The Ethiopian Economy
In October, Ethiopia initiated the change of currency notes. This led to a 31% increase in the number of savings accounts as people rushed to bank their expiring notes. In the process, banks collected historic 1 Trillion Birr, of which 60% came from surrounding areas of Addis Ababa. This achievement increases the inflation rate, but also raises the banks’ ability to lend more and support investment. Despite the official reasoning to drive economic growth, real inflation, the foreign currency shortage and unemployment are the major problems. The real income of citizens is declining. Next time we look at the increasing price for cherry and parchment, we also need to bear in mind that Birr drops 15-20% in value each year for the average farmer.
Expected prices for the coming season
Harvest has started in all the major growing areas of Ethiopia. Farms located above 2000 masl still have another week to go before they too can start delivering cherries to nearby washing stations. Cherry prices are: Limu 16 Birr/kg, West Arsi 16 Birr/kg and Sidamo 20 Birr/kg, quite high this early in the harvest compared to previous years. Yields are expected to be superior which historically means that the cherry prices should adjust down in the coming weeks. In Guji, cherry prices have been adjusted down to 23 Birr/kg, compared to the industry average of 28 Birr/kg last season. The latter is a government initiative to drive more business to the area which, with the high nationwide inflation rate of 22%, still leaves very little for the farmer.
The Ethiopian Coffee and Tea Authority have published the first minimum export prices of the season. This new government directive was announced early 2020, and it aims to reduce the practice of under invoicing (coffee being sold at a loss to gain market share) and contract defaulting. The minimum export price translates to purchase price from exporters, and these purchase prices are starting at an all-time high in certain areas this year. For example: Yirgacheffe 3.48 USD/lb G1 early harvest.
Is Ethiopia heading to a civil war?
Nobody knows. Ethiopia’s federal government declared “war” with the region’s ruling party, the Tigray People’s Liberation Front (TPLF), earlier this month. Internet and telecommunication has been blocked in the region. The longer the risk of civil war continues, the higher the risk of devaluation of the local currency which could cripple the economy. We’ll keep you updated.