The furniture manufacturing industry in Addis Abeba, once seen as a steady if unspectacular corner of the city’s economy, is facing its toughest test in years.

Rising input costs, most sharply felt in the price of medium-density fiberboard (MDF), have squeezed manufacturers and retailers alike, sending shock waves through workshops, supply chains, and boardrooms.

Biruk Kassahun, who manages Posh Woodwork Furniture Plc, near the Jemo 1 area, knows the numbers by heart. With a workforce of more than 20 and a loyal customer base, he has watched, in recent months, as the cost of core materials steadily climbed. Last week, Biruk sat at his desk in a workshop where visible stress had become as common as sawdust on the floor. He saw the price of MDF rising steadily over the past month and a half.

“We're at a loss," he told Fortune. "But, we don’t want to push our customers away."

The pressure at Posh Woodwork, and across much of the industry, is neither theoretical nor a matter of simple math. The pain is not limited to smaller or newer companies. Many contracts, inked two months ago before the latest surge, locked manufacturers into fixed prices.

“Most of the work in our hands now was ordered two months ago,” Biruk said. “The price we agreed on then and the price we are buying MDF for right now don't match.”

However, the idea of renegotiating contracts midstream is unthinkable. For now, Posh Woodwork has opted not to adjust prices, instead absorbing losses to honour agreements.

Biruk’s predicament is echoed across the capital. Workshops, large and small, find themselves forced to choose between honouring existing contracts at a loss or risking customer relationships by attempting to renegotiate terms. The prevailing choice, for now, has been to shoulder the losses and hope for relief.

“We can’t change our price in the middle of a contract,” he said.

At YA Woodwork Furniture Plc, a three-year-old operation near Gottera Junction, the story is nearly identical. Its Manager, Yitayew Assefa, described the situation in plain terms.

“The adjustment is more than what we can manage," he told Fortune. "We're working at a loss because most of our customers have already agreed and signed contracts with us.”

He saw that the price of MDF changed twice in less than two months, with each jump close to 1,000 Br a board.

“Even if we adjust our prices based on the new MDF cost, it’s hard to predict the future and set a stable price, given this continuing change,” Yitayew told Fortune.

That kind of volatility manufacturers worried about has upended their business plans, squeezed margins, and put additional strain on cash flows. For workshops whose profits were already thin, the math is increasingly unfavourable. Market data from both manufacturers and traders show the price of MDF has risen from around 3,000 Br to 5,500 Br a board in under two months.

Manufacturers and furniture makers, unable to meet domestic demand with domestic production, continue to depend heavily on imports. Ethiopia remains a net importer of MDF, with foreign supply dominated by a handful of countries. In 2022, the country brought in about 8,000 cubic meters of MDF, with 90pc sourced from China. However, smaller shipments were sourced from Thailand, Turkey, and Spain, each contributing only a few hundred cubic meters.

The total value of these imports reached approximately 6.6 million dollars, a sharp decline from about 20 million dollars in 2019. The average import price was around 824 dollars a cubic meter, but prices varied sharply by supplier. MDF from Spain commands some of the highest prices, averaging about 1,017 dollars a cubic meter, while imports from Thailand are much lower, at roughly 290 dollars a cubic meter.

The consequences go beyond the balance sheets of furniture makers. According to Tihtina Legesse, president of the Ethiopian Furniture Manufacturers Association, with about 53 members, the core problem is structural. The number of local MDF producers remains limited, not more than six.

TY Wood Manufacturing Plc describes itself as “the first and the largest MDF manufacturing company in Ethiopia.” From its plant in Dukem, inside the Eastern Industry Zone, the company produces medium-density fibreboard, melamine-faced MDF, composite doors, HDF flooring and furniture.

DMA Plywood Factory is also one of the leading plywood producers, operating from its facility in Assela, Oromia Regional State. Its product range focuses on various plywood lines. Maereg Manufacturing & Trading, located near Addis Abeba, manufactures wood-based construction materials, including medium-density fibreboard.

Despite producing locally, these manufacturers are heavily dependent on imported inputs, particularly chemicals.

"The price change comes from an imbalance between demand and supply in our country,” Tihtina said. “The forex shortage and the exchange rate are the main problems and major factors behind the price increase. This will push furniture prices higher.”

For Fikire Yohannes, CEO of Pragma Capital and a finance and investment advisor, the root causes run deeper than the workshop floor.

“The problem of foreign currency volatility is affecting many businesses on a daily basis,” Mered said. "A long-term fix would require broader government intervention to address currency and market instability."

Tihtina, who manages Waryt Furniture with stores on Haile Gebresellasie Road, urged policy intervention to stabilise the market. She argued that government support for reducing or eliminating import tariffs on essential inputs would lower costs and, ultimately, prices.