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 1 P a g e
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 (Woreda) Number of Cooperatives Coop wet mills Private wet mills Number of farmers Sidama Sidama B Aletawondo 9 34 19 28,018 2 P a g e
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. 3 P a g e
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 subcontractor 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). 4 P a g e
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). 5 P a g e
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. 6 P a g e
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 ecofriendly 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: 7 P a g e
Output Indicators 1. Selected cooperatives in Aleta Wondo are capable to apply, to their organizations and wet mills operations, principles of sound and sustainable management. 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. 3. Sidama Farmers Coffee Union is capable to provide a timely and effective support for managerial, financial and technical issues to the selected cooperatives. a) Data collected by the cooperatives are complete and relevant; b) 3 business plans (1 per each cooperative) are prepared and 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. a) 90% of the demonstration plots are managed according the best agronomic practices; b) 10% of the total cooperative members (corresponding to the 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. a) Credit for new wet mill machineries is provided to the three selected cooperatives and/or credit scheme application is presented to financial 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. 8 P a g e
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. 9 P a g e
8. Language Requirements All communications, documentations and reports should be in English. 10 P a g e