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Coffee Prices

The prices of sun-dried coffee cherries are now hovering between 105 and 110 birr/KG in Guji zone. Up until the first half of February, we were witnessing stable prices which were averaging 86 birr/KG. However, during the second half of February, prices started to increase gradually when washing/drying stations started to shift their attention away from red cherries and towards sun-dried cherries. As a result, prices of sun-dried cherries started to increase not only in Guji but in many parts of Sidamo and Yirgacheffee regions.

When comparing February 2023 prices with that of this year, there is a meaningful reduction in coffee prices. For instance, the price of coffee averaged 120 birr/kg last year in the month of February. Even though the reduction in prices when comparing this year to that of last year is a good news, we believe that prices should be significantly lower due to international coffee prices as well as the liquidity problem that the coffee sector is experiencing at the moment.

One of the main reason for the price of coffee to increase while the sector as a whole is facing liquidity problem is because there are many exporters in the market that are collecting coffee from producers on credit sales. These exporters, even though of majority of them are not able to make payments within a short period of time due to liquidity problems, are enticing coffee farmers and suppliers by offering them higher prices to collect their coffees. According to Hussein Ambo (PhD), President of Ethiopian Coffee Association, coffee farmers and producers are awaiting billions of birr in receivables.

In our opinion, unless the Authority steps in and forces exporters who owe coffee producers to settle their debt, not only producers will go bankrupt but also unfair competition between exporters will lead the market to further complications.

Problems in Coffee Value Chain Due to Shortages of Liquidity

The entire value-chain of coffee is facing problems due to shortage of bank loans in Ethiopia. The newly implemented fiscal policy of the National Bank of Ethiopia has directed all local banks to cap loans to customers at no more than 14% above last year’s total loan disbursement. As a result of this policy, many exporters and large suppliers are facing problems when trying to access loans to be used for coffee purchase. Thus, many farmers and suppliers in coffee growing regions are facing extreme hardships when trying to collect their receivables from exporters and large suppliers.

As we all remember, when coffee used to be transacted via Ethiopian Commodity Exchange (ECX), all transactions used to be settled the day after the trade. However, the introduction of vertical integration has changed the way coffee is being transacted and created an oversight on cash settlement. Now, loopholes within the system of vertical integration allows exporters to receive coffee and not make payments immediately to suppliers.

Even though some farmers and suppliers have started litigation processes, many courts are finding it difficult to make a ruling because many of them do not follow a proper and legal sales record when selling their products to exporters.

Unless the Authority designs a strict system that controls how payments should be conducted via vertical integration, the entire value-chain of coffee will face a problem that could force many coffee producers as well as important stakeholders within the value-chain of coffee out of business.

How the Problem in the Red Sea is affecting the Coffee Sector in Ethiopia

As the Houthi strike continue to choke the Red Sea, Ethiopian coffee exporters are forced to endure longer wait periods to ship their coffees. Due to logistical and security issues, Ethiopia has not yet started exporting coffee via alternative ports such as Kenya’s Mombasa and Somalia’s Mogadishu ports.

Even though shipment schedules are disrupted in Djibouti, vessels from various shipping lines are arriving in Djibouti and transporting goods. However, the shipping lines are changing their routes by using the Cape of Good Hope route rather than through the shorter but more dangerous Suez Canal.

In order not to miss a scheduled vessel, exporters are required to work closely with the respective shipping lines they plan to use. At KANYA Coffee, we have built a strong relationship with major shipping lines and we are working closely with them to avert any potential problems.