SECTION II

TERMS OF REFERENCE
Project: 130144
Improving the Sustainability and Inclusiveness of the Ethiopian Coffee Value Chain
through Private and Public Partnership

SUB-CONTRACT FOR THE IMPLEMENTATION OF COFFEE QUALITY IMPROVEMENT

ACTIVITIES IN
ALETAWONDO WOREDA, SIDAMA ZONE, SNNP REGION

1. Project Context
Project Summary/Project Purpose>
The Ethiopian coffee sector, is very important for the country and for its economic
development due to: (i) as a major source of cash income and provider of employment, it
supports millions of farming families (those estimated as dependent on coffee
production and marketing for livelihood are about 4 million) and, (ii) coffee is the first
item in terms of income generated from export with a share of about 25 per cent. The
coffee sector can contribute to the growth of the industrial sector share in the national
GDP, owing to its high potential of creating industrial roasting capacity that, at present,
is rather marginal.

Although the Ethiopian Government has implemented important reforms, such as the
introduction of the Ethiopian Commodity Exchange for grading and auctioning, the
problems of the sector need to be tackled through a “value chain” approach. In this
regard, to increase the social, environmental and economic sustainability of the coffee
value chain and its export revenue requires an integrated yet modular value chain
approach focusing on: (i) increase in productivity and sustainability, (ii) improvement of
quality, (iii) increase export and, (iv) recognition in international markets of the intrinsic
qualities of the Ethiopian Arabica coffee. Increasing production is important, but the real
asset of the Ethiopian coffee resides in its quality that, by obtaining premium prices,
could allow avoiding the competition with the “coffee giants”, like Brazil and Vietnam.

Some activities with regard to the sustainability and quality of the coffee value chain will
be performed in cooperation with IllyCaffè as an example of PPP. The specific objective
is to increase the coffee export revenues. This will help to reach the General Objective of
raising the income of smallholder farmers. Poor smallholder farmers and their families,
including women, will be the main beneficiaries of the Project.

A specific component of the project is dedicated to support the cooperatives in the

Sidama area in their effort to improve the productivity, the traceability and the quality of

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the coffee produced by their members, and to this end the Aletawondo Woreda has been
selected.
This sub-contract is aimed at implementing focused activities at farmers’ level in
Aletawondo Woreda, Sidama Zone, SNNP Region by supporting 3 coffee cooperatives,
which include 8332 smallholder coffee farmers. Considering their household members
the number of beneficiaries of this proposed intervention is almost 41600.

Aletawondo is a key coffee area where the Sidamo coffee is produced. Sidamo (named
after the Sidama Zone in Southern Ethiopia) is one of Ethiopia’s most distinctive coffees,
accounting for more than two-thirds of Ethiopia’s washed coffee output and it
consistently receives some of the highest price premiums (see chart below).

Coffee production in Sidama Zone is entirely from smallholder farmers. The majority of
Sidama’s coffee exports is washed coffee. 20% is processed by cooperatives and
marketed by the Sidama Coffee Farmers Cooperative Union (SCFCU). The remainder
(about 80%) of washed Sidamo coffee is processed by privately-owned wet mills and
traded through the Ethiopia Commodity Exchange (ECX).

Number of Wet Mills and Farmers in Aleta Wondo associated in Cooperatives

Zone ECX Type District Number of Private Coop wet Number of
(Woreda) Cooperatives wet mills farmers
mills

Sidama Sidama B Aletawondo 9 34 19 28,018

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2. Objectives of the present sub-contract

The general objective of the present sub-contract is to increase income, deriving from
coffee production of smallholder farmers associated to 3 selected cooperatives
(Homacho Waheno, Gerbicho Lela and Titira) in the Woreda of Aletawondo, Sidama
Zone, SNNP Region.

The specific objective is to increase value of coffee produced by the cooperatives for
export through an increase of yield and quality of the coffee and through the improved
international recognition of Sidamo coffee quality.

3. Responsibilities of the contractor and scope of work

The sub-contractor will work in close cooperation with the UNIDO National Technical
Advisor and the UNIDO National Project Coordinator, under the supervision of the
Project Manager. All the activities carried out by the sub-contractor will be directly
supervised by UNIDO team and verified according to the indicators and the means of
verification provided in the attached logical framework. The subcontractor is expected
to provide his services in order to reach the following outputs:

OUTPUT 1) Selected cooperatives in Aletawondo are capable to apply, to

their organizations and wet mills operations, principles of sound and
sustainable management.

The Sub-contractor will take a comprehensive approach at increasing production, wet

mill utilization and quality to increase farmers’ incomes. It will provide an operational
training and coaching to 3 cooperative wet mill clients over a period of 12 months to
enable them to become independent profitable businesses.

Wet mill operation training and coaching will support wet mill cooperative leaders and
staff to develop skills in business planning, machine operations, quality control,
inventory management, financial management, audit standards, labour management and
coffee marketing. Higher prices, achieved by improved quality and efficiency, will enable
wet mills to pay higher prices to farmer suppliers, pay off other debts early and invest in
new equipment to boost production capacity. Better-managed wet mills will improve
services to existing members and attracting new ones to join. Cutting costs and boosting
quality at the wet mills will result in increased prices to farmers. When farmers get more
money for their coffee, they gain the opportunity to enter into a virtuous cycle of
increased investment and increased returns. The wet mill is the catalyst in this regard:
coffee quality can be improved (even while farm agronomy is still poor) and this brings
higher prices to farmers.

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A focus on the assistance on improving governance will be given in support of
Cooperatives and to the Union to roll-out Transparency Sheets that summarize key
financial results for wet mills and benchmark against industry best practice and average
results. Transparency Sheet accuracy is maintained through reviews by the farmers and
cooperatives and comparison with external financial audits.

The sub-contractor and each cooperative will sign a Client Assistance Agreement, which
outlines the roles and expected level of engagement as well as a customized support
plan. The Sidama Union, to which all Sidama cooperatives belong, will also sign this
document.

The sub-contractor will deliver a series of trainings and provide on-the-job technical
assistance to improve operations, quality, and sustainability. More specifically the sub-
contractor will conduct the following activities:

Activities

1) Provision of 2 trainings on cooperative management to the 3 cooperatives’

managerial staff and follow up (with due attention to the gender mainstreaming,
for supporting women roles in the cooperatives);

2) Provision of 2 trainings on governance and financial management to the 3

cooperatives’ managerial staff and follow up;

3) Assistance to the cooperatives’ technical staff for profiling cooperative members,

strengthening the capacity for data recording system and for analysing the data
reinforcing women role in the cooperative management (Transparency Sheets);

4) Assistance to the cooperatives’ managerial staff to develop an updated

cooperative business plan, taking into account feasibility studies for new
infrastructure investment as well as product differentiation;

5) Coaching of the cooperatives’ technical staff in preparing a feasibility study aimed

at renovating the wet mills in at least 1 washing station per cooperative;

6) Assistance to the industry managers of each cooperative in planning and

implementing new wet mill arrangements that are eco-friendly, efficient and
quality oriented;
7) Provision of 2 trainings on cupping and introduction of cupping practices at
cooperative level (on monthly base).

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Output 2) Leaders of farmers’ groups are capable to apply and
disseminate best agronomic practices at coffee farm level and the 3
selected cooperatives are capable to directly provide extensions
services.

A farm training agronomy program is needed to encourage farmers to adopt key

agronomic practices such as composting, stumping, pruning, and mulching. Improving
agronomic practices of their supplying farmers and helping farmers to regularly deliver
their coffee production to the wet mills is important. A critical mass of farmers growing
coffee and supplying wet mills and wet mills working efficiently creates a virtuous cycle
of development: as the farmers invest on their farms, production volumes and quality
increase; this creates more business for the wet mills, which expands their capacity, and
encourages farmers to produce more. A critical mass of farmers adopting improved
practices will also encourage continued application of the practices. To encourage and
support adoption of best practices the sub-contractor will have to develop a new
cooperative-lead extension program; in particular, the subcontractor has to carry out
the following activities:

Activities

1) Identification of natural leaders amongst the farmers’ groups that can host
demonstration plots in their farms where best agronomic practices in coffee farm
management are put in place and followed up;

2) Provision of 2 awareness training sustainable and environment-friendly coffee

production that will benefit the leaders of the farmers’ group (corresponding at
least to the 10 % of the total cooperative members);

3) Provision of 6 trainings on best agronomic practice that will benefit the leaders of
the farmers’ groups (corresponding at least to the 10 % of the total cooperative
members); the full training course called “Coffee Farm Training Programme” will be
delivered in the demonstration plots, in a set of 6 modules about:

a) Proper nursery management (seedling)

b) Proper planting care (composting),

c) Proper plant rejuvenation (stumping and sucking management),

d) Coffee canopy management (pruning)

e) Integrated weed management (mulching)

f) Proper harvesting and cherries selection (picking).

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4) Implementation of the practical exercises related to the “Coffee Farm Training
Programme” that will benefit the leaders of the farmers’ groups (corresponding at
least to the 10 % of the total cooperative members) on a weekly base.
5) Implementation of a follow up methodology that aims at verifying that the leaders
disseminate the acquired knowledge “Coffee Farm Training Programme” to the
farmers’ members of their respective groups.
6) Establishment of cooperative provision centres for agronomic inputs delivery,
implementing a distribution mechanisms of availing agronomic inputs and other
farm implements (such as organic fertilizers, bow saw, pruning shear and coffee
cherry drying materials-mesh wire as well plastic and jute sheets);

7) Implementation of a feasibility study for the inclusion in the cooperative

organizational chart the function of the extension service provider.

Output 3) Sidama Farmers Coffee Union is capable to provide a timely

and effective support for managerial, financial and technical issues to
the selected cooperatives.

Cooperative unions play a critical role in Ethiopia’s coffee market system. They provide
secondary processing of washed coffee—referred to as dry milling— and hold the legal
permits to execute the sales contracts with international buyers and export the coffee.
Primary coffee cooperatives hold membership of cooperative unions. In Aletawondo,
Sidama Coffee Farmers’ Cooperative Union (SCFCU) is the union that provides this
support, the Union currently exports the coffee processed by the cooperatives and
facilitate working capital financing and provides high level support in sustainable
practices. However, the Union can do more by providing a closer day-to-day support and
follow up of the cooperative. Therefore, at Union level, the Sub-contractor is expected to
carry out the following activities:

Activities

1) Assistance to the SCFCU for their provision of credit to the selected cooperatives
for the improvement of their wet mills;
2) Analysis of the possibility for the Union to apply for a credit guarantee scheme;
3) Provision of 2 trainings and technical assistance to the Sidama Union in order to
apply for a guarantee scheme;
4) Provision of 2 trainings and technical assistance to the Sidama Union aimed at
establishing a specialized and standardized agronomy support programme for all
the associated cooperatives aimed at quality control;
5) Support to the Sidama Union with IT tools to guarantee an efficient monitoring of
the primary cooperatives’ operations.

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4. Methodology

Over the period of technical assistance, the sub-contractor will regularly convene local
stakeholders and local institutions to share experiences, ensure engagement and drive
replication of the program’s approach by others.

Simultaneously, the cooperatives can make big steps towards improving sustainability –
environmental, social and economic. Some of the biggest sustainability needs are shown
in the below chart (it should be noted that the “casual labor” is composed manly by
women employed on a temporary base due to the seasonal characteristics of the work in
the washing stations).

To ensure implementation of training recommendations, the sub-contractor will provide

on-the-job follow-up and also conduct audits to assess compliance and give constant
feedback to clients, updating their action plan as necessary.

The cooperatives will be supported in upgrading their old machine into modern and eco-
friendly machine; the sub-contractor will work with UNIDO, Banks and the Union to
facilitate financing for the investment.

5. Deliverable and general time schedule

The activities in this TOR shall be finalized no later than 12 months after the contract is
awarded. The contract then could be renovated for additional 12 months and, possibly,
for a wider number of cooperatives.
According to the expected outputs, it is possible to envisage the following results:

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Output Indicators

1. Selected cooperatives in Aleta Wondo a) Data collected by the cooperatives are

are capable to apply, to their complete and relevant;
organizations and wet mills operations, b) 3 business plans (1 per each
principles of sound and sustainable cooperative) are prepared and
management. approved by the cooperatives’ general
assembly;
c) At least 3 wet mill new management
plans (1 per each cooperative) are
designed and approved by the
cooperatives’ general assembly.
2. Leaders of farmers’ groups are capable a) 90% of the demonstration plots are
to apply and disseminate best managed according the best
agronomic practices at coffee farm level agronomic practices;
and the 3 selected cooperatives are b) 10% of the total cooperative
capable to directly provide extensions members (corresponding to the
services. leaders of the farmers’ groups) are
trained on coffee quality control
management;
c) A follow up methodology for the
dissemination of best agronomic
practices reaches the remaining 90%
of farmers’ group;
d) 3 cooperative provision centres for
agronomic inputs delivery are
established for coffee farmers;
e) 3 feasibility studies, aimed at
including in the organizational chart
of the cooperatives the function of the
extension service provider, are
undertaken.
3. Sidama Farmers Coffee Union is capable a) Credit for new wet mill machineries is
to provide a timely and effective provided to the three selected
support for managerial, financial and cooperatives and/or credit scheme
technical issues to the selected application is presented to financial
cooperatives. institutions/ international donors;
b) A guarantee scheme is put in place;
c) Specialized agronomy support
programme and quality/marketing
team are established at Union level;
d) A monitoring system on primary
cooperatives’ operations is put in
place.

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 e) Gender baseline data are collected.

6. Minimum performance standards qualification requirements

The activities in this sub-contract shall be completed no later than 12 months from the
date the contract’s award. The selected sub-contractor assigned to this project must
meet the following minimum requirements:

1) An established expertise in coffee sector management, coffee wet mill operation,

cooperative organization with submission of relevant CVs of experts employed in
this sub-contract. A focal point is required (team leader);
2) At least 10 years of working experience in relevant field, in particular in coffee
management, food engineering, with good understanding of technical, financial and
managerial aspects of implementation of projects;
3) A sound financial audit of the company for the last financial year;
4) Working experience on similar assignments in similar projects in the same project
area.

7. Reporting

The sub-contractor is expected to deliver the following reports:

1) One Inception Report indicating the timing for the preparation of the action plan
(after 3 weeks from the date of contract award );
2) Ten monthly reports with the progress of the activities;
3) One interim progress report after six months from the date of contract award;
4) One draft final report (after 3 weeks from the completion of the activities)
5) One final report after all comments received from UNIDO (1 week after the receipt of
the comments).

All documents will be provided to UNIDO with 1 electronic copy, consisting of the
following electronic files:

1) PDF file
2) Original work files (WORD, POWER POINT, EXCEL, etc.).
3) Photographs

The electronic copy can be provided via e-mail, if the nature and size of the files make it
possible. All deliverables and related documents will be provided in English.

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8. Language Requirements

All communications, documentations and reports should be in English.

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