The who is who of the policymaking circle are gathered at the Office of the Prime Minister. A total of 25 ministers and high-ranking officials are there for a serious business; business that requires urgent attention of the government.
That is, understanding why export revenue has been going from bad to worse over the past three years. Of course, the Prime Minister himself was chairing this meeting. Ushered by the National Export Coordination Committee, the high level meeting went on for five hours straight. High on the agenda was export commodities; more specifically coffee export. Coffee falls under the Ministry of Trade (MoT) supervision. And hence, the Trade Minister Kebede Chane had a lot of questions to answer. The questions were a bit tough to tackle since the performance of the coffee sub sector has been on the decline for close to three years now. In fact, part of the tough questions asked were how the direction set by the export coordinating committee in the previous year did not bear fruit. This was a meeting that was held in mid-February, right at the mid-year mark of the current budget year. However, the Trade Minister faced another group of high-ranking officials in May where he had to defend the performance of his ministry and those commodities under his ministry's supervision. This time around it was the lawmakers. This group was not as friendly as those officials at the executive branch. For the most part the parliamentarians were not restricted to issues covered by Kebede's ten-month performance report. Nevertheless, Kebede's own report conceded to the difficulties in the coffee sub sector in the ten months that it covered. Coffee export revenue failed to meet even half of the target set for the period, not to mention it showing marked decline from its level last year. Problems faced by the coffee sector are not new to begin with. Coffee export started to show signs of staggering back when the cash crop was first decided to be traded via the Ethiopia Commodity Exchange (ECX), a relatively new trading system where agricultural commodities such as coffee, sesame, chickpeas and the like are traded. At the time, even the decision to dismantle the old auction system and push coffee to the floor of the young ECX was highly debated. Eleni Geberemedhin (Ph.D.) founding CEO of the ECX, called it (the moment) one of the testing times in her professional life. It is not like she did not have the support of the government to annex coffee trade into her new ECX. As a matter of fact, she did. But, coffee is not that simple of a product to fundamentally go through restructuring and remain intact. A slight vibration in this sub sector has far more reaching consequences with the lives of close of to 30 million Ethiopians touched by this very sector. One problem was obviously the risk. The risk sector players has to take until coffee assimilates with the trading system and started to operate normally. This was a mere wish to say the least. For instance, the export intake in that same year when it joined the trading floor of the ECX was dangerously low. In the year 2008/2009 alone, coffee export intake declined to USD 351 million, one of lowest figures in six years. This came as a shock for the embattled sub sector but soon reversed as the export revenue rebounded the next year. In 2009/10, the figure rose to USD 528 million and progressed well in the years after that.
To the contrary, this was also a period where the sub sector faced the most problems. In all fairness, issues with quality and standards and fluctuation of prices in the international market have always beleaguered coffee. But, it was after 2010 that coffee started to face real issues in the international market. Defaults on coffee contracts became commonplace in the sub sector. For one, unprecedented movement in coffee price encouraged exporters to shirk on their shipment obligations. And this was to the point where it threatened the country's credibility with its customers. This was worrisome for even the highest level of the government structure, hence culminating into a series of directives to regulate the sub sector.
Despite that, coffee took in USD, 841 million in 2010/11, a big leap over the performance of the previous years. Nevertheless, the two agricultural export commodities, coffee and sesame, were never at their best during this time. For one, the price of these commodities at the ECX trading floor floated persistently above their international quotations. This further exacerbated defaults and tendencies to hoard commodities to the point where export revenue started to show marked declining once again. The 2011/12 revenue went down to USD 822 million and further declined to USD 745 million in 2012/13. This trend is highly contradictory to the target stipulated on the Growth and Transformation Plan (GTP.) The ministry was hence instructed to be at its highest alert to revive coffee revenues, which as per the ten-month performance report, did not materialize. During the ten months in question, coffee export brought in USD 489.2 million, less than half of the 882 million targeted for the period. In spite of everything, legend has it that an Ethiopian goat herder named Kaldi was the first to notice the stimulating coffee beans and introduced it the world. Ethiopia too is said to be a country where coffee grew first before it became a popular beverage widely consumed around the world. Ethiopian coffee is also said to be among premium quality in the world. Nevertheless, Ethiopia has never been in a position to reap the benefits of its premium quality coffee let alone influence the international market. Historically, Ethiopian coffee fetches better prices only when Brazilian coffee crop, the world's leading crop, is in trouble. Nevertheless, experts say that Ethiopian coffee is even being overtaken by Kenyan and Ugandan coffee at present. But, the main question is why?
First and foremost, high coffee demand in the local market is a major factor that is affecting coffee exports. In fact, high share of the local market out of the total Ethiopian coffee production has become something of a stylized fact of this sub sector over the years. And the reason is quite simple. As much as being a producer, Ethiopians are also heavy drinkers of coffee. This caused abnormalities in the price dynamics; currently coffee is more expensive in local markets than it is in the international. The exact effect of this high local coffee demand can be viewed from two completely different angles however. The first is its effect in putting a dent in the volume of coffee that is shipped to foreign destinations. Here, both sector players and authorities admit that coffee export is increasingly being threatened by competition from the local market. Exporters exhibit tendencies to favor the local market than selling abroad because it pays better to do so. Nevertheless, there also others who view this as a positive development. They argue that the bigger the local appetite for coffee is, the less the chances are that coffee grows in Ethiopia would be vulnerable to international price fluctuation. Although the country is not getting the foreign currency that it needs, international market shocks would hardly affect the local grower, they argue. With the introduction of ECX, the process by which coffee is delivered to the central market in Addis Ababa has not gotten any easier, to say the least. In fact, the whole market-chain that starts from collecting the product from farmers and storing it in Zonal ECX warehouses to later trading it at the commodity market is one that is very problematic. And this very factor is continuously undermining the Ethiopian coffee market and its worth at the international stages, exporters claim. One of the biggest challenges here are quality and standard. This one area is where complaints are quite rampant. After coffee is collected from growers, supplier would have to enter their coffee to ECX warehouses around the country. This is also the time where the supplier coffee is graded and assigned a specific standard according to its quality. According to exporters, it is commonplace to manipulate the standard. Bribes are paid to assign higher grades to low quality coffee on occasions, experts say, and at times, some would also opt to downgrade their coffee in a bid to sell it in the local market. In the ten-month performance report commodity market presented to the House of Peoples' Representatives on its part did not deny this fact. The report says that complaints about quality and standards were some of its challenges during the period. The report further says that the level of complaints in relation to the quality and standardization has risen during the reported period as compared to last year's. Nevertheless, manipulation of standards is not the only thing. According to industry players, there is also a little bit of speculation going on the ECX trading floor, ultimately overpricing the value of the coffee that they want to procure. At times, the price at the ECX fairs quite higher than the international price thanks to these exporters. To this end, before the founding CEO left office, she had to intervene on a couple of occasions to manually adjust the price of the commodities at trading observing this wrong trend. Much worse, however, is the action of some of the exports who use coffee export only as a means to get access to foreign currency and bank loans which are better available to those in the export sector. To this end, both regulatory body and industry players admit that a dangerous trend of using export business as a means to other activities such as import is on rise.
Perhaps this could be one of the most difficult challenges to the coffee sub sector, according to experts. Kebede's report also reveals that some 37 businesses that have acquired export licenses to participate in the sub sector were found not to have shipped anything to date. The minister told parliamentarians that these businesses might have been in export ventures just for the loan and foreign currency available to it. However, some of the exporters that The Reporter talked to completely disagree. Opting to stay anonymous, they say that there could not be a sane businessperson willing to lose millions in their export ventures in order to get access to foreign currency and bank loans. Nevertheless, it remains to be an area that is a serious headache for the sub sector.
On the other hand, a more serious problem for the sector appears to be the coffee that does not leave the country via formal channels and for which the foreign currency is never recovered. Here, according to the Trade Minister, the most difficult issues with coffee exports are two. One is illegal and contraband trade in coffee. Kebede admitted that a great deal of Ethiopian coffee crop crosses boarders to be sold in neighboring countries while the other is the pressure exerted by the local market. In fact, during the ten months in question, the figures show that there is a gap between the production of coffee in the country and the volume that is exported via formal channels. According to a study by the Federal Ethics and Anti Corruption Commission, out of 30 exporters who were sampled for a study, some 15 could not account for the gap between the coffee they have procured from the ECX and the amount they exported through formal channels. The study says that these are potential indicators that the country is losing foreign currency from this sector. The study says that there is a need for reconciliation between the export permits that exporters have acquired and the actual amount that they shipped in the time period. Coming back to the figures, for the period under question, the actual amount of coffee that ECX reported to have been traded is 203,420 metric tons, while export volume reported by MoT for the same period is 136 metric tons. Here, the coffee that ECX says it has catered to and the export volume on the official books still shows an existence of a wide gap. A gap that needs to be explained.
Ed.'s Note: Yohannes Anberbir of The Reporter has contributed to this story.