JIMMA UNIVERSITY

COFFEE VALUE CHAIN ANALYSIS IN GOMMA

WOREDA, JIMMA ZONE, OROMIA

REGIONAL STATE, ETHIOPIA

MSc. Thesis

Sadam Abagojam

APRIL, 2021

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 JIMMA, ETHIOPIA

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 COFFEE VALUE CHAIN ANALYSIS IN
GOMMA WOREDA, JIMMA ZONE,
OROMIA REGIONAL STATE,
ETHIOPIA

A Thesis Submitted to Agricultural

Economics and Agribusiness,
In Partial Fulfillment
of the Requirements for
the Degree of
MASTER OF SCIENCE IN AGRICULTURE
(AGRIBUSINESS AND VALUE
CHAIN MANAGEMENT)
Sadam Abagojam
ID.№ WM0317/10

April, 2021
Jimma, Ethiopia

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 JIMMA UNIVERSITY

SCHOLL OF GRADUATE STUDIES

Thesis Submission for Internal Defense request form:

Name: Sadam Abagojam ID №:WM /10
Program of Study: Agribusiness and Value chain Management
Title: Coffee Value Chain Analysis in Gomma Woreda, Jimma Zone, Oromiya Regional
State, Ethiopia.
I have incorporated the comments, suggestion and modifications given from my advisors during
my thesis work and got the approval of my advisors for internal defense. Hence, I hereby kindly
request the department to allow me to submit my thesis for internal thesis defense.
Sadam Abagojam
As Thesis Research advisors, we hereby certify that we have read and evaluated this thesis
prepared, under our guidance, by Sadam Abagojam entitled “Coffee Value Chain Analysis in
Gomma Woreda, Jimma Zone, Oromiya Regional State, Ethiopia ’’. We recommend that it
be submitted as fulfilling the thesis requirement.
Adeba Gemechu (PhD, Associate Professor) __________ ____________

Major Advisor Signature Date

Usman Ramato (MSc, Assistant Professor) __________ ____________
Co-Advisor Signature Date

As member of the Board of Examiners of the M.Sc. Thesis Open Defense Examination, We
certify that we have read, evaluated the Thesis prepared by Sadam Abagojam and examined the
candidate. We recommended that the Thesis be accepted as fulfilling the Thesis requirement for
the Degree of Master of Science in Agribusiness and value chain management.
__________________ ____________ ____________
Chairperson Signature Date
__________________ ____________ ____________
Internal Examiner Signature Date
__________________ ____________ ____________
External Examiner Signature Date

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 DEDICATION
I dedicate this thesis to my family, especially to my beloved wife Sada Abazinab and my
brothers Nazif Abagojam and Rais Yasin for their affection, support, care and kindness. They
have my eternal gratitude for all they have done for me.
 STATEMENT OF AUTHOR

By my signature below, I declare and affirm that this thesis is my own work. I have followed all
ethical and technical principles of scholarship in the preparation, data collection, data analysis
and compilation of this Thesis. Any scholarly matter that is included in the Thesis has been given
recognition through citation.

This Thesis is submitted in partial fulfillment for MSc. degree at the Jimma University. The
Thesis is deposited in Jimma University Library and made available to borrowers under the rule
of the library. I hereby declare that this thesis has not been submitted, either in the same or
different form, to this or any other university for any degree.

I solemnly declare that this Thesis has not been submitted to any other institution anywhere for
the award of any academic degree, diploma, or certificate.

Brief quotations from this Thesis may be made without special permission provided that an
accurate acknowledgement of the source is made. Requests for permission for extended
quotation from or reproduction of this Thesis in whole or in part may be granted by the Head of
the school if in his or her judgment the proposed use of the material is in the interests of
scholarship. In all other instances, however, permission must be obtained from the author of the
Thesis.

Name: Sadam Abagojam Signature: __________ Date ______________

School/Department: Agricultural Economics and Agribusiness.

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 BIOGRAPHICAL SKETCH

The author Sadam Abagojam was born in month/year in 1976 EC kebele Bore Dinsera District
Jimma Zone in Oromia National Regional state. He attended her elementary school at bore
Dinsera and Bashasha and junior, high school at Agaro S.S. School. In 1992EC year, the author
joined University of 1995 EC and graduated with diploma plant science and additionally
graduated B.Sc. Degree in Agribusiness management in month/year 2012 EG.

After his graduation, he was employed at Goma worada Adimstrations and has served Ethiopian.
Finally, he joined the school of Graduate Studies of college of Agriculture and Veterinary
Medicine Jimma University in 2010 EG to pursue his MSc. study in Agribusiness and Value
Chain management.

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ACKNOWLEDGMENTS

Above all, I offer the indisputable heartfelt thanks to the Almighty God Allah enabling me to
realize one of my dreams.

I am grateful to my respected major advisor Dr. Adeba Gemechu, who helped me starting from
title selection up to detailed analysis through his earnest and constructive comments in the
preparation of the manuscript. Successful accomplishment of this research would have been very
difficult without his time devotion from the early design of the topic up to the final write-up of
this thesis by providing valuable, practical and useful comments. My thanks also go to my co-
advisor Usman Ramato for his advice, valuable comments and for his fast response for all my
requests.

Next, I would like to express my sincere appreciation and gratitude to Ethiopia Commodity
Exchange Jimma branch Office for giving me the time support on my chance of education and
granting me time for the research work. In addition, I would like to express my sincere
appreciation and gratitude to Jimma University College of Agriculture for the kindness and
helpful support during my stay there. I would like to thank all Gomma woreda Administration
chairman Tofik Raya with his staff members, development agents of Gommaa woreda
Agriculture and Rural Development offices for their permission and cooperation to use available
data from the district offices and having access to sample households. My special thanks and
heartfelt gratitude also go to my best friends, TanasheIyasu , Amin Abafita for their support and
encouragement and Sadanura , Tamam Idirirs, Gamachu Tachile, and Mohamesani Abanura for
helping me in data collection and my special recollection to Tofik Raya who impacted me
while I was resounding out the present study. Additionally from Jimma Zone Cooperative office
Johne Abamilk with all his staff.I also wish to express my heartfelt thanks to the many farmers
and traders and consumers in the district who responded to my numerous questions with
patience. Wishing all Holy blessings from Allah and be considered in His eternal Government.
The study would not have been possible without advanced help of my Wife and two brothers. To
them I say thank you. Above all, I thank the Almighty Allah for giving me health, patience
and strength for the completion of my master’s degree study.

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ABBREVIATIONS AND ACRONYMS
ACE Agricultural Cooperative of Ethiopia
ACET Africa Center of Economy Transformation
ANOVA Analysis of Variance
CLU Coffee liquoring unit
CRD Completely Randomized Design
CSA Central statics authority
CTA
Coffee and tea authority
ECX Ethiopia Commodity exchange
FAO Food and Agriculture Organization
ECX Ethiopia commodity exchange
FOB Forward operating base
FT Fair Trade
GVC Global Value Chain
HDI Human Development Idex
ICE International Coffee Exchange
ICO International Coffee Organization
IFAD International Fund for Agricultural Development
IMF International Monetary Fund
ISO International Standard Organization
ITC International Trade Center
JARC Jimma Agricultural Research Center
MAFAP Monitoring and Analyzing Food Agricultural Policies
UNDP United Nation Development Program
USAFID United States agency For International Development
VOCA Volunteer and Over sea Cooperative Analysis

TABLE OF CNTENTS
Contents Page
DEDICATION................................................................................................................................I
STATEMENT OF AUTHOR......................................................................................................II
BIOGRAPHICAL SKETCH.....................................................................................................III
ACKNOWLEDGMENTS...........................................................................................................IV
ABBREVIATIONS AND ACRONYMS.....................................................................................V
TABLE OF CNTENTS...............................................................................................................VI
LIST OF TABLES.......................................................................................................................IX

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LIST OF FIGURES......................................................................................................................X
LIST OF TABLES IN THE APPENDIX..................................................................................XI
ABSTRACT................................................................................................................................XII
1. INTRODUCTION......................................................................................................................1
1.1. Background of the Study.......................................................................................................1
1.2. Statements of the problem.....................................................................................................6
1.3. Research Questions...............................................................................................................7
1.4. Objectives of the Study.........................................................................................................8
1.5. Significance of the Study......................................................................................................8
1.6. Scope and limitations............................................................................................................8
1.7. Organization of the thesis.....................................................................................................9
2. LITERATURE REVIEW.......................................................................................................10
2.1 Theoretical literature review................................................................................................10
2.1.1 Value chain versus supply chain concept......................................................................10
2.1.2. Coffee value chain concept..........................................................................................10
2.1.3. Coffee value chain actors.............................................................................................12
2.1.4. Enabling environment..................................................................................................12
2.1.5. Coffee Value chain Analysis........................................................................................13
2.1.6. Coffee value chain constraints.....................................................................................14
2.3. Theoretical Framework.......................................................................................................15
2.4. Market and marketing.........................................................................................................18
2.5. Concept in Agricultural Value Chain..................................................................................19
2.5.1. Mapping the Value Chain.............................................................................................21
2.6. Value chain actors...............................................................................................................22
2.7. Enabling environment and service providers......................................................................23
2.8. Major Concepts Guiding Agricultural Value Chain Analysis............................................24
2.9. Benefit of Value Chain in Agricultural Sector....................................................................26
2.10. Developing Value Chain Systems towards the Benefits of the Poor................................27
2.11. Coffee Production in Ethiopia...........................................................................................28
2.12. Empirical Review of Related Literatures..........................................................................29
2.14. Factors affecting annual income from coffee sale............................................................37
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 2.15. Empirical Review of Value Chain and Determinant of Market Supply...........................39
2.16. Methodological Framework..............................................................................................40
2.17. Analytical Framework.......................................................................................................41
2.18. Conceptual Framework.....................................................................................................42
3. RESEARCH METHODOLOGY...........................................................................................45
3.1. Description of the Study Area.............................................................................................45
3.2. Types, Sources and Method of Data Collection.................................................................47
3.3. Sample Size and Sampling Procedures...............................................................................47
3.3.1. Producers sampling......................................................................................................47
3.3.2. Sample size determination for producers.....................................................................48
3.4. Methods of Data Analysis...................................................................................................49
3.4.1. Descriptive statistics.....................................................................................................49
3.4. Methods of Data Analysis...................................................................................................49
3.4.1 Descriptive and inferential statistics..............................................................................49
3.4.2. Descriptive statistical analysis......................................................................................50
3.4.2. Econometric analysis....................................................................................................51
3.5. Definition of Variables and Working Hypothesis...............................................................52
3.5.1. Dependent variables.....................................................................................................52
3.5.2. Independent variables...................................................................................................52
4. RESULTS AND DISSCUSSIONS..........................................................................................60
4.1. Demographic and Socio-Economic Characteristics of the Sample Households.................60
4.1.2. Demographic and Socio-economic characteristics of traders..........................................62
4.1.3. Household characteristics variation of sample traders.................................................64
4.1.3. Socio economic variation.............................................................................................65
4.2. Value Chain Analysis of Coffee.........................................................................................65
4.2.1. Map of coffee value chain of Gomma district..............................................................66
4.2.2. Primary actors of coffee value chain of the Gomma woreda.......................................67
4.2 1. Coffee value chain actors and their function...................................................................68
4.3 The Role of the actors..........................................................................................................70
4.3.1. Input Supply.................................................................................................................70

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 4.3.2. Production....................................................................................................................70
4.3.3. Coffee marketing practices by the producers...................................................................74
4.3.4. Marketable and marketed surplus of coffee.................................................................77
4.4. Coffee value adding and marketing practice by large scale producers...............................81
4.2.5. Cost and Margin analysis of coffee value chain in Gamma woreda................................82
4.3.1 Gross and net margins of producers..............................................................................88
4.4. Econometric Models Output...............................................................................................92
4.4.1 Multiple regression analysis output...............................................................................92
4.5. SWOT analysis of growers and marketing.........................................................................99
5.CONCLUSIONS AND RECOMMENDATION..................................................................103
5.1. Conclusions.......................................................................................................................103
5.2. Recommendations.............................................................................................................104
REFERENCES...........................................................................................................................107
APPENDICES............................................................................................................................115

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 LIST OF TABLES
Table Page
Table 4: Sample distribution and proportion coffee producer households.................................................48
Table 5: Description of explanatory variables of multinomial and multiple regression models.................59
Table 6: Demographic characteristics of sample households.....................................................................61
Table 7: Household head characteristic & demographic variation (No=160)............................................62
Table 8: Characteristics of the sample coffee traders of the district (No=40)............................................64
Table 9: Variation of household head in land size and livestock animals (n= 160)...................................65
Table 10: Distribution of sampled households by coffee farm size...........................................................71
Table 11: The producers are varied in annual coffee product & productivity in quintal............................72
Table 12: Household heads variation in coffee value adding and revenue from coffee.............................73
Table 13: Distribution of sample household in coffee marketing practices...............................................76
Table 14: Distribution of coffee producing investors in post-harvest value adding activities....................81
Table 15:Type of cost and amount incurred by sampled farmers..............................................................82
Table 16:0 Mean cost variation between member of coffee cooperative and nonmember farmers............83
Table 17: Distribution of traders in capital, experience and amount of cost incurred (№ = 40).................84
Table 18: Coffee price producers received for 1kg of dry, red, clean coffee in birr...................................86
Table 19: Coffee price paid for different level actors after producers........................................................87
Table 20: Gross marketing margin of Gomma woreda..............................................................................89
Table 21:Coffee producers‟ share of gross margin and net income at three coffee market routs...............90
Table 22: Gross marketing margin and net profit margin of local collectors.............................................91
Table 23: Coffee wholesalers‟ gross marketing margins and net profit margin........................................92
Table 24: Coefficient of multiple linear regression analysis......................................................................94
Table 25: SWOT analysis of growers and marketing..............................................................................100

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 LIST OF FIGURES
Figures Page
Figure 1:Porter's value chain model...........................................................................................................17
Figure 2: Typical agricultural value chain.................................................................................................20
Figure 3: Conceptual frame work of the study...........................................................................................44
Figure 4:Map of Gomma woreda the study area........................................................................................46
Figure 5 : Coffee Value chain map............................................................................................................67
Figure 6: Map of coffee market channels of Gomma woreda....................................................................80

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 LIST OF TABLES IN THE APPENDIX

Appendix Table Page

1: Conversion factors used to estimate Tropical Livestock Unit..............................................61

1: Variance Inflation Factor for continuous explanatory variables..........................................61
2 Contingent Coefficients for discrete explanatory variable....................................................62
3: Summary of member’s participation index..........................................................................62

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 ABSTRACT
Coffee has major impact on the world economy as the largest single commodity entering the
international trade and it is being grown in more than 80 countries. The production and
consumption of coffee in Ethiopia has a socio-economic importance and it is both local and
export market destined produce. A study entitled value chain analysis of coffee was undertaken
in Jimma zone, Ethiopia with the aim of identifying the value chain actors, describing value
additions, and estimating the share value of respective actors along the chain and gathered data
from 160 households by simple random sampling techniques. The study attempted to analyze
different factors that hinder coffee value chains in the study area. Accordingly to the finding
various factors that have approximately similar influence on coffee value chains. The study used
13 continuous variables from which all are highly statistically significant at 99% confidence
interval and 19 discrete variables those are highly statistically significant at 99% confidence
interval under descriptive statistic. The econometric model used for this study is MLR model and
its result raveled on coffee value chains factors was also identified. The study included 13
continuous variables in the model from these about 6 variables are highly statistically
significant at 95% and 99% confidence interval such as Distance from home of farmers,
Average Number of coffee trees, Price of coffee in total Ethiopian Birr, Number of livestock in
Tropical livestock Unit, Extension contact and family size have statistically significant that
affecting coffee value chains of households. Family size and extension contact are factors
negatively affecting coffee value chains while the remaining 4 variables enhance coffee value
chains positively. About 4.43% of the variation in coffee value chains is explained by continuous
variables in OLS technique but many factors were in discrete variables. There are many post-
estimation tests used to check the satisfaction of the basic assumptions of multiple linear
regression models. Based on the finding of the study, government and other related stockholders
should target at development of rural infrastructure, work diversification cultures, empowering
extension contacts for rural farmers, and family plans to improve both production and marketing
of Coffee through awareness creation by training, follow up and creating the market linkages for
participant in coffee production and marketing in GommaWoreda.

Keywords: - Coffee Value Chain Analysis

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 1. INTRODUCTION

This chapter contains the background of the study, Statement of the problem, Research
questions, Research objectives both general and Specific objectives, Significant of the study,
Scope of the study of the study and Organization of the thesis.

1.1. Background of the Study

Coffee is vital to the economies of many developing nations, and this is especially true in East
Africa and each year, approximately 450,000 tons of Arabica coffee, valued at more than $1
billion, departs from the ports of Dares Salaam, Djibouti and Mombasa to buyers around the
world. It is traded on the Intercontinental Exchange, a futures market in New York that serves as
the global benchmark price of Arabica coffee: the New York price (Tecno serve, 2014).

Coffee is one of the highest valued commodities in international trade grown by about 25 million
farmers worldwide, (ICO, 2018), 80% of whom are smallholders making it an important socio-
economic factor in producing countries. Coffee is an important agent of development, providing
a livelihood for millions of people around the world; generating cash returns in subsistence
economies and, since coffee production and harvesting are labor-intensive, providing an
important source of rural employment. In terms of international trade, coffee is the most valuable
tropical agricultural product. According to (ICO, 2014), Export export revenue of coffee
producing countries in coffee year 2012/13 is preliminarily estimated at US$19.1 billion.
Ethiopia is endowed with a good production environment for growing coffee with a combination
of appropriate altitude, temperature, rainfall, soil type, and PH. Ethiopia is the center of origin
for Coffee.

According to Ponte (2014) coffee is consumed in the northern part of the world, while 90 % of
the production takes place in the South (Ponte, 2014).Coffee). Coffee is one of the most valuable
traded commodities in the world, represents a critical source of income for smallholder farmers
and their farm workers (Lewin et al., 2014). It is one of the most important commodities in the
international agricultural trade, representing a significant source of income to several countries
of Africa, Asia and Latin America (ICO, 2016).

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In many African countries it is source of economy both in terms of export earnings and
generating income for small holder farmers; the coffee industry function in three key economic
sectors which include the primary sector, the industry generates direct income, employments and
output; in the secondary seu7 2ector coffee is used as an input in the processing industry; the
tertiary sector covers domestic whole sale and retailer marketing for domestic consumption and
exports (International coffee council, 2015).

Ethiopia is one of African least developed countries with about 85% of its population living in
the rural areas. Its economy depends majorly on agriculture, which accounts for almost 50% of
the GDP, 60% of the exports and 80% of the total employment. This sector frequently suffers
from drought and poor cultivation practices. This shows still agriculture is considered as the
country's most promising resource and source of income (Focus Africa, 2014). Coffee is critical
to the Ethiopian economy that generating about 25% of Ethiopia’s total export earnings and
about 15 million people directly or indirectly deriving their livelihoods from it (Abu and Teddy,
2013).

Though Ethiopia encompasses a potential opportunity to increase coffee production being

endowed with suitable elevation, temperature, and soil fertility, indigenous quality planting
materials, and sufficient rainfall in coffee growing belts of the country; average per hectare yield
remains very low at 0.72 MT per hectare. Post-harvest handling, milling, packing, warehousing,
transporting and distribution have played their deterring role on production and trade of coffee in
Ethiopia.
According to Alemayehu (2014) Ethiopian coffee mainly exported to 53 destination countries in
the world and its source 95% from private companies and 5% from coffee growing farmer
cooperative union, Coffee processing adds value and price in the chain, whereas its value chain
actors are collectors, local traders, primary cooperatives, cooperative union, exporters, importers,
domestic whole sellers and retailers, service providers and consumers (Alemayehu, 2014).

Participation of smallholder farmers in coffee value chain is very important because it reduces
marketing cost, increases economic benefit as that concentration on specialty coffee production
with a portfolio of foreign contracts is economically preferable to a vertically integrated

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cooperative, which in turn produces more favorable coffee prices for smallholders than the non-
affiliated conventional farmers (Fatima and Paul N, 2014).

According to Christopher (2011) Oromia region including Gomma District coffee value chain
case study all Oromia coffee cooperative members got profit dividends along with fair-trade
premium payment, for any one individual farmer, selling to a functional cooperative at a stable
price for the entire season would result in a higher income than selling to private traders at
extremely low prices early in the season and then at a price slightly higher than that of the
cooperative toward the end. Moreover, when cooperatives buy coffee, prices from private buyers
rise for all producers. To fill this gap, “Better economic effect of coffee value chain research
study is the basic and necessary condition to bring livelihood improvement in small scale
farming community. Therefore, this study is useful to fill the intervention gaps in Value Chain
Analysis of coffee and its income effect in the case of Gomma District, Oromia Zone of South
Western Ethiopia.

Ethiopia is famous as the origin of coffee and is the largest producer in Africa. In production of
Arabica coffee, Ethiopia is the sixth largest producer in the world. About 15 million people
(almost 20 percent of the total population) directly or indirectly depend on coffee for their living
(USDA, 2012).

Jimma zone is one of the coffee growing zones in the Oromia Regional State. Currently, the total
land area of about 97,155 hectares are covered by coffee, from which a total volume of about
803,224 quintals of coffee are obtained, from 444,216 private peasant holdings in the agricultural
year (CSA, 2014/2015). The zone covers a total of 21% of the export share of the country and
43% of the export share of the Oromia Region (JZARDO, 2008).

In terms of the top 25 districts, Oromia dominates with 18 of the top 25. More specifically,
Jimma zone in Oromia has five of the top 25 producing districts (IFPRI 2015).

Despite the importance of coffee for better income generation, smallholder farmers in the area
continue to face a number of challenges related with marketing. Though coffee is one of the

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world’s most traded goods, as the commodity price has plunged in recent years it is increasingly
hard for coffee farmers to survive on their crops (ToraBäckman 2009).

Limited access to market facilities, less exposure for market information, infrastructural problem,
inadequate support services and problem in transportation services are some of the problems
resulting in low participation of smallholder farmers in selling their products (Bizualem, 2015).

The coffee sector is an important sector in which to study this issue for a number of reasons.
International coffee markets are changing quickly, driven by liberalization (Russell et al., 2012),
but also by increasing demands for standards and the development of a specialty coffee market
segment (Lee et al., 2012; Potts et al., 2014). These downstream changes have large effects on
the structure of global coffee value chains. This development is important as coffee is one of the
most important globally traded agricultural commodities with consumption occurring mostly in
developed countries and production in developing ones (ICO, 2014).However, no study had been
conducted value chain analysis for coffee in this district.

The study of Jemal (2012) showed that the perception towards to formfarm-gate price of house
hold, access to information and education level of household head were have positive
relationship with coffee supply. But In this study the analyzed results were conducted that, the
former was negatively affected the coffee supply and the coffees as above mentioned positively
affected coffee supply respectively, According to the study of Elias (2005) the average age of
coffee tree at stumped area was revealed that positive relationship with coffee supply,

Coffee value chain consists of a series of activities that add value to final product beginning with
the production continuing with processing and marketing to the end users (ICO, 2016). This
shows each activity step by step interlinked starting from producing to marketing.

Value chain analysis extends traditional supply chain by adding value, but over decade coffee
cooperatives in Ethiopia were in efficient due to poor technical management operation
(Karthikey, 2015).

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In the same way Ethiopian smallholder farmers even those in the coffee cooperative union
themselves indicate that they are challenged with lack of finance and inadequate access to risk
management services, low level of production and productivity (Tarikua Getachew,2015).

According to (Daniel, 2018).Despite being among the top coffee producing countries in the
world, Ethiopia lags behind in export earnings (Daniel, 2018). In Ethiopia, despite the enormous
wealth of genetic diversity the average national coffee yield remains low (Taye et al, 2011).

Many previous studies have given more emphasis on marketing of already prominent coffee
producers of Kaffaa, Wellega, Illubabor and , Hararge and Sidama. Some research findings have
been studied by (Assefa, 2015) ;(Desalegn and Solomon, 2014); in different areas. Among above
mentioned researchers, (Bizualem, 2015) has been studied on value chain analysis of coffee, in
Limmu-Kosa and Goma districts, two of the woreda in Jimma zone.

The Most of the Gomma District coffee farmers are growing coffee at garden and in semi forest
areas. They are troubling from the lack of enough financial support, transportation access,
frequent marketing information and lack processing machines support. In this regard, coffee
value chain analysis is an interesting process that has not been investigated much in this specific
study areas. Besides, to the best knowledge of the Researcher, no empirical study has been
conducted in area of study that investigated the determinants factors affecting quality coffee and
effects of affecting the coffee value chain. This study, therefore, is future to bridge this
theoretical and practical gap through investigation of both the downstream and the upstream
constituents of the quality sustainability and coffee value chain in the study area. Therefore this
study was analyzed coffee value chain Performance in Gomma District Jimma Zone Ethiopia. So,
this study was initiated to fill the gap partially by answering the following research questions.
Therefore, understanding the behavior of coffee value chain in general, knowing the weakest part
of the sector, channel choice decision, and the variables affecting them in particular in the study
area can be of a great importance in the development of sound policies with respect to marketing
and prices, imports and exports, of the coffee sector for the district as one of objective of the
country is meeting the overall rural and national development.

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1.2. Statements of the problem
There are multiple factors that contributed to the current low level of coffee production and
productivity with also inefficient marketing systems that impeded future revitalization and
promotion of coffee production and marketing. There were many factors that hindered Coffee
Value Chain activities (Birhanu, 2013). Such as Low Net Incomes from Coffee Production,
limited availability and Access to Appropriate Technology, Inefficient Extension Service, low
farmer capacity to access and Use of technology but these constraints were not yet analyzed in
depth to show the gaps. The sector’s trade structure and performance have large development
agenda and poverty implications, due to this reason given high concentration on the production
and its marketing by small-holders in poor developing countries is needed. Coffee’s global value
chains are quickly transforming because of shifts in demands and an increasing emphasis on
product differentiation in importing countries farmers (Bizualem, 2015)

Ethiopia’s economy is largely commodity -based on exports of agricultural crops such as coffee
with little or no value addition involved.Ethiopian economy largely depends on export of
agricultural produce such as coffee with little or no value addition. In order to accelerate
sustainable and inclusive growth and development in Ethiopia there is an urgent need for
fostering a new approach based on exploiting the full value chain potential of coffee in the
country including inputs supply, processing, and marketing. A review of literatures on the
Ethiopian coffee value chain indicate that the sector has an enormous potential and opportunities
for growth and rooms for significant improvements in its number of areas (ICO, ,2015)

Besides, as identified by various literatures and surveys, for example (Birhanu, 2013), (Dereje,
2007)and (Minten, 2015) participants in the Ethiopian coffee value chain are numerous which
include smallholder coffee farmers or state farms, primary collectors, suppliers, processors,
service cooperatives, unions, exporters and various governmental institutions.

Though the government of Ethiopia has made various efforts to exploit the potential benefits in
the last two decades, still there are no value chain based efforts made in the study area to
understand the issues at the chain level, using representative surveys. The lack of updated

6
representative information is a constraint for evaluations of projects, programs, and policies
(Minten, 2015).

As indicated by (Minten, 2015), a number of problems might have emerged in some areas
because of this new policy. As a consequence, the need for improving performance of coffee
value chain is not sufficiently addressed in the study area regardless of some efforts from the
government to improve and support the sector. As an investigation, the importance of identifying
the determinant factors and analyzing the effects of the coffee subsector value chain has not been
given much emphasis given its longstanding importance for small scale farmers and
intermediate value chain actors in GommaWoreda.

There is a need for better understanding and identification of the subsector value chain
constraints to analyze the improvements and enhance its future performance. Besides, to the best
knowledge of the researcher, no empirical study has been conducted in study area that
investigated the determinants of coffee value chain on benefit share from the product between
value chain actors.

This study has initiated to identifying different actors with their roles and determinant factors
that hinders the, production, productivity, and processing, marketing and consuming coffee in
detail. Thus, this research study aims to fulfill this information to a certain extent so that it can
help to enhance coffee business in a sustainable manner. Therefore, this study , therefore, was
intended to find the weakest link of the chain and to narrow the information gap on the subject.

1.3. Research Questions

The central questions that this study addressed was how the coffee value chain in the study area
organized within the umbrella of these central questions the study had answered the following
specific questions.
 Who are the actors in the value chain map in the study area?
 What is the marginal profit share of coffee value chain actors?
 What are the factors affecting the market supply of coffee?

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1.4. Objectives of the Study
The general objective of this study was to assess and illustrate coffee value chain in the study
area. The specific objectives of the study were:
 To identify actors and their roles in Coffee value chain activities in the study area.
 To assess margin and profit share of coffee value chain actors in the study area.
 To identify determinants that affecting Coffee Value Chain in the study area.

1.5. Significance of the Study

This research had been under taken in one of major coffee producing areas to assess margin and
profit share of coffee value chain actors. It was identified actors role and factors affecting coffee
market supply along coffee value chain that was a foremost asset to design and implement in the
study area. It is assumed to be helpful for any intervention planned by private, government
as well as non-government programs. It can be a reference document for other similar studies of
value chain analysis in different crops of the country and adds to the already existing
literature on coffee value chain. This study contributed to existing literature of coffee value
chain analysis in the study area. It also considered necessary with regard to the allocation of
nation’s resources.

1.6. Scope and limitations

The study explored the value chain of coffee by identifying the actors and analyzing their
functional and economical inter-linkage. It also identified the opportunities and challenges in the
chain and also delved into how the competitive advantage of coffee producers, processors and
traders can be enhanced with intervention on thrust areas. It would have been ideal to conduct
the research throughout from all coffee growing zonal districts; GommaWoreda is one of the
potential areas. Moreover, due to time and budget limitation the study has been confined into one
district, working on 160 coffee producer farmers and Middle men. The scope of the study was
also delimited to analyzing coffee value chain and the assessment has been taken to contact with
key information and other service providers. In addition, due to the remoteness of the study area,
lack of transportation access to study destinations and slow communication with respondent
farmers were two major problems facing in this study area. But, every challenge should be
treated to complete this research paper.

8
1.7. Organization of the thesis

This thesis is divided into five chapters. The above chapter, chapter one deals with introduction
part which based on the background of the study. It classified into statement of the problems,
questions, significance of the study, scope and limitations and organization of the study. Chapter
two gives overview of literature on coffee value chain analysis of using theoretical and empirical
findings. Chapter three is concerned with the research methodology used to study; particularly it
looks at the basic model of descriptive statistics and multiple linear regressions in this study.
Chapter four discusses about the findings and the interpretation on what the implication is.
Finally, chapter five summarizes the conclusions drawn from the findings and suggests useful as
well as applicable recommendations.

9
 2. LITERATURE REVIEW

2.1 Theoretical literature review

2.1.1 Value chain versus supply chain concept

The term ‘Value Chain’ was used by Michael Porter in his book "Competitive Advantage:
Creating and Sustaining superior Performance" (Michael, 1985 as cited in Dagmar, 2001). The
value chain analysis describes the activities the organization performs and links them to the
organizations competitive position. A value chain can be defined as the full range of activities
which are required to bring a product or service from conception, through the different phases
of production (involving a combination of physical transformation and the input of various
producer services), delivery to final customers, and final disposal after use(John and
Madelon, 2006).

Value chain refers both to a set of interdependent economic activities and to a group of vertically
linked economic agents, depending on the scope of the study the focus of the analysis can be on
the activities or on the agents. A value chain starts with the production of a primary commodity,
ends with the consumption of the final product and it includes all the economic activities
undertaken between these phases such as: processing, delivery, wholesaling, and retailing (FAO,
2014). Supply chain is about processes of moving and transforming commodities into products
from producers to consumers. While a value chain is about generating value for the consumer, a
supply chain is about logistics. Value chain is pie growing whereas supply chain is pie sharing.

2.1.2. Coffee value chain concept

Coffee belongs to the family Rubiaceae in the genes coffea. Although coffee includes to four
major Coffee subsections, 66% of world coffee production comes from Arabica (Chevalier,
1947). Botanically coffee family has 500 genera and over 6000spp of this genes coffea is the
most economically important member of the family, coffee Arabica has originated from Ethiopia
and sharing 70% world coffee product value chain is defined as a high level model of how
businesses receive raw materials as input, add value to the raw materials through various process,
and sell finished products to customers(Mohammed,2011).Ethiopia is becoming center of

10
excellence for Arabica coffee research and training in Africa; to date ,6473 germplasm collected
and ex-situ maintained at JRC field gen banks(Taye,2012). And accordingly in Ethiopia there
are 37 coffee varieties (34 pure line&3 hybrid) released & eleven specialty coffee varieties in
2010(3Sidama, 4Wollega, &4Harar).

Coffee value chain consists of a series of activities that add value to a final product beginning
with the production continuing with the processing or elaborating of the final product, and
ending with the marketing and sale to the consumer or end user(ICO, 2016). The coffee
supply/value chain starts at the farm gate, where the majority of farmers sell their coffee. Some
farmers sell their coffee as fresh cherry; others sell dried cherry, some process their coffee
through to parchment and then sell, while many larger farmers process their coffee through to
green bean (ICO, 2016). In a few exceptional cases (in Hawaii for example) some farmers roast
their coffee and either sell direct to consumers (especially recently via the internet) or to
wholesalers, but this is the exception rather than the rule. The further up the supply value chain
the grower sells his coffee, the greater the percentage of the final value of the product he retains,
but equally the greater his costs.

According to International coffee Council coffee value chain activities pass through four phases
which includes the following (ICC, 2015). The first phase in the coffee value chain encompasses
the process from germination n to production of coffee beans includingthe Construction of
nurseries, planting, maintenance and harvesting of mature beans (primary phase in the value
chain). The second phase comprises primary postharvest processing of mature beans. This phase
can generate significant added value de pending on whether the red cherries undergo wet or dry
processing. The third phase consists of marketing and packaging. The fourth comprises all
activities involved in roasting and distribution for final consumption. This final phase in the
value chain takes place only in a limited number of exporting countries and rarely occurs in
Africa (Eskedar, 2016). Value chain actors are those that directly involved in the value chain
(rural and urban farmers, cooperatives, processors, traders, retailers, cafes and consumers) or
indirect actors who provide financial or non-financial support services, such as credit agencies,
business service and government, researchers and extension agents (M.KARTHIKEYAN, 2015).

11
2.1.3. Coffee value chain actors

Value chain primary actors are those who actually transact a particular product as it moves
through the value chain include input (e.g. seed suppliers), farmers, traders, processors,
transporters, wholesalers, retailers and final consumers and the secondary actors are input
supplies (seeds, livestock, fertilizers etc.), market information (prices, trends, buyers, suppliers)
, financial services (such as credit, savings or insurance), transport services, quality assurance -
monitoring and accreditation, support for product development and diversification (John and
Madelon, 2006).

According to FAO Ethiopia coffee value chain look like that coffee trees are being grown to
produce coffee cherries, either by smallholders (90 percent) or on plantations (5 percent)(FAO,
2014). Five percent of coffee cherries are also being picked from wild coffee trees in the forest.
Coffee cherries are therefore picked and gathered by either producers or wageworkers, and are
then sold to cooperatives, wholesalers (akrabies), or collectors (sebsabies). Cherries can be pre-
processed by producers, but cooperatives or private operators always intervene in the processing
of coffee cherries. Coffee value chain actors are farmers, collectors, local traders, primary
cooperatives, cooperative union, exporters, importers, domestic whole sellers and retailers,
service providers and consumers (Alemayehu, 2014).

2.1.4. Enabling environment

The enabling environment consists of the critical factors and trends that are shaping the value
chain environment and operating conditions, but that may be amenable to change. These
“enabling environment” factors are generated by structures (national and local authorities,
research agencies.) and institutions (policies, regulations, and practices) that are beyond the
direct control of economic actors in the coffee value chain. The purpose of charting this enabling
environment is not simply to map the status quo, but to understand the trends that are affecting
the entire value chain and to examine the powers and interests that are driving change. This
knowledge can help determine avenues and opportunities for realistic action, lobbying, and
policy entrepreneurship (Hellinet al., 2010).

12
2.1.5. Coffee Value chain Analysis

Value chain analysis describes the activities within and around an organization, and relates them
to an analysis of the competitive strength of the organization. Therefore, it evaluates which value
each particular activity adds to the organizations products or services. This idea was built upon
the insight that an organization is more than a random compilation of machinery, equipment,
people and money. Only if these things are arranged into systems and systematic activates it will
become possible to produce something for which customers are willing to pay a price. Porter
argues that the ability to perform particular activities and to manage the linkages between these
activities is a source of competitive advantage (Dagmar, 2001).

In order to have better understanding of where the small coffee farmers stand in the global value
chain, it is important to analyze who the actors are and what their interactions are like (Ingrid and
Juan, 2006).Brazilian experience demonstrates many of the most import success factors required
for countries to capture a value at more advanced stage in the coffee value chain (ACET,
2010).The most critical factors required to successfully transition to higher value added activities
in the coffee value chain include; material domestic demand, cost efficient production (high
intensity production techniques), reliable low cost availability of multiple varietals, great
logistics and reliable power. Brazilian’s combination of large and growing domestic market plus
the comparative advantage that it broad base of local coffee varieties confers in meeting internal
national client requirements. The author suggests that Brazil successful model might in principle
be feasible to be replicated in African countries (ACET, 2010).

From coffee value chain analysis findings vertical integration represent two popular approaches
for enhancing the incomes of organized farmers in a volatile coffee market as compared to the
uncertain plight of independent, nonaffiliated growers (Fatima, 2013). Economic and
profitability analysis have become more relevant among development agencies to evaluate and
assess the current methods of production, and quantify smallholders income obtained from the
different economic activities in which they are engaged (Borja, 2013). An economic evaluation
of smallholder activities would also be useful to analyze strengths and weakness of the current

13
production systems, identifying and evaluating opportunities available to increase household
income and subsequently the standards of living.

In Ethiopia and Tanzania coffee value chain analysis case study that was carried is indicating
some findings. The study was conducted by (Christopher, 2011).The aim of the study is to
examine the effect of coffee price change on the livelihood of producers in the case study area
and presently focus on value chain of coffee in Ethiopia and Tanzania, in this study in the
Tanzania group discussion with the executive and non-executive of the three cooperatives
including the Kilimanjaro region was taken. The cooperative union are able to do the function of
producing quality red cherry coffee, processing and marketing with the actors at each level. In
Ethiopia case belong the Oromia coffee farmers’ cooperatives able to the function similar to
Tanzania and the farmers members of the union get profit dividend. The study reveals that in
both cases there are disconnects between coffee quality and the price they are fetching but time
sensitivity of processing high quality cherries compels farmers to accept any price. In Tanzania
the G 32 group and KNCU practice of auctioning the coffee raises the price at FOB level but the
AKSCG is more efficient at transmitting money to individual farmers. In Ethiopia actors who
process coffee attain higher margin price and proportion of value captured. In the case of value
sharing more Ethiopian farmers reported that they received a premium to better quality but
surprisingly some farmers stating no premium are all in the value chain (Bartimen, 2015). In
addition to this small producers share a retailer price varied from 1-7% in each case study
(Christopher, 2015).Since the coffee cooperatives stated in Ethiopia, Ethiopian farmers
significantly increase their incomes and improve the quality of their lives (Jimand Ruth, 2006).
So that intervention in Ethiopian coffee value chain cooperative, coffee sectors have had a
significant positive impact on small-scale coffee producers and the coffee value chain as whole.

2.1.6. Coffee value chain constraints

Analyzing the challenges in the chain is a part of coffee value chain analysis. As with most cash
crops, coffee competes with alternative crops for land use as well as non-agricultural uses. In
coffee value chain the activities at each level needs knowledge, skill especially the coffee
processing (instant coffee) needs high skill and sophisticated technology (ACET, 2010).These all
require high capital and in difficulties for developing countries. The development of risk

14
management or insurance scheme for coffee in particular through the use of hedging on terminal
(markets is the complex area and the most recent problem is the serious expansion of coffee leaf
rust in a number of Central American countries (Pablo, 2013).

According to the first international Ethiopian coffee conference the challenges facing African
coffee growing countries are lack of competitiveness(low yield & productivity), poor access to
market and long supply chain, in adequate access to services(particularly financial services and
risk management), low value addition, in adequate technology transfer & research, low level of
public investment in agriculture, weak institutional frame work in many countries, challenges in
adaption and mitigation of climate changes and conservation of biodiversity (ICO, 2016). In
addition to this report from East Africa shows that democratic Congo, Ruanda, Kenya, and
Ethiopian small holder coffee farmers have problem of lack of financial support, other income,
and skill of coffee production (Kraig, 2015).

In Ethiopia the value chain for cooperatives looks a little different as Ethiopia’s cooperatives can
bypass the ECX and sell directly to the buyers. However, the cooperatives and unions struggle
with a lack of access to credit, poor negotiating skills, inadequate management in general and
difficulties getting the coffee shipped off to the buyers (UNDP, 2014). Report from case study
of coffee value chain on the move in Ethiopia the farmers felt that it was hard to find reliable
improved coffee seedlings, it difficult to the uptake of some improved techniques such as
washing that is 76% believe that selling dried coffee bean as way to save and to spread income
stream over the year and the prevalence of coffee diseases (Bartminten et al., 2015).

2.3. Theoretical Framework

Value chain approach is used by many organizations across the globe. Following the pioneering
contributions of Porter in 1985 that focused on how individual firms can create value and build
up their competitive advantage as depicted in figure2figure1, below and (Gereffi, 1994) who
focused primarily on the economic governance patterns in global value chains, different
institutions and individuals applied value chain approach.

A value chain approach presents a number of features which can serve to expand financial
services into underserved rural areas (Charitonenko, 2005), and an analysis of the entire value
15
chain needs to be conducted in order to better understand the extent to which financing is a
constraint, where in the chain it may be a constraint, and whether there are other pre-disposing
conditions impeding the access and best use of capital (Jansen, 2007). However developing
countries face many challenges that hinder from achieving value chain development like
available resource, physical infrastructures and institutions (Scott, 1995). Therefore, a key
condition for producers to be included in successful value chains is that they have access to
market information and possess the ability to translate it to market intelligence (Biruk, 2015).

Actors networking value chain theory suggests that the value chain map should be simple, easy
and clear. But the real world can be much more complex than mapped because of the
involvement of different actors and channels. In order to simply understand the ground situation,
the map should simply describe the flow of inputs, product and information among the actors.
The analysis also should to recommend on how to strength the relationship among the actors
(Kaplinsky, R. & Morris, M., 2000).

16
Figure 1: Porter’s value chain model
Source: porter (1985)

17
2.4. Market and marketing
Market defined as an area in which one or more sellers of given products/services and their close
substitutes exchange with and compete for the patronage of a group of buyers. Originally, the
term market stood for the place where buyers and sellers gathered to exchange their goods, such
as village square. A market is a point or a place or sphere within which price-making force
operates and in which exchanges of title tend to accompanied by the actual movement of the
goods affected (Backman, T.N. and Davidson, W.R., 1962). The concept of exchange and
relationships lead to the concept of marketing. It is the set of the actual and potential buyers of a
product. Conceptually, marketing visualized as a process in which ownership of goods
transferred from sellers to buyers who may be final consumers or intermediaries (Kotler, 2003).
Marketing channel: Formally, a marketing channel is a business structure of interdependent
organizations that reach from the point of product or origin to the consumer with the purpose of
moving products to their final consumption or destination (Kotler, 2003). This channel may be
short or long depending on kind and quality of the product marketed, available marketing
Marketing performance: Market performance can be evaluated by analyzing costs and margins of
marketing agents in different channels. A commonly used measure of system performance is the
marketing margin or price spread. Margin or spread can be useful descriptive statistics if it used
to show how the consumer’s price is divided among participants at different levels of marketing
services, and prevailing social and physical environment (Islam, 2001).

Marketing costs: Marketing costs are the embodiment of barriers to have access to market
participation by resource poor smallholders. It refers to costs which are incurred to perform
various marketing activities in the transportation of goods from producer to consumers. 15
Marketing costs includes handling cost (labor, loading and unloading, costs of damage,
transportation) to reach an agreement, transferring the product, monitoring the agreement to see
that its conditions are fulfilled, and enforcing the exchange agreement (Holloway, G.J. and Ehui,
S, 2002).

Marketing margin: Marketing margin is the difference between the value of a product or a group
of products at one stage in the marketing process and the value of an equivalent product or group
of products at another stage. Measuring this margin indicates how much has been paid for the
18
processing and marketing services applied to the product(s) at that particular stage in the
marketing process (Smith, 1992). Therefore, market margin is the price variation at different
segments with the comparison of the final price to the consumer percentage of final weighted
average selling price taken by each stage of marketing chain. Comparing the total gross
marketing margin is always related to the final price or the price paid by the end consumer and
then expressed as a percentage. A wide margin usually means high prices to consumers and low
prices to producers (Mendoza, 1995).

Measuring value chain: A fundamental aspect of global value chain research is how „value‟
itself, is conceptualized and measured. According to (Gereffi, G., 1999) profit, value addition
and price markups are indications of income shares across value chain actors. Value–added
shares can be calculated for different links in the chain. A second way to calculate value added is
to look its distribution by each value chain actors of honey market and decomposing for each
actor to get approximations of each value-added share.

Marketable surplus: It is the quantity of produce left out after meeting farmers‟ consumption and
utilization requirements for kind payments and other obligations (gifts, donation and charity)
(Thakur, D.S., Harbans, L., Thakur, D. R., Sharma, K.D. and Saini, A.S., 1997).
Marketed surplus: It shows quantity actually sold after accounting for losses and retention by
farmers, if any and adding previous stock left out for sales. Thus, marketed surplus may be equal
to marketable surplus, it may be less if the entire marketable surplus is not sold out and farmers
retain some stock and if losses are incurred at the farm or during transit (Thakur, D.S., Harbans,
L., Thakur, D. R., Sharma, K.D. and Saini, A.S., 1997).

2.5. Concept in Agricultural Value Chain

The concept of agricultural value chain can be Descriptive and Analytical examination of
interactions between different actors (firms) in the chain and influencing the chain(Wendy,
2014). Agricultural value chain analysis is a dynamic approach that examines how markets and
industries respond to changes in the domestic and international demand and supply for a
commodity, technological change in production and marketing, and developments in
organizational models, institutional arrangements or management techniques. The analysis

19
should look at the value chain as a set of institutions and rules; as a set of activities involved in
producing, processing, and distributing commodities; and as a set of actors involved in
performing the value adding activities.
Agricultural value chain includes process actors like input suppliers, producers, processors,
traders and consumers. At one end are the producers – the farmer who grow the crop and raise
the animal. At the other end are consumers, who eat, drink and wear the final products. In the
middle, are hundreds and thousands of individuals and firms, each performing one small step in
the chain: transporting, processing, storing, selling, buying, packaging, checking, monitoring and
decision-making. It also includes a range of services needed in the value chain including
technical support (extension), business enabling and financial services, innovation and
communication, and information brokering, etc. The value chain actors and service providers
interact in different ways starting from local to national and international levels (Bezabih and
Mengiistu, 2011).
Value chain management is about creating the benefit at each link in the chain and a sustainable
competitive advantage for the businesses in the chain. How value actually created is a major
concern for most businesses (Anandajayasekeram, 2009)) as shown in Figure 1 for the case of a
typical agricultural value chain.

Figure 2: Typical agricultural value chain

Source: Own illustration (Pre-survey, 2021)
As shown in the figure, coffee farmers received seedlings and other inputs from input suppliers
and transferred it either into fresh cherry or dry it later to produce dry cherry. Pulper operator

20
collected the fresh cherry and peels it by processing to convert into dry parchment. Secondary
processor did the further processing by hulling, roasting and/or grinding to produce a finished
coffee product. Through the marketing channels of wholesaler, retailers and/or café houses the
consumer inside and abroad consumed it after brewing.

2.5.1. Mapping the Value Chain

Mapping a value chain is Part of value chain analysis and an overview of the value chain that
facilitates a clear understanding of the sequence of activities and the key actors and relationships
involved in the value chain. This exercise is carried out in qualitative and quantitative terms
through graphs presenting the various actors of the chain, their linkages and all operations of the
chain from pre-production (supply of inputs) to industrial processing and marketing (UNIDO,
2009). The mapping diagrams are prepared through an iterative process which can be divided
into two stages: First, an initial map is drawn which depicts the structure and flow of the chain in
logical clusters and the second stage is quantifying the value chain.

The main actors and the activities carried out at the local level, their links to activities at other
domestic or foreign locations. The supporting services and their interactions, the links to the final
market, and some initial indications of size and importance are depicted in first stage. Adding
detail to the basic maps drawn initially (structure and flow) is carried out in the second stage.
Depending on the level of detail needed for the research entry point, this exercise may focus on
elements such as size and scale of main actors; production volume; number of jobs; sales and
export destinations and concentration (UNIDO, 2009).

Value chain map helps to understand the functional levels of the chain and the operators
associated with the levels including the linkage at different levels of the chain thus facilitating
the analytical study of the chain with visual representation (Biruk, 2015).

(Porter, 1985) Was the first to argue that every firm is a collection of activities that are
performed to design, produce, market, deliver and support its products. A firm’s value chain and
the way it performs individual activities are a reflection of its history, its strategy and the
underlying economies of the activities themselves. In other words, a value chain can be described
as the value-added activities of an organization. In his model, Porter divides these activities into
21
two categories, primary activities and support activities. The primary activities are dedicated to
creating and delivering products as well as after-sales assistance.

(Porter, 1985) Went even further by linking up the value chains between firms to form what he
called a value system. In this way, a value system integrates a firm’s VC (value chain), a firm’s
supplier’s value chains and firm’s customer’s value chains. However, in the current context the
linkage between multiple firms’ value creating processes has more commonly become known as
the value chain. As this name implies, the primary focus in value chains is on the benefits
accruing to the participants especially companies: effective value chains generate profits.

Generally the value chain map represents the micro and meso levels of the value chain actors.
The basic functions and chain operators including the operational service providers constitute the
micro value chain. There are also value chain supporters who are not dealing directly with the
product meso level of the value chain. These include agencies that basically provide the support
services level of as the chain operators but provide useful support services and are classified
under the benefiting the whole value chain including the common interests of all the value chain
actors. Value chain map helps understand the functional levels of the chain and the operators
associated with the levels including the linkage at different levels of the chain, thus facilitating
the analytical study of the chain with such visual representation (Bakhundole, 2010).

2.6. Value chain actors

Value chain actors are those individuals or institutions that conduct transactions in a particular
product as it moves through the value chain. These may include seed suppliers, farmers, traders,
processors, transporters, wholesalers, retailers, and final consumers. In many cases, there is more
than one type of source actor, as well as multiple channels that supply more than one final
market.
A comprehensive mapping, therefore, describes interacting and competing channels (including
those that perhaps do not involve smallholder farmers at all) and the variety of final markets into
which these connect (Hellin, J., Ndjeunga, J. and Trench, P.C. , 2010). According to (KIT, Faida,
M. and IIRR, 2006), the direct actors are those involved in commercial activities in the chain
(input suppliers, producers, traders, consumers) and indirect actors are those that provide

22
financial or non-financial support services, such as credit agencies, business service providers,
government, NGOs, cooperatives, researchers and extension agents.

2.7. Enabling environment and service providers

The enabling environment consists of the critical factors and trends that are shaping the value
chain environment and operating conditions, but that may be amenable to change. These
“enabling environment” factors are generated by structures (national and local authorities,
research agencies.) and institutions (policies, regulations, and practices) that are beyond the
direct control of economic actors in the value chain. The purpose of charting this enabling
environment is not simply to map the status quo, but to understand the trends that are affecting
the entire value chain and to examine the powers and interests that are driving change. This
knowledge can help determine avenues and opportunities for realistic action, lobbying, and
policy entrepreneurship (Hellin, J., Ndjeunga, J. and Trench, P.C. , 2010). In most effective value
chains, the actors who actually form the chain (those who conduct transactions in the main
product) are supported by business and extension services from other enterprises and support
organizations (e.g. seed suppliers and intermediaries). There is an on-going need for chain actors
to access services of different types, both market and technical. The third component of the value
chain map framework is concerned with mapping these services that support, or could potentially
support, the value chain’s overall efficiency.

The services that can potentially add value and determine chain actors‟ adoption of a float oxen
control practices and technologies include input supplies (seeds, livestock, fertilizers.), market
information (prices, trends, buyers, suppliers), financial services (credit, savings, or insurance
institutions), transport services(such as for grain purchasing), quality assurance (monitoring and
accreditation) (Hellin, J., Ndjeunga, J. and Trench, P.C. , 2010).

23
2.8. Major Concepts Guiding Agricultural Value Chain Analysis

There are four major key concepts guiding agricultural value chain analysis (Kaplinsky, R. &
Morris, M., 2000). These are effective demand, production, value chain governance, and
upgrading.

Effective demand: Agricultural value chain analysis views effective demand as the force that
pulls goods and services through the vertical system. Hence, value chain analysis need to
understand the dynamics of how demand is changing at both domestic and international markets,
and the implications for value chain organization and performance. Value chain analysis also
needs to examine barriers to the transmission of information in the changing nature of demand
and incentives back to producers at various levels of the value chain ( MSPA, 2010).

Production: In agricultural value chain analysis, a stage of production can be referred to as any
operating stage capable of producing a saleable product serving as an input to the next stage in
the chain or for final consumption or use. Typical value chain linkages include input supply,
production, assembly, transport, storage, processing, wholesaling, retailing, and utilization, with
exportation included as a major stage for products destined for international markets. A stage of
production in a value chain performs a function that makes significant contribution to the
effective operation of the value chain and in the process adds value (Anandajayasekeram, 2009)).
Producing the required amount effectively is a necessary condition for responsible and
sustainable relationships among chain actors. Thus, one of the aims of agricultural value chain
analysis is to increase the quantity of agricultural production. Understanding the mechanisms of
the agricultural production greatly help to design appropriate policy that bring more gain to
farmers and the whole society at large. For a long time, sector analyses have been used to
measure the different economic aspects of production. However, sector analyses have not been
without weaknesses. In particular, sector analysis tends to be static and suffer from the weakness
of its own bounded parameters. Such analysis struggles to deal with dynamic linkages between
productive activities that go beyond that particular sector (Kaplinsky, R. & Morris, M., 2000).
Value chain governance: Governance refers to the role of coordination and associated roles of
identifying dynamic profitable opportunities and apportioning roles to key players (Kaplinsky, R.
& Morris, M., 2000). Value chain simply repetitiveness of linkage interactions. Governance
24
ensures that interactions between actors along a value chain reflect organization, rather than
randomness. The governance of value chains emanate from the requirement to set product,
process, and logistic standards, which then influence upstream or downstream chain actors and
results in activities, roles and functions. It is important to note that governance and coordination
sometimes appear as synonymous or interchangeable terms in the literature. Already in the
1980s, (Williamson O. , 1985) used the term governance to define the set of institutional
arrangements in which a transaction is organized. As Gereffi’s work on Global Commodity
Chains and the governance role appeared, the term coordination took on a new meaning,
basically, the vertical organization of activities. The application of private ordering/contract
/governance leads naturally into the reconceptualization of the firm not as a production function
(in the science of choice tradition) but as a governance structure (Williamson O. , 2002).
According to Raikes et al. (2000), trust-based coordination is central for goods and services,
whose characteristics change frequently, making a standardized quality determination for the
purposes of industrial coordination difficult. This applies to the manufacturing industry as well
as agro-food chains. It is possible to identify in one industry several coordination forms used by
different firms where the choices rely on the trust existent between the firms. Value chains can
be classified into two based on the governance structures: buyer–driven value chains, and
producer-driven value chains. Buyer driven chains are usually labor intensive industries, and so
more important in international development and agriculture. In such industries, buyers
undertake the lead coordination activities and influence product specifications. In producer-
driven value chains which are more capital intensive, key producers in the chain, usually
controlling key technologies, influence product specifications and play the lead role in
coordinating the various links. Some chains may involve both producer and buyer driven
governance (Kaplinsky, R. & Morris, M., 2000). Yet in further work (Gibbon, P. and Ponte, S.,
2005)has argued that governance, in the sense of a clear dominance structure, is not necessary a
constitutive element of value chains. Some value chains may exhibit no governance at all, or
very thin governance. In most value chains, there may be multiple points of governance,
involved in setting rules, monitoring performance and/or assisting producers.

Chain governance should also be viewed in terms of „richness‟ and „reach‟, i.e., in terms of its
depth and pervasiveness (Evans, 2000). Richness or depth of value chain governance refers to
25
the extent to which governance affects the core activities of individual actors in the chain. Reach
or pervasiveness refers to how widely the governance is applied and whether or not competing
bases of power exists. In the real world, value chains may be subject to multiplicity of
governance structure, often laying down conflicting rules to the poor producers ( MSPA, 2010).
Value chain upgrading:

Upgrading refers to the acquisition of technological capabilities and market linkages that enable
firms to improve their competitiveness and move into higher-value activities (Kaplinsky, R. &
Morris, M., 2000). Upgrading in firms can take place in the form of process upgrading, product
up-grading, functional upgrading and chain upgrading. Upgrading entails not only improvements
in products, but also investments in people knowhow, processes, equipment and favorable work
conditions.

2.9. Benefit of Value Chain in Agricultural Sector

It is an innovation that enhances or improves an existing product, or introduces new products or
new product uses. This allows the farmer to create new markets, or differentiate a product from
others and thus gain an advantage over competitors. In so doing, the farmer can ask a higher
premium (price) or gain increased market share or access. Adding value does not necessarily
involve altering a product; it can be the adoption of new production or handling methods that
increase farmers’ capacity and reliability in meeting market demand. Value-added can be almost
anything that enhances the dimensions of a business. The key is that the value-adding activity
must increase or stabilize profit margins, and the output must appeal to the consumer (AAFC,
2004). Value chain is useful as a poverty-reduction tool if it leads to increase on and off farm
rural employment and income. Increased agricultural productivity alone is not a sufficient route
19 out of poverty within a context of globalization and increasing natural resource degradation.
A focus on post-harvest activities, differentiated value added products and increasing links with
access to markets for goods produced by low income producers would appear to be the strategy
open to smallholders (Lundy, M., Ostertag, C.F. and Best, R., 2002).

2.10. Developing Value Chain Systems towards the Benefits of the Poor
In recent years, the pro-poor growth approach has become one of the key concerns of
developmental organizations. The focus of the approach lies in the promotion of economic
26
potentials of the poor and disadvantaged groups of people (OECD, 2006). The main aim is to
enable them to react and take advantage of new opportunities arising as a result of economic
growth, and thereby overcome poverty (Berg, 2006). The promotion of value chains in
agribusiness aims to improve the competitiveness of agriculture in national and international
markets and to generate greater value added within the country or region. The key criterion in
this context is broad impact, i.e. growth that benefits the rural poor to the greatest possible extent
or, at least, does not worsen their position relative to other demographic groups (GTZ, 2006).
Pro-poor growth is one of the most commonly quoted objectives of value chain promotion. In
recent years, the need to connect producers to markets has led to an understanding that it is
necessary to verify and analyze markets before engaging in upgrading activities with value chain
operators. Thus, the value chain approach starts from an understanding of the consumer demand
and works its way back through distribution channels to the different stages of production,
processing and marketing (GTZ, 2006). The value chain approach seeks to identify long-term
solutions to reduce the vulnerability of developing countries to fluctuating world market prices
or trade shocks. It does not just focus on adding value to existing traditional commodity exports
(in other words, diversifying the same product), but also on promoting alternative products.
Another characteristic of the approach is that it does not solely concentrate on functional
dimensions such as supplying appropriate inputs, or applying good agricultural processing,
handling and distribution practices. It emphasizes the importance of institutional arrangements,
or rather governance issues, along the value chains that link and coordinate producers, processors
and distributors of a certain product. Moreover, this aspect covers authority and power
relationships that determine how 20 financial, material and human resources are allocated and
flow withinthe chain (Gereffi, 1994). Dynamic value chain systems respond to market shifts by
developing and transferring knowledge to intermediaries and producers, so that they can adapt
and maintain a competitive market position over time. Vibrant value chain systems grow and
continuously incorporate new businesses, generating ever-increasing jobs, income, and assets. In
this manner, value chain systems can have the potential to significantly reduce poverty for large
numbers of poor people (Alexandra, O. and Mary, D., 2006).

27
2.11. Coffee Production in Ethiopia

The main coffee producing regions are Central and South America, Southeast Asia and Africa.
Coffee production is concentrated at a north-south longitude of 25° across the equator in these
regions and is known as the “coffee belt”. The two species of coffee beans that are most widely
cultivated (accounts for almost all cultivation) are the “Arabica”, which has a distinctively sour
flavor, and the “Robusta”, which has a somewhat bitter taste and is inexpensive compared to
Arabica. Both these coffee beans are native to Africa (having originated there) though, with more
than 10% of the world’s coffee now being produced in 10 African countries led by Ethiopia and
Uganda (Kikkawa, Ryota, 2018)Coffee production is Ethiopia’s main industry, and last year they
produced 400,000 tons of coffee making Ethiopia the world’s 5th largest producer. Coffee
production in Ethiopia is almost exclusively situated in the two regions of Oromia and the
Southern Nations, Nationalities, and People Regions (SNNPR) in the south and west of the
country.

Coffee is produced under several types of production systems, including forest, semi-forest,
garden, and plantation coffee (Tulu, 2008). Forest coffee is grown in the wild under natural
forest cover and is gathered by farmers from trees with minor tree maintenance. Semi-forest
coffee is also grown in forest conditions, but there is some limited maintenance by farmers,
mostly annual weeding. This type of coffee has clearly delineated boundaries of ownership,
although the trees usually are located away from agricultural plots. Garden coffee is defined as
coffee from trees planted by farmers in the vicinity of their residences. It is often intercropped
with other crops or trees. Plantation coffee is grown on large commercial farms, private as well
as state farms. Modern production practices – such as irrigation, modern input use, mulching,
stumping, and pruning - are often applied in this case. While reliable recent statistics are lacking,
it is estimated that these different production systems make up about 10, 35, 50, and 5 percent,
respectively, of total coffee production in the country (Kufa, 2012).

Smallholder farmers produce 95 percent of Ethiopia’s coffee (Tefera and Tefera, 2013). Over
1.5milion peoples livelihoods in Ethiopia depends upon the coffee sector directly and indirectly.
It is estimated coffee export transaction between the years 2006 to 2013 involved 37 metric tons
with a value of 133,000 USD. The average price was 173 US cents per pound (lb.). It has been

28
estimated that between 20 and 30 percent of Ethiopian coffee could qualify as specialty coffee
opening up important export opportunities (Chemonics, 2010).

Generally coffee yields are very low in Ethiopia compared to other countries. There seemingly
are significant opportunities for productivity growth (Adugna, 2009); Kufa, 2012). Increasing
support at the farm level and training towards higher adoption of improved technologies, such as
mulching, pruning, rejuvenation of trees, planting of improved varieties, and modern input use,
have been shown to be associated with higher productivity (Adugna, 2009) and could lead to
higher local supply and, therefore, quantities of coffee exported.

2.12. Empirical Review of Related Literatures

This section presents the assessment of research papers written in coffee value chain in general
specific focus on coffee marketing cooperatives. The following research papers which were
conducted in Ethiopia are selected because of their similarity in the current study.

Dereje (2007) used value chain approach to study the competitiveness of Ethiopian coffee in the
international market. The study indicates that Ethiopian farmers have low level of education,
large family size with small farmland and get only 3% of the retail price in the German market.
Thus, policy intervention was suggested to improve farmers‟ performance.

Yuka Kodam (2007) conducted research on new roles of cooperatives in Ethiopia in the case of
Ethiopian Coffee Farmers Cooperatives in general and with special focus to Yirgacheffe
Farmers’ Cooperative Union and its primary cooperatives in particular. The study specify that it
is too early to evaluate the activities of coffee cooperatives because they began only in 1999, but
at this point, the effects of the cooperatives appear positive for farmers, especially in terms of
price. Finally the study recommended improving the management capabilities and accounting
skills of cooperatives is critical for the development and sustainability of cooperative activities.
As well a research conducted by Till Stellmacher (2007) prospects and challenges of forest
coffee certification in Ethiopia: the need to effectively link economic benefits and biodiversity
conservation. The study argued that current activities to certify forest coffee in Ethiopia face
practical performance problems and structural dilemmas. The development of a consistent and

29
distinctive standard for forest coffee from Ethiopia is recommended. Beyond, functional and
product upgrading through institutional restructuring and quality enhancement are required.

A study conducted by Policy Analysis and Economic Research Team (2008 ) : on analysis of
coffee supply, production, utilization and marketing issues and challenges in Ethiopia explain the
coffee supply, quality and standard patterns; demand side and marketing issues and the actual
and potential problems encountered in supply and marketing of Ethiopia’s coffee. The study
assessed the bottlenecks and/or the challenges of the Ethiopia’s coffee export activities and
examine alternative solutions to maximize earnings from the “green gold”, coffee. Since it is a
macro level analysis, it was not possible to see coffee supply and marketing issues at regional,
zonal and grass root levels. Thus, for more understanding and deeper investigation of the
problems and potential solutions, the team recommended analysis has to continue till Wereda
levels including the institutions involved in coffee marketing and inspecting.

Besides Aslihan Arslan and Christopher P. Reicher (2011) studied the effects of the coffee trade
marking initiative and Starbucks Publicity on export prices of Ethiopian Coffee. They find that
the prices of the trademarked coffees increased by about 10% relative to the non-trademarked
coffees following these interventions. The magnitude of this change is comparable with the farm
gate prices reported in the literature; however, the study cannot establish direct causation or
observe the pass through into farm gate prices.

As well Susan Ruth Holmberg (2011) conducted a research on solving the "coffee paradox”:
understanding Ethiopia's coffee cooperatives through ElinorOstrom's Theory of the Commons.
The study concluded that both the design principles that Ostrom identifies for governance rules
and list of predictors for successful common property resource management institutions suggest
that Ethiopia’s coffee cooperatives could be in peril. The research suggested that by expanding
Ostrom‟s governance framework to incorporate a broader enabling role for governments as well
as supportive roles for civic organizations, NGOs, and social movements, greater potential for
the success of the Oromia Coffee Farmers Cooperative Union.

30
Furthermore Murphy and Dowding (2014) assessed coffee bean: a value chain and sustainability
initiatives analysis. The paper examines Starbucks‟ corporate strategy of sustainable efforts in
Ethiopia, particularly in the sustainable sourcing Arabica coffee, discusses the value chain of
coffee, issues surrounding the coffee supply chain and the need for sustainable coffee production
and Starbucks‟ position and influence on the coffee trade, and the measures that Starbucks is
taking to ensure sustainability efforts throughout the coffee supply chain. The review points out
that large coffee producer have also adopted sustainability standards across each stage of the
value chain.

Also a research on effectiveness of cooperatives in coffee value chain: an analysis in Sasiga

District of Oromia Region, Ethiopia by M. Karthikeyan (2015) indicated that variables such as
trust, technology, market information, training, timely delivery of products, finical supports were
found to be critical factors influencing the effectiveness of cooperatives in coffee value chain.
The study revealed that greater attention should be given by all stakeholders to design strategies
on how to smooth their relationship and avoid any bottlenecks such as lack of trust, bribery
practice and designing efficient customer service. Also training should be the major component
of the service provided to members, sufficient credit facilities should be available in a timely
manner to cooperative members, efforts have to be made to link farmers to the market and
appropriate infrastructure should be in place, regarding the prices paid by cooperatives to their
members, the prices should be fair enough to compensate farmers, greater care must be taken in
the recruitment and selection of these committee especially focusing on their character and
ethical standards to reduce abusive and corrupt practice and government (Woreda level
agriculture and development Offices) needs to work hard in supplying inputs such as fertilizer,
seed and chemical’s needs.

A study on marketing information operation in Ethiopia with special reference to the Ethiopia
Commodity Exchange (ECX) Coffee Trading by Girma Nigussie Kinato (2011) revealed that
inadequate information centers and information on coffee supply, qualities, prices, roasters. Due
to the relatively low price of coffee paid to farmers, many coffee producers have shifted to high
value cash crops such as” khat” which is a narcotic plant widely consumed in east Africa but
banned throughout the united states and much of Europe. Thus, given the government controls
31
the smallholders coffee producers that they can not to produce “khat” which encourages the
expansion of an illegal business trend.

In addition analysis of market chains of forest coffee for the case of Belete-Gera forest in south
western Ethiopia by Zekarias et al., (2012) indicated that producers, assemblers and wholesalers
are the major actors involved in the market chain of coffee. The study recommended the
following interventions are necessary to improve the efficiency and performance of the existing
marketing system: establishment of an improved transportation system, establishment of
Producers cooperative, establishing of price premium system for quality product, a strong and
participatory forest management strategy.

Hailemichael Mulie (2014) conducted research on the determinants of profit efficiency of coffee
producing and marketing cooperatives in the case study of Sidama Coffee Farmers‟ Union point
out that: area or land under coffee and cost of hired labor had positive impact on profit levels
while cost of family labor and capital were found to have negative influence on profitability. The
analysis reveals that firms were not operating at profit frontier and scored a mean profit
efficiency of 57 and it implies there a 43% profit loss due to firm specific and institutional
variables. Further analysis showed coffee farmers are losing income due to a locative and
Technical inefficiency. The established source of inefficiency variables were found limited
access to credit extension worker lack of storage after harvest, education level of the farmers and
the major determinants were access to extension service, lack of formal education and storage
facilities. The research has come up with recommendation: government need to train farmers
about basic skills of farming and technology diffusion, establishing and strengthening existing
cooperative banks to enable farmers to have access to credit facilities so as to uplift and scale up
the lively hood of farmers.

AlemayehuAsfaw Amamo (2014) conducted research on coffee production and marketing in

Ethiopia. The research indicated that developing strong link between the value chain actors in
chain is very important, increase coffee production, productivity, sales value and marketing by
international level it needs standard quality level improvement is very important for the
Ethiopian smallholder farmers, privet and public coffee producers output by using coffee
32
production and marketing value chain governance and participatory methods identification and
application is very important to selective commodities and interventions for market-oriented
value chain development problem. This review recommends that value chain tools from
production to final consumption in domestic and international market must analyze coffee
production and marketing efficiency in Ethiopia.

A study on export marketing practices, problems and prospects of Oromia Coffee Farmers‟
Cooperative Union in Ethiopia by Tamirukumsa Deresa (2015) shows that the factors which
influence union’s export performances are competition, long duration of export document
process, coffee quality, export barrier from country destinations, delay in transportation,
communication barrier, lack of international market knowledge, export administrative
procedures, unofficial fee in export documents processing, incapable to supply coffee in time by
members, private traders intervention and delay of shipping. The study recommended that all the
problems indicated above, in one way or another related with or could be addressed through
collaborative and deliberate action of both the members and government. So, from the member’s
‟side, high commitment as a principal stakeholder and sense of ownership is needed. From the
government side, creation of conductive environment through formulation of sound cooperative
policy that creates competitive cooperatives which is enough to satisfy their members and
customers is necessary.

Also Muhabie Mekonnen Mengistu (2015) performs a study on assessing the performance of
coffee marketing cooperatives in Ethiopia with a special focus on Yirgacheffe Woreda. The
result revealed that coffee cooperatives in the study area are moderately progressing so far as
strengthening their financial positions and serving their members is concerned. However, they
are still challenged by different impinging factors. Finally the study recommended cooperatives
should find solutions that can get out them from their current financial predicaments. To do the
same, the financial institutions which are the main stays of cooperatives source of finance should
be cooperative enough in delivering credits at the right time and place. Moreover, the
cooperative societies themselves should device ways which would have taken them away from
the financial dependence on the lending institutions. In the long run, establishing cooperative
banks could be one of the pertinent solutions for this problem. The role of the promotion office

33
in facilitating access to credit, manpower training and conducting researches should not also be
undermined.

In addition an assessment on agricultural co-operatives in Ethiopia: evolution, functions and

impacts by Delelegne et al., (2016) shows that the impact of commercialization on farmer
welfare is still inconclusive. Both the institutional environment and the internal governance
structure have a hard time adjusting to changing economic conditions.

Further an assessment of factors influencing the market performance of coffee farmers‟

cooperatives in MelkaBalo Woreda in the Case of Kurtu Cooperatives Society, Ethiopia by Fethi
Omer et al., (2016) specify that sample cooperatives were characterized by lack of marketing
facilities, shortage of land, poor road infrastructural problems , prevalence of diseases that
influence farmer’s market performances and also traders business were lack of road, lack of
transportation, and also the constraints indicated by wholesalers and retailers with respect to
coffee marketing include delay in unloading coffee at ECX which creates additional cost and the
most important marketing problems reported by the traders include too much competition with
unlicensed traders and the overall storage of coffee supply. Based on the findings the researcher
is going to recommend the following points: improve land and livestock productivity by
introduction of feasible innovations and other means and to create off-farm and non-farm
employment opportunities for the farmers in order to reduce their dependence on land, the
government should have to focus on improving for decentralization of the highly centralized
coffee inspection and grading centers together with modern storage and processing facilities, the
provision of licensing for integrated activities, the government should abandon the restriction on
the areas of operations being imposed on traders and improvement of the marketing
infrastructure is another area of intervention to improve the performance of coffee market in the
study area.
Generally, a value chain approach is particularly effective at diagnosing challenges and
indicating solutions. However, value chain analysis on some important crops, in Ethiopia, is not
adequate (Kaleb, 2008). Moreover the value chain analysis in the coffee sector that took the lions
share of foreign income of the country need to get great emphasis

34
In Peru survey study was done socio economic characteristic that influence coffee farmers to join
formal organization vs those who distribute their product through inter me diaries; the result
demonstrated that farmers who are keen to receive technical assistance participate in marketing
organization (Angie Higuchi et al. 20120). So that, those marketing organization should look for
way to improve the extension component through training and knowledge transfer to smallholder
farmers.

The institutional factors that influence agricultural marketing channel choices include transaction
costs, market information flow and the institutional environment which encompasses formal
and/or informal rules, the use of grades and standards, organization in the markets and the legal
environment (Jari and Fraser, 2009). An appropriate institutional environment reduces
transaction costs for traders. Educational level of the operator, off-farm employment, access to
transportation facility and age of operator had positive effect whereas the household size was
negatively associated with supper marketing channel choices (Raoet al., 2010).

The study employed using Tobit model revealed that younger coffee farmers, with better
education, higher proportion of off-farm income to total income, and higher proportion of land
allocated to coffee tend to diversify their market choices by selling to traders (Anteneh et al.
2011). Farmer delivering exclusively to the cooperatives seems to be the older ones, with a
relative lower individual performance. Among non-members however, younger farmers16 with
lower proportion of off-farm income are ones using the cooperative outlet channel through their
friends or relatives.

Similarly multinomial logistic regression was used to identify factors influencing choice of milk
outlets in Iringa and Municipality and Tanga city. The result revealed that access to credit
decreases the choice of neighbor milk market outlet. The probability of choosing to sell to milk
vendors is positively influenced by the price paid per liter and a possibility of dairy farmer being
a female than a male. Milk vendors who offer better price are likely to increase dairy farmers’
willingness to market their milk produce through the milk vendor market outlet, which are more
rewarding than milk collection centers. Female headed dairy household would increase the
probability for marketing milk to milk vendors (Kadigi, 2013).

35
In Ethiopia access to market in the form of different market outlet for coffee farmers is crucial to
exploiting potential of coffee production to contribute increase cash income of rural house hold;
to analyze marketing channel choice of farmers survey has been done by Jimma agricultural
research center and the result shows that the viability of alternative market outlet attributes ways
of payment, distance from market, pre transaction contract and relationship, member of
cooperative leaders and fee of entrance could change the farmers attitude (Mangistu, 2014).

The study taken at South Wollega indicates that multinomial logistic model was run to identify
factors affecting coffee market outlet choice decision. The study result indicated that the
probability of choosing end consumer market outlet was significantly affected by quantity of
coffee sold, access to transportation facility, access to market price information, access to credit
and access to agricultural extension service compared to private traders outlet (Mekonin, 2015).
Similarly, the probability of choosing cooperative coffee market outlet was significantly affected
by distance to the nearest market center, access to transportation facility, market price
information and access to agricultural training compared to private trader outlet.

2.14. Factors affecting annual income from coffee sale

Study taken on the determinants of income of rural household in Tanzania using multiple linear
regression showed that level of education of household head, size of household labor force, and
acreage of land used ownership of non-farm rural enterprise have positive and significant effect
whereas gender of the household head has negative effect on income of rural household (Aikaeli,
2010). The positive relationship revealed that investment in education is income improving.
Increasing acreage is more effective to earn more income if complemented by improvements in
inputs such as the mechanization of agriculture in addition to increase the size of the labor force.

36
According to Tasieet al. (2012), the major sources of income for the households included small-
scale agriculture (crop and livestock production, and sale of trees and fruits), engagement in off-
farm and non-farm activities and participating in public works programs. The major source of
incomes for the households were categorized as agricultural production (sale of crops, trees,
fruits and livestock), off-farm and non-farm activities, public works20 programs and remittance.
Income from agricultural production was the dominant followed by non-farm or off-farm
incomes sources.

The study conducted on determinants of income diversification among rural households of the
district of Eastern Hararghe zone by the use of tobit model showed that male household headed
have obtained better self-employment income because of their ability to access more lucrative or
profitable off-farm self-employment activities than the female headed household(Amare and
Belaineh, 2013). Household heads with formal education are better in their perceptive values,
knowledge, and decision making ability to participate into rewarding self-employment activities
and earn better income than the illiterate households. The result showed that households owning
large livestock holding have the capacity to accumulate capital and overcome cash constraints
for participation and obtain self-employment income as compared to those with small or no
livestock holding. On the other hand, as the distance to the market increases, the likelihood of the
household to earn non or off-farm self-employment income declines implying that households
residing far from market centers have less probability to access and participate into opportunistic
self-employment activities.
Empirically analyzed study showed that rural households’ livelihood outcomes as measured by
their annual total income is generally influenced by a range of biophysical, socioeconomic and
institutional factors in the drought areas of Ethiopia (Aregaet al., 2013). The result of multiple
linear regressions showed that livelihood ownership, trees and fruit production, access to credit,
agro ecology and engagement in non-farm activities are the important factors influencing annual
incomes of households and thus their livelihood outcomes. Agro-ecology as a variable captures
influence of location factors on household annual incomes. Livestock ownership was strongly
and positively correlated to annual income of households.

37
The Study carried out on the impact of certification on small holders lively hood outcome of
Ethiopia coffee farmers showing the following results. Among the control variables, age and
squared age variables are statistically significant for both, per capita income and per capita
consumption. Age in level has a negative impact whereas at margin it has a positive impact, or in
other words, households headed by younger persons are likely to earn less than the households
headed by older persons (Till, 2012). However, this can be explained by the fact that the mean
age of the sample is 48, so the relatively older farmers are in fact the more experienced and
established ones and hence could earn relatively more. Further, access to non-farm income which
is a dummy variable taking value 1 if the household has access to non-farm sources of income
and 0 otherwise is positive and significant for income outcomes. This is in line with the
expectations since previous studies have shown that access to non-farm income in fact reduces
poverty by diversifying the income possibilities. The farm size variable is positive and
significant which is also expected since bigger farm size not only provides scope for planting a
wide range of crops, it also provides employment opportunities to the household members.
Education status of the household head is positive and significant meaning that more educated
farmers can take better decisions regarding their income portfolios. The coffee yield variable is
positive and significant.

In addition to this total annual income is vital to increase the livelihood of the household. The log
of total annual income increases with the increase in the age of household head, tropical
livestock unit, access to credit and total land owned by farm households where as decreases with
access to improved seed(Mekonin,2012). Matured households with large ownership of livestock
and those having large size of farm land are more beneficiary in generating income than those
with small ownership of livestock and small farm land.

2.15. Empirical Review of Value Chain and Determinant of Market Supply

The market supply refers to the amount actually taken to the markets irrespective of the needs for
home consumption and other requirements. Whereas, the marketed surplus is the residual with
the producer after meeting the requirement of seed, payment in kind, and consumption by farmer
(Wolday, 1994).

38
Also a study in Alaba-Siraro district by (Wolday, 1994), identified factors that affected market
supply of food grain (teff, maize and wheat) by using variables such as the size of output, market
access, family size, and income from pepper. He identified that size of output (teff, maize and
wheat) significantly and positively affected teff, maize and wheat supplied. On the other hand,
access to market significantly and negatively affected volume of sale of teff and maize. Poor
accesses to the market negatively affected maize sold while positively affected teff and wheat
sold. Family size also significantly and positively affected quantity supplied of teff and wheat
while it negatively affected quantity supplied of maize. (Belay, 2003) Who stated that, lack of
government support such as: inadequate research and training, policies and strategies, have
increased knowledge gap among the Ethiopian small scale farmers.

(Elias, 2005)identified the major factor that affect marketed supply sun dried coffee, stumped
coffee area, cost of farm labour, price of sun dried coffee, price of red cherry, distance to nearest
market of coffee plantations, average age of plantations and availability of extension service.
Each of the ten regression coefficients estimated the amount of change in sales quantity of sun-
dried coffee for a unit change in the explanatory variables with positive effect on coffee supply
Stumped coffee area, cost of farm labour, age of plantations and yield of sun dried coffee
affected at 5%, 5%, 5% and 10% significant levels respectively.

Abay (2007) identified the major factors that affect the supply of vegetables (onion and tomato)
at Fogera District. His study revealed that owned oxen number, family size, and distance from
development agent and experience affecting marketable supply of onion and tomato. In similar
way, (Adugna, 2009) identified educational level, sex of household head, extension service, the
relative importance of the crop in question, cash income from other crops, oxen number,
livestock ownership and family size are major factors that affect marketable supply of papaya in
Alamata District. Adugna’s study revealed that papaya quantity produced influencing marketable
supply positively.

(Anteneh, 2011)Found out that inadequate coffee cultivation technology and largely ineffective
extension leaving farmers unable to capture considerable additional value from their crops. Poor
processing infrastructure, primarily for drying and hulling, tend to further reduce quality and
diminish incomes. This source also indicated that among the different actors processors were the
main actors in the system. There is no coherent grading system and standards are loose and
39
typically defined at the local level on an ad hoc basis. This increases transaction costs and
distorts value throughout the chain.

(Tirufat, 2011)indicated that the farmers and primary processors not receiving fair price (for
example share of processed coffee 3.81% for farmers and 3.31 for primary processors) compared
to secondary processors and the international retailers (for example share of processed coffee
38.7% for secondary processors and 53.02% for international retailers

2.16. Methodological Framework

According to Webber and Labaste (2009), the value chain analysis methodology focuses on three
key issues: The dynamics of information in the value chain from final consumption through to
primary production and input suppliers, the creation and flow of value at each stage in the eyes
of the final consumer, and the nature of relationships among the actors. Value chain analysis
model integrates analysis of commodity supply chain and associated enabling environment with
entry point of product and process flow, information and money flow, and the enabling
environment. The value chain approaches apply six tools and steps. The analysis starts with
prioritizing a commodity for value chain development and then mapping of the value chain;
analysis of the value chain performance in terms of costs, prices and margins; analysis of
technology, knowledge and upgrading possibilities through assessment of gaps in technology and
knowledge and existing or future opportunities value. Chain governance which is used to identify
stakeholders influencing governance, rules and regulations and their enforcement and finally
linkages and relationships among the stakeholder is analyzed (Berg, 2006).

A value chain map can serve as a way of identifying and categorizing key market players. Value
chain maps may help to invite market players to various workshops and trainings to improve the
efficiency of the chain and quality of the product. Value chain maps can also illustrate which
other supporting organizations (government, NGOs and associations) are available, and which
value chain levels they concentrate their services on (Biruk, 2015). However value chain
analyses have provided a number of important insights, it has a number of limitation.
Value chain analysis too often focuses simply on improvements within the given value chain,
rather than on how value chains can be shifted to target different, more attractive markets and
business strategies and also it lacks the ability toanalyze specific, chain-level upgrading
40
strategies and assessment of their impacts. More specifically, objective assessment and ranking
of impacts of upgrading strategies and optimal entry points for intervention are lacking (Webber
and Labaste, 2009).

2.17. Analytical Framework

Many applications of regression in value chain analysis involve situations in which there are
more than one repressor variable. A regression model that contains more than one repressor
variable is called a multiple regression model.

In general, the dependent variable or response Y may be related to k independent repressor

variables. The model

Yi=β0+β1X1+β2X2+β3X3+β4X4+β5X5+β6X6+β7X7+β8X8+Ui is called a multiple linear regression

model with k repressor variables. This model describes a hyperplane in the k dimensional space
of the repressor variables {xj}. The parameter βj represents the expected change in response Y
per unit change in xj when all the remaining repressors are held constant (Douglas C.
Montgomery & George C. Runger, 2003).

In most econometric analysis of value chain several repressor variables are included in the
process of modeling. These variables are the combination of a number of qualitative and
quantitative variables. The usual method of accounting for the different levels of a qualitative
variable is to use indicator variables. In general, a qualitative variable with r-levels can be
modeled byr- 1 indicator variables, which are assigned the value of either zero or one. Indicator
variables are also referred to as dummy variables. The method of least squares may be used to
estimate the regression coefficients in the multiple regression models.

For instance, Jemal Yesuf, for coffee value chain analysis: for the case of Meta district in 2012,
modelled the relation between the dependent variable, coffee supply (Kg.) which is quantitative
variable and 8 explanatory variables such as: access to credit, access to market information,
perception towards farm gate price, average age of plantation, education level of household.

In multiple linear regression problems tests of hypotheses about the model parameters are useful
in measuring model adequacy. The test for significance of regression is a test to determine
whether a linear relationship exists between the response variable and repressor variables. The
41
residuals from the multiple regression model, defined by, play an important role in judging
model adequacy. Several residual plots are often useful.

In general, throughout the process of value chain analysis, depicting socio-economic and
demographic characteristics of the actors with descriptive statistics is essential. As stated above,
determinants of coffee supply should be identified and quantized by multiple linear regressions.

2.18. Conceptual Framework

The conceptual framework of value chain analysis is highly relevant to agricultural value chains
because agricultural value chains are critically dependent on environmental resources. Also, the
agricultural sector is often characterized by the prevalence of traditional social norms. In (Porter,
1985) framework, the value chain provides a tool that firms can use to determine their source
(current or potential) of competitive advantage. In particular, Porter argued that the sources of
competitive advantage cannot be detected by looking at the firm as a whole. Rather, the firm
should be separated into a series of activities and competitive advantage found in one (or more)
of such activities. Porter distinguishes between primary activities, which directly contribute to
add value to the production of the product or services and support activities, which have an
indirect effect on the final value of the product. In the framework of Porter, the concept of value
chain does not coincide with the idea of physical transformation. Porter introduced the idea that a
firm’s competitiveness does not relate exclusively to the production process. Enterprise
competitiveness can be analyzed by looking at the value chain which includes product design,
input procurement, logistics, outbound logistics, marketing, sales, and after-sale and support
services such as strategic planning, human resources management and research activities. The
model created by Porter identifies a number of primary and support activities that are common to
a range of businesses. The value chain highlights specific activities through which firms can
create value and therefore is a useful tool to simplify analysis. A value chain consists of all
stages of a technical production process as well as of the interaction between these stages. The
production process starts at the stage of input supply, than covers production, processing and
marketing and ends with the consumption of a certain product. It can be seen as the hard skill of
a value chain. The second part of a value chain, the interactions between the single stages, is the
relationships and contractual linkages that not only determine the way the goods are traded
between the different stages but are decisive for the overall character of the chain. The linkages
42
between the stages lead to the so called governance structure of a chain that can be seen as the
soft skill of it (Schipmann, 2006). The conceptual framework of coffee value chain views as a
network of horizontal and vertically integrated value chain actors that are jointly aimed toward
providing products to a market. The value chain includes direct actors who are commercially
involved in the chain (input suppliers, producers, traders, processor and consumers) and indirect
actors who provide services or support the functioning of value chain. These include financial or
non-financial service providers such as bankers and credit agencies, business service providers,
public research, transportation, extension agents and NGOs. Figure 3 below depicts the
conceptual framework of the study which reflects possible order of analysis of coffee value
chain.

43
Figure 3: Conceptual frame work of the study

Source: Survey Result, 2021

44
 3. RESEARCH METHODOLOGY

This chapter summarizes description of the study areas, data types, and source of data and
method of data collection, sampling procedure and sample size. It also describes method of data
analysis (descriptive and econometrics)

3.1. Description of the Study Area

Gomma is one of the known coffee growing woreda, among 18 woredas of Jimma Zone. It is
located 397 km Southwest of Addis Ababa and about 50 km west of Jimma town (ORG, 2003). Its
area is 1,230.2 km2 (ARDO, 2008). The annual rainfall varies between 800-2000 mm, while
the mean minimum and maximum annual temperatures of the woreda vary between 7oC-12oC
and 25oC-30oC, respectively (ARDO, 2008). Based on 15 years weather data obtained from
Gomma woreda, the average annual rainfall is 1524 mm. Altitudinal range of the woreda is
between 1387-2870 m. a.s.l (IPMS, 2007). Agro-ecologically, this woreda is divided into 8%
high land (Dega), 88 %, intermediate high land (Weyina Dega) and 4% low land (Kolla) (IPMS,
2007).

The land of the Woreda is found in the range of 1050-2320m.a.s.l., land area 90192 hectares,
productive area 53130 hectares and it is supplying about 18438.55metric tone of coffee per
annum. Most of the small holder farmers get their income from the stimulant crops (cash crops)
such as coffee, chat, spices and vegetable as well as from livestock animals , apiculture and inset
is used as supplementary food in the districts (woreda statistic report, 2014).

This study was conducted in Gomma Woreda of Jimma Zone, Oromia regional national state.
GommaWoreda is one of the 21 Woredas in Jimma Zone known for predominantly growing
coffee. It is located 403 km south west of Addis Ababa and about 50 km west of Jimma town.
One of the coffee biodiversity centers in Ethiopia is found in this Woreda. There are 39 peasant
associations and 3 urban peasant associations. The number of agricultural households in the
Woreda was 45,567 (35,533 male headed (78%)) and 10,034 female headed (22%)) while the
total population of the Woreda was 216,662 from which 110,448 are males and 106,174 females
(CSA, 2009). Gomma is the second most densely populated Woreda in Jimma Zone with a size

45
of 96,361.72 ha (94.4 km2) including the two coffee state farms which cover an area of 2704 ha
(CSA, 2010).

The average annual rainfall of the district is 1524 mm with low variability. It is bimodality
distributed in which the small rains are from March to April and the main rainy season from June
to October. Hence, crop and livestock production is not constrained by the amount and
distribution of rainfall. Altitude in Gomma ranges from 1387 to 2870 meters above sea level
(masl). Most parts of the Woreda lay between 1387 and 1643; and 1849 and 2067 masl.
However, few of the areas in the Woreda have altitudes ranging from 2229 to 2870 masl.
Nitosols is the most abundant covering about 90% of the Woreda. These soils are young soils
and are generally acidic soils. However, farmers grow crops that are acid tolerant. The pH of the
soils in Gomma ranges between 4.5 and 5.5. However, the commonly observed problem related
to aluminum and magnesium toxicity as a result of low pH is minimal. There are about 5 rivers
in the Woreda. Even though available land and water resources offer high potential for irrigation
development in Gomma, the present utilization level is very poor (IPMS, 2007).
.

Figure 4: Map of Gomma woreda the study area

46
3.2. Types, Sources and Method of Data Collection

For this study quantitative data will be collected mainly. It include volume of coffee supplied to
the market, age of the household head, coffee production, prices of coffee, distance to district
market, frequency of market information and extension contact from different source, family
size, land size, and so on. The study will use these and other data to estimate the determinants of
coffee supplied to the market. For the purpose of value chain analysis information on volume of
coffee sold/bought, cost and price, actor’s linkage, value adding activities, will be collected and
used. Data source for this study is both primary and secondary data. Primary data will be
collected using formal survey.

Primary data: primary source is smallholder farmers randomly selected from rural kebeles; and
traders and consumers at different levels in the district, other districts and zone level. Before the
beginning of data gathering using interview schedule, training will be given to enumerators.
Before data collection, the questionnaire will be pre-tested on five farmers and three traders to
evaluate the appropriateness of the design, clarity and interpretation of the questions, relevance
of the questions and time taken for an interview. Hence, appropriate modifications and
corrections will be made on the questionnaire. These enumerators collected the required data
from the producer farmers using a pre-tested interview schedule. To collect primary data, a semi
structured questionnaire will be prepared and used.

Secondary data: it will be collected by reviewing documents of secondary sources namely, both
zonal and district’s office of agriculture and rural development, office of district small scale trade
and industry, published and unpublished thesis documents, books of Central Statistical Authority
(CSA), and books of Ministry of Agriculture.

3.3. Sample Size and Sampling Procedures

3.3.1. Producers sampling

For this study, 4682 smallholder producers using random sampling methods 160 sample
respondents will be taken. 160 coffee producers will be sampled and will be interviewed from
the District from the total population size is 4682. This study will be implemented two stages
random sampling procedure. In the first stage, out of 42 kebeles in Gomma district, a total of
47
four potential coffee producer kebeles were selected randomly as a representative sample. In the
second stage using probability proportional to size technique, 160 coffee producers will be
selected from each selected kebeles.

3.3.2. Sample size determination for producers

The sample keeping the proportion to each kebeles will be selected based on the sample size
estimated for the study. To determine the sample size simplified formula for proportions Yamane
(1967) will be used. Here 95 percent of confidence interval with allowable error of 5 percent
level of significance. The actual sample size will be determined based on Yamane (1967)
formula.

Where
Where n is the sample size, N is the population size, and e is precision (margin for random
error).
Table 4: Sample distribution and proportion coffee producer households

Name o sample Kebele Total number of Proportion of coffee Number of sample

coffee producers producers house house holds
and traders
holds

Qota 1203 0.26 41.6

OmoFuntule 1170 0.25 40
Bashasha 1166 0.25 40
Bore Dinsera 1143 0.24 38.4
Total 4682 160
Source: Gomma district officers obtained data (2021).

Other value chain actors like collectors, suppliers, cooperatives, exporters and union were
also included. From the lists 16 suppliers, 8 of them were selected randomly. Furthermore,
10 collectors, two primary cooperatives, two exporters and one cooperative union were
selected purposively. Since there were not the recorded lists of collectors in the area, they
were selected purposively and due to limited number of primary cooperatives in the study
area, both of them were selected purposively In Data it was included 20 coffee traders of the
48
 study area.

3.4. Methods of Data Analysis

Descriptive statistics and econometric analysis were used to analyze the data collected from
coffee producers, collectors, suppliers, cooperatives, exporters and cooperative union.

3.4.1. Descriptive statistics

This method of data analysis refers to the use of percentages, means, standard deviations, t-test,
χ2-test, and value chain maps in the process of examining actors and describing marketing
functions, facilities, services, enablers and supporters, and used in analyzing households and
traders‟ economic characteristics and the overall coffee value chain where necessary including
opportunities and constraints.

3.4. Methods of Data Analysis

The data collected was analyzed using descriptive and econometrics analysis qualitatively and
quantitatively in order to analyze the existing coffee value chain.

3.4.1 Descriptive and inferential statistics

Descriptive and inferential statistics along with econometric models were used to analyze the
collected data. Descriptive statistics such as mean, minimum, maximum, standard deviation and
percentage were employed to analyze the data on socio-economic and institutional characteristics
of the sample households while inferential statistics such as t-test and chi-square or tests were
used to undertake statistical tests on different continuous and categorical or discrete variables
respectively.

49
3.4.2. Descriptive statistical analysis

Descriptive statistics analysis was used to clearly compare and contrast different characteristics
of the sample households along with descriptive statistics such as ratios, frequencies,
percentages, means and standard deviations to analyze the collected data.

3.4.2.1 Marketing margin

Marketing margin analysis: A marketing margin measures the share of the final selling price that
is captured by a particular agent in the marketing chain. It includes costs and typically, though
not necessarily, some additional net income (Mendoza, 1995).

Computing the Total Gross Marketing Margin (TGMM) is always related to the final price or the
price paid by the end consumer and is expressed as a percentage. Because precise marketing
costs are frequently difficult to determine in many agricultural marketing chains, the gross and
not the net marketing margin is calculated. Thus, the marketing margin should be understood as
the gross marketing margin. The formula to calculate TGMM is given as:

Equation 1: Total gross marketing margin (TGMM)

The gross (profit) margin is the difference between sales revenue and cost price, expressed as
percentage of the cost price or as discounted percentage of the sales price. The net (profit)
margin is the same, excluding Value Added Tax (VAT)(GTZ E. G., 2008). It is useful to
introduce here the idea of producer participation, farmer’s portion or producer’s gross margin
(GMM) which is the portion of the price paid by the end consumer that belongs to the farmer as
a producer. The producer’s margin or share in the consumer price GMMP is calculated as:

Equation 2: Gross marketing margin for producers (GMMP)

The consumer price share of market intermediaries is calculated as:-

50
Equation 3: Marketing margin for intermediates (MM)

Where: MM = Marketing Margin (%)

SP = Selling price at each level

BP = Buying price

FCP = Final Consumer Price

Value chain mapping: A value chain analysis systematically maps the actors participating in the
production, distribution, processing, marketing and consumption of coffee. Identifying
distribution of benefits of actors in the chain: Having identified the value chain in question, the
task was then to attach values to the actors under investigation. Through the analysis of margins
and profits within the chain, who benefits more determine from participation in the chain and
which actors could benefit from increased support or organization.

3.4.2. Econometric analysis

3.4.2.1 Multiple linear regression models

Multiple-linear regression was selected for its practical applicability (Greene, 2000). In the
current study, multiple linear regressions were employed to identify factors affecting annual
income of producers from coffee sale. Following (Greene, 2000), econometric model
specification of the multiple linear regression models in matrix notation I selected the ordinary
least square (OLS) method to estimate the regression analysis because it is simple blue and
applicable. The regression was used to estimate the parameters so that the model is suitable since
the dependent variable is continuous. As it can be generalized in the two- and three-variable
linear regression models, the k-variable population regression model (PRF) involving the
dependent variable Y and k − 1 explanatory variable: X2, X3... Xk can be generalized and
written as shown as the following equation (Guajarati, 2004)

Model equation: The model expresses the value of a dependent variable as a linear function of
one or more independent variables and an error term:
51
Where:
Y is total amount of coffee production in Kilo gram per year
BO is intercept constant of Yi
Bi is slope coefficient of Xi‟s
Ei is error term

3.5. Definition of Variables and Working Hypothesis

3.5.1. Dependent variables

Dependent variable: Sales quantity of coffee in kg (Y i) or it is the quantity of coffee supplied by

the sample farmers during 2020-2021 harvest season, expressed in kg. Coffee production: This is
measured as a continuous variable taking a value from 0 to different amounts which produced in
the production seasons. The status was determined on the basis of the kilo gram. This variable
was included as a dependent variable in Multiple Linear Regression model to estimate
coefficients of parameters to evaluate its influence on the production.

Participation in Coffee Value Chain Activities: The participation in Coffee Value Chain is
measured as dummy variable taking a value of 1 if the household is coffee value chain actor and
0 otherwise. Coffee Value chain Actors: Measured as taking values 1 for Growers or producers,
2 for Processors, 3 for Wholesaler(s), 4 for Retailers, 5 for Consumers, 6 for Brokers and 7 for
others Actors in Coffee value chain activities in the study area. Explanatory or independent
variables: These variables were highly likelihood with the study or these are determining
variables in this study and there were identified and analysed in results and discussion part.

3.5.2. Independent variables

Age of household head (AGE): It is a continuous variable measured in years. Aged

households are believed to be wise in searching markets which provide high price. Bongiwe
and Masuku (2012) found that age of the farmers was significant determinant of vegetable
market channel choice to use non-wholesale market channel over other-wholesale market
channel. In the current study, age of household head was expected to have positive influence on

52
cooperative and wholesaler market outlets and negative influence on local collector market
channel choice of coffee farmers.

Cooperative membership (CMP): It is a dummy variable and takes the value 1 if the
household is membership of cooperatives (coffee value chain) and 0 otherwise. Participating
farmers into coffee cooperatives enables them to bulk their product improve marketing
operation of members about market and strengthen the relationship among the members.
According to Garaldine.J (2016), farmers organized to structured group facilitate access to
market; reduce transaction cost and cost of input through group purchases at bargained price.
According to Mekonin (2015), cooperative member ship has positive effect on choice of
cooperative outlet. Therefore, cooperative membership was expected to have positive impact on
coffee cooperative market channels choice and negative impact on local collectors and
wholesaler outlets.
Household size (HHS): This variable is a quantitative variable and refers to the total number of
members of the household. According to the study by Kadigi (2015), household size is
positively related to the probability of the choice of neighbor households as one of the milk
marketing outlets. This may be due to the fact that larger household size represents labor
resource. Household size was hypothesized to have positive impact on cooperative and
wholesaler outlets and negative impact on local coffee market outlet choice.

Quantity of coffee sold (QCS): It is a continuous independent variable measured in kilogram

and shows the quantity of coffee sold in a year prior to the survey year. According to Mekonin
(2015), quantity of coffee sold in a given coffee year negatively and significantly affected the
main choice of end consumer coffee market outlet and positively affected the wholesaler
traders. In this study, it was hypotheses that to have positive impact on cooperative and
wholesaler outlets and negative impact on local coffee market channel choice.

Access to owner transportation facility (OTF): It is a dummy variable which takes a value 1
if the household owned transportation facility and 0 if do not own any form of transportation
facility. Transportation access positively affected consumer outlet marketing of the small holder
coffee farmers means that negatively affected cooperative and wholesaler trader outlets

53
(Mekonin, 2014). However, here owing transportation facility was expected to affect positively
wholesaler and cooperative outlets and negatively affect local collector outlet choice.

Access to price information (ACPI): It is frequent variable that measured in number of

frequently information accessed per year. According to Mekonin (2015), access to coffee price
information had positive influence on the choice of local market outlet. It is clear that producers
are severely constrained with regard to market information. Therefore, access to price
information was hypothesized to have positive influence on cooperative and wholesaler market
outlets and negative influence on local collector coffee market channel choice.

Access to credit (ACRDT): This is a dummy variable which takes a value 1 if the farmer
obtains credit from rural financing institution operating in the area, 0 otherwise. According to
Mekonen (2015), access to credit had positively and significantly associated with the choice of
both end consumer and cooperative outlets. Based on this access to credit was hypothesized to
have positive influence on cooperative and wholesaler coffee market channel choice and
negative influence on local collectors market channel choice.

Education level of household head (EDULHH): It is continuous variable measured in years

of formal schooling a household attended. Educated person make better use of their time and
available resources. Anteneh et al. (2008), in the study of coffee market outlet choice confirmed
that level of education of household head significantly influenced market outlet choice of coffee
producers. It was hypothesized that education level has positive influence on cooperative and
wholesaler market channel and negative influence on local collector market channel choice.

Distance from the nearest market (MKTDIS): It is a continuous variable measured in

kilometer. It refers to the distance of the nearest market from the farmers‟ house. If the distance
to the nearest market increases, the transportation cost will also increase. Riziki et al. (2015),
confirmed that distance to the market is significant determinant of choice of marketing outlet.
This variable was expected to have negative effect on cooperative and wholesaler outlets and
positive effect on local collector coffee market channel choice.

54
Access to extension service (EXSR): This is a dummy independent variable takes the value 1
if a household had access to agricultural extension services and 0 otherwise. It is expected that
agricultural extension service widens household knowledge with regard to use of improved
agricultural technologies. Agricultural extension services are expected to enhance households‟
skills and knowledge, link households with technology and choice of markets (Lerman, 2004).
Access to extension service was hypothesized to have positive influence on cooperative and
wholesaler outlet and negative influence on local collector outlet. Independent Variables for
Annual income from coffee sale

Household size (HHS): This variable is a quantitative variable and refers to the total number of
family the household has. In coffee production house hold family size believed that it will has
positive impact on coffee income because the family participate in coffee production and
processing activities and can improve produce quantity and keep quality there by increase
annual coffee income. Gezahagn (2010), found that family size has negative effect on the
households‟ gross income from groundnut production. However, here family size was expected
to have positive influence on annual coffee income.

Education level of household head (EDUL): It is a categorical variable and refers to the
number of grade (class) of formal schooling a household attended. Aikaeli (2010) found that the
higher the education level of household, the higher the household’s per capita income. Educated
person make better use of their time and available resources. Thus education level of household
head was expected to have positive influence annual coffee income.

Total livestock holding (TLU): This reflects the total livestock a farmer owns expressed in
Tropical Livestock Unit (TLU). The farmer who possesses more number of livestock is
expected to have more money for the purchase of agricultural inputs, and again has the chance
to get oxen for draught power. According to Arega et al. 2014), ownership of livestock was
strongly and positively correlated to annual income of households. This variable was expected
to influence coffee income from coffee positively.

55
Access to credit (CRD): This is a dummy variable which takes a value 1 if the farmer obtains
credit from rural financing institution operating in the area, 0 otherwise. According to Mekonin
(2015), access to credit has positive correlation with annual income of households in South
Wollega. Therefore, access to credit was expected to have positive coefficient on coffee
income.

Coffee farm size (CFS): It is a continuous variable and it represents the total land of household
covered by crops measured in hectare. As the coffee farm increases, the yield proportionally
may increase; there by income from coffee will increase. Aikaeli (2010), confirmed that
increasing acreage of farm land is more effective to earn more income. Therefore, coffee farm
size was expected to influence positively annual income from coffee sale.

Access to improved seed (IMPRS): It is a dummy variable taking value 1, if a farmer has
access to improved seeds and 0 otherwise. Seed is an essential agricultural input, which affects
production. According to Bartiminten et al. (2015), improved coffee varieties are also shown to
have a large impact on productivity. Increasing the share of improved trees from 0 to 100
percent was estimated to result in a doubling of coffee yields which increase in come of the
farmers. Hence, this variable was expected to have positive association with annual coffee
income.

Access to non-farm income (NFI): It is a dummy variable which takes value 1 if household
engage in non-farm income and 0 otherwise. According to the study by Till (2012), non-farm
income highly significantly positively affected total annual income. Thus access to non-farm
income was expected to have positive impact on annual income from coffee sale.

Quantity produced (QPR): It is continuous variable and measured with kilogram. If the
farmers produce more coffee, their annual income from coffee sale will increase. According to
Till (2012), coffee yield quantity positively highly affected total annual income. Therefore it
was hypothesized that quantity of coffee produced positively affect income from coffee sale.
Extension agent contact (EXAC): It is dummy variable indicating 1, if the farmer attended
extension agent support and training 0, otherwise. It is believed that if the farmers join training,
56
advice and visit of extension agents, they will be more skilled and experienced in coffee
production and quality keeping practices there by their income from coffee will be increased.
According to Minia (2014), training and consulting extension agent brought positive impact on
coffee yield and income of Kenya farmers. Therefore it was expected that contact to extension
agent brings positive result on coffee income.

Household Coffee consumption (CFC): This is continuous variable that house hold family
annually consumed coffee amount measured in kilogram .According to Till (2012), house hold
consumption negatively affected total annual income. Hence it was expected that coffee
consumed by house hold family negatively affect annual coffee income.

Cooperative membership (CPM): It is a dummy variable and takes the value 1 if the
household is membership of cooperatives and 0 otherwise. Participating farmers into coffee
cooperatives enables them to bulk their product, cost efficient, add value, improve marketing
operation and strengthen the relationship among the members. The study in Tanzania and
Ethiopia by Christopher (2011), shows that the cooperative union are able to do the function of
producing quality red cherry coffee, processing and marketing with the actors at each level and
get profit dividend thereby their annual income from coffee improved. Therefore cooperative
member ship was expected to have positive effect on annual income from coffee sale.

Coffee price (CP): It is continuous variable and measured in birr (ETB). As coffee price
increased, production and exported coffee quantity increased (ICO, 2014). When production and
exported quantity increases, the income from coffee will increases, thus coffee price was
expected to affect income from coffee positively.

Share of value added in to selectively picked bed dried coffee (VSPBDC): It is continuous
variable and measured in percent expressed as decimal. Value adding activities such as
harvesting matured ripe coffee drying on bed enables the farmers value capturing and increases
their annual coffee income. As to Bartimen et al. (2015), overall, quality measures of cherries
show the expected sign, these price differences amount to about 10 percent. It was expected to
have positive impact on income from coffee sale.
57
Share of Value added in to selectively pick red cherry coffee (SVSRC): It is continues
variable measured in percent and expressed as decimal. According to Bartimen et al. (2015),
selectively picked red cherry coffee showed highly positive impact on farm gate coffee price.
Since it affects price, it was expected that it affects coffee income positively.

Share of mixed harvested ground dried coffee (SMXHGDC): This is also continues variable
measured in percent and expressed as decimal. These coffees mixed harvested and those cherries
that were dried on the bare ground obtain prices that are 7 percent lower compared to cherries
that were dried using improved methods (Bartmin et al., 2015). Therefore it was expected it will
have negative impact on coffee income.

58
Table 5: Description of explanatory variables of multinomial and multiple regression models
Variables Measure Expected effect
Explanatory variables of multinomial logistic regression
Age of household head continues (years) +ve
House Hold family size continues (number) +ve
Education level: year of attending formal education continues (number) +ve
Access to credit finance Dummy (yes=1, no=0) +ve
Quantity of coffee sold measured in kilogram continues (kg) +ve
Access to extension agent contact Dummy (yes=1, no=0) +ve
Coffee consumed by house hold members continues (kg) -ve
Coffee cooperative membership Dummy (yes=1, no=0) +ve
Access to coffee price information continues (number) +ve
Distance from nearest market Continues (km) _ve
Total number of livestock animals continues (number) +ve
Access to credit finance Dummy (yes=1, no=0) +ve
Areas of coffee farm size measured in hectares continues (hectare) +ve
Access to improved coffee seeds Dummy (yes=1, no=0) +ve
Access to non-farm income Dummy (yes=1, no=0) +ve
Quantity of coffee produced measured in kilogram continues (kg) +ve
Access to extension agent contact Dummy (yes=1, no=0) +ve
Coffee consumed by house hold members continues (kg) -ve
Coffee cooperative membership Dummy (yes=1, no=0) +ve
Coffee price ie price of 1kg of dry coffee in birr continues (number) +ve
Share of selectively picked bed dried coffee (VSPBDC) Continues (percent) +ve
Share of selectively picked bed dried green bean coffee Continues (percent) +ve
Share of mixed harvested ground dried coffee Continues (percent) -ve

4. RESULTS AND DISSCUSSIONS

In this section we are going to see the result of the study. This section deals with the results and
discussion of the research based on the primary and secondary data obtained by using the
materials and methodology described in the earlier section. It is divided in following sub-
sections. The first section deals with descriptive statistics of the sample households. The second
section presents value chain analysis of coffee which includes actors and their roles, value chain
map, value chain governance, coffee production cost, and marketing costs of coffee along the

59
chain. The third section presents marketing channel and performance analysis of the value chain
actors which comprises of marketing channels, marketing costs and margins, benefit shares of
actors, and share of value addition in coffee value chain. The fourth section presents results of
econometric analyses which contain factors affecting market supply of coffee by using OLS
model.

4.1. Demographic and Socio-Economic Characteristics of the Sample Households

The sample population of farmers respondents handled during the survey was 160. Of the total
(90%) were male-headed households and only (10%) female-headed. The age of the sampled
household head ranges from 25 to 70 years. The average age of the sampled heads is about 36.4
years. About 93.3% of the respondents were found in most actively working age category (25-
45). Hence, the younger the age better to communicate and access to market information and the
better to adopt technology. The survey also showed that the majority of respondents (86.25%)
were married and (4.375%) were divorced and (9.375%) were single.

60
Table 6: Demographic characteristics of sample households
Description Frequency Percent

Gender Male 144 90

Female 16 10
Age 25 – 35 81 50.625
36 – 45 59 36.875
46 – 64 18 9.3
Mean 53.3
Marital status Married 138 86.25
Divorced 7 4.375
Single 15 9.375
Education level Illiterate 101 63.125
Can read and write 7 4.375
Grade 1- 4 32 20
Grade 5- 8 12 7.5
Grade 9- 12 8 3.1
Status of house Stone walled and metal roofed 40 24.8
Mud walled and metal roofed 101 65.8
Mud walled and grass roofed 19 9.4
Source: Study result, 2021

As indicated in table above (63.125%) of the total respondents were illiterate, (4.375%) can read
and write,(19.5%) attended Grade 1- 4, (20%) attended Grade 5-8, (7.5%) attended Grade 9-12
and the rest (5%) were a diploma holder. This shows the more literate and better educated
household increases their production by using improved agricultural inputs and improves
negotiation capacity of the household in the coffee market. Besides that, the presence of literate
people in the household has a better access to information and resource and better adoption of
improved technologies in a household level.

The study mainly focused on the coffee value chain analysis in Gomma Woreda, Jimma Zone,
and Western Oromia. GommaWoreda is one of the main coffee producers from Jimma Zone.
Hence, this study was critically examined the factors affected coffee value chain and identified
the actors role, margins and share in the case area.

61
4.1.2. Demographic and Socio-economic characteristics of traders
Socio economics is the social science that studies how economic activity affects and is changed
by social process. According to socio economic survey 2019-2020, the comprehensive analysis
of household’s income, wellbeing of rural and small town in Ethiopia. As nit is shown on table 5
from 9 traders male (67.7%) female (33.33%) and this implies the gender equity that is a female
participation in coffee trading takes an half of male trader. The age status of both male and
female are categorized in the range from 15-64 years.From the marrital status of traders,
(88.9%) are married and the rest (11.10%) is single.

The traders ethinic group is categorized as, (44.44%) are Oromo (22.22%) are Amhara and the
rest (33.33%) are classified as others. From those 9 traders (66.67%) are christians and the rest
(33.33%) are muslims.From the shelter type of traders, (66.67%) traders have stone walled and
metal roofed house, and the rest (33.30%) have mud walled and metal roofed house. From 9
traders 5 of them have pulping machine, one trader has a hulling machine and 3 traders have no
machines.

Table 7: Household head characteristic & demographic variation (No=160)

percent Std.
Variable Deviation
s
Sex of household head . .417
female 14.375
male 85.625
Maternal Marital status of .235
household head

Un married 3.6

married 94.6

divorced 1.8

Education level of household .852

head

62
 basic education/can read & 20.7
write

illiterate 21.4

attended formal education 57.9

Religion of household head .762

Muslim 75.9

Orthodox 13.0

Protestant 11.1

Source: Study result, 2021

The sampled household head populations composed of 137 male and 23 female which can be
85.625% male and 14.375% female. Marital status of these sample population is that out of 160
household heads 155 were married and 5 were divorced. All of the 160 sampled household
populations were following religion such that 75.9% were following Muslim, 13.0%of them
were following Orthodox, and 11.1 % of them were following Protestant. Now days Ethiopia is
trying to beat the target of basic education for all citizen. Based on this out of 160 sampled
respondents 57.9% replied they had attended formal education, 20.7% had thought basic
education/can read and write/ but 21.3% were illiterate so that 78.6% were literate. During data
collection 50% of respondents replied that all of their children reached formal education age
attending the education, 45.7% of the respondents replied some of their children that reached for
formal education attending education and 4.3% of the respondents replied that none of their
children attending formal education

4.1.3. Household characteristics variation of sample traders

These are variation of the household head confined under the sampled population trusted that can
represent the whole household heads of Gomma woreda coffee traders. Such characteristics
collected for this study were age, sex, religion, education, and marital status and being member
of coffee cooperative.

Table 8: Characteristics of the sample coffee traders of the district (No=40)

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 Variables Number of house hold Percent

Sex of
household
male 28 70.0

female 12 30.0

Being member of coffee

cooperative
no 30 75

yes 10 25

Education level

Attended 3 grade formal education 3 7.5

Attended 4-6 grade formal education 10 25
Attended 7-8 grade formal education 9 22.5
Attended 9-10 grade formal 13 32.5
education
Attended10+1 __10+2 grade 5 12.5
complete
Source: own calculation from survey data 2021

The sampled household head populations composed of 28 male and 12 female which can be
presented as 70% male and 30% female. Out of the 40 household heads 10 were member of
coffee cooperative. All coffee traders are educated and from 40 respondents 12.5% were
completed secondary high school and the left attended grade three to grade nine.

4.1.3. Socio economic variation

Socio economics include total annual income, land size, total number of livestock, living house
roof type, yield obtained in 201; field crop, vegetable, tubers, fruit, chat, spice and honey.

4.1.3.1 Land size and total livestock holding

The maximum and minimum land size held by household head was 4.0 and 0.125 hectares
respectively and on average 0.90 hectares. According to this survey all of the respondents replied
that their land use include for crop production, grazing and conserved wood land.
64
Table 9: Variation of household head in land size and livestock animals (n= 160)
Variables Minimum Maximum Mean Std. Deviation

Land size held by household 0.125 4.000 .90001 0.723172

head in hectares

Total number of livestock 1.01 12.79 4.9897 2.49549

animals in Tropical Livestock
Unit (TLU)

Source: own calculation from survey data 2021

The average of livestock held by the sampled household head was 5.33 livestock the minimum
and maximum holding was 1.01 and 12.79 livestock respectively. In the case of possession of
enough oxen for drought plough, 86.6% of the respondents replied that they have enough oxen
but 13.4% of the respondents said that they have no enough oxen for plough. According to data
obtained from Gomma woreda report there were 329367 ruminant, 23090 non ruminant and
300,932 chicken livestock animals; and 26140 local and 5932 modern hives.

4.2. Value Chain Analysis of Coffee

Value chain analysis is the process of breaking a chain into its constituent parts in order to better
understand its structure and functioning. In this case Gomma woreda coffee value chain analysis
consists of identifying chain actors at each stage and discerning their functions and relationships;
determining the chain governance, or leadership, to facilitate chain formation and strengthening;
and identifying Value adding activities in the chain and assigning costs and added value to each
of those activities. The flows of good, information and finance through the various stages of the
Value chain analysis is the process of breaking a chain into its constituent parts in order to better
understand its structure and functioning. In this case Gomma woreda coffee value chain analysis
consists of identifying chain actors at each stage and discerning their functions and relationships;
determining the chain governance, or leadership, to facilitate chain formation and strengthening;
and identifying Value adding activities in the chain and assigning costs and added value to each
of those activities. The flows of good, information and finance through the various stages of the
chain is evaluated in order to detect problems or identify opportunities to improve the
Contribution of specific actors and the overall performance of the chain.

65
4.2.1. Map of coffee value chain of Gomma district

Primary data of Gomma woreda coffee value chain was collected from 160 respondent coffee
producing small holder farmers, 10 coffee investors, 40 coffee traders. Secondary data was also
collected from Gomma woreda agriculture office, coffee and tea office, commodity-
exchange/market/ coordinators, cooperative coordinating office, human resource, credit finance
office from these respondents and offices data were collected and observed. Descriptive data
analysis has been done for all these data of socio-economic and demographics, coffee
production, processing and marketing. Other related data such as spice and field crop production
and marketing and livestock animal rearing and marketing.

Based on the data analysis map of the coffee value chain has been sketched. The map includes
vertically integrated input- output, activities, actors, product flow and supportive activities. It
also shows horizontal chains that has been supporting one another. The map is displayed below.

66
 Figure 5 : Coffee Value chain map
Source: Authors’ sketch from survey result, 2021

4.2.2. Primary actors of coffee value chain of the Gomma woreda

Coffee value chain actors of Gommaworeda includes all the chain actors such as individual small
holder forest and garden coffee producing farmers, cooperatively coffee producing farmers,
participatory forest coffee conservation cooperative farmers, mini coffee producing investors,
medium and large scale coffee producing investors, coffee assemblers, coffee processors, whole
sellers, private exporters, retailers and consumers.

67
The support providing actors of the chain are input providers, technique providing institution,
and financial credit providers and service accessing. These actors are collection of supply chain
and value chain coffee actors of the district

4.2 1. Coffee value chain actors and their function

There are two types of value chain actors namely, direct and indirect (supporters) actors.
Direct actors are those involved in commercial activities in the chain. These are input
suppliers, producers, traders (whole seller, retailers, local collectors and cooperatives) and
consumers. Indirect actors are those that provide financial or non-financial support
services, such as credit agencies, business service providers, government, NGOs,
cooperatives, researchers and extension experts. In the study area, there are different actors
along coffee value chain who are involved upstream from input supplier to downstream
consumers, playing different roles. The major actors involving in coffee value chain and
their functions are discussed below.

Input Supplier: According to proclamation No.602(2008) coffee suppliers presently

prefers a person who collects red cherry and dry cherry from coffee farmers and collectors
and from his own farms. The woreda agricultural office, large private enterprise and
cooperative, are the major responsible actors for delivery of coffee seed mainly, and other
tangible (credit service,) and non-tangible inputs (extension service and market
information) particularly in the area. Woreda agricultural experts and development agents
are facilitating by collecting farmers input requirement then submitting to the Woreda
agricultural office; and by communicating with volunteer stakeholder; they fulfill farmers
input demand. Similar role they are also play during input distribution.

Coffee producers/farmers: According to proclamation No.602 (2008) this category or

participants constitutes small scale coffee farmers, large enterprises and private investors.
They are the main source of nation coffee production. According to Molina (2011) 90% of
the national coffee production comes from small scale coffee farmers and the other 10%
comes from big plantations and investors. All coffee producers in Gomma Woreda are
small scale producers. These producers are the major actors who perform main value chain
functions start from farm input preparation on their farm to post harvest handling and

68
marketing. Major functions in which coffee perform along the chain include land
preparation, planting, weeding, pest controlling, harvesting and post-harvest handling.
Appropriate climate condition provides good opportunity for the production of coffee and
makes it highly demandable and competitive in the area. The exploitation of this
opportunity by producers however, has not been achieved due to low quality supply
resulted from offering low price for their produce in the existing market. Coffee production
in the area is highly depending on rain.

Local Assemblers/Collectors: Local collectors operate in the district and most of them are
involving in informal way. They are engaging in purchasing coffee from farmers and directly
sell it to suppliers/processors. Mostly, the value that they add is through collecting and
assembling, storing and transporting coffee during the time of high selling price to get
premium benefit. Some of them face shortage of capital so that they operate as agents of
whole seller while others do have sufficient capital and license to buy coffee from each
primary market. A supplier delivers coffee through E.C.X to exporters.

Primary cooperatives: According to the international cooperative alliance, a cooperative

is an autonomous association of persons united voluntary to meet their common economic,
social and cultural needs and aspirations through a jointly owned and legally controlled
enterprise. A cooperative tackles market failures, and by pooling resources the position of
the local market is stronger than that of the individual farmers (ICA, 2011). They are seven
primary cooperatives found in Gomma Woreda was indicated from survey 2019/20.

Cooperative union: It engaged in coffee marketing, service deliberation, input distribution,

and training primary cooperative management members. The cooperative union purchase
coffee from primary cooperatives and deliver through ECX to exporters. One opportunity
in the study area is location of the union head office is located there so that every
information flow related to coffee production and marketing make accessible to especially
farmers to get better benefit for their produce. Moreover, primary cooperatives are more
beneficiary as they get every information and other services due to proximity to union head
office in the area.
They are mainly involved in purchasing coffee from local collectors and producers in larger
volume than any other actors and supplying it to exporters through ECX. They have also
69
their own better storage, transport and communication access than other traders. Their
value adding activities include assembling, storing, processing, and transporting coffee.

Exporters: According to proclamation No.602 (2008) coffee exporters are persons who are
being licensed to trade coffee by the appropriate government organ and fulfilling the
requirement set by the ministry of agriculture and purchase coffee from ECX or collecting
from their own farm prepares, processes, and export coffee to the international market.

4.3 The Role of the actors

It is also termed as function analysis of the value chain which include the details of work done,
role of the actors, step by step work flow, how it is coordinated, where it starts and it ends. This
activity analysis of Gomma Woreda coffee value chain provides a detailed profile of the coffee
production and marketing chain-structure through the identification, description and
quantification in physical terms of the sequence of operations concerning coffee production,
processing, marketing and final consumption.

4.3.1. Input Supply

As this stage of the value chain, there are actors who involved directly or indirectly coffee input
supply in the study area.

According to key informants, currently model farmers, GommaWoreda Agricultural and Rural
Development Office, and Coffee and Tea Marketing Authority Office are the main source of
input supplier in the study area. All such actors are responsible to supply agricultural inputs;
improved seed varieties and farm tools which are essential input at the production stage.

4.3.2. Production

Producer /farmers are the base of the coffee value chain. The producers who are smallholder and
subsistence farmers sell their coffee to others actors in the value chain. There are household
farmers engaged in coffee production. They are responsible for growing and harvesting of
coffee. The small scale farmers are the key actors who are directly involved in coffee production
activities in Gomma Woreda.

70
4.3.2.1 Coffee farm size owned by household head and investors

Most of the farmers of the study area are growing coffee at their backyard especially improved
coffee varieties because they said that for the sake of its maintenance and security. Details of
these are displayed as the following table.

Table 10: Distribution of sampled households by coffee farm size

Variables Minimum Maximum Mean Std. Deviation

Areas of coffee farm 0.025 0.8000 0.1788 .717962

size measured in
hectares

Number of coffee .00 3786 837 796.92068

seedling planted in 2021

Source: own calculation

The area of coffee farm size of individual sampled farmers ranges from 0.025 ha to 0.8.hectare
and on average each farmers has 0.17 hectare; from this coffee farm size on average 25% is
young and the left 75% is matured yield bearing coffee. At this surveying time almost all of the
respondent farmers said that they planted numbers of coffee seedlings in past 2020 year. In this
study area, coffee production is done by individual small holder farmers, cooperated farmers,
mini and medium to large scale coffee investors. These actors involved in finding coffee planting
materials such as coffee seed and rising seedlings. Coffee planting operations that are site
preparation, stacking, holing, field planting and maintaining are done by those actors. The
farmers are organized one to five teams and raise coffee seedlings and plant at their individual
garden land by sharing their common seedlings and some farmers could individually raise and
planted. According to the secondary data obtained from Gomma woreda agricultural-office
report, the land covered with coffee is11067.19 hectare which accounts 45.0% out of total land.
From the total coffee area 1517.08 hectare coffee was developed by investors, which is 13.7%
out of net coffee area in Gomma woreda according to this survey data of 2020.

71
4.3.2.2 Coffee product value adding practices by the producers

Coffee is annual crop that is harvesting is once a year. The farmers of the study area used to
harvest their coffee mostly at red cherry and dry cherry and dry it or sell to processors. The
quantity of coffee produced by the farmers and their farm productivity analysis output is
displayed below.

Table 11: The producers are varied in annual coffee product & productivity in quintal
Variables Minimum Maximum Mean Std.

Dry cherry coffee quintal/ha by 8.40 20.00 13.26 3.51

farmers

Clean coffee quintal/ha by farmers 4.70 11.20 7.320 1.755

Clean coffee quintal/ha by 4.37 11.65 8.01 2.24829

investors

Coffee produced in quintal by

farmer

Dry cherry coffee quintal/ha by 0.90 22.80 5.9260 3.51031

farmers

Source: calculated from survey data of 2021

Minimum coffee yield of 2020 year was 8.40 qt dry cherry (4.70 qt green bean) and maximum
yield was 20.0qt dry cherry (11.20qt green bean) Per-hectare. Generally average coffee yield of
the study area in production year of 2020 was 13.26qt dry cherry (7.320qt green bean coffee) per
hectare. Coffee farm productivity of the coffee producing investors minimum was 4.37 quintal
per hectare, maximum was 11.65 quintal per hectare and mean was 8.01 quintal per hectare.
Depending on the above table of analysis the results are explained here. Minimum coffee
harvested in 2020 by the sample farmers of the study area was 0.90qt, maximum was 22.80qt
and the mean was 6.20qt. This shows that farmers were highly varied in coffee yield which
confirmed from the analysis output with high standard deviation. This might be due to variation
of individual farmer in coffee farm size, maintenance, labors and harvest loss. From this figure it
is clear that there were improvement in coffee productivity in both smallholder farmers and
coffee investors. Pre and post-harvest coffee value adding practice starts from coffee harvesting
72
and ends at final consumers. The activities that the actors have been applying include selective
hand picking red cherry, sorting, drying coffee on the raised bed or ground, conditioning, filling
in to sacks and keeping at house and transporting to market. Some farmers were member of
coffee cooperative and they could supply their coffee to coffee cooperative and processed to
washed-coffee. The sample farmers also explained that although the household head sold his
coffee as dry cherry or red cherry, his families, children/ would processed to green bean coffee
and sold little coffee to end consumers or retailers.
Table 12: Household heads variation in coffee value adding and revenue from coffee

Variables Minimum Maximum Mean Std. Deviation

Distance from the nearest 0.2 20.0 5.182 2.9369

market in km

Quantity of coffee sold in kg in 50.00 1920.0 507.77 351.13

2020

Coffee consumed in kilogram 20.00 300.00 83.7576 41.94220

Share of selectively picked bed 15.8 100.00 57.6030 23.69982

dried coffee measured in
percent

Share of selectively picked red 3.5 74.00 6.1079 12.38700

cherry coffee

Share of mixed harvested 9.5 100.00 36.2521 24.16457

ground dried coffee

Annual income from coffee 900.00 56,080 11,656.078 9,006.43550

sale in birr

Source: calculated from survey data of 2021

According to this paper observation and communication with the sample farmers the farmers
were trying to apply value adding activities once coffee harvested from the farm up to marketing.
They were practicing pre and post-harvest value adding activities such that red cherry to dry
cherry, from the data survey analysis 57.6% of the 2021 coffee product was selectively

73
handpicked and dried on the raised bed; 36.25% of the product was mixed harvested and dried
on the ground. Total annual income the respondent gained in 2021 from coffee sale were 900birr,
56080birr and 11656birr for minimum, maximum and average respectively. Distance from
nearest market of the respondents ranges from 0.2kilometre to 20 kilometer and on average their
house is 5.182 kilometer from nearest market. I observed that 52.7% of the respondents have
own transporting facilities but 47.3% of them replied that they have no own transportation
facilities.

4.3.3. Coffee marketing practices by the producers

Coffee marketing practice of Gomma woreda comprises of planning, preparing, storing,

packing, searching price information, transporting; quality inspection, bargaining and finally
selling. Coffee is one of the cash crops that Gomma woreda farmers have been cultivating and
supplying to market. At the time (2021) of this survey data collection, all (100%) of the
respondents (no=160) replied that they produce coffee purposively for cash income and they
used to supply their coffee to market. This shows that how coffee crop is backbone of the
smallholder farmers life of the area. Out of the respondents 6.7% of them sold part of their coffee
at red cherry, 67.3% of them sold only dry cherry and 26.1% of them sold both dry and red
cherry coffee. The farmers were using different type of container for coffee holding such as
37.8% of them used sisal sack, 61.6% of them used nylon sack and 0.6% used pot or gumbi. Use
of suitable containers for coffee handling keeps quality and enables the farmers to win good
score.

The sampled farmers were divided to those participating in coffee cooperative and not participate
at all. From 160 respondents 50.9% were member of the coffee cooperative and the left 49.1% a
not member of the cooperative. Time when these farmers sell their coffee was different
depending on the household head economy, market accessibility and current need. When the
sample farmers asked when they sell their coffee; 6.7% of them said that they sell all of their
coffee immediately after harvest or processed, 58.8% said they sell partially with in time interval
and 34.5% said keeping all of their coffee up its price raises or winter. This shows that talent
farmer kept their coffee product for two reasons: to achieve high price and use as saving purpose.
They also answered the marketing channels they chose such that 26. % of them sold their coffee

74
to local collectors, 27.7% of them sold to primary cooperative and 46.3% of them sold their
coffee to private traders. The reason behind of the farmers choosing more traders even though
they are member of cooperative might be due to the factors analyzed in econometric model of
this chapter. At local coffee marketing centers visual raw quality of supplied coffee is seen and 1
up to 3 grades is given by the district’s coffee & spice marketing professionals. According to this
survey data analysis only 40% of the respondents got coffee visual quality grade at market the
left 60% of them said that they had not got coffee grade at all this is might be due to shortage of
inspectors and market location.

Some farmers of the study area have got access to credit finance for coffee harvest and other
agricultural requirement fulfilling. They got the credit from credit union, cooperative and private
traders. When the respondent asked whether or not they have access to credit, 55.8% of them
replied that they have no such access and 44.2% of them have access to credit finance. The
respondent farmers that were member of coffee cooperative have more access to credit finance.
Price information is one of factors that the farmers of the study area have been used to determine
when to deliver their coffee to market. This survey data analysis is displayed in the following
table.

75
Table 13: Distribution of sample household in coffee marketing practices
Variables Number of household Percent

Farmers those sold their coffee immediately after 10 6.25

harvest

Farmers those sold their coffee partially in time 96 60

interval

Farmers those sold their coffee waiting when coffee 54 33.75

price raise

Farmers those hold their coffee with sisal sack 59 36.875

Farmers those hold their coffee with nylon sack 100 62.5

Farmers those hold their coffee with Pot or gumbi 1 0.625

Farmers who sold dry cherry 108 67.5

Farmers who sold red cherry 10 6.25

Farmers who sold both 42 26.25

Farmers whose coffee graded at market 65 40.625

Farmers whose coffee un graded at market 95 59.375

Farmers those used to sold their coffee to Local 40 25

collector

Farmers those used to sold their coffee to cooperative 45 28.125

Farmers those used to sold their coffee to Private 75 46.875

(wholesalers)

Access to credit finance yes 71 44.375

Access to credit finance No 91 58.875

The farmers are member of coffee cooperative yes 82 51.25

The farmers are member of coffee cooperative No 78 48.75

Access to coffee price in formation yes 138 86.25

Access to coffee price in formation no 22 13.75

Access of own transport facility yes 86 53.75

76
 Access of own transport facility No 74 46.25

Source: calculated from survey data of 2021

4.3.4. Marketable and marketed surplus of coffee

The paper was analyzed the marketable and marketed coffee product surplus of Gomma woreda
in 2021 production year. This enabled me to compute quantity supplied to market by individual
farmers and how the maximum and minimum coffee produced by farmers varied in market
surplus

Marketable Surplus: this refers to the residual quantity of coffee left with the producers after
meeting their requirement for family consumption and other requirements. The marketable
surplus of the 160 respondent farmers calculated as mean, maximum and minimum coffee
produced. The used formula to do so is M = Q – C.
Where M = Marketable surplus, Q = Total production, C = Total consumption
Maximum marketable surplus was M = 2280.00 -300.00 = 1980kg. & minimum M = 90 -20 =
70kg and mean M =592.649 - 83.9506 =508.6984kg.
Marketed surplus: It is the quantity of coffee which a farmer actually sold in the market.
Minimum, maximum and average marketed surpluses were 50kg (56%), 1920kg (84.2%) and
507.77kg (85.67%) respectively.

4.3.4.1. Coffee market channels

Coffee marketing in Ethiopia comprises the following transaction chain: Primary cooperatives,
Secondary cooperatives, Primary level coffee transaction centers, (ECX) and International coffee
market. Coffee product transaction is being carried out in Gomma woreda level. There are 12
primary level coffee transaction markets, 3 Primary cooperatives market and 1 Secondary
cooperative.

77
In Gomma woreda there were 10 outlets of coffee market routs were collected this data.
However we chose three main outlets for this study purpose. For more illustration picture of the
main three coffee market outlets is displayed in appendix A. The ten possible coffee market
outlets of the Gomma woreda are listed below.
Channel I

local
Producers wholesalers auction export
collectors

Smallholder coffee producing farmers produce coffee and sell at their village assemblers. The
assemblers then collect coffee and supply to wholesalers thereby the wholesaler further process
and supply to the auction at ECX. At ECX bid is taken place and the winner buy the coffee and
export.
Channel. II

wholwholesaler-
Producers local collectors export market
processors esalers

Smallholder coffee producing farmers produce coffee and sell at their village assemblers. The
assemblers then collect coffee and supply to wholesalers thereby the wholesaler further process
and move to quality inspection at ECX. Finally they export directly.
Channel.III

loccoffee
loccoffee cooperative wholwholesaler-procoffee
Producers market
market al
cooperative
al collectors
collectors
wholwholesaler-procoffee
cooperative unioncessors
cooperative unioncessors esalers
esalers export

Smallholder coffee producing farmers produce coffee and sell to the primary cooperative market.
The cooperative actors process it and supply to Gomma coffee cooperative union and then the
coffee passing ECX quality inspection finally exported.
Channel. IV

Producers wholesalers’
wholesalers’ auction
auction exporters
exporters’’ export

Smallholder coffee producing farmers produce coffee and sell to wholesalers. The wholesalers
further process and supply to the auction at ECX. At ECX bid is taken place and finally the
coffee exported.

78
Channel V

Producers wholwholesalers export

Smallholder coffee producing farmers produce coffee and sell to wholesaler-processors. The
wholesaler further process and move the coffee to quality inspection at ECX and finally the
coffee exported
Channel .VI

wholesaler-
Producers regional retailers national consumers
processors

Smallholder coffee producing farmers produce coffee and sell to wholesaler-processors. The
wholesaler further process move the coffee to quality inspection at ECX and the coffee failed for
export is sold to national retailers. Finally the retailers sell the coffee to kettle drinking coffee
preparers and house consumers.
Channel VII

Producers local consumers

Some farmers for their current need sell some amount of coffee directly to local consumers.

Channel .VIII

producers’ local retailers regional consumers

Some farmers for their current need sell some amount of coffee directly to local retailers and the
retailer further process and sell to the regional consumers.
Channel .IX Mini and medium scale coffee producers

P r o d u c e r s [ in v e s t e r s
Producers[investers
] eexporters
x p o rte rs e xp o rt
export

The investors produce and process their coffee move to quality inspection at ECX. At ECX bid is
taken place and the winner buy the coffee and export
Channel.X

LSCP ,Producers[investers] direct export

79
The large scale farmers process their coffee and move the coffee to quality inspection at ECX
and finally the coffee exported.The total quantity of coffee produced and supplied to market
from Gomma in 2017 district was 2306.339 tons dry cherry and 4033.7335tons red cherry
respectively. From this total 13.2% marketed through channel I, 12.5% marketed through
channel II, 12% marketed through channel III, 40.15% through channel IV, 9.84% marketed
through channel V, 0.502% marketed through channel VI, 0.039% marketed through VII, 0.46%
marketed through VIII, 4.14% marketed through channel IX, 7.8% marketed through channel X.

Figure 6: Map of coffee market channels of Gomma woreda

Source: constructed from own survey data & observation of 2021

4.4. Coffee value adding and marketing practice by large scale producers
In Gomma woreda there are ten large scale coffee producers . At the survey time data was taken
from these respondents purposively. They replied that they have been applying pre and post-
harvest value adding activities such that selective handpicking, dry and wet processing, hulling,
winnowing, certifying, quality inspection and the like. Details of the main value adding activities
are displayed in the following table.

Table 14: Distribution of coffee producing investors in post-harvest value adding activities

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 Variables Mean Valid percent Std. Deviation
Productivity qt/ha clean coffee 8.01 5838.02098

harvest loss in % 26.4444 11.18158

Exporting
Direct exporting 11.1

Country level selling 88.9

The farm was certified 11.1

Scored grade at
EXC
Specialty Q1 33.3

Specialty Q2 66.7

Source: calculated from own survey data of 2021

The coffee investors have been trying to add value from seed to green bean coffee or even to cup
coffee. Coffee productivity of their farm in 2017 was 8.01quintal clean coffee per hectare which
is better than coffee farm productivity on farmers‟ hand. The producers market their coffee such
that 11.1% of them were direct exporter and 88.9% of them were country level seller. To be
exporter it need to fill the certification requirement so 11.1% of the investors fulfill this and have
got the certification. In 2020 production year 33.3% of their coffee scored specialty Q1 and
66.7% of their coffee scored specialty Q2.

4.2.5. Cost and Margin analysis of coffee value chain in Gamma woreda

Coffee production, processing and marketing activities requires cost which it be variable cost,
fixed cost and opportunity cost. The cost is the money that an actor in the value chain
contributes, while the margin is the money that an actor in the value chain receives, minus the

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costs. This is Gommaworeda coffee value chain actors have been carrying out in coffee
production, processing and marketing practices.

4.2.5.1 Cost analysis of coffee producers

For coffee production and marketing cost some of sample respondents could put approximate
cost they incurred for coffee harvest and preparing in 2021 and some could put little cost because
they did not considered family labours they used.

Operating costs: are all of the costs directly associated with growing and harvesting the coffee
crop. All costs are expressed as costs per hectare, per farm, per quintal and as a percentage of
gross income. Money in ETB gained from coffee sales are spent on a particular operating
expense. Sampled farmers replied the details cost of coffee production and marketing such that
cost of coffee harvesting, sack buying, preparing, transporting and coffee maintenance cost but
they couldn’t say about opportunity cost. Since the farmers did not apply fertilizer and herbicide
on coffee, there was no such cost. They got improved coffee seeds and seedlings from supporters
such as GommaWoreda coffee and tea organization and NGOs; hence they did not incurred
money for this input. The cost of land tax, coffee maintenance, harvesting & drying,
transportation and container buying are listed below.
Table 15:Type of cost and amount incurred by sampled farmers
Variables Mean Std. Deviation

Coffee land tax & maintenance cost in birr per fachasa1 278.5333 263.03013

Coffee transportation cost in birr per quintal 15.4091 17.74388

Coffee holding container buying cost birr per quintal 40.7673 51.07813

Cost for harvesting & drying of one quintal of coffee in birr 98.0273 53.81280

Source: own calculation from survey data 2021

Even though the respondent farmers did not considered family labors as cost, mean cost for
coffee maintenance operation per 0.25hectare of the 2021 budget year was 278.5birr and mean
cost for coffee harvesting and drying was 98.027 birr per quintal dry cherry. The other mean cost
of coffee holding sack and transporting one quintal dry cherry coffee was 40.76 birr and
15.40birr respectively. The total production cost spent per quintal of coffee by farmers in
cooperative and none of the cooperative was 413.5595 and 452.6246birr respectively. Half of the
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respondent farmers of the study area were member of coffee cooperative; so that there are mean
cost variation in coffee production and marketing between member of and nonmember of coffee
cooperative value chain farmer.

Table 16:0 Mean cost variation between member of coffee cooperative and nonmember farmers

Variables Mean cost of cooperative Mean cost of non-

farmers cooperative farmers

Coffee maintenance
cost
in birr per fachasa 264.4762 293.1111

Coffee transportation cost in birr 12.1071 18.8333

per quintal

Cost for harvesting & drying of 95.8631 100.2716

1quintal coffee in birr

Cost of buying per quintal coffee 41.1131 40.4086

holding sack

Total 413.5595 452.6246

Source: own calculation from survey data 2021

The above cost analysis shows that farmers in coffee cooperative have less mean cost of coffee
maintenance, harvesting and drying and transporting to market than those farmers that are not
member of coffee cooperative. But mean cost of buying sack of the farmers in the cooperative
was greater than non-cooperative farmers this is because the farmers in the coffee value chain
ordered by their chain leader to hold their coffee sisal sack than nylon sack. Generally mean of
cost spent by the producers in cooperative and none cooperative was 413.5595birr and
452.6246birr per quintal dry cherry coffee respectively.

4.2.5.2 Cost analysis of coffee traders

Coffee traders of the district spent cost for coffee buying, processing, transporting and handling.
The costs of Gomma woreda Coffee trader actors were both financial and opportunity costs.
Financial cost or accounting costs were the money that the actors incurred for coffee buying,

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transporting, processing, machineries and vehicles and transaction costs. The following table is
showing marketing cost of the coffee traders.

Table 17: Distribution of traders in capital, experience and amount of cost incurred (№ = 40)

Variables Minimum Maximum Mean Std.D

Operational capital measured in birr 500.00 2700000. 755284.21 1032471.764

Coffee trade experience in year 1.00 16.00 3.9000 2.95088

A kilo of red cherry buying price in 15.30 25.00 16.3630 .72887

birr

A kilo of dry cherry buying price in 18.00 25.00 21.5833 1.89434

birr

A kilo of green bean coffee 85.00 97.50 90.1000 4.74974

Coffee brewer cost per kg. Coffee 47.5 150 71.6 35.94368

Coffee collectors‟ cost per kg. Coffee .5 2.5 1.44 0.72847

Red cherry to dry cherry cost per kg. 3 5 3.79 0.98010

Dry cherry to green bean cost per kg. 3.74 9.5 6.78 2.01673

Red cherry to parchment cost per kg. 10.0 20 11.0 3.47140

Operational capital measured in birr 500.00 2700000. 755284.21 1032471.764

Transporting to ECX cost per qt. 0.40.

Transporting to Addis Ababa cost per 0.80

kg.

Packing cost per kilogram 0.476

Impurity cost per kilogram 0.04

Regulatory cost: Levies per kilogram 0.1

Total cost spent per kg by

Wholesalers: Red cherry to parchment 12.38

Wholesalers: Dry cherry to green bean 7.93

Collectors : to collect dry cherry 1.44

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 Retailers :Green bean 1.10

Retailers: Green bean to Cup drinking 71.60

Cooperative actor: red to parchment 6.40

Cooperative actor: dry coffee to green 4.50

Source: own calculation from survey data 2021

The traders have been doing value adding and capturing practices as much as possible. To do so
the actors incurred cost of coffee buying, preparing, and marketing. Cost of coffee processing
and marketing displayed above does not include coffee bought cost for example mean cost of
drinking cup coffee sellers is 71.6 birr per kg. Without adding cost of 1kg green coffee bought it
is only cost of preparing coffee. Levies cost is the fee paid when coffee leaves the district to
ECX. And it was 10 birr per quintal (0.1birr/kg). The cost for kettle coffee sellers was highest of
all other coffee traders because in addition to cost of cup coffee preparing as the respondents
replied that they also add opportunity cost of selling drinking coffee since 1kg green bean coffee
might take 2-3days to finish that is its turnover is less. In all cases the cost for 1kg coffee market
preparation practices does not include buying price.

4.3. Margin analysis of coffee value chain actors

Marketing margin is the difference between the price received by producers and paid by
consumers. Hence coffee marketing margin of Gomma Woreda is the percentage of the final
weighted averages selling price taken by each stage of the coffee marketing chains. The total
marketing margin is the difference between what the consumer or importer pays and what the
producer/farmer receives for his product. In other words it is the difference between retail price
and farm gate price. Since coffee is transacted at country level and exported out of the country,
the total marketing margin of this study area is the difference between consumers pays and
producers receives or the difference between what the coffee retailer pays and what the farmer
receives for their coffee product. The farmers of the study area sold their coffee mainly through
three market channels such that local assemblers at producers‟ province, cooperative chain at
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primary cooperative coffee transaction centers and to whole sellers at the main market. Mean
coffee price of these three channels are displayed in the following table.

Table 18: Coffee price producers received for 1kg of dry, red, clean coffee in birr
Dry cherry price Red cherry price Green price
Coffee market
channels chose
Mean Std. Mean Std. Mean Std.

Local collector 19.9394 1.79738 6.8529 .9805

Coffee cooperative 20.5595 2.21224 7.1000 .2034

Wholesalers 20.4438 1.36552 6.9286 .9168 45.36 3.8625

1

Source: own calculation from survey data 2021

Coefficient of variation of dry cherry coffee price paid by local collectors, coffee cooperative
and whole sellers were 9%, 10.7% and 6.68% respectively. The Coefficient of variation of dry
cherry coffee price paid by local collectors, coffee cooperative and whole sellers, there was
variation. The Coefficient of variation of dry cherry coffee price paid by coffee cooperative was
greatest of all. This is because farmers that are member of coffee cooperative were paid different
prices/change in price/ according to coffee quality they provided but most of non-cooperative
member farmers did not get price change for they kept quality. According to self-observation
once the coffee moved from farm gate to market it is further value added at each vertical chain
stages. The traders at each stage paid different price for the value added coffee. However some
farmers processed their coffee to green bean sold to local consumers and retailers.

Table 19: Coffee price paid for different level actors after producers

Final coffee sellers of Mean price paid Std. Deviation

Gomma

Red Cherry 8.00 .68612

Coffee
processors

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 Washed parchment coffee

Sold to whole seller at ECX 59.7500(11.95)* 4.9371

private exporters 63.00(12.6)* 4.7013

Dry Cherry 22.0192 1.26021

Coffee
Processors-wholesalers

Green Bean Coffee

Processors-Whole sellers at 54.5485(28.71)** 5.78683

ECX

Private direct exporters 55.00(28.95)** 7.07107

Retailers at Gomma wored at 50.10 5.53220

End user/ drinking coffee 50.1000 4.74974

Source: own calculation from survey data 2020/2021

Where * price of red cherry after value added to washed parchment coffee calculated by dividing
price of one kilogram parchment coffee to five because 5kg red cherry gives 1kg parchment
coffee, ** Stands for price of one kilogram dry coffee after value added to green bean coffee
calculated by dividing price of one kilogram green bean coffee to 1.9 because 1.9kg dry cherry
gives 1kg green bean coffee.

4.3.1 Gross and net margins of producers

The gross margin is the gross income minus the total operating (or “variable”) costs. This
measurement was used to analyze the annual coffee income the producers obtained. Mean gross
margin of the producers gained from coffee sold in 2017 for those members of coffee
cooperative and non-cooperative was 11846.6747birr and 11463.0253birr per household head.
From the cost analysis I found operation cost is 21.7% of total gross income from coffee sold.
Based on this mean net margin of the producers was 9276 birr per household head.

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4.3.1.1 Total gross marketing margin, gross profit margin and producers ‘share analysis

Coffee producers of the Gomma wored at are individual coffee producing small holder farmers,
organized small-group coffee producers, mini investors and large scale coffee investors. Of these
producers marketing margin of individually and grouped coffee producing farmers was analyzed.

The individual small holder coffee producers are categorized in to those that are member of
Gomma wored at coffee cooperative and nonmember of the coffee cooperative. All most all of
the small holder coffee producers sold their coffee after drying-dry cherry and some directly at
red cherry. There are ten marketing channels/routes through which coffee producers move their
coffee product and sell. From these channels the most popular for this analysis were local
collectors, cooperative and whole seller. Total gross marketing margin of Gommawored at of the
2017 coffee produce has been analyzed from the above weighted price for the three marketing
channels that displayed in the following table.

Table 20: Gross marketing margin of Gomma woreda

Total gross marketing margin at the three market channels
Type of coffee
provided by producers TGMM at local % TGMM at coop TGMM at whole %
%

Red cherry coffee 45.61 43.6 45

Dry cherry coffee 34.73 32.7 33.01

9.46
Green bean coffee
Source: own calculation from survey data 2021

Where: TGMM at local is total gross marketing margin at local collectors, TGMM at coop is
total gross marketing margin at cooperative and TGMM at whole is total gross marketing margin
at wholesaler. The above table describes total gross marketing margins at each channel. This
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shows that from the red cherry and dry cherry sold to collector 45.61% and 37.73% value was
taken by the intermediaries; from red cherry and dry cherry sold to cooperative 43.6% and 32.7%
value was taken to the next actors; from red cherry and dry cherry sold to wholesaler 45% and
33.01% value was taken by the intermediaries. Total gross marketing margin for both coffee
types transacted at cooperative market was lowest of the two market channels which conversely
saying farmers received better price from cooperative market as compare to the two markets.
This depicts that the small holder coffee producers those member of coffee cooperative has been
receiving better price than nonmember farmers. Total marketing margin of red cherry coffee was
high because on the farmer’s hand no value added as compared to dry cherry so that the
processors received red cherry coffee from farmers and then processed that is pre-pulp grading
pulping first-washing fermenting final washing drying
quality inspecting and selling parchment coffee. These all activities need capital and
financial cost which individual smallholder farmers cannot afford. Total gross profit margin
(TGPM) is the difference between total gross margins minus total operational cost (TOC)
incurred. The operational cost is the expense spent after coffee bought at farm gate price. It is
cost for value adding activities, transportation, levies and managerial cost.
Coffee producers‟ share is the portion of consumer price goes to farmers. Net margin of
producers could be calculated using weighted cost and gross marketing margin per unit. The
computed producer’s share and net income per unit coffee of producers is displayed below.
Table 21:Coffee producers‟ share of gross margin and net income at three coffee market routs

Type of coffee provided by producers and net income per kg%

Red cherry NPIC Dry cherry NPI Green
Producers‟ Coffee coffee bean
Gross coffee
marketing
Margins at the
three channels
GMMp at local market 54.39 47.20 65.27 50.45
GMMp at cooperative 56.4 49.83 67.30 53.75
market
GMMp at whole seller 55 47.82 66.99 52.175 90.54
market
Source: own calculation from survey data 2021
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Where: GMMp = gross marketing margin of producer or producer’s share and NPI = net income
per kg of coffee. The small holders coffee producers got 54.39% , 56.4% and 55% gross value
from red cherry coffee they sold at the three channels in 2017. From this value their net income
was 47.20%, 49.83% and 47.82% at local collectors, cooperative and wholesalers channels
respectively. Their share at the three markets channels for dry cherry coffee they sold was higher
than red cherry which was 65.27%, 67.3% and 66.99% respectively at local collectors,
cooperative and wholesaler channels. The reason of this change might be due to value added to
their coffee such that drying, increasing volume and storing or keeping up to price become
better. Here again producers‟ share and net income of per kg coffee of farmers those were
member of coffee cooperative was greater than nonmember of coffee cooperative farmers. To
some extent producers share at wholesaler was greater than at local collector; cooperative market
showed the greatest producers‟ share of all the two market outlets. It can be understood from this
result that being the producers in cooperative outlet choice made them to have more share than
being in other outlets. This is because in cooperative market there is no need to get high margin
downstream at marketing actors since it is pie-growing.

4.3.1.2 Gross marketing and net profit margin of local collectors

The local collectors buy and collect coffee from village farmers and village market transports it
to wholesaler processors. They only added volume, time, place and in most cases possession
value. These local coffee assemblers buy dry cherry and red cherry coffee from country side
nearby farmers at village small market; accumulate it and transport to processor-wholesalers.

Table 22: Gross marketing margin and net profit margin of local collectors
Type of coffee GMMlco % NPMlco%

Red cherry 9.10 6.24

Dry cherry 6.68 3.6

Source: own calculation from survey data 2020/2021

Where: GMMlco is gross marketing margin of local collectors and NPMlco is net profit margin
of local collectors. The local collectors bought red and dry cherry coffee and got 9.1% and
6.68% margin respectively from consumer’s price. After deducting the total cost incurred by
local collector the net profit share of red cherry was 6.24% and 3.6% for dry cherry coffee.
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According to this analysis output share of local collectors was less as compared to cooperative
and wholesaler outlets. The reason behind of this could be the collectors add little value such that
coffee collecting from individual farmers, accumulating, storing and transporting to the
processors.

4.3.1.3 Gross marketing margin and net profit margin of processing-wholesalers analysis

Coffee wholesalers of the Gomma woredat divided in to processor-wholesaler at ECX,

processor- exporter and wholesaler-exporters. These all participate in coffee trade value adding
activities such as form value, volume value, possession, place value and time value. They got
margin for the value added. The margin of these actors is displayed below.

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Table 23: Coffee wholesalers‟ gross marketing margins and net profit margin
Gross marketing margin of wholesaler %
f coffee GMMpr- NPMpr-w GMM expo NPM GMMr NPM
provided w expo
by
producers

Red cherry coffee 31.35 10.65 36.5 16.85

Dry cherry coffee 27.10 12.56 28.05 13.63

Green bean coffee - - - - 3.67 1.47

Source: own calculation from survey data 2021

Where: GMMpr-w =gross marketing margin of processor-wholesaler at ECX, GMM expo is
gross marketing margin of processor exporter and GMMr= gross marketing margin of retailers at
GommaworedatNPMpr-w is net profit margin of processor-wholesaler, NPM expo = net profit
margin of processor exporters and NPMr = net profit margin of retailers.

The above margins of red and dry cherry calculated based on the final value added product. That
is gross margin for red cherry coffee calculated from red coffee price to final washed parchment
coffee price; and from dry cherry price to final green bean coffee price. The above output was
obtained after deducting local collectors‟ margins from the total gross marketing margin. The
wholesalers those processed to parchment and green bean coffee and sold at country level got
10.65% and 12.56% net profit margin from red cherry and dry cherry coffee respectively.
Wholesalers those processed to parchment and green bean coffee and exported got 16.85% and
13.63% net profit margin from red cherry and dry cherry respectively.

4.4. Econometric Models Output

4.4.1 Multiple regression analysis output

Multiple regression analysis has been applied to test whether or not the factors under question
really significantly affecting annual income from coffee sale of the small holders. In this
function, out of fifteen factors (independent variables) eleven variables were found significant
and the left are non-significant but have contribution for the whole outcome. These variables that

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affected annual income from coffee sale significantly are household size, coffee farm size, Total
livestock holding, access to improved seed, and access to non-farm income, quantity produced,
extension agent contact, household coffee consumption, log of lagged coffee price, Share of
value added in to selectively picked bed dried coffee, Share of mixed harvested ground dried
coffee and coffee price. The output of this model is displayed in the following table.

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Table 24: Coefficient of multiple linear regression analysis
coefficient Std. Error t-ratio Sig/p-
(B) value

Constant 3.4600 0.195 17.711*** 0.000

Household size -0.023 0.011 -2.099** 0.037
Education level -0.005 0.009 -0.628 0.531
Total livestock holding 0.006 0.003 2.217** 0.028
Access to credit finance 0.010 0.034 0.283 0.778
Coffee farm size 0.254 0.033 7.672*** 0.000
Access to improved seed 0.132 0.057 2.311** 0.022
Access to non-farm income -0.105 0.048 2.198** 0.029
Quantity of coffee produced 0.888 0.070 12.645*** 0.000
Access to extension agent 0.098 0.044 2.235** 0.027
Coffee consumed by family -0.001 0.002551 -2.551** 0.012
Coffee cooperative member -0.049 0.0510 -0.960 0.339
Log of lagged coffee price 0.945 0.337 2.808*** 0.006
Share of selective hand-picked red -0.808 7.08771929 -0.114 0.910
coffee
Share of selective picked bed dried 0.004 0.001324 3.020*** 0.003
coffee
Share of mixed harvested ground dried -0.001 0.000537 -1.860* 0.065
coffee
Dependent variable = annual income from coffee sale, Number = 160
R2 = 0.898, multiple R = 0.894, adjusted R = 0.780 , Durbin-Watson = 2.005
Computed F = 39.721***, Significant level ***P< 0.01, ** P < 0.05, *P<
0.10
Source: own calculation from survey data of 2021

Household size (HHS): This variable is a quantitative variable and it was expected that it would
affect positively annual income from coffee sale; however, from the analysis it was found that it
was highly affecting the income negatively at less than 5%. The result is explained that as the
number of member a household family increases by one unit, will decrease log of annual income
from coffee sale by 0.023. The reason of this negative outcome might be that the increase of
number of member of a household specifically children makes the household head to give piece
of coffee farm to his youth son and thereby his annual quantity of coffee harvest decreases. In the
same way the family of household head though they have no separate coffee farm they harvest
for their need from their father coffee farm. This result is in line with the result found by
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Gezahagn (2010), that family size has negative effect on the households‟ gross income from
groundnut production.

Total livestock holding (TOTALIVC): Total livestock holding (TOTALIVC): Total livestock
animals holding was hypothesized it could have positive effect on annual income from coffee
sale. The result of this analysis output is positive and it was strongly influencing income from
coffee sale at less than 5% level. It is interpreted as the number of livestock increases by one
unit, log of annual income from coffee sale increases by 0.006. This might be due to that farmer
who possesses more number of livestock is expected to have more money for the purchase of
agricultural inputs, and again the chance to get labor for coffee maintenance activities,
processing and marketing practices and can transport coffee by his own horse or mule or donkey.

This finding is in line with Arega et al. (2014), who found that ownership of livestock is strongly
and positively correlated to annual income of households.

Coffee farm size (CFS): Coffee farm size was hypothesized that it would influence annual
income from coffee sale positively. The result of this analysis output is positive and it was
strongly influencing income from coffee sale at less than 1% level. It is interpreted as the coffee
farm size increases by one unit, will increase log of annual income from coffee sale by 0.254.
This is because there were no intensive maintenance practices as it was confirmed from the
descriptive analysis and mostly coffee product quantity depends on land size thus the coffee farm
size increase results in the increase of annual income from coffee sale. This result is in line with
the result obtained by Aikaeli (2010), who confirmed that increasing acreage of farm land is
more effective to earn more income.

Access to improved seed (IMPRS): Access to improved coffee seed was expected it would
have positive effect on income from coffee sale. The sign of the parameter estimate is positive
and highly significant at less than 5% level; therefore it was affecting annual income from coffee
sale positively. The result is explained as one unit increase in access to improved coffee seed,
will increase log of annual in come from coffee sale by 0.132. This is because improved coffee
variety withstand such serious coffee diseases and successful in product quantity and quality.
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This finding is in line with finding by Bartiminten (2015), who found that improved coffee
varieties are also shown to have a large impact on productivity and increasing the share of
improved trees from 0 to 100 percent is estimated to result in a doubling of coffee yields which
increase in come of the farmers. But it is contradictory with the result found by Mekonin (2015),
which revealed that improved coffee seed is negative and significant determinant of log of total
annual income.

Access to non-farm income (NFI): It was expected that it would influence annual income from
coffee sale positively; however, this analysis output conveyed that the parameter estimate is
negative and highly significant. Thus access to non-farm income was influencing annual income
from coffee sale negatively at less than 5%.The estimated parameter is-0.105 and explained that
the increase of access to non-farm income by one unit will decrease log of annual income from
coffee sale by 0.105.

This result is contradictory with what expected and with the finding studied by Till (2012), who
found non-farm income highly significantly positively affected total annual income. The
contradiction of this result might be due to the availability of alternative income source from
non-farm income made household head take less attention for coffee maintenance and harvesting
activities as result quantity of coffee produced decreased thereby its income decreased. Even
some farmers share part of their coffee farm to other partner to handle all activities in behalf of
them because they are busy and share their coffee product to the partners.

Quantity produced (QPR): This variable was hypothesized it would have positive effect on
annual income from coffee sale. The analyzed parameter is positive confirming that quantity of
coffee produced strongly and positively affected income from coffee sale at less than 1% error
level. The estimated parameter is 0.888 and explained that the increase of quantity of coffee
produced by one unit will increase log of annual income from coffee sale by 0.888.
This result is in line with the finding found by Till (2012), who found that coffee yield quantity
positively and highly affected total annual income.

Extension agent contact (EXAC): It was expected that it would affect income from coffee sale
positively. The estimated parameter is positive and significantly affected income from coffee
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sale at less than 5% error level. The estimated parameter is 0.098 and explained that the increase
of access to extension agent by one unit will increase log of annual income from coffee sale by
0.098. This finding is in line with the result obtained by Minia (2014), training and consulting
extension agent brought positive impact on coffee yield and income of Kenya farmers.
Extension agents train the farmers technical implementation, produce planning and saving and
inform update coffee price. Therefore farmers are motivated and implement coffee production
and product handling practices thereby improve their product quantity and income from coffee.

Household Coffee consumption (CFC): This variable was hypothesized it would influence
annual income from coffee sale negatively. The estimated parameter is negative and highly
significant at less than 5%. The estimated parameter is -0.001 and interpreted as coffee
consumed by household family increases by one unit log of annual income from coffee sale will
decrease by 0.001. This result is in line with the finding of Till (2012), who found house hold
coffee consumption negatively affected total annual income.

The implication of this finding is that coffee consumed by household family affected income of
smallholder from coffee sale negatively. From the data analysis I found that mean of annual
coffee consumed by the household family was 83.76 kg (13.5%) and 75% of family member
used to drink coffee. This amount of coffee was received from annual coffee produced so that as
quantity of coffee sold decreased. This indicates that coffee consumed reduces the amount of
coffee sold and result in decrease of annual income from coffee sale.

Log transformed Lagged Coffee price (LCP): It was expected that it would influence annual
income from coffee sale. The estimated parameter sign is positive and highly significant at less
than 1%.The estimated parameter is 0.945 and interpreted as log of coffee price (ETB) increases
by one unit, log of annual income from coffee sale will increase by 0.945. This result is in line
with the finding studied by ICO (2014), as coffee price increased, production and exported
coffee quantity increased thereby the income from coffee increases. Most farmers follow price
information and give response for little price change in the past, they start improve production
practice, decrease household coffee consumed and move most of their coffee to market.

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Share of value added in to selectively picked bed dried coffee (SVSPBDC): It was expected
that Share of value added in to selectively picked bed dried coffee could affect producers‟
income from coffee sale positively. The estimated coefficient is positive and highly significant at
less than 1% level. This finding is illustrated as share of value adding activities that are
selectively hand picking, bed drying, and handling (storing) coffee increases by one percent, log
of annual income from coffee sale increases by 0.004. This finding is in line with finding of
Bartimenet (2015), who found that selectively picked red cherry coffee showed highly positive
impact on farm gate coffee price.

Even though not total of annual coffee produce some farmers add value to some of their annual
coffee produce such as selectively red cherry picking, drying on bed, filling in sisal sack, storing
on wood and transporting to market or marketing. Harvesting selectively red cherry coffee could
improve weight of dry coffee as compared to mixed harvesting. Drying coffee enabled the
farmers to capture the value of dry cherry coffee as compared to selling red cherry. In addition to
this some farmers could get price incentive that is price change for the quality they kept.

Share of mixed harvested ground dried coffee (SMXHGDC): It was expected that Share of
mixed harvested ground dried coffee could affect producers‟ income from coffee sale negatively.
The estimated coefficient is negative and significant at less than 10% level. This finding is
illustrated as the amount of mixed harvested and ground dried coffee increases by one percent,
log of annual income from coffee sale decreases by 0.001. This result is in line with the result of
Bartminet ( 2015), who found mixed harvested and those cherries that were dried on the bare
ground obtain prices that are 7 percent lower compared to cherries that were dried using
improved methods.

Mixed harvested coffee losses full weight because matured and un-matured coffee harvested
together. In addition to this drying coffee on bare ground exposes coffee for mold development
which reduces its weight and quality. So that as the amount of mixed harvested and ground dried
coffee increases income of the farmer from his total coffee produce decreases as compared to
selective handpicked bed dried coffee. This might be due to lack of money, labor, and business
of the farmers because all crops simultaneously reach for harvest; so that some farmers decide to
harvest at once instead of harvesting only red cherry within time interval.
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4.5. SWOT analysis of growers and marketing
This section summarizes the main strengths and weaknesses of the coffee value chain in
Ethiopian, highlighting the implications for coffee grower’s participation in different value chain
segments and service provision. It also outlines the opportunities and threats facing the sector,
and how they contribute to fostering or hindering coffee grower’s employment and
entrepreneurship in coffee businesses.

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Table 25: SWOT analysis of growers and marketing
Strengths Weaknesses
Substantial interest from the public sector and Very low productivity smallholdings, with little
alignment with the National Development Plan: in adoption of modern technology, equipment, nor
coffee as a high-value export crop and in promoting inputs.
coffee growers employment in coffee.
Relatively well-structured coffee sector with a large Little record keeping.
number of support institutions.

Ethiopian specialty coffee considered being of Low-yielding old trees that is vulnerable to
premium quality compared with competitors on the pests and diseases, with replanting programmes
global market. not yet successful at addressing these issues.

Coffee sector liberalized and attractive to private Although women provide substantial labour,
investments, with presence of all large international coffee is traditionally regarded as a cash crop
trading companies. and thus coffee production and businesses are
dominated by men
Washing and hulling stations of major companies in Coffee growers provide casual labour on an
coffee-growing districts, offering rural employment. irregular basis, while male elders own coffee
trees.
Emerging vertical coordination (traceability system) Low number of community-owned or small-
and private companies in need of technology-savvy scale primary processing factories, hindering
collecting agents and quality control staff, thus ready smaller value chain actors from participating in
to attract coffee growers. value addition

Many coffee growers’ people already engaged in the Missing or weak infrastructures (e.g. no
sector as workers of primary processing irrigation, standard storage), primary processing
establishments and secondary processing/ exporting involves mostly manual labour and thus might
companies. not be appealing to high-skilled coffee growers.

Aggregation is a vibrant business that involves Limited research and development capacity
mobile work and requires the energy of coffee given the magnitude of coffee sub-sector to
growers. Ethiopia exports, and weak extension services.

100
Long traditions of coffee cultivation. Many people Inadequate involvement of young people in
grew up in coffee growing families and are culturally research and extension. Little training for coffee
attached to coffee as a crop growers in agribusiness and agro-processing.

Many agencies and projects with the overall aim of Inadequate financial products, especially for
strengthening the sector, including through coffee farmers. High barriers for coffee growers to
growers participation. access capital to start businesses in the coffee
value chain, meaning that most coffee growers
remain casual labourers.
Opportunities Threats

Potential for coffee grower’s employment at all stages Fluctuating world coffee prices (very low
of the coffee value chain, both as employees and recently) and high vulnerability to the global
entrepreneurs market due to low local consumption, which
may make coffee less attractive to coffee
growers.
Positive market outlook: consistent demand for Increased supply from large producing countries
Ethiopian coffee in main importing countries. Many such as Brazil and Vietnam to the conventional
emerging coffee drinking markets. markets, as well as emergence of new suppliers
to specialty markets, making coffee businesses
extremely competitive.
Considerable niche market opportunities for high-end Evolving and complex certification systems,
coffee. Growing appreciation for uniqueness and which demands constant monitoring and
transparency in key markets. Coffee growers can find alertness to trends.
ways to capture value-added through innovative
products and novels way of marketing.
Potential for value addition through processing and Infrastructure, e.g. electricity and roads in many
roasting, to train coffee growers as technicians, coffee growing communities is lacking or in
quality assurance officers, marketing staff, etc poor condition. This results in reduced quality
and increased losses, as well as reinforcing
coffee grower’s perceptions of agriculture as
hard, unrewarding work rather than as a
101
 rewarding business.
Digitalization of coffee value chain, with potential to Climate-related risks, such as higher rainfall
create rewarding jobs for coffee growers. variability and average temperature, may
disrupt coffee production.

Potential for increasing production and productivity Competition for land and shortage of labour.
through changing farming practices and adoption of
modern technology, which calls for the role of coffee
growers.
Potential to demonstrate the profitability and Further land fragmentation is likely to deter
attractiveness of coffee businesses to coffee growers. coffee grower’s investment in cultivating
perennial crops such as coffee.
Government initiatives and emphasis on coffee
(Coffee Roadmap, replanting programme) can
incorporate a coffee grower’s dimension

5.CONCLUSIONS AND RECOMMENDATION

5.1. Conclusions
Coffee is major cash crop dominated by small producers in the study area. These producers
predominantly live in rural areas of the district. They usually lack access to credit, and very few
live in well suited shelter. These producers cannot get enough income to sustain their life without
coffee, in which most of farm land in the study area is covered by coffee trees.

Promoting the performance of the coffee value chain in order to effectively meet the needs of
small-holders farmer and the end buyer consumers will require action from different actors in the
value chain. There is different value chain functions were undertaken from input supply,
production, processing, up to trading at ECX floor. Along each function different key actors and
102
their role were involved. However some functions are performed by more than one actor and one
actor performs more than one function. This shows the linkage between these actors is weak.
Despite the efforts made by the ECX, there is no platform or responsible body who is working
for effective and efficient linkage between the coffee value chain actors.

Small-scale farmers are responsible for the coffee production and harvesting. Most of these
farmers in this study area sundry coffee cherries they harvested and they sold it in the form of
dry cherry. Collectors bought larger portion of dry cherry and small amount of red cherry from
these farmers and they sold it to suppliers without no processing undertaken by them. Suppliers
also called processors bought coffee mainly from collectors and slightly from farmers then they
processed and sold it to exporters and local wholesalers at ECX floor. Accordingly, they sold
rejected coffee to local wholesalers at lower price than the certified coffee they sold to exporters.
Here, collector’s price was not affected due to rejected coffee, this situation making them to mix
decorated (lower quality) raw coffees with quality coffee to increase their profit. This is the
reason for increased amount of rejected coffee in the study area.

Only few portion of the coffee is sold in the form of red cherry to primary cooperatives, the
reason being PCs are unreachable for the market deep in the rural areas. Despite the share and
profit from PCs sale is greater than the supplier sale which largely pass through the collectors,
PCs in the district are less in number and their capacities are weak to be involved in coffee
business. However, cooperatives are now a means to bring collective action and barging to
increase share of farmer.

The amount coffee supply by farmers is constrained by four factors which are; Age of plantation,
Education level of house-hold, Access to credit, and Access to market information. From the
study, most of the coffee trees allocated by producers are older than twelve years. This factor is
affecting the supply with greater value. Literacy of the house-hold farmer has played an
important role in the study area, that educated farmer have advanced supply than illiterate
farmers. However most of household farmers are illiterate, unable to write and read well. In
addition access to credit and market information is limited in the area affecting the coffee supply.
Despite the constrained, Gommaworeda has high potential for specialty coffee production,
higher amount of coffee production and higher supply for export. Hence the country has to
explore these opportunities.
103
5.2. Recommendations: your recommendation should be based on the problems you
identified during your study
Based on the analysis results of determinants in Coffee Value Chain activities of Socio-economic
characteristics of sample respondents of all continuous variables had statistically significant
mean difference between Coffee Value Chain actors. According to the OLS technique outputs,
extension contact variable was factors adversely affecting Coffee Value Chain while the
remaining 4 variables enhance Coffee Value Chain activities of households. About 4.43% of the
variation in Coffee Value Chain is explained by continuous variables in this OLS technique. The
following policy implications can be highlighted. Based on the facts find from the study,
government and other related stockholders should target at controlling diseases and pests,
development of rural infrastructure, work diversification cultures, extension contacts practices, to
adopt different technologies, to improve production and marketing through awareness creation
by giving trainings and by follow up and creating the market linkages for participant in coffee
value chain activities in GommaWoreda.

On the basis of the results of this study, the following recommendations for policy makers,
developments actors and researchers who have strong interest in promoting value chain and
upgrading strategies of coffee in the study area.

1. Increasing the proportion of red cherry coffee sale by producers improves the quality of coffee
supplied and it will bring better benefit for small-holder farmers. Thus farmers in the study area
have to be encouraged for red cherry coffee sale at primary markets by setting higher price for it.
Also the quality can be improved by sharing responsibilities among actors for the coffee
supplied. Specifically, collectors at the study area were found to be irresponsible for the quality
the coffee they sold to suppliers. Thus, the study recommends that collectors should be capable
to be trusted for the coffee they supply to the market and farmers are advised to prefer PC to sell
their coffee, the reason being their higher purchase price and higher quality coffee passed
through cooperatives. In order to make farmers to deliver their coffee via PCs, PCs should be
available at the nearest market place.

2. Strengthening the linkage among value chain actors is necessary. There is a need to change the
outlook of actors, by improving ground rules that will bind the relationship between producers
and traders. In particular, positive attitudes toward partnership, interaction, networking and
104
learning need to be developed among main actors in the value chain. So the government should
have to instruct farmers about their channel choice in order to compromise the quality of their
product, so as to gain a better benefit from the sector. By increasing the number of cooperative
unions the coffee sector can be stronger and give benefits to small holder farmers. Also, the
chain actors should work in an integrated way to improve production, and to strengthen
sustainable market linkage in the study area.

3. The government should have to assist the smallholder farmers by observing the farms so as to
enhance the production by replacing old trees with the newest one, since age of plantation is
highest significant negative determinant for the coffee supply in the district. And also the author
of this study suggests rejuvenation of the old coffee tree should be possessed by producer to
increase their production, so as the supply.

4.Creating suitable conditions for farmers to upgrade their formal knowledge will also improve
the quality and quantity of coffee production and supply. The concerned bodies, for instance
development agents should focus on increasing quantity production and supply of coffee through
promoting and providing training on improved coffee production skill, technical support to
producers, increasing follow up starting from production to supply.
5. Econometric analysis results of the study suggested that increasing quantity supplied of coffee
in the area by improving credit accessibility of producers. Thus, credit have to be facilitated by
the supportive actors and also the major intermediate actors to smallholder coffee producers.

6. Market information found to be significant and positive determinant factors of the quantity of
coffee supplied. Therefore, market information services have to be strengthened to provide
farmers and traders accurate and timely information on current supply, demand and prices in the
woreda. So, both ECX and GommaWoreda office of coffee and tea marketing authority have to
continue providing daily marketing price of coffee efficiently.

7. Future research edis essential to assess the value addition process under taken by producers,
primary processors and market intermediates in the area.

105
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 APPENDICES
Appendix A. Tables
Appendix table 1. Conversion factors used to compute tropical livestock units (TLU)
Conversion factors

Livestock
categories
Calf 0.25
Weaned calf 0.34
Heifer 0.75
Caw or ox 1.00
Horse/mule 1.10
Donkey adult 0.70
Donkey young 0.35
Camel 1.25
Sheep or gout adult 0.13
Sheep or gout young 0.06
Chicken 0.013
Bull 0.75
Source: Storck et al., 1991

Appendix table26Multicolicollinearity test for explanatory variables of market

channels choice
Explanatory variables for Colinearity
dependent variable market Statistics
Toleranc VIF
channel choice
e
Quantity of coffee sold 0.88 1.13
Access to credit finance 0.926 1.08
Access to price information 0.87 1.14

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 Education level 0.99 1.01
Distance from nearest 0.98 1.02
market
Access to extension service 0.90 1.1
Age of household heed 0.98 1.02
Household size 0.101 1.01
Cooperative member ship 0.27 3.70
Access to own 0.82 1.22
transportation
Source: own calculation from survey data of 2021

Appendix Table 27. Coefficient of multiple linear regression analysis

Variables coefficient Std. Error t-ratio Sig/p-
(B) value

Constant 3.4600 0.195 17.711*** 0.000

Household size -0.023 0.011 -2.099** 0.037
Education level -0.005 0.009 -0.628 0.531
Total livestock holding 0.006 0.003 2.217** 0.028
Access to credit finance 0.010 0.034 0.283 0.778
Coffee farm size 0.254 0.033 7.672*** 0.000
Access to improved seed 0.132 0.057 2.311** 0.022
Access to non-farm income -0.105 0.048 2.198** 0.029
Quantity of coffee produced 0.888 0.070 12.645*** 0.000
Access to extension agent 0.098 0.044 2.235** 0.027
Coffee consumed by family -0.001 0.002551 -2.551** 0.012
Coffee cooperative member -0.049 0.0510 -0.960 0.339
Log of lagged coffee price 0.945 0.337 2.808*** 0.006
Share of selective hand-picked red coffee -0.808 7.08771929 -0.114 0.910
Share of selective picked bed dried coffee 0.004 0.001324 3.020*** 0.003
Share of mixed harvested ground dried -0.001 0.000537 -1.860* 0.065
coffee

Dependent variable = annual income from coffee sale, Number = 160

R2 = 0.898, multiple R = 0.894, adjusted R = 0.780 , Durbin-Watson = 2.005
Computed F = 39.721***, Significant level ***P< 0.01, ** P < 0.05, *P<
0.10
Source: own calculation from survey data of 2021

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 Appendix B. Appendix 1. Questionnaire for coffee producer
COFFEE VALUE CHAIN ANALYSIS IN GOMMA WOREDA,

JIMMA ZONE, OROMIYAREGIONAL STATE, ETHIOPIA

Household survey questionnaire on the coffee Value chain analysis for the completion of the Master of
Agribusiness & Value chain management M.Sc. Degree 2021

Dear respondents

Remark: The following Semi-Structured Questionnaire for Msc thesis research study has been
set to understand Opportunities and constraints of Agribusiness & Value chain management
status in the south western part of Ethiopia. This survey helps us to understand direct and indirect
impact of regarding Coffee value chain analysis problem at household & plot level. Your
household has been selected by chance from all households in this study area for interview. The
survey is voluntary and the information that you give was confidential. The information was
used to prepare the research study, but neither your, nor any other names, was mentioned in any
way. There was no way to identify that you gave this information. Could you please give the
correct answers for this interview?

 Care that should be taken by enumerators:

 DO NOT suggest in any way that household entitlements could depend on the outcome
of this interview, as this will prejudice the answers

A) GENERAL INFORMATION

Household code--------------- Questionnaire No----------------------,

Name of household head ----------------------------------------------

Name of interviewer ---------------------------------

Date of interview (DD/MM/YY) ------------------------------------------------

1. Zone code ---------------------------------------------------------------

2. Name of district code ----------------------------------------------------------

116
3. Name of peasant association code ----------------------------------------

4. Village /Gotti/ code --------------------------------------------------------

5. Agro-climate --------1) Dega, 2) Woinadega, 3). Kola-

6. Language of interview a) Oromic b) Amharic c) others specify------

7. With which Ethnic Group do you identify? 1) Oromo 2) Amhara 3) others.

8. What is the Religion of your household? 1) Christian 2) Muslim 3) specify others, if any

PART I. Household Characteristics

Demographic Characteristics of Household members’

code Full name sex age occupation Relationship toEducational

the level
Household head

*what is the sex of the household member? Sex code :( female = 0, male = 1)

*what is the Age of the household member? Age code: (1) 0---14, (2) 15----64, (3) Above >65;

*what is the marital status of the household member? Marital status code (1) Single (2) Married (3)
Divorced, (4) Widow

What is the relation between the household head and each member of the household? House hood
relation code (1) self-head, (2) spouse, (3)son/ daughter, (4) father /mother,(5) father /mother in law, (6)
grandfather / grandmother (7) grandson /daughter (8) son -/ daughter in law (9) Nephew/ Nice( 10)
aunt /uncle (11) other relatives (12 ) Non relatives

117
*What is the highest education level of completed by this household? Education level code (1) Illiterate,
(2) Completed 1-4 formal school, (3)Completed 5-8 junior school, (4) completed 9-10 senior high
schools,(5) Completed 10+2 preparatory , (6)college/ university

10. If there are illiterate household members, what are the basic problems for those who are not attending
school? (1) School is too far (2) Needed for work/labor (3) Lack of money (4) Lack of interest

11. Does household head have any Responsibility in local level community? (1) Peasant association
executive member (2) Peasant association cadre (3) Religious leader (4) Peasant association justice
committee (5) Peasant association development committee (6) others, please specify

12. Does household head is a member of local social organization? a) Credit associations

b) idir c) equib d) if any, specify

13. Have you engaged all your household Labor force members (those ten years and above) in productive
work most of the last 12 months? Yes = 1, No = 0

14. What types of Assets do you hold?

(1) Land stewardship (tenure status, areas and types)

2) Livestock and crop rights (ownership status, profit sharing)

(3) Buildings and farm implements (house, barns, machinery, tools, etc.)

15. What type of house do the household owned?(1) Stone walls and galvanized iron (korkoro) roofed,(2)
Mud walls and galvanized iron (korkoro) roofed; ( 3) Mud walls and grass roofed, d) Others (Specify)

PART TWO

1. How much is your total land size ------------------in ha?

2. Do you think your land is adequate to produce enough crops to sustain your family? No = 0,
yes = 1

3. From total farm land which engaged by coffee farm in hectare is _________________

1. What is your coffee farming system?

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[ ] Forest coffee [ ] Semi-forest coffee farming system
[ ] Garden coffee [ ] Plantation coffee
2. Do you use Agricultural inputs for your coffee farm?
[ ] Yes [ ] No
3. If your answer for question number 17 is “Yes”, what type of input you use?
__________________________________________________________
4. Do you have other income source?
[ ] Yes [ ] No
5. If your answer for question number 19 is “Yes”, what type of income you have?
[ ] Livestock production & fattening
[ ] Farming different crops
[ ] Beekeeping [ ] Fruits & vegetable production
[ ] Off-farm income like (weaving, trading, pottery etc…)
6. Have you ever been trained on coffee production & marketing?
[ ] Yes [ ] No
7. Besides on above question number 21 have you got training on others income source & social
activities?
[ ] Yes [ ] No
8. If your answer for question number 22 is “Yes”, what types of training?
_____________________________________________________________________
9. Please state in 2017/18 crop year coffee production that accounted in Kilograms.
[ ] Red cherry [ ] Dried cherry
10. In above crop year the coffee supplied to the market for sale is (in Kg.) ____
[ ] Red cherry [ ] Dried cherry
11. How much you expend cost in 2017/18?
[ ] For coffee production [ ] Marketing cost
12. How much you gained from coffee sale in the crop year of in 2017/18?
[ ] From red cherry [ ] from dried cherry
13. To whom you deliver your coffee product in the same year?
[ ] To cooperatives [ ] to private traders [ ] to both
[ ] Specify others _____________________________________________
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PART THREE – Perception on Coffee Value chain analysis.

What is your overall perception with respect to analyze coffee value chain process using sustainable
value chain systems and its benefits?

Kindly rate how strongly you agree or disagree with each of the following statements by circling the
appropriate number in the box.

Use scale of 1 to 5 where 1 is strongly disagree (SD), 2 is disagree (D), 3 is neutral (N), 4 is agree and 5
is strongly agree (SA).

Item SD D N A SA
1 2 3 4 5
1. Farmers can also improve their link with other across in the chain. 1 2 3 4 5
2. Coffee value chain process is time saving and cost effective 1 2 3 4 5
3. Farmers and cooperatives have mutual respect and understanding 1 2 3 4 5
4. The primary cooperatives pay back to its member farmers from their1 2 3 4 5
net profit of coffee sale.
5. The coffee value chain analysis helps participating across to develop1 2 3 4 5
a shared vision and how the chain performs.
6. The strong value chain marketing system a tool of to minimize1 2 3 4 5
illegal traders.
7. A value chain is increasing market access to small holder farmers. 1 2 3 4 5
8. The key value-adding activity must increase or stabilize profit1 2 3 4 5
margins and the output.
9. The private traders are more benefited from coffee sale in price than1 2 3 4 5
farmers.

PART FOUR

Kindly rate how strongly you agree or disagree with each of the following statements by circling the
appropriate number in the box.

Use scale of 1 to 5 where,

1 is strongly disagree (SD),

2 is disagree (D),

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3 is neutral (N),

4 is agree (A)

5 is strongly agree (SA).

A. Access to market information SD D N A SA

1 2 3 4 5
10. The better informed farmers have the more likely they 1 2 3 4 5
supply coffee to the market.
11. The value chain has created better access to the 1 2 3 4 5
markets and pricing information.
12. Farmers informed about prices at the ECX through 1 2 3 4 5
Radio and Mobile.
13. The majority of farmers obtain market price 1 2 3 4 5
information from the market place its self.
14. Some farmers obtain price information from illegal 1 2 3 4 5
traders.

B. perception of household toward farm-gate price SD D N A SA

1 2 3 4 5
15. Remoteness results in reduced farm gate prices, returns, 1 2 3 4 5
input and capital, and increased input and transaction costs.
16. Farm products move from farms into hands of processors 1 2 3 4 5
and wholesalers and retailers.
17. The buyers direct contact to producers in farm production 1 2 3 4 5
area.
18. In farm-gate price marketing system there are fewer buyers 1 2 3 4 5
and sellers in production area.
19. In farm-gate price system it makes more difficult to 1 2 3 4 5
compare market prices to get market information.
C. Average age of plantation SD D N A SA
1 2 3 4 5
20. The coffee reaches maximum production during the age of 7 to 10
1 2 3 4 5
years.
21. An average age of coffee plantation is contributes to coffee supply. 1 2 3 4 5
22. A majority of farmers harvest their coffee cherries from old tree in 1 2 3 4 5

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small quantity.
23. The new Coffee Plantation & stamped coffee from 7 to 10 years 1it 2 3 4 5
gives more production.
24. An indigenous old coffee tree plant gives product every 3 to 4 years
1 2 3 4 5
interval.
25. Distance to the market causes adverse impact on participation. 1 2 3 4 5
26. The farmers pay high transportation cost to supply coffee to the
1 2 3 4 5
market
27. Due to long distance the farmers sell their coffee on village market in
1 2 3 4 5
low prices.
D. Education level of household
28. Education plays an important role in the adoption of innovation or
1 2 3 4 5
new technologies.
29. Education is believed to improve the readiness of the household to
1 2 3 4 5
accept new idea.
30. The price information is enhances producers willingness to produce
1 2 3 4 5
more and increase coffee market supply.
31. Educated farmers have knowledge to choose appropriate market
1 2 3 4 5
channel.
32. Education is influencing farmers to supply coffee to the market. 1 2 3 4 5
Size of land allocated for coffee production
33. The farmers have small plots of land that unable to expand coffee1 2 3 4 5
production.
34. The coffee land engaged by private investors has created problems to
1 2 3 4 5
own additional land for farmers.
35. The farmers do not have capital to produce more coffee to get
1 2 3 4 5
additional land.
36. The farmers discouraged to produce on existing small plots of land in
1 2 3 4 5
good management practice for the reason of low coffee price.
37. The small plots of land that owned by farmers overtaken by other
1 2 3 4 5
crops
SD D N A SA
E. Access to credit 1 2 3 4 5
38. A credit is a key financial instrument to break low level1 2 3 4 5
production and marketing problems.
39. Farmers require credit for coffee production and marketing1 2 3 4 5
costs.

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 40. Farmers require credit for consumption and social1 2 3 4 5
obligation purposes.
41. In adequate access to credit services is one of the reasons1 2 3 4 5
that affect coffee quality.
42. The farmers lack of collateral to obtain credit. 1 2 3 4 5
43. In slack seasons when farmers lack of income coffee trees1 2 3 4 5
serve as collateral to obtain credit from informal Money lenders.

F. Availability of extension service

44. The weak extension service is provided to the farmers. 1 2 3 4 5
45. No facility has given to Development agent workers to give1 2 3 4 5
extension service to farmers efficiently and effectively.
46. The farmers have not to use improved coffee varieties. 1 2 3 4 5
47. In general, the farmers have no experience using1 2 3 4 5
agricultural inputs for coffee production.
48. Weak training access to farmers. 1 2 3 4 5
49. In adequate coordination between coffee producers and1 2 3 4 5
extension service.

Research Questionnaire for traders

PART ONE – General information of respondents.

Kindly tick your answer by putting like a symbol [ ] in the appropriate box.

1. Age - [ ] Under 20 years old

[ ] 20 to 29 years old
[ ] 30 to 39 years old
[ ] 40 to 49 years old
[ ] 50 to 59 years old
[ ] 60 and over years old
2. Gender: [ ] Male [ ] Female
3. What is your ethnic group? _____________________________________
4. What is your occupation? _______________________________________
5. What is your educational level?
[ ] Degree [ ] Diploma [ ] 10 + 1

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[ ] 10 + 2 [ ] 12 complete [ ] 9 - 10
[ ] 5 - 8 grade [ ] 1 - 4 grade
[ ] Basic education
6. What is your marital status?
[ ] Married [ ] Single [ ] Divorce
7. What is your religion? ___________________________________
8. Mention the skill of language you know
1. ____________________________________
2. ___________________________________
9. Preferred media (what do you read, watch & listen to?)
________________________________________________________________
10. What is your membership status in cooperative?
[ ] Member [ ] Non member
11. What is the main function of your cooperatives?
________________________________________________________
12. Do you get satisfaction in your cooperatives?
[ ] Yes [ ] No
13. If your answer for question number 12 is “Yes”, what types of your satisfaction holds?
_____________________________________________________________________
14. If your answer for question number 12 is “No”, what problems happening in your cooperatives?
_____________________________________________________________________
15. What is the main problem facing in your private coffee marketing?
_____________________________________________________________________
16. What type of coffee you purchase?
[ ] Red cherry [ ] Dried cherry [ ] both
17. In the year 2015/2016 how much you purchased in K.G.?
[ ] Red cherry [ ] Dried cherry [ ] both
18. In the same year above mentioned by what price per K.G. you bought from farmers (on average
price)?
1. Red cherry 1 K.G. ________ birr 2. Dried cherry 1 K.G. ____________ birr.
19. In the same year on average by what price you sold?
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1. Coffee bean with parchment 1 K.G. _______________
2. Dried coffee bean 1 K.G. __________________
20. In the same year if you deliver to cooperatives, how much birr you got from profit share of
premium payment? _________________________________________________
21. Do you have other income source?
[ ] Yes [ ] No
22. For question number 21 if your answer is “Yes”, mention it the type of income source
____________________________________________________________________
23. Have you licensed for coffee trade?
[ ] Yes [ ] No
24. How much coffee you supplied to the central market in Kilogram in the same year?
Washed coffee with parchment _________________________
Dried coffee bean ___________________________________
25. How much you expend for coffee marketing cost in the same year?
______________________ Birr.
26. How much your coffee sale you obtained in the same year?
______________________ Birr.
27. To whom you deliver or sell your coffee product?
________________________________________________
28. What is your comment for existing coffee trade reforms?
1. ________________________________________________________
2. ________________________________________________________
29. What are problems challenge you to get credit?
___________________________________________________________
30. From where you obtained a credit?
___________________________________________________________

31. Do you think the illegal coffee traders in your area?

[ ] Yes [ ] No
32. Do you use latest pulpier and huller machines?
[ ] Yes [ ] No
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33. If your answer for question number 31 is “No”, why?

Thank you very much for your time and cooperation in responding to the questions!

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