How is currency depreciation affecting Ethiopia's coffee industry?

The Ethiopian Coffee and Tea Authority signed a memorandum of understanding with the Oromia Tourism Commission on August 4 to use coffee to boost tourism. In the previous fiscal year, Ethiopia earned US$1.4 billion in foreign exchange from coffee exports, but the birr has fallen nearly 70 percent against the US dollar, sharply raising local living costs.

Staple goods such as onions, cooking oil, and teff have climbed steeply, and the government is releasing supplies to stabilize prices while preparing to regain AGOA eligibility. The coffee industry still faces rising planting costs, limited productivity, and armed conflict, pressures that weigh on global coffee exports even as high-quality Ethiopian lots keep drawing buyers.

The Ethiopian Coffee and Tea Authority and the Oromia Tourism Commission signed a memorandum of understanding, attempting to use coffee to drive tourism development. In the previous fiscal year, the country earned US$1.4 billion in foreign exchange from coffee exports, but the industry is widely worried about the impact of the sharp currency depreciation—the birr has fallen nearly 70% against the US dollar, and the local cost of living has risen sharply, with prices of staple foods such as onions, cooking oil, and teff soaring. The government is releasing supplies to stabilize prices while preparing to regain AGOA eligibility. However, with the cloud of armed conflict still looming, the coffee industry faces multiple pressures from rising planting costs, limited productivity, and political instability.

According to local Ethiopian media reports, on August 4 local time, the Ethiopian Coffee and Tea Authority and the Oromia Tourism Commission jointly signed a memorandum of understanding.

It is reported that Ethiopian coffee enjoys a global reputation and is one of the important pillars of the country's foreign exchange earnings. The purpose of this memorandum of understanding is to integrate the resources of the two departments and use Ethiopian coffee to enhance the status of the country's tourist attractions.

The Ethiopian Coffee and Tea Authority stated that in the just-ended fiscal year, the country's coffee export trade brought in US$1.4 billion in foreign exchange earnings, and emphasized that it is currently committed to producing high-quality coffee to secure more revenue in the coming years.

However, coffee industry insiders pointed out that the biggest problem currently facing the coffee industry is the exchange rate issue. Previously, Ethiopia announced a major revision of its foreign exchange system and implemented a series of transformation measures, causing the Ethiopian birr exchange rate to plummet. According to a report by the Commercial Bank of Ethiopia, the buying rate fell from 95.69 birr per US dollar, and the selling rate from 101.43 birr per US dollar, a depreciation of nearly 70%.

In recent years, the Ethiopian people have been under heavy pressure from the cost of living, and this policy adjustment has further pushed up the cost of living. According to local residents, the price increases of some goods have exceeded expectations; for example, onions rose from 40 birr per kilogram to more than 70 birr, 5 liters of cooking oil rose from 1,100 birr to 1,500 birr, and teff, a local staple food in Ethiopia, also rose from 160 birr per kilogram to 190 birr. As the exchange rate continues to decline, large-scale public protests may break out in the future.

Although the Ethiopian government has taken action and recently arrested thousands of business owners on grounds of unreasonable price increases. According to reports, Ethiopia's Minister of Trade and Regional Integration said that the government continues to release more industrial and agricultural products into the market to balance supply and demand of goods. At present, more than 1,000 trucks have transported goods to the market, and 14 million liters of cooking oil have been purchased for distribution.

It is understood that these current government measures are mainly to prepare Ethiopia to regain eligibility under the African Growth and Opportunity Act (AGOA). This act allows more than 1,800 Ethiopian products to enter the US market duty-free, and in addition, more than 5,000 products can enjoy duty-free treatment under the Generalized System of Preferences program.

But the US government pointed out that the Ethiopian government must resolve civil unrest outside the capital before it can obtain AGOA eligibility. That is why the government has taken action to ease public pressure and prevent large-scale protests from occurring. The country's Prime Minister Abiy said that the government has been negotiating with the Fano organization in Amhara State and the armed group OLA in Oromia State in order to reach a peace agreement.

But afterward, both the Fano organization and the armed group OLA said they had not negotiated with the government. The leader of the Fano militia organization even emphasized that Fano is carrying out armed struggle and is focused on ending the Abiy government. These reports mean that Ethiopia will face a larger-scale armed conflict, which is very unfavorable to the country's industrial development.

For the country's important coffee industry, the biggest current problem is rising costs, especially the increase in prices of local staple foods and fertilizer, which has increased the cost of coffee cultivation. At the same time, productivity is limited and vulnerable to factors such as weather, while the government's measures have not brought much help to the coffee industry. Even though the current exchange rate is conducive to boosting Ethiopian coffee exports, as costs rise, coffee export prices will also rise, and combined with political instability, some buyers may become more cautious.

The above content is compiled by CoffeeHunters, a coffee news website.