Note from
Wondwossen: As a matter of
disclosure, the following report was apparently posted online on May 20, 2012, but was not
brought to my attention until after I cross-posted agritrade's article titled,
"High
prices encourage coffee production in East Africa, but challenges remain."
Any resemblance between the facts and conclusions drawn by this report and the
ones detailed in my recent piece titled, "Ethiopia’s
coffee export nose-dives as government control backfires" and published
on July 15, 2012 is entirely coincidental.
---
Ethiopia Coffee Annual Report - public distribution
USDA Foreign Agricultural
Service
May 15, 2012
Report Highlights:
Ethiopia is a major producer
(the largest in Africa) and exporter of coffee.
Because of information not earlier available, estimates for Ethiopian
coffee production have been revised upward substantially from earlier USDA
estimates. Exports for MY 2010/11 were
also revised upward, to account for the informal trade in the region. However, exports in MY 2011/12 are
significantly lower, because of a new directive mandating that coffee be
shipped in bulk rather than the traditional 60-kg jute bags, which led to many
traders holding onto beans. The directive was retracted quickly, but was in
force for most of the peak shipping months of October-December, and therefore
had a large effect. In MY 2012/13, production
is forecast to be strong, assuming the rains are good, and exports are forecast
to rebound.
Production
Ethiopia is famous as the
origin of coffee and is the largest producer in Africa. In production of Arabica coffee, Ethiopia is
the sixth largest producer in the world.
About 15 million people (almost 20 percent of the total population)
directly or indirectly depend on coffee for their living. The largest volume of
coffee is grown in the two large regions of Oromia (in the central part of the country)
and the Southern Nations, Nationalities and Peoples Region (SNNPR). Only five percent of coffee production is
grown on modern plantations, which are owned by private investors or by the government. The rest is grown by smallholder farmers, and
about half of that production is in backyards or gardens. In both cases (modern plantations as well as
smallholder production), coffee is generally grown under shade.
Production estimates for Marketing Year (MY)
2010/11 (October 2010 – September 2011) and for MY 2011/12 have been raised
substantially from earlier USDA estimates.
However, there is not much change in production from year to year. Although there is some additional planting of
trees, there has very little progress in management (e.g., disease and pest
management remains poor) or input usage by smallholders. Few commercial farmers are interested in
investing in coffee due to the 5-10 years required before trees come into peak
production. Another limiting factor is
the deforestation in the country, caused by population pressure and the need for
firewood, which is inhibiting the available shade for coffee production and
accelerating erosion.
Production in MY 2011/12 is
slightly higher than the year before, because of good rainfall distribution in
most of the coffee growing areas, except for the southern part of Oromia. In addition, because of a large development
project, a large number of seedlings were planted about five years ago, and
these are just coming into fruit. MY
2012/13 production is forecast to be slightly higher again, because of additional
trees and because the short belg rains (usually February-May), although late,
have been good. The late start of the
belg rain this year may delay the harvest by about a month.
Two factors may negatively
affect coffee production over the long term. In parts of Oromia, a root rot disease is
gradually affecting trees, and even affects new seedlings if planted where a
diseased tree has been uprooted. In
addition, especially in the eastern part of the country near the trade routes
with the Middle East, farmers are increasingly inter-cropping coffee with
khat. A legal stimulant, khat is relatively
resistant to drought, disease and pests, can be harvested three or four times a
year, and commands high prices in neighboring countries, such as Djibouti,
Somalia and Yemen. Recently the government
has imposed a new tax on khat aimed at discouraging domestic consumption (which
accounts for 80 percent of Ethiopian khat production). This likely will lead to more exports and to higher
prices for khat farmers, which may exacerbate the shift from coffee in the
eastern regions.
Consumption
Ethiopians consume about half
of all coffee produced in the country.
Ethiopian households normally prepare and consume coffee two or three
times a day, and the Ethiopian coffee ceremony is a traditional way to welcome
guests to one’s house. This marketing
year has seen a steady rise in local coffee prices, with the price of green
coffee currently at 8 USD/kg. In MY
2012/13 the expected higher production, coupled with high ending stocks, may
depress local prices somewhat and lead to increased domestic consumption.
Because of the current high
prices, some coffee shops are known to mix coffee with barley, as a way to extend
the coffee and maintain profits. The high prices have led to a trend in urban
areas for small roadside coffee stalls, not subject to VAT tax and therefore
cheaper than normal coffee shops.
Because they deal in such small quantities of coffee, they do not use
barley and are therefore popular with Ethiopians. In some non coffee-growing areas, people
even boil the skin of the processed coffee beans to make coffee, as a way to
have a coffee drink at low cost.
Trade
Coffee is the most important export
item for Ethiopia, accounting for 25-30 percent of total export revenues in the
last two years. The trade figures in the
PSD are higher than official export figures, or import figures from destination
countries, in order to account for estimated informal trade to neighboring
countries, including Eritrea, Somalia, and South Sudan.
Exports in the current
marketing year (MY 2011/12) are considerably lower than in recent years because
of a response to government policy. In an effort to modernize coffee shipments
and in an attempt to avoid using contaminated bags (see below), in November
2011 the Ministry of Trade imposed a new directive requiring that coffee be
shipped in bulk containers rather than the traditional 60 kg. jute bags. However,
in addition to the fact that many operations are not physically equipped to
handle shipments in bulk, traders objected to the new policy because it
undermined the identity of specialty Ethiopian coffees. Therefore, many traders held onto their beans
instead of shipping.
The situation was exacerbated
by the Ministry of Trade’s earlier action, in October 2011, to ban 41 exporters
because of hoarding coffee. An
additional 57 exporters were suspended for varying lengths of time, up to a
year. Therefore, during the peak export
time of October –December, many export contract obligations were not
fulfilled. In order to reverse the new
directive, the issue was taken up to the prime minister’s level, and on
December 17, 2011, the Ministry retracted the directive. But the major shipping season was coming to a
close, with the result that the short-lived directive is having an impact throughout
the marketing year.
MY 2010/2011 Ethiopian Coffee Exports by Destination
(1000 60-kg bags)
Destination MY
2010/2011
|
|
Germany
|
998
|
Saudi Arabia
|
415
|
USA
|
265
|
Belgium
|
220
|
France
|
169
|
Italy
|
153
|
Sweden
|
129
|
Japan
|
122
|
Sudan
|
89
|
UK
|
86
|
Others
|
342
|
Total
|
2,987
|
Source: Ethiopian Customs
Authority
Prior to 2008, the Japan market
was the second destination for Ethiopia coffee, but a problem with DDT-tainted
jute bags that year dramatically reduced this trade. The Ethiopian government reacted by mandating
that all export coffee be tested at a Ministry of Agriculture coffee
laboratory. The Ministry is working with
the Japanese development agency as well as other donors to improve overall
laboratory systems, in order to avoid similar problems in the future.
Stocks
Coffee stocks are primarily
held by coffee cooperative unions, with some quantities held by the Ethiopian
Commodity Exchange (ECX) (see Marketing section below), coffee exporters and wholesalers
for the local market. The government, however, has severe penalties for
hoarding, and exporters are not allowed to store more than 500 tons of coffee over
a two-month period, unless they have a contract with an importer. ECX, cooperative unions and local market
wholesalers are not affected by this restriction. Storage capacity is a major
issue, and ECX continues to invest in warehouses throughout the country.
Policy
There are no particular
policies affecting coffee production. As
noted above, however, coffee storage is regulated, as is the export trade. Because coffee is one of the most important
export items, the government imposes a number of regulations to maximize the
foreign currency resulting from this export.
It is illegal to sell export quality coffee in the domestic market, and
businesses must have special licenses to be roasters, domestic wholesalers, or
exporters. In order to maintain export
quality, all parties in the export supply chain are required to be certified by
the Ethiopian government in order to collect, process, store or transport
coffee.
Marketing
The Ethiopian Commodity
Exchange (ECX), a public-private enterprise, was established in April 2008 with
the help of USAID to reduce transaction costs and risk to growers, as well as
to control foreign exchange. It started
with export items like coffee and sesame, and is now extending to haricot beans
and grains, including for the local market.
Over the past four years, it has become a well-organized market
institution where local buyers and sellers come together to trade, assuring
quality, quantity, payment and delivery.
It now handles about 90 percent of all coffee exports, and has its own laboratories
and warehouses. Unwashed coffee accounts
for over 60 percent of all ECX transactions.
Many farmers have benefited
from the ease in marketing and better prices afforded by trading through ECX. However, there are some complaints by
producers and traders. First, some
growers object to the fact that trading through ECX is mandatory; by law all
coffee must be traded either through ECX, through a cooperative, or by a
commercial operation. (Sesame is also
required to be traded through ECX; using ECX is voluntary for other
crops.) Second, ECX handles coffee in
commodity fashion, to the disadvantage of growers (and buyers) of specialty
coffees. This has given an advantage to commercial
farms and certain coffee cooperatives, which do not have to sell through ECX
and are able to get premium prices by marketing their coffee either by terroir
(e.g., Yirgachefe) or by production process (e.g., organic, or
bird-friendly). In an effort to address
this, ECX is taking steps now, working on a pilot project with Starbucks, to
identity-preserve specialty coffee.
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Source: USDA, ‘Ethiopia coffee annual report’, GAIN Report ET 1202, 15 May 2012
USDA Report Disclosure: This report
contains assessments of commodity and trade issues made by USDA staff and not
necessarily statements of official U.S. Government policy.