Exploration of Structure-Conduct-Performance of Coffee Market System in Ethiopia: The Case of Jimma Zone

Abstract

A study entitled farmers perspective exploration of structure-conduct-performance of coffee market system was undertaken in Jimma zone, Ethiopia with the aim of computing a four firms concentration ratio, observing the price setting strategy, estimating costs, margins (gross and profit). 138 smallholder farmers from eight kebeles were sampled using multi-stage sampling techniques. Besides, respondents comprised of cooperatives, unions, suppliers, and were selected following the chain of actors starting from the sample farmers. Data were collected from primary sources through semi-structured interview schedule, checklist, and group discussion accordingly. Data were also collected from secondary sources. Descriptive method of data analysis using structure-conduct-performance model was used to analyse the data. The result of four firms concentration index revealed that in all districts a few suppliers have largely conditioned the volume of coffee traded revealing the existence of market imperfection as few suppliers seem to have monopolized the coffee market in general. The market conduct analysis detected that unfair price setting practices, in advance credit based binding contractual agreement, confusing marketing informations, and collusion mechanisms were followed by suppliers while purchasing coffee from farmers. The performance component analysis based on gross margin and profit margin revealed that despite, farmers do all the work of production and harvesting activities, and bearing the associated risks, received the very smaller portion of profit shares from both washed and unwashed coffee type. Still, farmers relatively perform better and efficient while participated in drying coffee than selling the red cherry coffee type as in drying cherry coffee the proportion of gross marketing margin reached to smallholder farmers is higher than the one absorbed in the market for other intermediaries. Finally, the study recommended that, as farmers are the pro-poor groups who needs to be prioritized in any intervention, legal tactics and conditions under which illegal and imperfect market practices would not likely to prevail should be implemented. Legal interference in coffee business prevailing price ceiling and price floor in accordance with keeping farmers’ advantage should be accompanied with farmers.

Keywords: Supplier, Red cherry, Dry cherry, Structured conduct performance