you have any export figures for the next year under AFCA? What will be the expected amount of production within AFCA next year?
Because we are more than ten countries in AFCA, it gets very difficult to put up such figures as some are affected by climatic conditions or declining rate of productivity. But we will push to increase the productivity and production of coffee within AFCA.