Please note: things have changed quite a bit since the original post. See the DST information later in this thread... -Tom
I thought the best thread to start off with here, the most pertinent, is the debacle with the Ethiopia Coffee Exchange (ECX). It might not sound like it affects you, the home roaster, but it does. Eventually (like next season) we might be praising the ECX but this year it has done little but harm the producer, the exporter, the buyer and the final end user!
In the past, all Ethiopia coffees (aside from Fair Trade coop lots) had to be sold in the Ethiopia Auction. So theoretically a buyer could sit back in Addis Ababa (or there is also a small auction in Harar) and go to the weekly auction, bid on a lot, buy it, cup it, and try to sell it. The problem was when an exporter had a relationship with a farm, a cooperative union or a mill that was bringing the coffee to the auction, and this exporter a. liked the quality and/or b. had a longterm relationship that might include pre-financing ot other considerations and/or c. had a buyer lined up for the lot who had made similar investments and/or d. had directly aided the production of the coffee, helped the farmers/donated equipment to the mill/helped improve quality/transported or stored the coffee . In short, they had a relationship. So was it fair for another buyer to interject at that point and snatch the lot? No! So there was a tacit agreement among buyers: don't bid on my coffee, and I won't bid on yours. Sounds like collusion, but there was actually a sound reason, and because of this collusion, "relationship coffees" and "direct trade" was possible in Ethiopia. But the Govt. makes money off these exchanges, and if the price (which was already high) wasn't getting inflated in the auction, the Govt. made less. Also, there is some agreement that the farmers were not always benefiting fairly from this system, although you must understand that in Ethiopia there is local competition for the coffee cherry of each small producer, and this keeps prices high at the farm level. Another problem is the centralization of the old system. Aside from a little local auction in Harar, everything got traded through Addis. This benefited traders in Addis. So the ECX comes along, designed by MBA's who trained in the US, based on the Chicago Mercantile, i.e. corn and soybeans. Now all coffees buy FTO Union lots and those exported directly by big farms (of which there are a handful, and those are Govt.-owned, in the West) must trade through the ECX, all lots are submitted to a approved warehouse (of which there will eventually be 9, spread through the country) all lots are graded and labeled according to a more elaborate (but still generic) regional/quality index (which includes no farm/producer info.) and, most importantly THE COFFEE IS RENDERED COMPLETELY ANONYMOUS. Nobody, not the producer, not the exporter, not the final buyer, can verify who grew the coffee, only region, process type and grade. So you can see, this is a finger-poke right in the eye of true Specialty Coffee, of direct trade with farms, of forming relationships with producer groups. That's my understanding...
Here's where we stand right now ...The ECX issues are not resolved, but it is not like coffee isn't shipping at all. Good coffees will be available in '09, but more DESPITE the ECX than because if it. The problem is that good lots are being classified under their new (more detailed) naming system and sold without the name of the producer. The relationship link is broken. Our main sources feel like there are ways to work through this, but some of if it is still TBD. We have cupped some good lots, have bought some that are "on the water" but many of our special projects were ruined by this. Our special Harar raised bed lot from the Choma village is gone, anonymized. Korate coffees eventually made it through the ECX but the quality was poor and we rejected it. We had a special Yirga Cheffe from a producer group ... gone, blended away by the ECX. It's not like there won't be good Ethiopian coffee, but I agree that the ECX is completely screwy, the way it treats coffee like soybean lots, as a generic exchangeable commodity.
I am going to invite a couple well-informed people to comment on this, and they might correct my own perceptions. I am confident the ECX will fix this for next year. They didn't realize what a blunder it was: by their own estimates, "Specialty Coffee" constituted 2-4% of Eth exports. If that was true, sure, this system works for bulk lots of Eth. coffee. But there is no way their estimate was correct. I would put it above 20%, as high as 40% qualifies and is sold as Specialty.
This is a letter sent from the ECX director Eleni Gabri on return from the SCAA symposium which included a lively debate over the ECX:
__________________
April 17, 2009
OPEN LETTER TO THE BUYERS OF ETHIOPIAN SPECIALTY COFFEES
As I head home from my first, though I am sure not last, annual SCAA Event, I am overwhelmed by a number of emotions, the first of which is a feeling of great humility at the honor and genuine love so many of you have for our very special Ethiopian coffees, the bounty of our earth, the fruit of the toil of millions of our country men and women, our gift to the world. As I have witnessed firsthand your incredible efforts, your tenacity, your art in doing what you do, I have learned that you are artisans of the highest order, and our true partners in promoting this treasured product of which we are joint stewards. In the world we inhabit today, as our global citizenship deepens, our partnership becomes increasingly one of equals striving for a common vision, and I feel that, in this first engagement between the Ethiopia Commodity Exchange and your Association, we have taken the important first step.
As your outgoing association President, Mark Inman, expressed in his remarks at the Opening Ceremonies, “Change can be upsetting. Change can be very scary. But change can be very good and often necessary.” And he was merely referring to the reorganization of the annual 3-day Exhibition! So it is difficult to even fathom the extent to which the systemic transformation of the marketing of an entire country’s coffee production, and an important origin country at that, can be profoundly discomforting for thousands if not millions of folks, including yourselves, who are or will be affected in some way or other in this process.
Like you, we at ECX are deeply passionate about what we do, as mavericks in our own way, questioning the fundamental order of things. Our passion is not inspired by an arrogance that we have all the answers, but rather that we are asking the right questions, questions that matter to all of us in this industry. These questions address “how can we build integrity into our market, into our product, and into each transaction? How can we add value that translates to the smallest actor in the market? How can we provide a neutral service that enlightens and enhances all market players? How can we transform the choices and hence the lives of our clients? How can we bring dignity and meaning to our marketplace, through building trust and respect?” Finding the answers to these questions is our labor of love, worked, reworked, and reworked again through hours of collective discussion, through creative churning, through daring to try and daring to fail.
An icon of your industry, whose lifetime of commitment speaks to his own personal integrity, Ted Lingle, taught us in his Keynote Address that “standards are the basis for achieving integrity”. Indeed, an industry without standards and guiding rules simply cannot withstand the test of time nor weather the storms that inevitably come. In my own work on making markets work, I have been greatly inspired by Nobel Laureate American economist Douglass North whose classic analysis of world economic history identified the key to the societies which succeeded as their ability to devise “cost-effectively enforceable Rules of the Game”. These rules of the game are the informal norms, unspoken ethics, religious and moral codes, formal rules, standards, and laws by which we live and interact in our various games. One of the greatest global games (and there are many, of course, war, science, environment, culture…) is the market. And in our global coffee market, from the farmer at one end and the consumer at the other, goods, technology, and money flow along the chain, fuelled by information, power, and the norms that drive the allocation of power and the ensuing economic returns or value in the chain. So let us think of ECX as the embodiment of the “rules of the game” for our part of the global coffee market chain.
I would like to share with you our Vision and Mission, developed collectively by the 137 employees who make up our company. Our ECX senior management team is composed of seven Ethiopian-American and three non-Ethiopian seasoned industry professionals who have given up plum corporate careers in Accenture, Merrill Lynch, Fannie Mae, private securities law, DHL Express, London Financial Futures Exchange (LIFFE), MCX-India, in the US, Europe, and elsewhere, to join our exciting effort. So your coffee is in good hands. This in itself is change. The ECX Vision over the next five years is “to transform the Ethiopian economy by becoming a global commodity market of choice.” The ECX Mission is to “connect all buyers and sellers in an efficient, reliable, and transparent market, by harnessing innovation and technology, and based on continuous learning, fairness, and commitment to excellence.”
ECX for us represents the new Ethiopia, the Ethiopia of possibilities. This is not a command economy effort nor is it yet another dusty African bureaucracy. It is about a team of committed, passionate, top-notch, international caliber professionals working intelligently on finding cutting- edge real market solutions to real market problems, the problems you and others face throughout the market chain. As you engage with us, you will find we are a listening and learning organization, evidenced by no less than thousands of hours to date consulting with hundreds of our national stakeholders. We are a nimble and highly responsive organization, demonstrated by our willingness and ability to nearly entirely re-vamp certain parts of our service or system in response to the expressed needs of our market stakeholders even after our launch. Finally, we are a highly competent and bold organization, daring to go where others have not yet attempted in Ethiopia and even elsewhere.
To illustrate, we have designed and developed ourselves, in what would otherwise have been a multi-year and multi-million dollar effort, a functioning electronic warehouse receipt system, linked to 8 coffee warehouses at present with 40,000 tons capacity, in just 4 months. We have created the only national payments system in our country and built electronic banking gateways to 7 commercial banks in less than 8 months, creating the capacity to clear and settle payments within less than a day of trade, a first in Ethiopia’s financial history. We transmit market data live to farmers and traders within 4 seconds of trade, using electronic displays currently in 14 rural market sites, and to our website for global reach, set to expand to 40 display sites by October 2009 and 200 by end 2010. Along with our existing radio and print media, we will soon be launching SMS mobile texting of real time market data to registered clients. We have designed and built an automated trading back office system that manages trading orders and reconciles trading of 256 types of coffees on a daily basis. There is no exchange in the world that has this kind of flexibility in trading contracts. We have traded over 52,000 tons of coffee since December and handled deposits of over 170 million dollars without a single default or trading order error. We have recruited, trained, and certified 376 private sector Exchange members and their 1146 clients. We currently operate 2 fully equipped coffee laboratories with 8 cuppers and will expand to a total of 9 laboratories with 40 fully certified Q graders by October 2009. And the list goes on. We operate on a commercial basis, relying on revenue generation and product development, like any business. Our achievements of this scope and speed in the past eighteen months are based on tireless effort, often 14 hour days, and we are very proud of our service delivery record. More importantly, we are very proud that these efforts are not dictated by narrow interest or bureaucratic dictate, but rather by our own volition, our pride and love of country, and our intellectual and professional ambition to transform our little corner of the earth.
As we discussed in Atlanta, ECX is now in a position to shift efforts to directly addressing the design and implementation of an ECX specialty coffee spot trading mechanism. As we embark on this process, our commitment to you and to working with you rests on three principles:
Our relationship must be based on mutual respect and a commitment to constructive dialogue, with the discipline to engage on a reasoned assessment of the facts, and not on uncontrolled and possibly destructive emotional reactions. Respect requires a commitment to a relationship of equals, recognizing our mutual complementarities and needs. Only by listening to each other and learning from each other will we be able to build the trust needed to become effective partners.
We will agree and deliver together on a set of time-bound deliverables. Our current agreed concrete joint plan and timetable focuses on:
o An assessment of outstanding contracts (contracting parties, volume, and delivery date) to be delivered by SCAA to ECX by April 24, in order to table to relevant authorities for action/decision before or by mid-May;
o A joint forum of SCAA-ECX to discuss the ECX specialty coffee trading design by late June-early July (either in Addis Ababa or US); and
o The launching of Q specialty coffee certification and trading within ECX by October 2009.
In order to be efficient and effective, we will appoint a joint task force of committed individuals from among specialty buyers and exporters to participate with ECX in ongoing dialogue and technical interaction on design. We would request that you designate five buyer representatives by April 28 so that we can launch the Task Force on May 1 if this is acceptable. In conclusion, I am deeply excited by the possibilities. Thank you again for hosting my first SCAA experience. I am convinced that what we are building is far more important than our individual interests today but rather will be the start of something that will outlive any of us and evolve in ways we cannot yet imagine as the specialty coffee industry continues to transform and to change our relationship to the simple cup a’ joe. It will undoubtedly have the potential to spill across our borders to others. Change is good. It can even be seen as necessary. Or, as we learned in the wonderful Symposium closing lunch session, innovation is love, and love can move the world.
With my warmest regards,
Eleni Z. Gabre-Madhin, PhD
Chief Executive Officer
Ethiopian Coffee Exchange
