Government pushing for shipments

In a bid to accelerate shipments and push exporters to ship, the Ministry of Trade is introducing a new 15% Tax on coffee that is held for over 12 months unshipped. Additionally, there will be penalties for “hoarding” coffee rather than shipping. This move is the latest attempt by the Government to increase exports and attract foreign exchange to sure up the local currency. For the last 6 months+ coffee shipments have fallen below expectations and potential, due to poor quality (of Natural Grade 5 Coffee) and high asking prices (particularly for Washed Coffee). Will this latest Government intervention have the desired effect? We somehow see this as a desperate move that may not have any tangible results, taxes do not improve quality!

May shipments will be published soon, our feeling is that these will once again disappoint; stocks in Addis continue high, warehouses are full of coffee that is stuck due to poor quality or priced out of the market. Coffee is not moving from upcountry to Addis due to the heavy rain that has been battering the country since March. This is a very atypical season, this time of the year is normally peak season for processing and shipping, however this year is far from normal!

Birr 54.33 = USD 1

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These are difficult times

The weather continues to be humid and is getting colder as “winter” approaches. Rain stops coffee from drying or remaining at optimal moisture levels, and makes roads impassable. Quality concerns are ongoing with many samples rejected for earthy, musty cups. Meanwhile shipments, while not completely at a standstill, are much lower than what they should be; particularly considering the sales done when NY rallied in February and again in April. Indeed as the NY rallied in late February to 190+ and then again in April to 200+ shippers sold, however contracts remain unshipped as intrinsic quality is lacking with cup defects that originate in poor preparation and wet weather conditions.

Natural stocks held in warehouses in Addis remain high, coffee is stuck, not moving out to be exported. The reason remains the same, poor quality, buyers are not approving Pre-Shipment Samples and since quality issues are widespread (the whole crop is compromised) the problem is not easily solved!

There were fresh rumours of devaluation this week however as of today the Birr Official Rate remains at roughly 50% the Black Market Rate as follows:

Birr 54.28 = USD 1

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Changes in the Ministry of Agriculture

There was a change of head of department at the Ministry of Agriculture in the past few days. The incoming team is putting increased pressure on the Coffee and Tea Authority (CTA), Millers and Shippers to accelerate shipments and increase USD flows to the country. Commercial mills are full of coffee that is stuck, not being shipped due to poor quality that is not meeting overseas’ buyers quality expectations. So previously made contracts, when prices were higher (when NY was higher and Minimum Registration Prices were higher), remain unshipped and instore addis warehouses bringing the normal flow to a grind. To make matters worse, the very wet weather in Addis and upcountry is impeding the movement of coffee from growing areas to Addis for processing due to poor roads becoming impassable and coffee absorbing air moisture further deteriorating quality. All very bleak at the moment…

The wet weather has been beneficial to the lower coffee growing areas, however at higher altitudes (in areas like Guji and Yirgacheffe) heavy rain has knocked off the first flowers and had a negative impact on crop potential for 23/24. Something to monitor in coming weeks.

Minimum Registration Prices were increased earlier in the week by the CTA by 1 to 3 c/lb depending on quality category.

Forex Birr 54.26 = USD 1

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April shipments were low, as expected

Heavy rain has been reported throughout the coffee growing regions of Ethiopia and Addis Ababa, with mixed blessings for the coffee industry. On the one hand the rain is greatly benefiting the crop on the tree, on the other hand, transportation of coffee of the current crop from the growing areas to Addis for processing is severely hampered by deteriorating roads. Stored coffee stocks are also absorbing air moisture which is not doing the already very compromised quality any favours.

Signaling that export registrations continue below expectations the Coffee & Tea Authority decreased minimum registration prices this week to the lowest levels in 3 months.

April export figures were below March’s. This in itself is not surprising since the 5 year average also follows this trend, however it was the lowest April in 6 years and when we look at the 6 month period November 22 to April 23 every month is below average and most months recording the lowest export volume in the last 5/6 years. Overall shipments are very disappointing, Ethiopia stats start the year in July; comparing the 10 month period July 22 to April 23 (180 K MT) to same period in 21/22 (230 K MT), shipments are down by 50 K MT, on average this represents a 5 K MT monthly decline in shipments; we expect this will continue in May and June. If we are correct in our assessment of the situation, shipments will drop by 1 M bags between 21/22 and 22/23 (July to June) from 5 M bags to 4 M bags.

Exports of coffee in the 9 month period June 20222 to March 2023 totaled USD 897 M with Horticultural products still far behind at USD 514 M; However, the far more liberalised Horticultural sector is outperforming Coffee in other aspects; horticulture export earnings growth rate is outpacing the Coffee sector’s and if the current trend continues the Horticulture sector will become more relevant in the years to come.

Violence continues to sporadically plague the country: https://www.bbc.com/news/world/africa?ns_mchannel=social&ns_source=twitter&ns_campaign=bbc_live&ns_linkname=6458f4c9588b295993d1abb5%26Ruling%20party%20official%20killed%20in%20Ethiopia%20-%20report%262023-05-08T13%3A44%3A24.505Z&ns_fee=0&pinned_post_locator=urn:asset:bd6d6686-5f27-4af3-bb28-cec922990e80&pinned_post_asset_id=6458f4c9588b295993d1abb5&pinned_post_type=share

Birr 54.22 = USD 1

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Forex rates in focus

Another short week in Ethiopia (with 2 holidays) with little to report on the trading side, as the NY market is well below the highs seen in mid April, shippers’ offers go unanswered. Shippers are starting to deliver on the sales concluded in February, quality remains a concern but is improving (slightly). Shipments still moving at a slow pace, next week we should have official April export figures which will enlighten us better on first quarter business activity. The Coffee & Tea Authority this week decided to reduce Minimum Registration Prices by a couple of cents to just off the lowest prices for 2023, a clear sign that registrations have wavered in the last couple of weeks and a reflection of the lower terminal price.

Forex has been kept at an artificially low level. Since August the Birr has moved from 52 to 54 to the USD, so a less than 4% devaluation in 8 months; however the gap between the Official Rate and the Black Market rate continues to grow, in August the BM rate was 85 and currently it is at 102 corresponding to a 20% devaluation vs the greenback . For now Government’s policy makers continue to insist on trying to control inflation with tight controls on forex rates, however inflation continues to run at around 35% and the economy is stalling. Is this making the best of a bad situation? Exporters seem to have given up on a devaluation in the near future, however most of the current crop continues to be upcountry in the hands of middlemen and mostly, held by farmers.

Negotiations between the OLA (Oromo Liberation Army) and the Government have ended without an agreement: https://www.bbc.com/news/world/africa?ns_mchannel=social&ns_source=twitter&ns_campaign=bbc_live&ns_linkname=645242ad78b1a04df275ba25%26Historic%20peace%20talks%20in%20Ethiopia%20end%20without%20deal%262023-05-03T11%3A41%3A58.043Z&ns_fee=0&pinned_post_locator=urn:asset:3bc242fa-7fd8-477f-9046-233190f9a118&pinned_post_asset_id=645242ad78b1a04df275ba25&pinned_post_type=share

In other news the UN has halted the distribution of food aid: https://www.bbc.com/news/live/world-africa-65361155?ns_mchannel=social&ns_source=twitter&ns_campaign=bbc_live&ns_linkname=64532cfb78b1a04df275bafb%26Ethiopia%E2%80%99s%20Tigray%20probes%20food%20aid%20theft%20as%20WFP%20halts%20operations%262023-05-04T05%3A59%3A52.924Z&ns_fee=0&pinned_post_locator=urn:asset:7a500151-dd9a-4290-a3a1-f64899411692&pinned_post_asset_id=64532cfb78b1a04df275bafb&pinned_post_type=share

Forex Birr 54.19 = USD 1

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Lots of offers, little business

Shippers continue to offer, however a combination of lower terminal market, higher minimum registration prices and buyers having “filled their boots” when NY rallied a couple of weeks’ ago have resulted in less business being concluded. Quality concerns are an ongoing issue, both in Naturals and Washed coffee qualities. Weather continues wet, normal for this time of the year.

As we approach the end of the month we look forward to analysing the shipment figure for April, although this show a marked increase on previous months we suspect that full potential will not have been reached. Quality issues and resistance to lower prices (or prices lower than farmer expectations) have resulted in retention at farmgate level. Coffee is flowing much better than a few weeks ago however, it is not a flood!

In other news, violence returned to Amhara region this week with the killing of a local leader: https://www.bbc.com/news/live/world-africa-65355011?ns_mchannel=social&ns_source=twitter&ns_campaign=bbc_live&ns_linkname=644b4c3b1719d30b241ce099%26Ethiopia%27s%20Amhara%20ruling%20party%20official%20shot%20dead%262023-04-28T04%3A40%3A13.660Z&ns_fee=0&pinned_post_locator=urn:asset:b43f0506-21da-4ba5-a4b4-45e8db7fad21&pinned_post_asset_id=644b4c3b1719d30b241ce099&pinned_post_type=share

There seems to have been some movement on the Ethiopian side of the argument regarding the dispute with Egypt over damming the Nile: https://www.bbc.com/news/live/world-africa-65355011?ns_mchannel=social&ns_source=twitter&ns_campaign=bbc_live&ns_linkname=644a1a0cbb343d77c4990f55%26Ethiopia%20says%20ready%20to%20resume%20Nile%20dam%20negotiations%262023-04-27T07%3A01%3A48.417Z&ns_fee=0&pinned_post_locator=urn:asset:8ffac229-ead9-4b1b-9a3d-3c3211594947&pinned_post_asset_id=644a1a0cbb343d77c4990f55&pinned_post_type=share

Forex 54.14 = USD 1

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A more subdued week than last

Whereas the focus of the world this week was on the disastrous fighting in Sudan between opposing factions within that country’s military structure, Ethiopia has not been featured in the news, a sign that the country is at peace and inspite of the drought in certain parts of the country, things are stable.

On the coffee front, the buoyant terminal market allowed for some trading even if in a more subdued manner viz a viz last week when the terminal galloped ahead. Shippers are now preparing coffee for shipment, moving stocks to Addis from upcountry and the focus has shifted to execution of commitments rather than selling additional volumes. It will be interesting to see what happens to Grade 5 and 4 FOB differentials for September shipment onwards as New Crop (23/24) Brazil Natural prices are offered at substantial discounts to 22/23 crop offers (for shipments in the next 3 months). Certainly roasters are looking for big discounts in prices, however it is not certain that more usual/normal Ethiopia Natural differentials will be reached this crop. There has been a lot of retention by farmers and agrabes, if they do not like the price they will keep the coffee. This season will see a build up in stocks, after stocks were drawn down in 2021 and to a certain extent in 2022. Shipments will accelerate in the coming months, the recent terminal market moves above 190 c/lb allowed for sales and these will become shipments over the coming 2 to 3 months. The picture for second half of 2023 is murky, the underlying theme seems to be that farmers are selling slowly and consequently stocks are upcountry rather than in Addis.

Inflation rate has remained fairly constant over the past few months between 32 and 35%, with food price increases above these rates. Food inflation remains a major reason behind farmers demanding increasing prices for their coffee, farmers do not sell unless their price expectations are met.

Forex 54. 09 = USD 1

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Things got busy

The rally in NY really gave business a push this week, the terminal market moved approximately 20 usc/lb and finally shippers’ price expectations could be achieved. A lot of business was concluded this week let’s see some execution now! Quality of Naturals (Grade 4 and 5) seen so far this crop cycle has been very disappointing, with many samples rejected for earthy, mouldy and phenolic cups. It seems that wet weather in parts of Djimmah and insecurity in Wellega region have played a hand in reducing cup quality. Washed coffee quality is good but there is very little Washed Sidamo and Yirgacheffe this year therefore buyers need to be diligent to avoid receiving coffee from different regions “to what it says on the bottle”!

Meanwhile shipments continue to disappoint, March marks the first shipment month of New Crop shipments and this March was the lowest for shipments in the last 5 years. This follows very low shipments in December, January and February. We expect that in April there will not be a sharp reversal, hopefully the recent rally in NY and business concluded this week will eventually filter into better shipment figures.

Birr 54.03 = USD 1

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Very slow week

Minimum registration prices remained unchanged, in NY prices came off so it is not surprising that business is slow. Shippers want to do business but asking prices based on upcountry prices are completely untradable. Export Contract Registrations for commercial qualities must be close to zero this week.

Something will have to give and it is looking increasingly unlikely that the terminal market will come to the rescue!

It is unlikely that buyers would be paying these prices so exports will remain low; indeed this is a very slow start to the year, export figures for March will be available soon and are surely to disappoint the Coffee & Tea Authority. The body that oversees the coffee industry has been on a campaign to get shippers to export but with so little coffee arriving in Addis there must some very concerned officials in Addis these days.

Weather continues to be very wet in Addis and some of the coffee growing areas such Wellega (Lekempti).

Birr 53.90 = USD 1

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More of the same

Very little business concluded this week, offers are plenty but prices are untradable. Minimum Registration Prices were put up this week, quite unexpectedly, so with the terminal market losing ground during the last few days, prices are unworkable.

Meanwhile, although there is some flow of coffee from the growing areas to Addis the volume is still much less than expected for this time of the year. Some stakeholders blame the wet and rainy weather for slowing down the transportation of coffee from the interior to Addis, however we feel that the volumes moving down the value chain are very much reduced compared to previous seasons. Farmers are not releasing coffee, prices are perceived as low and the value of cash not attractive enough for farmers to exchange coffee for Birr. Sales registrations remain low and forbear below potential exports in the coming few weeks.

Eventually the flow of coffee from the growing regions to Addis (and on to the port in Djibouti) will have to improve, however for now everything is very delayed.

It seems that this week the Prime Minister instructed the Coffee & Tea Authority to work on a plan that will lead to opening up the coffee business to foreign entities. We shall have to monitor this process carefully, the wheels of change turn slowly in Ethiopia but if they eventually change direction, we will all be travelling down a very different road!

Birr 53.87 = USD 1

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