By
Asrat Seyoum
December
17, 2011
 |
Photo: Courtesy of The Reporter
|
On
April 24, 2008 Bob Geldof, the renowned ex-rock star, who had strong ties to
the country on account of rallying international help to the great Ethiopian
famine of the 1984, kicked off the first modern commodity exchange market in
the country.
The
irony that Geldof, the very person who campaigned to feed millions, ringing the
bell to commence a modern grain market in Ethiopia apparent, hopes for
Ethiopian Commodity Exchange (ECX) to redefine the country’s agricultural
commodities market landscape was very high. And ECX’s first pick to start its
operation was the oldest and the most prominent cash-cow in the economy:
coffee.
The move
from the old coffee board and auction system to the new anonymous trading
system was never easy to say the least. Nevertheless, close to three
years on ECX floor, the bumpy performance cannot be attributed to
adjusting to a system alone; both the exporters and ministry took a shift in
taking the blame, according commentators. Problems with the major coffee
importer countries like Japan in mid-2000s and the controversy over patents and
royalties with Starbucks, a coffee giant based in U.S, were among some of the
difficulties the sector had to pass through in the past.
Once
again coffee export revenue is declared to be in danger this year. An account
of the ups and downs in performance and swift damage control measures therein
characterized the sector over the past couple of years. On a number of
occasions the sector appears to have been saved by the bell from a major
disaster, while the export proceeds managed progressing year on year. However,
following the new directive that the Ministry of Trade (MoT) has issued
regarding coffee shipment modality, the sector once again found itself in a
fickle position. The new directive stipulated that unless and otherwise granted
special permit by MoT, all coffee exports originating from Ethiopia should be
ferried through loose container loads. The directive seeks to eliminate the
jute-bag packaging alltogether and instructed the exporters to feel the
containers without any prior bagging of the product. The decision steered
severe disagreement among exporters, foreign buyers and the authority last
week. And the meeting called to dilute the situation last week was reported to
have dispersed without a concrete outcome.
Adding fuel to fire
Out of
the total export earning of USD 2.7 billion obtained last year, the
export intake from coffee covers a staggering one-third, that is USD 840
million. And the government announced that it is going to expect USD 1.1billion
from coffee this year, pushing overall earning above 3 billion. Apart from
monetary gains, the government said that it also wants to transform coffee and
other export items to modern and sustainable tradable commodities in the
international markets. Hence, the sector has seen intense regulatory measures
in the past couple of years. Most of the new measures applied in the industry,
however, did not pass without strong resistance from the operators.
At the
end of last Ethiopian budget year, MoT faced the sector with a new directive
that enforced a limit on the level of stock that exporters can hold in their warehouses.
Furthermore, the ministry has also instituted severe punishments on the
operators who defaulted their contract agreements. The decision to regulate the
stocks and the export contracts appears to have originated from the experience
in the previous year. Following other commodity prices in the international
market, the price of coffee also showed a steep surge at the time; forcing
contract default problems, according to official statements. By the time
foreign buyers, who have already signed contracts with Ethiopian exporters,
begin to demand delivery of the products, the local exports became cornered as
the coffee has also soared at the ECX. The cumulative effect was gross contract
default risks to the country; and in a bid to protect the county’s market
credibility, MoT had to knock on each exporter’s doors to lobby them to honor
the contract agreements.
However,
as the last budget year approaches its end, the ministry again announced that
the sector was not yet out of the woods.
According
to the letter that accompanied the directive, the exporters have no one but
themselves to blame for the contract default problems that occurred at the
time. “The exporters did not refrain from keeping excessive coffee stocks and
speculating on international prices,” Yacob Yala, minister of state in the MoT,
said in the letter. Hence, the directive placed a limit on stock that each
exporter can keep without contractual agreement signed for the coffee. The
ministry did not stop there; in fact, it ordered all outstanding contracts to
be honored within one month. Some of the exporters that talked to the reporter
at the time said that they had to carry heavy losses due to the suddenly
enacted directive. The sector made USD 840 million on the balance sheet and
proceeded to next year. Nevertheless, the begging of this year was not as
smooth as it was expected to be by the government. Just few a months into this
year, scores of major operators were banned from the export business on grounds
of contravening the directive. The Ministry resorted to taking the measures as
exports were not working within the regulations. Sources close to the matter
said at the time that falsified contracts backing the coffee stocks were
discovered by the ministry. The directive gave mandate to the ministry to ban
an exporter from trading from ECX floor, if found to be a violation of the
rule. However, before MoT moves to the last stage and bars the exporters, the
Ethiopian Coffee Exporters Association (ECEA) strong involvement dissolved the
situation.
While
events kept unfolding, MoT once again came up with another directive to shack
things up in the sector. To make things worse, the current stern rules do not
seem to be making any sense at all, according to commentators. And so
far, the amount of shipment that left the coffee-dependent country is way below
the plan.
The temporary deadlock
Keeping
up with the trend, exports, ECEA and the ministry have chosen to keep matters
to themselves. While compiling this story most coffee exporters preferred not to
discuss the matter on the record. However, contents of the letter directing the
association to make sure that its members adhere to the loose container
mechanism, which was signed by Yacob Yala, has surfaced on some web posts. And
unlike the previous directives, this one appears to have drawn the attention of
coffee importers all over the world.
According
to the translated version of the letter that appeared on the internet,
preparations to fully shift to loose container shipment of coffee have been in
the works for quite some time now. Yacob indicated in the same letter that
“exporters were able to import additional blower machines for the purpose” and
“adequate awareness creation has also been done among exporters”. However, the
practice is not picking up as planned and hence strong enforcement measures are
required, he explained. “So, the directive will be effective from November 11,
2011.”
The
directive nevertheless tries to justify the move by listing out advantages that
loose container loads bring, from the Ethiopian point of view. Among other
things the system is meant to modernize the export packaging standards of the
country and cut cost that arises due to the packaging bags, says the letter.
“Besides, it ensures that coffee is exported while its quality is maintained;
minimizes the possibility of coffee theft en route; reduces the cost burden on
our coffee buyers of disposing sacks; eliminates the cost that coffee exporters
pay for sacks; benefits exporters as coffee buyers pay better prices when their
coffee is shipped as loose loads; increases fleet turn-around,” reads the
letter.
The
exporters who were present at the meeting with the minister of state last week
did not try to argue on the merits and the demerits of the directive either.
“The only concern,” they said, “is that the coffee buyers are refusing to
accept our coffee packaging.” “It is a costumer-based business and hence we
have to take into consideration our buyer,” they cried. On the other hand, some
15 local agents for Ethiopian coffee importers also said that their clients do
not want the new packaging and shipments mechanism. The internet-based
discussion forums indeed indicate the same thing. Almost all buyers appear to
be converging towards one point that is the directive might set the country’s
coffee market to fail.
The break of the stalemate
The
coffee people, who met Yacob Yala last week, left the meeting hall with feeling
defenseless. The minister of state did not want to budge from the position and
regardless of the concerns that was heard at the meeting. “The exporters have
to convince foreigners to work with the loose shipment mechanisms,” he told the
meeting. “We have invested on containers and blowers being poor country, and
why won’t our buyers do the same in the case of the bags and the packaging?”
Yacob argued.
Meanwhile,
some parts of the exporters carry on as usual saying that they will bear the
risk of getting punished. And still some tried to gear up to the new
directive. Nevertheless, mostly the sector took a pause until the dust cleared
out from the air waves. In fact, it did. On Thursday, the minister of trade,
Kebede Tchaine, told the board members of the ECEA that the directive has been
repealed and the members can ship their products according to the need of their
buyers. Kebede ended the 35-day deadlock in the sector, but according to some
of the exporters, for coffee shipments for February, March, and April the
agreement should be have been signed during the past one month and this would
definitely have bearings on the export revenue. “Within the last month alone,
the country has lost some 30 thousand tons of export of coffee,” he told The
Reporter.
However,
the full implications of such short-lived, not well-researched policy
interventions not only on the export revenue but also on the overall smooth
trading of the commodity are yet to be seen, concludes commentators.