El Niño Hits African Coffee: Ethiopia's Output Falls and Export Pressure Builds
El Niño conditions have brought erratic rainfall and higher temperatures to East Africa, and Ethiopia's coffee output has fallen by more than ten percent this season. Smallholders in Yirgacheffe and Sidamo report smaller cherry sizes and greater pest pressure. The decline reduces export earnings at a time when the country is already managing a heavy debt burden and limited foreign currency reserves.
Ethiopia remains one of the world's largest arabica coffee producers, and lower volumes have tightened supplies for roasters in Europe and the Middle East. Officials are weighing measures to support farmers while meeting obligations to creditors. Kenya and Uganda are also contending with uneven weather, and the combined effect across the region could shape arabica prices well into next year.
Affected by extreme weather triggered by the El Niño phenomenon, major coffee-producing regions in Africa are undergoing severe challenges. As Africa's largest coffee-producing country, Ethiopia's output for the 2022/23 year is expected to decline to 7.3 million bags, a reduction of about 1 million bags from previous expectations. The alternating onslaught of drought and floods has not only damaged infrastructure in the producing regions but also driven up transportation costs. At the same time, the strict origin traceability requirements of the EU Deforestation Regulation (EUDR) make it difficult for smallholder farmers to comply, forcing export volumes down by 19%. Shrinking exports, compounded by the pandemic and civil war, have intensified the country's fiscal pressure, and it even faces the risk of sovereign debt default. International coffee futures prices continue to fluctuate at high levels due to limited supply, and market concerns over short-term supply are steadily rising.
The United States Department of Agriculture (USDA) recently pointed out that drought weather triggered by the El Niño phenomenon is affecting agricultural production in Africa, with cash crops such as coffee facing pressure to reduce yields. In the just-concluded 2022/23 year, Ethiopia's coffee production is estimated at 7.3 million bags (60 kg per bag), lower than the previous forecast of 8.3 million bags.
According to reports, many African countries this year experienced the most severe drought in four decades, with rivers drying up and lakes shrinking, and in some areas the proportion of surface water disappearing reached as high as 95%. However, after entering November, rainfall began to appear, and sustained precipitation turned the drought into flooding, causing severe damage to some coffee-producing regions and putting further pressure on output.
Ethiopia is both Africa's largest coffee-producing country and the world's fifth-largest exporter of Arabica coffee. However, domestic consumption accounts for nearly half of its output, and combined with the impact of reduced production, coffee export volume has been revised down by 19% to 3.9 million bags.
The decline in Ethiopia's coffee exports is also related to a regulation from the European Union. The EU Deforestation Regulation (EUDR) requires origin traceability for goods sold to confirm that they do not involve deforestation or forest degradation. However, coffee production in Ethiopia is dominated by smallholder farmers, and meeting the compliance requirements of the EUDR not only greatly increases costs but is also quite difficult to implement. As a result, many importers say it is difficult to purchase Ethiopian coffee on a large scale.
For Ethiopia, agriculture is the pillar of the national economy and exports, and coffee is the main cash crop. Reduced exports, together with the earlier COVID-19 pandemic and the two-year civil war that has just ended, have already placed extremely heavy pressure on the country's finances. Due to failing to pay US$33 million in "coupon interest" on time, the Ethiopian government intends to formally enter default status. It is reported that the debt principal corresponding to this defaulted coupon payment is US$1 billion.
Data from the U.S. ICE Intercontinental Exchange show that Arabica coffee and Robusta coffee futures prices are still hovering at high levels, mainly due to supply constraints and logistics problems. On the supply side, unfavorable weather and low inventory levels in consuming countries and exchanges have caused market concerns about short-term supply. On the transportation side, floods have damaged road facilities in some areas, driving up transportation costs.
The above content is compiled by CoffeeHunters, a coffee news website.
