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Coffee is part of everyday life in Ethiopia. They’re the 5th largest coffee-producing country and drink half of what they produce. It’s traditional to serve guests a cup of coffee so full you’ll need a saucer to catch the spills. The other half of their production is key in the Ethiopian economy and politics. And that’s what makes the supply chain so complex.
The role of coffee and forex in Ethiopia
The Ethiopian government increased investment in agricultural development in the early 2000s, when a two-year war with Eritrea ended, and ended up with a large foreign exchange deficit. The economy grew and so did the volume of imports. This is all good but there’s a catch. Ethiopia became chronically low on American dollars to fund all those investments and imports. That’s where coffee comes in.
As a major export, coffee is Ethiopia’s number one source of export earnings, providing 30% of all revenue alone. It’s how the country gets most of its foreign currency for the government and importers. The incentive to export is so big that it distorts the domestic coffee market. Here’s why.
Exporters often own importing companies too. In the last two decades, many would rather sell big volumes of coffee for cheap. They would break even or even lose money on the deal. But they had dollars coming in. Then, they made money on imports. And for a long time, the government was okay with that.
Political intervention and prices
Things started to change in 2020 when an armed conflict broke out in Tigray and the economy struggled with a lack of investment due to COVID-19. Starved of foreign currency, the Ethiopian Coffee and Tea Authority (ECTA) created the Minimum Registration Price.
This was the first time action was taken to stop exporters selling coffee cheaply. Those exporters who submitted contracts to the National Bank of Ethiopia (NBE) with prices below the minimum were liable to legal action from the Ministry of Trade. The result? Prices started going up.
To make matters worse, the NBE released a directive in 2022 limiting how much forex exporters can get from sales. The bank keeps 70% and deposits the value already converted to Ethiopian birr, the local currency, to the exporter’s account. Local banks do the same with another 10%. Exporters keep only 20%.
Finding the right partner
Since 2020, the government has kept the Minimum Registration Price high to keep farmers on their side. Global inflation didn’t miss Ethiopia. It has driven the rural population further into poverty and puts support for the president at risk. If this all sounds complicated, it’s because it is. But do you need to care if you’re using Algrano to do your contracts and logistics?
Yes and no. No, because we discuss everything that can affect operations with exporters to solve potential problems. Yes, because your partner on the ground makes a world of difference to your sourcing plan. Ethiopian coffee is beautiful and everyone wants it. But the people who grow, process, and ship it are the ones who make sure your coffee gets to the roastery.
A great coffee for everyone
Given Ethiopia’s context, not all exporters focus on quality and relationships. Finding the right producer to work with can give you a secure supply of great coffee every season. Over the years, Algrano has onboarded Cooperative Unions (which represent primary coops and their farmers) and experienced exporters with vertical integration. This guarantees traceable coffees up to the kebele level from places like Yirgacheffe, Sidamo, Jimma and Guji.
Every year before the harvest starts in October, we plan shipments with all exporters and unions. We fix shipping dates before and after the main exporting bottleneck, from April to June, when dry mills get busy with large orders. Then, sellers prepare offers of grades 1 and 2, the specialty grades for Washed and Naturals, 3 and 4, the lower end of specialty, and UG (Under Grade) or commercial coffee. There is something there for every need.
