Ethiopia introduces new regulations and coffee bean prices may rise!

It is reported that a few days ago, the Ethiopian Commodity Exchange (ECX) is introducing a new pricing mechanism for the export of raw coffee beans, which will be converted every week according to the Arabica coffee futures price of ICE Intercontinental Exchange in New York and the current exchange rate of the Commercial Bank of Ethiopia, so as to help farmers gain higher income.

ECX said that the National Bank of Ethiopia issued a new foreign exchange policy at the end of July, so the liberalization of the foreign exchange market could shift to a new pricing mechanism. The price of coffee and raw beans in Ethiopia will be changed from a fixed price mechanism to a floating price mechanism.

In addition, in the new pricing mechanism, the Ethiopian Coffee and Tea Authority (ECTA) and ECX will continue to impose export minimum prices on the trade of raw coffee beans in accordance with the provisions of 2020, while the price ceiling fluctuates according to international futures prices and exchange rate factors.

However, according to the statement, the new pricing mechanism is mainly used for commercial coffee beans, and the reason for adjusting the coffee export pricing mechanism is that, under the influence of many policies, the export price of coffee is much lower than the first domestic price, so the new mechanism will increase the export price of Ethiopian coffee, but it is not applicable to fine coffee for the time being.

It is understood that according to the Ethiopian decree, there are a total of three coffee export systems, the largest of which are exported through competitive bidding on the ECX platform, cooperative exports, and independent export of a single farm, of which cooperatives and single farms can be exported directly through vertical supply (Vertical Integration) without going through ECX. For a long time, ECX claims to provide market access to 2.4 million small farmers through rural cooperatives.

Earlier in July, Ethiopia announced new foreign exchange reforms. it is essential to address foreign exchange shortages, improve export competitiveness, attract foreign direct investment and complement a number of other macroeconomic reforms to improve the conditions for private sector growth and prosperity in the Ethiopian economy.

This could benefit millions of Ethiopians in multiple foreign exchange-generating sectors, such as farmers involved in the production of exportable crops such as coffee, sesame, legumes and flowers, pastoralists who export cattle and meat, workers such as mining and thousands of enterprises in the service and tourism sectors.

After the release of the new foreign exchange reform, the foreign exchange rate fell sharply, although the devaluation of the Ethiopian currency Bill helps to improve the international competitiveness of commodities such as Ethiopian coffee and is conducive to exports. But at the same time, it has led to a serious rise in local prices in Ethiopia, with some prices rising to 50-100%. For many coffee growers, planting costs have risen as a result.

Therefore, the current new pricing mechanism is good and bad for current coffee cultivation, and the advantage is that when the futures price of Arabica coffee rises, farmers will get a higher profit income because of the floating price. However, when the price is too high, it may reduce the buyer's desire to buy, and may look for other coffee producing areas to replace it.

Moreover, the international coffee futures price is very vulnerable to fluctuations in many aspects. For example, recently, Brazil, the world's major coffee producer, has reported that rainfall has resumed, mitigating the effects of drought, and production is expected to pick up. Coupled with the increase in coffee production in Colombia, the EU EUDR plan to postpone by one year, and other news, coffee futures prices have fallen, while coffee prices in Ethiopia are not conducive to exports because of high prices.

In addition, at present, local coffee exports are more worried about the implementation of EUDR. The European Union is Ethiopia's largest coffee market, accounting for more than 30% of its coffee bean exports, but most of Ethiopia's coffee production is difficult to meet the requirements of EU EUDR, and the government has not taken any practical action.

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