This study provides a critical political economy analysis of the coffee sector in the Kaffa–Bench-Sheko–Sheka belt in Southwest Ethiopia Peoples’ Regional State, the genetic and cultural heartland of Arabica coffee (Coffea arabica). Based on 47 key respondent interviews, the study reveals that persistent underdevelopment of the sector does not stem from technical market failures but from entrenched governance failures, institutional fragmentation and unequal power relations.

Summary

• Tracing coffee governance from Menelik II through the Derg, EPRDF and Prosperity Party, successive regimes have treated the resource-rich belt as a source of foreign exchange for national development while systematically marginalizing local communities.
• Fragmented federal, regional and local institutions create a governance vacuum filled by informal power networks. Politically connected elites, senior bureaucrats and large-scale investors capture land licences and export rents, with corruption functioning as a mode of governance.
• The majority of coffee producers cultivate less than 1 hectare of land in forest and semi-forest systems. Despite being commodity producers and environmental stewards, they occupy weak positions in the value chain with limited influence over pricing, credit, extension services and markets.
• Direct export channels exist for farmers who cultivate 2 or more hectares of land but these only remain accessible to a wealthy minority. Most smallholders engage indirectly through cooperatives, private traders and informal networks.
• Large-scale plantations operate with direct market access and certifications. Relations with authorities feature negotiated autonomy: federal tax compliance alongside persistent local demands, selective enforcement and political protection, which are countered by labour shortages, ethnic stigmatization and youth contestation.
• Private traders (locals and non-locals) serve as financers, logisticians and market coordinators. While structurally necessary, their informational and financial power enables them to influence farm-gate prices and capture value, particularly through pre-harvest loans that bind smallholders into debt and land dispossession.
• Operating under foreign exchange scarcity, many exporters prioritize access to foreign currency over direct coffee profits, realizing their gains through import activities. This incentivizes rent-seeking, quality downgrading, invoice manipulation and speculative purchasing.
• Zonal unions have grown materially, facilitating Fairtrade International and Organic certification for thousands of smallholders. Yet they face elite capture, governance gaps, capital shortages, side-selling and competition from private traders.
• The 2017 coffee sector reform shifted from the horizontal integration model under the Ethiopian Commodity Exchange (ECX) to the vertical integration model introduced managed by the Ethiopian Coffee and Tea Authority (ECTA).
• Vertical integration allows exporters to bypass auctions at the ECX. While framed as an efficiency reform, vertical integration has concentrated market power among connected exporters, enabled rent-seeking, weakened cooperatives and introduced opacity and regulatory capture, accelerated by administrative adjustments rather than legal prohibition.
• International certification agencies and conservation NGOs shape production practices and market access. Participatory forest management has reduced deforestation and strengthened local governance. Compliance costs, however, are unevenly distributed and financial benefits are diluted by administrative capture, leaving farmers to bear the costs while premium-conversion infrastructure remains weakest where coffee is grown.
• Protected smuggling networks operate extensive domestic and cross-border routes, draining foreign exchange and directly challenging state authority. Violent enforcement exemplified by a July 2025 incident in Chena town in Kaffa zone, where smugglers killed a police officer, demonstrates an alternative practical authority operating alongside formal authority.
• Land is the central axis of accumulation and conflict. Dispossession occurs through subtle mechanisms—pre-harvest loans, debt traps, unequal sharecropping and administrative manipulation—transforming smallholders into dependent labourers. Indigenous communities and women face structural exclusion from land rights, cooperative membership, credit and decision-making.
• The birthplace of coffee is a struggle for symbolic and economic capital, in a context where boundary shifts in the 1990s that created divisions between parts of an area with some shared history of environmental and administrative experience and identity have been compounded by further administrative restructuring in the post-2018 transition process. Contemporary Kaffa’s narrative draws on scientific and historical evidence but in the post-2018 context, competing narratives (particularly centred on Jimma) seek to redistribute branding rights and geographical indication benefits, triggering local protest and reflecting broader struggles over recognition in Ethiopian ethno-federalism.
• The impending European Union Deforestation Regulation (EUDR) creates a paradox: Forest-based sustainable coffee systems are managed by the very smallholders least equipped to meet traceability and compliance demands. Without coordinated investment, the EUDR risks excluding smallholders from premium markets, reinforcing informality and deepening inequalities.
• The Southwest Ethiopia Peoples’ Regional State coffee sector stands at a critical juncture. Its future depends on confronting fundamental issues of power, accountability and institutional integrity, moving beyond technical fixes to restructure governance, rebalance market power, address historical grievances, strategically navigate the EUDR and foster transparency across the coffee value chain.

The Ethiopia Peace Research Facility

This report was written for the Ethiopia Peace Research Facility (PRF) as part of its Knowledge for Peace (K4P) series on the political economy of coffee in Ethiopia; Dereje Feyissa served as research advisor for this series. The PRF is an independent facility combining timely analysis on peace and conflict from Ethiopian experts with support for conflict-sensitive programming in the country. It is managed by the Rift Valley Institute (RVI) and funded by the UK government.