Market Update & Supply Chain Predictions 2023
The Ethiopian coffee market is facing a series of challenges that have significant implications for both farmers and exporters. The combination of global inflation, civil war, and the impact of the COVID-19 pandemic has created a complex landscape, resulting in fluctuating prices and an uncertain future. However, amidst these difficulties, there are also opportunities for growth and resilience. In this article, we will explore the current state of the Ethiopian coffee market, analyze the challenges faced by stakeholders, and propose potential strategies to overcome them.
The Impact of Global Inflation and Foreign Currency Shortages
Ethiopia is currently experiencing record-high global inflation, standing at 28.57%. This has been further exacerbated by a three-year-long civil war in the northern part of the country. The war has forced the Ethiopian government to spend foreign exchange while receiving less foreign aid. Additionally, there has been a significant drop in tourism dollar inflow due to COVID-19 and the ongoing conflict. These factors have contributed to a massive shortage of U.S. Dollars, which has had a profound impact on the coffee industry.
To address the shortage of U.S. Dollars, the Ethiopian government has recently changed the previously mentioned 70/30 split for export dollars to 30/70 for the government. This adjustment has made USD even more in demand by Ethiopian businesses, increasing the number of coffee exporters issued licenses for access to foreign currency.
Unstable Fixed Pricing Minimums
The influx of coffee export businesses has led to an artificial demand for coffee to raise USD. Consequently, the local prices for coffee have skyrocketed, reaching around 75-80 birr/kg of cherry compared to last year’s 30-50 birr/kg. While the increase in coffee prices may appear positive for farmers who have historically been underpaid, it also poses significant risks.
The artificial demand created by the need for USD has driven prices to unstable levels. This year’s cheery pricing sets the break-even export cost of coffee above 5 USD/lbs FOB. To support export businesses, the Ethiopian Coffee and Tea Authority has issued weekly minimum export prices adjusted to the inflated local demand. Unfortunately, this minimum export price is uncoupled and significantly higher than global prices for coffees from other origins. If the world demand for coffee drops at these prices, exporters will face contract defaults, ultimately impacting the sustainability of coffee businesses.
Weathering the Storm: Resilience and Collaboration
While the current challenges facing the Ethiopian coffee market are significant, there is room for optimism. Experts emphasize the importance of strategic planning, collaboration, and innovation in navigating these difficult times. By focusing on quality, value-added products, and market diversification, stakeholders can adapt to changing circumstances and find new opportunities for growth.
It is crucial for stakeholders across the coffee supply chain to work together and support each other during these challenging times. Collaboration between farmers, exporters, and government entities can lead to the development of sustainable solutions and ensure the long-term viability of the Ethiopian coffee industry. At CropConex, we support innovation, traceability, and positive change in the Ethiopian coffee market with tools to provide digital market access and export facilitation services.
