By Wondwossen Mezlekia
It looks like this decade is shaping up nicely as a period of Coffee Rush in Ethiopia; of course, with little resemblance to the California Gold Rush (1848–1855) and involving mostly internal actors.
Reminisce the trademark dispute between Starbucks and Ethiopia that publicly erupted six years ago.
In 2006, Oxfam stood up, on behalf of Ethiopian farmers, and demanded Starbucks to drop the hindrance it created against the name “Sidamo” at the United States Patent and Trademark Office. Starbucks ultimately gave in and even promised to open a Farmer Support Center in Addis Ababa by 2008. Ethiopia now has the legal right to add the symbol ® next to the coffee names Harar, Sidamo, Yirgacheffe in the United States (and some other countries) though the Farmer Support Center is still missing. And the NGO that is behind the project is now claiming that the farmers’ annual income has doubled to about $278 as a result. Really?
The Ethiopian Fine Coffee Trademarking and Licensing Initiative was advertized back then as a project with a potential of bringing farmers an additional earning of $88 million a year – a figure later proved to be based on hogwash. The initiative was designed by Light Years IP (LYIP) based on the belief that Ethiopian farmers deserve better than being shortchanged by coffee buyers, such as Starbucks, who pay dirt low prices for the finest coffees that they buy and later sell for up to $25 per pound at the time. The idea was that by empowering farmers with a stronger bargaining power, the project would put them in a better position to demand higher prices.
The market fundamentals in Ethiopia have since changed drastically. The government controlled the coffee market and effectively ended the vertically integrated marketing channel where direct trade between coffee growers and buyers was possible. By tightening its grip on the market, the government also pulled the rug out from under the presumed governance of the trademarks by a coalition of Ethiopian stakeholders – coffee farmers, cooperatives, and exporters – because the government is now the major stakeholder. This causes serious challenges to establishing the trademark model as a commercial venture. It is not clear how LYIP envisions the initiative to adapt to current circumstances. If there is any effort underway to recalibrate the model, LYIP would not disclose. The organization lacks transparency when it comes to sharing information on this project. The information posted on its website is only a collection of promotional materials.
Despite all the moving pieces and uncertainties surrounding the initiative, LYIP is declaring success.
According to its website and fliers, the initiative had already “… resulted in over $200 million in increased rural income to Ethiopia. Based on IP Value Capture, Ethiopian coffee farmers were able to DOUBLE their share of the final retail value for their product, which greatly impacted millions of coffee farmers. The first stage of the initiative returned $US 101 million to African producers, astonished Africa and led to many requests for Light Years IP training in the method in other countries, most recently Tanzania, which has adopted it nationwide. Ethiopia now owns trademarks for several of its distinctive coffees and has 110 licensed coffee distributors, including Starbucks Corporation, Caribou Coffee and Green Mountain Coffee.” 
In other words, LYIP claims that the farmers’ annual income has doubled to about $278 per person (assuming equal distribution among 1.5 million farmers), from $145 in prior years, because of the initiative.
The Overseas Development Institute (ODI – a group that calls itself “Britain’s leading independent think tank on international development and humanitarian issues”) echoed this absurd claim, saying: “… according to the Oromia Coffee Farmers Cooperative Union, it has already able [sic] to secure export prices of more than $2 per kg, representing an increase of an estimated 50-100%…According to Light Years IP, as the Ethiopian Fine Coffee brand develops its standing in consumer markets, it should be feasible to more than triple the export price, to approximately $6-8 per kg.” 
That is the height of intellectual dishonesty.
The claim can’t stand up to the facts. First, Ethiopia’s coffee sector is still a buyer’s market for the most part; meaning, it is still under pressure from the international market where there are more sellers than buyers.
Second, it is virtually impossible to determine the effects of the initiative on rural income without a real impact evaluation or specialized survey of the situation made before or after the registration of the trademarks. No such impact evaluation was ever made for this project. How does mere registration of trademarks increase farmers’ negotiating power thereby enabling them to demand for higher prices? Are buyers and retailers now paying additional prices for use of the trademarks (if so, who are these buyers and how much do they pay for each brand)? Which one of the three brands (Harar, Sidamo, and Yirgacheffe) fetched the highest additional return? Was this a onetime return observed during the first stage of the initiative or the current price level is also attributable to the trademark initiative? These are some of the key questions that should be addressed in order to properly appraise the initiative.
The price of a high quality Sidamo coffee did indeed reach $1.54 a pound in September 2007 – an increase of around 8 cents over the same period in the prior year. But, all the news reports and information published at the time suggest that the price increase was not unique to Ethiopia; it was rather in line with the upward price movement seen in the world market at the time. Multiple news services reported in 2007/8 that international coffee price was picking up due to anticipated shortages in the supply of Robusta coffee and adverse weather conditions in Brazil and other major coffee producing countries. After a brief pause later that year, prices again spiked in 2008/9 and continued to skyrocket through 2011. The rise was initially caused by speculations as investors scrambling to find safe heavens during the peak of the global financial crisis moved their investments to the commodities market. Then in 2010, prices continued to rise and ultimately hit a 14-year high of $3.089 a pound in May 2011, largely because of adverse weather conditions in major coffee growing regions affecting the supply of coffee. Therefore, the increased export revenue that coffee growing countries have seen over the past few years is mainly driven by global phenomena. And Ethiopia’s situation was no different.
On the flip side, higher coffee price means the share of the cost of green coffee beans used to make a cup of coffee also increases compared to the final retail price of brewed cup of coffee, assuming all other factors to remain the same, unless retailers increase their prices.
It is thus dishonest for LYIP – and ODI – to suggest that ownership of the trademarks was a factor that led or contributed to the increased value of Ethiopia’s coffee and increased the farmers’ share of the final retail value for their product.
True, Ethiopia’s ownership of the brands is a victory. But, that ownership does not automatically translate into enhanced bargaining power. It should also be noted that the aftermath of the dispute with Starbucks was a loss to Ethiopia in that, the disputed brands which used to be abundantly available throughout Starbucks’ ubiquitous stores are now like snow birds. The company abandoned the coffee brands immediately after signing the agreement and, for the past five years, has been buying Ethiopia’s coffee only for use in anonymous blends, brewed servings, and occasional featuring.
Besides, Starbucks’ position on trademarking still remains unchanged. The reason Starbucks signed the agreement was to thwart the anti-Starbucks public relations campaign waged by Oxfam. A diplomatic cable that was leaked by WikiLeaks reveals the company’s position in no uncertain terms.
According to the cable, Starbucks decided to end its opposition in the “hopes of recasting the issue as a government-to-government policy matter rather than a commercial dispute.” The company hopes the US government “would take up the fight to enforce USPTO’s position against geographic trademarking.” And, the then US ambassador recommended US Government’s “technical assistance or other guidance” to convince Ethiopia reverse course and seek geographic certification rather than trademarking.
Perhaps arguably, the only tangible outcome of the project so far (in addition to the trademark registration) is the publicity that LYIP received during the public campaign. The organization now enjoys more than a boost in name recognition and brand visibility. Its annual gross income has more than doubled in the years following the campaign first to $423,000 in 2009 and then to $751,000 in 2010, due to increase in grants. Initially, the Ethiopian Fine Coffee Trademarking and Licensing project was funded by the UK Department for International Development (DFID) in the amount of £375,000 ($578,288in today’s value) between 2006 and 2007. That is at least $1,752,288 and counting.
Ironically, it was on Ethiopia’s side that the project was not taken seriously. The sad state of the initiative is candidly described by the former US Ambassador in another leaked cable:
“Although the established trademarks for Ethiopian coffee (Sidamo,Yiragchefe and Hararcoffees) have been a victory for the GoE and the coffee sector in Ethiopia, unfortunately, the major budgeting and regulatory functions for the coffee sector have been underfunded and ill-managed. In addition, the coffee sector suffered from severe information asymmetries among farmers, suppliers and exporters, resulting in poor pricing schemes and limited profitability for farmers along the supply chain.”
The “owner” of the project was Getachew Mengistie, former Director of the Ethiopia Intellectual Property Office (EIPO). Getachew left his position a few weeks after the signing of the marketing and licensing agreement with Starbucks. He now works for LYIP.
In 2009, barely two years after it signed the agreement with Starbucks, the government passed that coffee law that required Ethiopia Commodity Exchange (ECX) to control the coffee export and prices. In direct opposition to the aspirations of the trademarking initiative, the government decided to dampen the distinctiveness of Ethiopia’s finest coffees by bundling all coffees as commodities and thereby ending the farmers’ comparative advantages in the world market.
This indicates that the trademark project was never a priority for the government. Meanwhile, the government’s focus right now is on controlling the domestic coffee market. The policymakers, some of whom have vested interests in maximizing the profits for the ruling party owned Guna Trading House, Plc. and government owned Ethiopia Grain Trade Enterprise (EGTE) – both engaged in coffee export business – talk of increasing the farmers’ share in the final export price, but they end up hurting farmers.
Therefore, it is only fair to state that farmers have not been impacted by the trademark’s outcome. They are still onlookers when the ‘coffee rush’ has unleashed a massive clampdown by the government, mushrooming “development” projects, and new private and party affiliated coffee traders. If they had their voices, the farmers would demand 1) an end to the economic exploitation; 2) LYIP back up its claims with facts; and 3) Starbucks fulfill its promises by establishing the Farmer Support Center in Addis Ababa.