Focus on Inflation

We mentioned a couple of weeks ago that inflation has taken off in Ethiopia, this week we are looking at this in a little more detail. Having hovered between 18 and 20% over the previous 12 months, in June inflation started to accelerate to reach over 30% in August, the highest inflation rate in over 10 years. The main component of the Inflation Rate is the price of food with a weight of 54%, and this element has increased by 38% in August!

This is a direct consequence of lack of supply; mainly of foodstuffs caused by the debilitating fighting within Ethiopia. We discussed in an earlier post the measures taken to try to halt this steady rise in prices starting with cancelling import duties on basic goods. However, with fighting spreading to Amhara and Afar the food security situation is not improving.

On the coffee front sporadic offers and buying interest keeps popping up here and there. The logistics continue to be a struggle and we feel that the volume of business has slowed down a tad.

Birr 46.02= USD 1

Have a good weekend.

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August Shipments beat expectations

Coffee shipments from Ethiopia were up once again in August after a strong July. August, which normally marks the start in a decline in shipment pace recorded shipments of over 32 K MT. This is the 3rd month in the last six to record shipments above 500 k bags. Shipments March to August topped 190 K MT, 50 K MT more than the same period in 2021. This is a remarkable performance considering that the logistics are so difficult at present, causing delays. September should also record a good export performance since there are so many penned up shipments that have spilled over from August to September.

Offers continue to pop up from small (sometimes unheard of before) shippers. Larger offers are difficult to come by. Shippers that have stock are being more realistic about price expectations allowing for more trading to take place.

On a lighter note, Ethiopia celebrated the New Year this week. For more on this and other Ethiopian peculiarities pls follow the link: https://www.bbc.com/news/world-africa-57443424

Birr 45.87 = USD 1

Have a good weekend.

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More on economic policy

In a bid to tackle recent food inflation, the Government has waivered all import duties on wheat, sugar and edible oils. This is step in the right direction in addressing the people’s main concern in recent months, soaring prices for basic food stuffs. Furthermore, the National Bank of Ethiopia (NBE) has just done a u-turn by reverting the decision to not allow Asset Based Collateral Loans for Importers, acknowledging that the restrictions imposed a couple of weeks’ ago would have adversely impacted the Government’s inflation busting policies. This is a boost to those Coffee Exporters that also own import businesses.

Asking prices from shippers remain all over the place, but generally speaking they seem to be coming a off a little, probably because recent high asking prices have failed to attract business. In addition, stakeholders are starting to feel the pressure to dispose of their stocks (if they have any) as the new crop is round the corner and NBE is tightening monetary policy, restricting imports of nonessential goods and materials. However, availability is scarce, you really get the feeling that there is little coffee around.

Although the war feels far way from Addis, fighting in the North of the country is intense and spreading to Amhara and Afar regions. Please follow the link for the BBC’s latest assessment: https://www.bbc.com/news/world-africa-58450223

Covid situation in Ethiopia has recently been quite bad but it would appear that the country is starting to recover after a 3rd wave of infections. Each wave has been worse than the previous one and vaccination rates are way below what we have in Europe and other Northern hemisphere countries.

Weather remains favourable for the upcoming crop with some picking in the lower lying coffee growing areas to start still in September.

The local currency devalued 2.5% in the last month vs the USD.

Birr 44.67 = USD 1

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Economic woes impacting coffee supply

We have been reporting in the last couple of weeks on the downward turn that the Ethiopian economy seems to have taken in recent months. The Government this week has taken some measures to restrict liquidity and try to tackle inflation. The National Bank of Ethiopia (NBE) increased the base rate from 13% to 16%. Additionally, commercial banks require to up their deposits with the NBE from 5% to 10%.

The Government also announced that exporters will only be granted (for imports) 40% of the value in U.S. Dollars that they export, it was 70% until yesterday. We are not entirely sure of the impact of this squeeze on liquidity, however it is now harder for those shippers that rely on the USD proceeds from coffee exports to finance their import business, and therefore there will be less imports.

The worsening economic outlook has negatively impacted imports and the number of food grade containers arriving in Addis. If fewer containers are imported, then fewer containers are available to load coffee for export… As a consequence, despite a seasonal reduction in shipment pressure, it has become harder to find containers to load coffee for export. Average waiting time for containers has gone from 2 weeks to 3 weeks and we believe this is likely to worsen since imports are likely to decline further.

What will the Ethiopian Government do with increased proportion of USD that now has to be transferred to NBE? Resupply the army or buy much needed food and other first necessity goods? We hope for stability and prosperity, for the BBC assessment on what it is like to go about your daily life in Ethiopia these days, please follow the link: https://www.bbc.com/news/world-africa-58319977

Offers from shippers are few and far between, prices are all over the place, it really feels that coffee stakeholders are uncertain about what to do and where things are going. Meanwhile the next crop is coming along nicely, weather (so far) has been favourable, leading us to believe that the crop will be a good one, both in terms of quantity and quality. The coming 3 months will be crucial, in terms of weather and political stability, to insure that 2022 exports fulfil expectations and surpass 2021.

Forex Birr 45.57 = USD 1

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