What Is Threatening Ethiopian Coffee Production Right Now?

Ethiopia's coffee industry is under dual pressure: renewed security conflict in the Horo Guduru area of Oromia, home to the Lekempti commercial coffee production region, has left at least six people dead, and the EU Deforestation Regulation taking effect at the end of 2024 could cost the country up to $1.4 billion in export losses if compliance proves difficult.

The clashes near Shambu, about 96 kilometers from the district government seat, involved local militia and the Oromo Liberation Army, and residents report ongoing killings and abductions in the area. Even though coffee export value hit a record in August, uncertainty over both security and trade rules clouds the coffee industry outlook.

The Ethiopian coffee industry is facing severe challenges. On one hand, security conflicts have erupted again in the Horo Guduru area of the Kiremu district in Oromia, resulting in at least 6 deaths; this area is home to Lekempti, the country's main commercial coffee-producing region, and the ongoing conflict continues to affect coffee production. On the other hand, the EU Deforestation Regulation will take effect at the end of 2024, and Ethiopian coffee, finding it difficult to meet compliance requirements, could face export economic losses of up to 1.4 billion USD. Although Ethiopia's coffee export value hit a record in August this year, the dual pressure of the security situation and new international trade regulations leaves the outlook for this major African coffee nation full of uncertainty.

According to media reports, a serious security incident has occurred again in the Horo Guduru area of the Kiremu district in Oromia, Ethiopia, resulting in at least 6 deaths.

The conflict took place about 96 kilometers from Shambu, the seat of the Horo Guduru district government. Local residents said that a gun battle lasting several hours broke out between local militia and the armed group Oromo Liberation Army (OLA), ultimately leaving at least 6 people dead, with members of the security forces and an OLA fighter among the victims.

Reports indicate that the federal and regional governments have consistently claimed that the security situation in the area has improved, and have continued to repatriate thousands of displaced people who had previously fled the area due to threats. However, over the past two years, there have been continuous reports in the area that the Oromo Liberation Army (OLA) has been killing and abducting civilians.

According to reports, previously in the Mojo area of Oromia, less than 100 kilometers from the capital Addis Ababa, a religious pastor along with his wife and three children were killed. And since July, four buses full of passengers traveling from the Amhara region to the capital Addis Ababa were abducted near the area.

But the Oromo Liberation Army armed group and other organizations claim that it is local government officials in the area who participated in the abductions and massacres, and who abducted civilians in the name of the Oromo Liberation Army armed group and demanded ransoms of millions of Ethiopian birr.

Although the government has consistently claimed that the security situation in the western part of Ethiopia's capital Addis Ababa has improved, there are continuous reports of outbreaks of conflict and abductions in the area, along with ongoing casualties. It is understood that the western region is Ethiopia's Lekempti coffee-producing area, which is Ethiopia's main commercial coffee-producing region, known for its output, with an average production of 500,000 bags (60 kg/bag). At present, the area has been continuously affected by conflict, which will have a certain impact on the country's coffee production.

Although the Ethiopian Coffee and Tea Authority earlier released data showing that in August, Ethiopia exported 42,322 tons of coffee, generating a record profit of more than 196 million USD, with coffee export value increasing by 165% and additional revenue increasing by 143%. However, reports indicate that because major coffee-producing countries such as Brazil have all reported reduced output due to weather effects, international coffee prices have soared, while Ethiopia, due to earlier government reform policies, has seen its currency, the birr, depreciate wildly, yet Ethiopian coffee has not risen significantly in price, so international coffee traders can purchase Ethiopian coffee at cheaper prices.

However, many traders are currently worried. According to a report by the British think tank ODI, in December 2022, the EU issued the Deforestation Regulation (EUDR), which will take effect for large coffee companies starting December 30, 2024.

The regulation stipulates that no individual or company may sell products involving deforestation on the EU market, including coffee, cocoa, and others. This has a major impact on the coffee interests of some less-developed countries, especially African countries. It is said that without dedicated support for this project, African countries may face major economic consequences. In Ethiopia, complying with the regulations would increase costs by 10% and could reduce Ethiopia's GDP by nearly 1%.

At present, Ethiopia's coffee is mainly exported to the EU, the United States, Saudi Arabia, Japan, and China, among others. The EU is Ethiopia's largest coffee market, accounting for more than 30% of its coffee bean exports. However, most Ethiopian coffee production finds it difficult to meet EU requirements, so export volumes will be seriously affected.

According to reports, some large corporate coffee traders will now abandon African countries and instead buy more coffee from countries such as Brazil, because these countries have more tools to prove their coffee complies with regulations. Market forecasts suggest Ethiopia's coffee export economic losses will be at least 1.4 billion USD, which will severely damage the development of Ethiopia's coffee industry, and the Ethiopian government has currently taken no action on this.

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