IP watchers (and coffee aficionados) will be interested in developments in the Ethiopian coffee sector. Ethiopia is one of the few coffee producers to trade mark what are, effectively, regional coffee varieties (e.g., Yirgacheffe) in the hope of increasing prices. Ethiopia’s move to develop IP protection for its premium coffees sparked a pitched media battle between Oxfam and Starbucks in 2005, and big coffee (the National Coffee Association) filed a 300 page Letter of Protest claiming that the names were all generic. The history – and outcomes – of this initiative likely have a bearing on any attempts by developing countries to trademark agricultural products in the West.
Shlomo Bachrach, a long time Ethiopia watcher and editor of East Africa Forum comments as follows:
“The surprising report that Ethiopia has suspended coffee exports — its primary source of export income — is easily misunderstood. In part this is probably a case of irresponsible reporting and both contradicts what the government has been demanding from its coffee exporters and is almost certainly inaccurate.
Ethiopia is desperately short of hard currency. This is the consequence of many factors, including the worsening global economic decline, Ethiopia’s policy of deficit- financed budgets (which the IMF and others have been warning would worsen inflation, which has now declined to 32%, the government proudly announced this week), the inevitable need for foreign capital to finance infrastructure and other development, etc.
Ethiopian businesses are starved for foreign currency to finance imports of raw materials. Coca Cola (an African-owned franchisee) has temporarily closed its bottling plant because it can’t pay for the syrup from the company. This is only a particularly visible impact of the hard currency shortage.
Prime Minister Meles, desperate for export revenue, has taken control of the coffee owned by exporters and held in the new Commodity Exchange warehouses. He accused the owners of ‘hoarding’ the coffee in the hope that coffee prices, now far below last year’s prices (down from $1.60/lb+ to below $1.20), will rise. They claim that they will lose money if they sell at current prices. But Ethiopia is not suspending coffee exports. It is suspending the freedom of the owners of the coffee to trade in their own coffee, and asserting the government’s right to do so on their behalf, for the good of the country. The exporters will get the proceeds, in local currency. Whether the exporters lose money or not doesn’t matter. The government wants the hard cash right now.
The issue is financial and political, not agricultural. It is probably not a permanent move into coffee marketing. But who knows? It’s an ominous precedent, as any potential investor will tell you. Ethiopia needs a lot of investment in the coffee sector. The long term benefits are probably huge. The benefit of this strong arm intervention will be short, the damage is likely to last longer. If the government is capable of this, goes the obvious reasoning, what else might it do? This is the kind of action that is hard to undo.
In Seattle, home of Starbucks, where the press probably knows the coffee business better than most, a newspaper noted that Starbucks had recently announced that it had ‘postponed’ the creation of its promised Farmer Service Center in Ethiopia, intimating that the company might use this as an excuse to drop the plan altogether. Starbucks has already invested in a bigger Farmer Service Center in Rwanda’s fast-growing coffee sector.
The coffee sector has reason to wonder what might come next. Meles regularly defends the right of his government to manage and intervene in the economy in a form of ‘state capitalism’. He was an avowed socialist for many years, becoming a reluctant free marketer when his rebel movement took over the government in 1991 and he needed foreign assistance from the US and Europe. (His socialist roots are not entirely without benefit: Ethiopia has spent heavily on health, education, infrastructure, etc., though it remains relatively underdeveloped because it started from such a low level.) The government controls key economic sectors like banking and internet/telecommunications. Internet and cell phone service are, consequently, exceptionally poor in Ethiopia compared with its neighbors, who allow foreign investment and competition, and where service is cheaper, better, faster and more widely available.”
Post written by Peter Bloch, consultant to CAS-IP