It is normal that things slow down as we approach Christmas and the end of the year, but it really is dead on the Ethiopia business side! Minimum registration prices put grade 5’s into plus differentials which holt any chance of buying whereas industry seems to be focused on everything but buying! Time to take stock, reflect on the past 12 months and what the next year will bring. 2022 was difficult for Washed coffees and 2023 is looking even harder, with reduced availability and high prices. Naturals were much easier to trade in 2022, good availability and good quality, aided by a buoyant market that peaked in February as many shippers were hoping to get short; it all worked out very nicely, for both shippers and their customers. What will 2023 bring? we expect Naturals availability to be good, however with farmer price expectations not being met we could see some resistance at farmgate level to part with produce. Upcountry stock build up is a very real possibility over the next 12 months.

Inflation soared in the first 6 months and stabilised around 35% in the second half of the year. The birr has remained very steady vs the USD losing around 6% over the 12 month period.

The 2 year conflict between Government forces and Tigray rebels has ceased and a long lasting peace deal in looking increasingly likely; this is the single most positive thing that 2022 brought Ethiopia and allows us to look at 2023 with hope that the misery of the past 2 years will give way to prosperity for all Ethiopians.

Birr 53.27 = USD 1

Happy Holidays!

Having increased in October, exports in November are drastically down, 10 K MT lower than in November 2021 and 8 K MT lower than in October 2022. It is likely that shipments going forward for the next 3 months will total less than 50 K MT. This will result is exports for the 12 month period March 22 to Feb 23 of less than 5 Million bags, however it will be the second highest annual exports figure after the 310 K MT shipped between March 21 and Feb 22.

Currently there is very little export activity as expected for this time of the year, matters are made worse by some big defaults from Saudi importers that having bought Lekempti 5 at around 200 c/lb when the NY market was above 200 are now not opening LCs leaving shippers carrying expensive coffee with nowhere to ship to.

Cherry prices are currently between 40 Birr per kg in some Limu areas to over 70 in some Yirgacheffe locations. Still very little is being bought with most washing stations either closed or operating well under capacity.

Birr 51.2 = USD 1

Have a good weekend.

Following our trip to the Southern coffee producing regions of the country last week, this week we travelled to Djimmah to asses the harvest there. The picture in Djimmah is very similar to the South, washing stations working under capacity or simply closed. Production is generally good but the proportion of the crop that is being Washed is very much reduced, we expect that as much as 50% less coffee will be washed this year compared to what we would have expected in a “normal” year. Again we saw many Washing Stations having idle drying tables, only one fermentation tank being used out of a dozen, parchment very thinly spread on drying tables. Washing station owners are buying less cherries for washing and farmers are happy to sell less, processing the crop themselves at their homesteads and producing natural coffee to sell at a later date. Weather is favourable for the harvest, some rain at night and plenty of sunshine during the day. Overall, we expect good quality for both Washed (Grade 2) and Naturals (Grade 4 and 5), our concerns are very much skewed to the reduced Washed volumes being produced. The coming few weeks will be crucial, however we have little confidence that the production of Washed Coffees will increase substantially, currently our thinking is that more washing stations will stop receiving cherries for processing and that Washed Coffee availability will become increasingly compromised.

The peace negotiations are progressing well and the prospects of Ethiopia being welcomed back into the fold of Western Governments and subsequent resuming of finance agreements is increasing. This could result in an easing on the tight forex controls that were imposed on shippers during the conflict with Tigray rebels. Currently shippers are keeping around 30% of the USD they receive from export sales, however a return to the 70% level is increasingly voiced and even expected by some exporters. This would assist shippers in importing goods and reduce coffee export loses since the margins on imported goods continue to be very healthy.

Paradoxically, in West Oromia, instances of insecurity are not abating, for more on this please follow the link:

Birr 53.13 = USD 1

Have a good weekend.

We are touring some of the more prominent coffee growing areas this week and next to get a feel for how the harvest is progressing. This week we were in Sidamo and Yirgacheffe, the lower lying areas have come to the end of the harvest and during December picking will peak in these 2 important growing regions. We have visited many washing stations and what has struck us most are the small volumes of parchment in the stations and small warehouses dotted around the countryside. Two main reasons explain the small production of washed coffees:

  1. Farmers perception that a price of 50 to 60 Birr per kg cherry is low!
  2. Lack of cash distributed by Exporters to their washing stations and agrabe partners to finance cherry buying

Focus is on producing high quality coffees for the specialty market that attracts higher prices and higher commercial coffees that will command a premium over normal Grade 2 coffees. There seems to be small appetite by washing station owners to produce commercial grade 2 coffee in these regions since the price that would need to be achieved to make a margin is in excess of 300 c/lb FOB (50 birr per kg cherry equates to 6 USD/kg Clean => 272 usc/lb + 30 usc/lb (Farmgate to FOB cost) = 302 usc/lb FOB).

On the other hand there will be plenty of Naturals since the crop is good (higher than 21/22) in these regions and the proportion of Naturals vs Washed will be higher, as explained above.

Next week we are in Djimmah and Limu so more to come on the harvest there!

In other news, Ethiopia is doing its bit to mitigate climate change, having banned the importation of vehicles, the country now allows the importation of electric vehicles at a much reduce import tax while maintaining the ban on importation of internal combustion cars.

Birr 53.00 = USD 1

Have a good weekend.