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January 31, 2009

Ethiopia coffee exporters must sell stocks, says commodity exchange

by Daniel Wallis and Tsegaye Tadesse

Ethiopian coffee exporters, accused of hoarding in Africa's biggest producer, must accept lower global prices and sell stocks, the head of Ethiopia's new commodity exchange said on January 30.

Ethiopian Prime Minister Meles Zenawi issued a stern warning to exporters during a private meeting with industry players last week, threatening to "cut off their hands" if they did not release stocks they were holding in the hope of better prices.

Eleni Gabre-Madhin, chief executive officer of the Ethiopia Commodity Exchange (ECX), said Meles used very strong language and had likened the exporters' behaviour to a strike.
"He gave them a stern talking to, and I think it was all done to say 'You need to adjust to the new reality'," she said. "I think the message was fairly clear: the market is out of line, there is evidence of stock-keeping or stockholding, and it looks like it's for reasons that are not going to turn around."

Ethiopia prides itself as the birthplace of coffee. It earned more than $525 million from exports of 170,888 tonnes of mostly high quality arabicas in 2007/2008 (June/July) -- about 60 percent of the Horn of Africa country's foreign exchange revenue. Some 15 million smallholder farmers grow the beans, mostly in the misty forested highlands of its southwestern region.

But Eleni said overall production this season was forecast to drop 14.7 percent from an annual average of 330,000 tonnes, and some southern zones had seen almost total crop failure. "This is very dramatic," she said. "But, unfortunately, we don't think expectations have been adjusted."

The ECX was set up to replace a murky auction system that was often abused by market players, and it began trading coffee at the start of December. Since then, it has traded beans worth 196 million Ethiopian birr ($17.90 million).

Meanwhile, coffee prices on the global market have fallen by more than a third in the last 12 months. Benchmark arabica futures on ICE were trading around $1.205 per lb on Friday, down 29 percent from a peak of $1.696 in February 2008.

"There is awareness that there is a production shortfall domestically, so we're in a kind of double squeeze, as I see it, between downward pressure from the world market and an upward pressure from the domestic market," Eleni said. "So that is at the heart of this misalignment of our market right now."

The local currency has also plummeted 10 percent over just the last month, which she said had also encouraged some buyers to delay purchases in the hope of cheaper deals.

The ECX, which has also been trading agricultural commodities like maize, wheat, corn and sesame since April, requires sellers to produce warehouse receipts and buyers to show pre-trade deposits in banks. This month it increased its storage charges to commercial levels to remove what Eleni called a "perverse incentive" to hold onto stocks, while also reducing storage periods.

Since the global credit crunch was likely to curb foreign investment and development aid to Ethiopia, she said Meles felt entitled to speak frankly to exporters who received concessional loans and other support from his government.

"He said 'I would be the last person to tell you not to make profits'," she said. "However, he said that if what you do ... hurts our national economy, then as a society we have to put some checks and balances in place. He was very gentle, but his point was clear."

($1=10.950 Ethiopian Birr)

The Guardian

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