Back from the Road: Addis Ababa, Ethiopia, The Direct Specialty Trade Auction3-5-10
As a few of you know, about a year ago and half ago Ethiopia radically changed the way coffee was traded throughout the country. A trading platform called the Ethiopian Commodity Exchange (ECX for short) emerged and the old auction system was done away with. The new system focused on real-time pricing and trading broken down for virtually every unique region and processing style within Ethiopia. While the new ECX system vastly improved some aspects of coffee trading, it also produced some limitations. One of the limitations was that traceability to a specific lot or producer became much more challenging because different producer’s lots were not necessarily kept separate. Another limitation was that any certification, organic or otherwise, could no longer be attached to the coffee, again because the coffee was being traded in grades and not by a specific producer. Understanding that the exchange was a good platform for many coffees – but that there needed to be another venue for high quality, traceable, and certified coffees for specialty coffee buyers – the leadership of the ECX started building the framework for a branch of the exchange to make those things possible. And this is how the Direct Specialty Trade auction was born.
To make the auction a reality in such a short time, the leaders of the ECX – in particular, a gentleman named Bemnet Aschenaki – have been visiting as many producers as possible from all over the country looking for the best coffees. The idea is that the coffees they found would be separated and set aside at ECX warehouses around the country. Then, international buyers would have the opportunity to taste these hand-selected coffees and purchase them transparently through the Direct Specialty Trade auction. This system gives producers the opportunity to market their coffee to buyers they never would have had access to before. It also provides a transparent contract with the buyer that stipulates exactly how much of the purchase price will go to the exporter and, more importantly, how much will go to the producer. For Counter Culture, seeing this new platform in action was a can’t-miss opportunity and, of course, also a chance to purchase a spectacular lot of coffee. The first thing to do was to taste the coffees that ECX scoured Ethiopia for.
On the Morning of February 16th, I made my way to the ECX’s main facility in Addis Ababa for a full day of cupping coffee. The ECX was able to assemble 44 different coffees for this first auction, and this was my opportunity to cup through them all. Having that many coffees to cup in one day can be somewhat daunting in any circumstance, but especially cupping at origin. Many cupping labs at origin lack the necessary protocol or equipment to keep everything consistent, and when things are not consistent it can be hard to gauge to quality. Prepared for possibly one of the longest cupping days of my career, I was overjoyed when I walked into a brand new and meticulously organized cupping lab that we would be using. All the coffees buyers were quickly able to dive into cupping and after a solid 7 hour day of tasting we now had a very good idea what the Direct Specialty Trade auction had to offer.
After the cupping, all the buyers met with Dr. Eleni Gabre-Madhin, CEO of the ECX, and all the producers that were selling their coffee in the auction to talk about how the bidding process and logistics of the coffee being sold was going to work. One of the major challenges of the auction was that many of the lots represented less than the standard shipping amount; so a few options needed to be discussed. For instance, did buyers want to take the extra expense for shipping less than the standard amount of coffee – adding an extra 20% or more to the cost? Or did it make more sense to work with the producer to purchase more coffee outside of the auction and ship it with coffee from the auction? Or was it possible to purchase coffee from a few producers and have them work to ship all of their coffee together? Those questions are what I like call the somewhat boring side of coffee sourcing, but in reality without figuring them out before the auction, it could make or break what is bought and at what price it could be purchased. After 3 hours of discussing protocol and logistics and getting everything out on the table, the only next step to take was to see the auction live the next day.
The next day, after all the buyers and sellers settled in auction room floor, the auction bell was rung by Dr. Eleni and the very first Ethiopian Direct Specialty trade auction was officially was under way. In the middle of the auction pit (a sunken octagon-shaped part of the auction floor) the first seller stood awaiting open outcry bids for their coffee. For a brief second everyone held their breath and looked around the room. Then bids started going back and forth among the buyers. As the price rose modestly, you could hear people murmuring around the room. After a short time, bidding came to a close and everyone looked over at the auctioneer. The auctioneer then revealed that the seller’s reserve price had not been met. The high bidder and seller negotiated, but could not agree on a price and the coffee went unsold. For the first three coffees this was the outcome. The next five coffees were not bid on at all. Again on the ninth coffee up for bid, the buyer and seller again could not agree upon a price and the coffee went unsold. The tenth was not bid on. Things were starting off slowly, and everyone around the room was starting to get nervous. Being the very first auction of its kind, the kinks needed to be worked out. One of the causes to the slow start was that the quality level, while still very high, represented a greater range than what many buyers in the room were interested in, and many of the first auctioned coffees were in the lower quality range. Also because there was no history for this type of coffee sale, the price levels for what buyer and seller thought was fair needed to come together. So, after a very slow start where almost a fourth of the total coffee went unsold, on the 11th coffee up for bid, the DST auction finally had its first sale. A loud cheer came from the crowd and some of the tension relaxed. The next 20 or so coffees auctioned were hit or miss with six total sales.
The last 10 coffees, however, were a different story. The last 10 coffees represent some of the higher quality coffees the auction had to offer and bidding was much more aggressive. Going back to all the tasting I did of those 44 coffees, one coffee really hit the right notes. That coffee was from the Adado Co-operative (not Idido, just for clarification) in Yirgacheffe. The coffee was sweet, very floral with a good hint of citrus. It is our kind of coffee from Ethiopia. And, now, after waiting for 41 coffees to go through the auction, it was finally time for bidding. I stood hovering over the pit as the bidding started on the Adado Co-operative coffee, and quickly realized that I was not the only one who liked this coffee. Bidding quickly rose higher than all the other coffees in the auction. Four separate buyers bid back and forth until the price forced two to drop out. Still on the floor bidding on behalf of Counter Culture and a few other roasters was Timothy Chapdelaine, a long time importer partner of ours. He bid without hesitation all the way until he reached our cutoff – MORE than 20 percent higher than any other coffee in the auction. In the end someone wanted this coffee just a little bit more than we were willing to spend for the quality, so we would be going home without a purchase.
After the last two coffees were purchased and the auction came to a close, there was a big sigh of relief around the room. While the auction started out very slow, and of course there are many things to work out, I still believe buyer and seller alike saw it as a small success. Overall, 16 coffees sold for a very good average price above the market with the Adado Cooperative lot considerably higher. Also after the bidding session, a great opportunity to talk with producers came up. The conversations I had revealed that some producers were disappointed with the results, in particular a few that received no bids for their coffee, but that even those producers still had great optimism for the system in the future. Their hope was that the ECX would learn from this auction and iron out the system.
One other interesting outcome from the auction was that a partner of ours, Abdullah Bagersh, had the chance to represent another producer's coffee as the exporter. Because Abdullah is not only well-respected for producing great coffee and for making coffees better through his meticulous export preparation, the coffee he represented received the third highest bid at the auction. While that was great in itself, after the auction Abdullah received many phone calls from other producers asking him to represent their coffee in a the next Direct Specialty Trade auction. So, about a month from now the second Direct Specialty Trade auction is going to take place, and from what I understand the bar is going to be raised on quality, logistics and bidding will be better figured out, and the exporters who we love to work with will hopefully have more coffees to represent at the auction. I don’t know what everyone else thinks, but I believe we might be bidding again.