April 11, 2023 - BY Admin

Drop in global coffee prices forced Ethiopia to default on $133 million contracts

Ethiopian coffee exporters have defaulted on 394 coffee export contracts since October 2022.

The exporters say they have no choice but to breech their contract because the international coffee price has dropped below the local price in Ethiopia, slashing the profit margin they had anticipated.

Coffee exporters failed to meet their contractual obligations by withholding 28,000 metric tons of coffee worth USD 133 million.

The prices of the export commodity on the international market have fallen by 32 percent over the same time last year.

A pound of coffee (0.45 kg), which cost one dollar a year ago, is now 70 cents. Ethiopian exporters signed their deal while coffee prices were higher.

“Demand for coffee, spices, and tea has decreased significantly this year due to the global economic slowdown,” Adugna Debela (PhD), director of the Ethiopian Coffee and Tea Authority, told the House of Peoples’ Representatives (HPR) while presenting the sector’s performance report for the previous eight months.

However, demand in the local market is growing. The domestic price of coffee has increased dramatically during the past 12 months. This means that exporters will have to pay more for coffee in the domestic market and will have to export it at a loss. Disgusted, many exporters refused to ship the coffee, instead stockpiling it in their warehouses.

“After Ethiopian coffee was heavily marketed as part of the Cup of Excellence global competition, people began buying Ethiopian coffee aggressively, resulting in a coffee shortage in the domestic market,” said a coffee farmer and supplier from the Sidama Region and Bensa area who spoke to The Reporter on the condition of anonymity.

“Because of the shortage, the commodity has been purchased at a higher price, and as a result, domestic buying and selling price of coffee has been high at a time when the world buying price of coffee is low,” the farmer added.

Instead of exporting, coffee suppliers have stockpiled export coffee in their warehouses, hoping for a better international price in the future. The Authority, in its part, is examining possibilities in which exporters bargain with overseas customers and export the coffee at new prices.

Due to price variations in the domestic and international markets, the Authority’s goal of bringing USD two billion from coffee exports in the current Ethiopian fiscal year is already experiencing obstacles.

Coffee brought USD 1.4 billion to Ethiopia’s export last year, and officials have set a target of USD two billion this year after hitting a record-high export earnings for the first time ever. However, price fluctuations have defined the coffee trade this year, and with global coffee prices dropping, the chance to improve on last year’s performance has become very limited.

In the last eight months, almost 143,000 tons of coffee have been shipped to overseas markets, bringing in USD 780 million. Parliamentarians voiced worry over the performance gap.

Adugna, on the other hand, expressed optimism that coffee export performance could improve significantly in the four months before the Ethiopian fiscal year 2022-23 closes on June 30, 2023.