The impact of these forthcoming reforms remains to be seen.
Coffee production for MY17/18 (Oct-Sep) is forecast to remain almost unchanged from the previous year at slightly more than 6.545 million bags (~393,000 metric tons).1 Area planted and harvested for this period are likewise nearly the same as the previous year. Post is making slight upward revisions to the official USDA estimates for MY16/17 and MY15/16. According to the second Growth and Transformation Plan (GTP II), the government is hoping to more than double current coffee production to reach around 1.0 million metric tons by 2019/20. However, considering the existing production situation, achieving this goal is not expected within such a short timeframe. In order to boost coffee yields, greater investment and resources need to be devoted to developing and distributing improved varieties, extension support, better inputs (e.g. fertilizer and irrigation), and improved tree management practices. If Ethiopia could manage to use the existing area planted and double productivity to match Brazilian yields, the country’s coffee production would climb upwards of 800,000 metric tons, bringing it closer to its GTP II production goal.
The newly re-established Coffee and Tea Development and Marketing Authority (CTDMA), which is under the Ministry of Agriculture, is charged with instituting development programs to support the country’s goal of boosting coffee production. For example, the CTDMA intends to offer farmers greater access to credit and a more fulsome extension package (e.g. new varietals, tree management training, etc.). The Authority also plans to restructure the country’s coffee marketing system to expand exports by allowing growers and traders to sell directly to foreign buyers.
From a historical perspective, Ethiopia’s coffee production over the last five years has been relatively stagnant for the reasons mentioned above. Production has hovered around 6.5 million bags (390,000 metric tons) and area planted has grown very little. See table 1. The CTDMA hopes to change this past narrative and jumpstart production by primarily using the existing land that is already under coffee cultivation.
Consumption is forecast at 3.24 million bags (~194,000 metric tons) in MY17/18, almost unchanged from the previous year. Post is making an upward revision to MY16/17 consumption to 3.2 million bags because of strong local demand and less than expected exports. A little more than half of the country’s coffee is consumed locally.
Local coffee prices have generally been trending downward since MY14/15. See table 2 below. Part of the reason for the weakened domestic prices is attributed to lower international prices. Nonetheless, local prices are usually higher than international coffee Arabica prices. For instance, Ethiopian coffee prices were on average about $280 higher than international prices in MY15/16. It should also be noted that higher quality (non-export grade) coffee would command a higher rice on the local market than what’s shown in table 2.
Coffee exports are forecast to hold steady at 3.31 million bags (~199,000 metric tons) in MY17/18. The government recently announced reforms to the country’s coffee marketing and trading systems that are intended to boost coffee exports. However, the actual impact of these reforms, which are supposed to become effective in June of this year, remains to be seen. These reforms are discussed in the policy section of the report.
The export estimate for MY16/17 is trimmed back from the USDA official estimate to 3.3 million bags (~198,000 metric tons) because of smaller than expected export volumes. According to Ethiopian government statistics, coffee exports to date (Oct-Mar) are about 77,000 metric tons compared to about 84,000 metric tons the same time last year.
The final export figure for MY15/16 has been updated to 3.4 million bags (~204,000 metric tons). During this period, the top five destinations (by volume) for Ethiopian coffee are Germany, Saudi Arabia, Japan, the United States, and Japan. See table 3 for details.
In recent months, the Prime Minister’s Office has been spearheading efforts to explore and implement the appropriate mix of policy and structural changes that are needed to increase export revenues across different sectors of the economy. The country is heavily dependent on inflows of foreign exchange, especially from export sales of coffee and other agricultural commodities, to pay for government expenditures and imports. Coffee alone accounts for about one-quarter of Ethiopia’s export revenues.
As part of the PMO-led effort, the government is proposing several reforms to improve the coffee marketing and trading systems. One of the most notable anticipated reforms is that coffee will no longer have to pass through the Ethiopian Commodities Exchange (ECX) prior to export.2
This change is designed to give coffee exporters the opportunity to sell identity-preserved (IP) coffee to foreign buyers, which has not been possible under the ECX platform. IP coffee exports are expected to translate into more value-added coffee being sold abroad since international buyers are willing to pay a premium for the IP marketing claim.
How these reforms impact coffee export revenues will largely depend on international coffee prices, something that is out of Ethiopia’s control. However, these reforms appear to clearly put Ethiopia in a better position to reap greater benefits from future coffee export sales. At the same time, the impact of these reforms on export volumes is uncertain given the strong local demand for coffee
