Agricultural sector has been the priority of Ethiopia since the early 1990s, when the Agricultural Development-Led Industrialization (ADLI) and related policy frameworks were adopted (FAO, 2014). Share of agriculture fell to 34.9 percent in 2017/18 from 36.3 percent during the same period (NBE, 2018). Despite its declining contribution to GDP over the years, agriculture remains the leading sector in terms of contribution to the country’s overall economy. It is a major source of food for domestic consumption, of raw materials for the domestic manufacturing industries and of primary commodities for export.
Moreover, the sector contributes 73% of employment, and supplies 70% of the raw-material requirements of local industries (Admit et al., 2016).
Ethiopia is mainly characterized by low output rain-fed mixed farming with traditional technologies. The presence of an unproductive class, lack of capital, poor infrastructure, absence of access to markets, a shortage of skilled manpower, land degradation, population pressure, culture, deforestation, tenure regimes and polices, poor land management practices and varied but interrelated natural factors could be mentioned as important factors of rural poverty (Temesgen, 2017).
Agricultural production in Ethiopia remains exposed to various risks (disease outbreaks, agricultural output price volatility and uncertainty in input-output price ratios), (IFAD, 2016). The major factor for the short fall in achieving the planned level of agricultural productivity is related to the coverage and quality of implementation of the agricultural extension system (NPC, 2016).
Ethiopia is the birth of Coffee arabica. It is grown by over 4 million smallholder farmers and employs 15 million people or roughly 15% of the country’s population at different points along the value chain (Francom, 2018).
Ethiopia produces and exports one of the best highland coffees in the world (Samuel and Eva, 2008). Total earnings from goods export grew by 3% in 2018 over the same quarter of last year on account of the rise in export earnings from coffee (19.1%), oilseeds (4.9%), leather and leather products (27.7%), fruits and vegetables (16%), meat and meat products (10.1%), flower (8.1%), electricity (23.8%) and other exports (35.1%). The share of coffee in total merchandize export earnings was increased from 27.5% in 2016/17 to 31.8% in 2017/18 (NBE, 2018). The area share of coffee under all crops in the country was increased from 4.94% in 2016/17 meher season to 5.09% in 2017/18 meher season (CSA, 2018). Coffee plays a vital role in both cultural and social life of Ethiopian community. Among coffee producing countries in the world, Ethiopia is the first in consumption of coffee (Melkamu, 2015; Alemayehu, 2014).
Coffee is backbone of the Ethiopian economy. But, Ethiopia has not yet fully exploited its position as the producer of some of the best coffees in the world. Coffee production in Ethiopia is constrained by lack of competitiveness, poor access to market, lack of infrastructure, inadequate access to services, low value addition, and in adequate technology transfer and research (Jose, 2012). Coffee sector is highly dependent on international prices and affected by the structure and workings of the world coffee market. Ethiopia is one of the countries mostly affected by the crisis in world coffee prices (Nicolas, 2007). Notwithstanding the severe price shocks that have been shacking its value chain, coffee remains a fundamental component of the Ethiopian economy and export. Nevertheless, the prolonged price decline has substantially weakened its production basis and prospects so that appropriate financial services are urgently needed to sustain rural communities (Bastin and Matteucci, 2007).
Oromia is one of the largest region in Ethiopia that shares largest area coverage of the country. It is known for high production of coffee and, 489799.36 ha of land were allocated and 3101927.33 quintals was produced with average yield of 6.33 quintals/ha in 2017/18 meher season (CSA, 2018). From top 25 coffee producing districts in Ethiopia, Oromia dominates with 18 coffee producing districts and the remaining top coffee producing districts are located in SNNP. Arsi zone is one of the Oromia region’s zone which has potential of coffee production. In 2016/17 meher season, 6606.55 ha of land were allocated for coffee production (CSA, 2017). Gololcha district is found on the 14th from top 18 coffee producing districts in Oromia (James et al., 2015).
To improve coffee production and productivity in the area, development of well-performing marketing system which satisfies consumer demands with the minimum margin between producers and consumer prices is important. But, no attempt has been made to study performance of coffee marketing and determinants of market supply in the study area. The finding of the study can assist in developing improved market development strategies to benefit all stakeholders who are participating in coffee market in the study area.