HARAMAYA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT

RESEARCH PROPOSAL ON FACTORS AFFECTING COFFEE

MARKET SUPPLY OF SMALLHOLDER FARM HOUSEHOLD:
(IN CASE OF BEDENO DISTRICT, EAST HARARGHE ZONE,
OROMIA REGION OF ETHIOPIA)

Abdella Ahmed Mohammed (phone: 0915182083/0994196004 Email:

[email protected])
ID.No. ………………PGP/686/15
ADVISOR: ADMKEW HAILE (Assistance Professor)

February, 2024

HARAMAYA, ETHIOPIA
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APPROVAL
SHEET POSTGRADUATE PROGRAM DIRECTORATE
HARAMAYA UNIVERSITY

We hereby certify that we have read and evaluated this Proposal prepared, under our
guidance, by Abdella Ahmed entitled “Factors Affecting Coffee Market Supply of
Smallholder Farm Household: The Case of Bedeno District, East Hararghe Zone,
Oromia region of Ethiopia”. We recommend that it be submitted as fulfilling the
Proposal requirement for the Degree of Master of Business Administration in
Management.
Admkew Haile (Assistance professor)
Major Advisor Signature Date

Bereket Mamo (Assistance professor)

Co-Advisor Signature Date
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Acronyms
ECX Ethiopian Commodity Exchange
EDRI Ethiopian Development Research Institute
EEA Ethiopian Economics Association
PLCTC Primary Level Coffee Transaction Center
USAID United states Agency for International Development

SNNPR Southern Nations, Nationalities, and People Regions

ECX Ethiopian Commodity Exchange
CLR Classical Linear Regression
BLUE Best Linear Unbiased Estimator
2SLS two-stage least square
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CHAPTER ONE

1. Introduction
This chapter contains background of the study, statement of the problem, objectives
of the study (general objective as well as specific objectives), research hypothesis,
significance of the study, research methodologies, scope of the study, limitations of
the study and organization of the research.

1.1 Background of the study

Since Arabica coffee (Coffee Arabica L.) distributed from Ethiopia and spread to the
Yemen peninsula, possibly as early as 575 CE (Anthony, et al., 2002), coffee has
become an important agricultural commodity worldwide with more than a billion cups
consumed every day. Some authors claim that it was cultivated in the Yemen earlier,
around AD 575. While, it originated in Ethiopia, from where it traveled to the Yemen
about 600 years ago, and from Arabia began its journey around the world (Amamo,
2014)

The main coffee producing regions in the world are Central and South America,
Southeast Asia and Africa. The two species of coffee beans that are most widely
cultivated (accounts for almost all cultivation) are the “Arabica”, which has a
distinctively sour flavor and the “Robusta”, which has a somewhat bitter taste and is
inexpensive compared to Arabica (USDA, 2018).

Coffee is Ethiopia’s main export commodity, contributing to the livelihoods of more

than 15 million smallholder farmers and other actors in the coffee sector. Ethiopia’s
coffee production for MY 2022/23 is forecast at 8.25 million 60-kilogram bags
(495,000 MT). Exports are forecasted to reach a record 4.72 million bags (280,560
MT). Many coffee farmers are switching from growing coffee to khat for economic
reasons ( (USDA, 2023).

Coffee production in Ethiopia is mostly dominated by small-scale coffee farmer,

which accounted for 95% of Ethiopian coffee production while the rest produced by
state and private owned coffee. Oromia is one of the major coffee-producing regions
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in Ethiopia and is known for its significant contribution to the country's overall coffee
production. Out of nine regional states of Ethiopia, coffee is dominantly produced in
Oromia national regional state and Southern Nation, Nationalities and People regional
state. 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 South Nations, Nationalities and Peoples Regional State (James et al.,
2015). The national production of coffee comes from Oromia region shared about
64%. The report indicates that in the region, about 3,435,447.12 quintals of coffee
were produced from 531,702.73 hectares of land and creating means of livelihood for
more than 2,047360 households (Ketema et al., 2023). East Hararghe zone is one of
the major coffee growing areas in the region. The Zone has favorable agro-ecological
and it is endowed with vast genetic diversity with unique taste and flavor and the area
is also accessible to the export outlet, that is, Djibouti port (CSA, 2017)). As a result, in
the area coffee production is a major source of cash income and livelihood for a large
number of farm households in the area. The type of coffee grown in this area is
popularly known as “Harar coffee”. In 2016/17 production year, a total of 37,224.94
quintals of coffee was produced on 7584.32 hectares in the zone (CSA, 2019).

Harar coffee with its medium sized beans, greenish–yellow color, medium acidity and
full body, and a distinctive Mocha flavor. Internationally known and recognized as
Harar Trade Brand name and highest premium coffee in the world. Bedeno district is
one of the seven major coffee producing district of East Hararghe zone of Eastern
Ethiopia, in which coffee production is predominated by small scale farming activity.
The other six major coffee growing districts are Malka Bal'o, Dader, Kurfachalle,
Gurawa, Kombolcha and Gursum (Mohammed-sani Amin, 2014) as cited in (Ahmed,
2021)

The coffee market supply smallholder farm household in Bedeno district, East
Hararghe zone, Oromia region of Ethiopia is influenced by various factors.
Smallholder farmers in coffee production face several challenges that hinder their
ability to meet market supply. One major challenge is the lack of access to credit and
financial services, which limits their capacity to invest in inputs and technology that
could improve their productivity. Additionally, smallholder farmers often have limited
 6

access to markets and face difficulties in selling their coffee at fair prices. They are
often forced to rely on middlemen who exploit their lack of bargaining power,
resulting in low prices for their produce. Furthermore, smallholder farmers often lack
the necessary knowledge and skills to adopt sustainable farming practices. This lack
of technical know-how can lead to low yields and poor quality coffee, making it
challenging for them to meet market demands (Winifred N. Karugu, 2006). Hence,
there is a need to analyze factors affecting coffee market supply of smallholder to
narrow the gap in the area. Overall, these challenges faced by smallholder farmers
highlight the need for targeted interventions and support to help improve their
livelihoods and enhance the sustainability of the coffee industry. Smallholder farmers
play a crucial role in the coffee industry, and understand the determinants of their
market supply is essential for sustainable coffee production and economic
development. Cultivating coffee under factors affecting coffee market supply of
smallholder farm household is common practice in the study area. Therefore,
considering these gaps into consideration, this study will be design to conduct with
the objective to Investigate Factors affecting coffee market supply of smallholder
farm households in the study area.
1.2 Statement of the problem

Smallholder farming is the most common form of agricultural practice in developing

countries and more than 95% of the world's coffee production is generated by this
type of farming. Ethiopia is the birthplace of coffee and is now the leading coffee
producer in Africa and the seventh largest producer in the world. Coffee has been a
major export commodity for Ethiopia, accounting for an average of 60% of total
export earnings over the past five decades (Gebre E. , 2020). Similarly the choice of
coffee market outlets is influence by distance to the nearest market, market
information, and frequency of extension services (Diro, 2017). Furthermore, the
commercialization of coffee is affected by distance to the main market, distance to
marketing cooperatives, transport cost, land allocated for other crops, total land
holding, coffee price, and coffee production volume (Chelkeba, 2016). Coffee market
supply is a significant economic issue in Ethiopia. In recent years, the share of coffee
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in total export earnings has steadily declined due to rising exports of other products
such as gold, flowers, chat, textiles, and leather products. The decline in coffee export
earnings can be attributed to several factors (Gizaw et al., 2022). One of the possible
reasons for the decline in coffee export earnings is the decrease in world prices. In
Ethiopia the performance of agricultural marketing system is constrained by several
factors such as poor quality of agricultural products, absence of market facilities,
weak extension services that ignored marketing development, poor linkage of
research and extension service, lack of marketing information and intelligent services,
excessive value and provide fluctuations, restricted access to credit, and
transportation problems (Wolday, 1994). As cited in (BEYENE, 2020)
Socioeconomic factors such as household size, education levels, and gender of the
household head have been identified as significant determinants of market
participation among smallholder farmers (Gebre & Workye, 2022); (Kuma et al., 2018).
Additionally, women's empowerment and access to resources are crucial in
enhancing the productivity and market participation decisions of smallholders (Kuma
et al., 2018). Furthermore, the study by Gebre & Workye (2022) emphasizes the
importance of supportive institutions and infrastructural facilities in improving market
participation among smallholder farmers.

Market-related factors such as access to credit, market information, distance to the

nearest market, and off-farm participation have been identified as critical
determinants of market outlet choice decisions among smallholder coffee producers
(Alemayehu & Alemu, 2022). The study underscores the impact of these market-
related factors on the choices made by smallholder coffee producers regarding their
market outlets.

In addition, the impact of external factors such as changes in the worldwide policy
environment, technological advancements, and market volatility on coffee trade and
market participation cannot be overlooked ( (Argaie, 2021); (Schuit et al., 2021)). The
study highlights the challenges posed by the asymmetrical power dynamics in the
coffee value chain, which can affect the opportunities available to vulnerable
economies engaged in coffee trade.
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Several biophysical factors impact coffee production and supply. Soil quality is a
major determinant of yields. A study by (Alemayehu et al., 2015) found that coffee
grown on volcanic soils in Bedeno district had higher yields compared to granite soils,
due to better nutrient retention. Topography also influences production, as coffee
grown at elevations between 1500-1800 meters above sea level had optimal yields
(Teklewold et al., 2013). Climate change poses a threat, as rising temperatures and
variable rainfall patterns associated with climate change reduce coffee production in
the region (Mengistu et al., 2011). Pests and diseases such as coffee berry disease
further constrain supply (CABI, 2018).
Socioeconomic factors also play an important role. Small farm size limits production,
as farms average less than 1 hectare which is below the optimal economic size (CSA,
2016). Lack of capital constrains input use and investment in improved production
practices (Teklewold et al., 2013). Low productivity is also associated with aging
coffee trees over 30 years old that are well past their prime (Alemayehu et al., 2015).
Weak rural institutions provide inadequate extension services to introduce high-
yielding varieties and good agricultural practices (Tesfaye et al., 2015).
Market access issues influence supply decisions. Poor road infrastructure increases
transaction costs, reducing the incentive to supply larger volumes to markets (Minten
et al., 2014). Distance to markets is also a barrier, with more remote villages
supplying less (Teklewold et al., 2013). Lack of market information hampers farmers'
ability to negotiate favorable prices with traders (Amare et al., 2019). Price volatility
due to global commodity price fluctuations increases smallholders' risk aversion and
discourages supply (Mutebi et al., 2007).
Government policies also impact the sector. Previously, the commodity board set a
fixed price that was often below market rates, reducing supply (Paulos, 2008).
Liberalization led to more private traders entering which increased competition,
though smallholders still face challenges in bypassing assemblers to access better
prices (Teklewold and Hoddinott, 2009). Weak contract enforcement undermines
efforts to establish contract farming as a mechanism to increase and stabilize supply
(Belay, 2017).
According to (Gebre E. , 2020) quantity produced, education level of household head,
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cooperative membership, distance to market, and ownership of transportation were

significantly influence the quantity of coffee supplied to the market.

According to (ABABULGU, 2020) the result revealed that coffee farming experience,
family size, land size, coffee market information and membership to the cooperatives,
sex of the household head and distance from the nearest market affected marketed
surplus of sundried coffee significantly.

According to (Naramo, 2023) The primary variables that greatly impact the amount of
coffee supplied and marketed through PLCTCs are the household head's sex, their
income and educational attainment, information availability, market distance, access
to extension services, cooperative membership, quantity of coffee produced, mode of
payment (capital), cost of transportation, and coffee price. On the other hands,
farmers who have low income, non-member of cooperative, no information, far to
market, preferred illegal traders or collectors.

The research conducted by (Dilebo, 2019) revealed that there are five characteristics
that have a major impact on the market supply of coffee at the household level. They
were the household heads' educational attainment, the amount of land used for
coffee cultivation, their marketing and production experience, the cost of producing
coffee, and their usage of credit. Furthermore, the variety of tree species found in
Bedeno district's smallholder coffee farms offers insights into the agricultural
landscape and its possible effects on coffee production (Ahmed, 2021). Moreover,
the factors that determine. Furthermore, the determinants of coffee marketing among
smallholder coffee farmers include factors such as marital status, household size,
educational level, variety of coffee planted, farm size, and farming experience
(Akinpelu et al., 2021). This study indicated that marital status, household size,
educational level, variety of coffee planted, farm size, and farming experience were
significant determinants of coffee production and marketing. The study by (Dasipah
et al., 2022) emphasized the significance of post-harvest handling, market
information, and government assistance in enhancing the marketing of processed
coffee. Although a small number of relevant studies have been conducted in various
parts of the nation, none of them have identified the factors influencing the supply of
 10

coffee in the study area or offered empirical support for enhancing the farmers'
supply of coffee to the market.
To sum up, the above research findings indicate that, education level, road
infrastructure; market factor, government intervention and productivity are dominated
factors affecting coffee market supply. Similar to this, the factors that affect the
supply of coffee on the market in the study area are also among the primary
contributing factors. These include, Socio-economic factors: Education level,
Household income, Access to credit; Market and Infrastructural factors: Coffee
prices, Transportation, Access to markets, Market information, and infrastructural
problem; Production: Coffee variety, Land size, and Input usage; Institutionnal factors:
Cooperative membership, Government support, and Extension services.
There are some gaps in our understanding of the factors affecting the coffee market
supply of smallholder farm households in Ethiopia. These gaps include: Limited
Focus on Specific Regions: The existing literature primarily focuses on specific
regions or districts within Ethiopia, such as Gewata District in Kaffa Zone. There is a
need for more studies that cover a wider range of coffee-producing regions in
Ethiopia to capture the diversity of factors influencing market supply. Limited
Exploration of Socioeconomic Factors: The existing literature focuses primarily on
factors such as education level, cooperative membership, and quantity of coffee
produced. However, there is a need for more research on socioeconomic factors,
including household income, access to credit, and gender dynamics, which can
influence coffee market supply in Ethiopia. Inadequate Examination of Policy and
Institutional Factors: The literature review did not extensively explore the role of policy
frameworks and institutional factors in shaping coffee market supply in Ethiopia.
Further research is needed to understand how policies, regulations, and support
institutions impact market supply and how they can be improved to enhance the
coffee sector.

This knowledge can inform policy interventions and strategies aimed at improving
coffee productivity, market access, and income generation for smallholder farmers.
This research aims to bridge this knowledge gap and provide insights into the
determinants of coffee market supply; Understanding the multifaceted factors that
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influence the coffee market supply of smallholder farm households is crucial for
devising effective policies and interventions aimed at enhancing the livelihoods of
smallholder farmers and ensuring the sustainability of the coffee industry in the study
area.

1.3 Scope of the study

The study will be conduct in the Bedeno district, which is situated in the East
Hararghe zone of the Oromia region in Ethiopia. It will be primarily focus on
smallholder farm household involved in coffee production within Bedeno district. The
study will identify and examining various factors that affect coffee market supply in
the context of smallholder farm households. Specially it will focus on Examine the
role of socioeconomic factors, institutional support, and infrastructure in shaping
coffee market supply dynamics, Determine the key factors influencing the market
supply of coffee by smallholder farmers in the study area, and identify major factors
affecting smallholders’ coffee market outlet choice. The District has 42 kebeles which
consists of seventeen 17 lowland coffee producers’ rural kebeles, out of seventeen
kebeles in the district; the study is specifically will conduct in purposively select three
kebeles, which are namely Dirota Rammis, Eja buna and Biyo Rammis. The study will
be conduct in one district and important information will be collect from sampled
households involved in the study area. The study will be limit on descriptive and
explanatory research type of research and study will uses both primary and
secondary data. The data collected from questionnaire will analyzed through
quantitative descriptive statistical tools such as percentages and frequencies, mean
and standard deviations for inferential statistics like regression using SPSS version
20 computer software. The time period spent for this study is from February, 2024 to
September 2024.

1.4 Significance of the Study

This study will contribute to the existing literature on the coffee market supply in
Ethiopia by providing insights into the factors affecting smallholder farm households'
coffee market supply in the Bedeno district. Moreover, the significance of the study
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lies in its potential to provide insights into the challenges and opportunities faced by
smallholder coffee producers in the study area. By considering the various factors
affecting the coffee market supply, the study can contribute to the development of
strategies to enhance the livelihoods of smallholder farmers and ensure the
sustainability of the coffee industry in the region. The findings of this study will be
valuable for policymakers, extension agents, and other stakeholders involved in the
coffee market supply chain as they can use the recommendations to develop
interventions that improve the coffee market supply for smallholder farm households.

1.5 Objective of the study

1.5.1 General Objective

The overall objective of this study is to investigate the factors affecting the supply of
coffee by smallholder farm households in the Bedeno district, East Hararge Zone,
Oromia region of Ethiopia.

1.5.2 Specific Objectives

1. To identify the major factors affecting coffee market supply of smallholder farm
household, in the study area.

2. To assess the role of socioeconomic factors, institutional support, and

infrastructure in shaping coffee market supply dynamics.

3. To examine the impact of these factors on the income and livelihoods of

smallholder farmers in the study area.

1.7 Research Questions

1. What are the major factors affecting coffee market supply of smallholder farm
households in the Bedeno district?

2. How do socioeconomic factors, institutional support, and infrastructure affect

coffee market supply dynamics in the study area?

3. What is the impact of these factors on the income and livelihoods of smallholder
farmers in the study area.
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1.7 Organization of study

This proposal is organizes under three chapters. The first chapter is concerned with
the introductory part including background, problem statement, and objective of the
study, Research questions, significance of the study, scope of the study and
organization of the study. The second chapter deals with literature review which
comprises the conceptual framework of the study area. Finally, chapter three is the
methodology focus on, Description of the study area, sampling technique (procedure)
Data collection method and data analysis procedure.

2. Literature Review

Coffee is an important cash crop for smallholder farmers in Ethiopia. The Bedeno
district of East Hararghe zone in Oromia region is a major coffee growing area. This
literature review aims to synthesize previous research on the key factors that
influence smallholder coffee farmers' supply to the market in this region.

2.1 Definition and Basic concepts

Supply: the word 'supply' is commonly used to mean 2 different things. One definition
of supply is the total of new production and stocks. 'Stocks' is the amount of product
available at the beginning of a new production period. In other words, supply is the
total quantity available. The term 'total supply' will be uses to indicate the total
quantity available.

Supply is the amount of a product or a service that market can provide when in
receiving a certain price (Anderton R. J., 2020). The other common use of supply
describes how producers react in the marketplace.

Market: It is a point or a place or sphere within which price-making force operates and
exchanges of title tend to be accompanied by the actual movement of the goods
affected (Backman and Davidson, 1962) as cited in (Gebre E. , 2017). The concept of
exchange and relationships lead to the concept of market. It is the set of the actual
and potential buyers of a product ( (Armstrong, 2014). A market can be described as
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simple arrangements to facilitate exchange of one thing for another (Bain and
Howells, 1988) as cited in (Tadesse, 2011). The most observable features of a market
are its pricing and exchange processes and it is more than a physical place. No need
to meet physically for a market to operate especially in today’s information and
communication technologies.

Marketing: The term marketing has a variety of meanings. To some shoppers it

means purchasing groceries and all other household needs. From the point of view of
farmer or rancher, it means selling their commodities. From the perspective of
handler of the commodity, it means storing the commodity, transporting the product
in to a form that consumers want, shipping it to retail outlet and promoting its sale
(Crammer and Jensen, 1997).

Market supply or aggregate supply represents the amount of a product all producers
are willing to sell over a range of prices at any given time period. At an individual level,
a producer may be willing to sell a particular quantity as long as the market price is
equal to or greater than the cost of producing that quantity. Market or aggregate
supply is the total of the quantities all individual farmers want to bring to market at
various price levels.

Market supply is represented graphically as an upward sloping curve or line with price
on the vertical axis and quantity on the horizontal axis. An increase in price, in most
instances, will result in farmers wanting to increase the quantities they bring to the
market, so the relationship between price and supply is positive.

Agricultural marketing: The term agricultural marketing is composed of two words-

agriculture and marketing. Agriculture, generally means growing and/or raising of
crops and livestock while, marketing encompasses a series of activities involved in
moving the goods from the point of production to point of consumption. Many
scholars have defined agricultural marketing and incorporated essential elements of
time, place, form and passion utility., marketing is a societal process, by which
individuals and groups obtain what they need and want through creating, offering, and
freely exchanging products and services and value with others. Agricultural marketing
is a process that starts with a decision to produce a saleable farm commodity,
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involves all the aspects of market structure or system, both financial and institutional,
based on technical and economic considerations, and includes pre- and post-harvest
operations, assembling, grading, storage, transportation and distribution (National
Commission on Agriculture, 1976). Marketing is essentially a process like farming,
manufacturing, mining or construction (Backman and Davidson, 1962).

2.2 Coffee Production and Marketing in Ethiopia

2.2.1 Coffee production in Ethiopia
Ethiopia is endowed with a good production environment for growing coffee with a
combination of appropriate altitude, temperature, rainfall, soil type, and PH. Ethiopia
is the center of origin for Coffee Arabica. The country possesses a diverse genetic
base for this Arabica coffee with considerable heterogeneity. Ethiopia produces a
range of distinctive Arabica coffees and has considerable potential to sell a large
number of specialty coffees (Adugna et al., 2008). Little of the lower-value Robusta
coffee is produced in Ethiopia, being better suited for production in lower altitude
equatorial climates. Coffee production in Ethiopia is almost exclusively situated in the
two regions of Oromia and the Southern Nations, Nationalities, and People Regions
(SNNPR) of the country Arabica.

Small-scale farmers produce coffee through a mixed farming system, which accounts
for 95 percent of coffee production. It is produced under several types of production
systems, including forest, semi-forest, garden, and plantation coffee (Ministry of
Trade, 2014). Forest coffee is grown in the wild under natural forest cover and is
gathered by farmers from trees with minor tree maintenance. Semi-forest coffee is
also grown in forest conditions, but there is some limited maintenance by farmers,
mostly annual weeding. This type of coffee has clearly delineated boundaries of
ownership, although the trees usually are located away from agricultural plots.
Garden coffee is defined as coffee from trees planted by farmers in the vicinity of
their residences. It is often intercropped with other crops or trees. Plantation coffee is
grown on large commercial farms, private as well as state farms. Modern production
practices such as irrigation, modern input use, mulching, stumping, and pruning - are
often applied in this case. While reliable recent statistics are lacking, it is estimated
 16

that these different production systems make up about 10, 35, 50, and 5 percent,
respectively, of total coffee production in the country (Taye, 2012).

Ethiopia’s coffee production is the fastest growing in the world, with an estimated
annual average growth rate of 12 percent, compared to 7, 5 and 3 percent for Brazil,
Vietnam and Colombia, respectively (Bekele, 2011). Ethiopia’s annual average coffee
production was approximately 275,000 tons over the 2005-2010 periods. Total coffee
production has been improving steadily during the past twenty years, with a 110
percent increase between 1993 and 2011. After a peak production of 325,800 tons in
2007, however, the volume of coffee produced dropped sharply, although the level of
area cultivated continued to increase. The yields have therefore strongly diminished.
An explanation could be the adverse weather that damaged the crops (Promar
Consulting, 2011) and a lack of proper extension services in this case.

2.2.2 Coffee marketing in Ethiopia

In Ethiopia, at the farm level coffee can either be sold as fresh red cherry beans,
which are eventually delivered to wet coffee processing stations, or as sun dried. The
bulk of coffee in Ethiopia is harvested, dried on the farm and sold in dried form. The
coffee parchment is sold through an auction system to the major coffee
processors/exporters, whose processing involves de-husking, cleaning, grading,
packing and exporting. Small scale producers sell coffee cherries directly to
cooperatives, traders or collectors/agents, who in turn sell to larger traders who
aggregate the small purchases for sale to a coffee factory. Once coffee has de-
husked, it is then sold to local consumers. The coffee not sold to local consumers is
assembled into larger lots and sold to wholesalers. Traditionally, coffee export in
Ethiopia has been dominated by government and private sector participants; however,
cooperatives have assumed a growing role in coffee exporting activity. Some of the
cooperatives have begun to take the advantage of certification of organic coffee by
small scale producer’s unions increased from 0.25 million USD in 2001 to 31.9 million
USD in 2005 following the promotion of farmer cooperatives by the government and
legal recognition of cooperative unions [MoARD, 2009]. The participants of coffee
marketing are producers, collectors, traders/suppliers, ECX, private exporters, coffee
 17

marketing cooperatives, cooperative union, central liquoring unit/government grading

and export certification and central coffee auction.

In 2012, Ethiopia exported 3.2 million bags, making it the most important African
coffee exporter and the tenth largest ex-porter in the world (ICO, 2013). Its share of
the international coffee trade that year was about 3 percent. Coffee is the most
important export product of the country, accounting for about a quarter of the value
of all exports in 2012. Coffee is cultivated by over 4 million primarily smallholder
farming households (CSA, 2013) and, with those employed in ancillary activities to
coffee production, even more households are dependent on coffee for part of their
livelihoods (LMC, 2003). Furthermore, coffee plays an important role in social
gatherings and is important in local consumption, as more than half of Ethiopia’s
coffee production is consumed locally (CSA, 2013).

Coffee has maintained its position as Ethiopia’s top export for many years. While it
accounts for about one-third of the country’s export earnings, this percentage is
gradually declining with increased export sales of gold, cut flowers, textiles, leather
products and khat.

2.3 Empirical Review on Factors Affecting Market Supply

Several studies have explored the determinants of coffee market supply in different
regions of Ethiopia. For instance, a study conducted in Yirgachefe district highlighted
that education level, land coverage by coffee, experience in coffee production and
marketing, cost of production, and credit use significantly affect market supply
( (Tizazu Toma Dilebo, 2019). Similarly, research in Gewata district emphasized the
importance of analyzing the structure, conduct, and performance of the coffee
market to identify factors influencing market supply and producers' market outlet
choices (Gebre, 2017)

Gewata District, Kaffa Zone, Southwest Ethiopia: A study conducted in Gewata

District, Kaffa Zone, Southwest Ethiopia, highlighted the importance of factors such
as education level, cooperative membership, and quantity of coffee produced in
influencing the market supply of coffee by smallholder farm households (Gebre,
2017). The study found that education level positively affected the willingness of
 18

farmers to adopt new ideas and innovations, leading to increased market supply.
Cooperative membership was also associated with higher coffee market supply
among smallholder farmers

Gololcha District, Oromia Region, Ethiopia: Research in Gololcha District, Oromia

Region, Ethiopia, focused on identifying the performance of coffee markets and
factors affecting market supply by smallholder farmers (Degaga & Alamerie, 2020).
The study emphasized the significance of market access, infrastructure, and
information availability in influencing coffee market supply dynamics among
smallholder farmers.

Sidama National Regional State, Ethiopia: An investigation in Sidama National

Regional State examined factors affecting the quantity of coffee supply and
marketing at primary level coffee transaction centers (PLCTCs) (Anisa Gobaro
Naramo, 2023). The study identified variables such as household income, cooperative
membership, distance to markets, and access to transportation as key determinants
of coffee market supply among smallholder farm households.

Jimma Zone, Ethiopia: A study in Jimma Zone explored determinants of farmers'

preference for coffee market outlets among smallholder farmers. The research
highlighted that physical capital (e.g., farm size), human capital (e.g., education level),
and financial capital (e.g., credit access) significantly influenced farmers' choice of
coffee market outlets (Solomon Asefa1 Wondaferahu Mulugeta2* Jibril Hadji, 2016)

(Bizualem et al., 2015); (Gashaw B. A., 2019) used multiple linear regressions to
identify Analysis of marketed surplus of coffee by smallholder farmers in Jimma zone,
Ethiopia. The result of OLS regression showed that: sex, coffee farming experience,
access to credit, adequacy of extension services, attractiveness of coffee price,
cooperative membership and non and/or off farm income are significant positive
factors affecting marketed surplus of coffee.

However, some of the assumptions of the Classical Linear Regression (CLR) model
are violate, and the parameter estimates of the model may not be Best Linear
Unbiased Estimator (BLUE). In case of this study, there is a potentially endogenous
 19

variable, which is quantity of coffee produced, included in the explanatory variables

that could cause endogeneity problems if multiple linear regression models will be
apply.

In identifying the determinants of market supply of coffee at households level, a two-

stage least square (2SLS) model was used. Wooldridge (2010) stated that two-stage
least square is similar to OLS except that it uses two completely separate stages
during the analysis phase in order to avoid problems of endogeneity. Addisu (2016)
also employed two-stage least square regression model to identify factors affecting
the volume of potato and onion supplied to the market due to the presence of
potential endogenous which is productivity. Therefore, the potential endogenous
variable (quantity of coffee produced) is instrumented by land allocated under coffee
and years of farming experience.

2.4 Theoretical and Empirical Review in case of Factors Affecting Market

Supply

Ma & Sexton (2021) emphasize the advantages of acquiring working capital and
output marketing for large-scale farming operations, shedding light on the future of
smallholder farming systems. This study highlights the significance of agriculture,
particularly coffee, in the livelihood of the Ethiopian population. Furthermore,
Megerssa et al. (2020) provide insights into the influence of demographic, socio-
economic, and institutional factors on market participation, offering valuable
information on smallholder market participation and its associated factors.
2.4.1 Socioeconomic Factors

The cultural, economic, social, and geographical character of farmers and farming
communities plays a critical role in the pattern and process of their livelihood
activities and agricultural development. As such, various socioeconomic factors
usually influence the production of market-oriented agricultural products. This
includes the type of marketed products, access and use of production resources, and
factors that facilitate linking of farmers to markets. For instance, a study conducted
by Reardon and Vosti (1995) emphasized that the interplay between the specific
 20

socioeconomic variables on the farmers' capacity to produce for the market and to
profit from market opportunities is a pivotal factor of efforts to transform traditional
agriculture.

The socio-economic implications of coffee production, such as its potential to uplift

rural income and provide employment opportunities (Karki et al., 2018; Sri et al., 2022;
Bhandari et al., 2022). Additionally, the impact of coffee production on poverty
reduction and livelihoods should be explored, as observed in Aceh Tengah
Rahmaddiansyah et al. (2022) and Araku Valley in India (Karki et al., 2016).

Small farm size limits production, as farms average less than 1 hectare which is
below the optimal economic size (CSA, 2016). Lack of capital constrains input use
and investment in improved production practices (Teklewold et al., 2013). Low
productivity is also associated with aging coffee trees over 30 years old that are well
past their prime (Alemayehu et al., 2015). Weak rural institutions provide inadequate
extension services to introduce high-yielding varieties and good agricultural practices
(Tesfaye et al., 2015).

2.4.2 Market and infrastructure Related Factors

The terminology used for 'markets' and 'infrastructure facilities' in this study refers to
access to 'road' and 'information' facilities. Coffee markets, in the context of this
study, refer to the time and place for exchange of goods or commodities and
infrastructure facilities are the basic structures necessary for the society to function.
Market and infrastructure related factors that influence coffee market supply of
smallholder coffee farm households are: distance from the market place, frequency
of transportation from home to the market, cooperative membership, access to
market information, access to roads, and infrastructure facilities.

Market access issues influence supply decisions. Poor road infrastructure increases
transaction costs, reducing the incentive to supply larger volumes to markets (Minten
et al., 2014). Distance to markets is also a barrier, with more remote villages
supplying less (Teklewold et al., 2013). Lack of market information hampers farmers'
ability to negotiate favorable prices with traders (Amare et al., 2019). Price volatility
 21

due to global commodity price fluctuations increases smallholders' risk aversion and
discourages supply (Mutebi et al., 2007). Additionally the competitiveness and
threshold price transmission of Ethiopian coffee in importing countries is also crucial
for market sustainability (Hadi et al., 2019). The study of Schuit et al. (2021) observed
that over a 4-year period, cooperatives were able to recoup the costs associated with
entering the specialty market, leading to increased quantities of coffee purchased and
improved farm gate prices.

2.4.3 Product Related Factors

Price is an important factor that influences the supply of coffee by smallholder farm
households. Farmers will only engage in farming if they get utility for the coffee they
sell, and the utility a farmer gets is directly influenced by the price of the coffee.
Assefa, et al, (2014) made a similar argument that the supply of coffee to the market
is determined by the price of coffee. Their findings showed that the price of the
coffee in the local market is the most decisive factor for the decision of the farmer to
sell his produce. In the study area, the utility of coffee by the farm household is
measured through the income earned from the sale of the coffee. This allows us to
say that the quantity of coffee that a farmer can supply to the market depends on the
price the farmer gets from the producer or from the middle men.

The study by Fitawek, et al. 2006 reported price instability both in the world and local
markets which force the farmers to prefer lower price value of assurance offer of the
trader and so they tend to supply the product to middle men. The author also made a
similar kind of assertion for the market facility; poor road linkage connecting primary
and rural area and the absence of warehouse and Village Transit Center.

2.4.4 Institutional Factors

Majority of the researchers tried to describe different institutional and organizational

settings like cooperatives and union by using various socioeconomic and market
related variables. But there are limited empirical evidences which used to assess the
effect of different institutional and organizational settings under smallholder coffee
production in Ethiopia. Government policies impact the sector. Previously, the
 22

commodity board set a fixed price that was often below market rates, reducing supply
(Paulos, 2008). Liberalization led to more private traders entering which increased
competition, though smallholders still face challenges in bypassing assemblers to
access better prices (Teklewold and Hoddinott, 2009). Weak contract enforcement
undermines efforts to establish contract farming as a mechanism to increase and
stabilize supply (Belay, 2017).
The sustainability and governance aspects of the coffee industry, including the socio-
cultural benefits of coffee plants and the institutional barriers to coffee tourism
development (Samper & Quiñones-Ruiz, 2017; Degarege & Lovelock, 2021; Bulitta &
Duguma, 2021). Furthermore, the role of institutions such as the Ethiopian
Commodity Exchange (ECX) in stimulating agricultural commodities export,
particularly coffee, should be investigated ("The Role of Ethiopia Commodity
Exchange (ECX) in Stimulating Agricultural Commodities Export: A Case Study of
Export Coffee", 2020).
This literature review has synthesized key research on the multi-dimensional factors
influencing coffee market supply from smallholder farmers in Bedeno district. Future
interventions need to adopt integrated approaches that address the socioeconomic,
Market access, production and institutional constraints smallholders face through
measures such as use of high-yielding varieties, improving rural infrastructure and
market access, strengthening farmer organizations, and developing innovative
contract farming models. Addressing the underlying complex challenges through
collaborative efforts of different stakeholders can help boost smallholder incomes
and livelihoods in the region through increased and more stable coffee supply. This
theoretical and empirical literature provides a comprehensive understanding of the
multifaceted factors influencing the coffee market supply of smallholder farm
households in Bedeno district, East Hararghe zone, Oromia region of Ethiopia. Further
research and targeted interventions can be informed by these insights to promote
sustainable and resilient coffee production systems.

2.5 Conceptual Framework of the Study

The conceptual framework is essential as a guideline in identifying important
variables and for effective and efficient data collection. Scarborough and Kydd (1992)
 23

suggest that such a framework should help to indicate the most useful area in which
to focus the limited research resources and ensure that data collected are relevant to
meet the objectives of the research.

The conceptual framework in Figure 1 illustrates the interrelationships in the study,

the key variables involved and how they are interrelated. , Socio-economic factors:
Education level, Household income, Access to credit; Market and Infrastructural
factors: Coffee prices, Transportation, Access to markets, Market information, and
infrastructural problem; Production: Coffee variety, Land size, and Input usage;
Institutionnal factors: Cooperative membership, Government support, and Extension
services had an influence on market supply.

Figure 1: Conceptual Framework of the study

Market and Infrastructural

Socio-economic factors:
factors:
 Education level
 Coffee prices,
 Household
 Transportation,
income,
Coffee  Access to markets,
 market information,
supplied to
and
market.
 infrastructural

Institutionnal factors: Production:

 Cooperative  Coffee variety,
membership,  Land size, and
 Government  Input usage
support

Sources: Own sketch

3. Materials and Methods

The proposed Materials and methods for this study includes the following steps:
 24

1. Conducting a literature review to gather existing information on the factors

affecting coffee market supply in similar contexts.
2. Conducting a survey to collect primary data from smallholder coffee farmers in
Bedeno district. The survey will be conduct using a structured questionnaire, which
will be administer to a sample of smallholder farm households in the district.
3. Analyzing the collected data using appropriate statistical methods to determine the
factors that significantly affect the supply of coffee from smallholder farm
households. Offers recommendations for policymakers to improve the coffee market
supply chain in the area. To accomplish these objectives, the research will primarily
rely on primary data collected from smallholder coffee producers in Bedeno district.
Additionally, secondary data from relevant published sources and government reports
will be utilize to provide a comprehensive understanding of the coffee market supply
dynamics in the area. The proposed research study is also expected to contribute to
the existing body of knowledge on factors affecting coffee market supply in Ethiopia,
particularly in smallholder farm households in the Bedeno district.
3.1 Description of the Study area

The study area, Bedeno district in the East Hararghe zone of the Oromia region in
Ethiopia, is characterized by smallholder farm households engaged in coffee
production. The study will conduct in Bedeno district, Eastern Hararghe Zone of
Oromia Regional State, Ethiopia. Bedeno is geographically found at 8° 49' 18'' - 9° 35'
28''N Latitude and 41° 12' 0'' - 42° 3' 15''E Longitude. The District is located 107 km to
the West of the capital city of East Hararghe Zone, Harar City, covering an area of
974.10 km2 which accounts for about 3.89% of the total area of the Zone (BWANRO,
2018). The total populations of Bedeno district are 346,555 from which 174,317 are
male and 172,238 are female with the density of 356 persons per square km. Bedeno
is the third most populous district in East Hararghe zone by covering about 8.6% of
Zonal population (CSA, 2023). The district is subdivided into 42 Kebele
Administrations, categorizing in to 40 Rural and 2 small urban Kebeles. The total rural
households are 328,550 from which are 165,261 male and 163,289 are female headed
(BWANRO, 2023). The district is mainly characterized by rugged terrain plateaus,
 25

mountainous hills, valleys, and gorges with the altitude that ranges from 1200 and
3109 m.a.s.l. with the Agro-climatic zones of Dega, Woinadega and Kola covering
about 31%, 48% and 21% of the total area of the district, respectively. Moreover, it is
bordered by some Woreda such as Golo Oda and Meyu muluke on the south, Melka
balo on the southwest, Dedar on the west, Goro muti on the northwest, Meta and
Karsa on the north, Kurfa chale on the northeast, and Girawa on the east. Livestock
and crop-production are the main livelihood strategies of the rural household. Among
the annual crops grown maize and sorghum are the dominant food crops which
occupy the large proportion of cultivated land under annual crops and largely
produced for household consumption. Barley, wheat and teff are also other food
crops grown in the district. Coffee and khat are the main perennial crops which are
the major sources of cash income for rural household. Out of cultivated area under
perennial crops, 65% and 34% are covered by khat and coffee production respectively
(BWANRO, 2018).

3.2 Data Types, Sources and Methods of Data Collection

Both primary and secondary data will uses for this study. Primary data will collects
from smallholder coffee producers randomly selected from three rural kebeles,
traders and Cooperatives at different levels.

The primary data will collects from farmers by focusing on factors affecting coffee
market supply: Socio-economic factors: Education level, Household income, Access
to credit; Market and Infrastructural factors: Coffee prices, Transportation, Access to
markets, Market information, and infrastructural problem; Production: Coffee variety,
Land size, and Input usage; Institutionnal factors: Cooperative membership,
Government support, and Extension services and demographic characteristics of the
household. Moreover, the interview schedule for traders include: buying and selling
strategies, capital requirement and capital ownership source of market information,
demographic characteristics and finally questionnaire will develops for cooperatives.

The questionnaires will design for producers, traders and consumers. The structures
of the questionnaire will design as semi-structured questionnaire. Before the data
collection, the questionnaire will pre-test on five farmers to evaluate the
 26

appropriateness of the design, clarity and interpretation of the questions, relevance of

the questions and to estimate time required for an interview. Subsequently,
appropriate modifications and corrections will make on the questionnaire. The
questionnaire covered different topics in order to capture relevant information related
to the study objectives.

Secondary data will collect by reviewing documents of secondary sources namely:

Bedeno district office of agriculture, office of trade and industry, district cooperative
and marketing office, office of district environmental protection, and Ethiopian
Commodity Exchange (ECX). Beside to district offices information, websites will visit
to generate relevant secondary information focusing on coffee marketing.
Furthermore, from these secondary sources data on prices, output, number of
licensed coffee traders and data on other socioeconomic variables will take.

3.3 Variables Selection and Definition

In the case of identifying factors influencing coffee supply to the market the main
task will exploring which factors potentially influence and how these factors are
related with the dependent variables. Therefore, the following dependent and
independent variables are hypothesize in the study.

3.3.1 Definition of variables

Dependent variable

Quantity of coffee supplied: It is a continuous dependent variable used in the multiple

linear regression model equation. The actual quantity of coffee supplied in the
production season by individual households to the market.

Independent variables for quantity of coffee supply

The variables are defining based on factors affecting the market supply of coffee
from smallholder farm households in the specified area. Information on different
variables such as data on education level of household heads, land covered by coffee,
experience in coffee production and marketing, Extension services, market information,
infrastructural problem, and cooperative members, among others we identify.
 27

The following variables will be considers in this study:

a. Dependent Variable: Coffee supplied to market.

b. Independent Variables:

Socio-economic factors:
 Education level
 Household income,
 Access to credit

Market and Infrastructural factors:

 Coffee prices,
 Transportation,
 Access to markets,
 market information, and

 infrastructural problem
Production:
 Coffee variety,
 Land size, and
 Input usage
Institutionnal factors:
 Cooperative membership,
 Government support,

 Extension services.

3.4 Study design

The data, both quantitative and qualitative types, needed for this study will have collected
from both primary and secondary sources. The primary data will obtain using informal and
formal surveys. The formal survey will be undertaken through formal interviews with
randomly selected households, traders and primary cooperatives using a semi-structured
questionnaire for each group.
 28

Descriptive research will be used to obtain information concerning the current status
of the phenomena to describe what exists with respect to variables or conditions in a
situation. The methods involved a range of activities: from the survey which describes
the status quo to the regression study which investigates the relationship between
variables. The primary use of descriptive statistics is to describe information or data
through the use of numbers (create number of pictures of the information). The
explanatory research designs will concern with determining the impact and cause and
effect relationships among variables. Therefore, this research will employ descriptive
and explanatory research approaches in order to give an adequate depiction of the
association between the factors affecting coffee market supply in case of Bedeno
district, East Hararghe Ethiopia.

3.5 Description of population and Sampling Methods

3.5.1 Description of population

The population consists of smallholder farm households in the Bedeno district, and the
sampling methods involve random sampling to ensure representation. The population
consisted of smallholder farm households in the Bedeno district. The district has 42 rural
kebeles, out of which 17 of them produce coffee (BWANRO, 2018).

3.5.2 Sampling methods

The sample for this study is drawn from coffee producing households, coffee traders and
cooperatives. The study will follow Multi-stage sampling technique. In the first stage, out of
the 17 kebele which produce coffee three of them randomly selected which are
namely: Dirota Rammis, Eja Buna, and Biyo Rammis based on their production
potential. In the second stage, 186 samples of household heads are randomly
selected from three kebeles of coffee producers of the study area based on
probability proportional to size sampling techniques. and sample size is determined
by Yamane (1967). Accordingly, the required sample size at 95% confidence level with
degree of variability of 5% and level of precision equal to 7% are used to determine a
sample size required to represent the population. In addition, key informant interview
are conduct with the traders and cooperatives union. On the other hand, the study
 29

also employed information from secondary sources such as DAs, district agricultural
offices, district Coffee and Tea Authority and district Coffee Farmers Cooperatives
Union. The next step is determining the actual sample size.

N
n= 2
1+N(e)

2128
n= 2 = 186
1+2128(0.07)

Where, n = sample size, N= population size (sampling frame) and e = level of

precision considered 9%

Table.3.1: Sample size distribution in the sample rural kebeles

Kebeles Total number of Sample size Percent

respondents household
selected
Dirota Rammis 709
Eja Buna 714
Biyo rammis 705
Total 2128

3.6. Methods of Data Analysis

Two type of data analysis, namely descriptive statistics and econometric analysis will
be uses for analyzing the data from farmers and coffee traders.

3.6.1. Descriptive statistical analysis

This method of data analysis refers to the use of ratios, percentages, means and
standard deviations in the process of examining and describing market supply, farm
household characteristics, resource ownership, role of intermediaries, market and
traders characteristics.
 30

3.6.2 Econometric analysis

This method of data analysis refers to the use of different economic and statistical
tools or models for testing hypothesis related to the objective of the study.

Multiple linear regressions to analyze market supply of coffee

Since, coffee is a cash crop that all farmers decided to produce for selling purpose in
order to earn cash. Therefore, all the sampled coffee farmers of the study area supply
coffee to the market and the dependent variable that is amount of coffee supplied to
the market is a continuous variable. Hence, multiple linear regression model will fitted
to survey data to identify the determinants of coffee supply to the market. Following
(Greene, 2000), econometric model specification of the multiple linear regression
models in matrix notation is:

Yi = βXi + εi

Where, Yi = coffee supplied to the market, β = a vector of estimated

coefficient of the explanatory variables

X i = a vector of explanatory variables

ꜫ i = is disturbance (error) term

This method of data analysis refers to the use of ratios, percentages, means,
variances and standard deviations and they are employed in the process of examining
and describing market supply functions, household characteristics, role of
intermediaries, institutional characteristics, market and traders’ characteristics.

3.7. Data Quality control

Data quality control measures should be implemented to ensure the accuracy and
reliability of the data collected. Data quality control measures were implemented
through a stratified random sampling technique to ensure representativeness
(Neilson, 2021).
 31

3.8. Research ethics

Research ethics should be upheld, including obtaining informed consent from

participants and ensuring confidentiality. Research ethics are maintained through
obtaining informed consent from the participants and ensuring confidentiality of the
collected data (Neilson, 2021).

3.9 Time schedule and Budget Breakdown

3.9.1 Time Schedule

Activities Months in 2024 year

Feb Ma Apr May Jun July Au Sep
r e g
1 Proposal preparation
including Literature review
2 Preparation of data
collection instrument
3 Data collection and editing
4 Data entry (SPSS)
a) Coding
b) Re-coding
c) Cleaning
4 Tabulation
5 Data Analysis
a)First draft
b) Second draft
c) Final draft

3.9.2 Budget Breakdown

Table 2: Stationary
 32

R.N Item Unit Quantity Unit Total

price price
1 Printing paper Realm 2 600 1200
2 Photo copy paper Realm 2 600 1200
3 Flash copy ( 4GB ) Pcs 1 200 200
4 Flash disc( 4GB) Pkt 5 70 350
5 Staples Pcs 1 150 150
6 Stapler Pcs 1 200 200
7 Cdrw Pcs 5
8 Pen Pcs 3
9 Fixer Pcs 4
10 Tape recorder No. 1
11 Tape cassette NO. 15
12 Toner Pcs 1
13 Note book Pkt 1
Subtotal 4,000

Table 3: Transportation

No. Traveler Departure Destination Means of No.of R Cost Total

tran trip per R
trip
1 Researcher haramaya Bedeno ISUZU 4 400 1,600
2 Researcher Bedeno 4 kebeles Motor 6 350 2,100
cycle
Total 3,700

Table 4: Personal cost

No Title Purpose No. of No. of Rate/d Total

. Perso Days ay/birr expens
n e
Per Research Collecting review 1 15 300 4,500
diem er literatures
Data collecting and 1 18 300 5,400
analysis
 33

Thesis writing and 1 5 300 1,500

submission
Research For coordination 1 4 300 1,200
assistant
Advis Advisor 3000
or fee
Examiner 2000
fee
Total 17,600

Table 5: Miscellaneous expense

No. Purpose Cost (birr)

1 Photo copy service 300
2 Thesis binding 200
Subtotal 500

Table 6: Summary of Budget

SN Description Subtotal expenses (birr)

Stationary 4,000
Transportation 3,700
Personal cost 17,600
Miscellaneous expense 500
Total 25,800

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