Origin Report - Ethiopia

This month our origin report features coffee’s birthplace, Ethiopia. The country is experiencing a turbulent period with record coffee revenue despite decreased production, and a continuing internal conflict in the northern region of Tigray. Meanwhile, numbers in the C-market and the statistics reported by the ICO continue to reflect a scene across the globe in which the current coffee prices appear to be the new norm, encouraged by decreased production numbers from major producing countries and rising global inflation. Read on to see the latest from the C Market and ICO, news from our team, and insights from some of our partners in Ethiopia.

The World Market

C-Market Analysis

Source: Tradingview

The coffee futures market has retreated by almost 15% since climbing as high as $2.60/lb on February 10. At time of writing the market is trading at $2.22/lb, climbing back from having plunged to $2.10/lb on March 15.

Behavior in the market over the coming days could prove to be telling. If the market rebounds upward, it will send a strong signal that $2.10–$2.20/lb could act as the market floor in the short term. Between the 9th and 15th of March this floor was briefly tested as the market dropped 10.92% to fall to the $2.10/lb level, but prices quickly recovered to $2.22/lb. With continuing high price volatility, it’s difficult to speculate on what to expect to see in the futures market in coming weeks.

Global Coffee Industry Statistics

Source: ICO Coffee Market Report, February 2022

• The invasion of Ukraine and subsequent international sanctions imposed on Russia threatens the supply of seaborne ammonia, of which Russia supplies 20%. This ammonia is a key ingredient for fertilizers, and a reduction in its supply could spur a further increase in fertilizer prices, contributing to the rising cost of production for coffee.
• In the first four months of coffee year 21/22, coffee exports from South America dropped by 16.1%, totaling 20 million bags. Meanwhile, exports from Asia & Oceania and Mexico & Central America rose by 20.7% and 24.1% to 14.69 million and 2.5 million bags respectively.
• On February 24, the ICO Composite Price Index showed its largest single-day decrease since December 2021, posting a 3.7% dip. Despite this, the index ultimately rose for its 17th consecutive month, gaining 3.2% to reach 210.89 US cents/lb.
• The latest global production forecast for coffee year 2021/2022 is set at 167.2 million 60 kg bags. Arabica production is expected to decline 7.1% to 93.97 million bags and Robusta to increase with 5.1% to 73.2 million bags.
• Global consumption is set to continue its bounce back to 170.3 million bags, marking a 3.3% growth. With consumption now estimated to exceed production by 3.1 million bags, we could expect to see a continued depletion of global inventory and further pressure on the market as demand now outstrips supply.

This section was sourced from the ICO unless otherwise indicated. Read the ICO’s full February 2022 report here.

At Origin

Harvest in Numbers and Statistics

Fiscal year 2021/22 (beginning July 8, 2021) has proven to be a challenging one in Ethiopia, despite seeing significant increases in total revenue generated from coffee exports. During the first six months of the fiscal year export revenue skyrocketed, growing 90% to total $578 million USD on the sale of 950,000 additional bags of coffee compared to the same period in the previous year. Despite these gains, total production for 2021/22 is estimated to have fallen by 15% to a total of 9.5 million bags of coffee.

Ethiopian coffee exporters have seen a variety of obstacles arise throughout the year, including:

• Unusually high cherry prices, up 103% compared to last year as reported by one of our Ethiopian exporting partners, METAD.
• Labor shortages and productivity difficulties due to the ongoing pandemic
• Private banks experienced liquidity issues in financing, requiring additional travel to receive the necessary funds to operate.
• The Ethiopian government issued a new decree on January 6, 2022, requiring exporters to surrender to the National Bank 70% of any foreign currency earned on exports. This appears intended to discourage new players from entering the market whose sole aim is to earn and hold foreign currency.
• The country is at war. While the conflict is primarily in the northern region of Tigray, away from the primary coffee regions in the south, morale is affected across the country and there are security concerns in Ethiopia’s southern regions as well.

Red coffee cherries in the Guji growing area

We spoke with Aman Adinew, CEO of METAD, one of our exporting partners in Ethiopia, about these challenges. When discussing the high cost of red cherries this year, Aman speculates that there are several contributing factors.

• Some exporters speculated that the Ethiopian Birr (ETB) would be devalued at a higher percentage than the current monthly pace, a situation which last arose in 2019/20 and had a similar effect on red cherry pricing.
• New exporters are turning to coffee this year, creating additional competition for cherries from regions like Yirgacheffe and Guji. Some of these new exporters have worked historically in sesame export, and are experiencing difficulties in accessing their usual crop due to the ongoing conflict in the north of the country.
• Climate change brought a delayed harvest this year, especially in Hambela. There was no rain during the time it was needed to prevent the cherries from turning red, adversely affecting cherry development and processing yields.
• In regions where Cup of Excellence winning coffees had been produced, some smallholder farmers hoped to earn a premium for their cherries this year. In addition, new industry actors attempted to leverage the notoriety associated with some processing facilities and Kebele Farmer Associations, electing to process their cherries at these locations. Unfortunately, many are still unfamiliar with the format of the competition and the small number of auctioned bags which are able to demand premium pricing, contributing to this challenge.
• Coffee brokers working as middlemen between smallholder producers and the Primary Market often benefited most directly from high cherry prices. These brokers collect coffee from smallholder producers to resell at the Primary Market, often paying them a discounted rate compared to the price they will ultimately sell the cherries for.
• Kebele Farmer Association Officials intervened at some locations, dictating that red cherry prices had to be above ETB 50/kg, removing the counterweight from scales at locations who did not comply.
• Ethiopia’s annual inflation rate topped 35% last year, driving up costs for goods of all kinds in all sectors.

Rahel Mulat visiting METAD's Gedeb Halo Beriti washing station in the Yirgacheffe growing area

Field Report: Yirgacheffe

Ally’s Ethiopia Green Coffee Buyer, Rahel Mulat, has remained in close contact with our exporting partners and was able to build new connections during this year’s coffee season. During the harvest, Rahel visited our partner Boledu Industrial PLC’s washing stations in Konga and Aricha in the Yirgacheffe growing area. These washing stations are only four and eight kilometers from the Yirgacheffe woreda, from which the famous growing area takes its name, and process coffees that carry the classic Natural and Washed coffee profiles associated with Yirgacheffe.

During her visit, Rahel spoke with some of the farmers who were delivering their cherries to the Konga washing station and was able to learn more about them, their work, and their relationship with Boledu Industrial PLC’s washing station.

Dureti Habtamu has delivered her coffee to the Konga washing station for the last four years, growing her crop on her parents’ one hectare Organic farm. She says that she chooses to sell her cherries to Boledu’s washing station because they deliver a second payment of 2 birr per kg, and the facility is close to her family farm.

Coffee cherries being dried at one of Boledu Industrial PLC's vertically integrated washing stations in the Guji growing area of Ethiopia

Tariku Ayehu is from Wete kebele and works on a farm owned by her grandparents. She began delivering her cherries to this washing station last year, and also notes the second payment from Boledu as one of the reasons why she returns. Tariku also trusts the workers of the station to have accurate scales to weigh the cherries they receive.

Yohanes Seifu is from Konga kebele and has been delivering his cherries to Boledu for three years now. He sells around 2500 kg of cherries to Boledu each year, grown on his 2.65 hectare farm. Along with the coffee he sells to the washing station, he also produces some to be consumed at home and some which he dries at home to be sold to other commercial markets. Yohanes also mentions Boledu’s second payment and proximity to his farm as reasons why he continues to return.

Future Outlook for Ally Coffee in Ethiopia

Despite production shortages in Ethiopia this year, we’re thrilled to have been able to secure a range of quality coffees for our clients. This includes returning lots from some of our partners, such as the Koke washing station which has produced some stellar coffees this year.

Nearly all of our Ethiopian coffee for the year is booked, and we’re happy to report that our March shipments from the country are already afloat. We’re also excited to source coffee from a new partner this year, Arfassa General Trading, and expand our offerings to include coffee from the Limu Woreda in the Jimma Zone, adding a new range of flavors to our Ethiopian offerings.