The Ethiopia Tea & Coffee Association introduced a new rule to the market: the minimum coffee prices directive. The rule does not only impact exporters. Coffee roasters and importers begin to feel the impact as well.
The rule forces coffee exporters in Ethiopia to sell their coffee at or above a minimum price. If exporters offer below the minimum price, severe consequences follow. From written warnings to yearly or complete bans, and even criminal charges.
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The main purpose of the rule is to stimulate the flow of foreign currency. Ahmed Shide, Ethiopia’s Finance Minister, explained this as followed, “Foreign exchange is one of the major bottlenecks currently, and we are working comprehensively to address that.” Adugna Debala, General Director of the Association, endorses Ahmed.
Adugna says Ethiopia’s coffee volumes grow, but incoming foreign currency decreases. Adugna also says that the value of Ethiopian coffee is losing face in the international market because some exporters sell coffee at low prices. “They even sell it at a lower price than the price they paid to the farmers,” he told media.
The minimum price rule should stimulate the flow of foreign currency and strengthen the perception of Ethiopian coffee in the market.
The minimum prices shift daily and are categorized by region, grade, and exporter type. An exporter can be a grower, Union, vertically integrated exporter, or a commercial exporter. No matter the category or exporter type, exporters all follow the same procedure.
Coffee exporters submit their contracts to the National Bank of Ethiopia (NBE). At the end of each day, the NBE delivers the contracts to an Association-team. The team compares the prices with international and local coffee prices. Then, they use an average weighted method to calculate a new minimum price. Coffee exporters base their contract prices on the new minimum the next day.
Changing weather patterns and a late flowering have already delayed the arrival of the new crop. The new minimum price directive delays the Ethiopian crop even more, since many coffee exporters were unable to register their contracts.
The current minimum prices make new purchases unattractive for many buyers. As a result, we predict a shortage of Ethiopian coffee on the spot markets in the coming months.
There is a high chance that the rule will be changed if Ethiopian exports indeed decrease as we expect. Until then, we advise you to cover your needs with spot coffees from crop 18/19 – which we have discounted. And to consider alternative regions if the minimum price of your referred region is too high.
Your usual contact at Trabocca can advise you in more detail.