Radar | Jul 17,2022
Mar 7 , 2020
By GELILA SAMUEL ( FORTUNE STAFF WRITER )
With the main goal of fighting under-invoicing, the Ethiopian Coffee & Tea Authority issued a directive that sets the daily minimum price of coffee for international trade.
A new directive issued by the Authority sets the daily minimum price of coffee for exporters who sell the commodity to international buyers. The directive, which has been in the making for close to three months, came into effect at the end of February. It followed another directive that was issued by the Ministry of Trade & Industry on the export commodities purchase contract system at the end of October.
On a daily basis, a team at the Authority compares the international and local prices of coffee and uses a weighted average method to set the minimum prices for export. The National Bank of Ethiopia (NBE) reports the daily registered coffee contracts to the team at 5:00pm every day. Then the team scrutinises the contract volumes and prices, issues the next day's minimum price and notifies the exporters and their associations around 9:00pm.
There are a lot of exporters who sell coffee at a lower price in the international market, according to Adugna Debela (PhD), director-general of the Authority.
"They even sell it at a lower price than the price they paid to the farmers," he said. “Hence the directive was necessary in order to mitigate the issue."
Even though the volume of coffee production has been increasing, the foreign currency generated from its export has been decreasing and also the value of the coffee is losing face in the international market, according to Adugna.
On the first day after the directive was enacted, 53 contracts were registered, which is lower than the average daily contracts registered on normal days.
"Five days before the enforcement of the law, there were a total of 70 contracts registered by the central bank," according to Hariu Nuru, market information and regulatory director at the Authority.
On March 6, 2020, a total of 61 contracts were registered by the National Bank of Ethiopia.
"We heard complaints about how the time difference between the buyers and the exporters made it a challenge to abide by the time frame set out by the Authority," Hairu said, "and there are some who said they hadn't heard about the change in the system."
Last Friday, 10 days after the new pricing began, the Ethiopian Coffee Exporters Association had an evaluation meeting with the Authority to assess the effectiveness of the new system.
"We have been able to find out that the value of the coffee exchanged on these days has increased," said Desalgne Jena, president of the Association. "Though we believe it's too early to judge the effectiveness of the scheme, it looks like it's achieving its aim."
A coffee exporter who has been in the industry for 15 years said that this is a big gamble by the government to lay this out as a solution for an inherent problem.
"There is a big fear on the exporters side that buyers might shift to other countries," this exporter said. "We're currently holding onto our contracts to assess the impact of the new system."
Setting a floor price for coffee overnight is even against the free trade principle of the country, and the government should examine the problem carefully and come up with a way out, argued the exporter.
At the end of December of 2019, the Ethiopian Commodity Exchange has traded a total of 30,416tn of coffee. The volume dropped to 24,391tn in January.
PUBLISHED ON Mar 07,2020 [ VOL 20 , NO 1036]
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