It is not new news, quality of this year’s crop is poor, specifically Grade 5s from Wellega (Lekempti) and Djimmah areas. Furthermore, the wet weather that has plagued the country since March is causing big delays in moving coffee from upcountry to Addis. Stocks in Addis are greatly reduced for this reason plus the additional complications caused by continuous threats by Authorities to tax and penalise shippers that have stocks in Addis. Coffee is moving along the supply chain, however at a painfully slow pace this is being reflected in the very low export figures that we have registered in the last few months. Low shipment figures are likely to continue for remainder of this crop season. Particularly shipments of Naturals to Europe (the main market for Grade 5) on the other hand the Saudi and Middle East markets will absorb increasing volumes of these qualities albeit at lower prices. Ethiopia will have to remain competitive vs Brazil offers which have turned lower has the terminal market decreases. We still believe that there remain reasonable volumes of washed coffees unsold mostly due to high asking prices from shippers which failed to attract buyers.

It continues to rain in Ethiopia, which is normal for this time of year, by all accounts this is beneficial for the upcoming crop that will start to be harvested in September. However the rain continues to hamper the movement of coffee from upcountry to Addis (as mentioned in previous paragraph). Previously delayed shipments are starting to finally reach the port and meet vessels, however the backlog is big and bottlenecks along the supply chain will combine so that the current game of catch-up will be with us for many more weeks!

The BBC reported this week on food shortages in Tigray, a reminder of the legacy of the internal conflict that raged until 2022: https://www.bbc.com/news/world/africa?ns_mchannel=social&ns_source=twitter&ns_campaign=bbc_live&ns_linkname=64a7c1746439480d586b7cca%26Malnutrition%20surges%20with%20Ethiopia%20aid%20suspension%20-%20charity%262023-07-07T07%3A46%3A51.978Z&ns_fee=0&pinned_post_locator=urn:asset:23df806c-cc2d-4180-9b94-560c8137303f&pinned_post_asset_id=64a7c1746439480d586b7cca&pinned_post_type=share

Birr 54.64 = USD 1

Have a good weekend.

Regards

May inflation rate = 30.8 % which might sound like a high rate of inflation however it’s the lowest monthly rate since 2021 and a decrease from 33.5% in April 2023. Unfortunately that is where the good news stops! The problems that have been plaguing the coffee business in Ethiopia we have been mentioning time and time again in recent weeks persist:

1. Rain and humidity
2. Poor quality, particularly in Grade 5 coffees from the Wellega (Lekempti) and Djimmah areas
3. Delays in internal movement of coffee from growing areas to Addis, a consequence of the heavy rain
4. Pressure to export piled on by the Government
5. Low Export registrations

Shippers are so delayed with their shipments, however it is a general situation, we are not able to single out one or two as worse or better than others, everyone is late and quality is very poor.

We have had conversations with a few shippers in Athens this week and the general feeling is that quality will not improve this crop. The general situation for coffee in Ethiopia is quite depressing with all stakeholders unhappy with the coffee business and struggling to keep above water. Things can only get better, but will they?

We are early on in the shipment season, however we projecting that exports for teh coming months will be below potential, the last 3 months (March to May) exports reached 68 K MT well below the 5 year average of 78 K MT and last year’s at May shipments.

Birr 54.54 = USD 1

Have a good weekend.

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

Have a good weekend.

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

Have a good weekend.

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

Have a good weekend.