The Government in Ethiopia is struggling to keep a lid on price increases, this week the price of fuel at the pump increased by 20%, which prompted the Black rate for the Birr to also accelerate deviating from the official rate, one USD is now worth 96 Birr on the black market whereas the official rate is still 53! In the month, from Aug to Sep, the Birr devalued 13% on the Black market. During the previous 7 months (Jan to Aug) the Black market rate moved 42%.

The harvest in progressing well and more areas have now started picking and processing cherries we expect that in October the crop will be in full swing. Cherry prices are higher than last year but a lot can change between now (harvest) and March 23 (first shipments) in terms of forex rates and international coffee prices.

China has leapfrogged many countries to become the 7th largest buyer of Ethiopian coffee in the year ending July 22, it had been in 33rd place the previous year (20/21). Exports to China totaled 200 k bags in 21/22, and the trend is likely to be maintained in 22/23.

The BBC publish the following report on the renewed efforts of the Ethiopian and Eritrean governments to take the battle to the Tigrayan forces in the North of the country:

Birr 52.58 = USD 1

Have a good weekend.

In a recently published report, Deloitte pegged Ethiopia’s GDP growth for 2021 at 6.3%, higher than the previously estimated 4.0%; no doubt that the Coffee Sector’s contribution was very important. For 2022 Growth is expected lower at 3.8%, with coffee shipments lower this year than last, we expect that the sector’s contribution will be reflected accordingly. Foreign Direct Investment for 2022 is showing an improvement on 2021, up nearly 20% during the first 9 months fiscal year 21/22 vs 20/21. Like other countries around the world Ethiopia is also importing inflation, mostly as a consequence of higher Energy and Food prices. The conflict in Ukraine which is the cause of the current inflationary pressures has also impacted Ethiopia’s food security (Ethiopia imported in 2020 USD 269 M worth of wheat) as supply is compromised. In an effort to mitigate the threat to food supplies,the Government is supporting wheat production with the aim to increase local production by 70%. Furthermore, food imports are no longer subject to Foreign Exchange controls, making it easier to import food.

Focusing on coffee trading activity over the last week, prices for Grade 5 are hovering around 200 usc/lb FOB Djibouti making them very uncompetitive so business has been slow this week. Grade 2 from the South continuous to be offered at prices above 315 c/lb FOB Djibouti.

Eritrea has once again been accused of involvement in the conflict in Tigray, for more on this pls follow the link:

Birr 52.56 = USD 1

Have a good weekend.

Whilst the official Forex rate has remained stable over the past few months, the Black market rate has been devaluing continuously, this week reaching 90 Birr to the USD. We last reported on forex rates in August when the Black Market rate reached 85 Birr to the USD, having lost another 6% in the past 4 weeks. It would seem that by keeping a strong grip on the official forex rate the Central Bank is managing to stem inflation by restricting imports, however the rapid and accelerating devaluation in the Black Market rate should be an omen for those managing the economy.

In other news August exports figures show that shipments are increasingly falling behind 2020 shipments. August 2022 exports reached 25,971 K MT vs 32,015 K MT in August 2021. Since May 2022 shipments have closely tracked the previous year’s shipments at a slightly lower pace (between 1 and 2 K MT slower pace) however the opening of the gap in August to 6 K MT seems a little ominous. Overall, shipments for the 6 month period from March to August is 20 K MT behind the 2021 pace. It is also unlikely that this pace will accelerate in the next 6 months. We shall continue to monitor shipments in the coming months, however it now seems unlikely that yearly shipments (March to February) for the 22/23 period will reach 5 M Bags.

August exports are also below the 4 year average 2018 to 2021 (same as in April), which is also an indication that shipment pace is struggling. There is no question that the 21/22 crop is a large crop (even if it does not match 20/21) however we are very optimistic for the upcoming 22/23 crop. Picking has started in some lower lying areas of Yirgacheffe, Benchi Maji and Limu. Volumes are still small and the harvest will only really start in earnest in October, but indications are for the up-cycle to be reinstated.

The European Union has expressed concerns that fledgling talks between the Government and Tigrayian Leaders are unlikely to yield a resolution to the conflict anytime soon. For the BBC’s take on the latest from the frontline:

Birr 52.52 = USD 1

Have a good weekend.

Much less activity this week as the terminal market moved lower having lost a chunk of the gains made a couple of weeks’ ago. Focus is turning to the upcoming crop and it’s potential. The coming crop in the South (Yirgacheffe and Sidamo) is looking larger than the 21/22 crop which is good news, we are bracing ourselves for a difficult 6 month between now and the new crop being available for shipment. The current crop (particularly in Sidamo) has been disappointing both in terms of volume and quality. Other regions are also expected to yield larger volumes in 22/23, Limu, Benchi Maji and Wellega are all looking good to produce larger volumes in 22/23. Weather wise, the wet and cold season is still ongoing, as a consequence coffee moisture levels are higher than expected.

There were reports this week that some overseas buyers, in disputes with shippers, were withholding payments for shipments made on a Cash Against Documents (in trust) basis. The aggrieved exporters have brought their cases to the Coffee & Tea Authority (CTA) and the regulator has decreed that the buyers in question are suspended from trading with Ethiopia Exporters. These occurrences could have wider reaching consequences for how coffee is traded in the future, specifically what payment terms will be acceptable. In recent years payment terms have been relaxed but if the Government feels that this has negative consequences for local businesses and the Ethiopian coffee sector, payment terms could revert to 100% Letter of Credit, as they were previously.

BBC reports on ethnic attacks in North and Western ethiopia:

Birr 52.50 = USD 1

Have a good weekend

Fighting has resumed along the Southern border of Tigray region. Additionally the Tigray authorities reported that government aircraft bombed a hospital in Mekele in Tigray region. It is a very sad state of affair after so much hope that the conflict was close to a peaceful resolution. The worsening of the conflict in the context of drought and lack of food in the region is of particular concern.

For an in depth read of the current situation and how we arrived at the resumption of hostilities pls follow the link:

This week also saw the docking in Djibouti of the first vessel to have sailed from Ukraine with wheat since the conflict there started in February. The UN Food Programme that bought the grain will be distributing the food to several destinations in the horn of Africa that are currently suffering from drought and on the brink of famine.

Returning to coffee, trading this week was more subdued as the terminal market in NY stalled. Arrivals from upcountry are not in large volumes so shippers are not under great pressure to sell, indeed some shippers are still struggling to find coffee to fulfil previously made commitments. Logistics are difficult but no worse, we are grateful for that!

Small quantities of cherry have started to be picked in the lowlands of Benchi Maji and Bebeka; in Teppi region we expect the harvest to start in 2 weeks time. Initial reports are that the crop in these 3 areas is expected larger than the 2021 crop. Other regions are also showing encouraging signs regarding the size of the crop, such as Limu, however the harvest there is not expected to start until mid-October.

The value of total exports from Ethiopia (Coffee and goods and services) July 2021 to June 2022 was a record USD 4.1 Billion, USD 0.5 B more than the same period the previous 12 months (July 20 to June 21). The country that bought more of these exports than any other is Switzerland, no surprise considering the number of coffee traders based in Switzerland!

Japan is well on it’s way to import 500 k bags of coffee from Ethiopia in 2022, January to July imports stand at over 326 k bags, the same as the whole of 2021!

Birr 52.47 = USD 1

Have a good weekend.

This week the terminal market helped shippers book some business at attractive prices, above 200 c/lb for Grade 5 and above 320 c/lb for Sidamo 2 and yirgacheffes. Offers were easy to comeby, however the quality on offer is a different story, buyers have to be careful and discretionary when buying or they can end up “buying a problem” which is never good and much worse when the market does is not trading in carry! All in all, a good week of trading, helping shippers liquidate stale Washed coffee longs and achieve better prices for lower grade Naturals. Quality of arrivals in Addis Ababa of Grade 5 is generally poor but this should improve and we approach the last quarter of 2022 and local players start to come under pressure to ship current crop and start buying from farmers the new crop which will be ready from September onwards.

Logistics are difficult but stable, no noticeable change from recent weeks, shippers struggle but eventually find containers and space on vessels is available.

The World Health Organization (WHO) Director General Tedros Ghebreyesus has commented on the situation in Tigray, pls follow the link to hear his comments made earlier this week in NY:

Birr 52.41 = USD 1

Have a restful weekend

We have commented in the past weeks that the forex rate has been stable in 2022, however the official rate hides problems that underlie the Ethiopian economy. Below we track the Black Market exchange rate USD/Birr and it is clear to see that the Central Bank official rate is not reflecting the real value of the local currency. The graph below shows that while the the official forex rate has declined by 4% since January, the Black Market rate has moved by 10 times that, 42%!

Farmers and Agrabes are holding coffee, only selling piecemeal, as goods (such as coffee) are believed to be of more value than Birr! The Inflation rate is dangerously high, hovering around the mid 30’s percentage points, another reflection on the low value of the local currency. Are we about to see a big adjustment of the official forex rate?

In other news the BBC is reporting that ethnic Tigrayans are being taken back to their homes giving rise to hopes for a permanent peaceful settlement to the conflict in Northern Ethiopia:

Business activity remains slow and sporadic. Quality continues to be of concern and coffee arrivals in Addis are not as plentiful as hoped for. Empty containers are still hard to comeby, all in all shipment delays persist.

Birr 52.34 = USD 1

Have a good weekend.

Although accumulated export figures from March to July 2022 are lagging behind the same period in 2021 by 13 K MT, there still is a good chance that by the time we reach Feb 2023 this gap will have narrowed. The only month where shipments between the 2 years was large was April (2022 21 K MT and 2021 29 K MT). Why we believe this? Washed coffee availability is lower this year than last due to a 20% reduction in production y-o-y in the South (Sidamo) region. Washed coffee shipments are skewed to the first half of the shipment year (March to August) and Natural shipments more to the second half (September to February). We believe that despite the high prices traded for Grade 5 coffees, farmers are holding these in their farms and homes as a hedge against inflation and a devaluating local currency. There is a sense that there is a much higher proportion of Natural coffee being retained upcountry this season than last. This is also due to the heavy rain and insecurity that has made transportation to Addis Ababa harder in recent weeks. However, this coffee will eventually flow to Addis for processing and shipment, before the new crop arrives.

Currently, quality of Grade 5 arrivals in Addis is very poor and shippers are accumulating increasing volumes of low quality coffee which they struggle to sell. We expect that from October onwards volumes arriving in Addis will be greater and therefore finding better quality coffees will be easier. Washed coffee longs are beginning to lower their price expectations as they have been holding on to stocks for many months now.

In a world of increasing energy uncertainty the news that a second turbine will start producing electricity at Ethiopia’s new dam will bring some peace of mind to the country’s growing population, for more on this:

Birr 52.21 = USD 1

Have a good weekend.

Bucking the trend, the inflation rate in June declined from 37.7% the previous month to 34%. It will be interesting to see if this can be sustained as a decline in inflation is a rarity these days! The oficial forex rate continues very stable to the USD, so imported inflation is limited to goods and services that have increased in price in hard currency terms.

Coffee activity in Ethiopia has been subdued in contrast to the shenanigans on the NY terminal market. Such swings on the terminal market can freeze physical business and that is what we have been seeing during the last few days. Quality offered by shippers is generally quite poor in quality and exporters are still experiencing difficulties in moving coffee from the interior to Addis for processing. This is due to the wet weather that is ongoing and will trigger an early crop later this year. Prices in the internal market (Ethiopians consumes up to 50% of the country’s production) have doubled y-o-y as a consequence of the increase in the terminal price and devaluation of the local currency. Notwithstanding this, internal demand remains strong.

In other news, Ethiopian Tamirat Tola took home the gold medal in the men’s marathon at the World Athletics Championships in the US. He crossed the line in two hours five minutes and 36 seconds – a championship record. Tola’s compatriot Mosinet Geremew came second. Ethiopia now has two golds after Letesenbet Gidey won the women’s 10,000 metres.

Birr 52.10 = USD 1

Have a good weekend!

June shipments reached 38 K MT, not quite the 40 K MT of June 2021 but not far off it! It is clear that the current logistics constraints, in part brought on by reduced imports, have played a role in restricting the movement of coffee for export. We expect exports to continue at an elevated level in July, however logistics continue strained. Shippers are waiting for up to 3 weeks to get containers, erratic shipment schedules and limited slots on vessels continue to be the norm. Additionally, transit times from Djibouti to Europe are much longer than they should be.

Exports in 2022 are currently keeping pace with last year’s exports, however the drop year-on-year recorded in April has not been clawed back, probably because of the difficult logistics more than anything else. It will be interesting to see if over the coming months the high 2021/22 crop predicted in the Djimmah and Lekempti areas is reflected in exports. Southern regions (Guji/Sidamo/Yirgacheffe) have a lower current crop vs 2020/21 but this should be compensated by the higher crop in the other regions: West, Southwest and North. The picture so far is that the pace of exports of the current crop is good (second only to the previous crop’s exports) and we expect this trend to continue.

Insecurity upcountry in parts of Guji and, in particular, in areas North and West of Addis Ababa are restricting the movement of coffee from the growing areas to mills for processing. Also wet weather continues to hamper the movement of coffee from the interior to Addis Ababa.

The UN has clearly demonstrated that the organisation believes the current stability and cessation of hostilities between Government forces and Tigrayan rebels by declaring its willinous to rebuild infrastructure in the North of the country destroyed by fighting, for the BBC’s take on things pls follow the link:

Birr 52.06 = USD 1

Have a good weekend.