Large scale increases in producer incomes due to value capture strategies

In recent years, low-income producers in Eastern Ethiopia have been destroying plants of one of the world’s best coffees, a heritage fine coffee called Harar. Until 2007-8, the Harar producers received farm gate prices based on an export price that treats Harar as a commodity, less the cost of transport over 200 miles to the export port (Djibouti). This farm gate price was so low that families could not survive, so the plants were being replaced with chat, a narcotic.

FOB commodity export prices are very hard on producers living 200 miles or more from an export port, particularly a port that is distant from world markets. But, if Harar producers are suffering, imagine the position of coffee producers in the Sidama region, who were trying to survive while living 900 miles from the export port. In a similar location, Ugandan producers live off what’s left from commodity prices after shipment costs of over 1000 miles to Mombasa.

From 2007, however, Ethiopia’s fine coffee farmers need not be forced into growing narcotic crops. Instead, due to assistance in “Value Capture” strategies (see below) from Light Years IP and with the participation of the Ethiopian Government, 4 million fine coffee farmers and small traders are now collectively using business approaches common to modern corporations. These strategies have transformed the farmers’ negotiating position and increased their income by several times.

The strategies recognized that while Ethiopia was receiving export income of $100m in 2006/7 from the export of three highly respected fine coffees, this coffee was generating over $1,500m in retail markets worldwide. The negotiating position of the fine coffee export sector was strengthened sufficiently to capture an extra $100m for Ethiopia out of this retail value in 2007/8 (June year, reported by the Ethiopian Ministry of Trade and Industry, July 2008, attached).

Value Capture business strategies have produced substantially higher gains than are possible from conventional agricultural development techniques including:

  • Increased production such as Green Revolution, GMO or agricultural science
  • Market access to commodity markets
  • Value Added through local processing
  • Agricultural Extension

(“From 1996-2006, current export strategies have yielded an annual increase of by 1.6 percent for Africa’s non mineral merchandise export income” - Distinctive Values in African Exports, Light Years IP, 2008)