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Ethiopia Plans Own Coffee Exports to Earn Currency (Update1)
NewsEthiopia Plans Own Coffee Exports to Earn Currency (Update1)

By Jason McLure

April 2 (Bloomberg) -- Ethiopia, Africa’s largest coffee producer, will start exporting beans itself after closing the warehouses of six traders that it said were stockpiling coffee and contributing to a shortage of foreign currency.

The nation’s coffee export income has fallen to half the government’s target amid a decline in world prices and a ban on Ethiopian beans in Japan. Some exporters are exacerbating the decline by holding onto beans in a bet Ethiopia will devalue its currency again, Eleni Gabre-Madhin, chief executive officer of the Ethiopian Commodity Exchange, said on March 27.

The Horn of Africa nation said today it will export coffee via the state-owned Ethiopian Grain Trade Enterprise in a bid to improve the situation. The company has started trading coffee on the Ethiopian Commodity Exchange and is in talks with foreign buyers about exports, an official said.

“Ethiopian Grain Trade Enterprise knows that it has the capacity to do this and it has a very good opportunity to fill this export gap,” said Berhane Hailu, the company’s general manager, by phone from Addis Ababa today.

Ethiopia suspended the licenses of six of the country’s largest exporters last week after accusing them of “hoarding” coffee and illegally selling export-grade beans domestically. The government said it had also taken similar measures against 88 other exporters, according to a March 30 press release from Ethiopia’s government communications office.

Declining Reserves

The country has experienced shortages of hard currency over the past year, with the nation’s reserves falling to as little as $850 million, enough for one month of imports, Prime Minister Meles Zenawi said on March 19. The government wants to boost reserves to at least 1.5 months’ supply, Meles has said. The drop has led to rationing and shortages of products including cement and medical supplies.

Ethiopian Grain Trade Enterprise may use the foreign currency from coffee exports to buy wheat for Ethiopia’s urban poor as part of a program to subsidize food prices, Hailu said.

The state-owned enterprise’s entry into the coffee market doesn’t amount to government intervention, the Ministry of Agriculture and Rural Development said in a statement.

Exporting of Ethiopian coffee “has been, is currently, and will continue to be a private sector commercial activity,” according to a written statement distributed to reporters today.

Shipments Drop

Ethiopian coffee shipments have dropped more than 10 percent to 76,674 tons during the first eight months of the country’s fiscal year that began in July, compared with the same period a year earlier, according to the Trade Ministry.

The country has earned $221.7 million from coffee exports over the period, short of a government target of $446.7 million. Last year, the government blamed rising food prices on hoarding by traders.

The decline in coffee exports this year raises “questions as to whether a sharp break in the country’s main export is just around the corner,” said a report released today from Access Capital, an Addis Ababa-based investment firm.

The government’s steps show its “determined approach to boosting supplies of coffee exports, including through the rather extraordinary move of shifting private sector coffee exports to a public enterprise,” the report said.

The move may backfire because the state-run grain import company faces significant logistical and sales hurdles as a new entrant in the international coffee market, the report said.

Japan’s Ban

Japan, which purchased about 20 percent of Ethiopia’s coffee shipments in 2007, banned imports last year after detecting high residues of pesticide in a shipment of the beans. Ethiopia’s trade minister said the residues probably came from bagging coffee in sacks that had previously held chemicals and that the government has corrected the problem.

Falling global coffee prices have also hurt Ethiopia’s earnings.

Arabica-coffee futures for May delivery rose 2.3 cents, or 2 percent, to $1.168 a pound on ICE Futures U.S. in New York. The price earlier reached the highest for a most-active contract since March 26. The most-active future is down about 9 percent from a year ago.

Exporters may also be awaiting further devaluation of Ethiopia’s currency, the birr, which would increase their earnings in local currency terms.

Birr Devalued

The government devalued the birr against the dollar in January in an attempt to build foreign currency reserves. Meles said in February the government would continue devaluing the currency, though not in a “speedy” manner. One dollar buys 11.13 birr, compared with about 9.5 a year ago.

The government said it warned coffee traders they faced repercussions if they were found to be holding back on exports.

Officials including the prime minister had advised coffee traders on several occasions that they should sell on the existing global and local markets “instead of stockpiling Ethiopia’s number one export commodity in their warehouses,” said a March 30 statement from the government’s communications office. “But all those efforts were not taken into account by the coffee hoarders.”

To contact the reporter on this story: Jason McLure in Addis Ababa via Johannesburg at pmrichardson@bloomberg.net
Last Updated: April 2, 2009 15:35 EDT

http://www.bloomberg.com/apps/news?pid=20601116&sid=ald.HPRP0f50

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