Out of Africa - Sidama Land: Coffee Economics, Politics and Poverty

By: Muhammad Shamsaddin Megalommatis
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[ Posted On: 2007-09-30 ]

In two earlier articles, successively entitled 'Coffee, Colonialism and Capitalism; Introduction to African Crisis' and 'Coffee, Colonialism and Capitalism; Introduction to 'Ethiopian' Tyranny', we published the first two parts of the Sidama Intellectual Side Goodo's perspicacious study on Sidama Land: Coffee Economics, Politics and Poverty.

The two articles, completed with the present third part, shed light on some of the reasons of African underdevelopment and poverty, namely the colonial structures and the exploitation of African non-sovereign lands' natural resources by invaders and occupying forces.

Mr. Side Goodo's study comprises four parts, namely 1. Poverty, Hunger and Underdevelopment in Africa, 2. Poverty and Underdevelopment in Ethiopia, 3. Poverty in Sidama Region, and 4. Sidama: Coffee and Poverty. At the end, of the fourth part, Mr. Side Goodo analyzes the various factors that explain why coffee failed to contribute to poverty alleviation in these regions and in Sidama in particular.

As Mr. Side Goodo states, 'Among others these include (a) inimical macroeconomic policies, (b) systematic exploitation of producers by parastatals (c) unfair allocation of retail returns, and (d) international price volatility. I will deal with each of these in the following sections'.

The second article of the series ended with a focus on the inimical macroeconomic policies. With the analysis of the other three factors, Mr. Side Goodo offers a spherical view over the issue of the Abyssinian (Amhara and Tigray) invaders' exploitation of the Sidama Land's richest resource, its coffee.

Sidama Land: Coffee Economics, Politics and Poverty

By Side Goodo, Sidama Intellectual

Sidama: Coffee and Poverty

b) Systematic exploitation of coffee producers by the parastatals

In addition to inappropriate macroeconomic policies, there is also another indirect mechanism by which coffee income from the area is stifled to the center. These is carried out systematically through the parastatal called the development bank of 'Ethiopia'. The coffee producing cooperatives are required to deposit their earnings only in the development bank accounts. However, when they deposit their monies there, they are forced to put it in the non-interest bearing current account. This enables the bank to lend and benefit by charging interest to other borrowers the money deposited by these cooperatives. Thus while cooperatives get no interest for the money they deposit in these banks, the banks charge these co-ops exorbitant rates of interest whenever they want to borrow from these banks. Thus there is double exploitation of the coffee revenues of these cooperatives. Their money does not bear interest but they pay high interest for what they borrow from these banks.

Cooperatives are private businesses and there is no reason why they should not earn interest from their assets. This is another mechanism of inappropriate resource misappropriation that perpetuates the misery of the coffee producing farmers in Sidama.

c) Unfair distribution of retail returns

The Sidama coffee along with Harar and Yirgacheffe is considered to be among the world's best coffee. However, the producers of this coffee, the Sidama peasant farmers, are among the world's poorest people. One of the reasons for this is the insignificant retail return these farmers obtain for their coffee produce. The specialty coffee fetch higher prices for food chain multinationals compared to the prices of commodity coffee. That is each of the high quality coffees sells at a premium over commodity coffees in world markets and draws high retail prices.

However, the distribution retail returns from the specialty coffee is monopolised by the importers and distributors. The peasant farmers in Sidama, Gedeo and Harar who produce such specialty coffee in 'Ethiopia' obtain only around 6%-10% of the total retail returns. This barely covers even the production costs.

This is far less than the percentage the high quality coffee producers in other developing countries obtain for their produce. For instance, producers of Jamaican Blue Mountain Coffee capture 45% of their product's retail price which is 35 percentage points higher than what the Sidama producers obtain for their produce. The fact the Jamaican retail return share is acceptable by both the importers and distributors indicates that, other things remaining constant, there is a possibility for the Sidama farmers to increase their coffee income by three folds. However, the realization of this dream is very difficult if not impossible in 'Ethiopia'.

d) International price volatility

The recent plunge in the international coffee prices contributed to further deterioration of the incomes of the Sidama coffee producers usually supported by the IMF and World Bank poverty alleviation, structural adjustment and stabilization programs. The global oversupply of the commodity coffee resulting from increased production by farmers led to a sharp decline in coffee prices beginning in 2001. At the beginning of 2003, the world coffee prices have fallen by 50% and were at their lowest in 30 years where the global supply was about 8% above the global demand.

Accordingly, the world market price for coffee has become less than US$0.50 per pound, of which farmers only receive half. This was five times less than what the farmers used to get before the slum began in 2001. However, still in Western countries, coffee was sold for around US$10 per pound. As a result of this massive slump in coffee price, the Sidama and other coffee farmers in 'Ethiopia' faced a sharp increase in poverty and hunger.

The main reason for such devastating price slump was the global over supply of commodity coffee. However, the effect is compounded in 'Ethiopia' because of the country's insignificant share in the world coffee market. For instance, while Brazil produces over 2 million tones, the 'Ethiopian' out put is only about 200,000 tons 1/3 of which comes from Sidama and Gedeo alone. 'Ethiopia' produces only 10% of Brazils coffee output and les than 2% of the world coffee output.

Nothing has been done by the successive 'Ethiopian' regimes to increase the country's share in global coffee market. Vietnam which was insignificant coffee producers before 1980s has now become the world's second largest producer of coffee following Brazil.

The successive 'Ethiopian' rulers continued to plunder revenues collected from wild coffee trees and those produced by poor Sidama, Gedea, Wollaga and Harar peasant framers but did nothing to improve the efficacy and the scale of production except boasting that coffee originated in 'Ethiopia' 1000 years ago.

This represents another 1000 years of lost opportunity in 'Ethiopia'.

Thus, 'Ethiopia' does not have any role in international coffee price determination. The country is the best example of a coffee price taker firm with perfectly elastic price line and demand curve.

The Sidama coffee enriches the importers and distributors to the detriment of the peasant farmers who produce it. The recent battle between Starbucks and the 'Ethiopian' government over the issue of trademarks over specialty coffees, i.e. Sidama, Yirgachefe and Harar was a typical example of how globalisation tends to perpetuate poverty in the periphery and continues to enrich the centre.

Finally, Starbucks accepted the country's right to trade mark the Sidama (Sidamo is the bastardised name given by the Amhara rulers and is a misnomer) other specialty coffees. Accordingly, with the support from DFID in 2005 and 2006, the Light Year Intellectual Property (LYIP) assisted the country to obtain trade marks in over 30 countries.

This together with the involvement of coffee cooperatives in Fair Trade is meant to increase incomes of peasant coffee producers. It is argued that Fair Trade guarantees a minimum of $1.26/pound (a living wage) and access to credit at fair prices to poor farmers organized in cooperatives. Fair Trade is also believed to promote socially and environmentally sustainable techniques and long term relationships between producers, traders and consumers. How many of the Sidama coffee cooperatives are able to benefit from this agreement is not clear at present.

Although the Sidama coffee producers have been organized in cooperatives since early 1980s they have never benefited from the organization. The recent attempt to reorganize the Sidama coffee producers union that will be able to directly export coffee has been a disaster. It was reported that while coffee price has recovered recently and other coffee unions are making recovery, the Sidama coffee cooperative union became bankrupt for some reason.

Thus, whether Starbucks accepts the country's bid to trade mark the Sidama and other specialty coffees or not, the benefits of a massive coffee production from these areas will not likely trickle down to the poor farmers in the near future.

The 'Ethiopian' political economy needs a fundamental change. It is only when such changes take place in a peaceful and sustainable way and as immediately as possible that the current subhuman living conditions of the people in Sidama and the rest of the country will improve.

Article Source: http://www.afroarticles.com/article-dashboard

About The Author: Dr. Muhammad Shamsaddin Megalommatis - is Orientalist, Assyriologist, Egyptologist, Iranologist, Islamologist, Historian and Political Scientist. Dr. Megalommatis, 49, is the author of 12 books, dozens of scholarly articles, hundreds of encyclopedia entries, and thousands of articles. He speaks, reads and writes more than 15, modern and ancient, languages.

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