There’s never a dull moment in Ethiopia. The coffee market is always in motion, and the past harvest is proof. From record-breaking export volumes to shortages of washed coffees and farmgate cherry prices that went through the roof. Let’s see what happened during harvest and how this influences the coffees you’ll roast this year.
As dry weather hurt the output of Brazil’s ’21 harvest and frost endangered the potential of next year, Ethiopia seems to thrive in volume and revenue. The yield of 2021/2022 breaks the record of Ethiopia’s export volumes, compared to season 2020/2021, with an anticipated 5 million bags of export by the end of February. Ethiopian coffee export figures are reported on a Feb to Feb calendar because this is the moment when the ECX is in full flow. With a record-breaking volume comes a surge in export revenue as well. Ethiopia is expected to export 1 billion USD value of coffee by the end of this month.
A lack of cash liquidity within Ethiopia this year has plummeted the volume and availability of washed coffee. But why? Because owners of washing stations struggled with financing operations during harvest, and due to a general skepsis that the high cherry prices would not yield any margins. So, this lack of liquidity might be the reason why the volumes of natural processed coffees increased and now dominate what Exporters can offer.
The forecast of the 2022 production varies across all Ethiopian regions. In the western zones of Djimma, Limu, Lekempti, Kaffa, and Bench Maji, the volumes compare to 2021 and may even increase by +/- 10%. But within the southern regions of Sidamo, Guji, Uraga, and Yirgacheffe, we expect the volumes to decrease by 20% to 30%.
In the last 12 months, we have seen the terminal market increase by 100%. This increase is noticeable in the average farm gate prices throughout Ethiopia. We see farm gate prices increase from an average of 22 Birr/kg cherry in 2020/21, to 40 Birr/kg cherry in 2021/22.
If you convert these values to green prices $/lb, you can see that farmers were receiving $2,17/lb green at the farm gate. This is a 33% farm gate price increase. The higher farm gate prices are reflected in the current FOB prices which are 40% higher in general. This hefty rise is also driven by the enormous 30% inflation within Ethiopia that surged during September 2020 – September 2021.
Cherry price to green breakdown:
The National Bank has announced a new directive on the amount of foreign currency Exporters can retain from their export earnings. As most Exporters use coffee export earnings to pay for their imported goods and services, this new rule partially obstructs this process. The new rule states only 20% of Exporters’ earnings, made through imports, may be retained in USD. The remaining earnings must be converted to Birr.
This new policy has caused some friction with exporters and prompted campaigns to have the limit raised. In addition, we see firm FOB prices set by the National Bank of Ethiopia. This is particularly noticeable when we look at the different grades. For instance, the minimum price between grades 1 and 2 is $1/lb. This is a difference of $42,000 per full container.
Read more about the minimum coffee prices directive.
The weather has been generally good throughout the year, although delayed rains in the southern regions meant that the harvest was prolonged. Take Guji, for instance. In season 2020/2021, the harvest was completed before Christmas. This season, however, only 80% of Guji’s harvest has been completed. As the harvest slowed down, several washing stations closed their operations – advising farmers to process their cherries as natural coffees. Although there is a slight delay in harvesting, the weather has been favorable during processing with a good amount of dry days that supported the efficiency of processing.
The security situation in Ethiopia is looking much better than it was in November/December 2021, when the Tigrayan forces took a lot of territories and threatened to invade the capital, Addis Ababa. However, after the Ethiopian government received some support from the Russians and Chinese, we saw the government take advantage and they have pushed the Tigrayan forces back into Tigray. The situation in Addis is now stable and our colleagues report that life is resuming to ‘normal’ for the time being.
Before the start of harvest 2021/2022, we welcomed a Wolde Tagesse, our new Quality Coordinator, who will streamline the evaluation and selection of the new crop. Quality Assistant Wogene Berhanu has joined Wolde to handle the number of incoming samples we cup and evaluate.