Editorial comment

No sooner had word got around about Ethiopia’s outstanding production performance, when the ICO in its February monthly update cut its forecast for Ethiopia’s crop as adverse weather capped production. The Ethiopian authorities reduced their production estimate by 15% (from 9.8 to 8.3 million bags), with other sources suggesting even larger cuts in likely production. In addition, export levels were in trouble.

Total exports in the first half of 2011/12 are pegged at 952,980 bags of 60 kg, down from the 1.58 million bags exported during the same period a year ago. By the end of January, only 20% of the 270,000 tonnes quarterly exports planned had taken place. While an urgent meeting was called by the Minister of Trade with the Ethiopian Coffee Exporters Association and the Ethiopian Commodity Exchange Authority, no explanation could be found for this drop in exports.

Industry observers blame turmoil following allegations in 2011 by the federal authorities of hoarding by exporters and a failure to honour export contracts. In October 2011, the Ministry had banned 41 exporters for hoarding coffee, while a further 57 exporters were suspended.

Another explanation offered is the impact of the authorities’ decisions to compel exporters to ship coffee in containers, even though no appropriate silo facilities are held to exist in the ports. Some industry players maintain that this is impractical, since the differentiated coffee types – of which there are more than two dozen – should not be mixed in containers and silos.

There is also controversy over price differences, between what the international market offers and what exporters are asked to pay at the Ethiopian Commodity Exchange. The growth potential in the Chinese coffee market, which Rwanda is seeking to tap into, is enormous. Current average consumption is 3 cups per person per year, compared to a global average of 240 cups. Between 2003 and 2008 Chinese consumption grew at 15% per annum, with a 25% growth in specialist coffee shops between 2008 and 2010. However there is likely to be competition from domestic Chinese production. This may also give rise to tariff barriers, unless China joins international moves towards extending full tariff preferences to LDCs along the lines of the ‘Everything But Arms’ scheme.

Better auction prices in Tanzania may encourage the take up of new coffee varieties, given the improved commercial prospects for growers. With only 30% of the land area potentially suitable for coffee production already being exploited, there is considerable scope for the expansion of the Tanzanian coffee sector, despite current production difficulties (production is expected to fall to 45,000 tonnes from 56,247 tonnes in the previous season). If proper marketing arrangements are set in place, this could bring significant benefits to the 5% of the Tanzanian population that lives off the coffee sector. Indeed across the region there is need for innovation in both production and marketing of the crop in order to avoid challenges posed by international price instability. If issues around the management of price volatility are not addressed, this could undermine prospects for the sustainable development of production. Greater product quality-based differentiation, better marketing and strengthening the functioning of coffee supply chains could all serve to contribute to more stable and remunerative producer prices.