Export Paralysis: Major Commodities Lose Traction As Earnings Dwindle
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| Weak negotiating capacity of exporters and poor product quality are identified by the Ministry for the low performance of the industry. |
The international market has continued to witness a sustained downward trend in the price of coffee, Ethiopia’s flagship export item, for nearly three years now. Figures from the International Coffee Organisation’s (ICO) composite price indicator show that there was a recorded 33pc drop in August 2013. Thus, a kilogramme of coffee was traded at 2.6 dollars, as opposed to the 3.6 dollars a year ago. A major reason why developing countries are unable to benefit from trade is their lack of capacity to produce and market, says an assessment conducted by the ICO in 2013.
This slump in prices has deeply affected coffee producers, as well as exporters in Ethiopia. For Mormora Coffee Growers & Exporters Association, one of the major exporters, the situation has been worrisome throughout the last six months of the 2013/14 fiscal year, with the price of coffee having dropped significantly when compared to the performance during the first half of last year, as well as this year’s targets. Over the past six months, Ethiopia exported 66,066tns of coffee for 222.6 million dollars – just 66.8pc of the 333.1 million dollars the government had hoped to generate from the planned export 85,186tns. According to the half-year report, the coffee trade has shrunk 28pc by volume and 38pc by value compared with the past year’s achievement.
Mormora grows coffee on a 200ha of land in the Guji Zone of the Oromia Region – one of the major coffee growing areas in the country. It failed to achieve its target because several foreign buyers cancelled their contracts, often after the coffee had already been transported to Addis Abeba. Two contracts have been cancelled over the past six months, says Hailesilassie Tadelle, Mormora’s general manager.
Hailesilassie recalls that for two of these contracts, the Company had produced large quantities of coffee and prepared it, confident of sales since the buyers were long-time customers.
“But it never worked, as one after the other refused to buy, eventually cancelling the contracts,” he recalls.
At the heart of the decision from these buyers, say Hailesilassie and other exporters approached by Fortune, is the decline in demand.
A representative of a coffee exporting company working in Yirgacheffe, a coffee growing Woreda located in the Gedeo Zone of the South Region (395 km from Addis Abeba), grumbled that she lost eight contracts. All of these were cancelled by potential buyers, who changed their minds, forcing the exporter to incur a loss.
“What has made the situation even more worrisome is that the input costs for the coffee farm is increasing,” she complained.
The other exporters attribute the problem to the decline in coffee price in the global market.
The Ministry of Trade’s (MoT) export data for the first half of the 2013/14 fiscal year revealed that Ethiopia had registered 1.3 billion dollars from exports, achieving only 65.5pc of the goal, largely because of the loss from coffee.
The weak negotiating capacity of exporters and poor product quality are identified by the Ministry as reasons for the poor performance of the sector.
“What the Ministry can do is to facilitate the export process by feeding exporters information about the market,” says Abdurahman Seid, deputy head of the Public Relations & Communications Office at the Ministry.
However, for some exporters it is the long chain to export that has hindered the overall profitability of the industry. This leads to the presence of various middlemen in the export process, pushing growers and exporters into deficit.
Eshetu Gule, an expert in coffee suggests that authorities need to work on the weak negotiating capacity of exporters and poor product quality. These two factors, he suggested, need to be resolved if the government’s plan to generate more revenue from coffee is to be achieved.
During the period under consideration, Ethiopia traded its coffee with differentials against the New York market. The prices for different varieties of coffee, which take up most of the space on the Ethiopian Commodity Exchange (ECX) trading floor, have recently been generating frustration from exporters, who say it does not reflect international market conditions.
“We are price-takers,” said the coffee exporter from Yirgacheffe. “But the price decrease discrepancy is causing us to sell less.”
Ethiopian authorities see an increased volume as a way of compensating for the slowdown of the market following the global economic crisis.
“The fall in price, however, will be compensated by increasing the volume of exports and creating market linkages with a few selected countries,” says Abdurahman from the MoT. “Trade links have also been strengthened to address coffee export in Asian countries, like Japan, South Korea and China.”
The fall in export revenues has also affected other agricultural exports, such as flowers, oil seeds, pulses and khat, although the latter two did perform better than the rest. The flower sector – which grew fast, overtaking all other African exporters except Kenya – has felt the decline, but it has been explained as seasonal, with the months until May promising more revenue from more exports.
Power cuts, logistics and a shortage of land are among the problems flower growers mention. They hope to get more land and boost production during the second half of the year, according to Tewodros Zewde, executive director of the Ethiopian Horticulture Producers & Exports Association.
The export experience of other items has been relatively better. Oil seeds, pulses and khat have registered 76pc, 84pc and 92.6pc performance, respectively, with exports totaling 208.8 million, 107 million and 150 million dollars.
Gold has been affected with a fall of 40pc, while the still small manufacturing sector has achieved close to a 10 million dollar gain over the previous year, with a total of nearly 67 million dollars – falling short of the 111.8 million dollar target.
“Greater concentration on a few traditional exports, such as coffee, must quickly end,” Abdurahman said.
The fix includes exporting more sesame. The government also wants to export more coffee despite the fall in prices in the international market, he says.
BY BINYAM ALEMAYEHU
FORTUNE STAFF WRITER
PUBLISHED ON FEBRUARY 23, 2014 [ VOL 14, NO 721]
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