Direct trade coffee in East Africa is constrained – challenges and opportunities for growth

East Africa is home to many of the oldest coffee-producing countries in the world with a history of up to dozens of centuries such as Ethiopia, Kenya,… Therefore, according to the process of development and trade, Coffee in East Africa is vast and complex, with many different types of transactions across countries. Direct trade coffee in East Africa is quite rare and underdeveloped. East African farmers have little access to or understanding of this trading method.

Instead, indirect trading systems are widespread and are the main way of buying and selling coffee in East African countries. Most farmers and producers sell coffee at local, government exchanges or through auctions. Such as the Ethiopian Commodity Exchange (ECX) of Ethiopia, and the Auction System of Kenya, Tanzania, and Rwanda,…

Direct coffee trading in East Africa is not yet developed

Direct trade coffee in East African countries is not emphasized and applied on many farms. Meanwhile, though, the indirect trade model often faces criticism for not ensuring fairness for farmers. But they still account for the majority of total coffee sales in some East African countries, such as 94% in Kenya.

Analysts say the main reason direct trade coffee is less popular in East Africa is the lack of investment and the poor financial status of farmers. Most coffee farmers on the continent have loans and debts due. They have to rely too much on income from coffee to repay these loans. However, this issue is often supported by intermediaries at existing indirect trading platforms. Some intermediaries may oversee the financing, and agronomic advice based on observations and measurements, all stages of export preparation, packaging, quality control, documentation, and overall implementation of shipment.

East African farmers find it difficult to meet the logistics of direct trade transactions

Additionally, the logistics of direct trade can be extremely expensive. Agricultural marketing cooperative societies (AMCOS) cannot afford to fund this activity. Farmers in direct trade also often do not receive money immediately but must wait to be paid within seven days from the date of the coffee sale. However, indirect exchanges can help with logistics issues and clear transactions faster.

Furthermore, the quantity of goods that a farmer in East Africa can provide is not high. If buyers need large quantities, they will have to work with many small farmers, wasting time and money. Therefore, large commercial roasters often choose to work with importers instead of dealing directly with farmers.

Additionally, some East African local laws may require coffee in direct trade to be sold at a price higher than the auction price. This makes direct trade less competitive. The producer will be at a disadvantage because customers will prefer to participate in the auction or exporters will offer the same coffee at a cheaper price.

Direct trade coffee can help farmers sell at higher prices, commensurate with the quality of their coffee. Furthermore, this transaction is built on corporate social responsibility and direct relationships. As a result, farmers with direct buyers often enjoy grants and production and operational support. Direct trade can also shorten the distance, creating a closer connection between roasters and growers. If a long-term direct trade relationship is established, farmers and buyers can cooperate and have better, more sustainable developments.

East Africa needs to promote further investment to develop a direct trade coffee system

However, with challenges in the financial status of farmers, infrastructure, and current regulations and policies in East Africa, developing a direct trading system is quite difficult. Agencies and stakeholders need to join forces to support, restructure, and invest for this model to become popular.

XLIII Coffee is a coffee business that puts sustainable responsibility first. We are making efforts to find and support farming households through direct trade. Coffee lots at XLIII Coffee are imported officially through transactions that focus on fairness and give decision-making power to farmers. Visit XLIII Coffee stores to experience quality specialty coffees!

Source collected from perfectdailygrind

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