Coffee plays a central role in daily life throughout Ethiopia. High and rising demands lets young women become entrepreneurs by setting up coffee kiosks.
Ethiopia is five years into a 15-year journey toward quadrupling coffee export revenues. Export revenues and unit prices are rising.
The homeland of Coffea arabica is a juggernaut in the world of coffee. Ethiopia is the planet’s fifth-largest producer of coffee and the largest producer and exporter in Africa. In production of arabica, it ranks third in the world, and it has the widest range of genetic verities. Its specialty coffees are renowned for their variety of delicate flavors and aromas.
Coffee drives the nation’s economy, as the biggest earner of foreign exchange. The supply chain provides livelihoods for at least 15 million people. Ninety five percent of producers are smallholders.
Yet there is room to grow. Farm yields are low. Export volumes and prices have fallen short of potential. Processing needs improvement. There are inefficiencies throughout the value chain. With these realities in mind, planners in 2019 set about devising a long-term national agenda to revamp the coffee sector.
The Comprehensive Ethiopian Coffee Strategy and Implementation Roadmap aims to more than quadruple the nation’s coffee export revenues to between $3.6 billion and $4.6 billion by 2033, up from $780 million in 2019. Export volume is targeted to rise by 160% to 1.26 million metric tons, from 470,000 metric tons in 2019.
The plan is designed to uplift the entire supply chain, particularly growers, so that farmer incomes to quintuple to $2.7 billion or more, up from $468 million. It aims to create 2.7 million jobs in the sector.
To achieve these ambitious goals, the Ethiopian Coffee and Tea Authority (ECTA) is investing in research and development of new coffee breeds that are “climate resilient, disease resistant, high producing, and high quality.” The broader farm strategy is to elevate agronomy, improve productivity, and lift quality. The plan enlists exporters and buyers to help upgrade management processes and professionalism throughout the supply chain.
Adugna Debela, director general of Ethiopia Coffee and Tea Authority, said that exports are on track to meet targets for the 2023/24 budget year. Photo credit: ECTA
To lift farm incomes, the plan is helping growers increase value-added. One important way is to shift processing toward the wet method, since washed beans command higher prices than dry-processed (sun-dried) coffee in export markets. The washed share of production has risen to about 50% recently, up from around 30% a decade ago.
The roadmap is also helping drive investment in branding, promotion, and marketing of Ethiopian coffee. The plan was developed by the Ethiopian Institute of Agriculture Research in collaboration with TechnoServe, an international non-governmental organization.
Five years into the 15-year plan, it is making some progress. The good news is higher unit prices, which rose 16.8% to $5,540 per ton during the 2022/23 fiscal year. This compensated for lower volume, which declined 20% to 240,000 tons from 2021/22. Revenues fell just 5%, however, to $1.33 billion.
The 2023/24 fiscal year export target is 350,000 tons, with sales of $1.75 billion. The ECTA said that strong results this year show that the goal is attainable, with volume up 18% through August.
Soft global prices
The volume slump in 2022/23 partly reflects softer demand from some importing countries where purchasing power waned. And booming supplies from Brazil — Ethiopia’s direct competitor in export markets —have been dragging on prices.
Weak international prices have induced some exporters to hold on to supplies in anticipation of stronger returns in the future. Others have diverted coffee to the domestic market, where prices are much higher. Local sale of export-quality beans is illegal, but it happens. Coffee prices in Ethiopia in 2021/22 ranged from $3.5 to $4.5 per kg, far above $2.2 to $2.8 in the international market, according to the USDA. In 2023, average international prices have fallen by as much as 40%, worsening the problem.
When Ethiopian exporters hold on to supplies or sell them locally, they abandon their international contracts. This confounds officials’ quest to increase export volumes and business professionalism. Earlier this year, Adugna Debela, director general of the ECTA, announced, unhappily, that at least 394 coffee export contracts were dumped between October 2022 and April 2023, with exporters withholding an estimated 28,000 metric tons of coffee valued at $133 million, according to The Reporter Ethiopia. Nevertheless, he has promised that ECTA will help exporters find a workable compromise between serving domestic demand and fulfilling export contract obligations.
Another factor dragging on revenues is businesses that illegally sell Ethiopian beans abroad at low prices to obtain valuable foreign exchange. Ethiopia’s currency, the birr, is not convertible, and dollars are in high demand among importers. Companies use dollars from coffee sales to import products like construction materials for lucrative sale in Ethiopia. The government sets mandatory minimum prices for exported beans but needs to tighten enforcement.
Quality premium
Debela has said that Ethiopia will emphasize export of high-grade coffees that command premium prices. Interest in Ethiopia’s specialty coffee has been boosted by the Ethiopian Cup of Excellence (COE), launched in 2020. The COE features global online auctions that facilitate direct sales to international buyers and increase the fame of Ethiopian beans.
The highest-scoring coffees in Ethiopia’s COE competition in 2020, 2021, and 2022 fetched $407, $330, and $884 per kg respectively. This is helping efforts to get more farms to produce specialty-grade coffee. Higher prices would encourage farmers to keep growing coffee. Many have switched to farming khat, a chewable leaf that has a stimulant effect and which is more profitable than coffee.
Local thirst
Rising domestic demand puts pressure on the export agenda. Ethiopia is already the largest coffee consuming market in Africa, and about half of production is consumed locally. Figures from the International Coffee Organization (ICO) reflect a steady increase in coffee consumption in Ethiopia in recent years, from 3.64 million 60-kg bags in 2017/2018 to 3.79 million bags in 2020/2021.
Given Ethiopian’s own great love of coffee, it’s not surprising that buyers find ways to keep export-quality beans from filling foreign cups. According to the USDA, “The main reasons for the consumption increase are exportable-grade coffee entering the informal domestic market to take advantage of strong local prices and the increase of small, roadside coffee stalls in and around major towns as income-generating schemes for young, unemployed women.”
Ethiopians have much to gain from their native crop. One estimate says that as many as 25 million Ethiopians are directly or indirectly employed in the coffee value chain, a large share of the population of 116 million. With GDP per capita of $2,300, and total GDP of 278 billion, Ethiopia earns at least 30% of its foreign exchange from the export of coffee, the most of any of its agricultural and manufactured products. Coffee is likely to continue to help Ethiopia grow.
– With reporting by Shem Oirere