Benefits and challenges for wet mill use in the coffee sector

1. ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
Benefits and challenges for wet mill use in
the coffee sector
Seneshaw Tamru and Bart Minten
IFPRI ESSP
Ethiopia’s coffee value chain: Evidence towards improved investments and policies
Addis Ababa Hilton
September 15, 2015
Addis Ababa
1

2. 1. Introduction
• Global market shifting towards ‘buyer-driven’ value chains
• Buyers increasingly requesting quality standards
• Producers required to adhere to stringent quality and safety standards and
regulations in these markets
• Buyers are willing to premiums for added quality
• For coffee, value can be added in such ways as:
• Washing
• Specialty production
• Environmental sustainability
• Organic production
• Produce’s origin and characteristics
• In this paper, we are looking at the issue of washing

3. Coffee value (quality) depends importantly on
the type of processing: i.e. ‘wet’ or ‘dry’.
• Washing - wet processing: fresh red berries are de-
pulped, fermented and washed using wet-mill
machines.
- Red cherries delivered to washing stations
within 10 -12 hours of picking
- KEY: Farmers need to sell their
coffee in red berries
• Dry processing: berries are dried, often in the
house of the farmer, and hulled using hullers
- Mostly very traditional

4. • Washed coffee sold in
international markets with a
premium of more than 20%.
• However, only about 30% of
Ethiopia’s coffee export is
washed (and share is constant
over time)
• The small-scale coffee farmers,
processors, exporters, and the
country are missing out on
sizable opportunity of
commanding higher rewards.
0
.2.4.6.8
1
Density
0 1 2 3 4
USD/lb
unwashed washed
Kdensity plot of prices of washed vs unwashed

5. 2. Problem identification
It seems that we might have underused capacity of
wet mills (in some areas)
26,025
34,111
25,415
4,854
2,904
5,483
RED CHERRY WASHED WHOLE DRIED
PROCESSING VERSUS USED CAPACITY (QUINTALS)
Maximum capacity Used capacity
Capacity (Average) Unit Wet mills
Dry
mills
Number of mills owned per
sampled households Number 1.4 1.3

6. 2. Problem identification
Households that have possibility to sell to wet mills, do not always sell to them:
there is a large gap
Question: What are the perceived benefits and constraints to the sales of red
cherries by farmers?

7. 3. Propositions
Five challenges that might possibly explain low level of selling coffee in
red berries by the farmer
• Challenge 1 : Presence washing stations
• Challenge 2 : Volatility in prices and rewards
• Challenge 3 : Fear of theft
• Challenge 4 : Lack of savings instruments
• Challenge 5 : Labor requirements (Marketing costs)

8. Challenge 1 : Presence washing stations
Distance matters. The further away, the lower share of red cherries sold
0
50
100
0 50100150200 0 50100150200 0 50100150200 0 50100150200 0 50100150200 0 50100150200
Sidama Yirgachefe Jimma Nekemte Harar Total
% of red berries sales Fitted values
(mean) time_nearest_wetmill

9. Challenge 2: Beliefs on Rewards
Not all farmers convinced that selling red cherries is more profitable
62%
35%
2% 1%
Do you think that it is more profitable to sell coffee as dried
berries than as red?
All Farmers
Dried cherries more profitable
Red cherries more profitable
The same
It depends from year to year
54%
43%
2% 1%
Farmers with access to sell in red
Zone Sidama Yirgachefe Jimma Nekemte Harar Overall
Average (Birr/kg) 24.5 21.4 24.1 21.8 24.1 23.3
Inyour opinion,if the price of redberries was 10 Birr per kg,the price of driedberries shouldbe ______ Birr per kgto be
equally proftable.

10. Producer price trends
05
10152025
2006m1 2008m1 2010m1 2012m1 2014m1
period
Jima red Jima dry
Nekemte red Nekemte dry
Rewards of red vs dried berries:2006-2013

11. Challenge 3: Theft issues
If red cherries harvested too early, not suitable for washing
4.1
2.0
1.5
2.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
harvest coffee beans
earlier/unripe -afraid of
theft?
harvest coffee beans
earlier/unripe- afraid of
them being eaten by
animals?
% of berries stolen by
thieves?
% of berries eaten by
monkeys/apes?
Theft issues (%)

12. Challenge 4: Lack of savings instruments
Dried cherries can be kept as savings (red cherries have to be sold at once)
91.9
16.5 16.2
3.0 2.9 4.8 6.9
0
10
20
30
40
50
60
70
80
90
100
For savings bad quality (e.g.
picked from the
ground etc.)
late ripening and I
could not sell
them anymore as
red berries
lack of labor for
timely red berry
harvesting
I like to spread
out my income
over the year
harvest early
because of fear of
theft
not enough
buyers of red
berries
Percent
Reasons for not selling as red cherries
Yes

13. Challenge 4: Lack of saving instruments
Little access to formal institutions but those with access, seemingly
hesitant to use
86.8
31.1
11.3
64.8
14.4 16.9
0
20
40
60
80
100
Local Savings Savings & credit assoc. Bank/MFI
ACCESS TO SAVING FORMS
% of farmers having access to saving
instruments in the kebele
% of farmers using this saving form
15
17
19
0
5
10
15
20
25
Local Savings Savings & credit
assoc.
Bank/MFI
If saving form is not available, distance
to the nearest one
75.7
19.2
4.7
“I prefer selling coffee in dried form instead of red berries because I can spread out
my income that way (it is a way of saving)”
Yes, I agree No, I disagree
It depends

14. Challenge 5: Labor requirements
Red cherries require more effort in marketing
Labor requirements Unit
Red Dry T-test difference
Mean Mean Mean (difference)
Quantity sold per transaction kgs 53.4 235.8 -182***
Harvesting cost (labor) birr 1427.7 1398.6 29*
Average Marketing costs (transport cost ) birr/kg 0.186 0.118 0.068***
***, **, * significant at 1%, 5%, and 10% significant levels respectively

15. Regression analysis
• Lack of access to wet mills (in close proximity)
• Fear of theft
• Government’s action of setting prices for red berries
• Not enough red berry buyers
• Perception of farmers that dry is more profitable
• Considering the dry coffee as a saving mechanism
• Government’s deciding selling date
• Source of information through radio
• Daily wage rates
• Source of info through mobile phones
• Reduce the likelihood
and/or quantity of red
berries sales
• Increase the likelihood
of selling in red-berries.
• Raise the quantity of
red berries sales.

16. 5. Policy Implications
Higher sales to wet mills can be achieved by:
• Designing ways to improve access to wet mill for farmers
(encourage further private investors and cooperatives)
• Encourage formal saving institutions (Saving & Credit
Associations, Microfinance Institutions and Banks)
• Ensure quality improvement trainings to farmers
• Encourage better price transmission for better incentives
• Better information dissemination mechanisms

17. Thank you!