Sunday, April 21, 2024
NewsCoffee shipments sit idle as vessels avoid Horn ports

Coffee shipments sit idle as vessels avoid Horn ports

  • Cash-strapped exporters, suppliers leave coffee farmers in limbo

Ethiopian coffee exporters are forced to endure months-long waiting times to ship their products abroad as Houthi strikes continue to choke the Red Sea. The exporters are considering a shift to Kenya’s Mombasa port as a solution, but the negative effects of the logistical problems have already entrenched themselves in the industry.

“Before, at least one vessel used to arrive in Djibouti daily,” Tameru Tadesse, the owner and general manager of a coffee export firm, told The Reporter. “Since the start of the insecurity on the Red Sea, it has been one vessel a month. We try not to miss this single vessel and our coffee is stranded in Djibouti.”

The conundrum is the result of decisions from global shipping giants to route their vessels around the Cape of Good Hope rather than through the shorter but more dangerous Suez Canal. Danish Maersk, the French CMA CGM, and German Hapag-Lloyd are among those who have opted for the longer but safer  route since December 2023.

“We are trying to ship the coffee via Mombasa, but it is far and there are also issues with vehicles on the Mombasa route,” said Tameru, whose company’s biggest clients are in China, Japan, and other Asian markets.

Alternative ports such as Mogadishu are also off the table due to tensions between Ethiopia and Somalia, say exporters.

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The logistical hurdles are accompanied by chaos in the domestic coffee supply chain as the result of a recently introduced ‘vertical integration’ scheme and the central bank’s cap on bank credit growth.

“Exporters and suppliers take coffee from growers on credit. These growers and suppliers have delivered coffee to exporters on credit, but aren’t being paid. Countless growers and suppliers are stranded without their money or their coffee,” Hussein Ambo (PhD), president of the Ethiopian Coffee Association, told The Reporter.

Coffee farmers and suppliers in Illubabor Zone of western Oromia await billions of birr in receivables. Hundreds of millions more are owed to their peers in Gedeo, Guji, Arsi, and other coffee-growing regions.

In some of these areas, farmers and other members of the community have turned out en masse and attempted to seize the properties of exporters and suppliers who refused to settle their receivable accounts.

“There are even suicides among coffee suppliers. One supplier is empty handed after supplying coffee worth nearly half a billion birr. Some farmers have supplied coffee valued at up to 38 million birr on credit, but haven’t been paid,” Hussein told The Reporter.

Suppliers and exporters collect beans from all over the country during the coffee harvest season, which runs from August to December. Collecting the coffee requires huge cash investments, which suppliers and exporters would previously source from bank loans to be repaid after shipping the beans.

However, the National Bank of Ethiopia (NBE) introduced a 14 percent growth cap on bank loan disbursements in August 2023, which has smothered the coffee industry’s access to finance, according to insiders.

“We aren’t getting loans from banks. Banks are trying to play by the 14 percent limit but it’s insufficient given the huge loans the industry requires,” said Tameru.

The shortfall is despite the added incentive of a six birr commission for banks per dollar earned by coffee exporters.

Suppliers typically hand over their coffee to exporters in exchange for a receipt, as if they had received payment for the product even if they have not. It is a practice that has exacerbated the problems.

“In some cases, exporters take the coffee from suppliers on credit without payment. In this case, the supplier cannot pay the farmer in turn. In other cases, exporters pay the suppliers but the suppliers fail to pay the farmers,” said Gizat Worku, president of the Ethiopian Coffee Exporters Association. “There’s no cash in the market now.”

Gizat observes the problems began following the shift of coffee trade from the floors of the Ethiopian Commodities Exchange (ECX) to a vertical integration system introduced by the authorities over the last few years. It allows exporters to source coffee directly from suppliers, bypassing the previously compulsory ECX.

Under the previous ECX model, payment was effected instantly upon delivery. It is not the same under the vertical integration system.

Although lobby groups representing the coffee export industry have pleaded with the central bank to relax the credit cap, NBE regulators told The Reporter the requests are not under consideration.

Meanwhile, officials at the Coffee and Tea Authority say they have introduced new measures that compel coffee exporters and suppliers to bear receipts that indicate any coffee being transported is paid for, and not supplied on credit.

Exporters like Tameru, however, argue the industry needs lasting solutions rather than quick fixes.

“The coffee industry is flooded with opportunistic people who just want to make a quick dollar. The business isn’t being handled by knowledgeable traders. These people intentionally escalated the price of coffee in the domestic market, to an extent much higher than international prices. Government officials are blindly supporting the price escalation, claiming it is benefiting coffee farmers,” Tameru told The Reporter. “But it’s pushing exporters to bankruptcy. We’re forced to buy at prices much higher than those offered by the international market. The 14 percent loan cap has exacerbated this. Until last year, at least there was cash.”

Tameru notes that domestic prices should be hovering around 50 birr per kilogram of unprocessed coffee beans. But last year, prices shot up to 120 birr a kilo before falling back down to the current 80 birr rate.

Tameru concedes the decline in domestic prices is largely owed to NBE policies, which have sapped cash out of the economy.

 

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