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BusinessAuthorities make light of growing agitation among coffee farmers, suppliers

Authorities make light of growing agitation among coffee farmers, suppliers

“There is confusion flying around”: Minister of Agriculture

Officials of the Ministry of Agriculture and the Ethiopian Coffee and Tea Authority are downplaying concerns from coffee farmers over increasingly problematic payment defaults for coffee provided to exporters and suppliers on credit.

Farmers across the country have been in an uproar over billions of birr in outstanding receivables from suppliers and exporters who took their crop on credit. The issue has been building up in recent months, to the extent that there are reports of suicide among farmers who lost all hope of recouping their money.

Coffee growers blame the problems on ‘vertical integration,’ a scheme introduced in recent years to replace the previous model where farmers would trade their coffee on the floor of the Ethiopian Commodity Exchange (ECX).

Under the previous procedure, payment was effected immediately following a transaction, but under the vertical integration model, suppliers and exporters take coffee directly from farmers without clear legal guidelines on payment. Often, the coffee is taken on credit.

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Vertical integration was introduced legally five years ago, but the scheme was only fully implemented over the last two years.

The financial struggles decried by farmers were, however, downplayed during a meeting between government officials and coffee growers and suppliers at Elilly Hotel on March 8, 2024. The authorities argue that vertical integration has been of great benefit to farmers.

“There is confusion flying around, claiming vertical integration is destroying the coffee market. There are claims that the public’s and coffee growers’ benefits have been compromised following its introduction. This is false. There might be very few defaulters. Those who criticize vertical integration must present their evidence,” said Girma Amente (PhD), minister of Agriculture, during the meeting.

He argued the shift from the ECX floor has contributed greatly to Ethiopia’s uptick in coffee export performances in the last couple of years. Exports of the country’s most valuable commodity garnered over USD 1 billion in revenues two years ago.

Experts, however, observe the boost in performance is owed to a rise in international coffee prices and production declines in competing countries such as Brazil.

Adugna Debela (PhD), director of the Ethiopian Coffee and Tea Authority, also argued there are only a few defaulters, and said that even they have a good excuse for their financial troubles.

“Only five or six coffee exporters defaulted. We have placed them on a blacklist and revoked their certificates of competence. This means they can no longer buy and export coffee. They are out of system. But even these defaulters could not pay the money to coffee growers and suppliers because they could not get loans from banks,” said Adugna.

He maintains the benefits of vertical integration outweigh the complaints.

Under the model, coffee growers, suppliers, and cooperatives are allowed to directly export coffee. It is in contrast with the ECX model, which would only permit them to sell coffee to the Exchange, which would then sell it to licensed exporters.

There are close to 1,000 coffee growers who have obtained an export permit, according to Adugna.

“They are directly accessing the international market, which is greatly benefiting our farmers. Our coffee growers are also highly incentivized by the better international price. Our farmers are now exporting specialty coffee,” he said.

When the government began implementing vertical integration three years ago, only seven percent of total coffee exports were carried out through the model.

The industry has since shifted, with 90 percent of Ethiopia’s total coffee exports last year (240,000 tons) shipped out via vertical integration. Only three percent passed through ECX, while the remainder was exported by cooperatives. The trend is expected to continue this year.

However, suppliers and coffee growers who attended the meeting argued that the statements from officials do not reflect the realities on the ground.

Eyasu Werasa, who heads the coffee suppliers’ association in Dila, Gedio Zone, was among them.

“We’re supplying coffee to exporters on credit mainly because exporters say they have no birr since banks stopped giving loans. Many friends and people I know have been left empty handed after giving away their coffee on credit. Many coffee suppliers are leaving the business. Banks stopped giving loans and we are out of the market,” he said.

Eyasu disclosed that although one commercial bank had approved a 30 million birr loan for him this year, the credit was not disbursed. He observes this is due to the central bank’s 14 percent cap on credit growth introduced six months ago.

“There is no money now. Banks have decided to provide limited loans only to coffee exporters, because they generate forex for the banks. When coffee suppliers like me ask for a bank loan, banks raise the interest rates. But they provide credit to exporters at lower rates. This is because suppliers and growers do not generate forex for the banks,” said Eyasu.

He alleges the coffee market is under the control of a handful of exporters who have access to cash.

“They can get as much money as they want from banks so only they can buy coffee in the domestic market,” he said. “Now, this handful of exporters determine domestic market prices and coffee growers and suppliers like me have no option but to sell our coffee to them at the price they want.”

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